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f- 8 fennec pharmaceuticals inc. notes to the consolidated financial statements ( u.s. dollars and shares in thousands , except per share information ) foreign currency translation the u.s. dollar is the functional currency for the company 's consolidated operations . all gains and losses from currency translations are included in results of operations . loss per share basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year . diluted net earnings per share is computed using the same method , except the weighted average number of common shares outstanding includes convertible debentures , stock options and warrants , if dilutive , as determined using the if-converted method and treasury methods . accordingly , warrants to purchase 0.04 million of our common shares and options to purchase 3.1 million of our common shares at december 31 , 2019 , were not included in earnings per share . such options would have an antidilutive effect . in 2018 , options to purchase 2.5 million common shares were excluded from the computation of earnings per share as their inclusion would have been antidilutive . recent accounting pronouncements in august 2018 , the fasb issued asu 2018-13 , fair value measurement ( topic 820 ) : disclosure framework-changes to the disclosure requirements for fair value measurement . asu 2018-13 removes certain disclosures , modifies certain disclosures and adds additional disclosures . the asu is effective for us on january 1 , 2020 , and interim periods within that fiscal year . early adoption is permitted . certain disclosures in asu 2018-13 would need to be applied on a retrospective basis and others on a prospective basis . the company concluded after evaluation that asu 2018-13 will have no significant effect on our consolidated financial statements . in june 2018 , the fasb issued asu 2018-07 to expand the scope of asc topic 718 , compensation - stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting , to include share-based payment transactions for acquiring goods and services from nonemployees . the pronouncement is effective for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2018. we adopted this policy as of january 1 , 2019. the company concluded after evaluation that the impact of asu 2018-07 on our consolidated financial statements and disclosures was de minimis . in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) . the new guidance requires the recognition of lease liabilities , representing future minimum lease payments , on a discounted basis , and corresponding right-of-use assets on a balance sheet for most leases , along with requirements for enhanced disclosures to give financial statement users the ability to assess the amount , timing and uncertainty of cash flows arising from leasing arrangements . in july 2018 , the fasb issued asu 2018-10 and 2018-11 which permit application of the new guidance at the beginning of the year of adoption , recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption , in addition to the method of applying the new guidance retrospectively to each prior reporting period presented . the asu was effective for us on january 1 , 2019. we concluded the impact of this guidance is negligible on our consolidated financial statements , given we have no material leases . 3. loss per share loss per common share is presented under two formats : basic loss per common share and diluted loss per common share . basic loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period . diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period , plus the potentially dilutive impact of common shares equivalents ( e.g . stock options and warrants ) . dilutive common share equivalents consist of the incremental common shares issuable upon exercise of stock options and warrants . the following table sets forth the computation of basic and diluted net loss per share ( in thousands except per share data ) : replace_table_token_22_th f- 9 fennec pharmaceuticals inc. notes to the consolidated financial statements ( u.s. dollars and shares in thousands , except per share information story_separator_special_tag cautionary statement the discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annual consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles within the united states , or u.s. gaap , and applicable u.s. securities and exchange commission , or sec , regulations for financial information . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , income and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable . overview the following is our only product candidate in the clinical stage of development : ยท pedmark tm ( sodium thiosulfate ( sts ) anhydrous injection ) โhas announced results of two phase 3 clinical trials for the prevention of cisplatin induced hearing loss , or ototoxicity in children including the pivotal phase 3 study siopel 6 , โ a multicentre open label randomised phase 3 trial of the efficacy of sodium thiosulfate in reducing ototoxicity in patients receiving cisplatin chemotherapy for standard risk hepatoblastoma , โ and the proof of concept phase 3 study โ a randomized phase 3 study of sodium thiosulfatefor the prevention of cisplatin-induced ototoxicity in children โ . story_separator_special_tag our projections of our capital requirements are subject to substantial uncertainty . more capital than we anticipated may be required thereafter . to finance our continuing operations , we may need to raise substantial additional funds through either the sale of additional equity , the issuance of debt , the establishment of collaborations that provide us with funding , the out-license or sale of certain aspects of our intellectual property portfolio or from other sources . we may not be able to raise the necessary capital or such funding may not be available on financially acceptable terms if at all . if we can not obtain adequate funding in the future , we might be required to further delay , scale back or eliminate certain research and development studies , consider business combinations or even shut down some , or all , of our operations . our operating expenses will depend on many factors , including the progress of our drug development efforts and efficiency of our operations and current resources . our research and development expenses , which include expenses associated with our clinical trials , drug manufacturing to support clinical programs , stock-based compensation , consulting fees , sponsored research costs , toxicology studies , license fees , milestone payments , and other fees and costs related to the development of our product candidate , will depend on the availability of financial resources , the results of our clinical trials and any directives from regulatory agencies , which are difficult to predict . our general and administration expenses include expenses associated with the compensation of employees , stock-based compensation , professional fees , consulting fees , insurance and other administrative matters associated in support of our drug development programs . on february 1 , 2019 , fennec entered into a loan and security agreement with bridge bank , a division of western alliance bank , an arizona corporation , pursuant to which the bank agreed to loan $ 12.5 million to the company , to be made available if we receive nda approval of pedmark tm by no later than september 30 , 2020. the proceeds from the loan will be used for working capital purposes and to fund general business requirements in accordance with the terms of the loan and security agreement . interest under the term loans shall bear interest , on the outstanding daily balance thereof , at a floating per annum rate equal to the effective interest rate ( as defined in the loan and security agreement ) which is equal to the sum of the prime rate published in the wall street journal ( currently 4.75 % ) plus one percent ( 1.00 % ) . the debt facility is to have interest-only monthly payments due for the first eighteen months from the funding date and then monthly principal and interest payments are due through the remainder of the term which has a maturity date of october 1 , 2023. in connection with the facility , fennec granted bridge bank a warrant to purchase up to 39,130 common shares at an exercise price of $ 6.80 per common share , for a term of ten years from the date of issuance , subject to early termination under certain conditions . story_separator_special_tag the fair values of our stock-based compensation plans requires estimates that require management 's judgments . under asc 718 , the fair value of each stock option is estimated on the grant date using the black-scholes option-pricing model . the valuation models require assumptions and estimates to determine expected volatility , expected life , expected dividends and expected risk-free interest rates . the expected volatility was determined using historical volatility of our stock based on the contractual life of the award . the risk-free interest rate assumption was based on the yield on zero-coupon u.s. treasury strips at the award grant date . we also used historical data to estimate forfeiture experience . in valuing options granted in the fiscal years ended december 31 , 2019 and 2018 , we used the following weighted average assumptions : replace_table_token_8_th common shares and warrants common shares are recorded as the net proceeds received on issuance after deducting all share issuance costs and the relative fair value of investor warrants . warrants are recorded at relative fair value and are deducted from the proceeds of common shares and recorded on the consolidated statements of stockholders ' equity as additional paid-in capital . derivative instruments the company applies asc topic 815-40 , `` derivatives and hedging '' ( asc 815-40 ) . one of the conclusions reached under asc 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity 's own stock if the strike price is denominated in a currency other than the issuer 's functional currency . the conclusion reached under asc 815-40 clarified the accounting treatment for these and certain other financial instruments . asc 815-40 specifies that a contract will not be treated as a derivative if it meets the following conditions : ( a ) indexed to our own stock ; and ( b ) classified in stockholders ' equity in our statement of financial position . our options issued to consultants and denominated in canadian dollars were not considered to be indexed to our own stock because the exercise price is denominated in canadian dollars and our functional currency is united states dollars . therefore , these options were treated as derivative financial instruments and recorded at their fair value as a liability . all other outstanding convertible instruments are considered to be indexed to our stock , because their exercise price is denominated in the same currency as our functional currency , and are included in stockholders ' equity . 52 during the year ended december 31 , 2018 , there were exercises of options to purchase 19 shares of our common shares , which were classified as derivative instruments . this resulted in
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results of operations fiscal 2019 versus fiscal 2018 replace_table_token_2_th 49 ยท research and development expense increased by $ 0.6 million in fiscal 2019 as compared to fiscal 2018 , primarily due to drug manufacturing activities related to the preparation for registration batches and additional regulatory activities in preparation for the submission of our new drug application to each of the fda and ema . ยท the $ 2.0 million increase in general and administrative expenses is attributed to a small rise in compensation to officers , directors and key contract employees in fiscal 2019 as compared to fiscal 2018. shareholders passed a motion to increase the exercise period of all outstanding option contracts to a total of ten years in 2019. this added $ 1.3 million in g & a in non-cash compensation over the prior year . sales and marketing expenses increased by $ 0.4 million over the prior year as we began to focus efforts to commercialize pedmark tm . we incurred approximately $ 0.25 million in executive search services as we continue to build a commercial team . ยท all of our derivative instruments were exercised or expired during fiscal 2018 . ยท amortization expense relates to the bridge bank loan facility as the loan origination fees were capitalized in fiscal 2019 . ยท interest income decreased in fiscal 2019 as compared to 2018 , due to a lower average balance in savings and money market accounts for the comparable periods . quarterly information the following table presents selected consolidated financial data for each of the last eight quarters through december 31 , 2019 , as prepared under u.s. gaap ( dollars in thousands , except per share information ) .
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in order to implement the spin-off , we entered into certain agreements with kraft foods group to effect our legal and structural separation , govern the relationship between us , and allocate various assets , liabilities and obligations between us , including , among other things , employee benefits , intellectual property and tax-related assets and liabilities ( see note 15 , income taxes , for additional information on the current and deferred tax assets and liabilities transferred or retained in the spin-off ) . in addition to executing the spin-off in the manner provided in the agreements , in november 2012 , pursuant to these agreements , we paid kraft foods group $ 163 million related to targeted cash flows ( together story_separator_special_tag the following discussion and analysis contains forward-looking statements . it should be read in conjunction with the other sections of this annual report on form 10-k , including the consolidated financial statements and related notes contained in item 8 , ยforward-looking statementsย and ยrisk factorsย contained in item 1a . description of the company we manufacture and market primarily snack food and beverage products , including biscuits ( cookies , crackers and salted snacks ) , chocolate , gum & candy , coffee & powdered beverages and various cheese & grocery products . we have operations in more than 80 countries and sell our products in approximately 165 countries . over the last several years , we have been expanding geographically and building our presence in the fast-growing snacking category . at the same time , we continued to invest in product quality , marketing and innovation behind our iconic brands , while implementing a series of cost saving initiatives . we expect our global snacks businesses will build upon our strong presence across numerous fast-growing markets , categories and channels including the high-margin instant consumption channel . we plan to target industry-leading revenue growth , leverage our cost structure through supply chain reinvention , productivity programs , overhead streamlining , volume growth and improved product mix to drive margin gains and grow earnings per share in the top-tier of our peer group . business and segment reorganization effective as of january 1 , 2013 , we reorganized our operations and management into five reportable operating segments : latin america asia pacific eastern europe , middle east & africa ( ยeemeaย ) europe north america we changed and flattened our operating structure to reflect our greater concentration of operations in emerging markets and to further enhance collaboration across regions , expedite decision making and drive greater efficiencies to fuel our growth . coincident with the change in segment structure , segment operating income for our north america region also changed to include all u.s. pension plan expenses , a portion of which was previously excluded from segment operating results evaluated by management as the costs were centrally managed . see note 17 , segment reporting , for additional segment information . our segment results reflect the change in segment structure for all periods presented . spin-off of kraft foods group on october 1 , 2012 , we completed the spin-off of our north american grocery business , kraft foods group , inc. ( ยkraft foods groupย ) , to our shareholders ( the ยspin-offย ) . the divested kraft foods group business is presented as a discontinued operation on the consolidated statements of earnings for all periods presented . the kraft foods group other comprehensive earnings , changes in equity and cash flows are included within our consolidated statements of comprehensive earnings , equity and cash flows through october 1 , 2012. see note 2 , divestitures and acquisition , for more information on the spin-off of kraft foods group . revision of financial statements in finalizing our 2013 results , we identified certain out-of-period , non-cash income tax-related errors in prior interim and annual periods . these errors are not material to any previously reported financial results ; however , we have revised our first through third quarter 2013 and prior-year financial statements in this filing to reflect these items in the appropriate periods . the net effect of the revision was to lower tax expense in years prior to 2013. the impact of the revision to 2013 results through the third quarter was a $ 59 million reduction of net earnings related to both current and prior-year corrections . the impact of the revision to fiscal years prior to 2013 was an increase in cumulative net earnings of $ 94 million . for additional details of the adjustments , see note 1 , summary of significant accounting policies ย revision of financial statements . the following discussion and analysis relates to revised after-tax results for all periods presented . 21 while we corrected these errors and they were not material to any previously reported financial statements , we have determined that there was a reasonable possibility that a material misstatement of our annual or interim financial statements may not have been prevented or detected on a timely basis due to control deficiencies in our internal controls . thus , management has determined that the control deficiencies constitute a material weakness . because we have identified this material weakness , we have implemented additional procedures to verify the reliability of our accounting for income taxes . based on the additional procedures , we believe that the consolidated financial statements included in this report are fairly stated in all material respects in accordance with generally accepted accounting principles . for additional information on the procedures and controls we are implementing to address the material weakness , see item 9a , controls and procedures . story_separator_special_tag the notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper . on february 11 , 2013 , $ 750 million of our 6.00 % u.s. dollar notes matured and were paid with cash on hand . in february 2013 , we recorded a $ 54 million unfavorable foreign currency charge related to the devaluation of our net monetary assets in venezuela . we also incurred net unfavorable devaluation-related foreign currency impacts within our pre-tax earnings of $ 67 million during the year ended december 31 , 2013 related to translating the earnings of our venezuelan subsidiary to the u.s. dollar at the new exchange rate . as of december 31 , 2013 , our net monetary assets denominated in the venezuelan bolivar were $ 257 million . should the bolivar be devalued further , it would result in a charge to our net earnings in the period of devaluation . see our results of operations by reportable segment later in this section and note 1 , summary of significant accounting policies - foreign currency , including highly inflationary accounting , for more information . financial outlook we develop long-term plans and targets to achieve sustainable , profitable growth over time . our long-term financial targets include : organic net revenue growth at or above expected category growth adjusted operating income growth of high single-digits on a constant currency basis double-digit adjusted eps growth on a constant currency basis refer to non-gaap financial measures appearing later in this section for more information on these measures . in 2014 , we expect organic net revenues to grow approximately 4 percent , which is at or above the growth of our categories . we expect low double-digit growth in adjusted operating income at constant currency , fueled by our focused efforts to reduce overheads , restructure our global supply chain and improve product mix , while continuing to invest in emerging markets . we anticipate this increase will result in an adjusted operating income margin in the high 12 percent range and will be the primary lever in delivering adjusted eps of $ 1.73 to $ 1.78 , up double digits on a constant currency basis . our 2014 adjusted eps outlook reflects constant currency at average 2013 currency rates . any fluctuation from the 2013 average currency rates is outside of our 2014 outlook . 23 we monitor the following factors and trends that we expect could impact our near- and long-term revenues and profitability . long-term demographics and consumer trends ย snack food consumption is highly correlated to gdp growth , urbanization of the population and rising discretionary income levels associated with a growing middle class . over the long-term , we expect these trends to continue leading to growth in key consumer behaviors including increased snacking occasions , greater use of convenience food and migrating to more frequent , smaller meals . demand ย we monitor consumer spending and our market share within the food and beverage categories in which we sell our products . in 2013 , our organic net revenues grew faster than the global categories as we expanded market share in a number of the categories . growth in the global categories slowed from approximately 6 % in 2012 to under 4 % in 2013. the slowdown in category growth is expected to impact our near-term net revenue growth and we have reflected this in our organic net revenue outlook for 2014. we believe the slowdown in category growth , particularly in emerging markets , is temporary , as we expect category growth to return to levels more in line with the expected growth of emerging markets and consumer spending . we continue to make investments in our brands and build strong routes to market to address the needs of consumers in emerging and developed markets . in doing so , we anticipate stimulating demand in the categories and growing our position in these markets . volatility of global markets ย our growth strategy depends in part on our ability to expand our operations , particularly in emerging markets . some of these markets have greater political and economic volatility and vulnerability to infrastructure and labor disruptions as we saw this past year in some of the markets in which we sell our products , including china , russia , brazil , turkey , venezuela and argentina . the volatility affects demand for products and requires frequent changes in how we operate our business . while there will likely be continued volatility across these and other markets in which we sell , we will continue to invest in these markets as we believe the emerging markets in particular will deliver significant growth over time . competition ย our competitors continue to grow their global operations and routes to market and low-cost local manufacturers are also expanding their production capacities in the markets in which we sell our products . competitors may significantly reduce prices or offer other incentives as we saw with products such as coffee this past year . we continually evaluate the competitive environment and market conditions and bring new products and innovations to market . we also adjust our pricing , trade and promotional programs to compete and continue to focus on growing our market share . pricing ย we adjust our product prices based on a number of variables including demand , the competitive environment and changes in our input costs . our net revenue growth or profitability may be affected as we adjust prices to address new conditions . this past year , we generally increased prices modestly in response to higher commodity costs and other factors .
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consolidated results of operations the following discussion compares our consolidated results of operations for 2013 with 2012 and 2012 with 2011 . 2013 compared with 2012 replace_table_token_11_th net revenues ย net revenues increased $ 284 million ( 0.8 % ) to $ 35,299 million in 2013 , and organic net revenues ( 1 ) increased $ 1,338 million ( 3.9 % ) to $ 35,938 million . the changes in net revenues and organic net revenue are detailed below : replace_table_token_12_th ( 1 ) please see the non-gaap financial measures section at the end of this item . organic net revenues growth was driven by favorable volume/mix and higher net pricing . favorable volume/mix was driven primarily by higher shipments across all segments except asia pacific . higher net pricing in latin america , primarily related to venezuela , argentina and brazil , and in north america was partially offset by lower net pricing in europe , asia pacific and eemea , primarily due to lower coffee prices . unfavorable foreign currency decreased net revenues by $ 837 million , due primarily to the devaluation of the venezuelan bolivar and the strength of the u.s. dollar relative to most foreign currencies , including the brazilian real , argentinean peso , australian dollar , indian rupee , japanese yen and south african rand , partially offset by the strength of the euro relative the u.s. dollar . the impact of divestitures resulted in a year-over-year decrease in net revenues of $ 345 million . in addition , the acquisition of a biscuit operation in morocco added $ 91 million in net revenues and the accounting calendar change in europe added $ 37 million in net revenues in 2013 .
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beginning in 2011 , awards under the 2010 plan to non-employee directors were in the form of restricted stock units , which vest in equal quarterly installments over a one-year period , starting from the grant date . as of december 31 , 2013 , 2.2 million additional common shares are available for issuance under the company 's existing plans . 62 replace_table_token_22_th the aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the company 's closing stock price as story_separator_special_tag . references in this report to โ the company , โ โ benchmark , โ โ we , โ or โ us โ mean benchmark electronics , inc. together with its subsidiaries . the following management 's discussion and analysis of financial condition and results of operations contains certain forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements are identified as any statement that does not relate strictly to historical or current facts . they use words such as โ anticipate , โ โ believe , โ โ intend , โ โ plan , โ โ projection , โ โ forecast , โ โ strategy , โ โ position , โ โ continue , โ โ estimate , โ โ expect , โ โ may , โ โ will , โ or the negative of those terms or other variations of them or comparable terminology . in particular , statements , express or implied , concerning future operating results or the ability to generate sales , income or cash flow are forward-looking statements . forward-looking statements are not guarantees of performance . they involve risks , uncertainties and assumptions , including those discussed under item 1a of this report . the future results of our operations may differ materially from those expressed in these forward-looking statements . many of the factors that will determine these results are beyond our ability to control or predict . undue reliance should not be placed on any forward-looking statements . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual outcomes may vary materially from those indicated . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto in item 8 of this report . overview we are a worldwide provider of integrated manufacturing services . we provide our services to original equipment manufacturers ( oems ) of computers and related products for business enterprises , medical devices , industrial control equipment ( which includes equipment for the aerospace and defense industry ) , testing and instrumentation products , and telecommunication equipment . the services that we provide are commonly referred to as electronics manufacturing services ( ems ) . we offer our customers comprehensive and integrated design and manufacturing services from initial product design to volume production , including direct order fulfillment and post deployment services . our manufacturing and assembly operations include printed circuit boards and subsystem assembly , box build and systems integration , the process of integrating subsystems and , often , downloading and integrating software , to produce a fully configured product . our precision technology manufacturing capabilities complement our proven electronic manufacturing expertise by providing further vertical integration of critical mechanical components . these capabilities include precision machining , advanced metal joining , and functional testing for multiple industries including medical , instrumentation , aerospace and semiconductor capital equipment . we also are able to provide specialized engineering services , including product design , printed circuit board layout , prototyping , and test development . we believe that we have developed strengths in the manufacturing process for large , complex , high-density printed circuit boards as well as the ability to manufacture high and low volume products in lower cost regions such as china , malaysia , mexico , romania and thailand . as our customers have continued to expand their globalization strategy , we have continued to make the necessary changes to align our business operations with our customers ' demand . in support of our growth we do from time to time make acquisitions that expand our global reach , customer access and product capabilities . we believe that our global manufacturing presence increases our ability to be responsive to our customers ' needs by providing accelerated time-to-market and time-to-volume production of high quality products . these capabilities enable us to build stronger strategic relationships with our customers and to become a more integral part of their operations . our customers face challenges in planning , procuring and managing their inventories efficiently due to customer demand fluctuations , product design changes , short product life cycles and component price fluctuations . we employ production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that , where possible , components arrive on a just-in-time , as-and-when-needed basis . we are a significant purchaser of electronic components and other raw materials , and can capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts , obtain components and other raw 29 materials that are in short supply , and return excess components . our expertise in supply chain management and our relationships with suppliers across the supply chain enables us to reduce our customers ' cost of goods sold and inventory exposure . we recognize revenue from the sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership have passed , the price to the buyer is fixed or determinable and collectibility is reasonably assured , which generally is when the goods are shipped . revenue from design , development and engineering services is recognized when the services are performed and collectibility is reasonably certain . such services provided under fixed price contracts are accounted for using the percentage of completion method . story_separator_special_tag different programs contribute different gross profits depending on factors such as the types of services involved , location of production , size of the program , complexity of the product and level of material costs associated with the various products . moreover , new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower , resulting in inefficiencies and unabsorbed manufacturing overhead costs . in addition , a number of our new and higher volume programs remain subject to competitive constraints that could exert downward pressure on our margins . during periods of low production volume , we generally have idle capacity and reduced gross profit . we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings in the future . during the year ended december 31 , 2013 , the company recognized $ 9.3 million ( pre-tax ) of restructuring charges and integration and acquisition-related costs , primarily related to capacity reduction and reductions in workforce in certain facilities across various regions , primarily in the americas and asia in connection with the closure of our brazil and singapore facilities . we expect these 2013 restructuring activities to result in annualized cost savings of approximately $ 4 million . the majority of these annual cost savings related to the restructuring activities is expected to be reflected as a reduction in cost of revenue and to a lesser extent as a reduction in selling , general and administrative expenses . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . our significant accounting policies are summarized in note 1 to the consolidated financial statements in item 8 of this report . 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 ongoing basis , we evaluate our estimates , including those related to accounts receivable , inventories , income taxes , long-lived assets , stock-based compensation and contingencies and litigation . we base our 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 31 the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . allowance for doubtful accounts our accounts receivable balance is recorded net of allowances for amounts not expected to be collected from our customers . because our accounts receivable are typically unsecured , we periodically evaluate the collectibility of our accounts based on a combination of factors , including a particular customer 's ability to pay as well as the age of the receivables . to evaluate a specific customer 's ability to pay , we analyze financial statements , payment history and various information or disclosures by the customer or other publicly available information . in cases where the evidence suggests a customer may not be able to satisfy its obligation to us , we establish a specific allowance in an amount we determine appropriate for the perceived risk . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . inventory obsolescence reserve we purchase inventory based on forecasted demand and record inventory at the lower of cost or market . we reserve for estimated obsolescence as necessary in an amount equal to the difference between the cost of inventory and estimated market value based on assumptions of future demands and market conditions . we evaluate our inventory valuation on a quarterly basis based on current and forecasted usage and the latest forecasts of product demand and production requirements from our customers . customers frequently make changes to their forecasts , which requires us to make changes to our inventory purchases , commitments , and production scheduling and may require us to cancel open purchase commitments with our vendors . this process may lead to on-hand inventory quantities and on-order purchase commitments that are in excess of our customers ' revised needs , or parts that become obsolete before use in production . we record inventory reserves on excess and obsolete inventory . these reserves are established on inventory which we have determined our customers are not responsible for or on inventory which we believe our customers will be unable to fulfill their obligation to ultimately purchase . if actual market conditions are less favorable than those we projected , additional inventory write-downs may be required . 32 income taxes we estimate our income tax provision in each of the jurisdictions in which we operate , including estimating exposures related to uncertain tax positions . we must also make judgments regarding the ability to realize the deferred tax assets . we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized . our valuation allowance as of december 31 , 2013 of $ 30.3 million primarily relates to our united states federal and state net operating loss tax carryforwards of $ 32.6 million ( federal losses are primarily acquired and subject to internal revenue code section 382 limitations ) , foreign net operating loss tax carryforwards of $ 8.3 million , and united states federal and state tax credit carryforwards of $ 5.9 million . differences in our future operating results as compared to the estimates utilized in the determination of the valuation allowances could result in adjustments in valuation allowances in future periods .
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results of operations the following table presents the percentage relationship that certain items in our consolidated statements of income bear to sales for the periods indicated . the financial information and the discussion below should be read in conjunction with the consolidated financial statements and notes thereto in item 8 of this report . replace_table_token_7_th 35 year ended december 31 , 2013 compared with year ended december 31 , 2012 sales sales for the years ended december 31 , 2013 and 2012 were $ 2.5 billion in each year . the following table sets forth the percentages of our sales by industry for 2013 and 2012. replace_table_token_8_th computers and related products for business enterprises . sales to customers in the computers and related products for business enterprises industry for the year ended december 31 , 2013 decreased 4 % to $ 741.5 million from $ 771.5 million in 2012. the decrease in sales is primarily due to the timing of program ramps and product transitions as well as market uncertainty in the global economy which has led to lower demand from our existing customers . industrial control equipment . sales to customers in the industrial control equipment industry for the year ended december 31 , 2013 increased 11 % to $ 732.7 million from $ 660.2 million in 2012 primarily as a result of new customers , new programs and the impact of the acquisitions of suntron and cts . telecommunication equipment . sales to customers in the telecommunication equipment industry for the year ended december 31 , 2013 decreased 9 % to $ 578.4 million from $ 637.9 million in 2012. the decrease in sales is primarily due to lower demand from our customers and timing of program ramps and transitions somewhat offset by the impact of the acquisition of cts .
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under the terms of the agreement , ppg divested its entire flat story_separator_special_tag performance overview net sales by region replace_table_token_4_th 2018 vs. 2017 net sales increased $ 626 million due to the following : โ higher selling prices ( +2 % ) โ slightly higher acquisition-related sales , net of dispositions โ slightly higher sales volumes โ slightly favorable foreign currency translation u.s. and canada net sales increased a low-single-digit percentage primarily driven by net sales from acquired businesses which added approximately $ 110 million , primarily from the crown group , as well as higher selling prices in most businesses . europe , middle east and africa ( emea ) net sales increased a mid-single-digit percentage , led by slightly positive sales volumes , higher selling prices in all businesses and favorable foreign currency translation driven by the euro and u.k. pound . asia pacific net sales increased by a mid-single-digit percentage aided by higher selling prices in most businesses and higher sales volumes , slightly offset by weakening industry demand in china later in the year . sales growth was also supported by a more than 10 % increase in india and solid gains in australia and southeast asia . net sales in this region also benefited from favorable foreign currency translation . latin american net sales volumes grew by a mid-single-digit percentage versus the prior year . sales also benefited from higher selling prices in the region , offset by unfavorable foreign currency translation driven by the mexican peso . for specific business results see the segment results section within item 7 of this form 10-k. 2017 vs. 2016 net sales increased $ 478 million due to the following : โ acquisition-related sales ( +1 % ) โ higher sales volumes ( +1 % ) โ slightly favorable foreign currency translation โ slightly higher selling prices net sales from acquired businesses added over $ 200 million of sales in 2017 , primarily metokote , deutek , univer and the crown group . u.s. and canada sales volumes declined slightly year-over-year , with mixed demand by business and end-use segment . sales volumes in architectural coatings u.s. company-owned stores grew by a mid-single-digit percentage , but were more than offset by sales volumes declines in the independent dealer networks and national retail ( diy ) customer accounts in aggregate . automotive oem coatings sales volumes declined year-over-year and lagged industry demand levels due to a customer-driven share shift away from ppg that was offset in other regions of the world . these decreases in sales volumes were partially offset by higher sales volumes in specialty coatings and materials , automotive refinish coatings , general industrial coatings , aerospace coatings and packaging coatings . emea sales volumes increased a low-single-digit percentage versus the prior year . sales volumes in our automotive oem coatings and aerospace coatings businesses each grew by a mid-single-digit percentage . specialty coatings and materials sales volumes grew by a double-digit percentage , driven by strong silica demand . protective coatings volumes also grew year-over-year . these increases in sales volumes were partially offset by lower demand in architectural coatings . 28 2018 ppg annual report and 10-k asia pacific sales volumes expanded by a mid-single-digit percentage year-over-year led by growth in each business within the industrial coatings segment along with sales volume growth in the architectural coatings business . these increases in sales volumes were partially offset by lower demand in marine coatings year-over-year . from a country and sub-region perspective , sales volumes grew in india , china , and southeast asia versus the prior year . korea sales volumes continued to decline year-over-year primarily due to continued weakness in new shipbuilding . latin america sales volumes expanded by a mid-single-digit percentage versus the prior year primarily due to above market growth in our automotive oem coatings and general industrial coatings businesses . the automotive oem coatings growth was driven by industry production expansion with the opening of new assembly facilities in mexico . regional sales volumes were lower in architectural coatings versus the prior year primarily due to lower sales volumes in brazil and in mexico due to the impact of the natural disasters during the third quarter . cost of sales , exclusive of depreciation and amortization replace_table_token_5_th 2018 vs. 2017 cost of sales , exclusive of depreciation and amortization , increased $ 792 million due to the following : โ raw material cost inflation โ higher sales volumes โ cost reclassifications associated with the adoption of the new revenue recognition standard . refer to note 2 , `` revenue recognition `` within part 2 of this form 10-k โ cost of sales attributable to acquired businesses โ foreign currency translation partially offset by : โ restructuring cost savings 2017 vs. 2016 cost of sales , exclusive of depreciation and amortization , increased $ 544 million due to the following : โ raw material cost inflation โ higher sales volumes โ cost of sales attributable to acquired businesses โ foreign currency translation partially offset by : โ lower manufacturing costs selling , general and administrative expenses replace_table_token_6_th 2018 vs. 2017 selling , general and administrative expenses declined as a percent of net sales , but increased $ 19 million primarily due to : โ higher sales volumes โ wage and other cost inflation โ selling , general and administrative expenses from acquired businesses 2018 ppg annual report and form 10-k 29 โ foreign currency translation partially offset by : โ cost reclassifications associated with the adoption of the new revenue recognition standard . story_separator_special_tag income before income taxes from continuing operations is reconciled to adjusted income before income taxes , the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and net income ( attributable to ppg ) and earnings per share โ assuming dilution ( attributable to ppg ) are reconciled to adjusted net income ( attributable to ppg ) and adjusted earnings per share โ assuming dilution below : year-ended december 31 , 2018 ( $ in millions , except percentages and per share amounts ) income before income taxes tax expense effective tax rate net income from continuing operations ( attributable to ppg ) earnings per diluted share as reported , continuing operations $ 1,693 $ 353 20.9 % $ 1,323 $ 5.40 includes : net tax charge related to u.s. tax cuts and jobs act โ 13 n/a ( 13 ) ( 0.05 ) charges related to customer assortment change 18 4 24.3 % 14 0.05 charges related to environmental remediation and other costs 77 19 24.3 % 58 0.24 net charge related to business restructuring 66 20 30.3 % 46 0.18 accelerated depreciation from restructuring actions 9 2 22.2 % 7 0.03 charge related to a legacy legal settlement 10 2 24.3 % 8 0.03 charges related to accounting investigation costs 14 3 24.3 % 11 0.05 charges related to transaction-related costs ( 1 ) 6 2 25.5 % 4 0.02 charge related to brand rationalization 6 2 26.8 % 4 0.02 gain from the sale of a non-operating asset ( 26 ) ( 6 ) 24.3 % ( 20 ) ( 0.08 ) charge related to impairment of a non-manufacturing asset 9 2 24.3 % 7 0.03 adjusted , continuing operations , excluding certain items $ 1,882 $ 416 22.1 % $ 1,449 $ 5.92 2018 ppg annual report and form 10-k 31 year-ended december 31 , 2017 ( $ in millions , except percentages and per share amounts ) income before income taxes tax expense effective tax rate net income from continuing operations ( attributable to ppg ) earnings per diluted share as reported , continuing operations $ 2,005 $ 615 30.7 % $ 1,369 $ 5.31 includes : net tax charge related to u.s. tax cuts and jobs act โ ( 134 ) n/a 134 0.52 charges related to transaction-related costs ( 1 ) 9 3 37.9 % 6 0.02 charges related to pension settlements 60 22 37.9 % 38 0.14 gain from sale of business ( 25 ) ( 1 ) 3.2 % ( 24 ) ( 0.09 ) gain from a legacy legal settlement ( 18 ) ( 7 ) 37.9 % ( 11 ) ( 0.04 ) gain from sale of a non-operating asset ( 13 ) ( 5 ) 37.9 % ( 8 ) ( 0.03 ) charges related to asset write-downs 7 โ โ % 7 0.03 adjusted , continuing operations , excluding certain items $ 2,025 $ 493 24.3 % $ 1,511 $ 5.86 replace_table_token_8_th ( 1 ) transaction-related costs include advisory , legal , accounting , valuation , and other professional or consulting fees incurred to effect significant acquisitions , as well as similar fees and other costs to effect divestitures not classified as discontinued operations . these costs also include the flow-through cost of sales impact for the step up to fair value of inventory acquired in certain acquisitions . 32 2018 ppg annual report and 10-k performance of reportable business segments performance coatings replace_table_token_9_th 2018 vs. 2017 performance coatings net sales increased ( 4 % ) due to the following : โ higher selling prices ( +3 % ) โ favorable foreign currency translation ( +1 % ) higher selling prices across all businesses were achieved , reflecting the value of our products and services and which offset persistent raw material and logistics cost inflation . architectural coatings - americas and asia-pacific sales volumes decreased by a low-single-digit percentage versus the prior year . sales volumes were positive year-over-year in the u.s. and canada company-owned store network as well as in mexico , central america , australia and brazil . this growth was more than offset by lower diy and independent dealer network channel declines , including the unfavorable impact from a customer assortment change in the u.s. architectural diy channel . in february 2018 , ppg announced that lowe 's would discontinue the sale of olympicยฎ brand paints and stains in its u.s. retail stores , effective mid-2018 . during the second quarter 2018 , the company launched its olympicยฎ stain products at the home depotยฎ 's u.s. retail stores , expanding an existing partnership arrangement . the net impact of these customer assortment changes resulted in net sales being lower by approximately $ 100 million in 2018. architectural coatings - emea net sales grew by a mid-single digit percentage . higher selling prices and acquisition-related sales more than offset modestly lower sales volumes . sales volumes grew in countries in northern and eastern europe and were lower in southern europe . automotive refinish coatings organic sales grew by a low-single-digit percentage year-over-year , despite lower demand in the u.s. due to customer inventory destocking and lower industry collision claim activity . organic sales increased in all other geographic regions as customers continued to adopt ppg 's industry leading technologies . aerospace coatings sales volumes grew by more than 10 percent versus the prior year , including above-market volume growth in the u.s. and asia . strong growth was supported by positive industry demand fundamentals and market outperformance in all major platforms stemming from technology advantaged products . protective and marine coatings sales volumes increased by a high-single-digit percentage year-over-year . protective coatings sales volumes were up a mid-single-digit percentage , driven by growth in china . marine coatings sales volumes grew by more than 10 percent off a low sales base as ship building activity grew modestly in asia . segment income decreased $ 13 million year-over-year primarily driven by increasing raw material and logistics costs .
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summary of significant accounting policies โ under item 8 of this form 10-k describes the company 's recently adopted accounting pronouncements . accounting standards to be adopted in future years note 1 , โ summary of significant accounting policies โ under item 8 of this form 10-k describes accounting pronouncements that have been promulgated prior to december 31 , 2018 but are not effective until a future date . commitments and contingent liabilities , including environmental matters ppg is involved in a number of lawsuits and claims , both actual and potential , including some that it has asserted against others , in which substantial monetary damages are sought . see item 3 . โ legal proceedings โ and note 14 , โ commitments and contingent liabilities โ under item 8 of this form 10-k for a description of certain of these lawsuits . as discussed in item 3 and note 14 , although the result of any future litigation of such lawsuits and claims is inherently unpredictable , management believes that , in the aggregate , the outcome of all lawsuits and claims involving ppg , including asbestos-related claims , will not have a material effect on ppg 's consolidated financial position or liquidity ; however , any such outcome may be material to the results of operations of any particular period in which costs , if any , are recognized . it is ppg 's policy to accrue expenses for contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated . reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted .
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interest is capitalized on borrowed funds and where regulation by the ferc exists , on internally generated funds . the latter is included in other income ( expense ) โ net below operating income ( loss ) in the consolidated statement of income . the rates used by regulated companies are calculated in accordance with ferc rules . rates used by nonregulated companies are based on our average interest rate on debt . employee stock-based awards we recognize compensation expense on employee stock-based awards , net of estimated forfeitures , on a straight-line basis . ( see note 16 โ equity-based compensation . ) pension and other postretirement benefits the funded status of each of the pension and other postretirement benefit plans is recognized separately in the consolidated balance sheet as either an asset or liability . the funded status is the difference between the fair value of plan assets and the plan 's benefit obligation . the plans ' benefit obligations and net periodic benefit costs are actuarially determined and impacted by various assumptions and estimates . ( see note 9 โ employee benefit plans . ) the discount rates are determined separately for each of our pension and other postretirement benefit plans based on an approach specific to our plans . the year-end discount rates are determined considering a yield curve comprised of high-quality corporate bonds and the timing of the expected benefit cash flows of each plan . the expected long-term rates of return on plan assets are determined by combining a review of the historical returns within the portfolio , the investment strategy included in the plans ' investment policy statement , and capital market projections for the asset classes in which the portfolio is invested , as well as the weighting of each asset class . unrecognized actuarial gains and losses and unrecognized prior service costs and credits are deferred and recorded in accumulated other comprehensive income or , for transco and northwest pipeline , as a regulatory asset or liability , until amortized as a component of net periodic benefit cost . unrecognized actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market-related value of plan assets are amortized over the participants ' average remaining future years of service , which is approximately 12 years for our pension plans and approximately 7 years for our other postretirement benefit plans . unrecognized prior service costs and credits for the other postretirement benefit plans are amortized on a straight line basis over the average remaining years of service to eligibility for eligible plan participants , which is approximately 4 years . the expected return on plan assets component of net periodic benefit cost is calculated using the market-related value of plan assets . for our pension plans , the market-related value of plan assets is equal to the fair value of plan assets adjusted to reflect the amortization of gains or losses associated with the difference between the expected and actual return on plan assets over a 5 -year period . additionally , the market-related value of assets may be no more than 110 percent or less than 90 percent of the fair value of plan assets at the beginning of the year . the market-related value of plan assets for our other postretirement benefit plans is equal to the unadjusted fair value of plan assets at the beginning of the year . income taxes we include the operations of our domestic corporate subsidiaries and income from our subsidiary partnerships in our consolidated federal income tax return and also file tax returns in various foreign and state jurisdictions as required . deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of our assets and liabilities . our management 's judgment and income tax assumptions are used to determine the levels , if any , of valuation allowances associated with deferred tax assets . 98 the williams companies , inc. notes to consolidated financial statements โ ( continued ) earnings ( loss ) per common share basic earnings ( loss ) per common share in the consolidated statement of income is based on the sum of the weighted-average number of common shares outstanding and vested restricted stock units . diluted earnings ( loss ) per common share in the consolidated statement of income includes any dilutive story_separator_special_tag story_separator_special_tag note 14 โ debt , banking arrangements , and leases of notes to consolidated financial statements for further discussion . at february 24 , 2015 , $ 1.3 billion is outstanding under wpz 's credit facilities and $ 1.8 billion is outstanding under wpz 's commercial paper program . as described in note 14 โ debt , banking arrangements , and leases of notes to consolidated financial statements , we have determined that we have net assets that are technically considered restricted in accordance with rule 4-08 ( e ) of regulation s-x of the securities and exchange commission in excess of 25 percent of our consolidated net assets . we do not expect this determination will impact our ability to pay dividends or meet future obligations as the terms of the merged partnership 's agreement require it to make quarterly distributions of all available cash , as defined , to its unitholders . debt issuances and retirements the merged partnership retired $ 750 million of 3.8 percent senior unsecured notes that matured on february 15 , 2015. on june 27 , 2014 , pre-merger wpz completed a public offering of $ 750 million of 3.9 percent senior unsecured notes due 2025 and $ 500 million of 4.9 percent senior unsecured notes due 2045. pre-merger wpz used the net proceeds to repay amounts outstanding under its commercial paper program , tofund capital expenditures , and for general partnership purposes . story_separator_special_tag paper issuances ; $ 3.416 billion received from our equity offerings ; $ 1.412 billion paid for quarterly dividends on common stock ; $ 840 million paid for dividends and distributions to noncontrolling interests ; $ 340 million received in contributions from noncontrolling interests . 2013 $ 224 million net proceeds received from pre-merger wpz 's commercial paper issuances ; $ 1.705 billion received from pre-merger wpz 's credit facility borrowings ; $ 994 million net proceeds received from pre-merger wpz 's november 2013 public offering of $ 600 million of 4.5 percent senior unsecured notes due 2023 and $ 400 million of 5.8 percent senior unsecured notes due 2043 ; $ 2.08 billion paid on pre-merger wpz 's credit facility borrowings ; $ 1.819 billion received from pre-merger wpz 's equity offerings ; $ 982 million paid for quarterly dividends on common stock ; $ 489 million paid for dividends and distributions to noncontrolling interests ; $ 467 million received in contributions from noncontrolling interests . 2012 $ 2.55 billion net proceeds received from our 2012 equity offerings ; $ 1.559 billion received from pre-merger wpz 's 2012 equity offerings ; $ 842 million net proceeds received from our december 2012 public offering of $ 850 million of 3.7 percent senior unsecured notes due 2023 ; $ 745 million net proceeds received from pre-merger wpz 's august 2012 public offering of $ 750 million of senior unsecured notes due 2022 ; 75 $ 395 million net proceeds received from transco 's july 2012 issuance of $ 400 million of senior unsecured notes ; $ 1.49 billion received from pre-merger wpz 's credit facility borrowings ; $ 1.115 billion of pre-merger wpz 's credit facility borrowings paid ; $ 325 million paid to retire transco 's 8.875 percent notes that matured in july 2012 ; we paid $ 742 million of quarterly dividends on common stock ; we paid $ 387 million of dividends and distributions to noncontrolling interests . investing activities significant transactions include : 2014 capital expenditures totaled $ 4.031 billion ; purchases of and contributions to our equity-method investments of $ 482 million ; $ 5.958 billion paid , net of cash acquired , for the acmp acquisition . 2013 capital expenditures totaled $ 3.572 billion ; purchases of and contributions to our equity-method investments of $ 455 million . 2012 capital expenditures totaled $ 2.529 billion ; purchases of and contributions to our equity-method investments of $ 2.651 billion , including $ 2.19 billion paid in december 2012 for our investment in acmp ; $ 1.72 billion paid , net of purchase price adjustments , for pre-merge wpz 's caiman acquisition in april 2012 ; $ 325 million paid , net of cash acquired in the transaction , for pre-merger wpz 's laser acquisition in march 2012 ; $ 121 million received from the reconsolidation of the wilpro entities ( see note 4 โ discontinued operations of our notes to consolidated financial statements ) . off-balance sheet arrangements and guarantees of debt or other commitments we have various other guarantees and commitments which are disclosed in note 3 โ variable interest entities , note 11 โ property , plant , and equipment , note 14 โ debt , banking arrangements , and leases , note 17 โ fair value measurements , guarantees , and concentration of credit risk , and note 18 โ contingent liabilities and commitments of notes to consolidated financial statements . we do not believe these guarantees or the possible fulfillment of them will prevent us from meeting our liquidity needs . 76 contractual obligations the table below summarizes the maturity dates of our contractual obligations at december 31 , 2014 : replace_table_token_20_th ( 1 ) includes approximately $ 616 million in open property , plant , and equipment purchase orders . includes an estimated $ 389 million long-term ethane purchase obligation with index-based pricing terms that is reflected in this table at december 31 , 2014 prices . this obligation is part of an overall exchange agreement whereby volumes we transport on oppl are sold at a third-party fractionator near conway , kansas , and we are subsequently obligated to purchase ethane volumes at mont belvieu . the purchased ethane volumes may be utilized or resold at comparable prices in the mont belvieu market . includes an estimated $ 600 million long-term ngl purchase obligation with index-based pricing terms that primarily supplies a third party at its plant and is valued in this table at a price calculated using december 31 , 2014 prices . any excess purchased volumes may be sold at comparable market prices . in addition , we have not included certain natural gas life-of-lease contracts for which the future volumes are indeterminable . we have not included commitments , beyond purchase orders , for the acquisition or construction of property , plant , and equipment or expected contributions to our jointly owned investments ( see company outlook โ expansion projects ) . ( 2 ) does not include estimated contributions to our pension and other postretirement benefit plans . we made contributions to our pension and other postretirement benefit plans of $ 69 million in 2014 and $ 100 million in 2013 . in 2015 , we expect to contribute approximately $ 69 million to these plans ( see note 9 โ employee benefit plans of notes to consolidated financial statements ) . tax-qualified pension plans are required to meet minimum contribution requirements . in the past , we have contributed amounts to our tax-qualified pension plans in excess of the minimum required contribution . these excess amounts can be used to offset future minimum contribution requirements . during 2014 , we contributed $ 60 million to our tax-qualified pension plans .
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overview in 2014 , we continued to focus upon both growth in our businesses through disciplined investment and growth in our per-share dividends . examples of this growth included : the acquisition of acmp which has bolstered our position in the marcellus and utica shale plays and added diversity via the eagle ford , haynesville , barnett , mid-continent , and niobrara areas ; expansion of wpz 's interstate natural gas pipeline system to meet the demand of growth markets ; continued investment in wpz 's gathering and processing capacity and infrastructure in the marcellus shale area and deepwater gulf of mexico , as well as expansion of our olefins business in the gulf coast region ; expansion of our canadian facilities , which we anticipate contributing to wpz in the future ; total per-share dividends grew 36 percent to $ 1.96 in 2014 compared to $ 1.44 in 2013. this growth was funded through cash flow from operations , distributions from wpz and acmp , debt and equity offerings , and cash on hand . outlook we seek to manage our businesses with a focus on applying conservative financial policy in order to maintain investment-grade credit metrics . we continue to transition to an overall business mix that is increasingly fee-based . although our cash flows are impacted by fluctuations in energy commodity prices , that impact is somewhat mitigated by certain of our cash flow streams that are not directly impacted by short-term commodity price movements , including : firm demand and capacity reservation transportation revenues under long-term contracts ; fee-based revenues from certain gathering and processing services . we believe we have , or have access to , the financial resources and liquidity necessary to meet our requirements for working capital , capital and investment expenditures , dividends and distributions , debt service payments , and tax payments , while maintaining a sufficient level of liquidity .
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the company intends , and has the ability , to hold such investments until recovery of temporary declines in market value or maturity ; accordingly , as of december 31 , 2011 , the company believes the story_separator_special_tag you should read the following discussion together with the consolidated financial statements and related notes appearing elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . actual results may differ materially from those included in such forward-looking statements . factors that could cause actual results to differ materially include those set forth under ยrisk factors , ย as well as those otherwise discussed in this section and elsewhere in this annual report . see ยforward-looking statements and industry data.ย business overview the following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations . the discussion should be read in conjunction with our consolidated financial statements and notes thereto for the year ended december 31 , 2011 , both appearing elsewhere in this annual report . ceva is the world 's leading licensor of dsp cores and platform solutions . our technologies are widely licensed and power some of the world 's leading semiconductor and original equipment manufacturer ( oem ) companies . in 2011 , our licensees shipped more than one billion ceva-powered chipsets targeted for a wide range of diverse end markets . shipments of ceva-powered chipsets increased 68 % over 2010 , illustrating continued , strong market deployment of our technology . during the past six years , our business has shown profitability growth and market share expansion as a result of the widespread deployment of our dsp cores with all major handset oems ย huawei , lg electronics , motorola , nokia , samsung , sony , zte and a major u.s.-based smartphone manufacturer . this positive trend is evident from our royalty revenues which increased by 59 % in 2011 over 2010. based on internal data and strategy analytics ' worldwide shipment data , ceva 's worldwide market share of cellular baseband chips that incorporate our technologies reached approximately 42 % of the worldwide shipment volume based on third quarter 2011 worldwide shipments . revenues derived from the handsets and mobile broadband markets accounted for approximately 77 % of our total revenues in 2011. the mobile broadband space is a category of wireless-enabled products , among which are tablets , notebooks , electronic books , machine-to-machine devices , automotive applications and smart grids . we believe the full scale migration to our dsp cores and technologies in the handsets and mobile broadband markets has not been fully realized and continues to progress . specifically , we believe texas instruments ' exit from the baseband market , after historically having been a large player in this market , as well as the emergence of merchant chips from companies such as broadcom , intel and spreadtrum , all of whom are our customers , are strong positive drivers for our future market share expansion . moreover , strategy analytics forecasts that worldwide cellular baseband shipments will grow by 8.6 % in 2012 to reach 2.5 billion units . we believe that the majority of this growth will come from advanced-feature phone and low-cost smartphone demands in developing countries and the broader adoption of advanced smartphones in mature markets . we are well positioned to capitalize on the growth in the above segments , as well as growth from other mobile connected devices such as tablets , electronic books and other machineยto-machine devices , as key chip suppliers serving these markets use our technologies broadly . beyond products enabled by our technologies for baseband in handsets and mobile broadband markets , we continue to target growth in non-baseband applications , such as audio , imaging , vision and connectivity . during the fourth quarter of 2011 , we completed licensing agreements for audio in smart tvs , connectivity in smartphones and our first imaging platform , the mm3000 dsp core . 27 we believe the following four market trends represent significant growth drivers for the company : the evolution of cellular networks , specifically the growth of 3g networks in emerging countries and the migration from 3g to lte in developed countries . ceva is well positioned to leverage these opportunities with a broad range of technologies and broad customer base . the emergence of 3g and 4g connectivity in devices beyond handsets such as tablets , laptops , automotive and surveillance . our range of baseband dsps are ideal for these promising new segments . the mass adoption and feature set enhancements of smartphones . we offer a range of new dsps and software technologies to address the needs for advanced imaging and high fidelity audio . it is an incremental business to our already strong foothold in the baseband market . the proliferation of smart devices in the home , including the emergence smart-tv , or smart set-top boxes and smartgrid . we aim to leverage our mobile experience and technology base to expand into these markets . notwithstanding the various growth opportunities we have outlined above , our business operates in a highly competitive environment . competition has historically increased pricing pressures for our products and decreased our average selling prices . royalty payments under our existing license agreements also could be lower than currently anticipated for a variety of reasons , including decreased royalty rates triggered by larger volume shipments or lower royalty rates negotiated with customers due to competitive pressure . moreover , some of our competitors have reduced their licensing and royalty fees to attract customers and expand their market share . in order to penetrate new markets and maintain our market share with our existing products , we may need to offer our products in the future at lower prices which may result in lower profits . story_separator_special_tag however , with respect to certain transactions , for multiple element transactions , revenue can be recognized under the ยresidual methodย when vendor specific objective evidence ( ยvsoeย ) of fair value exists for all undelivered elements and vsoe does not exist for one of the delivered elements . vsoe of fair value of the undelivered elements is determined based on the substantive renewal rate as stated in the agreement . in certain cases in which we undertake services that are not essential to the functionality of the ip license and we did not establish a vsoe of fair value for the services , the entire arrangement fee is recognized as the services are performed . 29 extended payment terms in a licensing arrangement may indicate that the license fees are not deemed to be fixed or determinable . if the fee is not fixed or determinable , revenue is recognized as payments become due from the customer unless collection is not considered reasonably assured , then revenue is recognized as payments are collected from the customer , provided all other revenue recognition criteria have been met . revenues from license fees that involve significant customization of our ip to customer-specific specifications are recognized in accordance with the principles set out in fasb asc no . 605-35-25 , ยconstruction-type and production-type contracts recognition , ย using contract accounting on a percentage of completion method . the amount of revenue recognized is based on the total license fees under the agreement and the percentage of completion achieved . the percentage of completion is measured by the actual time incurred to date on the project compared to the total estimated project requirements , which correspond to the costs related to earned revenues . provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined , in the amount of the estimated loss on the entire contract . royalties from licensing the right to use our ip are recognized on a quarterly basis in arrears as we receive quarterly shipment reports from our licensees . we determine such revenues by receiving confirmation of sales subject to royalties from licensees . non-refundable payments on account of future royalties ( prepaid royalties ) are recognized upon payment becoming due , provided no future obligation exists . in addition to license fees , contracts with customers generally contain an agreement to provide for post contract support and training , which consists of telephone or e-mail support , correction of errors ( bug fixing ) and unspecified updates and upgrades . fees for post contract support , which takes place after delivery to the customer , are specified in the contract and are generally mandatory for the first year . after the mandatory period , the customer may extend the support agreement on similar terms on an annual basis . we recognize revenue for post contract support on a straight-line basis over the period for which technical support is contractually agreed to be provided to the licensee . revenue from training is recognized as the training is performed . revenue from the sale of development systems is recognized when title to the product passes to the customer and all other revenue recognition criteria have been met . we usually do not provide rights of return . when rights of return are included in the license agreements , revenue is deferred until rights of return expire . allowances for doubtful accounts we make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful . provisions are made based upon a detailed review of all significant outstanding receivables . in determining the provision , we analyze our historical collection experience and current economic trends . we reassess these allowances each accounting period . historically , our actual losses and credits have been consistent with these provisions . if actual payment experience with our customers is different from our estimates , adjustments to these allowances may be necessary , resulting in additional charges to our statements of income . allowance for doubtful accounts amounted to $ 25,000 as of both december 31 , 2010 and 2011. income taxes we are subject to income taxes mainly in israel , the u.s. and ireland . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . based on the guidance in asc 740 ยincome taxesย , we use a two-step approach to recognizing and measuring uncertain tax positions . the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement . 30 although we believe we have adequately reserved for our uncertain tax positions , no assurance can be given that the final tax outcome of these matters will not be different . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , the refinement of an estimate or changes in tax laws . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate . accounting for tax positions requires judgments , including estimating reserves for potential uncertainties . we also assess our ability to utilize tax attributes , including those in the form of carry forwards for which the benefits have already been reflected in the financial statements .
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results of operations the following table presents line items from our consolidated statements of income as percentages of our total revenues for the periods indicated : replace_table_token_8_th discussion and analysis below we provide information on the significant line items in our consolidated statements of income for each of the past three fiscal years , including the percentage changes year-on-year , as well as an analysis of the principal drivers of change in these line items from year-to-year . revenues total revenues replace_table_token_9_th the increase in total revenues from 2010 to 2011 principally reflected a combination of significantly higher royalty revenues and higher licensing revenues offset by slightly lower other revenues . the increase in total revenues from 2009 to 2010 principally reflected a combination of significantly higher royalty revenues and slightly higher other revenues , offset by slightly lower licensing revenues . we generate royalty revenue from our customers based on two models : royalties paid by our customers during the period in which they ship units of chipsets incorporating our technologies , which we refer to as ยper unit royalties , ย and royalties which are paid in a lump sum and in advance to cover a pre-defined fixed number of future unit shipments , which we refer to as ยprepaid royalties.ย in either case , these royalties are non-refundable payments and are recognized when payment becomes due , provided no future obligation exists . prepaid royalties 33 are recognized under our licensing revenue line and accounted for 0 % , 4 % and 4 % of our total revenues in 2011 , 2010 and 2009 , respectively . only royalty revenue from customers who are paying as they ship units of chipsets incorporating our technology is recognized in our royalty revenue line . these per unit royalties are invoiced and recognized on a quarterly basis in arrears as we receive quarterly shipment reports from our licensees .
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on december 16 , 2014 , the company 's board of directors approved the 2015 incentive award plan , or 2015 plan , which was subsequently approved by the company 's stockholders on june 16 , 2015. the number of shares reserved for issuance or transfer pursuant to awards under the 2015 plan will be increased by the number of shares represented by awards outstanding under the company 's former equity plan , the 2011 equity story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report . 2016 year in review the year 2016 marks our tenth consecutive year of profitability . in 2016 , we increased our capacity by 20.0 % , as we grew our fleet of airbus single-aisle aircraft from 79 to 95 aircraft , launched service to 29 new markets and added 4 new destinations : seattle , washington ; akron-canton , ohio ; newark , new jersey and havana , cuba . during 2016 , we earned net income of $ 264.9 million ( $ 3.76 per share , diluted ) , compared to net income of $ 317.2 million ( $ 4.38 per share , diluted ) in 2015 . the decrease in earnings was a result of a decrease of 9.6 % in our average yield , partially offset by a 20.0 % increase in our capacity , year over year . for the year ended december 31 , 2016 , we achieved an operating profit margin of 19.1 % on $ 2,322.0 million in operating revenues . our traffic grew by 19.9 % as we continued to address an underserved market with ultra-low fares . continued competitive pressures from major domestic network carriers aggressively discounting fares led to a 9.6 % decrease in average yield , year over year . as a result of this pricing environment , trasm in 2016 was 9.11 cent s , a decrease of 9.6 % compared to the prior year period . total revenue per passenger flight segment decreased 10.1 % , year over year , from $ 119.49 to $ 107.41 driven by a decrease of 14.9 % in ticket revenue per passenger flight segment . our total non-ticket revenue increased by 15.3 % , or $ 149.2 million , to $ 1,121.3 million in 2016 . despite the continued competitive pressures during 2016 , our average non-ticket revenue per passenger flight segment declined to a lesser extent , by 4.4 % , to $ 51.87 . our unbundled model provides a more stable revenue stream as demonstrated during periods of lower passenger ticket yields . our operating cost structure is a primary area of focus and is at the core of our ulcc business model . our unit operating costs continue to be among the lowest of any airline in the united states . during 2016 , our adjusted casm ex-fuel decreased by 0.9 % to 5.45 cent s. the decrease on a per-asm basis was primarily a result of a decrease in aircraft rent expense per asm due to our newer aircraft being purchased under secured debt financing rather than being leased through operating leases , as is the case with the older aircraft in our fleet . in addition , we purchased seven previously leased aircraft during the twelve months ended december 31 , 2016 , which contributed to lower aircraft rent per asm . this decrease in aircraft rent was partially offset by higher salaries and wages expense and higher other operating expense on a per-asm basis . during 2016 , we took delivery of 11 new aircraft financed through our eetc , purchased 7 aircraft off lease and entered into a direct lease agreement with a third-party lessor for 5 a320neos . with the delivery of these a320neo aircraft during 2016 , we became the first u.s.-based carrier to take delivery of and operate such aircraft . in addition , we purchased 1 spare engine . as of december 31 , 2016 , our 95 airbus a320-family aircraft fleet was comprised of 29 a319s , 45 a320ceos , 5 a320neos and 16 a321ceos of which 29 aircraft are financed through secured debt , 59 are financed under operating leases and 7 are unencumbered . as of december 31 , 2016 , our aircraft orders consisted of 76 a320 family aircraft with airbus scheduled for delivery from 2017 through 2021 . operating revenues our operating revenues are comprised of passenger revenues and non-ticket revenues . passenger revenues . passenger revenues consist of the base fares that customers pay for air travel . non-ticket revenues . non-ticket revenues are generated from air travel-related charges for baggage , passenger usage fee ( puf ) for bookings through certain of our distribution channels , advance seat selection , itinerary changes , hotel and rental car travel packages and loyalty programs such as our free spirit affinity credit card program and $ 9 fare club . non-ticket revenues also include revenues derived from the sale of advertising to third parties on our website and on board our aircraft . substantially all of our revenues are denominated in u.s. dollars . passenger revenues , as well as most non-ticket revenues , are recognized once the related flight departs . accordingly , the value of tickets and portions of non-ticket revenues sold in advance of travel is included under our current liabilities as โ air traffic liability , โ or atl , until the related air travel is provided . some of our non-ticket revenues are recognized at the time the ancillary products are purchased or ancillary services 39 are provided , such as revenues from our subscription-based $ 9 fare club , which we recognize on a straight-line basis over 12 months . revenue generated from the free spirit credit card affinity program are recognized in accordance with the criteria as set forth in accounting standards update asu no . 2009-13. please see โ โcritical accounting policies and estimatesโfrequent flier program. story_separator_special_tag for a detailed discussion of the eetc , refer to โ notes to the financial statementsโ11 . debt and other obligations. โ in addition , for 2016 , interest income includes interest earned on our cash , cash equivalents and short-term investment securities . other expense . other expense includes realized gains and losses related to foreign currency transactions . for 2014 , other expense also included $ 1.4 million related to the tax receivable settlement amount in excess of the amount previously accrued for and a $ 1.0 million charitable contribution that is specifically creditable against current income tax in the state of florida , as allowed under state law . income taxes we account for income taxes using the liability method . we record a valuation allowance to reduce the deferred tax assets reported if , based on the weight of the evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards . in assessing the realizability of the deferred tax assets , we consider whether it is more likely than not that some or all of the deferred tax assets will be realized . in evaluating the ability to utilize our deferred tax assets , we consider all available evidence , both positive and negative , in determining future taxable income on a jurisdiction by jurisdiction basis . trends and uncertainties affecting our business we believe our operating and business performance is driven by various factors affecting airlines and their markets , trends affecting the broader travel industry and trends affecting the specific markets and customer base that we target . the following key factors may affect our future performance . competition . the airline industry is highly competitive . the principal competitive factors in the airline industry are fare pricing , total price , flight schedules , aircraft type , passenger amenities , number of routes served from a city , customer service , safety record , reputation , code-sharing relationships , frequent flier programs and redemption opportunities . price competition occurs on a market-by-market basis through price discounts , changes in pricing structures , fare matching , target promotions and frequent flier initiatives . airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to maximize unit revenue . the prevalence of discount fares can be particularly acute when a competitor has excess capacity that it is under financial pressure to sell . beginning in 2015 , and continuing through most of 2016 , the airline industry saw greater and more persistent price discounting than in the preceding several years . we believe that a major factor that enabled price discounting was the sharp decline in petroleum prices on world markets during the last couple years which offset general increases in non-fuel costs . in addition , significant airline capacity increases in certain major cities - such as dallas and chicago - exerted strong downward price pressure in those markets . finally , beginning in mid-2015 network carriers began matching low-cost carrier and ulcc pricing on portions of their marginal unsold capacity , particularly in their key hub markets . absent significant increases in fuel prices and more constrained capacity , we expect the discounting trend to continue for the foreseeable future . moreover , the network carriers have developed a fare-class pricing approach , in which a portion of available seats may be sold at or near ulcc prices , but without most product features available to their passengers paying at 41 higher fare levels on the same flight . broad fare discounting may have the effect of diluting the profitability of revenues of high-cost carriers but the fare-class approach may allow network carriers to continue offering a competitive price to ulccs on some flights or routes , while maintaining higher pricing to their traditional constituencies of business and more affluent travelers . refer to โ risk factorsโrisks related to our industryโwe operate in an extremely competitive industry . '' seasonality and volatility . our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business is subject to significant seasonal fluctuations . we generally expect demand to be greater in the second and third quarters compared to the rest of the year . the air transportation business is also volatile and highly affected by economic cycles and trends . consumer confidence and discretionary spending , fear of terrorism or war , weakening economic conditions , fare initiatives , fluctuations in fuel prices , labor actions , changes in governmental regulations on taxes and fees , weather and other factors have resulted in significant fluctuations in revenues and results of operations in the past . we believe demand for business travel historically has been more sensitive to economic pressures than demand for low-price travel . finally , a significant portion of our operations are concentrated in markets such as south florida , the caribbean , latin america and the northeast and northern midwest regions of the united states , which are particularly vulnerable to weather , airport traffic constraints and other delays . aircraft fuel . fuel costs represents one of our largest operating expenses , as it does for most airlines . fuel costs have been subject to wide price fluctuations in recent years . fuel availability and pricing are also subject to refining capacity , periods of market surplus and shortage and demand for heating oil , gasoline and other petroleum products , as well as meteorological , economic and political factors and events occurring throughout the world , which we can neither control nor accurately predict . we source a significant portion of our fuel from refining resources located in the southeast united states , particularly facilities adjacent to the gulf of mexico .
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results of operations in 2016 , we generated operating revenues of $ 2,322.0 million and operating income of $ 443.7 million resulting in a 19.1 % operating margin and net earnings of $ 264.9 million . in 2015 , we generated operating revenues of $ 2,141.5 million and operating income of $ 509.1 million resulting in a 23.8 % operating margin and net earnings of $ 317.2 million . operating revenues increased year over year mainly as a result of a 19.9 % increase in traffic . increased operations resulted in higher operating expenses across the board with the exception of aircraft fuel which decreased due to lower fuel cost per gallon , period over period , and aircraft rent which decreased due to our newer aircraft being purchased under secured debt financing rather than being leased through operating leases , as is the case with the older aircraft in our fleet . as of december 31 , 2016 , our cash and cash equivalents was $ 700.9 million , a decrease of $ 102.7 million compared to the prior year . cash and cash equivalents is driven by cash from our operating activities offset by cash used to fund pdps , capital expenditures and repurchases of common stock . in addition to cash and cash equivalents , as of december 31 , 2016 , we had $ 100.2 million in short-term investment securities in which we invested during 2016 . 46 operating revenues replace_table_token_9_th 2016 compared to 2015 operating revenues increase d by $ 180.5 million , or 8.4 % , to $ 2,322.0 million in 2016 compared to 2015 , primarily due to an increase in traffic of 19.9 % , partially offset by a decrease in average yield of 9.6 % to 10.76 cents . the decrease in average yield resulted from continued competitive pressures from major u.s. carriers aggressively discounting fare prices .
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generally , a nonaccrual loan that is restructured in a tdr remains on nonaccrual status for a period of at least six months following the restructuring in order to ensure that the borrower performs in accordance with the restructured terms , including consistent and timely payments of at least six consecutive months according to the story_separator_special_tag overview income . our primary source of pre-tax income is net interest income . net interest income is the difference between interest income , which is the income that we earn on our loans and investments , and interest expense , which is the interest that we pay on our deposits and borrowings . other significant sources of pre-tax income are service charges ( mostly from service charges on deposit accounts and loan servicing fees ) , atm and interchange fees on debit and credit cards , increases in the cash surrender value of life insurance , income from sales of residential mortgage and sba loans originated for sale in the secondary market , commissions on sales of securities and insurance products , and real estate lease income . we also recognize income from the sale of investment securities . allowance for loan losses . the allowance for loan losses is a valuation allowance for probable incurred losses in the loan portfolio . we evaluate the need to establish allowances against losses on loans on a quarterly basis . when additional allowances are necessary , a provision for loan losses is charged to earnings . expenses . the noninterest expenses we incur in operating our business consist of salaries and employee benefits expenses , occupancy expenses , data processing expenses , professional service fees , federal deposit insurance premiums , advertising , net losses on foreclosed real estate and other miscellaneous expenses . salaries and employee benefits consist primarily of : salaries and wages paid to our employees ; payroll taxes ; and expenses for health insurance , retirement plans and other employee benefits . we also recognize annual employee compensation expenses related to our equity incentive plans as the equity incentive awards vest . occupancy expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of depreciation charges , furniture and equipment expenses , maintenance , real estate taxes , office lease expense and costs of utilities . depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets , which range from three to 40 years . data processing expenses are the fees we pay to third parties for processing customer information , deposits and loans . professional fees expense represents the fees we pay to third parties for legal , accounting , investment advisory and other consulting services . federal deposit insurance premiums are payments we make to the fdic to insure of our deposit accounts . other expenses include expenses for office supplies , postage , telephone , insurance , regulatory assessments and other miscellaneous operating expenses . critical accounting policies the accounting and reporting policies of the company comply with accounting principles generally accepted in the united states of america ( โ u.s . gaap โ ) and conform to general practices within the banking industry . the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions . the financial position and results of operations can be affected by these estimates and assumptions , which are integral to understanding reported results . critical accounting policies are those policies that require management to make assumptions about matters that are highly uncertain at the time an accounting estimate is made ; and different estimates that the company reasonably could have used in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , would have a material impact on the company 's financial condition , changes in financial condition or results of operations . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of financial statements . these factors include , among other things , whether the estimates are significant to the financial statements , the nature of the estimates , the ability to readily validate the estimates with other information including third parties or available prices , and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under generally accepted accounting principles . significant accounting policies , including the impact of recent accounting pronouncements , are discussed in note 1 of the notes to consolidated financial statements . the policies considered to be the critical accounting policies are described below . 35 allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover probable incurred losses in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . story_separator_special_tag land and land development loans totaled $ 9.4 million , or 0.9 % of total loans at september 30 , 2020 , compared to $ 10.5 million , or 1.3 % of total loans at september 30 , 2019. these loans are primarily secured by vacant lots to be improved for residential and nonresidential development , and farmland . commercial business loans , including in-market commercial business loans and sba commercial business loans , totaled $ 267.3 million , or 24.1 % of total loans , at september 30 , 2020 compared to $ 73.0 million , or 8.9 % of total loans , at september 30 , 2019. in-market commercial business loans increased $ 7.0 million during the year due primarily to increased commercial business lending opportunities in our primary market area . sba commercial business loans increased $ 187.3 million during the year primarily due to our participation in the sba 's ppp loan program as ppp loans totaled $ 180.6 million at september 30 , 2020. management intends to continue to focus on pursuing commercial business loan opportunities , both within our primary market area as well as through various sba loan programs , to further diversify the loan portfolio . consumer loans totaled $ 50.6 million , or 4.6 % of total loans , at september 30 , 2020 compared to $ 44.7 million , or 5.5 % of total loans , at september 30 , 2019. consumer loans , including automobile loans , home equity lines of credit , unsecured loans and loans secured by deposits , has only slightly increased due to pay-downs , payoffs , charge-offs and management 's decision to focus on other lending opportunities with less inherent credit risk . 37 the following table sets forth the composition of our loan portfolio at the dates indicated . โ replace_table_token_7_th โ ( 1 ) at september 30 , 2020 , includes ppp loans totalling $ 180.6 million . โ loan maturity the following table sets forth certain information at september 30 , 2020 regarding the dollar amount of loan principal repayments becoming due during the period indicated . the table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below . demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less . โ replace_table_token_8_th โ ( 1 ) includes multifamily loans . ( 2 ) includes farmland , land and land development loans . ( 3 ) includes construction loans for which the bank has committed to provide permanent financing . 38 fixed vs. adjustable rate loans the following table sets forth the dollar amount of all loans at september 30 , 2020 that are due after september 30 , 2021 , and have either fixed interest rates or adjustable interest rates . the amounts shown below exclude unearned loan origination fees . โ replace_table_token_9_th โ ( 1 ) includes multifamily loans ( 2 ) includes farmland , land and land development loans . ( 3 ) includes construction loans for which the bank has committed to provide permanent financing . trading account securities . our trading account securities represent an investment in a managed brokerage account that invests in small and medium lot , investment grade municipal bonds . the brokerage account is managed by an investment advisory firm registered with the u.s. securities and exchange commission . the bank ceased its trading account securities activity and liquidated this portfolio as of june 30 , 2018. securities available for sale . our available for sale securities portfolio consists primarily of u.s. government agency and sponsored enterprises securities , mortgage backed securities and collateralized mortgage obligations issued by u.s. government agencies and sponsored enterprises , municipal bonds , privately-issued collateralized mortgage obligations and asset-backed securities , and pass-through asset-backed securities guaranteed by the sba . available for sale securities increased by $ 24.7 million , from $ 177.3 million at september 30 , 2019 to $ 202.0 million at september 30 , 2020 , due primarily to purchases of $ 37.8 million and an increase in unrealized gains of $ 4.8 million , partially offset by principal repayments of $ 6.0 million , sales of $ 3.2 million and maturities and calls of $ 8.2 million . securities held to maturity . our held to maturity securities portfolio consists of mortgage-backed securities issued by government sponsored enterprises and municipal bonds . held to maturity securities decreased by $ 234,000 from september 30 , 2019 to september 30 , 2020 , due primarily to maturities and principal repayments . 39 the following table sets forth the amortized costs and fair values of our investment securities at the dates indicated . โ replace_table_token_10_th โ the following table sets forth the stated maturities and weighted average yields of debt securities at september 30 , 2020. weighted average yields on tax-exempt securities are presented on a tax equivalent basis using a federal marginal tax rate of 21.0 % . certain mortgage-backed securities and collateralized mortgage obligations have adjustable interest rates and will reprice annually within the various maturity ranges . these repricing schedules are not reflected in the table below . weighted average yield calculations on investments available for sale do not give effect to changes in fair value that are reflected as a component of equity .
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overview . the company reported net income of $ 33.4 million ( $ 14.04 per common share diluted ) for the year ended september 30 , 2020 , compared to net income of $ 16.2 million ( $ 6.82 per common share diluted ) for the year ended september 30 , 2019. the increase in net income was due to increases in net interest income of $ 9.3 million and noninterest income of $ 87.3 million , partially offset by an increase in noninterest expense of $ 63.4 million . net income was $ 16.2 million ( $ 6.82 per common share diluted ) for the year ended september 30 , 2019 compared to net income of $ 10.9 million ( $ 4.60 per common share diluted ) for the year ended september 30 , 2018. the increase in net income for 2019 compared to 2018 was due to increases in net interest income of $ 4.3 million and noninterest income of $ 30.6 million , partially offset by an increase in noninterest expense of $ 29.4 million . net interest income . for the year ended september 30 , 2020 , net interest income increased $ 9.3 million or 23.2 % , as compared to 2019 , primarily as the result of an increase in the average balance of interest earning assets .
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โ overview we are a cloud-based provider of payroll and human capital management or hcm software solutions for medium-sized organizations , which we define as those having between 20 and 1,000 employees . our comprehensive and easy-to-use solutions enable our clients to manage their workforces more effectively . our solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the hr , payroll and finance capabilities of our clients . effective management of human capital is a core function in all organizations and requires a significant commitment of resources . medium-sized organizations operating without the infrastructure , expertise or personnel of larger enterprises are uniquely pressured to manage their human capital effectively . our solutions were specifically designed to meet the payroll and hcm needs of medium-sized organizations . we designed our cloud-based platform to provide a unified suite of applications using a multi-tenant architecture . our solutions are highly flexible and configurable and feature a modern , intuitive user experience . our platform offers automated data integration with over 200 related third-party systems , such as 401 ( k ) , benefits and insurance provider systems . our paylocity web pay product is our core payroll solution and was the first of our current offerings introduced into the market . we believe payroll is the most critical system of record for medium-sized organizations and an essential gateway to other hcm functionality . we have invested in , and we intend to continue to invest in , research and development to expand our product offerings and advance our platform . we believe there is a significant opportunity to grow our business by increasing our number of clients and we intend to invest in our business to achieve this purpose . we market and sell our solutions primarily through our direct sales force . we have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel . we intend to continue to grow our sales and marketing organization across new and existing geographic territories . in addition to growing our number of clients , we intend to grow our revenue over the long term by increasing the number and quality of products that clients purchase from us . to do so , we must continue to enhance and grow the number of solutions we offer to advance our platform . we believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients . we seek to develop deep relationships with our clients through our unified service model , which has been designed to meet the service needs of medium-sized organizations . we expect to continue to invest in and grow our implementation and client service organization as our client base grows . we believe we have the opportunity to continue to grow our business over the long term , and to do so we have invested , and intend to continue to invest , across our entire organization . these investments include increasing the number of personnel across all functional areas , along with improving our solutions and infrastructure to support our growth . the timing and amount of these investments vary based on the rate at which we add new clients , add new personnel and scale our application development and other activities . many of these investments will occur in advance of experiencing any direct benefit from them , which will make it difficult to determine if we are effectively allocating our resources . we expect these investments to increase our costs on an absolute basis , but as we grow our number of clients and our related revenues , we anticipate that we will gain economies of scale and increased operating leverage . as a result , we expect our gross and operating margins will improve over the long term . as our business has grown , we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions . if general economic conditions were to deteriorate , including declines in 40 private sector employment growth and business productivity , increases in the unemployment rate and changes in interest rates , we may experience delays in our sales cycles , increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts . our interest income on funds held for clients continues to be adversely impacted by historically low interest rates . our operating subsidiary paylocity corporation was incorporated in july 1997 as an illinois corporation . in november 2013 , we formed paylocity holding corporation , a delaware corporation , of which paylocity corporation is a wholly owned subsidiary . paylocity holding corporation had no operations prior to the restructuring . all of our business operations , excluding interest earned on certain cash holdings and expenses associated with certain secondary stock offerings , have historically been , and are currently , conducted by paylocity corporation , and the financial results presented herein are entirely attributable to the results of its operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . recurring revenue growth our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations . this visibility enables us to better manage and invest in our business . recurring revenue , which is comprised of recurring fees and interest income on funds held for clients , increased from $ 144.1 million in fiscal 2015 to $ 220.1 million in fiscal 2016 , representing a 53 % year-over-year increase . recurring revenue increased from $ 220.1 million in fiscal 2016 to $ 288.4 million in fiscal 2017 , representing a 31 % year-over-year increase . story_separator_special_tag we derive revenue from a client based on the solutions purchased by the client , the number of client employees as well as the amount , type and timing of services provided with respect to those client employees . as such , the number of client employees on our system is not a good indicator of our financial results in any period . recurring fees attributable to our cloud-based payroll and hcm solutions accounted for approximately 93 % , 94 % and 95 % of our total revenues during the years ended june 30 , 2015 , 2016 and 2017 , respectively . our agreements with clients do not have a specified term and are generally cancellable by the client on 60 days ' or less notice . our agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided . we recognize recurring fees in the period in which services are provided and when collection of fees is reasonably assured and the amount of fees is fixed or determinable . interest income on funds held for clients we earn interest income on funds held for clients . we collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities . prior to remittance to employees and taxing authorities , we earn interest on these funds through financial institutions with which we have automated clearing house , or ach , arrangements . implementation services and other implementation services and other revenues primarily consist of implementation fees charged to new clients for professional services provided to implement and configure our payroll and hcm solutions . implementations of our payroll solutions typically require only three to four weeks at which point the new client 's payroll is first run using our solution , our implementation services are deemed completed , and we recognize the related revenue . we implement additional hcm products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes . implementation services and other revenues may fluctuate significantly from quarter to quarter based on the number of new clients , pricing and the product utilization . cost of revenues cost of recurring revenues cost of recurring revenues is generally expensed as incurred and includes costs to provide our payroll and other hcm solutions primarily consisting of employee-related expenses , including wages , stock-based compensation , bonuses and benefits , relating to the provision of ongoing client support , payroll tax filing and distribution of printed checks and other materials . these costs also include third-party reseller costs , delivery costs , computing costs and amortization of capitalized internal-use software costs , as well as bank fees associated with client fund transfers . we expect to realize cost efficiencies over the long term as our business scales , resulting in improved operating leverage and increased margins . we capitalize a portion of our internal-use software costs , which are then all amortized as a cost of recurring revenues . we amortized $ 2.6 million , $ 5.4 million and $ 9.4 million of capitalized internal-use software costs in fiscal 2015 , 2016 and 2017 , respectively . 43 cost of implementation services and other cost of implementation services and other consists primarily of employee-related expenses , including wages , stock-based compensation , bonuses and benefits involved in the implementation of our payroll and other hcm solutions for new clients . implementation costs are generally fixed in the short-term and exceed associated implementation revenue charged to each client . we intend to grow our business through acquisition of new clients , and doing so will require increased personnel to implement our solutions . therefore , our cost of implementation services and other is expected to increase in absolute dollars for the foreseeable future . operating expenses sales and marketing sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff , including wages , commissions , stock-based compensation , bonuses and benefits , marketing expenses and other related costs . commissions are primarily earned and recognized in the month when implementation is complete and the client first utilizes a service and are typically paid within two months after the start of service . bonuses paid to sales staff for attainment of certain performance criteria are accrued in the fiscal year in which they are earned and are subsequently paid annually in the first fiscal quarter of the following year . we will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities . research and development research and development expenses consist primarily of employee-related expenses for our research and development and product management staff , including wages , stock-based compensation , bonuses and benefits . additional expenses include costs related to the development , maintenance , quality assurance and testing of new technologies and ongoing refinement of our existing solutions . research and development expenses , other than internal-use software costs qualifying for capitalization , are expensed as incurred . we capitalize a portion of our development costs related to internal-use software . the timing of our capitalized development projects may affect the amount of development costs expensed in any given period . the table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2015 , 2016 and 2017. replace_table_token_9_th we expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients . we expect research and development expenses to continue to increase in absolute dollars but to vary as a percentage of total revenue on a period-to-period basis .
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results of operations the following table sets forth our statements of operations data for each of the periods indicated . replace_table_token_10_th 45 the following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated . replace_table_token_11_th comparison of fiscal years ended june 30 , 2015 , 2016 and 2017 revenues ( $ in thousands ) replace_table_token_12_th recurring fees recurring fees for the year ended june 30 , 2017 increased by $ 67.4 million , or 31 % , to $ 284.8 million from $ 217.4 million for the year ended june 30 , 2016. recurring fees increased primarily as a result of incremental revenues from new and existing clients , including revenue related to our aca compliance solution offered to new and existing clients , which we launched in fiscal 2016 and experienced significant penetration beginning in the second quarter of fiscal 2016. our client count at june 30 , 2017 increased by 16 % to approximately 14,550 from approximately 12,500 at june 30 , 2016 . 46 recurring fees for the year ended june 30 , 2016 increased by $ 75.2 million , or 53 % , to $ 217.4 million from $ 142.2 million for the year ended june 30 , 2015. recurring fees increased primarily as a result of incremental revenues from new and existing clients , including revenue related to our aca compliance solution offered to new and existing clients , which we launched in fiscal 2016. our client count at june 30 , 2016 increased by 21 % to approximately 12,500 from approximately 10,350 at june 30 , 2015. interest income on funds held for clients interest income on funds held for clients for the year ended june 30 , 2017 increased by $ 0.9 million , or 35 % , to $ 3.6 million from $ 2.7 million for the year ended june 30 , 2016. interest income increased primarily as a result
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( a ) the following documents are filed as a part of this form 10-k. ( 1 ) financial statements : reference is made to the index to consolidated financial statements under item 8 in part ii of this form 10-k. ( 2 ) financial statement schedules : schedule ii ย valuation and qualifying accounts . schedule ii heska corporation and subsidiaries valuation and qualifying accounts ( amounts in thousands ) replace_table_token_28_th ( a ) write-offs of uncollectible accounts . -65- ( 3 ) exhibits : the exhibits listed below are required by item 601 of regulation s-k. each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form 10-k has been identified . exhibit number notes description of document 3 ( i ) * story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with ยselected consolidated financial dataย and the consolidated financial statements and related notes included in items 6 and 8 of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . such statements , which include statements concerning future revenue sources and concentration , gross profit margins , selling and marketing expenses , research and development expenses , general and administrative expenses , capital resources , additional financings or borrowings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed below and elsewhere in this form 10-k , particularly in item 1a ยrisk factors , ย that could cause actual results to differ materially from those projected . the forward-looking statements set forth in this form 10-k are as of the close of business on march 13 , 2013 , and we undertake no duty and do not intend to update this information . overview we develop , manufacture , market , sell and support veterinary products . our business is comprised of two reportable segments , core companion animal health ( ยccaย ) , which represented 84 % of our 2012 revenue and other vaccines , pharmaceuticals and products ( ยovpย ) , which represented 16 % of our 2012 revenue . the core companion animal health segment includes diagnostic and other instruments and supplies as well as single use diagnostic and other tests , pharmaceuticals and vaccines , primarily for canine and feline use . blood testing and other non-imaging instruments and supplies represent approximately 45 % of our 2012 revenue . many products in this area involve placing an instrument in the field and generating future revenue from consumables , including items such as supplies and service , as that instrument is used . approximately 33 % of our 2012 revenue resulted from the sale of such consumables to an installed base of instruments and approximately 13 % of our 2012 revenue was from new hardware . a loss of or disruption in supply of consumables we are selling to an installed base of instruments could substantially harm our business . all of our blood testing and other non-imaging instruments and supplies are furnished to us by third parties , who typically own the product rights and sell the product to us under marketing and or distribution agreements . in many cases , we have collaborated with a third party to adapt a human instrument for veterinary use . major products in this area include our chemistry instruments , our hematology instruments and our blood gas instruments and their affiliated operating consumables . revenue from products in these three areas , including revenue from consumables , represents approximately 40 % of our 2012 revenue . other cca revenue , including single use diagnostic and other tests , pharmaceuticals and vaccines as well as research and development , licensing and royalty revenue , represented approximately 39 % of our 2012 revenue . since items in this area are single use by their nature , our aim is to build customer satisfaction and loyalty for each product , generate repeat annual sales from existing customers and expand our customer base in the future . products in this area are both supplied by third parties and provided by us . major products in this area include our heartworm diagnostic tests , our heartworm preventive , our allergy test kits , our allergy immunotherapy and our allergy diagnostic tests . combined revenue from heartworm-related products and allergy-related products represented approximately 35 % of our 2012 revenue . we consider the cca segment to be our core business and devote most of our management time and other resources to improving the prospects for this segment . maintaining a continuing , reliable and economic supply of products we currently obtain from third parties is critical to our success in this area . virtually all of our sales and marketing expenses are in the core companion animal health segment . the majority of our research and development spending is dedicated to this segment , as well . we strive to provide high value products and advance the state of veterinary medicine . -31- all our cca products ultimately are sold primarily to or through veterinarians . in many cases , veterinarians will mark up their costs to the end user . the acceptance of our products by veterinarians is critical to our success . cca products are sold directly by us as well as through distribution relationships , such as our corporate agreement with merck animal health , the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors . revenue from direct sales and distribution relationships represented approximately 67 % and 33 % of core companion animal health 2012 revenue , respectively . we intend to increase profitability through a combination of revenue growth , gross margin improvement and expense control . accordingly , we closely monitor revenue growth trends in our cca segment . story_separator_special_tag the primary estimate made by management is determining the useful life of the related agreement , product , patent or technology . we evaluate all of our licensing arrangements by estimating the useful life of either the product or the technology , the length of the agreement or the legal patent life and defer the revenue for recognition over the appropriate period . -33- occasionally we enter into arrangements that include multiple elements . such arrangements may include the licensing of technology and manufacturing of product . in these situations we must determine whether the various elements meet the criteria to be accounted for as separate elements . if the elements can not be separated , revenue is recognized once revenue recognition criteria for the entire arrangement have been met or over the period that the company 's obligations to the customer are fulfilled , as appropriate . if the elements are determined to be separable , the revenue is allocated to the separate elements based on relative fair value and recognized separately for each element when the applicable revenue recognition criteria have been met . in accounting for these multiple element arrangements , we must make determinations about whether elements can be accounted for separately and make estimates regarding their relative fair values . allowance for doubtful accounts we maintain an allowance for doubtful accounts receivable based on client-specific allowances , as well as a general allowance . specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors , among others , as : ( i ) the aging of the accounts receivable balance ; ( ii ) the client 's past payment experience ; ( iii ) a deterioration in the client 's financial condition , evidenced by weak financial condition and or continued poor operating results , reduced credit ratings , and or a bankruptcy filing . in addition to the specific allowance , the company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance . the general allowance is established based on such factors , among others , as : ( i ) the total balance of the outstanding accounts receivable , including considerations of the aging categories of those accounts receivable ; ( ii ) past history of uncollectable accounts receivable write-offs ; and ( iii ) the overall creditworthiness of the client base . a considerable amount of judgment is required in assessing the realizability of accounts receivable . should any of the factors considered in determining the adequacy of the overall allowance change , an adjustment to the provision for doubtful accounts receivable may be necessary . inventories inventories are stated at the lower of cost or market , cost being determined on the first-in , first-out method . inventories are written down if the estimated net realizable value of an inventory item is less than its recorded value . we review the carrying cost of our inventories by product each quarter to determine the adequacy of our reserves for obsolescence . in accounting for inventories we must make estimates regarding the estimated net realizable value of our inventory . this estimate is based , in part , on our forecasts of future sales and shelf life of product . deferred tax assets ย valuation allowance our deferred tax assets , such as an nol , are reduced by an offsetting valuation allowance based on judgmental assessment of available evidence if we are unable to conclude that it is more likely than not that some or all of the related deferred tax assets will be realized . if we are able to conclude it is more likely than not that we will realize a future benefit from a deferred tax asset , we will reduce the related valuation allowance by an amount equal to the estimated quantity of income taxes we would pay in cash if we were not to utilize the deferred tax asset in the future . the first time this occurs in a given jurisdiction , it will result in a net deferred tax asset on our balance sheet and an income tax benefit of equal magnitude in our statement of operations in the period we make the determination . in future periods , we will then recognize as income tax expense the estimated quantity of income taxes we would have paid in cash had we not utilized the related deferred tax asset . the corresponding journal entry will be a reduction of our deferred tax asset . if there is a change regarding our tax position in the future , we will make a corresponding adjustment to the related valuation allowance . -34- story_separator_special_tag 2013 , as compared to 2012. net income ( loss ) our 2012 net income was $ 1.2 million as compared to 2011 net income of $ 2.1 million and net income of $ 18 thousand in 2010. increased operating expenses , somewhat offset by higher revenue and improved gross margin , was the most important factor in the decline from 2011 to 2012. increased revenue and improved gross margin , somewhat offset by higher operating expenses , were key factors in the improvement from 2010 to 2011. we expect net income will be higher in 2013 , which we expect to include the net income attributable to heska imaging for 10 full months of 2013 , than in 2012. liquidity , capital resources and financial condition we have incurred net cumulative negative cash flow from operations since our inception in 1988. for the year ended december 31 , 2012 , we had net income of $ 1.2 million . in 2012 , net cash used in operations was $ 369 thousand . at december 31 , 2012 , we had $ 5.8 million of cash and cash equivalents , working capital of $ 18.6 million and $ 2.6 million outstanding borrowings under our revolving line of credit , discussed below .
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results of operations the following table summarizes our results of operations for the three most recent fiscal years : replace_table_token_3_th revenue total revenue increased 4 % to $ 72.8 million in 2012 compared to $ 70.1 million in 2011. total revenue increased 7 % to $ 70.1 million in 2011 compared to $ 65.5 million in 2010. cca segment revenue increased 7 % to $ 61.5 million in 2012 compared to $ 57.5 million in 2011. greater revenue from instrument consumables was a factor in the increase . cca segment revenue increased 3 % to $ 57.5 million in 2011 compared to $ 55.7 million in 2010. key factors in the increase were greater sales of our instrument consumables , our canine heartworm preventive and international sales of our canine heartworm diagnostic tests , somewhat offset by lower revenue from our hematology instruments and our chemistry instruments . ovp segment revenue decreased 10 % to $ 11.3 million in 2012 compared to $ 12.6 million in 2011. lower sales of cattle vaccines under our contract with agrilabs and lower international sales of cattle vaccines were factors in the decline . ovp segment revenue increased 28 % to $ 12.6 million in 2011 compared to $ 9.8 million in 2010. greater sales of cattle vaccines to new customers , greater sales of cattle vaccines under our contract with agrilabs and greater sales of other cattle vaccines , somewhat offset by lower sales of bulk bovine biologicals , were key factors in the increase . we expect 2013 total revenue , which we expect to include the revenue attributable to heska imaging for 10 full months of 2013 , to increase as compared with 2012 .
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our actual results could differ materially from those discussed in the forward-looking statements . see the โ note about forward-looking statements โ for additional information . 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 , โ risk factors. โ overview chegg is a smarter way to student . as the leading direct-to-student learning platform , we strive to improve educational outcomes by putting the student first in all our decisions . we support students on their journey from high school to college and into their career with tools designed to help them pass their test , pass their class , and save money on required materials . our services are available online , anytime and anywhere , so we can reach students when they need us most . students subscribe to our subscription services , which we collectively refer to as chegg services . our primary chegg services include chegg study , chegg writing , chegg tutors , and chegg math solver . our chegg study subscription service provides โ expert answers โ and step-by-step โ textbook solutions , โ helping students with their course work . when students need help creating citations for their papers , they can use one of our chegg writing properties , including easybib , citation machine , bibme , and citethisforme . when students need additional help on a subject , they can reach a live tutor online , anytime , anywhere through chegg tutors . our chegg math solver subscription service helps students understand math by providing a step-by-step math solver and calculator . through our agreements with print textbook partners , we offer required materials , which includes an extensive print textbook and etextbook library for rent and sale , helping students save money compared to the cost of buying new . to deliver services to students , we partner with a variety of third parties . we source print textbooks , etextbooks , and supplemental materials directly or indirectly from publishers in the united states , including cengage learning , pearson , mcgraw hill , sage publications , and macmillan . in july 2018 , we acquired studyblue , inc. ( studyblue ) , a content library provider that allows students to create flashcards and their own study materials . in may 2018 , we acquired writelab , inc. ( writelab ) , an ai-enhanced writing platform , that teaches students grammar , sentence structure , writing style , and offers instant feedback to help students revise , edit , and improve their written work . during the years ended december 31 , 2018 , 2017 and 2016 , we generated net revenues of $ 321.1 million , $ 255.1 million and $ 254.1 million , respectively , and in the same periods had net losses of $ 14.9 million , $ 20.3 million and $ 42.2 million , respectively . we plan to continue to invest in our long-term growth , particularly further investment in the technology that powers our learning platform and the development of additional products and services that serve students . our strategy for achieving profitability is centered upon our ability to utilize chegg services to increase student engagement with our learning platform . we plan to continue to invest in the expansion of our chegg services to provide a more compelling and personalized solution and deepen engagement with students . in addition , we believe that the investments we have made to achieve our current scale will allow us to drive increased operating margins over time that , together with increased contributions of chegg services , will enable us to accomplish profitability and become cash-flow positive in the long-term . our ability to achieve these long-term objectives is subject to numerous risks and uncertainties , including our ability to attract , retain , and increasingly engage the student population , intense competition in our markets , the ability to achieve sufficient contributions to revenue from chegg services and other factors described in greater detail in part i , item 1a , โ risk factors. โ we have presented revenues for our two product lines , chegg services and required materials , based on how students view us and the utilization of our products by them . more detail on our two product lines is discussed in the next two sections titled `` chegg services '' and `` required materials . '' 38 chegg services our chegg services for students primarily includes chegg study , chegg writing , chegg tutors , and chegg math solver . students typically pay to access chegg services such as chegg study on a monthly basis . we also work with leading brands to provide students with discounts , promotions , and other products that , based on student feedback , delight them . in the aggregate , chegg services revenues were 79 % , 73 % and 51 % of net revenues during the years ended december 31 , 2018 , 2017 and 2016 , respectively . required materials our required materials product line includes a revenue share on the rental and sale of print textbooks , as well as revenues from etextbooks . we have entered into agreements with partners to provide our customers a wide variety of print textbooks . these agreements have allowed us to reduce and eliminate the capital requirements and operating expenses that were historically incurred to acquire and maintain a print textbook library . as a result , our revenues include a share on the total transaction amount that we earn upon fulfillment of a rental or sale transaction using print textbooks for which our partners have title and risk of loss , as opposed to the total transaction amount . we offer our etextbooks on a standalone basis or as a rental-equivalent solution and for free to students awaiting the arrival of their print textbook rental for select print textbooks . story_separator_special_tag we allocate certain costs to each expense category , including cost of revenues , research and development , sales and marketing and general and administrative . the allocation is primarily based on the headcount in each group at the end of a period . as our business grows , our operating expenses may increase over time to expand capacity and sustain our workforce . research and development our research and development expenses consist of salaries , benefits and share-based compensation expense for employees in our product and web design , engineering and technical teams who are responsible for maintaining our website , developing new products and improving existing products . research and development costs also include amortization of acquired intangible assets , depreciation expense , technology costs to support our research and development , outside services , and allocated information technology and facilities expenses . we expense substantially all of our research and development expenses as they are incurred . in the past three years , our expenses have increased to support new products and services as well as to expand our infrastructure capabilities to support back-end processes associated with our revenue transactions and internal systems . we intend to continue making significant investments in developing new products and services and enhancing the functionality of existing products and services . sales and marketing our sales and marketing expenses consist of user and advertiser-facing marketing and promotional expenditures through a number of targeted online marketing channels , sponsored search , display advertising , email marketing campaigns and other initiatives . we incur salaries , benefits and share-based compensation expenses for our employees engaged in marketing , business development and sales and sales support functions , amortization of acquired intangible assets , and allocated information technology and facilities costs . our marketing expenses are largely variable ; and we tend to incur these in the first and third quarters of the year due to our efforts to target students at the beginning of academic terms . to the extent there is increased or decreased competition for these traffic sources , or to the extent our mix of these channels shifts , we would expect to see a corresponding change in our marketing expense . 40 general and administrative our general and administrative expenses consist of salaries , benefits and share-based compensation expense for certain executives as well as our finance , legal , human resources and other administrative employees . in addition , general and administrative expenses include outside services , legal and accounting services , depreciation expense , provision for doubtful accounts , and allocated information technology and facilities costs . we have incurred additional costs as we transitioned in 2017 from an โ emerging growth company โ to a large accelerated filer including increased audit , legal , regulatory and other related fees . restructuring charges ( credits ) restructuring charges ( credits ) are primarily comprised of severance costs , contract and program termination costs , asset impairments and costs of facility consolidation and closure . restructuring charges are recorded upon approval of a formal management plan and are included in the operating results of the period in which such plan is approved and the expense becomes estimable . gain on liquidation of textbooks gain on liquidation of textbooks consists of proceeds we receive from the sale of previously rented print textbooks , through our website or to wholesalers and other channels , offset by the net book value of such textbooks . our gain on liquidation of textbooks is driven by several factors including age of the books liquidated , the volume of books liquidated at a given point in time and the channel through which we liquidate . when the proceeds received exceed the net book value of the textbooks liquidated , we record a gain on liquidation of textbooks . interest expense , net and other income ( expense ) , net interest expense , net consists primarily of interest expense on our debt obligations including the amortization of debt discount and issuance costs related to the notes . other income ( expense ) , net consists primarily of interest income on our cash and cash equivalents and investment balances . provision for income taxes provision for income taxes consists primarily of federal and state income taxes in the united states and income taxes in foreign jurisdictions in which we conduct business . due to the uncertainty as to the realization of the benefits of our domestic deferred tax assets , we have recorded a full valuation allowance against such assets . we intend to continue to maintain a full valuation allowance on our domestic deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances . 41 story_separator_special_tag increase was primarily attributable to higher employee-related expenses of $ 1.0 million , higher share-based compensation expense of $ 1.7 million , and higher marketing expenses of $ 1.8 million , compared to the same period in 2017 . these decreases were partially offset by lower depreciation and amortization of $ 0.5 million and lower outside services of $ 0.5 million compared to the same period in 2017 . sales and marketing expenses as a percentage of net revenues were 17 % during the year ended december 31 , 2018 compared to 20 % of net revenues during the same period in 2017 .
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results of operations the following table summarizes our historical consolidated statements of operations ( in thousands , except percentage of total net revenues ) : replace_table_token_3_th 42 years ended december 31 , 2018 , 2017 and 2016 net revenues net revenues in the year ended december 31 , 2018 increased $ 66.0 million , or 26 % , compared to the same period in 2017 . net revenues in the year ended december 31 , 2017 increased $ 1.0 million , remaining relatively flat , compared to the same period in 2016. rental revenues decreased $ 39.8 million , or 100 % , while services revenues increased $ 72.7 million , or 40 % , and sales revenues decreased $ 31.9 million , or 100 % . the following table sets forth our total net revenues for the periods shown for our chegg services and required materials product lines ( in thousands , except percentages ) : replace_table_token_4_th chegg services revenues increased $ 68.3 million , or 37 % , in the year ended december 31 , 2018 , compared to the same period in 2017 due to growth in chegg study and chegg writing . chegg services revenues represented 79 % and 73 % of net revenues during the years ended december 31 , 2018 and 2017 , respectively . required materials revenues decreased $ 2.3 million , or 3 % , in the year ended december 31 , 2018 compared to the same period in 2017 , remaining relatively flat . required materials revenues represented 21 % and 27 % of net revenues during the years ended december 31 , 2018 and 2017 , respectively . chegg services revenues increased $ 56.3 million , or 44 % , in the year ended december 31 , 2017 , compared to the same period in 2016 due to growth in chegg study and chegg writing . chegg services revenues represented 73 % and 51 % of net revenues during the years ended december 31 , 2017 and 2016 , respectively .
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in doing so , we continue to focus on the following key initiatives in an effort to broaden our position in the u.s. government contracting market : differentiate dlh offerings by delivering professional , technical , logistical , and consulting services that enable customers to achieve business value through the use of best-in-class processes . specifically , we use spot-m , dlh 's unique approach to integration of people , processes , and technology tools to measure , manage and optimize our performance at project or enterprise levels ; continue expansion through organic growth as a prime contractor by delivering quality services and cost effective solutions to our customers . organic growth has contributed to a 23 % increase in revenue over the past three years , from $ 49.2 million for fiscal year 2012 to $ 60.5 million for fiscal 2014 ; selectively review and position ourselves for potential strategic acquisitions or other business arrangements such as subcontracting and joint ventures , in an effort to expand the number of opportunities available and increase our market coverage ; and continue to seek opportunities to increase our sales volume by adding to our business development leadership team , strategic advisers , and health industry resources while the recent budget actions taken by the government ( notably , the bipartisan budget act of 2013 and the consolidated appropriations act signed by the president in january 2014 ) provide a more measured approach to addressing the u.s. government 's fiscal challenges , sequestration remains a long-term concern . if not further modified , sequestration could still have negative impacts on our industry . though our current customer base is largely exempt from sequestration , prospective future customers may continue to have budget pressure . business overview dlh provides services and solutions within two broad us government markets : healthcare and logistics . our offerings are segregated into two revenue streams : healthcare delivery solutions and logistics & technical services , which now includes our contingency staff augmentation service offering . our services are provided to government agencies including the department of veteran affairs , the department of defense , and other government clients . the approximate percentage of revenue derived from our services and solutions are shown in the following table : 17 fiscal year ended fiscal year ended revenue stream september 30 , 2014 september 30 , 2013 healthcare delivery solutions 52 % 54 % logistics & technical services 48 % 46 % healthcare delivery solutions healthcare delivery solutions provide a broad continuum of care for our nation 's servicemen/women and veterans in various settings and facilities . these include combat trauma centers ( ctcs ) , military treatment facilities ( mtfs ) , medical centers , community-based outpatient clinics ( cbocs ) , and pharmacy distribution centers ( including va consolidated mail-order outpatient pharmacy ) . we leverage our network of over 400 active clinicians and other healthcare workers throughout selected regions in the us , applying differentiating tools , databases and technology ( including e-prat and spot-m ) to deliver these services . for over a decade , dlh solutions has been serving the dva and dod in providing qualified medical and other professionals in a variety of positions . as more and more federal and dod programs increase their performance-based requirements , dlh solutions ' workforce profile of medical talent and credentials will help it to compete and differentiate itself in the market place . our healthcare and medical service new business pipeline adds important credentials strategically linked to diversifying and profitably growing our healthcare delivery solutions business base . professional services have included case management , health and injury assessment , critical care , medical/surgical , emergency room/trauma center , counseling , behavioral health and traumatic brain injury management , medical systems analysis , and medical logistics . while the dva is its largest customer in this business unit , the company has focused on leveraging that experience in adjacent healthcare markets within dod and other federal agencies . logistics & technical services logistics & technical services draws heavily upon our proven logistics expertise and processes . dlh resources possess expertise covering a wide range of logistics , readiness and project engineering . the experience of dlh solutions ' project personnel is diverse from operational unit level to systems and program office experience . our core competencies include supply chain management , performance-based logistics , distribution center and inventory management , statistical process control , packaging/handling/storage & transportation , configuration management , readiness planning , and supply support operations . in addition , we provide program and project management , systems engineering and applicable information technology services , integrated logistics support ( including operational systems ) , readiness assessments , training , equipment maintenance , hazardous material management , facilities and shipyard support services and more . dlh solutions also provides professional staff to the federal government specializing in logistics , office administration , it , and facilities/warehouse management . contingency staff augmentation provides disaster and emergency response services and civilian workforce augmentation services . through competitively awarded contracts and task orders ( including its logworld contract ) dlh solutions has developed a strong portfolio of logistics processes , personnel and tools to help its clients achieve nationally recognized awards for customer satisfaction . while the dva is its largest customer in this area , the company has taken steps to expand in adjacent logistics markets within dod and other federal agencies . forward looking business trends dlh continues to see stability and growth within our sector of the federal government market , specifically the dva , which comprises approximately 96 % of our current customer base . we continue to see strong bipartisan support for improving the healthcare of us veterans . story_separator_special_tag selected sources and uses of cash are shown in the table below , ( amounts in millions ) : 22 replace_table_token_7_th ref ( a ) : at september 30 , 2014 , the company had cash deposits on hand of approximately $ 3.9 million . ref ( b ) : the company had no borrowing on our line of credit at september 30 , 2014 . this represents a reduction in borrowing of approximately $ 1.0 million for the year ended september 30 , 2014 . ref ( c ) : at september 30 , 2014 , our available loan reserves were approximately $ 2.5 million , comprised of approximately $ 1.4 million in stand by letter of credit reserve and $ 1.1 million of unused loan capacity . ref ( d ) : adjusted ebitda of approximately $ 1.3 million represents income from operations before reductions for non-cash operating expenses and depreciation . it is an internal measure used by management to gauge the amount of cash generated from operations . ref ( e ) : cash flows from operating activities increased $ 1.7 million due principally to improved profitability and cash collateral released upon issuance of a standby letter of credit , partially offset by higher accounts receivable and a net reduction in accrued current liabilities . ref ( f ) : cash flows used in financing activities for the year ended september 30 , 2014 were approximately $ ( 1.2 ) million , resulting from repayment of our loan balance and net repayments of our convertible debentures during first quarter 2014. in addition , net cash used in investing activities for the year ended september 30 , 2014 was approximately $ ( 13 ) thousand , consistent with our historically low requirements for expenditures on fixed assets and capital equipment . ref ( g ) : we had approximately $ 0.7 million in surplus working capital at september 30 , 2014 , a $ 2.7 million improvement over the prior year period . this was due to working capital generated from profitable operations , release of cash collateral upon issuance of a standby letter of credit , and capital derived from conversion of convertible debt and exercise of warrants during first quarter 2014. sources of cash and cash equivalents the company 's immediate sources of liquidity include cash and cash equivalents , accounts receivable , and access to its asset-based credit facility with presidential financial corporation . as described in greater detail below , presently , this credit facility provides us with access of up $ 3 million , with the ability for it to increase to $ 6 million , subject to certain conditions . the company 's present operating liabilities are largely predictable and consist of vendor and payroll related obligations . the company 's operations may require working capital to fund the future growth of its business model with expanded business development efforts , and planned capital expenditures to support a larger customer base . management 's assessment of cash and cash equivalents at september 30 , 2014 management believes , at present , that : ( a ) cash and cash equivalents of approximately $ 3.9 million as of september 30 , 2014 ; ( b ) the amount available under its line of credit ( which is limited to the amount of eligible assets ) ; ( c ) planned operating cash flow ; and ( d ) effects of cost reduction programs and initiatives should be sufficient to support the company 's operations for twelve months from the date of these financial statements . loan facility 23 on july 29 , 2010 , dlh solutions entered into a loan and security agreement ( the โ loan agreement โ ) , as amended , with presidential financial corporation ( the โ lender โ ) . under the loan agreement , the lender agreed to provide an initial two ( 2 ) year secured loan facility with renewal options to dlh solutions . the current term of the loan agreement expires on july 29 , 2015 and thereafter shall automatically renew on each anniversary date thereof for subsequent twelve month terms unless terminated by either party . the current available line of credit maximum amount is $ 6 million , with an unbilled accounts facility of the loan agreement currently set at a maximum of $ 1 million . presently , the maximum availability under this loan facility is $ 3 million ( the `` sublimit '' ) , subject to eligible accounts receivable , excluding retroactive billings . the company 's ability to increase the sublimit of its available credit is subject to the satisfaction of certain conditions , including ( i ) the company 's ( a ) demonstrated need for the increase and ( b ) compliance with the loan agreement , and ( ii ) the lender 's consent , in its sole discretion , to increase the sublimit . at september 30 , 2014 , our loan availability was approximately $ 2.5 million , comprised of a $ 1.4 million letter of credit reserve and $ 1.1 million of unused loan capacity . as of september 30 , 2014 , there was no outstanding loan balance . in addition , the loan agreement permits letters of credit to be issued under the overall credit facility , subject to availability provided by eligible billed and unbilled accounts receivable and further subject to a limit of $ 1.35 million . the letter of credit has an expiration date of may 15 , 2015 and will automatically extend for additional one-year periods unless either party provides written notice of non-renewal within 60 days of the annual expiration date . i n march 2014 , the company further amended the loan agreement ( the โ sixth amendment โ ) pursuant to which the lender agreed to reduce the interest rate and certain of the service fees and modify the scope of the early termination fee .
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fiscal year 2014 revenue was $ 60.5 million , an increase of $ 7.0 million or 13.1 % over the prior year period . the increase in revenue is due primarily to new business awarded in 2013 and 2014 , as well as expansion on current programs . direct expenses direct expenses are generally comprised of direct labor ( including benefits ) , taxes and insurance , workers compensation expense , subcontract cost , and other direct costs . fiscal year 2014 direct expenses were $ 51.5 million , an increase of approximately $ 5.5 million or 12.0 % over the prior year period on higher revenue . as a percentage of revenue , direct expenses decreased by approximately ( 0.8 ) % , with the improvement attributable to favorable contract performance and cost management , offset in part by increased workers compensation costs . gross margin gross margin for the year ended september 30 , 2014 was approximately $ 9.0 million , an increase of approximately $ 1.5 million or 19.5 % over prior fiscal year . as a percentage of revenue , our gross margin rate of 14.8 % for the year ended september 30 , 2014 , increased by 0.8 % over the prior year period . the gross margin rate benefited from new business awarded in 2013 and improved contract performance , with downward pressure from increased workers compensation costs . we continue to focus on internal measures to control costs and improve our margin . general and administrative expenses general and administrative ( โ g & a โ ) expenses primarily relate to functions such as operations overhead , corporate management , legal , finance , accounting , contracts administration , human resources , management information systems , and business development . fiscal year 2014 g & a expenses were approximately $ 8.1 million , an increase of approximately of $ 1.0 million or 13.5 % over the prior year period .
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the warrants have a five-year term and an exercise price equal to $ 2.34 per share of common stock . the exercise price and or the number of story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties , including those set forth under the heading ยrisk factorsย and elsewhere in this annual report on form 10-k. our actual results and the timing of selected events discussed below could differ materially from those expressed in , or implied by , these forward-looking statements . story_separator_special_tag component as well as an update on the overall efficacy of the phase 2 component of the 403 trial at the 17 th ctos annual meeting in november 2012. in february 2011 , we reached agreement with the fda on the design and planned analysis of a pivotal phase 3 trial in patients with soft tissue sarcoma ( 406 trial ) . as part of the special protocol assessment ( spa ) submission , the fda agreed that the design and planned analysis of the proposed phase 3 trial adequately addresses the objectives necessary to support a regulatory submission . we initiated the pivotal phase 3 trial in september of 2011 and currently expect to complete enrollment around the end of 2013. we are working to broaden the applicability of th-302 to other cancers and in combination with other approved anti-cancer drugs as well as to discover additional hypoxia activated prodrugs that will selectively target cancer cells . 47 we were incorporated in october 2001. we have devoted substantially all of our resources to research and development of our product candidates . we have not generated any revenue from the commercial sales of our product candidates , and prior to our entering into a collaboration agreement with merck kgaa in february 2012 , we have funded our operations through the private public placement and public offerings of our equity securities . on february 3 , 2012 , we entered into an agreement with merck kgaa , which to date has provided for $ 97.5 million in upfront and milestone payments , including $ 42.5 million received subsequent to december 31 , 2012. we expect to receive additional $ 12.5 million in potential milestone payments in 2013. during the year ended december 31 , 2012 , we sold 2,022,144 shares of common stock under our at market issuance sales facility for net proceeds of $ 12.3 million , and we received approximately $ 8.8 million from the exercise of warrants to purchase common stock . as of december 31 , 2012 we had cash , cash equivalents and marketable securities of $ 70.8 million . for the year ended december 31 , 2012 , we had an operating loss of $ 20.0 million and a net loss of $ 71.1 million , including $ 51.2 million in non-cash expense related to the change in the fair value of outstanding warrants . our cumulative net loss since our inception through december 31 , 2012 was $ 323.3 million . we expect to continue to devote substantial resources to research and development in future periods as we complete our current clinical trials , start additional clinical trials and continue our discovery efforts . research and development expenses net of reimbursements of merck 's 70 % share of total th-302 development expenses , are expected to increase in 2013 compared to 2012 due to the continued execution of existing clinical trials and beginning of new clinical trials . we believe that our cash , cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least the next twelve months based upon current operating plans , milestone payment forecasts and spending assumptions . we expect that we will need to raise additional capital to support new in-house development programs or to in-license or otherwise acquire and develop additional products or programs . we intend to seek funds through additional arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently . research and development expenses may fluctuate significantly from period to period as a result of the progress and results of our clinical trials . revenue we have not generated any revenue from the commercial sales of our product candidates since our inception and do not expect to generate any revenue from the commercial sales of our product candidates in the near term . we recognized revenue of $ 5.9 million during the year ended december 31 , 2012 , from the amortization of the $ 67.5 million in upfront and milestone payments earned in 2012 from our collaboration with merck kgaa . we are amortizing the upfront and milestone payments over the period of performance ( product development period ) . we will periodically review and , if necessary , revise the estimated periods of performance of our collaboration . in 2011 , we recognized $ 0.1 million in revenue in connection with our 2009 agreement with eleison pharmaceuticals ( ยeleisonย ) for the development of glufosfamide , which represents our 50 % share of an upfront payment from a sublicense by eleison . research and development expenses research and development expenses consist primarily of costs of conducting clinical trials , salaries and related costs for personnel including non-cash stock-based compensation , costs of clinical materials , costs for research projects and preclinical studies , costs related to regulatory filings , and facility costs . contracting and consulting expenses are a significant component of our research and development expenses as we rely on consultants and contractors in many of these areas . we recognize expenses as they are incurred . story_separator_special_tag other income ( expense ) other income ( expense ) for 2012 was non-cash expense of $ 51.2 million compared to non-cash income of $ 4.4 million for 2011. the non-cash expense for 2012 compared to the non-cash income for 2011 was due to a change in the fair value of outstanding warrants to purchase common stock and warrants exercised during 2012 as result of a change in the underlying market price of common stock of the company . asc 815 ยderivatives and hedgingย requires that stock warrants with certain terms be accounted for as a liability with changes to their fair value recognized in the consolidated statements of operations . results of operations for the years ended december 31 , 2011 and 2010 revenue for the year ended december 31 , 2011 , we recognized $ 0.1 million in revenue related to our 2009 agreement with eleison for the development of glufosfamide , which represents our 50 % share of an upfront payment from a sublicense by eleison . for the year ended december 31 , 2010 , no revenue was recognized . research and development research and development expenses were $ 24.4 million for the year ended december 31 , 2011 , compared to $ 18.9 million for the year ended december 31 , 2010. the $ 5.5 million increase in expenses is due to a $ 4.8 million increase in clinical and development expenses , $ 0.4 million in higher staffing expenses and $ 0.4 million in higher consulting expenses . these increases were partially offset by a $ 0.2 million decrease in facilities expenses . in addition , stock-based compensation expense increased by $ 0.1 million . 50 research and development expenses associated with our internally discovered compound th-302 were $ 20.7 million for 2011and $ 16.2 million for 2010. the increase of $ 4.5 million in 2011 was due primarily to an increase in $ 4.7 million in clinical and manufacturing costs , $ 0.3 million increase in consulting costs , partially offset by a decrease in employee related expenses of $ 0.5 million . th-302 continues to progress through the 406 trial , the 404 trial and the 403 trial . the 403 and 404 trials were expanded and enrollment of patients was completed in the second quarter of 2011. in october 2011 , we reported updated top-line results for the 403 trial and we reported top-line results for the 404 trial in february 2012. enrollment in the 407 trial was completed in the fourth quarter of 2011 , and top-line results were presented in the fourth quarter of 2011. discovery research and development expenses were $ 3.7 million in 2011 and $ 2.8 million for 2010. we continue to focus our efforts towards discovering and developing new drug candidates from our hypoxia activated prodrug platform . general and administrative general and administrative expenses were $ 5.7 million for 2011 , compared to $ 5.0 million for 2010. the $ 0.7 million increase reflects a $ 0.6 million in higher staffing and facilities expenses , as well as a $ 0.1 million increase in stock-based compensation . interest income ( expense ) , net interest income ( expense ) net for 2011 was $ 25,000 of interest income compared to $ 60,000 of net interest income for 2010. the decrease in net interest income was primarily due to the lower interest received on investments during 2011 than the prior year . other income ( expense ) other income ( expense ) for 2011 was non-cash income of $ 4.4 million compared to non-cash income of $ 5.2 million for 2010. the non-cash income for 2011 compared to the non-cash income for 2010 was due to the decrease during 2011 in the fair value of outstanding warrants to purchase 16.6 million shares of common stock warrants . asc 815 ยderivatives and hedgingย requires that stock warrants with certain terms be accounted for as a liability with changes to their fair value recognized in the consolidated statements of operations . liquidity and capital resources we have incurred net losses of $ 323.3 million since inception through december 31 , 2012. we have not generated and do not expect to generate revenue from sales of product candidates in the near term . since our inception , we funded our operations primarily through private placements and public offerings of equity securities and through payments received under our license and co-development agreement with merck kgaa . during the year ended december 31 , 2012 , we sold an aggregate of approximately 2.0 million shares of common stock under our at the market stock issuance facility for net proceeds of $ 12.3 million , and we received approximately $ 8.8 million from the exercise of warrants to purchase approximately 4.7 million shares of common stock . during the year ended december 31 , 2011 we sold approximately 1.0 million shares of our common stock at an average price of $ 2.66 under our at the market stock issuance facility , for net proceeds of $ 2.3 million . in march 2011 , we sold to certain investors an aggregate of approximately 14.3 million shares of our common stock for a purchase price equal to $ 2.05 per share and , for a purchase price equal to $ 0.05 per share , warrants exercisable for a total of approximately 5.7 million shares of our common stock for aggregate gross proceeds equal to $ 30.1 million in connection with the offering . the warrants have an exercise price equal to $ 2.46 per share . net proceeds generated from the offering were approximately $ 27.8 million , which includes underwriter discounts and offering costs .
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overview we are a biotechnology company using our expertise in the tumor microenvironment to discover and develop therapeutic agents that selectively target tumor cells for the treatment of patients living with cancer . our lead investigational small molecule , th-302 , is being evaluated in two pivotal phase 3 clinical trials and multiple earlier-stage clinical trials . we have a global license and co-development agreement for th-302 with merck kgaa , with an option to co-commercialize in the united states . th-302 was discovered by our scientists based on our hypoxia-activated prodrug ( ยhapย ) technology . hypoxia , or abnormally low oxygen concentration , is a common feature of the tumor microenvironment in most solid tumors and in the bone marrow of patients with some hematological malignancies ( also known as blood cancers , for example , leukemias and multiple myeloma ) . tumor hypoxia is associated with the development of resistance to traditional anticancer treatments , including chemotherapy and radiotherapy , enhanced metastatic potential , and ultimately treatment failure . normal healthy tissues , in contrast , are well oxygenated and typically are not hypoxic . as a prodrug , th-302 is designed to remain essentially inactive in normal tissues , but to activate under conditions of tumor hypoxia . upon activation , th-302 releases bromo isophosphoramide mustard ( br-ipm ) , a potent cytotoxin that kills cells by causing dna to crosslink . we believe that by virtue of targeting tumor hypoxia , th-302 has broad clinical applicability across many types of solid tumors and some hematological malignancies . to explore this broad therapeutic potential of th-302 , we are conducting multiple clinical trials to evaluate its safety and efficacy as monotherapy and in combination with currently marketed anticancer drugs , including traditional chemotherapeutic agents and antiangiogenic agents . th-302 is currently in phase 1 , phase 2 and phase 3 clinical trials .
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the consolidated group did not achieve the trailing three-month net product revenue threshold prior to june story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited annual consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties . actual results may differ materially from those discussed in these forward-looking statements due to a number of factors , including those set forth in the section entitled โ risk factors โ and elsewhere in this annual report on form 10-k. for further information regarding forward-looking statements , please refer to the โ special note regarding forward-looking statements and projections โ at the beginning of part i of this annual report on form 10-k. overview alimera sciences , inc. , and its subsidiaries ( we or alimera ) is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals . we presently focus on diseases affecting the back of the eye , or retina , because we believe these diseases are not well treated with current therapies and represent a significant market opportunity . our only commercial product is iluvien ยฎ , which has received marketing authorization in the u.s. , austria , belgium , the czech republic , denmark , finland , france , germany , ireland , italy , luxembourg , the netherlands , norway , poland , portugal , spain , sweden and the united kingdom . in the u.s. , iluvien is indicated for the treatment of diabetic macular edema ( dme ) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure ( iop ) . in the european economic area ( eea ) countries in which iluvien has received marketing authorization , it is indicated for the treatment of vision impairment associated with dme considered insufficiently responsive to available therapies . in december 2017 , we filed an application for a new indication for iluvien for the treatment of non-infectious posterior uveitis ( nipu ) in the 17 eea countries where iluvien is currently approved for the treatment of dme . uveitis is an inflammatory disease of the uveal tract , which is comprised of the iris , ciliary body and choroid , that can lead to severe vision loss and blindness . we commercially market iluvien in the u.s. , germany , the united kingdom , portugal , austria and ireland . we began selling iluvien in austria in the first quarter of 2017 and in ireland in the fourth quarter of 2017. in addition , we have entered into various agreements under which distributors are providing or will provide regulatory , reimbursement or sales and marketing support for future commercialization of iluvien in several countries in the middle east , as well as italy , spain , france , canada , australia and new zealand . in the third quarter of 2016 , our middle east distributor launched iluvien and initiated named patient sales in the united arab emirates . our italian distributor launched iluvien in italy in the second quarter of 2017. our spanish distributor began selling on a named patient basis in 2017 and is currently pursing reimbursement at the national level . we amended and restated our license agreement with psivida effective july 1 , 2017 ( the new collaboration agreement ) . under the new collaboration agreement , the technology underlying iluvien now includes the treatment of uveitis , including non-infectious posterior uveitis ( nipu ) in europe , the middle east and africa . before we entered into the new collaboration agreement , we were required to share 20 % of our net profits on a country-by-country basis . we were permitted to offset up to 20 % of this amount with accumulated commercialization costs incurred in previous quarters . the new collaboration agreement converts this profit share obligation to a royalty payable on global net revenues of iluvien . we began paying a 2 % royalty on net revenues and other related consideration to psivida effective july 1 , 2017. this royalty amount will increase to 6 % upon the earliest of december 12 , 2018 or the receipt of the first marketing approval for iluvien for the treatment of nipu . we will pay an additional 2 % royalty on global net revenues and other related consideration in excess of $ 75.0 million in any year . during the year ended december 31 , 2017 , we recognized approximately $ 374,000 of royalty expense . following the signing of the new collaboration agreement , we retained a right to offset $ 15.0 million of future royalty payments . this offset will be reduced by up to $ 5.0 million upon the earlier of the approval of iluvien for posterior uveitis in any eu country or january 1 , 2020 , unless certain conditions under the new collaboration agreement are not met . 42 we commenced operations in june 2003. since our inception we have incurred significant losses . as of december 31 , 2017 , we had accumulated a deficit of $ 399.1 million . we expect to incur substantial losses through the continued commercialization of iluvien as we : continue the commercialization of iluvien in the u.s. and eea and , through our distributors , in the middle east , italy and spain ; continue to seek regulatory approval of iluvien in other jurisdictions and for other indications ; evaluate the use of iluvien for the treatment of other diseases ; and advance the clinical development of any future products or product candidates either currently in our pipeline , or that we may license or acquire in the future . as of december 31 , 2017 , we had approximately $ 24.1 million in cash and cash equivalents . story_separator_special_tag these activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment . changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment . there were no significant changes in our expense allocation methodology during 2017 or 2016. u.s. segment replace_table_token_4_th u.s. segment - year ended december 31 , 2017 compared to the year ended december 31 , 2016 net revenue . net revenue increased by approximately $ 300,000 , or 1 % , to approximately $ 26.1 million for the year ended december 31 , 2017 , compared to approximately $ 25.8 million for the year ended december 31 , 2016. the increase was primarily attributable to a 12 % increase in end user demand , offset by the timing of orders from our two large u.s. distributors , which increased inventory levels in 2016 and decreased inventory levels in 2017. cost of goods sold , excluding depreciation and amortization . cost of goods sold , excluding depreciation and amortization increased by approximately $ 800,000 , or 47 % , to approximately $ 2.5 million for the year ended december 31 , 2017 compared to approximately $ 1.7 million for the year ended december 31 , 2016. the increase was primarily attributable to increases of approximately $ 310,000 of profit share expense and royalty expense , in each case payable to psivida and $ 310,000 of costs associated with certain parts used to manufacture iluvien that were no longer usable . research , development and medical affairs expenses . research , development and medical affairs expenses decreased by approximately $ 1.4 million , or 19 % , to approximately $ 5.8 million for the year ended december 31 , 2017 , compared to approximately $ 7.2 million for the year ended december 31 , 2016. the decrease was primarily attributable to decreases of approximately $ 670,000 in personnel costs , $ 400,000 in scientific communication costs , $ 310,000 of costs related to maintaining the u.s. registration of iluvien and $ 150,000 in costs associated with improving the iluvien applicator . general and administrative expenses . general and administrative expenses decreased by approximately $ 1.3 million , or 15 % , to approximately $ 7.6 million for the year ended december 31 , 2017 , compared to approximately $ 8.9 million for the year ended december 31 , 2016. the decrease was primarily attributable to decreases of approximately $ 960,000 for certain one-time costs associated with pursuing alternative debt options in 2016 , including contingent advisory fees , $ 320,000 in bonus expense as we granted restricted stock unit awards to our non-field personnel in lieu of a cash bonus program in 2017 , which expense is recorded in our other segment and $ 270,000 in costs incurred with our third-party manufacturers of iluvien . these decreases were offset by an increase of $ 250,000 in legal , professional fees and insurance premiums as well as increases in other various general and administrative expenses . 47 sales and marketing expenses . sales and marketing expenses decreased by approximately $ 4.7 million , or 22 % , to approximately $ 16.6 million for the year ended december 31 , 2017 , compared to approximately $ 21.3 million for the year ended december 31 , 2016. the decrease was primarily attributable to decreases of approximately $ 2.1 million in personnel costs due to unfilled sales territories in the u.s. , $ 1.6 million in marketing costs directly related to our cost saving plan we implemented in late 2016 and $ 550,000 in market access costs . international segment replace_table_token_5_th international segment - year ended december 31 , 2017 compared to the year ended december 31 , 2016 net revenue . net revenue increased by approximately $ 1.2 million , or 14 % , to approximately $ 9.8 million for the year ended december 31 , 2017 , compared to approximately $ 8.6 million for the year ended december 31 , 2016. the increase was primarily attributable to the increased value of the british pound sterling and the euro as compared to the u.s. dollar and to increased sales to our international distributors . cost of goods sold , excluding depreciation and amortization . cost of goods sold , excluding depreciation and amortization increased by approximately $ 310,000 , or 48 % , to approximately $ 960,000 for the year ended december 31 , 2017 , compared to approximately $ 650,000 for the year ended december 31 , 2016. the increase was primarily attributable to increased sales volume and profit share expense and royalty expense payable to psivida . research , development and medical affairs expenses . research , development and medical affairs expenses decreased by approximately $ 1.0 million , or 23 % , to approximately $ 3.3 million for the year ended december 31 , 2017 , compared to approximately $ 4.3 million for the year ended december 31 , 2016. the decrease was primarily attributable to decreases of approximately $ 810,000 in costs associated with our five-year , post-authorization , open label european registry study of patients treated with iluvien for which enrollment was terminated in early 2017 and $ 110,000 of costs related to maintaining our international registrations of iluvien . general and administrative expenses . general and administrative expenses decreased by approximately $ 900,000 , or 26 % , to approximately $ 2.6 million for the year ended december 31 , 2017 , compared to approximately $ 3.5 million for the year ended december 31 , 2016. the decrease was primarily attributable to a reduction of $ 630,000 in personnel costs and related travel and entertainment , which includes accrued shut down costs for our french operations incurred in 2016 and $ 150,000 in costs paid to psivida in 2016. sales and marketing expenses .
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results of operations replace_table_token_3_th revenue we began generating revenue from iluvien in 2013 , but do not expect positive cash flow from operations until late 2018 , if at all . in addition to generating revenue from product sales , we intend to seek to generate revenue from other sources such as upfront fees , milestone payments in connection with collaborative or strategic relationships , and royalties resulting from the licensing of iluvien or any future product candidates and other intellectual property . net revenue increased by approximately $ 1.6 million , or 5 % , to approximately $ 35.9 million for the year ended december 31 , 2017 , compared to approximately $ 34.3 million for the year ended december 31 , 2016. the increase was primarily attributable to increased sales volume in the u.s. and international segments , offset by the timing of the ordering of our two large u.s. distributors . cost of goods sold , excluding depreciation and amortization , and gross profit gross profit is affected by costs of goods sold , which includes ( a ) costs of manufactured goods sold and ( b ) payments to psivida in the form of ( 1 ) royalty payments under the new collaboration agreement ( after july 1 , 2017 ) , and ( 2 ) payments based on a percentage of net profits under our previous agreement with psivida ( before july 1 , 2017 ) . additionally , revenue from our international distributors fluctuates depending on the timing of the shipment of iluvien to the distributor and the distributors ' sales of iluvien to their customers .
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the amended financing agreement includes a $ 200 million term loan b maturing in november 2020 and a $ 75 million revolving credit facility maturing in november 2018. as a result of the debt refinance , $ 4.6 million of unamortized deferred loan fees and costs under the original financing agreement were written off and recognized as miscellaneous non-operating expense in the consolidated statement of operations . as part of the story_separator_special_tag the consolidated financial statements and notes to the consolidated financial statements are the basis for our discussion and analysis of financial condition and results of operations . you should read this discussion in conjunction with those financial statements . forward-looking statements certain forward-looking statements related to our businesses are included in this discussion . those forward-looking statements reflect our current expectations . forward-looking statements are subject to certain risks , trends and uncertainties that could cause actual results to differ materially from the expectations expressed in the forward-looking statements . such risks , trends and uncertainties , which in most instances are beyond our control , include changes in advertising demand and other economic conditions ; consumers ' tastes ; newsprint prices ; program costs ; labor relations ; technological developments ; competitive pressures ; interest rates ; regulatory rulings ; and reliance on third-party vendors for various products and services . the words โ believe , โ โ expect , โ โ anticipate , โ โ estimate , โ โ intend โ and similar expressions identify forward-looking statements . you should evaluate our forward-looking statements , which are as of the date of this filing , with the understanding of their inherent uncertainty . we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date the statement is made . executive overview the e. w. scripps company ( โ scripps โ ) is a diverse media enterprise with interests in television stations , newspapers and local and national digital media sites . we serve audiences and businesses through a growing portfolio of television , print and digital media brands . we own 19 local television stations , as well as daily newspapers in 13 markets across the united states . we also run an expanding collection of local and national digital journalism and information businesses including digital video news service newsy . we also produce television programming , run an award-winning investigative reporting newsroom in washington , d.c. , and serve as the longtime steward of one of the nation 's largest , most successful and longest-running educational programs , the scripps national spelling bee . our 2011 addition of nine local television stations in four markets through the acquisition of the television station group owned by mcgraw-hill broadcasting company , inc. ( โ mcgraw-hill โ ) signified our shift of the balance of the company 's assets toward the television business . we continued this shift with the february 2014 announcement of a definitive agreement to acquire two television stations from granite broadcasting corporation for $ 110 million in cash . the acquisition includes a detroit mynetworktv affiliate and a buffalo , n.y. , abc affiliate . the acquisition of the detroit station creates a duopoly with our largest station , abc affiliate wxyz-tv . we expect this acquisition to close in the first half of 2014. our emphasis on positioning our television stations in their markets to be leaders in local news continues to show strong results . in the november 2013 ratings , nine of our stations finished first or second in key adult demographics in at least one of the major local news time periods ( 6 a.m. , 6 p.m. or late news ) . ten of our 13 major network-affiliated stations improved their percentage of local news viewing in at least one of these time periods over the same time in november 2012. five stations improved their market rank in at least one newscast in november 2013. our denver and phoenix television stations won coveted peabody awards in 2013. we believe our emphasis on being the local news leader in our markets will drive stronger operating results . we continue to see strong results from our programming strategy , lessening our reliance on purchased syndicated shows . we have two original shows โ a game show called let 's ask america and a nightly infotainment magazine called the list โ with one or both being aired during the access period between evening news and prime time in eight of our markets . we have the intention of rolling them out in the rest of our markets when commitments to air other programming during that time period expire . we have recently signed a deal to syndicate let 's ask america in markets nationwide . we are also a partner in another original show called rightthisminute , a daily news and entertainment program , which airs on 12 of our stations . in our newspaper division , we saw the launch late in the first quarter of 2013 of our bundled-subscription model in our memphis and treasure coast markets . by the end of the third quarter , all of our newspaper markets had rolled out this model . under our bundled model , subscribers receive access to all of our newspaper content on all platforms . only limited digital content is available to non-subscribers . we also offer digital-only subscriptions . we expect to realize the financial benefits of the bundled subscription model in future periods as subscriptions renew and we sell more digital-only subscriptions . we continue our investment in our digital initiatives . we are hiring and developing digital-only sales professionals , streamlining digital sales processes and creating digital content . we expect these investments to drive digital revenue growth in f-4 each of our divisions . story_separator_special_tag the fair value of the fcc license is sensitive to each of the assumptions used in the greenfield approach and a change in any individual assumption could result in the fair value being less than the carrying value of the asset and an impairment charge being recorded . for example a 0.5 % increase in the discount rate would reduce the aggregate fair value of the fcc licenses by approximately $ 5 million . our annual impairment testing for our fcc licenses indicated that their fair value exceeded their recorded value . the recorded value of our fcc licenses from the recently acquired mcgraw-hill television station group are derived from more recent business operating plans and macroeconomic environmental conditions and therefore are more susceptible to an adverse change that could require an impairment charge if future assumptions were to change . income taxes โ the accounting for uncertain tax positions and the application of income tax law is inherently complex . as such , we are required to make many assumptions and judgments regarding our income tax positions and the likelihood of whether such tax positions would be sustained if challenged . interpretations and guidance surrounding income tax laws and regulations change over time . as such , changes in our assumptions and judgments can materially affect amounts recognized in the consolidated financial statements . our deferred tax asset balance included in our consolidated balance sheets was $ 26.6 million at december 31 , 2013. we are required to assess the likelihood that our deferred tax assets , which include our net operating loss carryforwards and temporary differences that are expected to be deductible in future years , will be recoverable from the carryback to prior years , carryforward to future years or through other prudent and feasible tax planning strategies . if recovery is not likely , we have to provide a valuation allowance based on our estimates of future taxable income in the various taxing jurisdictions , and the amount of deferred taxes that are ultimately realizable . the provision for current and deferred taxes involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities . actual results could differ from our estimates and if we determine the deferred tax asset we would realize would be greater or less than the net amount recorded , an adjustment would be made to the tax provision in that period . pension plans โ we sponsor various noncontributory defined benefit pension plans covering substantially all full-time employees that began employment prior to june 30 , 2008 ( the majority of our defined benefit pension plans were frozen june 30 , 2009 ) , including a serp , which covers certain executive employees . defined benefit pension plan expense for those plans was $ 8.8 million in 2013 , $ 8.6 million in 2012 and $ 8.1 million in 2011 . the measurement of our pension obligation and related expense is dependent on a variety of estimates , including : discount rates ; expected long-term rate of return on plan assets ; expected increase in compensation levels ; and employee turnover , mortality and retirement ages . we review these assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate . in accordance with accounting principles , we record the effects of these modifications currently or amortize them over future periods . we consider the most critical of our pension estimates to be our discount rate and the expected long-term rate of return on plan assets . the assumptions used in accounting for our defined benefit pension plans for 2013 and 2012 are as follows : replace_table_token_9_th the discount rate used to determine our future pension obligations is based upon a dedicated bond portfolio approach that includes securities rated aa or better with maturities matching our expected benefit payments from the plans . the rate is determined each year at the plan measurement date and affects the succeeding year 's pension cost . discount rates can change from year to year based on economic conditions that impact corporate bond yields . a decrease in the discount rate increases pension obligations and pension expense . f-6 for our defined benefit pension plans , as of december 31 , 2013 , a half percent increase or decrease in the discount rate would have the following effect : replace_table_token_10_th we have target asset allocations to invest plan assets in securities that match the timing of the payment of plan obligations . as a result , approximately 70 % of plan assets are invested in a portfolio of fixed income securities with a duration approximately that of the projected payment of benefit obligations . the remaining 30 % of plan assets are invested in equity securities and other return-seeking assets . the expected long-term rate of return on plan assets is based primarily upon the target asset allocation for plan assets and capital markets forecasts for each asset class employed . our expected rate of return on plan assets also considers our historical compound rate of return on plan assets for 10- and 15-year periods . a decrease in the expected rate of return on plan assets increases pension expense . a 0.5 % change in the 2014 expected long-term rate of return on plan assets of 5.3 % , to either 4.8 % or 5.8 % , would increase or decrease our 2014 pension expense by approximately $ 2.2 million . we had cumulative unrecognized actuarial losses for our pension plans of $ 128 million at december 31 , 2013 . unrealized actuarial gains and losses result from deferred recognition of differences between our actuarial assumptions and actual results . in 2013 , we had an actuarial gain of $ 51 million .
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results of operations the trends and underlying economic conditions affecting the operating performance and future prospects differ for each of our business segments . accordingly , you should read the following discussion of our consolidated results of operations in conjunction with the discussion of the operating performance of our business segments that follows . consolidated results of operations โ consolidated results of operations were as follows : replace_table_token_11_th 2013 compared with 2012 operating revenues decreased 9.6 % in 2013 compared to 2012. the expected decline in political advertising in an off-political year and continued secular declines in print advertising led to the decline . political advertising revenues decreased $ 102 million in 2013. newspaper revenues decreased 3.7 % , or $ 14.6 million , in 2013. these declines were partially offset by a 38 % increase , or $ 11.6 million , in retransmission revenues for 2013 and a $ 2.1 million increase in digital marketing services . employee compensation and benefits decreased approximately 1 % in 2013. newspaper division employees decreased by approximately 130 , or 5 % , from 2012. incentive compensation in 2013 was $ 11.3 million less than the prior year , due to lower operating results . employee compensation and benefits associated with supporting our digital initiatives increased year-to-date costs by approximately $ 10.2 million . programs and program licenses decreased by 5.2 % in 2013 primarily due to reduced costs for syndicated programming . syndicated programming costs decreased $ 5.7 million in 2013. in the third quarter of 2012 , we replaced some of the syndicated programming that seven of our stations air in the access time period between evening news and prime time with programming we produce internally or in partnership with others . in the third quarter of 2013 , we replaced syndicated programming on one additional station during the access period . the decrease in syndicated programming costs was partially offset by a $ 2.9
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our objective of creating sustainable long-term growth in revenue and profitability is predicated on working closely with our customers to provide proven profitable products . as a ยfast followerย of innovative products , our goal is to identify which new products are succeeding in the marketplace and develop similar high quality products at a better value . this objective is increasingly relevant in more difficult economic times . the beverage market is subject to some seasonal variations . our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and weather fluctuations . our purchases of raw materials and related accounts payable fluctuate based upon the demand for our products as well as the timing of the fruit growing seasons . the seasonality of our sales volume combined with the seasonal nature of fruit growing causes our working capital needs to fluctuate throughout the year , with inventory levels increasing in the first half of the year in order to meet high summer demand , and with fruit inventories peaking during the last quarter of the year when purchases are made after the growing season . in addition , our accounts receivable balances decline in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries . we typically operate at low margins and therefore relatively small changes in cost structures can materially impact results . in 2011 industry carbonated soft drink ( ยcsdย ) sales were mostly flat while a decline was seen during 2012 and 2013 , and ingredient and packaging costs remained volatile . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our most significant commodities are aluminum , polyethylene terephthalate ( ยpetย ) resin , corn , sugar , fruit and fruit concentrates . we attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . during 2013 , we redeemed $ 200.0 million aggregate principal amount of our 8.375 % senior notes due 2017 ( the ย2017 notesย ) primarily through the use of available cash and borrowings under the asset-based lending ( ยablย ) facility . on february 19 , 2014 , we redeemed all $ 15.0 million in aggregate principal amount of the remaining outstanding 2017 notes at 104.118 % of par via borrowings under the abl facility . prior to redeeming the 2017 notes in 2013 , we amended the abl facility to , among other things , provide for an increase in the lenders ' commitments under the abl facility to $ 300.0 million , as well as an increase to the accordion feature , which permits us to increase the lenders ' commitments under the abl facility to $ 350.0 million , subject to certain conditions . we supply walmart and its affiliated companies , under annual non-exclusive supply agreements , with a variety of products in the united states , canada , the united kingdom , and mexico , including csds , 100 % shelf stable juice and juice-based products , clear , still and sparkling flavored waters , energy drinks , sports products , new age beverages , and ready-to-drink teas . in 2013 we supplied walmart with all of its private-label csds in the united states . in the event walmart were to utilize additional suppliers to fulfill a portion of its requirements for csds , our operating results could be materially adversely affected . sales to walmart in 2013 , 2012 and 2011 , accounted for 30.1 % , 31.0 % and 31.6 % , respectively , of total revenue . in 2013 , our capital expenditures were devoted primarily to maintaining existing beverage production facilities , and making equipment upgrades in the united states , the united kingdom , canada and mexico . in addition , we completed our projects related to the vertical integration of our manufacturing capabilities . in june of 2013 , our united kingdom ( ยu.k.ย ) reporting segment acquired 100 percent of the share capital of cooke bros holdings limited , which includes the subsidiary companies calypso soft drinks limited and mr. freeze ( europe ) limited ( together , ยcalypso soft drinksย ) . calypso soft drinks produces fruit juices , juice drinks , soft drinks , and freeze products in the united kingdom . the aggregate purchase price for the acquisition of calypso soft drinks ( the ยcalypso soft drinks acquisitionย ) was $ 12.1 million , which includes approximately $ 7.0 million paid at closing , deferred payments of approximately $ 2.3 million and $ 3.0 million to be paid on the first and second anniversary of the closing date , respectively of the calypso soft drinks acquisition . the closing payment was funded from available cash . 25 in 2010 , we completed the acquisition of substantially all of the assets and liabilities of cliffstar corporation ( ยcliffstarย ) and its affiliated companies for approximately $ 503.0 million in cash , $ 14.0 million in deferred consideration payable in equal installments over three years and contingent consideration of up to $ 55.0 million ( the ยcliffstar acquisitionย ) . the first $ 15.0 million of the contingent consideration was paid upon the achievement of milestones in certain expansion projects in 2010. the remainder of the contingent consideration was to be calculated based on the achievement of certain performance measures during the fiscal year ending january 1 , 2011. in 2011 , the seller of cliffstar raised certain objections to the performance measures used to calculate the contingent consideration , and the parties commenced the dispute resolution mechanism provided for in the asset purchase agreement . story_separator_special_tag 29.5 % in 2011 compared to 2010 due primarily to the cliffstar acquisition . excluding the impact of the cliffstar acquisition and foreign exchange , revenue increased 6.7 % ; the cliffstar acquisition contributed $ 385.6 million of the increase in revenue , and $ 19.6 million of the increase in operating income ; our gross profit as a percentage of revenue declined to 11.8 % in 2011 from 14.8 % in 2010. gross profit in 2011 was adversely impacted by higher commodity costs ; our sg & a expenses increased to $ 172.7 million from $ 166.7 million , due primarily to the full year inclusion of cliffstar ; our interest expense increased 54.7 % due primarily to the issuance of the $ 375.0 million aggregate principal amount of 8.125 % senior notes due 2018 ( the ย2018 notesย ) by cott beverages inc. in the third quarter of 2010 ; and a year-to-date tax benefit of $ 0.7 million in 2011 compared to income tax expense of $ 18.6 million in 2010 due primarily to lower pre-tax income in the united states , the reorganization of our legal entity structure and refinancing of intercompany debt . 27 critical accounting policies our significant accounting policies and recently issued accounting pronouncements are described in note 1 to the consolidated financial statements included in item 8 of this annual report on form 10-k. we believe the following represent our critical accounting policies : estimates the preparation of consolidated financial statements in conformity with u.s. generally accepted accounting principles ( ยgaapย ) requires management to make estimates and assumptions that affect the amounts in the consolidated financial statements and the accompanying notes . these estimates are based on historical experience , the advice of external experts or on other assumptions management believes to be reasonable . where actual amounts differ from estimates , revisions are included in the results for the period in which actual amounts become known . historically , differences between estimated and actual amounts have not had a significant impact on our consolidated financial statements . impairment testing of goodwill goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired . goodwill is not amortized , but instead is tested for impairment at least annually in the fourth quarter or more frequently if we determine a triggering event has occurred during the year . any impairment loss is recognized in our results of operations . we evaluate goodwill for impairment on a reporting unit basis . reporting units are operations for which discrete financial information is available and are at or one level below our operating segments . for the purpose of testing goodwill for impairment , our reporting units are the united states ( ยu.s.ย ) , united kingdom ( ยu.k.ย ) , canada , and royal crown international ( ยrciย ) . we had goodwill of $ 137.3 million on our balance sheet at december 28 , 2013 , which represents amounts for the u.s. , u.k. , canada and the rci reporting units . in 2013 and 2012 , for our rci reporting unit , we assessed qualitative factors to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of the reporting unit was less than its carrying amount . we also performed this assessment for our canada reporting unit in 2012. if , after assessing the totality of events or circumstances , we had determined that it was more likely than not that the fair value of the reporting unit was less than its carrying amount , then we would have performed the first step of the two-step goodwill impairment test . we concluded that it was more likely than not that the fair value of the reporting unit was more than its carrying amount and therefore we were not required to perform any additional testing . in 2013 , for our u.s. and canada reporting units , we chose to bypass the qualitative assessment and performed the first step of the two-step goodwill impairment test using a mix of the income approach ( which is based on the discounted cash flow of the reporting unit ) and the public company approach . we believe using a combination of the two approaches provides a more accurate valuation because it incorporates the actual cash generation of the company in addition to how a third party market participant would value the reporting unit . we also chose to bypass the qualitative assessment for our u.s. reporting unit in 2012. because the business is assumed to continue in perpetuity , the discounted future cash flow includes a terminal value . we used a weighted average terminal growth rate of 1 % for our u.s. reporting unit in 2013 and 2012 and a weighted average terminal growth rate of 1 % for our canada reporting unit in 2013. the long-term growth assumptions incorporated into the discounted cash flow calculation reflect our long-term view of the market ( including a decline in csd demand ) , projected changes in the sale of our products , pricing of such products and operating profit margins . the estimated revenue changes in the analysis for the u.s. reporting unit ranged between -9.7 % and 5.6 % for 2013 and -1.4 % and 3.0 % for 2012. the estimated revenue changes in the analysis for the canada reporting unit ranged between -17.2 % and 1.2 % for 2013. the discount rate used for the fair value estimates in the analysis for the u.s. reporting unit was 8.5 % for 2013 and 10.5 % for 2012 and ranged from 11 % to 12 % for 2011. the discount rate used for the fair value estimates in the analysis for the canada reporting unit was 9.0 % for 2013 and 11.0 % for 2011. these rates were based on the weighted average cost of capital a market participant would use if evaluating the reporting unit as an investment . the risk-free rate was 3.4 % and 2.4
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results of operations the following table summarizes the change in revenue by reporting segment for 2013 : replace_table_token_14_th 1. impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . 35 the following table summarizes the change in revenue by reporting segment for 2012 : replace_table_token_15_th 1. impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . the following table summarizes the change in revenue by reporting segment for 2011 : replace_table_token_16_th 1. impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . 36 the following table summarizes our ebitda and adjusted ebitda for the three and twelve months ended december 28 , 2013 and december 29 , 2012 , respectively . replace_table_token_17_th the following table summarizes our adjusted net income and adjusted earnings per share for the three and twelve months ended december 28 , 2013 and december 29 , 2012 , respectively . replace_table_token_18_th 37 the following unaudited financial information for the three months and year ended december 28 , 2013 represents the activity of calypso soft drinks from and after june 2013 , the month in which we acquired calypso soft drinks and combined its operations with those of our united kingdom business . replace_table_token_19_th the following table summarizes our free cash flow for the three months and year ended december 28 , 2013 and december 29 , 2012 , respectively .
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`` this update aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements . going forward , these transactions would all be accounted for as secured borrowings . the guidance eliminates story_separator_special_tag summary our principal business is attracting deposits from small and middle market businesses and consumers and investing those deposits together with funds generated from operations and borrowings , primarily in commercial business loans and various types of commercial real estate loans . in 2015 , the company expects to fund substantially all of the loans that it originates or purchases through deposits , fhlb advances and other borrowings and internally generated funds . deposit flows and cost of funds are influenced by prevailing market rates of interest primarily on competing investments , account maturities and the levels of savings in the company 's market area . the company generates the majority of its revenues from interest income on loans that it originates and purchases , income from investment in securities and service charges on customer accounts . the company 's revenues are partially offset by interest expense paid on deposits and borrowings , the provision for loan losses and noninterest expenses , such as operating expenses . the company 's operating expenses primarily consist of employee compensation and benefit expenses , premises and occupancy expenses , data processing and communication expenses and other general expenses . the company 's results of operations are also affected by prevailing economic conditions , competition , government policies and other actions of regulatory agencies . acquisitions we have completed six acquisitions since 2010 : cnb ( fdic-assisted , geographic expansion , closed february 2011 ) , pdnb ( fdic-assisted , in market consolidation , closed april 2012 ) , fab ( open bank , nationwide hoa line of business , closed march 2013 ) , sdtb ( open bank , geographic expansion , closed june 2013 ) , infinity ( nationwide lender to franchisees in the qsr industry , closed january 2014 ) and independence bank ( open bank , geographic expansion , closed january 2015 , as further described below ) . for further information concerning our acquisitions completed in fiscal year 2013 , see note 20 to the consolidated financial statements included in item 8 hereof . these acquisitions affect the comparability of our reported financial information as the operating results of the acquired entities are included in our operating results only from their respective acquisition dates . recent developments on october 22 , 2014 , the company announced that it had entered into a definitive agreement to acquire independence bank , a newport beach , california , based state-chartered bank with six branches located in orange county and riverside county . this transaction will strengthen the company 's competitive position as one of the premier banks headquartered in southern california . the acquisition was completed on january 26 , 2015 , whereby we acquired $ 424.0 million in total assets , $ 334.7 million in loans and $ 336.1 million in total deposits . this transaction allowed us to acquire a commercial banking franchise in our backyard . the independence bank branch locations will connect our existing footprint between orange county and the broader coachella valley and represents an important element of our strategic growth plan by providing meaningful operational scale in our core markets . the acquisition also allows us to deploy a portion of our current capital base into a compelling investment which we anticipate will produce attractive returns for shareholders . under the terms of the merger agreement , each share of independence bank common stock was converted into the right to receive $ 13.75 per share in cash or 0.9259 shares of company common stock , or a combination thereof , subject to the overall requirement that approximately 10 % of the consideration will be in the form of cash and approximately 90 % will be in the form of company common stock . the value of the total deal consideration was $ 78.5 million , which includes $ 6.1 million of cash consideration for independence bank common stockholders , $ 1.5 million of aggregate cash consideration to the holders of independence bank stock options and warrants , and the issuance of 4,480,645 shares of the corporation 's common stock , which was valued at $ 70.9 million based on the closing stock price of the company 's common stock on january 26 , 2015 of $ 15.83 per share . critical accounting policies and estimates we have established various accounting policies that govern the application of accounting principles generally accepted in the united states of america in the preparation of the company 's financial statements in item 8 hereof . the company 's significant accounting policies are described in the note 1 to the consolidated financial statements . certain accounting policies require management to make estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities ; management considers these to be critical accounting policies . the estimates and assumptions management uses are based on historical experience and other factors , which management believes to be reasonable under the circumstances . actual results could differ significantly from these estimates and assumptions , which could have a material impact on the carrying value of assets and liabilities at consolidated statements of financial condition dates and the company 's results of operations for future reporting periods . we consider the determination of alll to be among our critical accounting policies that require judicious estimates and assumptions in the preparation of the company 's financial statements that is particularly susceptible to significant change . for further information on the alll , see โ businessโallowances for loan losses โ and notes 1 and 5 to the consolidated financial statements in item 8 hereof . allowance for loan losses the company maintains an alll at a level deemed appropriate by management to provide for known or inherent risks in the portfolio at the consolidated statements of financial condition date . story_separator_special_tag the lower loan yield primarily related to interest rates on loan originations during 2013 and 2014 that produced yields lower than the average yield on our existing loan portfolio . for 2013 , net interest income totaled $ 58.2 million , up $ 12.4 million or 27.0 % over net interest income in 2012. the increase reflected an increase in interest-earning assets of $ 400.0 million , partially offset by a decrease in the net interest margin of 44 basis points to 4.18 % . the increase in interest-earning assets was primarily related to the acquisitions of fab and sdtb and our organic loan growth . the decrease in net interest margin is mainly attributable to a decrease in yield on average interest-earning assets of 78 basis points , primarily from a higher mix of lower yielding investment securities and cash , which were acquired in our acquisitions of fab and sdtb , and a decrease in our loan portfolio yield . the weighted average loan portfolio rate at the end of 2013 was 4.95 % , 49 basis points lower than the weighted average loan portfolio rate at the end of 2012 and primarily reflected lower rates on loan originations during the period . partially offsetting the lower yield on average interest-earning assets was a decrease in deposit costs of 34 basis points primarily resulting from an improved mix of lower deposits acquired from fab and sdtb and lower pricing on certificates of deposit . the following table presents for the periods indicated the average dollar amounts from selected balance sheet categories calculated from daily average balances and the total dollar amount , including adjustments to yields and costs , of : ยท interest income earned from average interest-earning assets and the resultant yields ; and ยท interest expense incurred from average interest-bearing liabilities and resultant costs , expressed as rates . the table also sets forth our net interest income , net interest rate spread and net interest rate margin for the periods indicated . the net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities . the net interest rate margin reflects the relative level of interest-earning assets to interest-bearing liabilities and equals our net interest rate spread divided by average interest-earning assets for the year . for the year ended december 31 , 2014 2013 2012 average average average average average average balance interest yield/cost balance interest yield/cost balance interest yield/cost ( dollars in thousands ) assets interest-earning assets : cash and cash equivalents $ 81,035 $ 140 0.17 % $ 93,272 $ 184 0.20 % $ 63,485 $ 110 0.17 % federal funds sold 255 1 0.39 % 26 - 0.00 % 27 - 0.00 % investment securities 244,854 5,447 2.22 % 266,854 5,527 2.07 % 142,534 3,178 2.23 % loans receivable , net ( 1 ) 1,414,973 74,736 5.28 % 1,031,740 57,807 5.60 % 785,880 49,659 6.32 % total interest-earning assets 1,741,117 80,324 4.61 % 1,391,892 63,518 4.56 % 991,926 52,947 5.34 % noninterest-earning assets 86,818 49,663 44,203 total assets $ 1,827,935 $ 1,441,555 $ 1,036,129 liabilities and equity interest-bearing deposits : interest checking $ 134,056 $ 161 0.12 % $ 94,718 $ 116 0.12 % $ 56,061 $ 82 0.15 % money market 469,123 1,442 0.31 % 367,769 1,017 0.28 % 166,787 724 0.43 % savings 75,068 110 0.15 % 78,815 123 0.16 % 86,619 269 0.31 % time 377,333 3,324 0.88 % 325,439 2,809 0.86 % 411,442 4,778 1.16 % total interest-bearing deposits 1,055,580 5,037 0.48 % 866,741 4,065 0.47 % 720,909 5,853 0.81 % fhlb advances and other borrowings 117,694 1,124 0.96 % 71,447 984 1.38 % 37,654 970 2.58 % subordinated debentures 30,858 1,543 5.00 % 10,310 307 2.98 % 10,310 326 3.16 % total borrowings 148,552 2,667 1.80 % 81,757 1,291 1.58 % 47,964 1,296 2.70 % total interest-bearing liabilities 1,204,132 7,704 0.64 % 948,498 5,356 0.56 % 768,873 7,149 0.93 % noninterest-bearing 415,983 $ 318,985 $ 160,851 other liabilities 18,161 13,681 9,848 total liabilities 1,638,276 1,281,164 939,572 stockholders ' equity 189,659 160,391 96,557 total liabilities and equity $ 1,827,935 $ 1,441,555 $ 1,036,129 net interest income $ 72,620 $ 58,162 $ 45,798 net interest rate spread 3.97 % 4.00 % 4.41 % net interest margin 4.17 % 4.18 % 4.62 % ratio of interest-earning assets to interest-bearing liabilities 144.60 % 146.75 % 129.01 % ( 1 ) average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees , unamortized discounts and premiums , and alll . changes in our net interest income are a function of changes in both volumes and rates of interest-earning assets and interest-bearing liabilities . the following table presents the impact the volume and rate changes have had on our net interest income for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , we have provided information on changes to our net interest income with respect to : ยท changes in volume ( changes in volume multiplied by prior rate ) ; ยท changes in interest rates ( changes in interest rates multiplied by prior volume ) ; and ยท the change or the combined impact of volume and rate changes allocated proportionately to changes in volume and changes in interest rates . replace_table_token_24_th provision for loan losses . for 2014 , we recorded a $ 4.7 million provision for loan losses , up from $ 1.9 million recorded in 2013. the $ 2.8 million increase in the provision for loan losses was primarily attributable to the growth in our loan portfolio during the year , and to a lesser extent , the change in our loan composition .
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operating results overview . for 2014 , including non-recurring merger-related expenses of $ 864,000 associated with the pending acquisition of independence bank and $ 626,000 associated with the acquisition of infinity , and a non-recurring $ 1.7 million litigation expense , the company recorded net income of $ 16.6 million , or $ 0.96 per diluted share . for 2013 , including non-recurring merger-related expenses of $ 5.0 million associated with the acquisition of sdtb , $ 1.7 million associated with the acquisition of fab and $ 203,000 associated with the acquisition of infinity , the company recorded net income of $ 9.0 million or $ 0.54 per share on a diluted basis . for 2012 , including a one-time bargain purchase gain of $ 5.3 million and a non-recurring merger-related expenses of $ 500,000 , the company recorded net income of $ 15.8 million or $ 1.44 per diluted share . excluding the one-time bargain purchase gain , non-recurring merger-related expenses and litigation expense detailed above , the company reported adjusted net income for 2014 of $ 18.5 million or $ 1.07 per share on a diluted basis , compared with adjusted net income for 2013 of $ 13.3 million or $ 0.80 per share on a diluted basis and adjusted net income for 2012 of $ 12.5 million or $ 1.14 per share on a diluted basis .
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segment reporting : asc topic 280 , segment reporting , provides for the identification of reportable segments on the basis of distinct business units and their financial information to the extent such units are reviewed by an entity 's chief decision maker ( which can be an individual or group of management persons ) . asc topic 280 permits aggregation or combination of segments that have similar characteristics . in the company 's operations , each bank branch is viewed by management as being a separately identifiable business or segment from the perspective of monitoring performance and allocation of financial resources . although the branches operate independently and are managed and monitored separately , each is substantially similar in terms of story_separator_special_tag the following is a discussion of our financial condition at december 31 , 2018 and 2017 and our results of operations for each of the years in the three-year period ended december 31 , 2018. the purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from our consolidated financial statements . the following discussion and analysis should be read along with our consolidated financial statements and the related notes included business overview the company 's business model consists of leveraging capital into assets funded by liabilities . as a general rule capital can be leveraged approximately ten times . the primary source of revenue is interest income from earning assets , namely loans and securities . these liabilities used to fund the assets are primarily deposits . the company seeks to maximize net interest income , the difference between interest received on earning assets and the amount of interest paid on liabilities . net interest income to average assets is a key ratio that measures the profitability of the earning assets of the company . noninterest income is the second source of revenue and primarily consists of customer service fees , gains on the sales of securities and loans , and other noninterest income . noninterest income to average assets is a ratio that reflects our effectiveness in generating these other forms of revenue . the company incurs noninterest expenses as result of the operations of its business . primary expenses are those of employees , occupancy and equipment , professional services , and data processing . the company seeks to minimize the amount of noninterest expense relative to the amount of total assets ; noninterest expense to assets is a key ratio that measures the efficiency of the costs incurred to operate the business . executive summary the following is a summary of the company 's financial highlights and significant events during 2018 : completed two acquisitions during the year which increased assets by approximately $ 444 million : tennessee bancshares the second quarter and foothills bancorp in the fourth quarter . earnings available to common shareholders increased to $ 18.1 million and earnings per share increased to $ 1.46 . ended 2018 with record high total assets of $ 2.3 billion , net loans of $ 1.8 billion , and deposits of $ 1.9 billion . net interest margin , taxable equivalent , increased to 4.43 percent 2018 compared to 4.29 percent in 2017 . efficiency ratio , which is equal to noninterest expense divided by the sum of net interest income and noninterest income , decreased to 70.7 percent in 2018 , compared to 76.0 percent in 2017 . 32 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2016 , with the increase due to higher yields on earning assets .. net interest margin , taxable equivalent , was slightly negatively impacted by an increase in the cost of interest bearing liabilities from 0.56 percent in 2016 to 0.66 percent in 2017 . 33 the following table summarizes the major components of net interest income and the related yields and costs for the periods presented . replace_table_token_1_th ( 1 ) loans include nonaccrual loans . yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0 percent in 2018 and 34.0 percent in 2017 and 2016. the taxable-equivalent adjustment was $ 10 thousand for 2018 , $ 28 thousand for 2017 and $ 16 thousand for 2016 . loan fees included in loan income was $ 2.7 million , $ 2.5 million , and $ 2.6 million for 2018 , 2017 and 2016 , respectively . ( 2 ) yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0 percent in 2018 and 34.0 percent in 2017 and 2016. the taxable-equivalent adjustment was $ 180 thousand , $ 90 thousand and $ 55 thousand for 2018 , 2017 and 2016 , respectively . ( 3 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income divided by average interest-earning assets . 34 rate and volume analysis net interest income , taxable equivalent , increased by $ 30.4 million between the years ended december 31 , 2018 and 2017 and by $ 8.1 million between the years ended december 31 , 2017 and 2016 . the following is an analysis of the changes in net interest income comparing the changes attributable to rates and those attributable to volumes ( in thousands ) : replace_table_token_2_th ( 1 ) loans include nonaccrual loans . yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0 percent in 2018 and 34.0 percent in 2017 and 2016. the taxable-equivalent adjustment was $ 10 thousand for 2018 , $ 28 thousand for 2017 and $ 16 thousand for 2016 . loan fees included in loan income was $ 2.7 million , $ 2.5 million , and $ 2.6 million for 2018 , 2017 and 2016 , respectively . story_separator_special_tag even if the principal purpose of the loan is not to finance real estate , when reasonable , we attempt to obtain a security interest in the real estate in addition to any other available collateral to increase the likelihood of ultimate repayment or collection of the loan . organic loans our net organic loans increased $ 356.6 million , or 44.9 percent to $ 1.2 billion at december 31 , 2018 , from december 31 , 2017 , primarily as a result of the mergers . our goal of streamlining the credit process has improved our efficiency and is a competitive advantage in many of our markets . in addition , continued training and recruiting of experienced loan officers has provided us with the opportunity to close larger and more complex deals than we historically have . finally , the overall business environment continues to rebound from recessionary conditions . organic loans include loans which were originally purchased non-credit impaired loans but have been renewed . purchased loans purchased non-credit impaired loans of $ 584.5 million at december 31 , 2018 increased by $ 93.6 million from december 31 , 2017 as a result of the mergers . also during 2018 , our purchased credit impaired ( โ pci โ ) loans increased by $ 1.4 million to $ 34.2 million at december 31 , 2018 . the activity within the purchased credit impaired loans will be impacted by how quickly these loans are resolved and or our future acquisition activity . 37 the following tables summarize the composition of our loan portfolio for the periods presented ( dollars in thousands ) : replace_table_token_5_th replace_table_token_6_th replace_table_token_7_th 38 replace_table_token_8_th replace_table_token_9_th loan portfolio maturities the following table sets forth the maturity distribution of our loans , including the interest rate sensitivity for loans maturing after one year ( dollars in thousands ) . replace_table_token_10_th nonaccrual , past due , and restructured loans loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date . loans are generally classified as nonaccrual if they are past due for a period of 90 days or more , unless such loans are well secured and in the process of collection . if a loan or a portion of a loan is classified as doubtful or as partially charged off , the loan is generally classified as nonaccrual . loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and interest is in doubt . loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time , and there is a sustained period of repayment performance of interest and principal by the borrower in accordance with the contractual terms . 39 pci loans with common risk characteristics are grouped in pools at acquisition . these loans are evaluated for accrual status at the pool level rather than the individual loan level and performance is based on our ability to reasonably estimate the amount and timing of future cash flows rather than a borrower 's ability to repay contractual loan amounts . since we are able to reasonably estimate the amount and timing of future cash flows on the company 's pci loan pools , none of these loans have been identified as nonaccrual . however , pci loans included in pools are identified as nonperforming if they are past due 90 days or more at acquisition or become 90 days or more past due after acquisition . the past due status is determined based on the contractual terms of the individual loans . while a loan is classified as nonaccrual and the future collectability of the recorded loan balance is doubtful , collections of interest and principal are generally applied as a reduction to the principal outstanding , except in the case of loans with scheduled amortizations where the payment is generally applied to the oldest payment due . when the future collectability of the recorded loan balance is expected , interest income may be recognized on a cash basis . in the case where a nonaccrual loan had been partially charged off , recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate . receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered . assets acquired as a result of foreclosure are recorded at estimated fair value in foreclosed assets . any excess of cost over estimated fair value at the time of foreclosure is charged to the allowance for loan losses . valuations are periodically performed on these properties , and any subsequent write-downs are charged to earnings . routine maintenance and other holding costs are included in noninterest expense . loans , excluding pooled pci loans , are classified as troubled debt restructurings ( โ tdr โ ) by the company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers . the company grants concessions by ( 1 ) reduction of the stated interest rate for the remaining original life of the debt or ( 2 ) extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk . the company does not generally grant concessions through forgiveness of principal or accrued interest . the company 's policy with respect to accrual of interest on loans restructured in a tdr follows relevant supervisory guidance . that is , if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms , continued accrual of interest at the restructured interest rate is likely .
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analysis of results of operations 2018 compared to 2017 net income was $ 18.1 million in 2018 , compared to $ 5.0 million in 2017 . net income available to common shareholders was $ 18.1 million , or $ 1.45 per diluted common share , in 2018 , compared to $ 4.8 million , or $ 0.55 per diluted common share , in 2017 . net interest income to average assets of 3.90 percent in 2018 held steady from in 2017 . noninterest income to average assets of 0.34 percent decreased from 0.42 percent in 2017 as growth in assets exceeded increases in noninterest income . noninterest expense to average assets decreased from 3.29 percent in 2017 to 3.00 percent in 2018 as the company continued to capture economies of scale following the mergers . the resulting pretax income to average assets was 1.19 percent in 2018 compared to 1.00 percent in 2017 . finally , in 2018 the effective tax rate was 15.2 percent , which was lower than normal due to a tax benefit from options exercised while the rate of 56.2 percent in 2017 was elevated due to a $ 2.4 million after-tax charge to write down the company 's deferred tax assets as a result of the tax cuts and jobs act of 2017 . 2017 compared to 2016 net income was $ 5.0 million in 2017 a decrease from $ 5.8 million in 2016 primarily due to a $ 2.4 million after-tax charge to write down the company 's deferred tax assets as a result of the tax cuts and jobs act of 2017. net income available to common shareholders was $ 4.8 million , or $ 0.55 per diluted common share , in 2017 compared to $ 4.8 million , or $ 0.78 per diluted common share , in 2016 .
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section 4.4 of the limited partnership agreement $ $ 19,497 132,800 3 ) ccc interest in fund ย percentage of distributable cash for any quarter prior to receipt of the incentive management fee , pursuant to section 4.5 of the limited partnership agreement $ 141,728 item 12. security ownership of certain beneficial owners and management and related stockholder matters ( a ) securities authorized for issuance under equity compensation plans inapplicable . ( b ) security ownership of certain beneficial owners there is no person or ยgroupย of persons known to the management of ccc to be the beneficial owner of more than five percent of the outstanding units of limited partnership interests of the partnership . ( c ) security ownership of management the partnership has no directors or officers . it is managed by ccc . ccc owns 1,455 units , representing 0.04 % of the total amount of units outstanding . ( d ) changes in control inapplicable . item 13. certain relationships and related transactions ( a ) transactions with management and others the partnership 's only transactions with management and other related parties during 2005 were limited to those fees paid or amounts committed to be paid ( on an annual basis ) to ccc , the general partner , and its affiliates . see item 11 , ยexecutive compensation , ย herein . additionally , see part i , item 2 , herein , for a description of its payment of refrigerated container reshell costs to cronos equipment ( bermuda ) ltd. , an affiliate of ccc and the leasing company . 39 ( b ) certain business relationships inapplicable . ( c ) indebtedness of management inapplicable . ( d ) transactions with promoters inapplicable . item 14. principal accountant fees and services ccc , on behalf of the partnership has appointed deloitte & touche llp as the partnership 's independent auditor for the fiscal year ending december 31 , 2005. ccc 's board of directors has the authority to pre-approve audit related and non-audit services on behalf of the partnership , that are not prohibited by law , to be performed by the partnership 's independent auditors . audit fees audit fees represent fees for professional services provided in connection with the audit of the partnership 's financial statements and review of its quarterly financial statements and audit services provided in connection with its statutory or regulatory filings . the partnership incurred fees of $ 21,213 and $ 21,623 during the fiscal years ending december 31 , 2005 and 2004 , respectively , for these audit services . audit-related fees the partnership did not incur audit-related fees during the fiscal years ending december 31 , 2005 and 2004. typically , audit-related fees , if incurred , would consist of fees for accounting consultations and other attestation services . tax fees the partnership did not incur tax fees during the fiscal years ending december 31 , 2005 and 2004. typically , tax fees , if incurred , would consist of fees for compliance services , tax advice and tax planning . all other fees the partnership did not incur any other fees for services provided by its independent auditor during the fiscal years ending december 31 , 2005 and 2004 . 40 part iv item 15. exhibits and financial statement schedules replace_table_token_21_th all schedules are omitted as the information is not required or the information is included in the financial statements or notes thereto . ( 3 ) exhibits replace_table_token_22_th * incorporated by reference to exhibit ยaย to the prospectus of the partnership dated december 2 , 1991 , included as part of registration statement on form s-1 ( no . 33-42697 ) * * incorporated by reference to exhibit 3.2 to the registration statement on form s-1 ( no . 33-42697 ) * * * incorporated by reference to exhibit 10.2 to the registration statement on form s-1 ( no . 33-42697 ) * * * * this certification , required by section 906 of the sarbanes-oxley act of 2002 , other than as required by section 906 , is not to be deemed ยfiledย with the commission or subject to the rules and regulations promulgated by the commission under the securities exchange act of 1934 , as amended , or to the liabilities of section 18 of said act . 41 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the partnership has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . iea income fund xii , l.p. by cronos capital corp. the general partner by dennis j. tietz dennis j. tietz president and director of cronos capital corp. ( ยcccย ) principal executive officer of ccc date : march 24 , 2006 pursuant to the requirement of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of cronos capital corp. , the managing general partner of the partnership , in the capacities and on the dates indicated : signature title date dennis j. tietz dennis j. tietz president and director of cronos capital corp. ( ยcccย ) ( principal executive officer of ccc ) march 24 , 2006 john kallas john kallas chief financial officer and director of cronos capital corp. ( ยcccย ) ( principal financial and accounting officer of ccc ) march 24 , 2006 elinor a. wexler elinor a. wexler vice president-administration , secretary and director of cronos capital story_separator_special_tag the following discussion of the partnership 's historical financial condition and results of operations should be read in conjunction with the historical consolidated financial statements and the notes theretoand the other financial information appearing elsewhere in this report . story_separator_special_tag from inception through february 28 , 2006 , the partnership has distributed , on a cash basis , $ 59,228,741 in cash from operations and $ 9,319,811 in cash from container sales proceeds to its limited partners . this represents total cash basis distributions of $ 68,548,552 or approximately 98 % of the limited partners ' original invested capital . the liquidation of the partnership 's remaining containers will be the primary factor influencing the future level of cash generated from operating , investing and financing activities and the level of distributions from operations and sales proceeds to its partners in subsequent periods . at december 31 , 2005 , the partnership had $ 1,478,829 in cash and cash equivalents , an decrease of $ 643,765 and an increase of $ 1,842 from the cash balances at december 31 , 2004 and 2003 , respectively . the partnership invests its working capital , as well as cash flows from operations and the sale of containers that have not yet been distributed to ccc or its limited partners in money market funds . at december 31 , 2005 , the partnership had an additional $ 30,000 as part of its working capital for estimated expenses related to the ultimate sale of its remaining containers , final liquidation of its remaining assets and subsequent dissolution . cash from operating activities : net cash provided by operating activities , primarily generated from the billing and collection of net lease revenue , was $ 1,727,681 during 2005 compared to $ 2,064,114 and $ 1,759,314 during 2004 and 2003 , respectively . 17 cash from investing activities : net cash provided by investing activities was $ 2,308,669 during 2005 compared to $ 1,695,038 and $ 1,278,515 in 2004 and 2003 , respectively . these amounts represent sales proceeds generated from the sale of container equipment and proceeds collected from sales-type lease receivables . cash from financing activities : net cash used in financing activities was $ 4,680,115 during 2005 compared to $ 3,113,545 and $ 3,404,475 during 2004 and 2003 , respectively . these amounts represent distributions to the partnership 's general and limited partners . off-balance sheet arrangements as part of the partnership 's ongoing business , the partnership does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities ( ยspesย ) , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . as of december 31 , 2005 , the partnership was not involved in any material unconsolidated spe transactions . contractual obligations as of december 31 , 2005 , the partnership did not have any contractual obligations or commercial commitments . story_separator_special_tag the partnership 's remaining containers . the increased trade volumes of recent years have contributed to shortages of both containerships and tonnage capacity . as a result , shipping lines have embarked on a major new shipbuilding program . industry analysts are expressing concern that the current program of new shipbuilding may create over-capacity within the shipping industry once the remaining new containerships scheduled for delivery during 2006 and 2007 are placed in service . based on current orders , industry analysts predict that the world 's containership fleet will exceed 10 million teu by the end of 2007 , compared to less than 7 million teu at the beginning of 2004. the over-capacity has recently contributed to lower freight rates , resulting in reduced profitability for the shipping lines that in turn could have adverse implications for container leasing companies . the partnership , ccc and the leasing company continue to monitor the aging of lease receivables , collections and the credit exposure to various existing and new customers . the financial impact of losses from shipping lines may eventually influence the demand for leased containers , as some shipping lines may experience financial difficulties , consolidate , or become insolvent . year ended december 31 , 2005 compared to the year ended december 31 , 2004 net lease revenue was $ 1,811,852 for the year ended december 31 , 2005 compared to $ 2,192,040 for the prior year . the decrease was due to a $ 846,403 decrease in gross rental revenue partially offset a $ 354,669 decline in rental equipment operating expenses from the year ended december 31 , 2005. gross rental revenue was impacted by the partnership 's smaller fleet size . the decrease in direct operating expense was attributable to the partnership 's higher combined utilization rate in 2005 , and its impact on inventory-related expenses such as storage and repositioning costs , and activity-related expenses such as handling , repair and maintenance . the partnership also recognized a decrease in the provision for doubtful accounts . other components of net lease revenue , including management fees , and reimbursed administrative expenses , were lower by a combined $ 111,546 when compared to 2004 , which partially offset the decline in gross lease revenue . depreciation expense of $ 1,540,823 in 2005 declined by $ 628,716 when compared to 2004 a direct result of the partnership 's aging and declining fleet size . 20 other general and administrative expenses amounted to $ 138,284 in 2005 , an increase of 6 % compared to 2004 , due to an increase in investor administration and communication expenses . net gain on disposal of equipment was a result of the partnership 's disposal of 1,816 containers in 2005 , as compared to 1,607 containers during 2004. these disposals resulted in a net gain of $ 147,187 during 2005 , compared to a net loss of $ 464,046 on disposals .
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results of operations market overview pursuant to the limited partnership agreement of the partnership , all authority to administer the business of the partnership is vested in ccc . a leasing agent agreement ( ยagreementย ) exists between the partnership and the leasing company , whereby the leasing company has the responsibility to manage the leasing operations of all equipment owned by the partnership . pursuant to the agreement , the leasing company is responsible for leasing , managing and re-leasing the partnership 's containers to ocean carriers , and has full discretion over which ocean carriers and suppliers of goods and services it may deal with . the leasing agent agreement permits the leasing company to use the containers owned by the partnership , together with other containers owned or managed by the leasing company and its affiliates , as part of a single fleet operated without regard to ownership . the primary component of the partnership 's results of operations is net lease revenue . net lease revenue is determined by deducting direct operating expenses , management fees and reimbursed administrative expenses from gross lease revenues billed by the leasing company from the leasing of the partnership 's containers . net lease revenue is directly related to the size , utilization and per-diem rental rates of the partnership 's fleet . direct operating expenses are direct costs associated with the partnership 's containers . direct operating expenses may be categorized as follows : activity-related expenses including agent and depot costs such as repairs , maintenance and handling . inventory-related expenses for off-hire containers , comprising of storage and repositioning costs . these costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered . legal and other expenses , including legal costs related to the recovery of containers and doubtful accounts , insurance and provisions for doubtful accounts .
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investments in real estate joint ventures we analyze our investments in real estate joint ventures under applicable guidance to determine if the venture is considered a vie and would require consolidation . to the extent that the ventures do not qualify as vies , we further assess the venture to determine whether a general partner , or the general partners as a group , controls a limited partnership or similar entity when the limited partners have certain rights in order to determine whether consolidation is required . we consolidate those ventures that are considered to be vies where we are story_separator_special_tag the following discussion should be read in conjunction with the audited historical consolidated financial statements and notes thereto appearing in ยitem 8. financial statements and supplementary dataย of this report . as used in this section , unless the context otherwise requires , ยwe , ย ยus , ย ยour , ย and ยour companyย mean american assets trust , inc. , a maryland corporation and its consolidated subsidiaries , following completion of our initial public offering and the formation transactions and our predecessor for the periods presented prior to the initial public offering . this discussion may contain forward-looking statements based upon 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 ยitem 1a . risk factorsย or elsewhere in this document . see ยitem 1a . risk factorsย and ยforward-looking statements.ย overview our company we are a full service , vertically integrated and self-administered reit that owns , operates , acquires and develops high quality retail , office , multifamily and mixed-use properties in attractive , high-barrier-to-entry markets in southern california , northern california , oregon , washington , texas , and hawaii . as of december 31 , 2012 , our portfolio was comprised of eleven retail shopping centers ; seven office properties ; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center ; and four multifamily properties . additionally , as of december 31 , 2012 , we owned land at five of our properties that we classified as held for development . our core markets include san diego , the san francisco bay area , portland , oregon , bellevue , washington and oahu , hawaii . we are a maryland corporation formed on july 16 , 2010 to acquire the entities owning various controlling and noncontrolling interests in real estate assets owned and or managed by ernest s. rady or his affiliates , including the rady trust , and did not have any operating activity until the consummation of our initial public offering and the related acquisition of our predecessor on january 19 , 2011. after the completion of our initial public offering and the formation transactions on january 19 , 2011 , our operations have been carried on through our operating partnership . our company , as the sole general partner of our operating partnership , has control of our operating partnership and owned 68.4 % of our operating partnership as of december 31 , 2012. accordingly , we consolidate the assets , liabilities and results of operations of our operating partnership . our predecessor our predecessor included ( 1 ) entities owned and or controlled by mr. rady and his affiliates , including the rady trust , which in turn owned controlling interests in 17 properties and the property management business of american assets , inc. , or the controlled entities , and ( 2 ) noncontrolling interests in entities owning four properties , or the noncontrolled entities . our predecessor accounted for its investment in the noncontrolled entities under the equity method of accounting . prior to june 30 , 2010 , the noncontrolled entities owned an office property located in san francisco , california referred to as the landmark at one market . we refer to the entities owning the landmark at one market as the ยlandmark entities.ย the outside ownership interest in the landmark entities was acquired by our predecessor on june 30 , 2010 for a cash payment of $ 23.0 million . as of june 30 , 2010 , the landmark at one market was controlled by our predecessor . all but one of the properties owned by the controlled entities and noncontrolled entities were managed by american assets , inc. , an entity controlled by mr. rady . the noncontrolled entities managed by american assets , inc. include the entities that owned solana beach towne centre and solana beach corporate centre , or the solana beach centre entities , and the entity that owned the fireman 's fund headquarters office property . the remaining property not managed by american assets , inc. is waikiki beach walk , which is managed by outrigger hotels & resorts . we refer to abw lewers llc and the waikiki beach walk-embassy suitesย , the entities that owned this non-american assets , inc. managed property , as the waikiki beach walk entities . 49 for the periods after january , 19 , 2011 , the date of the consummation of our initial public offering and the formation transactions , our operations have included the consolidated results of operations of the noncontrolled entities , excluding the fireman 's fund headquarters office property , which was not acquired by us . since our initial public offering and the formation transactions occurred on january 19 , 2011 , the results of operations and financial condition for the entities acquired by us in connection with our initial public offering and related formation transactions are not included in certain historical financial statements . more specifically , our results of operations and financial condition for the years ended december 31 , 2010 and 2009 reflect the results of operations and financial condition for our predecessor . story_separator_special_tag we estimated the fair value of acquired tangible assets ( consisting of land , building and improvements ) , identified intangible assets and liabilities ( consisting of acquired above market leases , acquired in-place lease value and acquired below market leases ) and assumed debt . based on these estimates , we allocated the purchase price to the applicable assets and liabilities . the value allocated to in-place leases will be amortized over the related lease term and reflected as depreciation and amortization . the value of above and below market in-place leases will be amortized over the related lease term and reflected as either an increase ( for below market leases ) or a decrease ( for above market leases ) to rental income . the fair value of the debt assumed was determined using current market interest rates for comparable debt financings . taxable reit subsidiary as part of the formation transactions , on november 5 , 2010 , we formed american assets services , inc. , a delaware corporation that is wholly owned by our operating partnership and which we refer to as our services company . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or provide rights to any brand name under which any lodging facility is operated . we may form additional taxable reit subsidiaries in the future , and our operating partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . revenue base upon consummation of our initial public offering and the formation transactions , we acquired from our predecessor and the noncontrolled entities an aggregate of 20 properties comprising approximately 3.0 million rentable square feet of retail space , 1.5 million rentable square feet of office space , a mixed-use asset comprised 51 of approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel , and 922 multifamily units ( including 122 rv spaces ) , which collectively comprised our initial portfolio . subsequently , we acquired two operating office projects in portland , oregon , one operating office project in san francisco , california , one operating office project in bellevue , washington , one operating retail project in walnut creek , california and sold one office project in valencia , california and one office project in san francisco , california . see further discussion in the ยacquisitions and dispositionsย section below . the properties in our portfolio are located in southern california , northern california , portland , oregon , oahu , hawaii , bellevue , washington and san antonio , texas . rental income consists of scheduled rent charges , straight-line rent adjustments and the amortization of above market and below market rents acquired . we also derive revenue from tenant recoveries and other property revenues , including parking income , lease termination fees , late fees , storage rents and other miscellaneous property revenues . retail leases . our retail portfolio included eleven properties with a total of approximately 3.1 million rentable square feet available for lease as of december 31 , 2012. as of december 31 , 2012 , these properties were 97.0 % leased . for the year ended december 31 , 2012 , the retail segment contributed 39.1 % , of our total revenue . historically , we have leased retail properties to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . in a triple-net lease , the tenant is responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expense , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . the full amount of the expenses for this lease type , to the extent they are paid by the landlord , is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . during the year ended december 31 , 2012 , we signed 67 retail leases for 277,968 square feet with an average rent of $ 31.40 per square foot during the initial year of the lease term . of the leases , 56 represent comparable leases where there was a prior tenant , with an increase of 2.0 % in cash basis rent and an increase of 13.2 % in straight-line rent compared to the prior leases . office leases . our office portfolio included seven properties with a total of approximately 2.6 million rentable square feet available for lease as of december 31 , 2012. as of december 31 , 2012 , these properties were 93.3 % leased . for the year ended december 31 , 2012 , the office segment contributed 33.2 % of our total revenue .
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results of operations for our discussion of results of operations , we have provided information on a total portfolio and same-store basis . information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared , except for properties held for development and properties classified as discontinued operations , which are excluded for both periods . comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 the following summarizes our consolidated results of operations for the year ended december 31 , 2012 compared to our consolidated results of operations for the year ended december 31 , 2011. as of december 31 , 2012 , our operating portfolio was comprised of 23 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.8 million rentable square feet of retail and office space ( including mixed-use retail space ) , 922 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2012 , we owned land at five of our properties that we classified as held for development . as of december 31 , 2011 , our operating portfolio was comprised of 20 properties with an aggregate of approximately 5.2 million 59 rentable square feet of retail and office space and 922 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2011 , we owned land at five of our properties that we classified as held for development . the following table sets forth selected data from our consolidated statements of income for the years ended december 31 , 2012 and 2011 ( dollars in thousands ) : replace_table_token_13_th 60 revenue total property revenues . total property revenue consists of rental revenue and other property income .
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as of december 31 , 2018 , aimco owned 149,133,826 of the common partnership units ( 94.3 % of the common partnership units ) of the aimco operating partnership and aimco had outstanding an equal number of shares of its class a common stock , which we refer to as common stock . except as the context otherwise requires , โ we , โ โ our โ and โ us โ refer to aimco , the aimco operating partnership and their consolidated subsidiaries , collectively . as of december 31 , 2018 , we owned an equity interest in 134 apartment communities with 36,549 apartment homes in our real estate portfolio . our real estate portfolio , is diversified by both price point and geography and consists of market rate apartment communities in which we own a substantial interest . we consolidated 130 of these apartment communities with 36,407 apartment homes and these communities comprise our reportable segment . note 2 โ basis of presentation and summary of significant accounting policies principles of consolidation aimco 's accompanying consolidated financial statements include the accounts of aimco , the aimco operating partnership and their consolidated subsidiaries . the aimco operating partnership 's consolidated financial statements include the accounts of the aimco operating partnership and its consolidated subsidiaries ( see note 13 ) . all significant intercompany balances have been eliminated in consolidation . interests in the aimco operating partnership that are held by limited partners other than aimco are reflected in aimco 's accompanying consolidated balance sheets as noncontrolling interests in aimco operating partnership . interests in partnerships consolidated by the aimco operating partnership that are held by third parties are reflected story_separator_special_tag executive overview we are focused on the ownership , management , redevelopment and limited development of quality apartment communities located in several of the largest markets in the united states . our principal financial objective is to provide predictable and attractive returns to our equity holders . we measure our long-term total return using economic income , defined as net asset value , or nav , growth plus dividends . nav is used by many investors because the value of company assets can be readily estimated , even for non-earning assets such as land or properties under development . nav has the advantage of incorporating the investment decisions of thousands of real estate investors , enhancing comparability among companies that have differences in their accounting , avoiding disparity that can result from application of gaap to investment properties and various ownership structures . some investors focus on multiples of adjusted funds from operations , or affo , and funds from operations , or ffo . our disclosure of affo , a measure of current return , complements our focus on economic income . we also use pro forma funds from operations , or pro forma ffo , as a secondary measure of operational performance . over the last five years , our economic income grew at a compound annual return of 11.5 % 18 as of september 30 , 2018 , comprised of a 8.5 % compounded annual growth in net asset value , or nav , per share and $ 6.36 in cash dividends per share paid over the period . in 2018 , affo grew by 1.9 % to $ 2.16 per share . our business and five areas of strategic focus are described in more detail within the business overview in item 1. the results from execution of our business plan in 2018 are further described in the sections that follow . net income attributable to common stockholders per common share increased by $ 2.25 for the year ended december 31 , 2018 , as compared to 2017 , primarily due to gains on the sale of the asset management business and lower-rated apartment communities . for the year ended december 31 , 2018 , our nav per share increased by about 6 % , which , with our cash dividend , provided economic income of 8.5 % . pro forma ffo per share increased $ 0.02 , or 0.8 % , for the year ended december 31 , 2018 , as compared to 2017 due to the following items : $ 0.08 from same store property net operating income growth of 3.1 % , driven by a 3.1 % increase in revenue , offset by a 3.3 % increase in expenses ; $ 0.16 net operating income contribution from redevelopment communities and lease-up communities ; partially offset by a reduction of $ 0.14 from apartment communities sold to fund our investment activities ; a reduction of $ 0.03 from the sale of the asset management business , net of the contribution from the reinvestment of the proceeds in 2018 acquisitions and repayment of debt ; a reduction of $ 0.05 from lower tax benefits and other items , net . the $ 0.02 increase in year-over-year pro forma ffo per share plus $ 0.02 in lower capital replacement spending due to fewer apartment homes increased affo by $ 0.04 , or 1.9 % per share . operational excellence we own and operate a portfolio of market rate apartment communities diversified by both geography and price point , which we refer to as our real estate portfolio . at december 31 , 2018 , our real estate portfolio included 134 apartment communities with 36,549 apartment homes in which we held an average ownership of approximately 99 % . this portfolio was divided about two-thirds by value to our โ same store โ portfolio of stabilized apartment communities and about one-third by value to โ other real estate , โ which includes recently acquired communities and communities under redevelopment or development whose long-term financial contribution is not yet stabilized . story_separator_special_tag leverage ratios are elevated by 0.5x due to the use of debt to fund temporarily the aimco common share repurchases completed during the three months ended december 31 , 2018. we intend to reduce our proportionate debt and preferred equity to adjusted ebitda to 6.9x by the end of 2019 from earnings growth , primarily due to increasing contribution from same store apartment communities and reduction of debt balances due to regularly-scheduled debt amortization and apartment community sales , partially offset by the loss of earnings from communities sold . as used in the ratios above , preferred equity represents aimco 's preferred stock and the aimco operating partnership 's preferred op units . refinancing activity during the year ended december 31 , 2018 , we addressed approximately half of our property loans maturing in 2019 , 2020 , and 2021. we placed $ 867.4 million of new loans , $ 740.4 million of fixed-rate loans at a weighted average interest rate of 4.20 % and a weighted average term of 9.3 years , and $ 127.0 million of variable-rate loans with rates floating at 115 basis points over 30-day libor and a weighted average term of 5.1 years . this refinancing activity results in an annual interest savings of $ 13.0 million . liquidity our liquidity consists of cash balances and available capacity on our revolving line of credit . during the year ended december 31 , 2018 , we exercised our option to expand our revolving credit facility by $ 200.0 million , bringing the total borrowing capacity to $ 800.0 million . as of december 31 , 2018 , we had cash and restricted cash of $ 72.6 million and had the capacity to borrow up to $ 632.5 million on our revolving credit facility , after consideration of $ 7.1 million letters of credit backed by the facility . we use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit . we manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt . at december 31 , 2018 , we held unencumbered apartment communities with an estimated fair market value of approximately $ 2.7 billion , up 50 % from december 31 , 2017 . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit , and both have rated our credit and outlook as bbb- ( stable ) , an investment grade rating . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies . 22 equity capital activities during the year ended december 31 , 2018 , we repurchased 8.7 million shares of common stock , of which 0.5 million settled in january 2019 , all for $ 394.1 million , at a weighted average price of $ 45.33 per share , approximately a 20 % discount to our published nav per share . approximately half of the repurchases were funded with proceeds from 2018 and january 2019 property sales at a premium to the values ascribed to these communities in our published nav . the remaining half of repurchases are temporarily funded with borrowings on our credit facility . we expect to repay these borrowings with proceeds from the sale of communities now under contract , again at prices greater than those used in our published nav . with the completion of these transactions , we will have increased nav by an estimated $ 0.67 per share . the 2019 property sales necessary to fund our share repurchases are expected to generate taxable gains of $ 285 million , which is in excess of our regular quarterly dividend . accordingly , on february 3 , 2019 , aimco 's board of directors declared a special dividend on the common stock that consists of $ 67.1 million in cash and 4.5 million shares of common stock . the special dividend will be payable on march 22 , 2019 , to stockholders of record as of february 22 , 2019. the special dividend also includes the regular quarterly cash dividend , which for 2019 is expected to be $ 0.39 per share , which represents an increase of 3 % compared to cash dividends paid during 2018. stockholders will have the opportunity to elect to receive the special dividend in the form of all cash or all stock , subject to proration if either option is oversubscribed . based on aimco 's closing share price on february 15 , 2019 , we estimate the aggregate value of the special dividend to be approximately $ 290.3 million . however , the actual value will vary depending on the price of aimco common stock on the dividend valuation dates ( march 11 and 12 , 2019 ) . in order to neutralize the dilutive impact of the stock issued in the special dividend , aimco 's board also authorized a reverse stock split , effective on february 20 , 2019. as a result , total shares outstanding following completion of both the special dividend and the reverse stock split are expected to be unchanged from the total shares outstanding immediately prior to the transactions . some stockholders may have more aimco shares and some may have fewer based on their individual elections . the reverse split will facilitate comparability of aimco per share results before and after these transactions .
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. highlights include : average daily occupancy of 96.5 % , 50 basis points higher than the year ended 2017 ; same store net operating income increased 3.1 % with 74.2 % net operating income margin ; and same store rent increases on renewals and new leases averaged 4.5 % and 1.5 % , respectively , for a weighted average increase of 3.0 % . our focus on efficient operations through productivity initiatives such as centralization of administrative tasks , optimization of economies of scale at the corporate level , and investment in more durable , longer-lived materials has helped us control operating expenses . these and other innovations contributed to limiting growth in controllable operating expense ( defined as property expenses less taxes , insurance and utility expenses ) compounding for the past decade at an annual rate of 0.1 % . for the year ended december 31 , 2018 , our real estate portfolio provided 72 % net operating income margins and 67 % free cash flow margins . redevelopment our second line of business is the redevelopment and limited development of apartment communities . through these activities , we expect to create value by repositioning communities within our portfolio . we measure the rate and quality of financial returns by nav creation , an important component of economic income , our primary measure of long-term financial performance . over the past five years , we have spent approximately $ 1.0 billion on redevelopment and development , resulting in estimated value creation of approximately $ 400.0 million . we also undertake limited ground-up development when warranted by risk-adjusted 19 investment returns , either directly or in connection with the redevelopment of an existing apartment community . when warranted , we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk .
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79 item 13. certain relationships , related transactions , and director independence related party transactions we describe below all transactions and series of similar transactions , other than compensation arrangements , during the last three fiscal years , to which we were a party or will be a party , in which : โ the amounts involved exceeded or will exceed $ 120,000 ; and โ any of our directors , executive officers or holders of more than 5 % of our capital stock , or any member of the immediate family of the foregoing persons , had or will have a direct or indirect material interest . executive stock purchases two aytu executive officers , joshua disbrow and jarrett disbrow , participated in the august 2017 offering . each officer purchased 4,167 units . three aytu executive officers , joshua disbrow , jarrett disbrow and david green , participated in the march 2018 offering . joshua disbrow and jarrett disbrow each purchased 11,306 units . mr. green purchased 3,330 units . services agreement in july 2015 , aytu entered into an agreement with ampio , whereby aytu agreed to pay ampio a set amount per month for shared overhead , which includes costs related to the shared corporate staff and other miscellaneous overhead expenses . this agreement was amended in november 2015 , april 2016 , july 2016 , and again in january 2017 resulting in an amount of $ 12,000 per month . this agreement was terminated in june 2017. ampio was the company 's largest stockholder during part of this period . sponsored research agreement in june 2013 , luoxis entered into a sponsored research agreement with trllc , an entity controlled by ampio 's director and chief scientific officer , dr. bar-or . the agreement , which was amended in january 2015 and provided for luoxis ( now aytu ) to pay $ 6,000 per month to trllc in consideration for services related to research and development of the oxidation reduction potential platform . in march 2014 , luoxis also agreed to pay a sum of $ 615,000 which was being amortized over the contractual term of 60.5 months and was divided between current and long-term on the balance sheet ; as of september 2014 , this amount had been paid in full . this agreement was terminated in march 2017. co-pay support in june 2018 , the company entered into a master services agreement with trialcard incorporated ( โ tci โ ) , a vendor selected to support the company sponsored co-pay program . in supporting the program , tci will make disbursements to qualified patients presenting valid prescriptions for natesto and zolpimist on behalf of aytu . disbursements will be based upon business rules determined by aytu . the company agreed to pay fees monthly to tci for account management , data analytics , implementation , and technology and to reimburse tci for certain direct costs incurred by tci to support the company 's program . expenses are expected to be approximately $ 19,000 per month based on volumes and performance of our program . one of the aytu directors , mr. donofrio , is an executive officer of tci and has no direct interest in the arrangement . review , approval or ratification of transactions with related persons effective upon its adoption in july 2016 , pursuant to the audit committee charter , the audit committee is responsible for reviewing and approving all related party transactions as defined under item 404 of regulation s-k , after reviewing each such transaction for potential conflicts of interests and other improprieties . our policies and procedures for review and approval of transactions with related persons are in writing in our code of conduct and ethics available on our website at http : //www.aytubio.com under the โ investor relationsโcorporate governance โ tab . 80 prior to the adoption of the audit committee charter , and due to the small size of our company , we did not have a formal written policy regarding the review of related party transactions , and relied on our board of directors to review , approve or ratify such transactions and identify and prevent conflicts of interest . our board of directors reviewed any such transaction in light of the particular affiliation and interest of any involved director , officer or other employee or stockholder and , if applicable , any such person 's affiliates or immediate story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this annual report . some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the โ risk factors โ section of this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview , liquidity and capital resources aytu is an emerging specialty pharmaceutical company focused on commercializing novel products that address significant medical needs . aytu is focused on commercializing products that address hypogonadism ( low testosterone ) , insomnia , and male infertility and plans to expand into other therapeutic areas as the company continues to execute on its growth plans . prior to the date of this report , we have financed operations through a combination of private and public debt and equity financings , funds from the sale of our products , and occasionally through divestures of non-strategic assets . story_separator_special_tag during fiscal 2017 , cash was received through the sale of primsol , the sale of our common stock investment in acerus and the merger with nuelle , inc. cash was also used to make contractual payments for acquired products , and to purchase fixed assets . 68 net cash from financing activities net cash of $ 22.7 million was provided by financing activities during fiscal 2018. the private placement completed in august 2017 contributed gross proceeds of $ 11.8 million , which was reduced by offering costs of $ 1.4 million . the march 2018 offering provided gross proceeds of $ 12.9 million , which was reduced by offering costs of $ 1.3 million . finally , we received aggregate proceeds of $ 0.7 million from the exercise of warrants by investors . net cash of $ 10.2 million provided by financing activities during fiscal 2017 was primarily related to our warrant tender offer of $ 2.2 million offset by issuance costs of $ 312,000 , our registered public offering of $ 8.6 million of common stock and warrants offset by cash issuance costs of $ 998,000 , and the issuance of common stock to lincoln park capital of $ 740,000 offset by issuance costs of $ 91,000. recent developments introduction of natesto patient reimbursement support services during the company 's fourth quarter , several factors contributed to accelerate natesto revenue growth and to position natesto for further growth . in the third quarter of 2018 , the company piloted an initiative aimed at improving patient access , increasing prescription fill rates , and improving net revenue per prescription . this initiative , called the natesto support program , introduced a third-party resource that assists patients and physician offices with the insurance approval process for natesto . the program was rolled out across all sales territories in the fourth quarter of 2018. in conjunction with the roll-out of this initiative , the company eliminated company funded $ 0 prescription vouchers . as a result of management 's implementation of the natesto support program and despite the discontinuation of $ 0 vouchers , the company realized natesto net revenue growth of 178 % with only a 12 % decline in unit volume during the fourth quarter of 2018 compared to the third quarter of 2018. natesto revenue grew from $ 292,598 in q3 to $ 805,212 in q4 . historically , the use of $ 0 vouchers represented the largest deduction from gross revenue in the determination of net revenue , so the elimination of these vouchers while essentially maintaining demand were key elements of the significantly increased revenue . the table below represents the rate of coupon usage , which was the most significant factor in driving revenue growth since the implementation of the natesto support program and elimination of company funded $ 0 vouchers in the fourth quarter : coupons as a percentage of gross revenue decreased each month over the most recent two quarter period : โ january 2018 : 83 % โ february 2018 : 59 % โ march 2018 : 62 % โ april 2018 : 32 % โ may 2018 : 31 % โ june 2018 : 23 % the natesto support program has since been enhanced by the addition of other services including , among other items , mail order delivery services . this enhancement , called natesto direct , was launched in august 2018. management intends to manage the services under natesto direct with changes from time-to-time to provide other features that encourage natesto initial usage and refill rates . as a result , natesto is well positioned for both volume and revenue growth . natesto spermatogenesis study a significant clinical study of natesto is underway that may substantially improve the product 's clinical profile and enable access to a broader subset of hypogonadal patients . in the second half of fiscal 2018 the university of miami 's department of urology began an investigator-initiated trial led by dr. ranjith ramasamy , md , the director of reproductive urology at miami . the study is entitled natesto effects on testosterone , luteinizing hormone , follicle stimulating hormone and semen parameters , and is designed to test the hypothesis that treatment of hypogonadal men with natesto maintains normal or near normal semen parameters , while also assessing natesto 's impact on gonadotropin levels and endogenous testosterone production . if this study proves the hypothesis and demonstrates maintenance of semen parameters , gonadotropins , or endogenous testosterone levels , to our knowledge it would be the first such study to demonstrate any of these effects , which could lead to unique clinical claims in natesto 's product label . the implications of these potential clinical findings are significant as stated by dr. ramasamy : โ currently , there are no fda-approved therapies to treat men with low testosterone who wish to preserve their fertility . about 20 % of men with low t deal with these decisions , and natesto could be an alternative for simultaneously increasing testosterone while preserving sperm production. โ the study will assess 40 patients with confirmed hypogonadism ( testosterone ( t ) < 350 on two consecutive samples collected more than 1.5 hours apart in the morning , and each man will complete 2 complete sperm cycles ( ~ 24 weeks ; 6 study visits ) while taking natesto three times daily . more than twenty patients have been enrolled to date , and we anticipate that the study 's final readout will occur around june 2019. an interim data readout is expected in october or november of 2018 . 69 trt market dynamics several recent developments in the u.s. testosterone replacement therapy market may favorably impact natesto 's near and longer-term market position as an fda-approved treated with an established efficacy and safety profile and being actively marketed by a focused sales infrastructure . first , the market leading product androgel , has experienced diminished promotion over the last
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product revenue we continue to generate material revenues from the commercialization of our products and have recently launched a new product , zolpimist , that competes in the $ 1.8 billion prescription sleep aid market . we recognized approximately $ 3.7 million and $ 3.2 million of net revenue from natesto , prostascint , primsol , mioxsys and fiera sales during fiscal 2018 and 2017 , respectively . the addition of zolpimist is expected to be additive to the growing base of revenue from natesto and mioxsys . since we have discontinued the non-strategic assets primsol , prostascint and fiera , we do not expect to recognize revenue from those products in fiscal year 2019. the majority of our fiscal year 2018 revenue came from natesto sales . revenue from natesto sales increased 155 % in fiscal 2018 compared to fiscal 2017 . 66 as is customary in the pharmaceutical industry , our gross product sales are subject to a variety of deductions in arriving at reported net product sales . provisions for these deductions are estimated and recorded concurrently with the recognition of gross revenue from product sales and include coupons , discounts , chargebacks , distributor fees , processing fees , allowances for returns and medicaid rebates . provision balances relating to estimated amounts payable to direct customers are netted against accounts receivable and balances relating to indirect customers are included in accounts payable and accrued liabilities . the provisions recorded to reduce gross product sales and net product sales are as follows : replace_table_token_5_th expenses cost of sales the cost of sales of $ 2.1 million and $ 1.4 million recognized for fiscal 2018 and fiscal 2017 , respectively , are related to the natesto , zolpimist , prostascint , primsol , fiera , and the mioxsys and redoxsys systems .
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we focus exclusively on the upper-end of the soft floorcovering market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer relationships . our fabrica , masland , and dixie home brands have a significant presence in the high-end residential soft floorcovering markets . our atlas carpet mills , masland contract and masland hospitality brands , participate in the upper end specified commercial marketplace . dixie international sells all of our brands outside of the north american market . during 2015 , our net sales increased 3.9 % compared with 2014. sales of residential products decreased 0.4 % in 2015 versus 2014 , while , we estimate , the industry was down slightly . we anticipate the residential remodeling market to have marginal growth for next year . commercial product sales increased 14.4 % during 2015 , while , we believe , the industry reflected an increase in the low single digits . we anticipate the commercial market to have moderate growth for next year . we have completed the bulk of our capacity expansion and consolidation initiatives . however , during these endeavors , we experienced high training , quality and waste costs . we experienced a dramatically changed labor market in 2014 and 2015 as we no longer could easily recruit individuals with previous industry experience ; therefore , our new hires required extensive training . in addition , we had significantly higher labor turnover than we had experienced in the period immediately prior to our expansion . we believe we have significantly improved our quality throughout 2015 as our new associates became trained in their new roles ; however , we are still experiencing higher waste and claims cost from inventory produced during this period of consolidation . the status of our restructuring and facilities consolidation plans are discussed below . our warehousing , distribution & manufacturing consolidation plan was developed to align our warehousing , distribution and manufacturing with our growth and manufacturing strategy . the plan was designed to create a better cost structure as well as improve distribution capabilities and customer service . in june of 2014 , the board of directors approved a modification of this plan to include the elimination of both carpet dyeing and yarn dyeing in our atmore , alabama facility . elimination of dyeing at this facility was designed to more fully accommodate our distribution and manufacturing realignment . accordingly , the dyeing operations in atmore were moved to our colormaster continuous dyeing facility , our calhoun wool skein dyeing operation and other outside dyeing processors . total expenses of the warehousing , distribution & manufacturing consolidation plan are anticipated to be approximately $ 6.5 million . expenses incurred in 2015 were $ 2.0 million and $ 6.1 million since initiation of the plan in 2014. we estimate additional spending primarily related to the movement of our saraland , alabama rug operation moving from a rented facility into a company-owned facility of approximately $ 406 thousand under this plan through early 2016. these expenses of the plan primarily consist of moving and relocating inventory and equipment , facility restoration , information technology expenses and expenses relating to conversion and realignment of equipment . we also incurred non-cash asset impairment charges of $ 1.1 million subsequent to the first quarter of 2014 related to manufacturing changes and equipment taken out of service in our facilities . on march 19 , 2014 , we acquired atlas carpet mills . as a part of the atlas acquisition , we discontinued operations at the atlas dyeing facility in los angeles and moved the carpet dyeing of their products to our susan street dyeing operation located in santa ana , california . we initiated an atlas integration plan to accommodate the dyeing move and address the modification of computer systems . the costs of these initiatives were $ 1.7 million . this plan was completed in the second quarter of 2015. in april 2015 , the company 's board of directors approved the corporate office consolidation plan , to cover the costs of consolidating three of the company 's existing leased divisional and corporate offices to a single leased facility located in dalton , georgia . the company paid a fee to terminate one of the leases , did not renew a second facility and vacated the third facility . related to the vacated facility , the company recorded the estimated costs related to the fulfillment of its contractual lease obligation and on-going facilities maintenance , net of an estimate of sub-lease expectations . costs related to the consolidation include the lease termination fee , contractual lease obligations and moving costs . expenses of this plan were $ 728 thousand in 2015 with estimated remaining costs to be approximately $ 60 thousand . 16 story_separator_special_tag share in 2014. our discontinued operations reflected a loss of $ 148 thousand , or $ 0.01 per diluted share in 2015 compared with a loss of $ 608 thousand , or $ 0.04 per diluted share , and a loss on disposal of discontinued operations of $ 1.5 million , or $ 0.10 per diluted share in 2014. including discontinued operations , we had a net loss of $ 2.4 million , or $ 0.16 per diluted share , in 2015 compared with a net loss of $ 1.4 million , or $ 0.11 per diluted share , in 2014. fiscal year ended december 27 , 2014 compared with fiscal year ended december 28 , 2013 replace_table_token_6_th net sales . net sales for the year ended december 27 , 2014 were $ 406.6 million compared with $ 344.4 million in the year-earlier period , an increase of 18.1 % , or 7.1 % excluding atlas , for the year-over-year comparison . sales for the carpet industry were flat for annual 2014 compared with the prior year . our 2014 year-over-year carpet sales comparison reflected an increase of 18.1 % in net sales , or 7.5 % excluding atlas . story_separator_special_tag capital asset acquisitions for the year ended december 26 , 2015 were $ 12.2 million ; $ 6.8 million of cash used in investing activities , $ 3.3 million of equipment acquired under notes and capital leases , $ 1.9 million of previous deposits utilized for capital additions and $ 200 thousand for accrued purchases . depreciation and amortization for the year ended december 26 , 2015 were $ 14.1 million . we expect capital expenditures to be approximately $ 10.0 million in 2016 for capital expenditures while depreciation and amortization is expected to be approximately $ 13.5 million . planned capital expenditures in 2016 are primarily for new equipment . during the year ended december 26 , 2015 , cash used in financing activities was $ 2.0 million . in january 2015 , we entered into a ten-year $ 6.3 million mortgage note payable to finance an owned facility in saraland , alabama . we had additional proceeds of $ 1.0 million from equipment notes payable . these proceeds are offset by payments on notes payable and lease obligations of $ 9.7 million . we believe our operating cash flows , credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements . as of december 26 , 2015 , the unused borrowing availability under our revolving credit facility was $ 39.8 million . our revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $ 16.5 million . as of the date hereof , our fixed coverage ratio was less than 1.1 to 1.0 , accordingly the unused availability accessible by us is the amount above $ 16.5 million . significant additional cash expenditures above our normal liquidity requirements or significant deterioration in economic conditions could affect our business and require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . debt facilities revolving credit facility . the revolving credit facility provides for a maximum of $ 150.0 million of revolving credit , subject to borrowing base availability . the borrowing base is currently equal to specified percentages of the company 's eligible accounts receivable , inventories , fixed assets and real property less reserves established , from time to time , by the administrative agent under the facility . the revolving credit facility matures on march 14 , 2019. the revolving credit facility is secured by a first priority lien on substantially all of our assets . at our election , advances of the revolving credit facility bear interest at annual rates equal to either ( a ) libor for 1 , 2 or 3 month periods , as selected by us , plus an applicable margin of either 1.50 % , 1.75 % or 2.00 % , or ( b ) the higher of the prime rate , the federal funds rate plus 0.5 % , or a daily libor rate plus 1.00 % , plus an applicable margin of either 0.50 % , 0.75 % or 1.00 % . the applicable margin is determined based on availability under our revolving credit facility with margins increasing as availability decreases . we pay an unused line fee on the average amount by which the aggregate commitments exceed utilization of the senior credit facility equal to 0.375 % per annum . the weighted-average interest rate on borrowings outstanding under our revolving credit facility was 2.23 % at december 26 , 2015 and 2.29 % at december 27 , 2014. the revolving credit facility includes certain affirmative and negative covenants that impose restrictions on our financial and business operations . the revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $ 16.5 million . as of december 26 , 2015 , our unused borrowing availability under the revolving credit facility was $ 39.8 million . as of december 26 , 2015 , our fixed charge coverage ratio was less than 1.1 to 1.0 , accordingly , the unused availability accessible by us is the amount above $ 16.5 million . notes payable - buildings . on november 7 , 2014 , we entered into a ten-year $ 8.3 million note payable to purchase a previously leased distribution center in adairsville , georgia . the note payable is scheduled to mature on november 7 , 2024 and is secured by the distribution center . the note payable bears interest at a variable rate equal to one month libor plus 2.0 % and is payable in equal monthly installments of principal of $ 35 thousand , plus interest calculated on the declining balance of the note , with a final payment of $ 4.2 million due on maturity . in addition , we entered into an interest swap with an amortizing notional amount effective november 7 , 2014 which effectively fixes the interest rate at 4.50 % . on january 23 , 2015 , we entered into a ten-year $ 6.3 million note payable to finance an owned facility in saraland , alabama . the note payable is scheduled to mature on january 7 , 2025 and is secured by the facility . the note payable bears interest at a variable rate equal to one month libor plus 2.0 % and is payable in equal monthly installments of principal of $ 26 thousand , plus interest calculated on the declining balance of the note , with a final payment of $ 3.1 million due on maturity . in addition , we entered into a forward interest rate swap with an amortizing $ 5.7 million notional amount effective january 7 , 2017 which effectively fixes the interest rate at 4.30 % . 20 obligation to development authority of gordon county .
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results of operations fiscal year ended december 26 , 2015 compared with fiscal year ended december 27 , 2014 replace_table_token_5_th net sales . net sales for the year ended december 26 , 2015 were $ 422.5 million compared with $ 406.6 million in the year-earlier period , an increase of 3.9 % for the year-over-year comparison . sales for the carpet industry were down slightly for annual 2015 compared with the prior year . our 2015 year-over-year carpet sales comparison reflected an increase of 4.5 % in net sales . sales of residential carpet were down 0.4 % and sales of commercial carpet increased 14.4 % . revenue from carpet yarn processing and carpet dyeing and finishing services decreased 11.9 % in 2015 compared with 2014. we believe our growth in both the residential and commercial sales were positively affected by the introduction of new and innovative product offerings . cost of sales . cost of sales , as a percentage of net sales , decreased 1.6 percentage points , as a percentage of net sales in 2015 compared with 2014. during the expansion and restructuring initiatives , we have experienced high training , quality and waste costs . these costs were offset by improvements in operating efficiencies and lower raw material costs . gross profit . gross profit , as a percentage of net sales , increased 1.6 percentage points in 2015 compared with 2014. the increase in gross profit as a percentage of net sales was attributable to the factors discussed above . selling and administrative expenses . selling and administrative expenses were $ 100.4 million in 2015 compared with $ 93.2 million in 2014 , or an increase of 0.9 % as a percentage of sales . our increase in selling and administrative expenses as a percentage of sales was primarily driven by the higher levels of investment in new products in our residential and commercial brands compared with the prior year . other operating expense , net .
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in november 2015 , the fasb issued asu 2015-17 , ยbalance sheet classification of deferred taxesย , which simplifies the presentation of deferred income taxes . this asu requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position . the standard is effective for public companies for story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this annual report on form 10-k , which have been prepared by us in accordance with accounting principles generally accepted in the united states , or gaap , and with regulation s-x promulgated under the securities exchange act of 1934 , as amended . this discussion and analysis should be read in conjunction with these consolidated financial statements and the 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 , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in part i , item 1a . risk factors of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company that discovers , develops and plans to commercialize novel epigenetic therapies for cancer patients . our lead product candidate , tazemetostat , is a potent and selective inhibitor of the ezh2 hmt , an enzyme that plays an important role in various cancers . in our ongoing phase 1 clinical trial of tazemetostat in patients with relapsed or refractory non-hodgkin lymphoma , or nhl , or in patients with advanced solid tumors , tazemetostat has shown meaningful clinical activity as a monotherapy , with an acceptable safety profile . we are currently evaluating tazemetostat in two phase 2 studies in adults and one phase 1 study in children . in addition , in mid-2016 , we plan to initiate clinical trials of tazemetostat in combination with other therapies being used or investigated for the treatment of nhl . the first of these studies will test tazemetostat in combination with r-chop , the standard of care front-line combination treatment for diffuse large b-cell lymphoma , or dlbcl in front line elderly patients with dlbcl . we plan to initiate this study in the second quarter of 2016. the second of these studies will be conducted in patients with relapsed or refractory dlbcl , and will test tazemetostat in combination with either an anti-pd1 antibody or anti-pdl1 antibody , which represent an important emerging class of biologic therapies and therapeutic candidates that enhance the body 's immune response to cancer . we plan to enter into an arrangement with a collaboration partner for this study in the second quarter of 2016 and to initiate this study in mid-2016 . in addition , we plan to initiate a phase 2 study of tazemetostat in patients with mesothelioma characterized by loss-of-function of bap1 , an enzyme involved in ezh2 regulation , in the third quarter of 2016. we are continuing to explore in preclinical testing other tumor types that may be sensitive to tazemetostat . we have entered into an agreement with roche for the development of a companion diagnostic for use with tazemetostat to identify nhl patients with ezh2 point mutations . we own the global development and commercialization rights to tazemetostat outside of japan . eisai co. ltd , or eisai , holds the rights to develop and commercialize tazemetostat in japan , and holds a limited right of first negotiation for the rest of asia . we have several additional programs in development , including a clinical program of pinometostat , an inhibitor of the dot1l hmt , for the treatment of children with mll-r , an acute leukemia with genetic alterations of the mll gene . under our collaboration with celgene , we own commercialization rights to pinometostat in the united states and celgene owns commercialization rights to pinometostat outside the united states . along with celgene , we are also investigating in preclinical studies combinations of pinometostat with other targeted therapies for the treatment of adults with mll-r. we have additional small molecule hmt inhibitors that are being developed under our collaborations with glaxo group limited ( an affiliate of glaxosmithkline ) , or gsk , and celgene . under our collaboration with gsk , gsk is developing small molecule inhibitors against three novel hmt targets including prmt5 . we discovered these hmt inhibitors using our proprietary drug discovery platform and successfully delivered them to gsk under the collaboration . gsk has worldwide rights to the inhibitors of these three hmt targets . under our collaboration with celgene , we are developing small molecule inhibitors directed to three other hmt targets , in addition to 76 pinometostat . we are responsible for all preclinical discovery work as well as phase 1 clinical development for all three targets . celgene has the option to license worldwide rights to inhibitors directed at two of the three targets , and the option to license ex-u.s. rights to inhibitors directed to the third target . we retain the rights to develop and commercialize inhibitors of the third target in the united states . beyond our two clinical stage programs and the partnered programs with gsk and celgene , we have also identified five novel epigenetic targets for which we are developing small molecule inhibitors in preclinical drug discovery . we own the global development and commercialization rights to these programs . all of our novel targets have been identified internally using our proprietary drug discovery platform , and all of our small molecule inhibitors have been discovered internally . story_separator_special_tag since we have no further performance obligations under the gsk collaboration , future revenues will relate to any milestone payments and royalties received under the agreement , if any . in addition , following the execution of the amended and restated collaboration and license agreement with eisai , we do not expect to recognize any further amounts from eisai , except for potential royalties on ezh2 product sales in japan that we may receive in the future . research and development the following is a comparison of research and development expenses for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_6_th research and development expenses consist of expenses incurred in performing research and development activities , including clinical trial and related clinical manufacturing expenses , fees paid to third party clinical research organizations , or cros , compensation and benefits for full-time research and development employees , facilities expenses , overhead expenses , and other outside expenses . as we advance our product platform , we are conducting research on several prioritized hmt targets . our research and development team is organized such that the strategy , design , management and evaluation of results of all of our research and development plans is accomplished internally while some of our research and development activities are executed using our multinational network of cros . in the early phases of development , our research and development costs are often devoted to enhancing our product platform and are not necessarily allocable to specific targets . in circumstances where our collaboration and license agreements provide for equally co-funded global development under joint risk sharing collaborations , amounts received from collaboration partners for such co-funding are recorded as a reduction to research and development expense . most of our research and development costs are external costs , which we track on a program-by-program basis . our internal research and development costs are primarily compensation expenses for our full-time research and development employees , including stock-based compensation expense . by employing a multinational network of cros , our employees are able to dedicate significant amounts of their time to the expansion and development of our product platform while managing the research performed by our cros . in the first quarter of 2015 , research and development expenses included the $ 40.0 million upfront payment to eisai in connection with our amended and restated collaboration and license agreement under which we reacquired worldwide rights , excluding japan , to our ezh2 program , including tazemetostat . the following table illustrates the components of our research and development expenses : replace_table_token_7_th 79 during the year ended december 31 , 2015 total research and development expenses increased by $ 35.6 million , primarily due to the $ 40.0 million upfront payment that we made to eisai to reacquire the worldwide rights , excluding japan , to the ezh2 program , including tazemetostat , and the related costs to accelerate the development of tazemetostat . these cost increases were partially offset by reduced spending on pinometostat and related dot1l programs and on our discovery and preclinical programs . during the year ended december 31 , 2014 , total research and development expenses increased by $ 18.0 million , compared to 2013 , primarily due to the expansion of our product platform and the advancement of our preclinical pipeline programs . external research and development expenses for tazemetostat during 2015 include the costs associated with our reacquisition of worldwide rights , excluding japan , to the ezh2 program , including tazemetostat , from eisai during the first quarter of 2015. we are now solely responsible for funding the development , manufacturing , and commercialization costs for ezh2 compounds outside of japan , including tazemetostat . accordingly , external research and development expenses for tazemetostat for 2015 include phase 1/2 clinical trial costs , discovery and preclinical research in support of the tazemetostat program , expenses associated with our companion diagnostic program , and external manufacturing costs related to the acquisition of active pharmaceutical ingredient and manufacturing of clinical drug supply . in 2014 and 2013 , external research and development expenses of $ 3.8 million and $ 3.9 million for tazemetostat related to the phase 1 clinical trial costs and exploratory research costs incurred pursuant to our original agreement with eisai . external research and development expenses for pinometostat for the year ended december 31 , 2015 decreased by $ 9.9 million compared to the year ended december 31 , 2014. the decline in program spending in 2015 reflects reduced enrollment in the pinometostat adult and pediatric clinical trials and the associated reduction in costs to support the preclinical and research programs . we ceased enrollment in our pinometostat adult phase 1 clinical trial in the third quarter of 2015. during the year ended december 31 , 2014 , external research and development expenses for pinometostat and related dot1l programs increased by $ 1.9 million to $ 15.2 million , due to the advancement of the pinometostat phase 1 clinical trial . research and development expenses for pinometostat for the years ended december 31 , 2015 , 2014 and 2013 are net of $ 1.1 million , $ 3.9 million and $ 1.9 million , respectively , of global development co-funding from celgene . external research and development expenses for discovery and preclinical stage product programs decreased by $ 15.2 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. this decrease reflects our reallocation of resources to support the expansion of the tazemetostat programs and our reprioritization of our discovery and preclinical development programs . external research and development expenses for discovery and preclinical stage product programs , including the three target programs partnered with gsk , increased $ 9.1 million to $ 31.5 million in 2014 compared to 2013. this increase reflects our advancement of the research and development of these programs .
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general and administrative the following is a comparison of general and administrative expenses for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_8_th general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , intellectual property , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , travel expenses and professional fees for auditing , tax and legal services , including intellectual property and related legal services . for the year ended december 31 , 2015 , our general and administrative expenses increased by $ 3.0 million , or 14 % , compared to the year ended december 31 , 2014 , primarily related to additional intellectual property and related legal costs and compensation-related expenses . for the year ended december 31 , 2014 , our general and administrative expenses increased by $ 6.9 million , or 49 % , compared to the year ended december 31 , 2013 , primarily related to additional professional fees , insurance and other costs associated with public company operation as well as increased stock-based compensation expense , intellectual property-related legal services and other costs to support our growing organization . we expect that general and administrative expenses will be relatively consistent in 2016 , as compared to 2015. other income ( expense ) , net other income ( expense ) , net consists of interest income earned on our cash equivalents , offset by interest and other expense . other income , net recorded in the year ended december 31 , 2015 primarily reflects interest income earned on our cash equivalents and other income recorded from a tax incentive award received in 2013 , which is amortized to other income over the 4 year life of the award , partially offset by interest expense related to our computer software capital lease .
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using information gathered by pearl meyer , peer company data , national surveys , general compensation trend information and recommendations from management , the cng committee approved the fiscal 2015 base salaries for our senior executives . base salaries for senior executives are set using the cng committee story_separator_special_tag the following discussion should be read together with our consolidated financial statements and the notes related to those statements , as well as the other financial information included in this form 10-k. some of our discussion is forward-looking and involves risks and uncertainties . for information regarding risk factors that could have a material adverse effect on our business , refer to item 1a of this form 10-k , risk factors . the company navidea biopharmaceuticals , inc. is a biopharmaceutical company focused on the development and commercialization of precision immunodiagnostic agents and immunotherapeutics . navidea is developing multiple precision-targeted products based on our manocept platform to help identify the sites and pathways of undetected disease and enable better diagnostic accuracy , clinical decision-making , targeted treatment and , ultimately , patient care . navidea 's manocept platform is predicated on the ability to specifically target the cd206 mannose receptor expressed on activated macrophages . the manocept platform serves as the molecular backbone of lymphoseek , the first product developed by navidea based on the platform . lymphoseek is a novel , state-of-the-art , receptor-targeted , small-molecule radiopharmaceutical used in the evaluation of lymphatic basins that may have cancer involvement in patients . lymphoseek is designed for the precise identification of lymph nodes that drain from a primary tumor , which have the highest probability of harboring cancer . lymphoseek is approved by the u.s. fda for use in solid tumor cancers where lymphatic mapping is a component of surgical management and for guiding sentinel lymph node biopsy in patients with clinically node negative breast cancer , melanoma or squamous cell carcinoma of the oral cavity . lymphoseek has also received european approval in imaging and intraoperative detection of sentinel lymph nodes in patients with melanoma , breast cancer or localized squamous cell carcinoma of the oral cavity . building on the success of lymphoseek , the flexible and versatile manocept platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities , including spect , pet , intra-operative and or optical-fluorescence detection in a variety of disease states . preclinical data being developed by the company using tilmanocept linked to a therapeutic agent also suggest that tilmanocept 's binding affinity to cd206 receptors demonstrates the potential for this technology to be useful in treating diseases linked to the over-activation of macrophages . this includes various cancers as well as autoimmune , infectious , cardiovascular , and central nervous system diseases . thus , in january 2015 , the company formed a subsidiary , macrophage therapeutics , inc. , to further explore therapeutic applications for the manocept platform . our increasing focus on development of our proprietary manocept platform technology further supports the 2014 decision by the company 's board of directors to reduce our support for , while seeking to partner or out-license , our two neurological development programs , nav4694 and nav5001 . the nav5001 sublicense was terminated in april 2015. other than lymphoseek , none of the company 's drug product candidates have been approved for sale in any market . executive summary in 2015 , the company created and executed a new commercialization strategy for lymphoseek to better leverage the label expansion approved by the fda in october 2014 and , over time , accelerate its market penetration . this included a complete refresh of the brand , moving away from a feature-based selling approach to a customer-centric one focused on the benefits to the surgeon and patient . in concert with the rebranding efforts , the company also recruited , hired and trained a new salesforce in the latter part of the second quarter of 2015. the new direct sales team focused on targeting the highest priority territories . the company anticipated the sales team 's contributions would be most significant starting the fourth quarter of 2015 and onward based on the four- to six-month sales cycle of lymphoseek . the initial launch of the new commercialization strategy resulted in the following during 2015 : ยท grew lymphoseek sales by 142 % year over year , based on lymphoseek sales to navidea of $ 10.3 million for 2015 ; ยท ended the year at an annualized sales run rate for lymphoseek of over $ 15 million in revenue to navidea , which does not reflect the opportunity for additional growth in existing and expansion sales territories throughout 2016 ; and ยท achieved an increase of approximately 60 % in โ average daily doses sold โ from the end of 2014 through the end of 2015. we enter 2016 with positive momentum behind our new commercialization strategy . we expect our sales team 's strong contributions to continue to accelerate product revenues throughout the year . in addition , european sales revenues are expected to be generated from commercialization efforts with spepharm ag , an affiliate of norgine bv , to begin in the fourth quarter of 2016 . 36 in parallel , our r & d team is aggressively advancing our immunodiagnostics pipeline focused on significantly larger market opportunities including ra , which has a prevalence of approximately 3.8 million p atients in the u.s. and europe . the company continues to work toward a more focused development program using its manocept platform in immunodiagnostics , including the fda label expansion for lymphoseek into ra and ks . importantly , the costs of these development programs will be defrayed by nih grants awarded to the company in 2015 totaling over $ 3.8 million . story_separator_special_tag lymphoseek was approved and indicated for use in lymphatic mapping in patients with breast cancer and melanoma by the fda in march 2013 , with expanded use of lymphoseek indicated for guiding sentinel lymph node biopsy in head and neck cancer patients with squamous cell carcinoma of the oral cavity approval in june 2014 , and for lymphatic mapping in solid tumors and sentinel lymph node detection for breast cancer and melanoma as well as with or without scintigraphic imaging , known as lymphoscintigraphy , in october 2014. lymphoseek was also approved by the ema for use in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer , melanoma , or localized squamous cell carcinoma of the oral cavity in the eu in november 2014. although our marketing partners share a portion of the direct marketing , sales and distribution costs related to the sale of lymphoseek , we expect to incur ongoing costs to support product marketing efforts targeting surgical oncologists at the core of the oncology treatment team , as well as medical education-related and market outreach activities associated with lymphoseek commercialization . additionally , we anticipate that we will incur costs related to supporting the other product , regulatory , manufacturing and commercial activities related to the potential marketing registration and sale of lymphoseek in other markets , including a reduced-mass vial intended for sale in the eu . we also expect to incur costs related to ongoing clinical development efforts to support the use of lymphoseek in additional cancer types . we can not assure you that lymphoseek will achieve regulatory approval in any other market outside the u.s. or eu , or if approved in those markets , that it will achieve market acceptance in the u.s. , eu or any other market . we are currently evaluating existing and emerging data on the potential use of manocept-related agents in the diagnosis and disease-staging of disorders in which macrophages are involved , such as ks , ra , vulnerable plaque/atherosclerosis , tb and other disease states , to define areas of focus , development pathways and partnering options to capitalize on the manocept platform . in the near-term , our more active development efforts with respect to the manocept platform will likely be limited to such evaluations . we will also be evaluating potential funding and other resources required for continued development , regulatory approval and commercialization of any manocept platform product candidates that we identify for further development , and potential options for advancing development . we can not assure you that further evaluation or development will be successful , that any manocept platform product candidate will ultimately achieve regulatory approval , or if approved , the extent to which it will achieve market acceptance . the company projects that its total revenue for 2016 , including lymphoseek product sales revenue , license revenue , grant and other revenue , will be in the range of $ 23 million to $ 25 million . gross margins on lymphoseek product sales are expected to continue to remain at over 80 % in the coming quarters . based on our current projections , we expect total operating expenses for 2016 to be between $ 21.5 million and $ 23.5 million , excluding charges related to our subsidiary , macrophage therapeutics , inc. , which are currently expected to be funded separately . as a result of our revenue and margin expectations for 2016 , coupled with our expectations of operating expenses for the year , we also expect to reach cash flow breakeven on an operating or per-share basis in the second half of 2016 . 38 story_separator_special_tag and margins . net sales of lymphoseek were $ 4.2 million during 2014 , compared to $ 614,000 during 2013. the increase was primarily due to sales starting in late april of 2013 , coupled with an increase in the initial transfer price to cardinal beginning in the second quarter of 2014. gross margins on net sales were 63 % in 2014 and 46 % in 2013. cost of goods sold in 2014 included a reserve for inventory obsolescence of $ 539,000 related to a specific lot that was originally produced for commercial validation purposes and that is nearing its product expiry and therefore was no longer expected to be sold . excluding the one-time inventory obsolescence charge , gross margin on net sales for 2014 would have been 75 % . cost of goods sold in both periods included post-production testing activities required by regulatory authorities , which are charged as one-time period costs , and a royalty on net sales payable under our license agreement with ucsd . lymphoseek license revenue . during 2014 , we recognized $ 300,000 of lymphoseek license revenue from a non-refundable upfront milestone payment received by the company related to the lymphoseek distribution agreement for china for which the company has no future obligations . no lymphoseek milestone revenue was recognized during 2013. grant and other revenue . during 2014 , we recognized $ 1.7 million of grant revenue as compared to $ 516,000 during 2013 , primarily related to sbir grants from the nih supporting nav4694 and manocept platform development . the net increase was primarily due to higher nav4694 grants offset by lower manocept platform and lymphoseek grants . grant and other revenue for 2014 also included $ 90,000 of revenue related to services provided to r-nav for manocept development . research and development expenses .
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results of operations years ended december 31 , 2015 and 2014 net sales and margins . net sales of lymphoseek were $ 10.3 million during 2015 , compared to $ 4.2 million during 2014. the increase was primarily the result of continued efforts to increase sales . gross margins on net sales were 83 % and 63 % for 2015 and 2014 , respectively . cost of goods sold in 2015 included a net benefit of $ 253,000 related to our ability to sell certain previously reserved inventory , partially offset by net inventory losses of $ 93,000 related to a production matter and reserves for inventory obsolescence totaling $ 52,000 related to specific lots which expired during the period . cost of goods sold in 2014 included a reserve for inventory obsolescence of $ 539,000 related to a specific lot which was originally produced for validation purposes but was nearing its product expiry and therefore was no longer expected to be sold . cost of goods sold in both periods included post-production testing activities required by regulatory authorities , which are charged as one-time period costs , and a royalty on net sales payable under our license agreement with ucsd . lymphoseek license revenue . during 2015 , we recognized $ 833,000 of the $ 2.0 million non-refundable upfront payment received by the company related to the lymphoseek license and distribution agreement for europe , which the company is recognizing on a straight-line basis over two years . during 2015 and 2014 , we recognized $ 300,000 of lymphoseek license revenue from non-refundable milestone payments received by the company related to the lymphoseek distribution agreement for china , for which the company has no future obligations . grant and other revenue .
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overview outfront media is a real estate investment trust ( โ reit โ ) , which provides advertising space ( โ displays โ ) on out-of-home advertising structures and sites in the united states ( the โ u.s. โ ) and canada . we currently manage our operations through three operating segmentsโ ( 1 ) u.s. billboard and transit , which is included in our u.s. media reportable segment , ( 2 ) international and ( 3 ) sports marketing . international and sports marketing do not meet the criteria to be a reportable segment and accordingly , are both included in other ( see item 8. , note 17. segment information to the consolidated financial statements ) . prior to april 1 , 2016 , our international segment included our advertising businesses in canada and latin america . on april 1 , 2016 , we sold all of our equity interests in certain of our subsidiaries ( the โ disposition โ ) , which held all of the assets of our outdoor advertising business in latin america . ( see item 8. , note 11. acquisitions and dispositions : dispositions to the consolidated financial statements . ) the operating results of our outdoor advertising business in latin america through april 1 , 2016 , are included in our consolidated financial statements for 2016 and 2015 , and are included in other in our segment reporting . business we are one of the largest providers of advertising space on out-of-home advertising structures and sites across the u.s. and canada . our inventory consists of billboard displays , which are primarily located on the most heavily traveled highways and roadways in top nielsen designated market areas ( โ dmas โ ) , and transit advertising displays operated under exclusive multi-year contracts with municipalities in large cities across the u.s. and canada . we also have marketing and multimedia rights agreements with colleges , universities and other educational institutions , which entitle us to operate on-campus advertising displays , as well as manage marketing opportunities , media rights and experiential entertainment at sports events . in total , we have displays in all of the 25 largest markets in the u.s. and 140 markets in the u.s. and canada . our top market , high profile location focused portfolio includes sites such as the bay bridge in san francisco , various locations along sunset boulevard in los angeles , and sites in and around both grand central station and times square in new york . the breadth and depth of our portfolio provides our customers with a range of options to address their marketing objectives , from national , brand-building campaigns to hyper-local campaigns that drive customers to the advertiser 's website or retail location โ one mile down the road. โ using geopath , the out-of-home advertising industry 's audience measurement system , we provide advertisers with the size and demographic composition of the audience that is exposed to individual displays or a complete campaign . as part of our on smart media platform , we are developing hardware and software solutions for enhanced demographic and location targeting , and engaging ways to connect with consumers on-the-go . additionally , our outfront mobile network allows our customers to further leverage location targeting with interactive mobile advertising that uses geofence technology to push mobile ads to consumers within a pre-defined radius around a corresponding billboard display or other designated advertising location . we believe out-of-home advertising continues to be an attractive form of advertising , as our displays are always on , are always viewable and can not be turned off , skipped , blocked or fast-forwarded . further , out-of-home advertising can be an effective โ stand-alone โ medium , as well as an integral part of a campaign to reach audiences using multiple forms of media , including television , radio , print , online , mobile and social media advertising platforms . we provide our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising . in addition to leasing displays , we provide other value-added services to our customers , such as pre-campaign category research , consumer insights , creative design support , print production and post-campaign tracking and analytics , as well as use of a real-time mobile operations reporting system that facilitates proof of performance to customers for substantially all of our business . 40 u.s. media . our u.s. media segment generated 23 % of its revenues in the new york city metropolitan area in 2017 , 25 % in 2016 and 27 % in 2015 , and generated 16 % in the los angeles metropolitan area in each of 2017 and 2016 , and 15 % in 2015 . our u.s. media segment generated revenues of $ 1,406.5 million in 2017 , $ 1,393.8 million in 2016 and $ 1,344.3 million in 2015 , and operating income before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges and loss on real estate assets held for sale ( โ adjusted oibda โ ) of $ 478.1 million in 2017 , $ 473.8 million in 2016 and $ 451.1 million in 2015 . ( see the โ segment results of operations โ section of this md & a . ) other ( includes international and sports marketing ) . other generated revenues of $ 114.0 million in 2017 , $ 120.1 million in 2016 and $ 169.5 million in 2015 , and adjusted oibda of $ 8.4 million in 2017 , $ 17.8 million in 2016 , and $ 24.3 million in 2015 . economic environment our revenues and operating results are sensitive to fluctuations in advertising expenditures , general economic conditions and other external events beyond our control . business environment the outdoor advertising industry is fragmented , consisting of several companies operating on a national basis , as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local geographic markets . story_separator_special_tag our currently estimated equipment deployment costs will be approximately $ 800 million for the full 15 -year term and approximately $ 600 million for the first eight years of the term , and we anticipate these equipment deployment costs will be recorded as prepaid lease and transit franchise costs and intangible assets on our consolidated statement of financial position . if incremental revenues generated over the term of the agreement are not sufficient to cover all or a portion of the equipment deployment costs , the costs will not be recovered , which could have an adverse effect on our business , financial condition and results of operation . we expect to utilize third party financing to fund equipment deployment costs , and have increased our letters of credit for the benefit of the mta from approximately $ 30.0 million to $ 136.0 million , which is subject to change as equipment installations are completed and revenues are generated . key performance indicators our management reviews our performance by focusing on the indicators described below . several of our key performance indicators are not prepared in conformity with generally accepted accounting principles in the united states of america ( โ gaap โ ) . we believe these non-gaap performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of , or as a substitute for , their most directly comparable gaap financial measures . 42 replace_table_token_9_th ( a ) organic revenues exclude revenues associated with significant acquisitions and divestitures , revenues associated with business lines we no longer operate , and the impact of foreign currency exchange rates ( โ non-organic revenues โ ) . we provide organic revenues to understand the underlying growth rate of revenue excluding the impact of non-organic revenue items . our management believes organic revenues are useful to users of our financial data because it enables them to better understand the level of growth of our business period to period . since organic revenues are not calculated in accordance with gaap , it should not be considered in isolation of , or as a substitute for , revenues as an indicator of operating performance . organic revenues , as we calculate it , may not be comparable to similarly titled measures employed by other companies . ( b ) see the โ reconciliation of non-gaap financial measures โ and โ revenues โ sections of this md & a for reconciliations of operating income to adjusted oibda , net income ( loss ) to ffo and affo and revenues to organic revenues . adjusted oibda we calculate adjusted oibda as operating income ( loss ) before depreciation , amortization , net ( gain ) loss on dispositions , stock-based compensation , restructuring charges and loss on real estate assets held for sale . we calculate adjusted oibda margin by dividing adjusted oibda by total revenues . adjusted oibda and adjusted oibda margin are among the primary measures we use for managing our business , evaluating our operating performance and planning and forecasting future periods , as each is an important indicator of our operational strength and business performance . our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing , planning and executing our business strategy . our management also believes that the presentations of adjusted oibda and adjusted oibda margin , as supplemental measures , are useful in evaluating our business because eliminating certain non-comparable items highlight operational trends in our business that may not otherwise be apparent when relying solely on gaap financial measures . it is management 's opinion that these supplemental measures provide users of our financial data with an important perspective on our operating performance and also make it easier for users of our financial data to compare our results with other companies that have different financing and capital structures or tax rates . ffo and affo we calculate ffo in accordance with the definition established by the national association of real estate investment trusts ( โ nareit โ ) . ffo reflects net income ( loss ) adjusted to exclude gains and losses from the sale of real estate assets , depreciation and amortization of real estate assets , amortization of direct lease acquisition costs , the non-cash effect of loss on real estate assets held for sale and the same adjustments for our equity-based investments , as well as the related income tax effect of adjustments , as applicable . we calculate affo as ffo adjusted to include cash paid for direct lease acquisition costs as such costs are generally amortized over a period ranging from four weeks to one year and therefore are incurred on a regular basis . affo also includes cash paid for maintenance capital expenditures since these are routine uses of cash that are necessary for our operations . in addition , affo excludes costs related to restructuring charges , as well as certain non-cash items , including non-real estate depreciation and amortization , stock-based compensation expense , accretion expense , the non-cash effect of straight-line rent and amortization of deferred financing costs , and the non-cash portion of income taxes , as well as the related income tax effect of adjustments , as applicable . we use ffo and affo measures for managing our business and for planning and forecasting future periods , and each is an important indicator of our operational strength and business performance , especially compared to other reits . our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing , planning and executing our business strategy .
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segment results of operations we present adjusted oibda as the primary measure of profit and loss for our operating segments in accordance with financial accounting standards board ( the โ fasb โ ) guidance for segment reporting . ( see the โ key performance indicators โ section of this md & a and item 8. , note 18. segment information to the consolidated financial statements . ) as of april 1 , 2016 , we manage our operations through three operating segmentsโ ( 1 ) u.s. billboard and transit , which is included in our u.s. media reportable segment , ( 2 ) international and ( 3 ) sports marketing . international and sports marketing do not meet the criteria to be a reportable segment and accordingly , are both included in other . our segment reporting therefore includes u.s. media and other . the following table presents our revenues , adjusted oibda , operating income ( loss ) and depreciation and amortization by segment , in 2017 , 2016 and 2015 . historical financial information by reportable segment has been recast to reflect the current year 's presentation . on april 1 , 2016 , we completed the disposition . historical operating results for our advertising business in latin america are included in other . replace_table_token_16_th ( a ) stock-based compensation is classified as corporate expense . 51 u.s. media 2017 vs. 2016 replace_table_token_17_th * calculation not meaningful . ( a ) organic revenues exclude revenues associated with significant acquisitions and divestitures ( โ non-organic revenues โ ) . total u.s. media segment revenues increased $ 12.7 million , or 1 % , and u.s. media segment organic revenues increased $ 11.3 million , or 1 % , in 2017 compared to 2016 . non-organic revenues primarily reflect an acquisition .
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overview we are a clinical stage biotechnology company pioneering messenger rna ( mrna ) therapeutics and vaccines to create a new generation of transformative medicines to improve the lives of patients . mrna medicines are designed to direct the body 's cells to produce intracellular , membrane or secreted proteins that have a therapeutic or preventive benefit with the potential to address a broad spectrum of diseases . our platform builds on continuous advances in basic and applied mrna science , delivery technology and manufacturing , providing us the capability to pursue in parallel a robust pipeline of new development candidates . we are developing therapeutics and vaccines for infectious diseases , immuno-oncology , rare diseases , autoimmune diseases and cardiovascular diseases , independently and with our strategic collaborators . we have designed our strategy and operations to realize the full potential value and impact of mrna over a long time horizon across a broad array of human diseases . we built and continue to invest in a platform to advance the technological frontier of mrna medicines . we have made forward investments in scalable infrastructure and capabilities to pursue a pipeline of potential medicines that reflect the breadth of the mrna opportunity . we have a diverse development pipeline of 24 development candidates across our 23 programs , of which 12 are in clinical studies . we have established strategic alliances with leading biopharmaceutical companies , including astrazeneca , merck & co. , or merck , and vertex pharmaceuticals , or vertex , as well as government-sponsored and private organizations focused on global health initiatives , including biomedical advanced research and development authority , or barda , defense advanced research projects agency , or darpa , the bill & melinda gates foundation , or gates foundation , and the coalition for epidemic preparedness innovations , or cepi . as we unlock the inherent advantages of mrna , we aim to address as many diseases and impact as many patients as our technology , talent , and capital permit . the broad potential applications of mrna medicines have led us to raise significant capital and adopt a long-term approach to capital allocation that balances near-term risks and long-term value creation . as of december 31 , 2019 , we had cash , cash equivalents and investments of approximately $ 1.26 billion . in addition , in february 2020 , we raised approximately $ 549.9 million , net of underwriting discounts , commissions and estimated offering expenses , through a follow-on public equity offering and the subsequent exercise of the underwriters ' option to purchase additional shares . we use this capital to fund operations and investing activities across research for technology creation , drug discovery and clinical development programs , infrastructure and capabilities to enable the research engine and early development engine ( which includes our moderna technology center , or mtc , manufacturing facility in norwood ) , our digital infrastructure , creation of our portfolio of intellectual property , and administrative support . since our inception , we have incurred significant operating losses . our net losses were $ 514.0 million , $ 384.7 million and $ 255.9 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , our accumulated deficit was $ 1.50 billion . we expect to continue to incur significant expenses and operating losses for the foreseeable future . in addition , we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : continue our platform research and drug discovery and development efforts ; conduct clinical studies for our investigational medicines ; manufacture clinical study materials and develop large-scale manufacturing capabilities ; seek regulatory approval for our investigational medicines ; maintain , expand , and protect our intellectual property ; hire additional personnel to support our program development effort to obtain regulatory approval and secure additional facilities for operations ; and continue to operate as a public company . 213 we do not expect to generate revenue from the sale of potential mrna medicines unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our investigational medicines . if we seek to obtain regulatory approval for and commercialize any of our investigational medicines , we expect to incur significant commercialization expenses . as a result , we will need substantial additional funding to support our continued operations and pursue our growth strategy . until we can generate significant revenue from sales of our medicines , if ever , we expect to finance our operations through a combination of public or private equity offerings , structured financings and debt financings , government funding arrangements , strategic alliances and marketing , distribution , and licensing arrangements . we may be unable to raise additional funds or enter into such other agreements on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back , or discontinue the development and commercialization of one or more of our programs . because of the numerous risks and uncertainties associated with pharmaceutical development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenues from the sale of our medicines , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce our operations . financial operations overview revenue to date , we have not generated any revenue from the sale of potential mrna medicines . our revenue has been primarily derived from strategic alliances with strategic collaborators and government-sponsored and private organizations to discover , develop , and commercialize potential mrna medicines . story_separator_special_tag discovery program expenses are costs associated with research activities for our programs in the preclinical discovery stage , and primarily consist of external costs for cros and lab services , and allocated manufacturing cost of preclinical mrna supply and consumables . platform research expenses are mainly costs to develop technical advances in mrna science , delivery science , and manufacturing process design . these costs include personnel-related costs , computer equipment , facilities , preclinical mrna supply and consumables , and other administrative costs to support our platform research . technology development and unallocated manufacturing expenses are primarily related to non-program-specific manufacturing process development and manufacturing costs . shared discovery and development expenses are research and development costs such as personnel-related costs and other costs , which are not otherwise included in development programs , discovery programs , platform research , technical development and unallocated manufacturing expenses , stock-based compensation , and other expenses . we have developed six modalities . as of february 14 , 2020 , we had 12 programs in clinical trials and a total of 24 development candidates across our 23 programs , summarized by modality as follows : 216 prophylactic vaccines included nine development candidates across eight programs : rsv vaccine ( mrna-1777 and mrna-1172 or v172 ) , cmv vaccine ( mrna-1647 ) , hmpv/piv3 vaccine ( mrna-1653 ) , h7n9 vaccine ( mrna-1851 ) , zika vaccine ( mrna-1893 ) , ebv vaccine ( mrna-1189 ) , pediatric rsv vaccine ( mrna-1345 ) , and sars-cov-2 vaccine ( mrna-1273 ) . the cmv vaccine is currently in a phase 2 clinical trial and in preparation for a phase 3 clinical trial . the ebv , pediatric rsv and sars-cov-2 vaccines are in preclinical development . the rest of the programs in this modality either have ongoing or completed phase 1 clinical trials . cancer vaccines included two development candidates : personalized cancer vaccine ( pcv ) ( mrna-4157 ) and kras vaccine ( mrna-5671 or v941 ) . we are collaborating with merck on both programs . pcv is in a phase 2 clinical trial and the kras vaccine is in a phase 1 clinical trial . intratumoral immuno-oncology included three development candidates : ox40l ( mrna-2416 ) , ox40l/il-23/il-36ฮณ ( triplet ) ( mrna-2752 ) , and il-12 ( medi1191 ) . ox40l is currently being evaluated in a phase 1/2 trial that includes a phase 2 expansion cohort in patients with advanced ovarian carcinoma . triplet and il-12 are in phase 1 clinical trials . localized regenerative therapeutics included one development candidate , vegf-a ( azd8601 ) . the program is being led by astrazeneca through clinical development and is in a phase 2a clinical trial . systemic secreted and cell surface therapeutics included five development candidates : antibody against chikungunya virus ( mrna-1944 ) , relaxin ( azd7970 ) , fabry disease ( mrna-3630 ) , il-2 ( mrna-6231 ) , and pd-l1 ( mrna-6981 ) . the antibody against chikungunya virus development candidate is in collaboration with darpa and the program is in a phase 1 clinical trial . relaxin , in collaboration with astrazeneca , fabry disease , il-2 and pd-l1 are in preclinical development . systemic intracellular therapeutics included four development candidates : mma ( mrna-3704 ) , pa ( mrna-3927 ) , pku ( mrna-3283 ) , and gsd1a ( mrna-3745 ) . the mma program has enrolled the first patient for a phase 1/2 clinical trial . the u.s. food and drug administration ( the โ fda โ ) has completed its review of the ind for mrna-3927 allowing the pa program to proceed to a phase 1/2 clinical trial . the pku and gsd1a programs are in preclinical development . the largest component of our total operating expenses has historically been our investment in research and development activities , including development of our platform , mrna technologies , and manufacturing technologies . we expense research and development costs as incurred and can not reasonably estimate the nature , timing , and estimated costs required to complete the development of the development candidates and investigational medicines we are currently developing or may develop in the future . there are numerous risks and uncertainties associated with the research and development of such development candidates and investigational medicines , including , but not limited to : scope , progress , and expense of developing ongoing and future development candidates and investigational medicines ; entry in and completion of related preclinical studies ; enrollment in and completion of subsequent clinical trials ; safety and efficacy of investigational medicines resulting from these clinical trials ; changes in laws or regulations relevant to the investigational medicines in development ; receipt of the required regulatory approvals ; and commercialization , including establishing manufacturing and marketing capabilities . a change in expectations or outcomes of any of the known or unknown risks and uncertainties may materially impact our expected research and development expenditures . continued research and development is central to the ongoing activities of our business . investigational medicines in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our costs to continue to increase in the future as our investigational medicines progress through the development phases and as we identify and develop additional programs . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our investigational medicines , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time due to the early stage of development of our investigational medicines . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans .
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results of operations the following tables summarize our consolidated statements of operations for each period presented ( in thousands ) : replace_table_token_11_th replace_table_token_12_th revenue total revenue decrease d by $ 74.9 million , or 55 % in 2019 , primarily due to a decrease in collaboration revenue . collaboration revenue decrease d by $ 74.5 million , or 61 % in 2019 , mainly due to decreased revenue across all our strategic alliances , particularly astrazeneca and merck , largely driven by our adoption of asc 606 and the completion of the initial four-year research period under the 2016 merck agreement . see note 2 to our consolidated financial statements for further information on our adoption of asc 606. grant revenue remained relatively flat in 2019 . there was a decrease in revenue from darpa as the research and development activities under the darpa awards were substantially concluded at the end of 2018 , offset by increases in revenue from gates foundation and barda . total revenue decrease d by $ 70.8 million , or 34 % in 2018 , primarily due to decreases in both collaboration revenue and grant revenue . collaboration revenue decrease d by $ 54.5 million , or 31 % in 2018 , mainly driven by higher revenue in 2017 due to accelerated recognition of $ 70.3 million of revenue upon the termination of the alexion strategic alliance arrangement in october 2018. grant 222 revenue decrease d by $ 16.3 million , or 56 % in 2018 , largely attributable to a decrease in revenue of $ 13.4 million from the barda contract , primarily due to revisions to the zika program and a focus on preclinical studies of mrna-1893 , a follow on to mrna-1325 . operating expenses research and development expenses research and development expenses increase d by $ 42.2 million , or 9 % in 2019 .
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only the current day 's variation margin receivable ( payable ) is reported in the december 31 , 2020 and december 31 , 2019 statements of financial condition for non-lme commodity futures contracts . the effect of derivative instruments on the statements of income and expenses is as follows : replace_table_token_21_th the table below summarizes the average monthly notional value of futures contracts outstanding during the period : replace_table_token_22_th note 8 โ investments in story_separator_special_tag this information should be read in conjunction with the financial statements and notes included in item 8 of part ii of this report . the discussion and analysis which follows may contain trend analysis and other forward-looking statements . see โ cautionary statement concerning forward-looking information โ above . you should not place undue reliance on any forward-looking statements . except as expressly required by the federal securities laws , the fund and the managing owner undertakes no obligation to publicly update or revise any forward-looking statements or the risks , uncertainties or other factors described in this report , as a result of new information , future events or changed circumstances or for any other reason after the date of this report . overview/introduction invesco capital management llc ( โ invesco โ ) has served as the managing owner ( the โ managing owner โ ) , commodity pool operator and commodity trading advisor of the fund since february 23 , 2015. the managing owner is registered with the commodity futures trading commission ( the โ cftc โ ) as a commodity pool operator and a commodity trading advisor , and it is a member firm of the national futures association ( โ nfa โ ) . the fund seeks to track changes , whether positive or negative , in the level of the dbiq optimum yield precious metals index excess return ( the โ index โ ) over time , plus the excess , if any , of the sum of the fund 's interest income from its holdings of united states treasury obligations ( โ treasury income โ ) , dividends from its holdings in money market mutual funds ( affiliated or otherwise ) ( โ money market income โ ) and dividends or distributions of capital gains from its holdings of t-bill etfs ( as defined below ) ( โ t-bill etf income โ ) over the expenses of the fund . the fund invests in futures contracts in an attempt to track its index . the index is intended to reflect the change in market value of the precious metals sector . the commodities comprising the index are gold and silver ( each an โ index commodity , โ and collectively , the โ index commodities โ ) . the fund may invest directly in united states treasury obligations . the fund may also gain exposure to united states treasury obligations through investments in exchange-traded funds ( โ etfs โ ) ( affiliated or otherwise ) that track indexes that measure the performance of united states treasury obligations with a maximum remaining maturity of up to 12 months ( โ t-bill etfs โ ) . the fund holds as collateral united states treasury obligations , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , for margin and or cash management purposes . while the fund 's performance will reflect the appreciation or depreciation of those holdings , the fund 's performance , whether positive or negative , will be driven primarily by its strategy of trading futures contracts with the aim of seeking to track the index . the fund pursues its investment objective by investing in a portfolio of exchange-traded commodity futures contracts that expire in a specific month and trade on a specific exchange ( the โ index contracts โ ) in the index commodities . the notional amounts of each index commodity included in the index are broadly in proportion to historic levels of the world 's production and stocks of the index commodities . the fund also holds united states treasury obligations and t-bill etfs , if any , for deposit with morgan stanley & co. llc , the fund 's commodity broker ( the โ commodity broker โ ) as margin , to the extent permissible under cftc rules and united states treasury obligations , cash , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , on deposit with the bank of new york mellon ( the โ custodian โ ) , for cash management purposes . the aggregate notional value of the commodity futures contracts owned by the fund is expected to approximate the aggregate net asset value ( โ nav โ ) of the fund , as opposed to the aggregate index value . the cftc and certain futures exchanges impose position limits on futures contracts , including on index contracts . as the fund approaches or reaches position limits with respect to an index commodity , the fund may commence investing in index contracts that reference other index commodities . in those circumstances , the fund may also trade in futures contracts based on commodities other than index commodities that the managing owner reasonably believes tend to exhibit trading prices that correlate with an index contract . the managing owner may determine to invest in other futures contracts if at any time it is impractical or inefficient to gain full or partial exposure to an index commodity through the use of index contracts . these other futures contracts may or may not be based on an index commodity . when they are not , the managing owner may seek to select futures contracts that it reasonably believes tend to exhibit trading prices that correlate with an index contract . the shares are intended to provide investment results that generally correspond to the changes , positive or negative , in the levels of the index over time . the value of the shares is expected to fluctuate in relation to changes in the value of the fund 's portfolio . story_separator_special_tag while the legal requirements are designed to protect the customers of futures commission merchants , a failure by the commodity broker to comply with those requirements would be likely to have a material adverse effect on the fund in the event that the commodity broker became insolvent or suffered other financial distress . liquidity the fund 's entire source of capital is derived from the fund 's offering of shares to authorized participants . the fund in turn allocates its net assets to commodity futures trading . a significant portion of the nav is held in united states treasury obligations , which may be used as margin for the fund 's trading in commodity futures contracts and united states treasury obligations , money market mutual funds , cash and t-bill etfs , if any , which may be used for cash management purposes . the percentage that united states treasury obligations bear to the total net assets will vary from period to period as the market values of the fund 's commodity interests change . a portion of the fund 's united states treasury obligations is held for deposit with the commodity broker to meet margin requirements . all remaining cash , money market mutual funds , t-bill etfs , if any , and united states treasury obligations are on deposit with the custodian . interest earned on the fund 's interest-bearing funds and dividends from the fund 's holdings of money market mutual funds are paid to the fund . any dividends or distributions of capital gains received from the fund 's holdings of t-bill etfs , if any , are paid to the fund . the fund 's commodity futures contracts may be subject to periods of illiquidity because of market conditions , regulatory considerations or for other reasons . for example , u.s. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day . these limits are generally referred to as โ daily price fluctuation limits โ or โ daily limits , โ and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a โ limit price โ . once a limit price has been reached in a particular contract , it is usually the case that no trades may be made at a different price than specified in the limit . the duration of limit prices generally varies . limit prices may have the effect of precluding the fund from trading in a particular contract or requiring the fund to liquidate contracts at disadvantageous times or prices . either of those outcomes could adversely affect the fund 's ability to pursue its investment objective . because the fund trades futures contracts , its capital is at risk due to changes in the value of futures contracts ( market risk ) or the inability of counterparties ( including the commodity broker and or exchange clearinghouses ) to perform under the terms of the contracts ( credit risk ) . on any business day , an authorized participant may place an order with the transfer agent to redeem one or more creation units . redemption orders must be placed by 10:00 a.m. , eastern time . the day on which the managing owner receives a valid redemption order is the redemption order date . the day on which a redemption order is settled is the redemption order settlement date . as provided below , the redemption order settlement date may occur up to two business days after the redemption order date . redemption orders are irrevocable . the redemption procedures allow authorized participants to redeem creation units . individual shareholders may not redeem directly from the fund . instead , individual shareholders may only redeem shares in integral multiples of 100,000 and only through an authorized participant . unless otherwise agreed to by the managing owner and the authorized participant as provided in the next sentence , by placing a redemption order , an authorized participant agrees to deliver the creation units to be redeemed through dtc 's book-entry system to the fund no later than the redemption order settlement date as of 2:45 p.m. , eastern time , on the business day immediately following the redemption order date . upon submission of a redemption order , the authorized participant may request the managing owner to agree to a redemption order settlement date up to two business days after the redemption order date . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order . redemption orders may be placed either ( i ) through the continuous net settlement ( โ cns โ ) clearing processes of the national securities clearing corporation ( the โ nscc โ ) ( the โ cns clearing process โ ) or ( ii ) if outside the cns clearing process , only through the facilities of the depository trust company ( โ dtc โ or the โ depository โ ) ( the โ dtc process โ ) , or a successor depository , and only in exchange for cash . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order and such fee is not borne by the fund . capital resources the fund does not have any material commitments for capital expenditures as of the end of the latest fiscal period . the fund is unaware of any ( i ) anticipated known demands , commitments or capital expenditures ; ( ii ) material trends , favorable or unfavorable , in its capital resources ; or ( iii ) trends or uncertainties that will have a material effect on operations .
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results of operations for the years ended december 31 , 2020 and 2019 the following graphs illustrate the percentage changes in ( i ) the market price of the shares ( as reflected by the line โ market โ ) , ( ii ) the fund 's nav ( as reflected by the line โ nav โ ) , and ( iii ) the closing levels of the index ( as reflected by the line โ dbiq-opt yield precious metals index er โ ) . whenever the treasury income , money market income and t-bill etf income , if any , earned by the fund exceeds fund expenses , the price of the shares generally exceeds the levels of the index primarily because the share price reflects treasury income , money market income and t-bill etf income from the fund 's collateral holdings whereas the index does not consider such income . there can be no assurances that the price of the shares or the fund 's nav will exceed the index levels . no representation is being made that the index will or is likely to achieve closing levels consistent with or similar to those set forth herein . similarly , no representation is being made that the fund will generate profits or losses similar to the fund 's past performance or changes in the index closing levels . 25 comparison of market , nav and dbiq-opt yield precious metals index er for the years ended december 31 , 2020 and 2019 neither the past performance of the fund nor the prior index levels and changes , positive or negative , should be taken as an indication of the fund 's future performance . neither the past performance of the fund nor the prior index levels and changes , positive or negative , should be taken as an indication of the fund 's future performance .
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cash balances are generally held in accounts at large national or regional banking organizations in amounts that story_separator_special_tag the information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto for the years ended december 31 , 2013 , 2012 , and 2011. in addition , this section contains forward-looking statements . these forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions . certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the risk factors section on page 20. additionally , more information about our business activities can be found in ยbusinessย . critical accounting policies the sec has issued cautionary advice regarding disclosure about critical accounting policies . the sec defines critical accounting policies as those that are both most important to the portrayal of a company 's financial condition and results , and that 36 require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods . the preparation of our consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes . significant estimates made by us include valuation of loans , equity investments , and investments in subsidiaries , evaluation of the recoverability of accounts receivable and income tax assets , and the assessment of litigation and other contingencies . the matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments . although we believe that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at december 31 , 2013 are reasonable , actual results could differ materially from the estimated amounts recorded in our financial statements . general we are a specialty finance company that has a leading position in originating , acquiring , and servicing loans that finance taxicab medallions and various types of commercial businesses . a wholly-owned portfolio company of ours , medallion bank , also originates consumer loans for the purchase of recreational vehicles , boats , motorcycles , and trailers , and to finance small-scale home improvements . since 1996 , the year in which we became a public company , we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 5 % , and our commercial loan portfolio at a compound annual growth rate of 2 % ( 10 % and 6 % on a managed basis when combined with medallion bank ) . since medallion bank acquired a consumer loan portfolio and began originating consumer loans in 2004 , it has increased its consumer loan portfolio at a compound annual growth rate of 15 % . total assets under our management and the management of our unconsolidated wholly-owned subsidiaries , which includes assets serviced for third party investors , were $ 1,330,000,000 as of december 31 , 2013 and $ 1,219,224,000 as of december 31 , 2012 , and have grown at a compound annual growth rate of 11 % from $ 215,000,000 at the end of 1996. our loan-related earnings depend primarily on our level of net interest income . net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds . we fund our operations through a wide variety of interest-bearing sources , such as revolving bank facilities , bank certificates of deposit issued to customers , debentures issued to and guaranteed by the sba , and bank term debt . net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds , as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us . net interest income is also affected by economic , regulatory , and competitive factors that influence interest rates , loan demand , and the availability of funding to finance our lending activities . we , like other financial institutions , are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities . we also provide debt , mezzanine , and equity investment capital to companies in a variety of industries , consistent with our investment objectives . these investments may be venture capital style investments which may not be fully collateralized . medallion capital 's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price ( such warrants are included in equity investments on the consolidated balance sheets ) . interest income is earned on the debt instruments . we are a closed-end , management investment company under the 1940 act . we have elected to be treated as a bdc under the 1940 act . we have also elected to be treated for federal income tax purposes as a ric under subchapter m of the code . as a ric , we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as dividends if we meet certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates taxicab medallion , commercial , and consumer loans , raises deposits , and conducts other banking activities . medallion bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers . to take advantage of this low cost of funds , we refer a portion of our taxicab medallion and commercial loans to medallion bank , which then originates these loans . story_separator_special_tag growth in most markets , partially offset by a decline in the new york market , and on a managed basis , reflecting a reduction in third party participations sold , partially offset by the above and the strong overall portfolio growth at medallion bank , particularly in chicago . total medallion loans serviced for third parties were $ 24,875,000 , $ 57,676,000 , and $ 75,866,000 at december 31 , 2013 , 2012 , and 2011. the weighted average yield of the medallion loan portfolio at december 31 , 2013 was 4.02 % , a decrease of 44 basis points from 4.46 % at december 31 , 2012 , which was a decrease of 65 basis points from 5.11 % at december 31 , 2011. the weighted average yield of the managed medallion loan portfolio at december 31 , 2013 was 3.89 % , a decrease of 42 basis points from 4.31 % at december 31 , 2012 , which was a decrease of 65 basis points from 4.96 % at december 31 , 2011. the decreases in yield primarily reflected the effects of borrower refinancings . at december 31 , 2013 , 32 % of the medallion loan portfolio represented loans outside new york , compared to 29 % and 26 % at year-end 2012 and 2011. at december 31 , 2013 , 26 % of the managed medallion loan portfolio represented loans outside new york , compared to 22 % at year-end 2012 and 2011. we continue to focus our efforts on originating higher yielding medallion loans outside the new york market . commercial loan portfolio our commercial loans represented 13 % of the net investment portfolio as of december 31 , 2013 , compared to 12 % and 12 % at december 31 , 2012 and 2011 , and were 10 % , 12 % , and 13 % on a managed basis . commercial loans increased by $ 3,249,000 or 6 % during 2013 ( decreased by $ 13,950,000 or 11 % on a managed basis ) . the increase primarily reflected growth in the other secured commercial loan portfolio , partly offset by repayments in the high-yield mezzanine loan portfolio , and on a managed basis , primarily reflected the changes described above and decreases in medallion bank 's asset-based portfolio . net commercial loans serviced by third parties were $ 255,000 , $ 12,575,000 , and $ 14,298,000 at december 31 , 2013 , 2012 , and 2011. the weighted average yield of the commercial loan portfolio at december 31 , 2013 was 10.60 % , a decrease of 99 basis points from 11.59 % at december 31 , 2012 , which was down 66 basis points from 12.25 % at december 31 , 2011. the weighted average yield of the managed commercial loan portfolio at december 31 , 2013 was 8.07 % , a decrease of 6 basis points from 8.13 % at december 31 , 2012 , which was down 28 basis points from 8.41 % at december 31 , 2011. the decreases reflected the continued lowering of interest rates in the economy as loans repriced , especially in the secured mezzanine loan portfolio , and the lower proportion of higher-yielding mezzanine loans in the portfolio in 2013. we continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment . at december 31 , 2013 , variable-rate loans represented 12 % of the commercial portfolio , compared to 13 % and 14 % at december 31 , 2012 and 2011 , and were 49 % , 56 % , and 57 % on a managed basis . although this strategy initially produces a lower yield , we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources . 40 consumer loan portfolio our managed consumer loans , all of which are held in the portfolio managed by medallion bank , represented 31 % of the managed net investment portfolio as of december 31 , 2013 , compared to 25 % and 20 % at december 31 , 2012 and 2011. medallion bank originates adjustable rate consumer loans secured by recreational vehicles , boats , motorcycles , trailers and home improvements located in all 50 states . the portfolio is serviced by a third party subsidiary of a major commercial bank . the weighted average gross yield of the managed consumer loan portfolio was 15.67 % at december 31 , 2013 , compared to 16.81 % and 17.73 % at december 31 , 2012 and 2011. adjustable rate loans represented 68 % of the managed consumer portfolio at december 31 , 2013 , compared to 76 % and 80 % at december 31 , 2012 and 2011. delinquency and loan loss experience we generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more . we deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances . a loan is considered to be delinquent if the borrower fails to make a payment on time ; however , during the course of discussion on delinquent status , we may agree to modify the payment terms of the loan with a borrower that can not make payments in accordance with the original loan agreement . for loan modifications , the loan will only be returned to accrual status if all past due interest and principal payments are brought fully current . for credit that is collateral based , we evaluate the anticipated net residual value we would receive upon foreclosure of such loans , if necessary . there can be no assurance , however , that the collateral securing these loans will be adequate in the event of foreclosure .
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consolidated results of operations for the years ended december 31 , 2013 and 2012 net increase in net assets resulting from operations was $ 25,776,000 or $ 1.16 per diluted common share in 2013 , up $ 1,259,000 or 5 % from $ 24,517,000 or $ 1.21 per share in 2012 , primarily reflecting higher net interest and noninterest income , partially offset by lower net realized/unrealized gains and higher operating expenses . net investment income after taxes was $ 12,189,000 or $ 0.55 per share in 2013 , up $ 3,424,000 or 39 % from $ 8,765,000 or $ 0.43 in 2012. investment income was $ 34,929,000 in 2013 , up $ 2,585,000 or 8 % from $ 32,344,000 a year ago , and included $ 2,326,000 from interest recoveries and bonuses on certain investments in 2013 , compared to $ 444,000 in 2012. also included in 2013 and 2012 were $ 12,000,000 and $ 10,500,000 in dividends from medallion bank . excluding those items , investment income decreased $ 797,000 or 4 % , primarily reflecting the repricing of the portfolios to lower current market interest rates , and the sourcing of a greater proportion of our business to medallion bank . the yield on the investment portfolio was 7.60 % in 2013 , up 3 % from 7.37 % in 2012. excluding the extra interest and dividends , the 2013 yield was down 8 % to 4.49 % from 4.87 % in 2012 , reflecting the general decrease in market interest rates and changes in the portfolio mix . average investments outstanding were $ 459,374,000 in 2013 , up 5 % from $ 439,100,000 a year ago , primarily reflecting portfolio growth partially offset by loan participations sold and loan payments received .
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the company generally considers inventory quantities beyond two years of non-usage , measured on a historical usage basis , to be excess inventory and reduces the gross carrying value of inventory accordingly . goodwill in accordance with financial accounting standards board ( fasb ) asc topic 350 , intangibles โ goodwill and other , the company performed an annual impairment test in accordance with this guidance as of december 31 , 2016 and also at december 31 , 2015. these analyses did not indicate any impairment of goodwill at the end of either period . stock based compensation plans in 2006 , the company adopted a phantom stock plan ( the โ plan โ ) , which allows the company to grant phantom stock units ( units ) to certain key employees , officers or directors . the units each represent a contractual right to payment of compensation in the future based upon the market value of the company 's common stock . the units follow a vesting schedule of three years from the grant date , and are then paid upon maturity . in accordance with fasb asc topic 718 , stock compensation , the company uses the black-scholes option pricing model as its method for determining the fair value of the units . further details of the plan are provided in note 12. product liability reserves product liability reserves represent the estimated unpaid amounts under the company 's insurance policies with respect to existing claims . the company uses the most current available data to estimate claims . as explained more fully under note 11 , commitments and contingencies , for various product liability claims covered under the company 's general liability insurance policies , the company must pay certain defense and settlement costs within its deductible or self-insured retention limits , ranging primarily from $ 25,000 to $ 1,000,000 per claim , depending on the terms of the policy in the applicable policy year , up to an aggregate amount . the company is vigorously defending against all known claims . fair value of financial and nonfinancial instruments the company measures financial instruments in accordance with fasb asc topic 820 , fair value measurements and disclosures . the accounting standard defines fair value , establishes a framework for measuring fair value under gaap , and enhances disclosures about fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . the standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows : level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities ; level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liability , either directly or indirectly ; and level 3 inputs are unobservable inputs that reflect the company 's own assumptions about the assumptions market participants would use in pricing the asset or liability . the company relies on its actively traded share value โ a level 1 input โ in determining the fair value of the reporting unit in its annual impairment test as described in the fasb asc topic 350 , intangibles - goodwill and other . - 22 - earnings per common share basic earnings per share have been computed using the weighted-average number of common shares outstanding . for the periods presented , there are no dilutive securities . consequently , basic and dilutive earnings per share are the same . currency translation assets and liabilities denominated in foreign currencies are translated into u.s. dollars at exchange rates prevailing on the balance sheet dates . the statements of operations are translated into u.s. dollars at average exchange rates for the period . adjustments resulting from the translation of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders ' equity . exchange gains and losses resulting from foreign currency transactions are included in the statements of operations ( other income ( expense ) ) in the period in which they occur . income taxes the company accounts for tax liabilities in accordance with asc topic 740 , income taxes . under this method the company recorded tax expense , related deferred taxes and tax benefits , and uncertainties in tax positions . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the company is able to realize the benefit , or that future deductibility is uncertain . also , in accordance with fasb asc topic 740 , the company had a reserve for uncertainties in tax positions of $ 0 at december 31 , 2016 , and $ 110,000 at december 31 , 2015. these reserves are reviewed each quarter . story_separator_special_tag liquidity and capital resources historically , the company 's primary cash needs have been related to working capital items , which the company has largely funded through cash generated from operations . with regards to liquidity and capital resources , the company had a cash balance of $ 35,318,000 at december 31 , 2016 , and also has the full use of a $ 15,000,000 line of credit available with santander bank , as discussed in detail in note 5. at december 31 , 2015 , the company had cash of $ 30,152,000. operating activities cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities , such as those included in working capital . for 2016 , the company 's cash provided from operating activities was $ 14,758,000 , compared to $ 13,250,000 of cash provided during 2015 , thus increasing by $ 1,508,000 between periods . with regards to creating the generation of cash , it was recognized that the timing of accounts receivable cash collections was accelerated , and there was also a decrease in inventory purchases . these items were partially offset by the posting of security to proceed with further hearings related to the company 's 2010 pennsylvania claim , which is under appeal ( see note 11 , commitments and contingencies of the notes to the consolidated financial statements ) , and there was an increase in disbursements of sales incentives as more customers were able to achieve growth tiers in 2015 , enabling greater payouts in 2016. as a general trend , the company tends to deplete cash early in the year , as significant payments are typically made for accrued promotional incentives , incentive compensation , and taxes . cash has then historically shown a tendency to be restored and accumulated during the latter portion of the year . - 23 - investing activities cash used in investing activities during 2016 and 2015 was $ 233,000 and $ 620,000 , respectively , thus increasing cash by $ 387,000. this was all related to capital expenditures for both periods . capital expenditures during 2016 mainly related to information technology and machinery . during 2015 , the company proceeded with extensive renovations at its exton , pennsylvania facilities including additional machinery and leasehold improvements , which required a greater outlay of cash . we believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months . our future capital requirements will depend upon many factors including our rate of revenue growth , the timing and extent of any expansion efforts , and the potential for investments in , or the acquisition of any complementary products , businesses or supplementary facilities for additional capacity . regarding known material commitments for capital expenditures , the company purchased a 30,000 square foot facility in exton , pennsylvania for cash during the first quarter of 2017 , which required a cash outlay of approximately $ 2,500,000. this facility was previously under lease through january 2018. financing activities omega flex , inc. declared a dividend during december of 2015 of $ 8,578,000 , which was subsequently paid in january of 2016. also , the company declared a dividend in december of 2014 of $ 4,945,000 , which was subsequently paid in january of 2015. the variance between years was therefore $ 3,633,000. one of the company 's subsidiaries paid a dividend of $ 145,000 during 2014 , which is reflected as a cash deduction during that year . each of these dividends are outlined in note 6 of the consolidated financial statements . the company had no borrowings or payments on its line of credit during 2016 or 2015. recent accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) , requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . the updated standard will replace most existing revenue recognition guidance in u.s. gaap when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method . the updated standard becomes effective for the company in the first quarter of fiscal year 2018. early adoption is permitted beginning in the first quarter of the company 's 2017 fiscal year . the company has reviewed the respective guidance and currently does not anticipate that the updated standard will have a significant impact on the way the company currently records revenue , if any , or on the consolidated financial statements as a whole . in july 2015 , the fasb issued asu 2015-11 , simplifying the measurement of inventory ( topic 330 ) . under this asu , inventory will be measured at the โ lower of cost and net realizable value โ and options that currently exist for โ market value โ will be eliminated . the asu defines net realizable value as the โ estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation. โ no other changes were made to the current guidance on inventory measurement . asu 2015-11 is effective for interim and annual periods beginning after december 15 , 2016. early application is permitted and should be applied prospectively . the company has evaluated the provisions of this statement , and concluded that the adoption of asu 2015-11 will not have a material impact on the company 's financial position or results of operations . in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) . under this asu , lessees are required to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases . by definition , a short-term lease is one in which : ( a )
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results of operations twelve-months ended december 31 , 2016 vs. december 31 , 2015 the company reported comparative results from operations for the twelve-month period ended december 31 , 2016 and 2015 as follows : replace_table_token_5_th - 18 - net sales . the company 's sales for the full year of 2016 were $ 94,051,000 , representing the largest sales output in the company 's history . sales for the year increased $ 773,000 , or 0.8 % over the $ 93,278,000 generated in 2015. the company believes that some customers purchased ahead during the fourth quarter of 2015 , which eroded sales from the first quarter of 2016 , most notably january 2016. the company was however able to make up that shortfall during the remaining months of the year through diversification and by expanding its relationships with other customers . gross profit . the company 's gross profit margins have increased between the two periods , being 61.5 % and 61.3 % for the twelve-months ended december 31 , 2016 and 2015 , respectively . selling expenses . selling expenses consist primarily of employee salaries and associated overhead costs , commissions , and the cost of marketing programs such as advertising , trade shows and related communication costs , and freight . selling expense was $ 15,694,000 and $ 15,252,000 for 2016 and 2015 , respectively , representing an increase of $ 442,000 or 2.9 % , primarily attributable to a rise in commissions and staffing . for the same periods , selling expense as a percentage of net sales was 16.7 % and 16.4 % , respectively . general and administrative expenses . general and administrative expenses consist primarily of employee salaries , benefits for administrative , executive and finance personnel , legal and accounting , insurance , and corporate general and administrative services . general and administrative expenses were $ 17,108,000 and $ 15,707,000 for the twelve-months ended december 31 , 2016 and 2015 , respectively , increasing $ 1,401,000 ( 8.9 % ) between periods .
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historical results of operations and the percentage relationships among any amounts included , and any trends that may appear , may not indicate trends in operations or results of operations for any future periods . we have made , and will continue to make , various forward-looking statements with respect to financial , business and economic matters . comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties . actual results may differ materially from those contained in these forward-looking statements . for additional information regarding our cautionary disclosures , see the โ cautionary note regarding forward-looking statements โ at the beginning of this report . overview howard bancorp , inc. is the holding company for howard bank . howard bank was formed in 2004. howard bank 's business has consisted primarily of originating both commercial and real estate loans secured by property in our market area . we are headquartered in baltimore , maryland . we consider our primary market area to be the greater baltimore metropolitan area . we engage in a general commercial banking business , making various types of loans and accepting deposits . we market our financial services primarily to small- and medium-sized businesses and their owners , professionals and executives , and high-net-worth individuals . our loans are primarily funded by core deposits of customers in our market . on december 18 , 2019 , we entered into an agreement to release certain management members of our mortgage division from their employment contracts and allow those individuals to create a limited liability company ( โ llc โ ) for the purpose of hiring our 91 remaining mortgage employees . we also agreed to transfer ownership of the domain name โ vamortgage.com โ to the newly created llc . in consideration of the release of the employment agreements , the transfer of our mortgage employees , and the sale of the domain name , the llc paid us $ 750 thousand . under the agreement , there is a transition period of approximately 45 days , after which we have agreed to cease originating residential first lien mortgage loans and exit our mortgage banking activities . accordingly , we expect to have the majority of the residential first lien mortgage pipeline processed by the end of the first quarter of 2020. in order to manage future loan run-off within our residential mortgage loan portfolio , we plan on buying first lien residential mortgage loans , on a servicing released basis , from both the llc and other third-party originators . while our mortgage banking activities were marginally profitable in two of the last three years and our decision to exit this activity will eliminate that source of income , we believe that the exit of these activities will have a negligible impact on our net income over the next twelve months and will improve our efficiency ratio . most importantly , we believe that exiting these activities will allow us to focus resources on growing our more profitable and less volatile commercial banking business that represents our core competency . we expect that this renewed focus will more than replace the marginal levels of net income from our mortgage banking activities within the next twelve months . while we estimate that the after tax income from these activities in 2019 was $ 1.6 million , compared to an after tax loss of $ 1.4 million in 2018 , the operating expenses we attributed to the mortgage banking activities represented only direct costs and did not include shared services expense for staff and support activities such as loan operations , wire transfer operations , human resources , finance , internal audit , and compliance . if we had allocated these shared services expenses to our mortgage banking activities , the financial returns on our mortgage banking activities would have been even less . we originally began our residential mortgage banking activities to provide increased diversification to our net interest income and noninterest income revenue . while we sold the majority of our residential first lien mortgage loan originations to investors , we held a portion of these originations in our loan portfolio to diversify our loan mix . we continued to grow our mortgage banking business until shortly after our merger with first mariner in 2018 , at which time we determined to reduce our mortgage banking activities . this decision was shaped by our impressions of both the evolution of the mortgage banking industry and the characteristics of the returns associated with our original diversification strategy . for instance , we saw a growing need for both scale and technology investments as non-depository institutions began to dominate this space , which would require us to re-allocate our resources of both human and financial capital into a non-core business activity . in addition , despite management efforts to increase returns on mortgage originations through changes in mortgage banking management , processes and product array , we were not meeting our internal expectations . as a result , after also considering , among other factors , regulatory risks related to mortgage banking , the distraction of management from our core customer business , the need to allocate resources to a non-core business activity , and the adverse impact of our mortgage business on our efficiency ratio , we ultimately determined to exit our mortgage banking activities . after a ten-month period of negotiations with both internal and external parties , in december 2019 , we entered into an agreement to exit our mortgage banking activities which resulted in a positive return on the sale of the domain name ( vamortgage.com ) and no severance or lease termination costs , other than $ 288 thousand of exit costs associated with change in control and retention agreements . the exit of our mortgage banking activities is discussed in note 3 to the consolidated financial statements . story_separator_special_tag goodwill and other intangible assets goodwill represents the excess of the purchase price over the sum of the estimated fair values of tangible and identifiable intangible assets acquired in a business combination , less the estimated fair value of the liabilities assumed . core deposit intangibles represent the estimated value of long-term deposit relationships acquired in a business combination . our core deposit intangible is amortized over the estimated useful lives of the acquired long-term deposits , and the remaining amounts of our core deposit intangible are periodically reviewed for reasonableness . goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired . we perform a qualitative assessment annually to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if , after assessing updated qualitative factors , we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , we do not have to perform the two step impairment test . determining the fair value under the first step of the goodwill impairment test and determining the fair value if individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions . similarly , estimates and assumptions are used in determining the fair value of other intangible assets . estimates of fair value are primarily determined using discounted cash flows , market comparisons and recent transactions . significant estimates and assumptions include projected future cash flows , discount rates , reflective market rate of return , projected growth rates and determination and evaluation of appropriate market comparables . future events could cause us to conclude that goodwill or other intangible assets have become impaired , which would result in our recording of an impairment loss . any resulting impairment loss could have a material impact on our financial condition and results of operations . based on the results of our qualitative assessment , we determined that there was not an impairment of the carrying value of either the goodwill or core deposit intangible at december 31 , 2019. income taxes we account for income taxes under the asset/liability method . we recognize deferred tax assets and liabilities for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as operating loss and tax credit carry-forwards . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period indicated by the enactment date . we establish a valuation allowance for deferred tax assets when , in the judgment of management , it is more likely than not that such deferred tax assets will not become realizable . the judgment about the level of future taxable income is dependent to a great extent on matters that may , at least in part , be beyond our control . it is at least reasonably possible that management 's judgment about the need for a valuation allowance for deferred tax assets could change in the near term . share based compensation we follow the provisions of asc topic 718 โ compensation โ stock compensation , โ which requires the expense recognition over the respective service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . our practice is to utilize reasonable and supportable assumptions that are reviewed with the appropriate board committee . 31 accounting for business combinations we account for transactions that meet the definition of a purchase business combination by recording the assets acquired and liabilities assumed at their fair value on the acquisition date . determining the fair value of assets acquired , including identified intangible assets , and liabilities assumed often involves estimates based on third-party valuations , such as appraisals , or internal valuations based on discounted cash flow analysis or other valuation techniques that may include estimates of attrition , inflation , asset growth rates , discount rates , multiples of earnings or other relevant factors . in addition , the determination of the useful lives over which an intangible asset will be amortized is subjective . if the fair value of the assets acquired exceeds the purchase price plus the fair value of the liabilities assumed , a bargain purchase gain is recognized . conversely , if the purchase price plus the fair value of the liabilities assumed exceeds the fair value of the assets acquired , goodwill is recognized . loans acquired in business combinations we record acquired loans at fair value at the date of acquisition based on a discounted cash flow methodology that considers various factors , including the type of loan and related collateral , classification status , whether the loan has a fixed or variable interest rate , its term and whether or not the loan was amortizing , and our assessment of risk inherent in the cash flow estimates . these cash flow evaluations are inherently subjective as they require material estimates , all of which may be susceptible to significant change .
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financial highlights financial highlights for 2019 are as follows : ยท our net income was $ 16.9 million , or $ 0.89 per diluted share in 2019 , compared to a net loss of $ 3.8 million , or $ ( 0.22 ) per diluted share in 2018. our 2018 results were adversely impacted by $ 15.5 million of merger and restructuring expenses associated with the first mariner merger . ยท our return on average assets ( โ roa โ ) and return on average equity ( โ roe โ ) was 0.75 % and 5.54 % , respectively , in 2019 , compared to -0.19 % and -1.44 % , respectively , in 2018 . ยท our net interest margin decreased by 28 basis points to 3.50 % in 2019 , compared to 2018 , due primarily to a 44 basis point increase in funding costs which more than offset the six basis point increase in the yield on our earning assets . ยท loans and leases were $ 1.75 billion at december 31 , 2019 , an increase of $ 95.8 million , or 5.8 % , from december 31 , 2018 . ยท our total assets were $ 2.37 billion at december 31 , 2019 , an increase of $ 108.1 million , or 4.8 % , from december 31 , 2018 , driven primarily by net loan growth . ยท total deposits were $ 1.71 billion at december 31 , 2019 , an increase of $ 28.6 million , or 1.9 % year over year . ยท we repositioned our balance sheet through the sale of $ 35.4 million of available for sale investment securities in 2019 , generating securities gains of $ 645 thousand . in addition , we restructured our borrowings , resulting in a $ 692 thousand prepayment penalty on fhlb borrowings . ยท we recorded additional occupancy expenses related to our branch optimization initiative of $ 3.6 million in 2019 .
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60 if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has current fiduciary or contractual obligations , he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity , and only present it to us if such entity rejects the opportunity . we do not believe , however , that the fiduciary duties or contractual obligations of our executive officers will materially affect our ability to complete our business combination . we have entered into an administrative services agreement with our sponsor , pursuant to which we pay a total of $ 10,000 per month for office space , utilities and administrative support . we may pay a member of our combined team ( or an entity affiliated with a member of our combined team ) a fee for financial advisory services rendered in connection with our identification , negotiation and consummation of our initial business combination . the fee will only be payable upon closing of our initial business combination , and may be paid out of the offering proceeds deposited in the trust account . the per-share amount distributed to any redeeming stockholders upon the completion of our initial business combination will not be reduced as a result of such fee . a majority of disinterested directors will determine the nature and amount of such fee , which will be based upon the prevailing market rate for similar services negotiated at arms ' length for such transactions at such time , but will in no event exceed $ 3,000,000 in the aggregate . any such fee will also be subject to the review of our audit committee pursuant to the audit committee 's policies and procedures relating to transactions that may present conflicts of interest . no such fee will be payable to our chief executive officer . our sponsor , executive officers and directors and their respective affiliates , will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combination targets . our independent directors will review on a quarterly basis all payments that were made to our sponsor , officers , directors or our or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed . there is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf . prior to our initial public offering , our sponsor provided an aggregate of $ 225,000 to us under an unsecured promissory note , to be used for a portion of the expenses of our initial public offering . these loans were non-interest bearing , unsecured and were repaid upon the closing of our initial public offering . in addition , in order to finance transaction costs in connection with an intended initial business combination , our sponsor or an affiliate of our sponsor or certain of our officers and directors may , but are not obligated to , loan us funds as may be required . if we complete an initial business combination , we would repay such loaned amounts . in the event that the initial business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment . up to $ 1,500,000 of such loans may be convertible into warrants of the post-business combination entity at a price of $ 0.50 per warrant at the option of the lender . the warrants would be identical to the private placement warrants . on january 12 , 2017 , we issued a promissory note to our sponsor . the note permits us to borrow money from time to time from our sponsor in an aggregate principal amount of up to $ 1.2 million with an interest rate of 7.5 % per annum . during january 2017 , we borrowed $ 1,200,000 under the note . the note was repaid , together with approximately $ 57,000 of accrued interest , on september 5 , 2017 ( see note 8 to the company 's financial statements ) . on november 1 , 2017 , the company issued a second promissory note to the sponsor in an aggregate principal amount of up to $ 1,000,000 . such note does not bear interest and can be drawn down in any amount upon five business days ' notice to the sponsor . as of the date of this report , the company has drawn $ 600,000 from the note . under such note , the company has the option to convert any unpaid balance into shares of common stock based on a share price of $ 10.00 per share . the sponsor is also entitled to receive a capital commitment fee in the amount story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . references to the โ company , โ โ us โ or โ we โ refer to global partner acquisition corp. special note regarding forward-looking statements all statements other than statements of historical fact included in this section and other parts of this form 10-k regarding the company 's financial position , business strategy and the plans and objectives of management for future operations , are forward-looking statements . story_separator_special_tag on august 3 , 2017 , the stockholders of the company approved an amendment to the company 's amended and restated certificate of incorporation , as amended , pursuant to an โ extension amendment , โ to extend the date by which the company must ( i ) consummate a business combination , ( ii ) cease its operations if it fails to complete such business combination , and ( iii ) redeem or repurchase 100 % of the company 's common stock included as part of the units sold in the company 's initial public offering that was consummated on august 4 , 2015 from february 5 , 2018 to november 6 , 2017 ( or february 5 , 2018 if the company has executed a definitive agreement for a business combination by november 6 , 2017 ) or such earlier date as determined by the board . under the extension amendment , public stockholders had the right to redeem their pro rata portion of the funds in the trust account and shareholders representing 3,416,480 shares elected to redeem their shares as further discussed in notes 4 and 5 to the company 's financial statements . on november 1 , 2017 , the company issued a promissory note ( the โ november 2017 sponsor note โ ) to the sponsor in an aggregate principal amount of up to $ 1,000,000. the november 2017 sponsor note does not bear interest and can be drawn down in any amount upon five business days ' notice to the sponsor . as of the date of this report , the company has drawn $ 600,000 from the november 2017 sponsor note . under the november 2017 sponsor note , the company has the option to convert any unpaid balance into shares of common stock based on a share price of $ 10.00 per share . the sponsor is also entitled to receive a capital commitment fee in the amount of $ 50,000 in consideration of its agreement to commit to make the loan to the company . the november 2017 sponsor note is repayable in full upon the earliest to occur of : ( i ) the consummation of the business combination , ( ii ) february 28 , 2018 and ( iii ) the date that the winding up of the company is effective . on november 2 , 2017 , the company entered into an agreement and plan of merger ( the โ merger agreement โ ) by and among the company , prpl acquisition , llc , a delaware limited liability company and a wholly-owned subsidiary of the company ( โ merger sub โ ) , purple innovation , llc , a delaware limited liability company ( โ purple โ ) , innohold , llc , a delaware limited liability company and the sole equity holder of purple ( โ innohold โ ) , and the sponsor , solely in its capacity thereunder as the representative of the parent after the consummation of the transactions contemplated by the merger agreement . pursuant to the merger agreement , the company agreed to acquire purple 's business through a merger of merger sub with and into purple , with purple being the survivor in the merger ( the โ business combination , โ and together with the other transactions contemplated by the merger agreement and agreements attached thereto , the โ transactions โ ) . the merger agreement and the transactions were unanimously approved by the board of directors of the company . purple is a comfort technology company with products aimed at improving how people sleep , sit and stand . purple currently offers mattress , bedding and cushioning products through direct-to-consumer and retail channels . purple is based in alpine , ut , was organized as a delaware limited liability company in 2010 and changed its name to purple innovation , llc in january 2017. additional information regarding purple , the business combination and the transactions is available in the forms 8-k that were filed by the company on november 3 , 2017 and january 8 , 2018 , the preliminary proxy statements filed by the company on november 6 , 2017 and january 9 , 2018 and the definitive proxy statement filed by the company on january 16 , 2018 . 45 as a result of entering into the merger agreement , the company will have until february 5 , 2018 to complete the business combination . however , there can be no assurances that the company will complete the business combination . see โ risk factors โ in the definitive proxy statement filed by the company on january 16 , 2018. as indicated in the accompanying financial statements , at december 31 , 2017 , we had approximately $ 220,000 in cash . we expect to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to complete our business combination will be successful . story_separator_special_tag for drawdown under the sponsor note , outside of the trust account to fund our search for a business combination . we believe that we have sufficient resources to fund our operations and our search for a business combination through the period that ends with our liquidation . off-balance sheet financing arrangements we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements . we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements .
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results of operations for the period from may 19 , 2015 ( inception ) through december 31 , 2017 our activities consisted of formation and preparation for the public offering and , subsequent to the public offering , locating and completing a suitable business combination . as such , we had no operations or significant operating expenses in 2015 until august 2015 and then such costs were largely associated with our governance and public reporting , insurance , as well as state franchise taxes . our operating costs for the years ended december 31 , 2017 and 2016 were approximately $ 2,220,000 and $ 2,657,000 , respectively , and are largely associated with our governance and public reporting , insurance , as well as state franchise taxes of approximately $ 100,000 and $ 100,000 , respectively , and charges of $ 10,000 per month from our sponsor for administrative services as well as , in the years ended december 31 , 2017 and 2016 , respectively , approximately $ 1,300,000 and $ 2,180,000 of costs associated with the potential initial business combination and extension . interest income earned on our u.s. government treasury bills totaled approximately $ 1,036,000 and $ 330,000 for the years ended december 31 , 2017 and 2016. the increase in interest income in the year ended december 31 , 2017 , despite a reduction in the funds in the trust account due to redemptions in august 2017 , results from the higher yields on u.s. government treasury bills compared to the year ended december 31 , 2016. during the year ended december 31 , 2017 the company received a $ 2,500,000 fee for releasing a third party from a non-circumvention agreement with the company relating to the sequel business combination .
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as a result of many factors , such as those set forth under `` risk factors '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a biopharmaceutical company dedicated to the discovery , development and commercialization of therapeutics to treat serious and rare diseases . our research focuses on key natural regulators of cellular growth and repair , particularly the transforming growth factor-beta , or tgf-beta , protein superfamily . by combining our discovery and development expertise , including our proprietary knowledge of the tgf-beta superfamily , and our internal protein engineering and manufacturing capabilities , we have generated several innovative therapeutic candidates , all of which encompass novel potential first-in-class mechanisms of action . if successful , these candidates could have the potential to significantly improve clinical outcomes for patients across these areas of high , unmet need . we have focused and prioritized our research and development activities within three key therapeutic areas : hematology , pulmonary and neuromuscular . hematology in november 2019 , the u.s. food and drug administration , or fda , approved our first commercial product , reblozylยฎ ( luspatercept-aamt ) for the treatment of anemia in adult patients with beta-thalassemia who require regular red blood cell , or rbc , transfusions . reblozyl is partnered with bristol-myers squibb company , or bms ( which acquired celgene corporation in november 2019 ) , and is a first-in-class erythroid maturation agent designed to promote rbc production through a novel mechanism . the approval of reblozyl is based on the positive results from the phase 3 believe trial evaluating the safety and efficacy of reblozyl for the treatment of anemia in adult patients with beta-thalassemia who require regular rbc transfusions . in addition to its approved indication , luspatercept-aamt is being developed to treat anemia in patients with myelodysplastic syndromes , or mds , non-transfusion dependent beta-thalassemia , and myelofibrosis . we and bms previously announced positive results for the phase 3 medalist trial evaluating the safety and efficacy of luspatercept-aamt for the treatment of anemia in adult patients with very low- to intermediate-risk mds who have ring sideroblasts and require rbc transfusions . based on these results , bms submitted a supplemental biologics license application , or sbla , in the united states for luspatercept-aamt for the treatment of anemia in adult patients with very low- to intermediate-risk mds who have ring sideroblasts and require rbc transfusions . the fda accepted the sbla and set a target action date of april 4 , 2020. bms also submitted a marketing authorization application , or maa , to the european medicines agency , or ema , in the believe and medalist indications . the maa has been successfully validated and we expect the ema to issue a decision in the second half of 2020. bms is currently conducting a phase 2 clinical trial with luspatercept-aamt in non-transfusion-dependent beta-thalassemia patients , referred to as the beyond trial , with preliminary topline results currently expected by the end of 2020 , and a phase 3 clinical trial , the commands trial , in first-line , lower-risk mds patients . in myelofibrosis , bms is conducting a phase 2 clinical trial in patients with myelofibrosis-associated anemia , and initial results from this trial were presented in december 2019 at the 61st american society of hematology annual meeting and exposition showing that luspatercept-aamt improved anemia in patients receiving and not receiving rbc transfusions , with more profound effects in patients treated with ruxolitinib , a small molecule jak inhibitor . based on these data , we and bms announced plans to initiate by the end of 2020 the phase 3 independence study in patients with myelofibrosis-associated anemia who are being treated with jak inhibitor therapy and require rbc transfusions . if approved in the united states and europe , we believe that there is an annual peak sales opportunity for reblozyl in excess of $ 2 billion in lower-risk mds and beta-thalassemia , and upon successful development and approval in the united states and europe , an additional $ 1 billion in myelofibrosis and other future development opportunities . we and bms are evaluating luspatercept-aamt for the treatment of anemia in potential new indications that could provide additional sales opportunities . bms is responsible for paying 100 % of the development costs for all clinical trials for luspatercept-aamt . we may receive a maximum of $ 125.0 million for remaining potential regulatory and commercial milestone payments . we have a co-promotion 54 right in north america and our commercialization costs provided in the commercialization plan and budget approved by the joint commercialization committee , or jcc , are entirely funded by bms . activities that we elect to conduct outside of the approved development or commercialization budgets to support reblozyl are at our own expense . we are eligible to receive tiered royalty payments from bms on net sales of reblozyl in the low-to-mid 20 % range . pulmonary we are actively developing our lead pulmonary program , sotatercept , for the treatment of patients with pulmonary arterial hypertension , or pah . sotatercept is generally partnered with bms , but we retain the exclusive rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , which we refer to as the ph field , and that includes pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . in january 2020 , we announced that the pulsar phase 2 clinical trial of sotatercept for the treatment of patients with pah met its primary and key secondary endpoints , as well as other secondary endpoints . the 18-month extension period of the pulsar trial is ongoing . story_separator_special_tag costs and expenses research and development expenses research and development expenses consist primarily of costs directly incurred by us for the development of our therapeutic candidates , which include : direct employee-related expenses , including salaries , benefits , travel and stock-based compensation expense of our research and development personnel ; expenses incurred under agreements with clinical research organizations , or cros , and investigative sites that will conduct our clinical trials ; the cost of acquiring and manufacturing preclinical and clinical study materials and developing manufacturing processes ; allocated facilities , depreciation , and other expenses , which include rent and maintenance of facilities , insurance and other supplies ; expenses associated with obtaining and maintaining patents ; and costs associated with preclinical activities and regulatory compliance . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . we can not determine with certainty the duration and completion costs of the current or future clinical trials of our therapeutic candidates or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our therapeutic candidates for which we or any partner obtain regulatory approval . we or our partners may never succeed in achieving regulatory approval for any of our therapeutic candidates beyond the initial approval of reblozyl . the duration , costs and timing of clinical trials and development of therapeutic candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; 56 future clinical trial results ; potential changes in government regulation ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate . for example , if the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of therapeutic candidates , or if we experience significant delays in the enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . from inception through december 31 , 2019 , we have incurred $ 812.7 million in research and development expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our tgf-beta platform therapeutic candidates , the discovery and development of preclinical therapeutic candidates , and the development of our clinical programs . research and development expenses associated with reblozyl , and outside of the ph field , sotatercept , are generally reimbursed 100 % by bms . these reimbursements are recorded as revenue . we are expensing the costs of a phase 1 clinical trial for ace-2494 , and phase 2 clinical trials for reblozyl , sotatercept , and ace-083 , of which the reblozyl clinical trials are reimbursed by bms . our phase 1 clinical trial for ace-2494 and our phase 2 clinical trial for ace-083 in patients with fshd are being discontinued . with respect to the reblozyl clinical trials directly conducted by bms , we do not incur and are not reimbursed for expenses related to these development activities . we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies , except for reblozyl costs for the purposes of billing bms . our external research and development expenses during the years ended december 31 , 2019 , 2018 and 2017 , were as follows : replace_table_token_4_th _ ( 1 ) these expenses associated with reblozyl are reimbursed 100 % by bms . ( 2 ) these expenses are associated with our development of sotatercept in pah . ( 3 ) development of dalantercept has been discontinued . ( 4 ) development of ace-083 in fshd is being discontinued . we expect to incur all remaining material expense in connection with development in fshd by the second quarter of 2020 . ( 5 ) development of ace-2494 has been discontinued . all remaining material expense was incurred as of the end of 2019 . ( 6 ) other expenses include employee and unallocated contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . 57 selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , commercial , operational , finance and human resource functions and other selling , general and administrative expenses including directors ' fees and professional fees for accounting and legal services . we continue to incur expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission , or sec , requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . we anticipate that our selling , general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our therapeutic candidates .
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results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_5_th revenue . we recognized revenue of $ 74.0 million in the year ended december 31 , 2019 , compared to $ 14.0 million in the year ended december 31 , 2018 . all of the revenue in both periods was derived from the bms agreements . this increase in revenue of $ 60.0 million was primarily due to the recognition of milestones from bms ( then celgene ) for the acceptance of the bla and validation of the maa for reblozyl , as well as the approval of the bla for reblozyl . 60 research and development expenses . research and development expenses were $ 154.0 million in the year ended december 31 , 2019 , compared to $ 103.9 million in the year ended december 31 , 2018 . this $ 50.1 million increase is primarily related to growth in order to support our wholly-owned therapeutic candidates and preclinical programs and includes : an increase in personnel and facilities-related expense of $ 6.0 million related to increased headcount to support our growth ; an increase in external clinical trial expense of $ 8.7 million related to our ongoing clinical trials ; an increase in toxicology expense of $ 6.7 million related to the advancement of our clinical and preclinical programs ; an increase in contract manufacturing and drug supply expense of $ 11.1 million related to our ongoing clinical and preclinical programs ; an increase in in-licensing expense related to payments that were made in connection with achievements of milestones in 2019 totaling $ 3.6 million ; an increase of $ 10.0 million in relation to the execution of the license and collaboration agreement with fulcrum therapeutics , as discussed further in note 10 to the financial statements in this annual report on form 10-k ; and an increase in miscellaneous research expense and professional fees of $
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at their final meeting in december 2013 , the committee failed to reach consensus on the proposed rules . as a result , ed is free to develop their own regulatory language , within the constraints of the administrative procedures act that requires , among other things , for the regulation to be a ยnatural outgrowthย of the notice of proposed rulemaking reviewed by the community at large and contemplated by the negotiated rulemaking panel . a notice of proposed rulemaking is expected to be released in early 2014 , with final rules expected no later than november 1 , 2014 with changes to be effective on july 1 , 2015. we can not predict the future content of the gainful employment regulations . to the extent that the new regulations are revised to retain provisions that were proposed during the negotiations , they could adversely affect the eligibility of the programs we offer and our business could be materially and adversely impacted . see item 1 , ยbusiness , ย for more information about ed 's earlier attempt to develop a regulatory definition for gainful employment , how portions of prior regulations on these matters were invalidated by the courts , and how these matters generally affect our business . in addition , the u.s. congress must periodically reauthorize the higher education act , which governs title iv programs . the current reauthorization is set to expire in december 2014. increased scrutiny of the private sector higher education industry could lead to significant regulatory changes in connection with the upcoming reauthorization of the higher education act . lastly , we have calculated our preliminary financial responsibility ratio which is required to be submitted to ed on an annual basis . our preliminary calculation for the year ended december 31 , 2013 is 1.5 , which is considered financially responsible without conditions or additional oversight . recent profitability declines and the write down of the carrying value of non-financial assets , such as deferred tax assets and goodwill , have negatively impacted our financial responsibility composite scores . see item 1 , ยbusiness ย student financial aid and related federal regulation ย compliance with federal regulatory standards and effect of federal regulatory violations , ย for more information about the standards of financial responsibility and administrative capability and the alternative ways an institution may establish eligibility to continue to participate in title iv programs , and our discussion below in ยliquidity , financial position and capital resourcesย about our efforts to monitor compliance with these standards . if in the future we are required to satisfy ed 's standards of financial responsibility on an alternative basis , including potentially by posting irrevocable letters of credit , we may not have the capacity to post these letters of credit . 2014 outlook as we exit 2013 , we have made significant progress towards developing and implementing a business model and cost structure that is aligned with lower total enrollment across all of our institutions and the closing of selected campuses . we recorded an additional $ 6.2 million of severance and related costs during 2013 related to our restructuring and reengineering initiatives that began in 2012. as a result of all of our initiatives , we expect to realize up to $ 75.0 million of additional cost savings for 2014 ; which is incremental to the more than $ 200.0 million in lower expenses reported in 2013. we continue to assess our overall cost structure to identify improvements , without negatively impacting our student 's experience . 60 in addition , we reported improvements in certain operational metrics in the fourth quarter of 2013 which resulted from changes made across our operations . the following fourth quarter year over year improvements , excluding our transitional schools , include : new student enrollment growth for ctu ( 4 % ) , health education ( 21 % ) and design & technology ( 12 % ) ; a 49 % improvement in the rate at which we convert a prospective student to a new student enrollment , cumulatively reflecting improvement across all segments ; higher student applications across all segments with a 38 % overall improvement ; slight improvement in retention rates company-wide ; and a 2 % reduction in new student acquisition costs . as we enter 2014 , we are encouraged by these metrics , which further illustrate the progress that was made in the second half of 2013. additionally , we expect culinary arts total student enrollments to improve as we mark the one-year anniversary in april 2014 of the re-introduction of the associates program . overall , for 2014 , we are expecting modest new student enrollment growth . this coupled with further cost optimization , including lower average enrollment costs and the closure of 20 schools within transitional schools , is expected to position the company well for long-term growth and a return to profitability . effective january 2014 , we have changed our segment reporting to align with the manner in which we are now managing our business . our reportable segments will be ctu , aiu , career colleges , which is the combination of our previously reported health education and design & technology segments , culinary arts and transitional schools . also beginning in 2014 , we have implemented a one-time aiu milestone grant for new students beginning their studies at aiu . this grant provides an important incentive to improve the persistence of students beyond their first term . the aiu milestone grant is a one-time grant that rewards students for completing their first term and beginning their second term , and is equal to the cost of a student 's first class . this grant properly aligns our interest in rewarding and incentivizing our university students to complete their studies . we continue to rollout our intelli path adaptive learning platform during 2014. we had previously piloted certain adaptive learning courses within our story_separator_special_tag at their final meeting in december 2013 , the committee failed to reach consensus on the proposed rules . as a result , ed is free to develop their own regulatory language , within the constraints of the administrative procedures act that requires , among other things , for the regulation to be a ยnatural outgrowthย of the notice of proposed rulemaking reviewed by the community at large and contemplated by the negotiated rulemaking panel . a notice of proposed rulemaking is expected to be released in early 2014 , with final rules expected no later than november 1 , 2014 with changes to be effective on july 1 , 2015. we can not predict the future content of the gainful employment regulations . to the extent that the new regulations are revised to retain provisions that were proposed during the negotiations , they could adversely affect the eligibility of the programs we offer and our business could be materially and adversely impacted . see item 1 , ยbusiness , ย for more information about ed 's earlier attempt to develop a regulatory definition for gainful employment , how portions of prior regulations on these matters were invalidated by the courts , and how these matters generally affect our business . in addition , the u.s. congress must periodically reauthorize the higher education act , which governs title iv programs . the current reauthorization is set to expire in december 2014. increased scrutiny of the private sector higher education industry could lead to significant regulatory changes in connection with the upcoming reauthorization of the higher education act . lastly , we have calculated our preliminary financial responsibility ratio which is required to be submitted to ed on an annual basis . our preliminary calculation for the year ended december 31 , 2013 is 1.5 , which is considered financially responsible without conditions or additional oversight . recent profitability declines and the write down of the carrying value of non-financial assets , such as deferred tax assets and goodwill , have negatively impacted our financial responsibility composite scores . see item 1 , ยbusiness ย student financial aid and related federal regulation ย compliance with federal regulatory standards and effect of federal regulatory violations , ย for more information about the standards of financial responsibility and administrative capability and the alternative ways an institution may establish eligibility to continue to participate in title iv programs , and our discussion below in ยliquidity , financial position and capital resourcesย about our efforts to monitor compliance with these standards . if in the future we are required to satisfy ed 's standards of financial responsibility on an alternative basis , including potentially by posting irrevocable letters of credit , we may not have the capacity to post these letters of credit . 2014 outlook as we exit 2013 , we have made significant progress towards developing and implementing a business model and cost structure that is aligned with lower total enrollment across all of our institutions and the closing of selected campuses . we recorded an additional $ 6.2 million of severance and related costs during 2013 related to our restructuring and reengineering initiatives that began in 2012. as a result of all of our initiatives , we expect to realize up to $ 75.0 million of additional cost savings for 2014 ; which is incremental to the more than $ 200.0 million in lower expenses reported in 2013. we continue to assess our overall cost structure to identify improvements , without negatively impacting our student 's experience . 60 in addition , we reported improvements in certain operational metrics in the fourth quarter of 2013 which resulted from changes made across our operations . the following fourth quarter year over year improvements , excluding our transitional schools , include : new student enrollment growth for ctu ( 4 % ) , health education ( 21 % ) and design & technology ( 12 % ) ; a 49 % improvement in the rate at which we convert a prospective student to a new student enrollment , cumulatively reflecting improvement across all segments ; higher student applications across all segments with a 38 % overall improvement ; slight improvement in retention rates company-wide ; and a 2 % reduction in new student acquisition costs . as we enter 2014 , we are encouraged by these metrics , which further illustrate the progress that was made in the second half of 2013. additionally , we expect culinary arts total student enrollments to improve as we mark the one-year anniversary in april 2014 of the re-introduction of the associates program . overall , for 2014 , we are expecting modest new student enrollment growth . this coupled with further cost optimization , including lower average enrollment costs and the closure of 20 schools within transitional schools , is expected to position the company well for long-term growth and a return to profitability . effective january 2014 , we have changed our segment reporting to align with the manner in which we are now managing our business . our reportable segments will be ctu , aiu , career colleges , which is the combination of our previously reported health education and design & technology segments , culinary arts and transitional schools . also beginning in 2014 , we have implemented a one-time aiu milestone grant for new students beginning their studies at aiu . this grant provides an important incentive to improve the persistence of students beyond their first term . the aiu milestone grant is a one-time grant that rewards students for completing their first term and beginning their second term , and is equal to the cost of a student 's first class . this grant properly aligns our interest in rewarding and incentivizing our university students to complete their studies . we continue to rollout our intelli path adaptive learning platform during 2014. we had previously piloted certain adaptive learning courses within our
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segment results of operations the following tables present segment results for the reported periods ( dollars in thousands ) . results for the prior years have been reclassified to be comparable to the current year presentation . replace_table_token_13_th 67 replace_table_token_14_th replace_table_token_15_th ( 1 ) campuses within the transitional schools segment no longer enroll new students ; students who re-enter after 365 days are reported as new student enrollments . 68 year ended december 31 , 2013 as compared to the year ended december 31 , 2012 university schools . current year revenue decreased approximately 13 % as both aiu and ctu experienced declines in revenue as compared to the prior year . lower student enrollment at the beginning of the year , coupled with lower new student enrollments during the current year , partially resulting from certain programs which we had established to enable students to assess their readiness to commit to enrolling in college-level courses and certain operational execution issues related to student intake and orientation that have negatively impacted the rate at which students are converted from prospective applicants to new student enrollments , contributed to this decline . the changes in operating income ( loss ) are driven by the declines in revenue , which were only partially offset by decreases in operating expenses for aiu . within ctu , operating margin increased 320 basis points as compared to the prior year . most expense categories for both ctu and aiu were lower when compared to the prior year as cost reduction efforts were implemented in response to the continued decline in total student enrollments . for aiu , legal fees expense increased as compared to the prior year due to ongoing litigation .
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the company issued approximately 6.2 million shares of its common stock for 100 % of the voting equity interests in first m & f in a transaction valued at $ 156,834. including the effect of purchase accounting adjustments , the company acquired assets with a fair value of $ 1,516,603 including loans with a fair value of $ 899,246 , and assumed liabilities with a fair value of $ 1,361,079 , including deposits with a fair value of $ 1,325,872. at the acquisition date , approximately $ 91,333 of goodwill and $ 25,033 of core deposit intangible assets were recorded . โ the company expanded its franchise by opening de novo locations in starkville , mississippi and montgomery and tuscaloosa , alabama during 2011 , and maryville and jonesborough , tennessee during 2012. in 2013 , the company expanded its tennessee footprint by adding de novo locations in johnson city and bristol . these de novo branches contributed $ 327,020 to total loans and $ 271,677 to total deposits at december 31 , 2013 , and $ 185,722 to total loans and $ 134,113 to total deposits at december 31 , 2012 . โ net interest income increased 17.90 % to $ 157,201 for 2013 as compared to $ 133,338 for 2012 ; net interest income was $ 129,286 for 2011. interest income on a tax equivalent basis increased 12.83 % to $ 186,428 for 2013 from $ 165,236 for 2012. the increase from 2012 to 2013 was due primarily to the increase in average earnings assets from the acquisition of first m & f . interest expense decreased 9.90 % to $ 23,403 for 2013 compared to $ 25,975 for 2012 ; interest expense was $ 41,401 for 2011. the decrease was due to a shift from higher interest-bearing liabilities and the declining interest rate environment . โ net charge-offs as a percentage of average loans decreased to 0.22 % in 2013 compared to 0.67 % in 2012. net charge-offs as a percentage of average loans was 0.91 % in 2011. the provision for loan losses was $ 10,350 for 2013 compared to $ 18,125 for 2012 and $ 22,350 for 2011 . โ noninterest income was $ 71,971 for 2013 compared to $ 68,711 for 2012 and $ 64,699 for 2011. the first m & f merger , higher levels of mortgage loan refinancings and fees and commissions on deposit services in 2013 helped drive the increase in noninterest income from 2012 and 2011. our goal is to continue developing products that generate noninterest income in order to diversify our revenue streams . โ noninterest expenses were $ 173,076 for 2013 compared to $ 150,459 for 2012 and $ 136,960 for 2011. the increase in noninterest expense during 2013 was primarily due to compensation and occupancy costs associated with our de novo locations and as well as our merger with first m & f . โ loans , net of unearned income , totaled $ 3,881,018 at december 31 , 2013 , an increase of $ 1,070,765 , or 38.10 % , from december 31 , 2012. excluding the acquired loans of $ 813,543 from first m & f , the portfolio increased in size by $ 257,222. our eight de novo branches contributed $ 141,298 in loan growth for 2013 . โ deposits totaled $ 4,841,912 at december 31 , 2013 , an increase of $ 1,380,691 , or 39.89 % , from december 31 , 2012. deposits acquired from first m & f totaled $ 1,301,130 at december 31 , 2013. management 's strategy to build and maintain a stable source of funding through core deposits , driven by noninterest-bearing deposits , has allowed for certain higher costing time deposits to mature or expire without renewal , some of which have been replaced with noninterest-bearing deposits and other lower costing deposits . deposits from our de novo locations also contributed $ 137,564 in deposits year over year . a historical look at key performance indicators is presented below . replace_table_token_10_th 33 critical accounting policies our financial statements are prepared using accounting estimates for various accounts . wherever feasible , we utilize third-party information to provide management with estimates . although independent third parties are engaged to assist us in the estimation process , management evaluates the results , challenges assumptions used and considers other factors which could impact these estimates . we monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations . our accounting policies , including the impact of newly issued accounting standards , are discussed in further detail in note a , โ significant accounting policies , โ in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . the following discussion presents some of the more significant estimates used in preparing our financial statements . allowance for loan losses the accounting policy most important to the presentation of our financial statements relates to the allowance for loan losses and the related provision for loan losses . the allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio . the appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses , including collective impairment as recognized under the financial accounting standards board accounting standards codification topic ( โ asc โ ) 450 , โ contingencies โ ( โ asc 450 โ ) . collective impairment is calculated based on loans grouped by grade . another component of the allowance is losses on loans assessed as impaired under asc 310 , โ receivables โ ( โ asc 310 โ ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . story_separator_special_tag in determining the fair value of our reporting units , we use both the market and discounted cash flow approaches . the market approach averages the values derived by applying a market multiple , based on observed purchase transactions , to the book value , tangible book value , loan and or deposit balances and the last twelve months adjusted and unadjusted net income . the discounted cash flow approach requires assumptions about short and long-term net cash flow growth rates for each reporting unit , as well as discount rates . long-term net cash flow forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives , market share changes , anticipated loan and deposit growth , historical performance , and industry and economic trends , among other considerations . we assess the reasonableness of the estimated fair value of the reporting units by reference to our market capitalization ; however , due to the significant volatility in the equity markets with respect to the financial institution sector since 2008 , we also consulted supplemental information based on observable market multiples , adjusting to reflect our specific factors , as well as current market conditions . the estimated fair value of a reporting unit is highly sensitive to changes in the estimates and assumptions . in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value . we perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values . if the carrying value of a reporting unit 's equity exceeds its estimated fair value , we then calculate the fair value of the reporting unit 's implied goodwill . implied goodwill is the excess fair value of a reporting unit ( as determined using the above-described methodology ) over the fair value of its net assets and is calculated by determining the fair value of the reporting unit 's assets and liabilities , including previously unrecognized intangible assets , on an individual basis . this calculation is performed in the same manner as goodwill is recognized in a business combination . significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of the reporting unit . other identifiable intangible assets , primarily core deposit intangibles and customer relationship intangibles , are reviewed at least annually for events or circumstances which could impact the recoverability of the intangible asset , such as loss of core deposits , increased competition or adverse changes in the economy . to the extent any other identifiable intangible asset is deemed unrecoverable , an impairment loss would be recorded as a noninterest expense to reduce the carrying amount . these events or circumstances , when or if they occur , could be material to our operating results for any particular reporting period . benefit plans and stock based compensation our independent actuary firm prepares actuarial valuations of our pension cost under asc 715 , โ compensation โ retirement benefits โ ( โ asc 715 โ ) . the discount rate utilized in the december 31 , 2013 valuation was 4.83 % , compared to 3.90 % in 2012. actual plan assets as of december 31 , 2013 were used in the calculation and the expected long-term return on plan assets assumed for this valuation was 8.00 % . changes in these assumptions and estimates can materially affect the benefit plan obligation and the funded status of the plan which in turn may impact shareholders ' equity through an adjustment to accumulated other comprehensive income and future pension expense . the pension plan covered under asc 715 was frozen as of december 31 , 1996. the company recognizes compensation expense for all share-based payments to employees in accordance with asc 718 , โ compensation โ stock compensation. โ we utilize the black-scholes model for determining fair value of our options . determining the fair value of , and ultimately the expense we recognize related to , our stock options requires us to make assumptions regarding dividend yields , expected stock price volatility , estimated forfeitures and the expected life of the option . changes in these assumptions and estimates can materially affect the calculated fair value of stock-based compensation and the related expense to be recognized . due to the low historical forfeiture rate , the company has not estimated any forfeitures in determining the fair value of options granted in 2013 , 2012 and 2011 . changes in this assumption in the future could result in lower expenses related to the company 's stock options . for a description of our assumptions utilized in calculating the fair value of our share-based payments , please refer to note n , โ employee benefit and deferred compensation plans , โ in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . 35 business combinations , accounting for acquired loans and related assets the company accounts for its acquisitions under asc 805 , โ business combinations โ , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value measurements incorporate assumptions regarding credit risk . the fair value measurements of acquired loans are based on estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . over the life of the acquired loans , the company continues to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics . the company evaluates , as of the end of each fiscal quarter , the present value of the acquired loans determined using the effective interest rates .
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results of operations net income net income for the year ended december 31 , 2013 was $ 33,487 compared to net income of $ 26,637 for the year ended december 31 , 2012 and $ 25,632 for the year ended december 31 , 2011 . basic earnings per share for the year ended december 31 , 2013 were $ 1.23 as compared to $ 1.06 for the year ended december 31 , 2012 and $ 1.02 for the year ended december 31 , 2011 . diluted earnings per share for the year ended december 31 , 2013 were $ 1.22 as compared to $ 1.06 for the year ended december 31 , 2012 and $ 1.02 for the year ended december 31 , 2011 . the higher earnings per share in 2013 as compared to 2012 and 2011 was due primarily to the acquisition and accretive value on first m & f , improvement in our net interest margin and continued improvement in our credit risk profile . net interest income net interest income , the difference between interest earned on assets and the cost of interest-bearing liabilities , is the largest component of our net income , comprising 69.37 % of total net revenue in 2013 . total net revenue consists of net interest income on a fully taxable equivalent basis and noninterest income . the primary concerns in managing net interest income are the volume , mix and repricing of assets and liabilities . 41 net interest income increased 17.90 % to $ 157,201 for 2013 compared to $ 133,338 in 2012 and $ 129,286 in 2011 . on a tax equivalent basis , net interest income increased $ 23,764 to $ 163,025 in 2013 as compared to $ 139,261 in 2012 ; net interest income was $ 135,123 in 2011 .
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in addition to historical consolidated financial information contained herein , this discussion contains forward-looking statements that reflect our plans , estimates , and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the โ risk factors โ in part i , item 1a of this annual report . actual results may differ materially from those contained in any forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in โ risk factors. โ the following discussion of our results includes certain financial measures not required by , or presented in accordance with , gaap . we believe these non-gaap financial measures provide meaningful supplemental information about our operating performance , because they exclude amounts that our management and board of directors do not consider part of core operating results when assessing our performance and underlying trends . more information on the rationale for these measures is discussed in โ non-gaap reconciliations โ in โ item 6. selected financial data โ of this annual report . operating metrics case growth โ case growth , by customer type ( e.g. , independent restaurants ) is reported as of a point in time . customers periodically are reclassified , based on changes in size or other characteristics , and when those changes occur , the respective customer 's historical volume follows their new classification . organic growth โ organic growth includes growth from operating business that has been reflected in our results of operations for at least 12 months . industry trends during 2017 , the u.s. foodservice distribution industry grew at 1.4 % , according to technomic ( january 2018 ) . within the industry , there have been mixed results as different customer types have varying sizes and growth profiles , as well as differing product and service requirements . independent restaurants , a customer type of strategic focus , grew during the year , while national chains , on a same-store chain basis , experienced declines . we believe we have capitalized on innovative product offerings and our e-commerce and technology solutions to grow our mix with independent restaurants , and have made gains in this area of our strategy . consistent with the market trends , we experienced organic declines with national chain customers ; however , much of our declines resulted from strategically planned exits from certain national chain business . highlights and initiatives our case volume in 2017 increased 2.9 % . we experienced organic independent restaurant case growth and growth with other target customer types , as well as growth due to acquisitions . net sales increased $ 1,228 million , or 5.4 % , year over year . in addition to case growth , net sales was favorably impacted by year over year inflation , as a significant portion of our business is based on markups over cost . gross profit increased $ 165 million or 4.1 % to $ 4,218 million in 2017. as a percentage of net sales gross profit was 17.5 % down 0.2 % from 17.7 % in the prior year period . margin rate declines in the organic business , including higher inbound freight costs , and the adverse impacts of the year over year lifo reserve changes , was partially offset by the favorable rate impact from acquisitions . total operating expenses increased $ 5 million or 0.1 % to $ 3,644 million in 2017 , and included increased wages from higher volume and wage inflation , partially offset by lower restructuring costs , the absence of sponsor fees incurred in 2016 and lower amortization in 2017. in december 2017 , the u.s. government enacted the tax cuts and jobs act ( the โ tax act โ ) , making significant changes to the u.s. tax code , including a reduction in the corporate tax rate . the application of the tax 30 act resulted in a discrete tax benefit of $ 173 million , which was recognized in fiscal year 2017 earnings . the tax benefit res ulted from lowering our deferred tax liabilities to reflect the revised tax rate . the reduction of the u.s. federal corporate tax rate under the tax act is expected to reduce the effective tax rate for the year ended december 29 , 2018 by an estimated 13 % , as compared to what the effective tax rate would have been in the absence of tax reform , after taking into account the impact of the federal deduction of state income taxes . in 2016 , we launched an initiative to centralize certain field procurement and replenishment activities . we expect the procurement actions to be completed in 2018 , with realization of benefits in product costs and logistics savings resulting from more effective management of procurement and replenishment activities . however , the expected savings may be offset by increases in inbound freight resulting from capacity and rate challenges being experienced in the u.s. outlook with favorable trends in consumer confidence and the unemployment rate , we expect positive industry growth in 2018. general economic trends and conditions , including demographic changes , inflation , deflation , consumer confidence , and disposable income , coupled with changing tastes and preferences , influence the amount that consumers spend on food-away-from-home , which can affect our customers and , in turn , our sales . on balance , we believe that these general trends will support positive real growth in food-away-from-home consumption and the growth of foodservice industry sales , particularly in our target customer types . we expect competitive pressures to remain high and a moderation of year over year inflation in 2018. given that a large portion of our business is based on markups over cost , sudden inflation or prolonged deflation can negatively impact our sales and gross profit . we expect sales to our independent restaurant customers , which generally have higher margins , to continue to be an increasing proportion of our sales mix . story_separator_special_tag the overall rate per case decline of 2.3 % , compared to 2015 reflected a continuation of the deflationary environment and product mix changes . approximately 1.6 % of the decline is attributed to deflation in several commodity categories , particularly in beef and dairy , with mix shifts driving the remainder . changes in product costs impact net sales since a significant portion of our business is based on markups over cost . product mix changes include impacts from our acquisition of fresh unlimited , inc. , d/b/a freshway foods ( โ freshway โ ) . freshway is a produce distributor with annual sales of approximately $ 130 million . produce , as a category , has lower selling prices per case than our average , which brings down our average selling price per case . mix changes also include the 35 transition away from certain national chain customers whose pur chases were concentrated in certain protein categories . gross profit gross profit increased $ 40 million , or 1.0 % , to $ 4,053 million in 2016. the impact of the extra week on gross profit in 2015 was estimated to be approximately $ 60 million . as a percentage of net sales , gross profit increased 0.3 % to 17.7 % in 2016 from 17.4 % in 2015. higher case volumes , combined with margin improvement and merchandising initiatives , reduced our product costs , and increased gross profit as a percent of net sales by 0.6 % . these increases to gross profit as a percent of net sales were partially offset by the adverse impact of our lifo reserve changes . our lifo method of inventory costing decreased gross profit by $ 56 million or 0.2 % as a percent of net sales . deflationary trends resulted in a lifo benefit of $ 18 million in 2016 , compared to a benefit of $ 74 million in 2015. distribution , selling and administrative costs distribution , selling and administrative costs decreased $ 64 million , or 1.8 % , to $ 3,586 million in 2016. the impact of the extra week on distribution , selling and administrative costs is estimated to be approximately $ 50 million . as a percentage of net sales , distribution , selling and administrative costs decreased 0.2 % , to 15.6 % in 2016 from 15.8 % in 2015. the decrease of $ 64 million included $ 37 million of lower wages and other benefits , which primarily resulted from the non-recurrence of certain 2015 retention payments related to the acquisition , that were partially offset in 2016 by increased headcount from acquisitions and other employee related costs . the decrease also included lower distribution expenses of $ 26 million , driven primarily by fuel savings , a $ 24 million decrease from the non-recurrence of consulting fees related to the acquisition , a $ 15 million net benefit related to an improvement in litigation settlements and $ 14 million of favorable experience in self-insurance expenses . these improvements were partially offset by the $ 31 million termination fee paid to the sponsors in 2016 , and a $ 22 million increase in depreciation and amortization expense , primarily related to fleet assets and additional intangible asset amortization from acquisitions . restructuring ( benefit ) charges and tangible asset impairments restructuring ( benefit ) charges and tangible asset impairments decreased $ 120 million , or 69.4 % , to $ 53 million in 2016. during 2016 , we incurred a net charge of $ 53 million associated with our plan to streamline our field operations model , the closure of the baltimore , maryland distribution facility , and certain other corporate and administrative cost reduction initiatives . included in the charge was a benefit of $ 4 million related to a favorable settlement , during the fourth quarter of 2016 , of substantially all of our multiemployer pension withdrawal liabilities , related to previously closed facilities , including baltimore . finally , we also incurred $ 3 million related to a lease termination settlement , which is included in the $ 53 million net charge . during 2015 , we recognized $ 85 million of costs related to the field reorganization and the baltimore distribution facility closure . the field reorganization costs of approximately $ 30 million , were primarily comprised of employee separation costs . the baltimore closure costs of approximately $ 55 million were comprised of $ 50 million for estimated multiemployer pension withdrawal liabilities and $ 5 million related to other employee separation and related costs . the estimated multiemployer pension cost was based on the latest available information received from the respective plans ' administrator and represented an estimate for a calendar year 2015 withdrawal . during 2015 , we also reached a settlement with the central states teamsters union pension plan ( โ central states โ ) . the settlement relieved our participation in the โ legacy โ pool and settled the related legacy multiemployer pension withdrawal liability , and commenced us as a new employer in the โ hybrid โ pool of the central states teamsters southeast and southwest area pension fund ( โ central states plan โ ) . the payment also included the settlement of certain other central states multiemployer pension withdrawal liabilities relating to facilities closed prior to 2015 , and a related labor dispute . the settlement resulted in a restructuring charge of $ 88 million representing the excess of the $ 97 million cash payment over the aforementioned prior liabilities related to these previously closed facilities . 36 operating expenses operating expenses , comprised of distribution , selling , and administrative costs and restructuring ( benefit ) charges and tangible asset impairments , decreased $ 184 million , or 4.8 % to $ 3,639 million . excluding the extra week , operating expenses decreased $ 136 million , or 3.6 % . operating expenses as a percent of net sales were 15.9 % for 2016 , down from 16.5 % in 2015. the change was due to the factors discussed in the relevant sections above .
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highlights case volume increased 2.9 % . independent restaurant case volume increased 5.2 % . net sales increased $ 1,228 million , or 5.4 % , to $ 24,147 million . operating income increased $ 160 million , or 38.6 % , to $ 574 million . as a percentage of net sales , operating income increased to 2.4 % in 2017 , compared to 1.8 % in 2016. net income increased $ 234 million to $ 444 million in 2017 , compared to $ 210 million in 2016. adjusted ebitda increased $ 86 million , or 8.8 % , to $ 1,058 million . as a percentage of net sales , adjusted ebitda increased to 4.4 % in 2017 , compared to 4.2 % in 2016. net sales total case growth in 2017 was 2.9 % . the increase reflected growth with independent restaurants , healthcare , and hospitality , partially offset by declines in education . organic case volume increased 1.7 % and reflected similar customer growth trends and some planned exits from national chains . net sales increased $ 1,228 million , or 5.4 % , to $ 24,147 million in 2017 , comprised of a 2.9 % , or $ 675 million , increase in case volume , and a 2.5 % , or $ 553 million , increase in the overall net sales rate per case . acquisitions increased net sales by approximately $ 387 million , or 1.6 % . sales of private brands represented approximately 34 % and 33 % of total net sales in 2017 and 2016 , respectively . the overall net sales rate per case increase of 2.5 % , compared to 2016 , is mostly comprised of inflation , as a significant portion of our business is based on markups over cost . we experienced year over year inflation in the grocery , poultry , seafood , pork , and fresh produce product categories , partially offset by deflation in beef .
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our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors , including those discussed in โ risk factors โ included in this report . an index to our management 's discussion and analysis follows : replace_table_token_3_th overview we are a leading provider of responsible personal loan products , primarily to non-prime customers . our network of over 1,600 branch offices in 44 states is staffed with expert personnel and is complemented by our online origination capabilities and centralized operations , which allows us to reach customers located outside our branch network . our digital platform provides current and prospective customers the option of obtaining a personal loan via our website , www.omf.com . the information on our website is not incorporated by reference into this report . in connection with our personal loan business , our insurance subsidiaries offer our customers optional credit and non-credit insurance products . in addition to our loan originations and insurance sales activities , we service loans owned by us and service loans owned by third parties ; pursue strategic acquisitions and dispositions of assets and businesses , including loan portfolios or other financial assets ; and may establish joint ventures or enter into other strategic alliances . our products our product offerings include : personal loans โ we offer personal loans through our branch network , centralized operations , and our website , www.omf.com , to customers who generally need timely access to cash . our personal loans are non-revolving , with a fixed-rate , a fixed term of three to six years , and are secured by automobiles , other titled collateral or are unsecured . at december 31 , 2018 , we had approximately 2.4 million personal loans , representing $ 16.2 billion of net finance receivables , compared to approximately 2.4 million personal loans totaling $ 14.8 billion at december 31 , 2017 . insurance products โ we offer our custom ers optional credit insurance products ( life insurance , disability insurance , and involuntary unemployment insurance ) and optional non-credit insurance products through both our branch network and our centralized operations . credit insurance and non-credit insurance products are provided by our affiliated insurance companies . we also offer optional home and auto membership plans of an unaffiliated company . 44 our non-originating legacy products include : other receivables โ we ceased originating real estate loans in 2012 and purchasing retail sales finance contracts and revolving retail accounts in 2013. we continue to service or sub-service liquidating real estate loans and retail sales finance contracts . effective september 30 , 20 18 , our real estate loans previously classified as other receivables were transferred from held for investment to held for sale due to management 's intent to no longer hold these finance receivables for the foreseeable future . see notes 5 , 6 and 7 of the notes to the consolidated financial statements included in this report for more information about other receivables . our segments at december 31 , 2018 , we had two operating segments : consumer and insurance ; and acquisitions and servicing . the remaining components ( which we refer to as โ other โ ) consist of our non-originating legacy operations , which primarily include our liquidating real estate loan portfolio and our liquidating retail sales finance portfolio . see note 22 of the notes to the consolidated financial statements included in this report for more information about our segments . how we assess our business performance we closely monitor the primary drivers of pretax operating income , which consist of the following : net interest income we track the spread between the interest income earned on our finance receivables and the interest expense incurred on our debt , and continually monitor the components of our yield and our cost of funds . net credit losses the credit quality of our loans is driven by our underwriting philosophy , which considers the prospective customer 's household budget , his or her willingness and capacity to repay , and the underlying collateral on the loan . we closely analyze credit performance because the profitability of our loan portfolio is directly connected to net credit losses . we define net credit losses as gross charge-offs minus recoveries in the portfolio . additionally , because delinquencies are an early indicator of future net credit losses , we analyze delinquency trends , adjusting for seasonality , to determine whether or not our loans are performing in line with our original estimates . we also monitor recovery rates because of their contribution to the reduction in the severity of our charge-offs . operating expenses we assess our operational efficiency using various metrics and conduct extensive analysis to determine whether fluctuations in cost and expense levels indicate operational trends that need to be addressed . our operating expense analysis also includes a review of origination and servicing costs to assist us in managing overall profitability . because loan volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings , we also closely monitor origination volume and annual percentage rate . 45 recent developments and outlook recent developments apollo-vรคrde transaction on january 3 , 2018 , the apollo-vรคrde group entered into a share purchase agreement with sfh and the company to acquire from sfh 54,937,500 shares of our common stock representing the entire holdings of our stock beneficially owned by fortress . the apollo-vรคrde transaction closed on june 25 , 2018 for an aggregate purchase price of approximately $ 1.4 billion in cash . as disclosed in note 21 of the notes to the consolidated financial statements in this report , certain executives of the company had previously been granted incentive units that only provide benefits ( in the form of distributions ) if sfh were to make distributions to one or more of its common members that exceed specified amounts . story_separator_special_tag this increase was partially offset by the continued shift of the portfolio towards secured personal loans and direct auto customers who tend to have loans with lower yields and lower charge-offs relative to our unsecured personal loans . average net receivables held for investment decreased primarily due to ( i ) the springcastle interests sale and ( ii ) our liquidating real estate loan portfolio , including transfers of $ 307 million of real estate loans to finance receivables held for sale during 2016. this decrease was partially offset by the continued growth in our personal loan portfolio . interest income on finance receivables held for sale decreased $ 61 million primarily due to ( i ) personal loans sold in the lendmark sale in may 2016 , and ( ii ) the real estate loans in finance receivables held for sale during 2016 , which were sold in the fourth quarter of 2016. interest expense decreased $ 40 million in 2017 when compared to 2016 due to the net of the following : average debt decreased primarily due to debt elimination associated with the springcastle interests sale and net debt issuance and repayment activity in 2017. this decrease was partially offset by net debt issuances during the past 12 months relating to sfc 's offerings of the 6.125 % sfc notes in may of 2017 and our securitization transactions . see notes 12 and 13 of the notes to the consolidated financial statements included in this report for further information on our long-term debt , securitization transactions and our conduit facilities . weighted average interest rate on our debt increased primarily due to ( i ) sfc 's offering of the 8.25 % sfc notes in april of 2016 , ( ii ) the debt elimination associated with the springcastle interests sale , and ( iii ) the pay down of securitizations , which had a lower interest rate relative to our other indebtedness . this increase was partially offset by the repurchase of $ 600 million of unsecured notes , which had a higher interest rate relative to our other indebtedness . provision for finance receivable losses increased $ 23 million in 2017 when compared to 2016 primarily due to ( i ) the growth in our personal loan portfolio during the past 12 months , ( ii ) continued alignment and enhancement of our collection practices which resulted in higher provision from an increase in the loans now classified as tdr , ( iii ) a greater proportion of charge-offs from our purchased credit impaired finance receivables in 2016 , which were not recorded as charge-offs through the allowance for finance receivable losses and ( iv ) the estimated impacts of hurricanes harvey , irma and maria . based on information available at the time , we estimated the impact to net charge-offs attributable to these hurricanes to be $ 17 million and increased our provision for finance receivable losses accordingly . this increase was partially offset by $ 22 million reduction in the impairment in the purchased credit impaired loans due to the increase in expected cash flows in that portfolio . net gain on sale of springcastle interests of $ 167 million in 2016 reflected the net gain associated with the sale of our equity interests in the springcastle joint venture on march 31 , 2016. other revenues decreased $ 46 million in 2017 when compared to 2016 primarily due to ( i ) a decrease in insurance revenues of $ 29 million during 2017 primarily due to lower volume of loans with insurance products sold and a decrease in revenues from runoff business , ( ii ) a decrease of $ 18 million in 2017 due to net gain on sales of personal and real estate loans in 2016 , ( iii ) a decrease in investment revenue of $ 13 million primarily due to lower realized gains on securities sold in 2017 , and ( iv ) a decrease of $ 12 million driven by higher net loss on repurchases and repayments of debt in 2017. this decrease was partially offset by ( i ) a $ 13 million increase in fee revenues from home and auto membership plans sold in 2017 , ( ii ) a $ 9 million lower market adjustment on finance receivables held for sale in 2017 compared to 2016 and ( iii ) an increase of $ 5 million of servicing fee income for the full year 2017 versus partial year 2016 related to the springcastle portfolio . acquisition-related transaction and integration costs decreased $ 39 million in 2017 when compared to 2016 primarily due to ( i ) $ 32 million of lower compensation costs associated with severance and stock compensation costs in 2017 , ( ii ) a $ 13 million claim reserve adjustment for pre-acquisition non-credit insurance policies , and ( iii ) $ 9 million of lower system conversions and project management servicing fees . these decreases were partially offset by $ 17 million in expenses associated with branch and administrative office consolidations . see โ non-gaap financial measures โ below for further information regarding these costs . 50 other expenses decreased $ 146 million in 2017 when compared to 2016 due to the following : other operating expenses decreased $ 132 million primarily due to ( i ) a decrease in citigroup transition expenses of $ 55 million , ( ii ) lower professional and audit expenses of $ 33 million during 2017 , ( iii ) an increase in the deferral of origination costs of $ 22 million due to the increase in the number of loans originated in 2017 compared to prior year , and ( iv ) a decrease in amortization of other intangible assets of $ 18 million during 2017. salaries and benefits decreased $ 31 million primarily due to a decrease in average staffing as a result of our integration of the two legacy companies .
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results of operations consolidated results see the table below for our consolidated operating results and selected financial statistics . a further discussion of our operating results for each of our operating segments is provided under โ segment results โ below . replace_table_token_4_th ( a ) see โ glossary โ at the beginning of this report for formulas and definitions of our key performance ratios . ( b ) includes personal loans held for sale , but excludes real estate loans held for sale in order to be comparable with our segment statistics disclosed in โ segment results. โ 48 comparison of consolidated results for 2018 and 2017 interest income increased $ 462 million or 14 % in 2018 when compared to 2017 primarily due to continued growth in our loan portfolio and higher yield , which was primarily driven by lower amortization of purchase premium on non-credit impaired finance receivables . the yield in 2017 was negatively impacted by hurricanes harvey and irma . interest expense increased $ 59 million or 7 % in 2018 when compared to 2017 primarily due to the increase in average debt balances consistent with the growth in our loan portfolio and our strategic shifting of our funding to a more proportional mix of secured and unsecured debt . see notes 12 and 13 of the notes to the consolidated financial statements included in this report for further information on our long-term debt , securitization transactions and our conduit facilities . provision for finance receivable losses increased $ 93 million in 2018 when compared to 2017 primarily driven by the growth in our loan portfolio and the proportional growth in loans classified as tdrs . this increase was partially offset by $ 17 million in the 2017 provision attributable to hurricanes harvey , irma and maria .
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consequently , these companies story_separator_special_tag operations management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) is a supplement to the accompanying consolidated financial statements and is intended to provide a reader of our financial statements with a narrative from the perspective of management on our businesses , current developments , financial condition , results of operations and liquidity . significant sections of the md & a are as follows : overview . this section , beginning below , provides a description of recent developments we believe are important in understanding our results of operations and financial condition as well as understanding anticipated future trends . it also provides a brief description of significant transactions and events that affect the comparability of financial results and a discussion of the progress being made on our growth initiatives . consolidated results of operations . this section , beginning on page 31 , provides an analysis of our consolidated results of operations for the three years ended december 31 , 2015 . segment results of operations . this section , beginning on page 35 , provides an analysis of each business segment for the three years ended december 31 , 2015 as well as corporate items and eliminations . in addition , we discuss significant transactions , events and trends that may affect the comparability of the results being analyzed . liquidity and capital resources . this section , beginning on page 44 , provides an analysis of our cash flows for the three years ended december 31 , 2015 . we also discuss restrictions on cash movements , future commitments and capital resources . critical accounting policies , estimates and recent accounting pronouncements . this section , beginning on page 47 , identifies those accounting principles we believe are most important to our financial results and that require significant judgment and estimates on the part of management in application . we provide all of our significant accounting policies in note 2 to the accompanying consolidated financial statements . other matters . this section , beginning on page 50 , provides a discussion of off-balance sheet arrangements to the extent they exist . in addition , we provide a tabular discussion of contractual obligations , discuss any significant commitments or contingencies and customer concentration . overview our business we are a premier marketplace and transaction solutions provider for the real estate , mortgage and consumer debt industries . altisource 's proprietary business processes , vendor and electronic payment management software and behavioral science-based analytics improve outcomes for marketplace participants . our business segments are based upon our organizational structure , which focuses primarily on the services offered , and are consistent with the internal reporting used by our chief executive officer to evaluate operating performance and to assess the allocation of our resources . we classify our businesses into three reportable segments . the mortgage services segment provides services that span the mortgage and real estate lifecycle and are typically outsourced by loan servicers , loan originators , home investors and other sellers and buyers of single family homes . the financial services segment provides collection and customer relationship management services primarily to debt originators and servicers ( e.g. , credit card , auto lending , retail credit and mortgage ) and the utility , insurance and hotel industries . the technology services segment provides a portfolio of software , data analytics and infrastructure management services that support the efficient and compliant management of mortgage and real estate activities and marketplace transactions across the mortgage and real estate lifecycles . in addition , corporate items and eliminations include interest expense and costs related to corporate support functions including executive , finance , law , compliance , human resources , vendor management , risk , sales and marketing costs not allocated to the business units and eliminations of transactions between the reportable segments . we classify revenue in three categories : service revenue , revenue from reimbursable expenses and non-controlling interests . in evaluating our performance , we focus on service revenue . service revenue consists of amounts attributable to our fee-based services . reimbursable expenses and non-controlling interests are pass-through items for which we earn no margin . reimbursable expenses consist of amounts we incur on behalf of our customers in performing our fee-based services , but we pass such costs 27 directly on to our customers without any additional markup . non-controlling interests represent the earnings of lenders one , wholesale one and residential investor one , consolidated entities not owned by altisource , and are included in revenue and reduced from net income to arrive at net income attributable to altisource . we have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( โ gaap โ ) . altisource 's vision and growth initiatives altisource provides a suite of mortgage , real estate and consumer debt services , leveraging our technology platform and global operations . altisource is focused on becoming the premier provider of real estate and mortgage marketplaces and related services to a broad and diversified customer base . within the real estate and mortgage markets , we facilitate transactions and provide products , solutions and services related to home sales , home purchases , home rentals , home maintenance , mortgage origination and mortgage servicing . strategically , we are focused on ( 1 ) our four key business initiatives , ( 2 ) continuing to strengthen our compliance management system and ( 3 ) maintaining strong performance and relationships with our strategic customers . each of our four key business initiatives position altisource to grow and diversify our customer and revenue base . we believe these initiatives address very large markets and directly leverage our core competencies and distinct competitive advantages . story_separator_special_tag for $ 33.4 million . the purchase consideration was composed of $ 12.3 million of cash at closing , $ 10.5 million of cash payable over four years from the acquisition date and 495 thousand shares of restricted common stock of the company with a value of $ 14.4 million as of the closing date . of the cash payable following acquisition , $ 3.8 million is contingent on certain future employment conditions of certain of the sellers , and therefore excluded from the purchase price ; effective march 31 , 2015 , we terminated the data access and services agreement with ocwen ; on november 21 , 2014 , we acquired owners for an initial purchase price of $ 19.8 million plus contingent earn out consideration of up to an additional $ 7.0 million over two years , subject to owners achieving annual performance targets ; in the fourth quarter of 2014 , we discontinued our lender placed insurance brokerage line of business ; on september 12 , 2014 , we acquired mortgage builder for an initial purchase price of $ 15.7 million plus contingent earn out consideration of up to an additional $ 7.0 million over three years , subject to mortgage builder achieving annual performance targets ; bad debt expense was higher in 2014 , driven primarily from the default management services business . a change in many of our default management services customers ' business models and fourth quarter of 2014 discussions with these customers led us to believe that a portion of the accounts receivable balance was no longer collectible ; on november 15 , 2013 , we acquired equator for an initial purchase price of $ 63.4 million plus contingent earn out consideration of up to an additional $ 80 million over three years ( โ equator earn out โ ) , subject to equator achieving annual performance targets . during 2014 , the fair value of the equator contingent consideration was reduced by $ 37.9 million with a corresponding increase in earnings . as a result of the adjustment in the fair value of the equator contingent consideration , we determined that the equator goodwill was impaired and recorded an estimated impairment loss of $ 37.5 million in 2014. in 2015 , we paid the former owners of equator $ 0.5 million to extinguish any liability for the equator earn out . in connection with this settlement , we reduced the liability for the equator earn out to $ 0 and recognized a $ 7.6 million increase in earnings ; on april 12 , 2013 , we completed the residential capital , llc ( โ rescap โ ) fee-based business transaction with ocwen for an aggregate purchase price of $ 128.8 million ; 29 on march 29 , 2013 , we completed the acquisition of the homeward residential capital , inc. ( โ homeward โ ) fee-based businesses from ocwen for an aggregate purchase price of $ 75.8 million ; and during 2013 , we increased our borrowings under the senior secured term loan to $ 400.0 million and refinanced the loan which included , among other changes , lowering the interest rate of the term loans . on august 1 , 2014 , we amended our senior secured term loan agreement and increased our borrowings by $ 200.0 million to $ 594.5 million . material weakness in connection with the assessment and recording of the non-cash impairment losses described above , we identified a material weakness in our internal controls over the review of impairment indicators of long-lived assets , including premises and equipment and intangible assets , and the impairment analysis of indefinite-lived assets , primarily goodwill . we intend to implement remediation measures to address this material weakness , but currently do not have an expected timetable for the completion of the remediation . see part ii . item 9a . โ controls and procedures โ of this annual report for additional information . 30 consolidated results of operations summary consolidated results following is a discussion of our consolidated results of operations for the years ended december 31 , 2015 , 2014 and 2013 . for a more detailed discussion of the factors that affected the results of our business segments in these periods , see โ segment results of operations โ below . the following table sets forth information on our results of operations for the years ended december 31 : replace_table_token_10_th ( 1 ) these are non-gaap measures that are defined and reconciled to the corresponding gaap measures on page 26 n/m โ not meaningful . 31 revenue we recognized service revenue of $ 940.9 million , $ 938.7 million and $ 662.1 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the increase in service revenue for the year ended december 31 , 2015 was primarily due to the revenue expansion in the asset management services businesses primarily from growth in both the number of non-ocwen and ocwen reo properties sold on hubzu , increased volumes of property preservation services for residential , higher revenue from software development and a full year of revenue from the september 2014 acquisition of mortgage builder . in addition , in early 2015 , the pricing model to one of our customers for reo preservation services within asset management services changed . historically , we billed ( 1 ) a fixed fee per reo asset ( which was recognized as service revenue ) and ( 2 ) actual vendor costs ( which were recognized as reimbursable expenses revenue ) . for new reo referrals , effective early 2015 , our pricing is on a per service basis ( which is recognized as service revenue ) . this results in certain services that were historically reimbursable expense revenue becoming service revenue . as a result , asset management services revenue at mortgage services increased , partially offset by a decrease in reimbursable expenses revenue .
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segment results of operations the following section provides a discussion of pre-tax results of operations of our business segments . transactions between segments are accounted for as third party arrangements for purposes of presenting segment results of operations . intercompany transactions primarily consist of it infrastructure management services . we reflect these as service revenue in the technology services segment and technology and telecommunications costs within cost of revenue and sg & a in the segment receiving the services . certain prior year amounts reported by the mortgage services and technology services segments have been reclassified to conform with the current year presentation . financial information for our segments is as follows : replace_table_token_11_th n/m โ not meaningful . replace_table_token_12_th n/m โ not meaningful . 35 replace_table_token_13_th n/m โ not meaningful . 36 mortgage services revenue revenue by service line was as follows for the years ended december 31 : replace_table_token_14_th we recognized service revenue of $ 676.2 million for the year ended december 31 , 2015 , a 4 % increase compared to the year ended december 31 , 2014 . the increase was primarily due to revenue expansion in the asset management services businesses primarily from the growth in both the number of non-ocwen and ocwen reo properties sold on hubzu and increased volumes of property preservation services for residential , partially offset by a decrease in property inspection volumes , all within asset management services . in addition , in early 2015 , the pricing model to one of our customers for reo preservation services within asset management services changed . historically , we billed ( 1 ) a fixed fee per reo asset ( which was recognized as service revenue ) and ( 2 ) actual vendor costs ( which were recognized as reimbursable expenses revenue ) .
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we have continued to manage and support seaton 's operations from chicago . effective june 30 , 2014 , we entered into a second amended and restated revolving credit agreement for a secured revolving credit facility ( `` revolving credit facility `` ) of up to a maximum of $ 300.0 million , of which $ 187.0 million was used to fund a portion of the seaton acquisition price . see note 9 : long-term debt , for details of our revolving credit facility . we incurred acquisition and story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( โ md & a โ ) is designed to provide the reader of our financial statements with a narrative from the perspective of management on our financial condition , results of operations , liquidity and certain other factors that may affect future results . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to our financial statements . overview trueblue , inc. is a leading provider of specialized workforce solutions helping clients improve growth and performance by providing staffing , recruitment process outsourcing , and managed service provider solutions . our workforce solutions meet clients ' needs for a reliable , efficient workforce in a wide variety of industries . through our workforce solutions , we help approximately 130,000 businesses to be more productive and we connect approximately 750,000 people to work each year . we are headquartered in tacoma , washington . revenue grew to $ 2,695.7 million for the year ended december 25 , 2015 , a 24.0 % increase compared to the same period in the prior year primarily due to the following : the year ended december 25 , 2015 included a full year of staffing solutions holdings , inc. ( `` seaton '' ) revenue of $ 810.8 million or 18.1 % of our revenue growth or 15.8 % excluding organic revenue growth . the seaton acquisition was completed in the prior year , effective june 30 , 2014 , the first business day of the third quarter . revenue was $ 394.4 million from the date of acquisition through our year ended december 26 , 2014. the acquisition of seaton added full service lines for on-premise staffing for large scale exclusive sourcing , screening , recruitment , and management of a customer 's on-premise contingent labor workforce ; recruitment process outsourcing for high-volume sourcing , screening , and recruiting of permanent employees for all major industries and jobs ; and managed service provider solutions , which provides customers with improved quality and spend management of their contingent labor vendors . in the first year of operations , seaton delivered on our expectations for revenue and income from operations , and continues to deliver organic revenue growth . organic revenue growth for the year ended december 25 , 2015 was 7.2 % . quarterly year over year organic revenue growth was 0.4 % for the first quarter , 1.4 % for the second quarter , 8.0 % for the third quarter , and 14.1 % for the fourth quarter . the annual and accelerating quarterly organic revenue growth was driven by widespread improvement across most of our service lines , geographies , and the industries we serve . the construction industry saw considerable growth driven by improving momentum in both residential and commercial construction as well as green energy projects . rapid growth in online commerce resulted in considerable growth in warehousing and distribution . demand by the transportation industry for our driver workforce solutions continues to see double digit growth . we saw improving trends with small to medium sized customers and continued growth with our national customers . the positive trends are partially offset by continued pressure on the manufacturing industry , which continues to face a challenging export market . effective december 1 , 2015 , we acquired simos insourcing solutions ( โ simos โ ) , a leading provider of on-premise workforce management solutions . simos specializes in helping clients streamline warehouse/distribution operations to meet the growing demand for online commerce and supply chain solutions . simos will expand our existing services for on-premise staffing and management of a facility 's contingent workforce . simos contributed $ 22.2 million in revenue or 1.0 % of our revenue growth for the fiscal year ended december 25 , 2015. gross profit as a percentage of revenue for the year ended december 25 , 2015 was 23.6 % compared to 24.7 % for the same period in the prior year . the decline of 1.1 percentage points of revenue was largely due to the impact of the seaton acquisition , which carried lower gross margins in comparison with the blended company average . this was partially offset by improved gross margin in our organic business through disciplined pricing and management of our increasing minimum wage for labor , health benefits , and payroll taxes . selling , general and administrative ( `` sg & a '' ) expenses as a percentage of revenue decreased to 18.4 % for the year ended december 25 , 2015 from 19.6 % for the same period in 2014 , primarily due to seaton 's lower cost of doing business as a percent of sales . the acquired service lines offer workforce solutions as an integrated partner with our customers , which are delivered through highly centralized operations in chicago , illinois with support from on-site and virtual employee teams . we do not operate a branch network to service these customers and accordingly these services utilize a more flexible centralized support structure resulting in lower sg & a as a percent of sales . sg & a increased by $ 70.2 million to $ 496.0 million for the year ended december 25 , 2015 , compared to the same period in 2014 . story_separator_special_tag this was primarily due to the acquisitions of seaton , twc , and mdt , which carried lower gross margins in comparison to our blended company average prior to the acquisitions . excluding the impact of acquisitions on our blended company average , gross profit as a percentage of revenue improved through disciplined pricing and management of our temporary labor wages and payroll taxes . workers ' compensation expense as a percentage of revenue was 3.6 % for fiscal 2014 , compared to 3.8 % , for the same period in the prior year . the decline is due in part to the acquisition of seaton and the lower cost of workers ' compensation cost as a percentage of revenue due to the nature of their business . in addition , we actively manage the safety of our workforce with our safety programs and control increasing costs with our network of workers ' compensation service providers . these actions have had a positive impact creating favorable adjustments to workers ' compensation liabilities recorded in prior periods . selling , general and administrative expenses sg & a expenses were as follows ( in thousands , except percentages ) : replace_table_token_8_th page - 20 fiscal 2015 as compared to fiscal 2014 sg & a expenses as a percentage of revenue decreased to 18.4 % for the year ended december 25 , 2015 , from 19.6 % for the same period in 2014 , primarily due to seaton 's lower cost of doing business as a percent of sales . the acquired service lines offer workforce solutions as an integrated partner with our customers , which are delivered through highly centralized operations in chicago , illinois with support from on-site and virtual employee teams . since we do not operate a branch network to service customers , we are able to utilize a more flexible support structure that results in lower sg & a as a percent of sales . sg & a increased by $ 70.2 million to $ 496.0 million for the year ended december 25 , 2015 , compared to the same period in 2014 . the increase is primarily related to a full year of the acquired operations of seaton of approximately $ 55.8 million . we completed the acquisition of seaton on the first business day of our third quarter of 2014. the integration of seaton was completed during 2015. the remaining increase is primarily related to variable costs related to organic revenue growth and investments made in selling and recruiting resources for blue-collar staffing services as well as start-up costs for on-site customers and new recruitment process outsourcing customers . the benefit of those investments will be fully realized in 2016. fiscal 2014 as compared to fiscal 2013 sg & a as a percentage of revenue decreased to 19.6 % for fiscal 2014 from 21.7 % for the same period in 2013 primarily due to seaton 's lower cost of doing business as a percent of sales . the acquired service lines offer workforce solutions as an integrated partner with our customers , which are delivered through highly centralized operations in chicago , illinois with support from on-site and virtual employee teams . since we do not operate a branch network to service customers , we are able to utilize a more flexible support structure that results in lower sg & a as a percent of sales sg & a spending increased $ 63.5 million to $ 425.8 million for fiscal 2014. the increase is primarily related to the acquired operations of seaton of $ 43.2 million . we completed the acquisition of seaton on the first business day of our third quarter of 2014. we incurred $ 5.2 million of costs related to our acquisition and integration of seaton during fiscal 2014. the integration of seaton was completed in 2015. sg & a spending also increased by approximately $ 11.0 million due to a full year of the mdt and twc operations acquired in the prior year . we incurred non-recurring acquisition and integration costs for mdt and twc of $ 7.4 million during fiscal 2013. the remaining increase is primarily due to variable sg & a expenses associated with organic revenue growth and continued investments in our strategy to align the dedicated sales , recruiting , and services of our branch-based service lines to better serve our customers , and enable further branch consolidation and centralization of services , which we believe will continue to increase our operating efficiency . we consolidated 65 branches during fiscal 2014 and expect to consolidate additional branches in the future . we expect further leverage benefit from branch consolidations in the future . depreciation and amortization depreciation and amortization were as follows ( in thousands , except percentages ) : replace_table_token_9_th fiscal 2015 as compared to fiscal 2014 depreciation and amortization expense increased $ 12.4 million for fiscal 2015 . the increase is primarily due to a full year of amortization expense for intangible assets acquired in connection with seaton of $ 14.8 million and the depreciation of the fair value of acquired tangible assets compared to half a year of amortization expense in 2014. fiscal 2014 as compared to fiscal 2013 depreciation and amortization increased $ 9.0 million for the year ended december 26 , 2014 primarily due to the amortization of intangible assets acquired in connection with the seaton acquisition on the first business day of our third quarter of 2014 and includes a full year related to mdt and twc acquired in the prior year .
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results of operations total company results the following table presents selected financial data ( in thousands , except percentages and per share amounts ) : replace_table_token_5_th our year-over-year trends are significantly impacted by the acquisition of seaton . seaton was acquired effective the first day of our fiscal third quarter in 2014 and , accordingly , is included in only twenty-six of the fifty-two weeks ended december 26 , 2014 , as compared to the entire year ended december 25 , 2015 . the seaton acquisition added new services and capabilities to better meet our objective of providing our customers with the talent and flexible workforce solutions they need to enhance their business performance . these service lines have dedicated customer on-site and virtual teams which leverage highly centralized support services for recruiting and delivering services to meet the specialized needs of each customer . since these service lines do not operate a branch network , they can function more flexibly . the performance of the seaton acquisition in the first year of operations has delivered on our expectations for revenue and income from operations and continues to deliver organic revenue growth . page - 18 effective december 1 , 2015 , we acquired simos , a leading provider of on-premise workforce management solutions . simos customers include fortune 500 companies in consumer goods , retail , online commerce , and food packaging and distribution . simos specializes in helping clients streamline warehouse/distribution operations to meet the growing demand for online commerce and supply chain solutions . they are also experts in providing scalable solutions for pick and pack and shipping requirements . their unique productivity model incorporates fixed price-per-unit solutions to drive client value . additionally , their continuous analysis and improvement of processes and incentive pay drives workforce efficiency and reduces costs , lowers risk of injury and damage , and improves productivity and service levels .
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when ineffectiveness exists , the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected . we had no hedging instruments outstanding during 2013. concurrent with the closing of the amended and restated f-16 credit facility , we entered into an interest rate swap agreement that is intended to fix the interest rate story_separator_special_tag the following discussion should be read in conjunction with the audited historical consolidated financial statements and notes thereto appearing in โ item 8. financial statements and supplementary data โ of this report . as used in this section , unless the context otherwise requires , โ we , โ โ us , โ โ our , โ and โ our company โ mean american assets trust , inc. , a maryland corporation and its consolidated subsidiaries , including american assets trust , l.p. this discussion may contain forward-looking statements based upon 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 โ item 1a . risk factors โ or elsewhere in this document . see โ item 1a . risk factors โ and โ forward-looking statements. โ overview our company we are a full service , vertically integrated and self-administered reit that owns , operates , acquires and develops high quality retail , office , multifamily and mixed-use properties in attractive , high-barrier-to-entry markets in southern california , northern california , oregon , washington , texas , and hawaii . as of december 31 , 2015 , our portfolio was comprised of ten retail shopping centers ; seven office properties ; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center ; and five multifamily properties . additionally , as of december 31 , 2015 , we owned land at five of our properties that we classified as held for development and construction in progress . our core markets include san diego , the san francisco bay area , portland , oregon , bellevue , washington and oahu , hawaii . our company , as the sole general partner of our operating partnership , has control of our operating partnership and owned 71.7 % of our operating partnership as of december 31 , 2015 . accordingly , we consolidate the assets , liabilities and results of operations of our operating partnership . taxable reit subsidiary on november 5 , 2010 , we formed american assets services , inc. , a delaware corporation that is wholly owned by our operating partnership and which we refer to as our services company . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or provide rights to any brand name under which any lodging facility is operated . we may form additional taxable reit subsidiaries in the future , and our operating partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . outlook we seek growth in earnings , funds from operations , and cash flows primarily through a combination of the following : growth in our same-store portfolio , growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions . our properties are located in some of the nation 's most dynamic , high-barrier-to-entry markets primarily in southern california , northern california , oregon , washington and hawaii , which we believe allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation , expansion , reconfiguration , and or retenanting . we evaluate our properties on an ongoing basis to identify these types of opportunities . our new development at torrey point ( previously sorrento pointe ) is close in proximity to torrey reserve campus . groundbreaking on torrey point occurred in july 2015 with development plans including two class a office buildings of approximately 88,000 square feet in the aggregate , with panoramic unobstructed views of the torrey pines state park beach , torrey reserve and the pacific ocean . projected costs of the development at torrey point are approximately $ 53 million , of which approximately $ 12 million has been incurred to date . we expect to incur the remaining costs for development of torrey point in 2016 and 2017. we expect the torrey point development to be stabilized in 2018 with an estimated stabilized cash yield of approximately 7.54 % to 8.55 % . we intend to opportunistically pursue other projects in our development pipeline including future phases of lloyd district portfolio , solana beach - highway 101 , as well as other redevelopments at solana beach corporate centre and lomas santa fe plaza . story_separator_special_tag of the leases , 67 represent comparable leases where there was a prior tenant , with an increase of 13.6 % in cash basis rent and an increase of 19.2 % in straight-line rent compared to the prior leases . office leases . our office portfolio included seven properties with a total of approximately 2.7 million rentable square feet available for lease as of december 31 , 2015 . as of december 31 , 2015 , these properties were 92.4 % leased . for the year ended december 31 , 2015 , the office segment contributed 35.4 % of our total revenue . historically , we have leased office properties to tenants primarily on a full service gross or a modified gross basis and to a limited extent on a triple-net lease basis . we expect to continue to do so in the future . a full-service gross or modified gross lease has a base year expense stop , whereby the tenant pays a stated amount of certain expenses as part of the rent payment , while future increases in property operating expenses ( above the base year stop ) are billed to the tenant based on such tenant 's proportionate square footage of the property . the increased property operating expenses billed are reflected as operating expenses and amounts recovered from tenants are reflected as rental income in the statements of operations . during the year ended december 31 , 2015 , we signed 84 office leases for 431,766 square feet with an average rent of $ 42.36 per square foot during the initial year of the lease term . of the leases , 58 represent comparable leases where there was a prior tenant , with an increase of 21.3 % in cash basis rent and an increase of 29.4 % in straight-line rent compared to the prior leases . multifamily leases . our multifamily portfolio included four apartment properties , as well as an rv resort , with a total of 1,579 units ( including 122 rv spaces ) available for lease as of december 31 , 2015 . as of december 31 , 2015 , these properties were 73.4 % leased . for the year ended december 31 , 2015 , the multifamily segment contributed 7.1 % of our total revenue . our multifamily leases , other than at our rv resort , generally have lease terms ranging from 7 to 15 months , with a majority having 12-month lease terms . tenants normally pay a base rental amount , usually quoted in terms of a monthly rate for the respective unit . spaces at the rv resort can be rented at a daily , weekly , or monthly rate . the average monthly base rent per leased unit as of december 31 , 2015 was $ 1,605 compared to $ 1,503 at december 31 , 2014 . mixed-use property revenue . our mixed-use property consists of approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel . revenue from the mixed-use property consists of revenue earned from retail leases , and revenue earned from the hotel , which consists of room revenue , food and beverage services , parking and other guest services . as of december 31 , 2015 , the retail portion of the property was 100.0 % leased , and for the year ended december 31 , 2015 , the hotel had an average occupancy of 89.6 % . for the year ended december 31 , 2015 , the mixed-use segment contributed 21.7 % , of our total revenue . we have leased the retail portion of such property to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . as such , the base rent payment under such leases does not include any operating expenses , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . rooms at the hotel portion of our mixed-use property are rented on a nightly basis . 40 leasing our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy . over the long-term , we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage , allowing us to maintain relatively high occupancy and increase rental rates . we have continued to see signs of improvement for many of our tenants as well as increased interest from prospective tenants for our spaces . while there can be no assurance that these positive signs will continue , we remain cautiously optimistic regarding the improved trends we have seen over the past few years . we believe the locations of our properties and diverse tenant base mitigate the potentially negative impact of a poor economic environment . however , any reduction in our tenants ' abilities to pay base rent , percentage rent or other charges , may adversely affect our financial condition and results of operations . during the three months ended december 31 , 2015 , we signed 21 retail leases for a total of 90,943 square feet of retail space including 78,994 square feet of comparable space leases ( leases for which there was a prior tenant ) , an increase of 3.9 % on a cash basis and an increase of 20.2 % on a straight-line basis . new retail leases for comparable spaces were signed for 12,256 square feet at an average rental rate increase of 21.3 % on a cash basis and 57.7 % on a straight-line basis . renewals for comparable retail spaces were signed for 66,738 square feet at an average rental rate increase of 2.3 % on a cash basis and an increase of 16.8 % on a straight-line basis . tenant improvements and incentives were $ 7.00 per square foot of retail space for comparable new leases for the three months ended december 31 , 2015 .
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results of operations for our discussion of results of operations , we have provided information on a total portfolio and same-store basis . comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 the following summarizes our consolidated results of operations for the year ended december 31 , 2015 compared to our consolidated results of operations for the year ended december 31 , 2014 . as of december 31 , 2015 , our operating portfolio was comprised of 23 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.8 million rentable square feet of retail and office space ( including mixed-use retail space ) , 1,579 residential units ( including 122 rv spaces ) and a 369-room hotel . as of december 31 , 2014 , our operating portfolio was comprised of 23 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.8 million rentable square feet of retail and office space ( including mixed-use retail space ) , 922 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2015 and 2014 , we owned land at five of our properties that we classified as held for development and construction in progress . 47 the following table sets forth selected data from our consolidated statements of income for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_14_th revenue total property revenues . total property revenue consists of rental revenue and other property income . total property revenue increased $ 15.6 million , or 6 % , to $ 275.6 million for the year ended december 31 , 2015 compared to $ 260.0 million for the year ended december 31 , 2014 .
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โ the estimated useful lives for each asset class are as follows : โ โ โ โ computer equipment and software โ 3 years fixtures and fittings โ 3 to 5 years leasehold improvements โ shorter or lease term or useful life โ property and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . โ ( j ) goodwill , intangible assets and impairment assessments โ goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired and is evaluated annually , in the fourth quarter , for impairment , or more frequently if circumstances exist that indicate that impairment may exist . when conducting the annual goodwill impairment assessment , the group first assesses qualitative factors , to determine whether it is necessary to perform the two-step goodwill impairment test . if determined to be necessary , the two-step impairment test shall be used to identify story_separator_special_tag โ the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements , related notes and other financial information included elsewhere in this annual report . the following discussion contains forward-looking statements , including , without limitation , our expectations and statements regarding our outlook and future revenue , expenses , results of operations , liquidity , plans , strategies and objectives of management and any assumptions underlying any of the foregoing . our actual results could differ materially from those discussed in the forward-looking statements . our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include , but are not limited to , those discussed in โ special note regarding forward-looking statements โ and โ item 1a . risk factors โ . โ overview โ our mission is to provide data intelligence for all users by delivering trusted data when and where is it needed . we are a key enabler of the data-driven enterprise where data is a strategic asset powering business . talend data fabric allows customers in any industry to improve business performance by using their data to create new insights and to automate business processes . our customers rely on our software to better understand their customers , offer new applications and services , and improve operations . โ we had 1,219 employees as of december 31 , 2019 and we plan to continue to expand our non-u.s. presence to address the needs of our global customers as well as to acquire customers in new geographies . we also plan to continue to invest in new product development . โ our business model combines our open source approach with self-service trials of our commercial software and direct sales . we have been able to rapidly expand awareness and usage of our products through our free open source versions and self-service trials . this enables developers and users to download and try the free and paid version of our products , creating sales leads for our more feature-rich commercial solutions . users of our open source products often catalyze adoption of our commercial solutions by their organizations , primarily to benefit from enterprise-grade features that include the scaling out of our offering to a larger set of users , among others . following an initial deployment of our paid subscription products , organizations often purchase more subscriptions or expand usage to additional products from our fully integrated suite after realizing the benefits of additional features or scale . we sell our product offerings as subscriptions based primarily on the number of users of our platform . โ we generate the majority of our revenue from subscriptions of our commercial solution talend data fabric . we primarily sell annual contracts billed in advance . our subscription offering includes enterprise-grade features and capabilities to scale our solutions across production environments and customer infrastructures . these product features and capabilities include scheduling , management and monitoring of data integration flows , collaboration across a team of users and technical support . we also provide professional services to implement our solutions . our subscription revenue represents a significant portion of our revenue , growing from 85 % of our total revenue in the year ended december 31 , 2017 , to 86 % in the year ended december 31 , 2018 , and 88 % in the year ended december 31 , 2019 . โ our financial results include : โ โ total revenue increased from $ 148.6 million for 2017 to $ 205.8 million for 2018 to $ 247.9 million for 2019 ; โ โ subscription revenue increased from $ 125.9 million for 2017 to $ 176.4 million for 2018 to $ 217.0 million for 2019 ; โ โ subscription revenue grew 23 % year-over-year for 2019 ; and โ โ net loss was $ 61.5 million for 2019 , $ 39.0 million for 2018 and $ 31.2 million for 2017 . โ we intend to generate profits based on increased sales of our solutions to new and existing customers , including by the continued conversion of free trials into paid users . we currently anticipate that at some point in the future we will be able to increase revenues at a greater rate than increases in our operating expenses . however , there can be no assurance 62 that we will achieve or maintain profitability on a consistent basis , that we will increase our sales to new and existing customers , or that our operating expenses will increase at a lower rate than our revenue may grow . โ key factors affecting our performance โ expansion within existing customers . our business model relies on rapidly and efficiently landing new customers and expanding our relationship with these customers over time . we have designed our apps for ease-of-use and with strong integrations between apps to encourage broad adoption within organizations . story_separator_special_tag these key business metrics include the following : โ annual recurring revenue โ we believe disclosing annual recurring revenue ( โ arr โ ) provides greater clarity into our results given it is not affected by the shift from premise to cloud , accounting changes , or contract duration . arr represents the annualized recurring value of all active contracts at the end of a reporting period . arr includes subscriptions for use of premise-based products and saas offerings and excludes original equipment manufacturer ( `` oem '' ) sales . both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplied by twelve . โ due to the significant portion of our customers who are invoiced in non-u.s. dollar denominated currencies , we also calculate our arr growth rate on a constant currency basis , thereby removing the effect of currency fluctuation . โ the following table summarizes arr and its year over year growth rate on both an actual and constant currency basis as of the end of each reporting period since december 31 , 2018. we calculate arr growth rate on a constant currency basis by applying the spot currency rate from the last day of the comparative period to the corresponding day in the current period . โ replace_table_token_2_th โ the year over year growth rate for each quarter was calculated against the corresponding quarter in the prior year . the growth rate as of december 31 , 2019 is driven by strong demand for our cloud-based solutions . โ cloud annual recurring revenue โ we believe disclosing cloud annual recurring revenue ( โ cloud arr โ ) provides greater clarity into the company 's results given it is not affected by accounting changes , or contract duration . furthermore , the majority of new arr comes from cloud and providing the metric will enable management and investors to better understand the our progress in our shift to cloud . cloud arr represents the annualized recurring value of all active cloud-based subscription contracts at the end of a reporting period . cloud arr includes subscriptions for use of saas offerings and excludes oem sales . both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplied by twelve . โ due to the significant portion of our customers who are invoiced in non-u.s. dollar denominated currencies , we also calculate our cloud arr growth rate on a constant currency basis , thereby removing the effect of currency fluctuation . โ the following table summarizes cloud arr and its year over year growth rate on both an actual and constant currency basis as of the end of each reporting period since december 31 , 2018. we calculate cloud arr growth rate on 64 a constant currency basis by applying the spot currency rate from the last day of the comparative period to the corresponding day in the current period . โ replace_table_token_3_th โ 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 . โ subscription revenue growth rate โ subscription revenue is primarily derived from the sale of subscription-based license agreements to our customers . the growth of our subscription revenue reflects our ability to renew subscriptions with our existing customers , expand the sales of existing and new products within our existing customer base and sell our products to new customers . we believe subscription revenue growth is an important performance metric because it reflects the adoption of our software . โ due to the significant portion of our customers who are invoiced in non-u.s. dollar denominated currencies , we also calculate our subscription revenue growth rate on a constant currency basis , thereby removing the effect of currency fluctuation on our results of operations . โ the table below shows our subscription revenue growth rate on both an actual and constant currency basis for each quarter in the years ended december 31 , 2019 and december 31 , 2018 , calculated against the corresponding quarter in the prior year , as well as the years ended december 31 , 2019 , 2018 and 2017. we calculate revenue on a constant currency basis by applying the average monthly currency rate for each month in the comparative period to the corresponding month in the current period . โ replace_table_token_4_th ( 1 ) the percentages previously disclosed for each of the quarters of the years ended december 31 , 2019 and 2018 have been revised to reflect the correction of an immaterial error . see note 3 , revision of prior period financial statements , for more details . โ number of customers above a certain arr threshold โ we believe our ability to increase the number of customers above a certain threshold is an indicator of our ability to penetrate large enterprise customers . we track and disclose the number of customers that , as of the end of the relevant period , have arr of $ 0.1 million or more . historically , we had tracked our performance in this area by measuring the number of customers that generate an annualized subscription revenue of $ 0.1 million or more , calculated by multiplying the total subscription revenue from a customer in the given quarter by four .
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results of operations โ the following tables summarize our consolidated statements of operations for the fiscal years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) , and as a percentage of our revenue for those periods . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . โ replace_table_token_8_th ( 1 ) amounts include share-based payment and amortization of acquired intangibles expense , as follows ( in thousands ) : โ replace_table_token_9_th โ 69 replace_table_token_10_th โ revenue โ replace_table_token_11_th โ revenue โ 2019 compared to 2018 โ total revenue increased $ 42.1 million , or 20 % , in the year ended december 31 , 2019 compared to the year ended december 31 , 2018. growth in total revenue was attributable to increased demand for our products from both new and existing customers . the growth in total revenue was attributable primarily to the sale of subscriptions and to a lesser extent the growth of professional services revenue . โ subscription revenue increased $ 40.7 million , or 23 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase in subscription revenue was primarily attributable to greater demand for talend cloud and to a lesser extent the acquisition of stitch . โ in the near term , we expect our subscription revenue growth to be negatively impacted by overall economic conditions in europe , which contributed to a slower sequential increase in arr as of december 31 , 2019 compared to prior periods . โ professional services revenue grew by $ 1.4 million , or 5 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the increase in professional services revenue was mainly due to increased demand from north american customers .
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as of december 31 , 2012 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report on form 10-k. the discussion in this section of this report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed herein . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this section , those discussed in โ risk factors โ and those discussed elsewhere in this report on form 10-k. 34 forward looking statements certain statements in this report , including statements of our expectations , intentions , plans and beliefs , including those contained in or implied by `` management 's discussion and analysis '' and the notes to consolidated financial statements , are `` forward-looking statements '' , within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) , that are subject to certain events , risks and uncertainties that may be outside our control . the words โ believe โ , โ expect โ , โ anticipate โ , โ optimistic โ , โ intend โ , โ will โ , and similar expressions identify forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date on which they are made . the company undertakes no obligation to update or revise any forward-looking statements . these forward-looking statements include statements of management 's plans and objectives for our future operations and statements of future economic performance , information regarding our expansion and possible results from expansion , our expected growth , our capital budget and future capital requirements , the availability of funds and our ability to meet future capital needs , the realization of our deferred tax assets , and the assumptions described in this report underlying such forward-looking statements . actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors , including , without limitation , those described in the context of such forward-looking statements , our expansion and acquisition strategy , our ability to achieve operating efficiencies , industry pricing and technology trends , evolving industry standards , regulatory matters , general economic and business conditions , the strength and financial resources of our competitors , our ability to find and retain skilled personnel , the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the securities and exchange commission ( the `` commission '' ) . additional factors that could cause actual results to differ materially from the forward-looking statements include , but are not limited to : 1 ) our ability to successfully develop , manufacture and deliver our products on a timely basis and in the prescribed condition ; 2 ) our ability to compete effectively with other companies in the same industry ; 3 ) our ability to raise sufficient capital in order to effectuate our business plan ; and 4 ) our ability to retain our key executives . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our financial statements , 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 of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue , receivable , inventory , and accrued expenses . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . changes in estimates are recorded in the period in which they become known . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition in accordance with the asc topic 605 , โ revenue recognition โ , the company recognizes revenue when persuasive evidence of an arrangement exists , transfer of title has occurred or services have been rendered , the selling price is fixed or determinable and collectability is reasonably assured . the company 's revenue is principally derived from three primary sources : sales of energy saving flow control equipment , provision of energy project management and sub-contracting services , and provision of energy-saving reconstruction projects . 35 ( a ) sale of products the company derives a majority of its revenues from the sale of energy saving flow control equipment . generally , the energy saving flow control equipment is manufactured and configured to customer requirements . the company typically produces the energy saving flow control equipment for customers during a period from one to six months . when the company completes the production in accordance with the customer 's specification , the customer is required to inspect the finished products for quality and suitability , to its full satisfaction , then the company makes delivery to the customer the company recognizes revenue from the sale of such finished products upon delivery to the customers , when the title and risk of loss are fully transferred to the customers . the company records its revenues , net of value added taxes ( โ vat โ ) . story_separator_special_tag inventories inventories are stated at the lower of cost or market value ( net realizable value ) , cost being determined on a weighted average method . costs include material , labor and manufacturing overhead costs . the company reviews historical sales activity quarterly to determine excess , slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand . the company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand . property , plant and equipment plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses , if any . depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which the asset becomes fully operational and after taking into account its estimated residual values : expected useful life residual value building 30 years 5 % plant and machinery 10-20 years 5 % furniture , fixture and equipment 5-8 years 5 % expenditure for repairs and maintenance is expensed as incurred . when assets have been retired or sold , the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations . land use right all land in the prc is owned by the prc government . the government in the prc , according to the relevant prc law , may sell the right to use the land for a specified period of time . thus , the company 's land purchase in the prc is considered to be leasehold land and is stated at cost less accumulated amortization and any recognized impairment loss . amortization is provided over the term of the land use right agreement on a straight-line basis , which is 50 years and will expire in 2059. stock based compensation the company adopts asc topic 718 , `` stock compensation '' , ( `` asc 718 '' ) using the fair value method . under asc 718 , stock-based compensation is measured using the black-scholes option-pricing model on the date of grant . for non-employee stock based compensation , the company adopts asc topic 505-50 , โ equity-based payments to non-employees โ , stock based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date , whichever is more readily determinable in accordance with asc 718 . 38 income taxes income taxes are determined in accordance with the provisions of asc topic 740 , โ income taxes โ ( โ asc 740 โ ) . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . asc 740 prescribes a comprehensive model for how companies should recognize , measure , present , and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return . under asc 740 , tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts . as at december 31 , 2012 and 2011 , the company had no benefit or penalties regarding its income taxes . as of december 31 , 2012 , there are also no any significant uncertain tax items . the main operations of the company are located in the prc and have jurisdiction under the local tax law . as a result of these operations , the company 's tax returns are subject to examination by a foreign tax authority . as of december 31 , 2012 , the company filed and cleared the tax returns of 2012 with the appropriate local prc tax authority . foreign currencies translation transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction . monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates . the resulting exchange differences are recorded in the statement of operations . the reporting currency of the company is the united states dollar ( `` us $ `` ) . the company 's subsidiaries in the prc maintain their books and records in their local currency , the renminbi yuan ( `` rmb '' ) , which is the functional currency as being the primary currency of the economic environment in which these entities operate . in general , for consolidation purposes , assets and liabilities of its subsidiaries whose functional currency is not the us $ are translated into us $ , in accordance with asc topic 830-30 , โ translation of financial statement โ , using the exchange rate on the balance sheet date . revenues and expenses are translated at average rates prevailing during the period . the gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders ' equity .
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results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 the following discussion should be read in conjunction with the financial statements included in this report and is qualified in its entirety by the foregoing . revenues total revenues were $ 9,269,016 and $ 14,929,430 for the years ended december 31 , 2012 and 2011 , respectively . total revenues decreased $ 5,660,414 , a 38 % decrease , for the year ended december 31 , 2012 compared to total revenues for the year ended december 31 , 2011. decrease in total revenue was due to the decrease in product revenue , service revenue and project revenue . product revenues product revenues are derived principally from the sale of self-manufactured products and energy saving flow control equipment . product revenues were $ 6,866,959 and $ 10,897,946 , or 74 % and 73 % of total revenues for the years ended december 31 , 2012 and 2011 , respectively . product revenues for the year ended december 31 , 2012 decreased $ 4,030,987 or 37 % , compared to the product revenue for the year ended december 31 , 2011. the decrease in product revenue was primarily due to disruptions in our operations caused by the relocation of our manufacturing operations commencing in october 2011 and not completed until august , 2012 , which was postponed by 60 days due to winter weather . in 2011 , production was carried on in both the old and new facilities . about 60 % of the processing including casting , forging , structure making , primary machining , was done in the old plant and 40 % of the production including refined machining , assembling and testing , was done in the new plant .
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we have streamlined our administrative workforce and , with minor exceptions , completed the planned headcount reductions , effectively delayering our management structure and streamlining decision-making and information flow , as well as reducing duplicative and excess fixed cost . we recorded $ 2.2 million of severance-related expenses associated with this initiative in the fourth quarter of fiscal year 2014 , and anticipate recognizing almost $ 6 million of the expected $ 7 million in annualized savings in fiscal year 2015. we also began a comprehensive rationalization analysis of our manufacturing operations , product lines and sales channels intended to refocus our capital and other resources on the areas we believe are strategic to our business . we continue to maintain a sharp focus on lowering our product cost and improving our supply chain , while staying aligned with the needs of our customers . we have also made important improvements to our manufacturing platform , having completed the current phase of expansion for ceiba textiles , our textile facility in honduras . output from this facility is expected to increase , using this new expansion capacity , as we progress through fiscal 2015. in addition , we improved our sewing and screen print facilities in honduras and el salvador , which is allowing us to increase our internal production of garments in these low-cost plants . our domestic screen print operation located in fayetteville , north carolina , was also modernized , which expands its capacity , enhances its capabilities and reduces cost . 17 we have moved certain production into our lower-cost facilities and anticipate further efforts of this nature as we progress through fiscal year 2015. in addition , we are currently in the process of implementing new information systems that should further streamline our operations and better support our customer needs . during the fourth quarter fiscal year 2014 , we recorded $ 1.8 million in expense associated with these operational initiatives . as fiscal year 2015 progresses , we expect to take further action regarding our rationalization of certain product lines and sales channels . we believe these actions will provide additional positive impacts on fiscal year 2015 and beyond . soffe is being revitalized on several levels . during the past year , we were able to rebuild the soffe leadership team with experienced apparel industry executives and we are optimistic that soffe can begin to regain lost revenue and return to profitability as fiscal year 2015 unfolds . the soffe team recently kicked off a new marketing program designed to build consumer brand recognition and drive our targeted customer to retail to purchase soffe products . regional and national retailers are supporting the soffe brand and have increased the buy-in of soffe spring merchandise . we have won new military issue programs which will begin shipping in fiscal 2015. we are also growing in the military exchange retail space , and see growing interest in our unique ability to provide made-in-america products on our vertical manufacturing platform . we are very pleased with our new junkfood store on the iconic abbot kinney boulevard in venice , california . it is meeting our financial expectations and has attracted numerous national retailers who are able to witness the most effective ways to merchandise junkfood products . some of these visits are already leading to new retail programs for junkfood for fiscal year 2015. sales of salt life products grew nicely during the year and we further expanded the geographic footprint of the brand . our acquisition of salt life in august 2013 changed our status from a licensee to brand owner . this allowed us to further expand the product line and make long-term investments in point of sale fixtures , marketing , and the building of social media touch points . our licensed salt life restaurant in st. augustine is exceeding expectations by virtue of the high number of consumers who have the opportunity to experience the salt life brand as they patronize the restaurant . while there is a good revenue stream from royalties , we are most pleased that the restaurants have become an effective marketing tool for salt life 's exciting lifestyle products . we have a number of new salt life marketing initiatives underway . we have additional brand ambassadors , who are primarily west-coast based , and have recently engaged a digital media firm to launch a salt life you-tube channel and implement other digital strategies . we believe our brands are gaining consumer awareness driven by our branded retail shops , e-commerce sites , in-store shops , and expanded consumer marketing initiatives . likewise , we expect sales growth in our basics segment driven by our unique service and distribution models supported by a modern and efficient manufacturing platform . all of our business units are now taking advantage of our vertical manufacturing structure to some degree , thereby lowering production cost and improving our operating efficiencies . the initiatives we have implemented over the past months should position us well to improve our overall profitability and allow us to build market share in a competitive environment . earnings guidance while we will continue to refrain from providing revenue and earnings guidance , we believe that our accomplishments during fiscal 2014 and the benefits from the strategic initiatives should allow delta apparel to experience top line growth and to be decisively profitable in 2015. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > other expense increased to $ 1.1 million in fiscal year 2014 from $ 0.7 million and $ 0.4 million in fiscal year 2013 and the prior twelve months respectively . this increase was due to impairment charges related to our strategic initiatives and change in contingent consideration . story_separator_special_tag interest expense for fiscal year 2013 was $ 4.0 million , a decrease of $ 0.1 million from $ 4.1 million for fiscal year 2012. our fiscal year 2013 effective income tax rate was 7.3 % compared to an effective tax rate of 76.4 % which resulted in a tax benefit in fiscal year 2012. we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the united states . the tax benefit in fiscal year 2012 was impacted by the operating losses driven by the inventory markdown during the year which lowered our u.s. taxable income while maintaining profits in the offshore taxable and tax-free jurisdictions . in fiscal year 2013 we had net earnings of $ 9.2 million , an $ 11.6 million increase from the net loss of $ 2.4 million in fiscal year 2012 . 20 three-month transition period ended september 28 , 2013 , versus three months ended september 29 , 2012 net sales for the transition period were $ 122.6 million , a decrease of 6 % compared to the prior year quarter net sales of $ 130.1 million . net earnings were $ 568 thousand , or $ 0.07 per diluted share , compared with $ 3.6 million or $ 0.41 per diluted share , in the prior year quarter . sales within the branded segment were $ 60.2 million , down 5.2 % compared with $ 63.5 million for the prior year 's first quarter . the primary reason for the decrease was a 28 % decline in soffe sales , which was somewhat offset by strong revenue growth in other brands . junkfood , art gun , and salt life all had double digit sales growth , with art gun sales more than doubling . salt life revenue growth exceeded our expectations , with sales up 44 % over the prior year september quarter . net sales in our basics segment were down 6.4 % to $ 62.3 million , compared with $ 66.6 million in the prior year period . sales of undecorated tees started out strong in july 2013 , but weakened in august and september as retail traffic and an earlier than expected build-up of inventories in the retail sector resulted in price discounting to drive volumes and lower than expected sales of undecorated tees as the period progressed . our private label sales also slowed as our customers shifted their callouts to balance inventory from the lower sales at retail . sg & a expenses were $ 26.6 million , or 21.7 % of sales , for the transition period , compared to $ 25.9 million , or 19.9 % of sales , for the prior year september quarter . this increase in sg & a was primarily due to expenses associated with the salt life acquisition , higher than normal bad debt expense and the recording of a contingent liability associated with legal matters in california . our effective income tax rate for the three months ended september 28 , 2013 , was 219.1 % , compared to an effective tax benefit of 25.1 % for the prior year september quarter . we have a three-month tax year associated with the transition period . we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the united states . the transition period benefited as overall operating profits were lower than normal which lowered our u.s. taxable income while maintaining profits in the offshore taxable and tax-free jurisdictions . at september 28 , 2013 , account receivables were $ 68.7 million , compared to $ 69.3 million in the prior year september . days sales outstanding increased to 53 days as of september 28 , 2013 , compared to 50 days in the prior year september , resulting from a slight shift in the receipt of payments at the end of the quarter . inventory levels increased $ 3.4 million to $ 165.2 million at september 28 , 2013 , compared to $ 161.8 million at september 29 , 2012. this increase is due to weakness in retail apparel sales which resulted in lower than expected sales of undecorated tees . capital expenditures were $ 3.0 million during the transition period . these expenditures primarily related to our manufacturing expansion , which includes new equipment in our textile operations . depreciation and amortization , including non-cash compensation , was $ 2.5 million for the transition period . total debt at september 28 , 2013 , was $ 134.7 million compared to $ 102.6 million a year ago . the increase is primarily due to the acquisition of salt life . liquidity and capital resources credit facility and other financial obligations on may 27 , 2011 , delta apparel , soffe ( successor by merger to tcx , llc ) , junkfood , to the game and art gun entered into a fourth amended and restated loan and security agreement ( the โ amended loan agreement โ ) with the financial institutions named in the amended loan agreement as lenders , wells fargo bank , national association , as administrative agent , bank of america , n.a. , as syndication agent , wells fargo capital finance , llc , as sole lead arranger , and wells fargo capital finance , llc and merrill lynch , pierce , fenner & smith incorporated , as joint bookrunners . pursuant to the amended loan agreement , the line of credit under our u.s. revolving credit facility is $ 145 million ( subject to borrowing base limitations ) , and matures on may 27 , 2017. provided that no event of default exists , we have the option to increase the maximum credit available under the facility to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the agent 's ability to secure additional commitments and customary closing conditions .
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results of operations overview while our products performed well at retail this year , continuing sluggishness in the economy and an unusually harsh winter had a negative impact on the entire apparel industry . the lingering effects of management changes and related issues at several of our large customers presented additional challenges as well . net sales for the fiscal year ended september 27 , 2014 , were $ 452.9 million versus $ 483.0 million in the prior twelve months . gross margins declined 280 basis points in fiscal year 2014. this decline was driven from a tougher retail environment with pressures on pricing as well as higher input costs that were not passed along in higher prices . in our fiscal fourth quarter , we initiated certain strategic initiatives to improve net profitability . we streamlined our administrative workforce and , with minor exceptions , completed the planned headcount reductions , effectively delayering our management structure and streamlining decision-making and information flow , as well as reducing duplicative and excess fixed cost . we also began a comprehensive rationalization analysis of our manufacturing operations , product lines and sales channels intended to refocus our capital and other resources on the areas we believe are strategic to our business . we continue to maintain a sharp focus on lowering our product cost and improving our supply chain , while staying aligned with the needs of our customers . we have moved certain production into our lower-cost facilities and anticipate further efforts of this nature as we progress through fiscal year 2015. we are currently in the process of implementing new information systems that should also further streamline our operations and better support our customer needs . during the fourth quarter of fiscal year 2014 , we recorded a total of $ 4.0 million in expense associated with the strategic initiatives .
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story_separator_special_tag times , serif '' > our month-over-month asp for regular cmp was mostly stable at approximately $ 370/tonne in both 2014 and 2013. the asp for regular cmp for 2014 was $ 363/tonne , representing $ 10 , or 2.68 % , decrease compared to $ 373/tonne for 2013. we believe that the decrease was a result of the slowdown of china 's economic growth starting in the end of 2011 and an over-supply in the chinese paper industry . in the fourth quarter of 2014 , asp for regular cmp recovered to $ 370/tonne from $ 355/tonne , representing an increase of $ 15 , or 4.23 % . we consider this recovery in regular cmp asp as a sign for the lifting of the downward pressure in the chinese packaging paper industry . the asp for light-weight cmp was $ 369/tonne for the period from may through the end of 2014 , slightly higher than the asp of $ 363/tonne for the regular cmp . as described under the heading โ industry consolidation โ in โ business โ section , the government has been requiring outdated paper facilities to close since 2010 and is expected to continue to strictly reinforce the mandatory closure of outdated capacity in the next few years . as a result , we estimate that the average selling prices for corrugating medium paper and other packaging paper will remain relatively stable in 2015 as a result of elimination of outdated paper capacities and the paper industry will witness increased competition and higher standards for environmental protection measures . we launched the pm6 production line in december 2011 and have been improving its output capacity in the past few years . the pm6 production line has a designated capacity of 360,000 tonnes/year . the utilization rates for 2014 and 2013 were 65.81 % and 60.32 % , respectively , representing an increase of 5.49 % . we produced and sold an additional 19,770 tonnes of regular cmp with the pm6 production line in 2014 than in 2013. we expect to see an increased utilization rate in 2015. quantities of sold cmp that was produced by the pm6 production line from january 2013 to december 2014 are as follows : offset printing paper revenue from offset printing paper amounted to $ 37,563,949 ( 28.02 % of total offset printing paper and corrugating medium paper revenue ) for the year ended december 31 , 2014 , which represents a decrease of $ 2,287,658 , or 5.74 % , from $ 39,851,607 in 2013. we sold 54,774 tonnes of offset printing paper in the year ended december 31 , 2014 compared to 58,609 tonnes in 2013 , a decrease of 3,835 tonnes , or 6.54 % . the decline in quantities produced and sold in 2014 was mainly caused by the mandatory suspension of production during the apec summit from october 30 through november 12 , 2014. in the first nine months of 2014 , we sold 42,664 tonnes of offset printing paper compared to 43,140 tonnes for the same period in 2013 , a slight decrease of 476 tonnes , or 1.10 % ; in the last three months of 2014 , due to the discussed production suspension , we sold 12,110 tonnes of offset printing paper compared to 15,469 tonnes for the same period in 2013 , a decrease of 3,359 tonnes , or 21.71 % . the asp for offset printing paper saw a marginal increase of $ 6/tonne , or 0.88 % , from $ 680/tonne in 2013 to $ 686/tonne in 2014. we estimate that the regional market of offset printing paper will be relatively stable and the asp will not experience a significant change in 2015 . 29 revenue of digital photo paper revenue generated from selling digital photo paper was $ 2,981,084 ( 2.18 % of total revenue ) for the year ended december 31 , 2014 , a decrease of $ 1,988,913 , or 40.02 % , from $ 4,969,997 ( 3.95 % of total revenue ) for the year ended december 31 , 2013. the quantity of digital photo paper sold was 763 tonnes for the year ended december 31 , 2014 , a decrease of 521 tonnes , or 40.58 % , from 1,284 tonnes for the year ended december 31 , 2013. when comparing to the year ended december 31 , 2013 , the asp of our digital photo paper in 2014 slightly increased from $ 3,871/tonne to $ 3,907/tonne , representing a year-over-year change of 0.93 % . the significant decrease in revenue was due to our shutting down production for the relocation of our digital photo paper production facilities as mandated by the local county government . in september , 2014 , we disassembled our digital photo coating production lines , pm4 and pm5 , and began to move them to a new workshop that we built across the street from our main production base , xushui paper mill . we expect to resume our digital photo paper production in the second half of 2015. changes in revenue and quantities sold of our digital photo paper for the year ended december 31 , 2014 and 2013 are summarized as follows : replace_table_token_7_th in 2014 , we produced ( and expect to product again once our production lines are assembled at the new location ) glossy and semi-matte photo paper in various weights ( from 120g/m 2 to 260g/m 2 ) . story_separator_special_tag as the average cost per tonne of coal went down from $ 98.50 ( rmb610 ) in 2013 to $ 82.30 ( rmb506 ) in 2014 , coal only accounted for approximately 6 % of total sales in 2014. the monthly energy cost ( electricity and coal ) as a percentage of total monthly sales of our main paper products for the 24 months ended december 31 , 2014 are summarized as follows : gross profit gross profit for the year ended december 31 , 2014 was $ 22,778,148 ( 16.62 % of total revenue ) , representing a decrease of $ 547,451 , or 2.35 % from the gross profit of $ 23,325,599 ( 18.55 % of total revenue ) for the year ended december 31 , 2013. this was mainly caused by the temporary suspension of production during the apec summit and the relocation of our digital photo paper production line , as discussed in more details below . corrugating medium paper and offset printing paper gross profit for offset printing paper and corrugating medium paper for the year ended december 31 , 2014 was $ 22,249,782 , a decrease of $ 68,958 or 0.31 % , from the gross profit of $ 22,318,740 for the year ended december 31 , 2013 , despite the addition of a gross profit of $ 2,838,940 from light-weight cmp in 2014. the decrease was mainly caused by ( 1 ) the decrease in gross profit of $ 1,585,697 in the fourth quarter of 2014 , as a result of the suspension of production during the apec summit from october 30 , 2014 through november 12 , 2014 , and ( 2 ) the increase in the cost of sales of 13.60 % , as compared to the increase in the total sales of offset printing paper and corrugating medium paper of 11.03 % in 2014. the overall gross profit margin for offset printing paper and corrugating medium paper decreased by 1.88 % , from 18.48 % for the year ended december 31 , 2013 to 16.60 % for the year ended december 31 , 2014. gross profit margin for regular cmp for the year ended december 31 , 2014 was 14.42 % ( 4 % lower ) compared to gross profit margin of 18.42 % for the year ended december 31 , 2013. such decrease was primarily the result of a 2.68 % decline in the regular cmp asp and the increase in the electricity cost . the ration of electricity cost to sales was 8.66 % in year 2014 , as compared 6.25 % in year 2013. the gross profit margin for light-weight cmp for the year ended december 31 , 2014 was 27.24 % . our offset printing paper has seen a moderate 5.74 % decrease in revenue for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 , coupled with a 5.75 % year-over-year drop in offset printing paper cost of sales from 2013 to 2014. gross profit margin for offset printing paper was 18.63 % for the year ended december 31 , 2014 , an increase of 0.01 % as compared to 18.62 % for the year ended december 31 , 2013 . 33 monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2014 are as follows : digital photo paper gross profit from the sales of digital photo paper for the year ended december 31 , 2014 amounted to $ 528,366 ( a gross margin of 17.72 % ) , compared with $ 1,006,860 ( a gross margin of 20.26 % ) for the year ended december 31 , 2013. the substantial decrease in gross profit of $ 478,494 , or 47.52 % , was mainly caused by the mandatory relocation of our digital photo paper production facilities . as explained above , we started the relocation of our pm4 and pm5 production lines in september 2014 , and no digital photo paper was produced in the fourth quarter of 2014. the decrease in gross profit margin from 20.26 % for 2013 to 17.72 % for 2014 , a decrease of 2.54 % , was the result of an increase in the cost of sales per tonne resulting from the fixed cost of plant and machinery depreciation allocated to the declining quantities of digital photo paper produced starting in the second half of 2014 , partially offset by a decrease in cost of sale attributable to lower purchase price of the base paper in 2014 than in 2013. we expect to resume the digital photo paper production in the second half of 2015. selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2014 were $ 4,859,215 , an increase of $ 292,136 , or 6.40 % , from 4,567,079 for the year ended december 31 , 2013. the increase was mainly due to , among other things , the following changes between the year ended december 31 , 2014 and the year ended december 31 , 2013 : ( a ) an increase of $ 189,542 in salaries and wages mainly for new management and employees to prepare for the tissue paper operations at the wei county industrial park , which was offset by the decrease of $ 790,020 share-based compensation ; ( b ) an increase of $ 99,190 in facility lease payable to hebei fangsheng ; ( c ) an increase of $ 252,159 in depreciation because the fourth quarter depreciation for digital photo paper production lines ( which were disassembled in september 2014 ) was charged to selling , general and administrative expenses in the fourth quarter of 2014 , as opposed to be allocated to cost of sales for digital photo paper in the fourth quarter of 2013 ; ( d ) an increase of $ 258,675 in depreciation for the property , plant and equipment in our wei county industrial park ; and ( e ) additional $ 246,138 in sales commissions to sales personnel in
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results of operations revenue for the year ended december 31 , 2014 was $ 137,041,447 , an increase of $ 11,323,817 , or 9.01 % , from $ 125,717,630 for the previous year . revenue of offset printing paper and corrugating medium paper revenue from sales of offset printing paper and corrugating medium paper ( โ cmp โ ) for the year ended december 31 , 2014 was $ 134,060,363 , an increase of $ 13,312,730 , or 11.03 % , from $ 120,747,633 for the year ended december 31 , 2013. the increase was primarily attributable to the launch of our light-weight cmp produced by our newly renovated pm1 production line in may 2014 , which was under renovation throughout 2013 and did not produce any revenue in 2013. light-weight cmp weighs 40 gm to 80 gm , compared regular cmp that weighs 110 gm . light-weight cmp is sold to our packaging company customers for various packaging applications . the increase in revenue from sales of offset printing paper and corrugating medium paper was also contributed by the increase in sales of $ 5,180,004 or 6.40 % , of regular cmp in 2014 compared to 2013. in 2014 , we did not experience any interruption in production except for the two-week mandatory suspension of production during the apec summit from october 30 , 2014 through november 12 , 2014 , while in 2013 we had significant interruption in production due to a comprehensive environmental protection inspection by the local xushui county government , which was part of a county-wide initiative .
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40,375 ) ( 9,750 ) long-term debt , net of unamortized discount and excluding current portion $ 597,314 $ 710,357 64 b & g foods , inc. and subsidiaries notes to consolidated financial statements ( continued ) december 29 , 2012 , december 31 , 2011 and january 1 , 2011 ( 6 ) long-term debt ( continued ) senior secured credit agreement . on december 12 , 2012 , we amended and restated our credit agreement story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under item 1a , `` risk factors '' and under the heading `` forward-looking statements '' below and elsewhere in this report . the following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . general we manufacture , sell and distribute a diverse portfolio of branded , high quality , shelf-stable foods and household products , many of which have leading regional or national market shares . in general , we position our branded products to appeal to the consumer desiring a high quality and reasonably priced product . we complement our branded product retail sales with institutional and food service sales and limited private label sales . our company has been built upon a successful track record of both organic and acquisition-related growth . our goal is to continue to increase sales , profitability and cash flows through organic growth , strategic acquisitions and new product development . we intend to implement our growth strategy through the following initiatives : expanding our brand portfolio with disciplined acquisitions of complementary branded businesses , continuing to develop new products and delivering them to market quickly , leveraging our multiple channel sales and distribution system and continuing to focus on higher growth customers and distribution channels . since 1996 , we have successfully acquired and integrated more than 25 brands into our company . most recently , on october 31 , 2012 , we completed the acquisition of the new york style , old london , jj flats and devonsheer brands from chipita america , inc. , which we refer to in this report as the `` new york style and old london acquisition . '' on november 30 , 2011 , we completed the acquisition of the mrs. dash , sugar twin , baker 's joy , molly mcbutter , static guard and kleen guard brands from conopco , inc. dba unilever united states , inc. , which we refer to in this report as the `` culver specialty brands acquisition . '' we completed the acquisition of the don pepino and sclafani brands from violet packing llc on november 18 , 2010 , which we refer to in this report as the `` don pepino acquisition . '' each of these three recent acquisitions has been accounted for using the acquisition method of accounting and , accordingly , the assets acquired and results of operations of the acquired businesses are included in our consolidated financial statements from the respective dates of acquisition . these acquisitions and the application of the acquisition method of accounting affect comparability between periods . we are subject to a number of challenges that may adversely affect our businesses . these challenges , which are discussed above under item 1a , `` risk factors '' and below under the heading `` forward-looking statements '' include : fluctuations in commodity prices and production and distribution costs : we purchase raw materials , including agricultural products , meat , poultry , ingredients and packaging materials from growers , commodity processors , other food companies and packaging suppliers located in u.s. and foreign locations . raw materials and other input costs , such as fuel and transportation , are subject to fluctuations in price attributable to a number of factors . fluctuations in commodity prices can lead to retail price volatility and intensive price competition , and can influence consumer and trade buying patterns . the cost of raw materials , fuel , labor , distribution and other costs related to our operations can increase from time to time significantly and unexpectedly . 29 we attempt to manage cost inflation risks by locking in prices through short-term supply contracts and advance commodities purchase agreements and by implementing cost saving measures . we also attempt to offset rising input costs by raising sales prices to our customers . however , increases in the prices we charge our customers may lag behind rising input costs . competitive pressures also may limit our ability to quickly raise prices in response to rising costs . we expect minimal cost decreases for raw materials in the market place during 2013 and are currently locked into our supply and prices for a majority of our most significant commodities ( excluding , among others , maple syrup ) through 2013 at a cost decrease of approximately $ 1.0 million . during fiscal 2012 , we had cost increases ( net of cost savings ) for raw materials of less than 2 % of cost of goods sold , which were more than offset by our sales price increases . to the extent we are unable to avoid or offset present and future cost increases by locking in our costs , implementing cost saving measures or increasing prices to our customers , our operating results could be materially adversely affected . in addition , should input costs begin to further decline , customers may look for price reductions in situations where we have locked into purchases at higher costs . consolidation in the retail trade and consequent inventory reductions : as the retail grocery trade continues to consolidate and our retail customers grow larger and become more sophisticated , our retail customers may demand lower pricing and increased promotional programs . story_separator_special_tag however , materially 31 different , assumptions regarding the future performance of our businesses could result in significant impairment losses . in addition , any significant decline in our market capitalization , even if due to macroeconomic factors , could put pressure on the carrying value of our goodwill . a determination that all or a portion of our goodwill or indefinite-lived intangible assets are impaired , although a non-cash charge to operations , could have a material adverse effect on our business , consolidated financial condition and results of operations . income tax expense estimates and policies as part of the income tax provision process of preparing our consolidated financial statements , we are required to estimate our income taxes . this process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . we then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely , we establish a valuation allowance . further , to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period , we include such charge in our tax provision , or reduce our tax benefits in our consolidated statements of operations . we use our judgment to determine our provision or benefit for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . there are various factors that may cause these tax assumptions to change in the near term , and we may have to record a valuation allowance against our deferred tax assets . we can not predict whether future u.s. federal and state income tax laws and regulations might be passed that could have a material effect on our results of operations . we assess the impact of significant changes to the u.s. federal and state income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new regulations and legislation are enacted . we recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that such tax position will be sustained based upon its technical merits . share-based compensation expense performance share long-term incentive awards ( ltias ) granted to our executive officers and certain other members of senior management entitle each participant to earn shares of common stock upon the attainment of certain performance goals over the applicable performance period . the recognition of compensation expense for the ltias is initially based on the probable outcome of the performance goals based on the fair value of the award on the date of grant and the anticipated number of shares to be awarded on a straight-line basis over the applicable performance period . the fair value of the awards on the date of grant is determined based upon the closing price of our common stock on the applicable measurement dates ( i.e. , the deemed grant dates for accounting purposes ) reduced by the present value of expected dividends using the risk-free interest-rate as the award holders are not entitled to dividends or dividend equivalents during the vesting period . our company 's performance against the defined performance goals are re-evaluated on a quarterly basis throughout the applicable performance period and the recognition of compensation expense is adjusted for subsequent changes in the estimated or actual outcome . the cumulative effect of a change in the estimated number of shares of common stock to be issued in respect of performance share awards is recognized as an adjustment to earnings in the period of the revision . pension expense we have defined benefit pension plans covering substantially all of our employees . our funding policy is to contribute annually not less than the amount recommended by our actuaries . the funded status of our pension plans is dependent upon many factors , including returns on invested assets and 32 the level of certain market interest rates . we review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans , which exceed the amounts required by statute . during fiscal 2012 , we made total pension contributions to our pension plans of $ 4.8 million compared with $ 4.2 million in fiscal 2011. changes in interest rates and the market value of the securities held by the plans could materially change , positively or negatively , the underfunded status of the plans and affect the level of pension expense and required contributions in fiscal 2013 and beyond . our discount rate assumption for our three defined benefit plans changed from 4.34 % at december 31 , 2011 to 3.91 % at december 29 , 2012. while we do not presently anticipate a change in our fiscal 2013 assumptions , as a sensitivity measure , a 0.25 % decline or increase in our discount rate would increase or decrease our pension expense by approximately $ 0.3 million . similarly , a 0.25 % decrease or increase in the expected return on pension plan assets would increase or decrease our pension expense by approximately $ 0.1 million . we expect to make $ 4.8 million of defined benefit pension plan contributions during fiscal 2013. acquisition accounting our consolidated financial statements and results of operations include an acquired business 's operations after the completion of the acquisition . we account for acquired businesses using the acquisition method of accounting , which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values . any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill . transaction costs are expensed as incurred .
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results of operations the following table sets forth the percentages of net sales represented by selected items reflected in our consolidated statements of operations . the comparisons of financial results are not necessarily indicative of future results : replace_table_token_8_th 33 as used in this section the terms listed below have the following meanings : net sales . our net sales represents gross sales of products shipped to customers plus amounts charged to customers for shipping and handling , less cash discounts , coupon redemptions , slotting fees and trade promotional spending . gross profit . our gross profit is equal to our net sales less cost of goods sold . the primary components of our cost of goods sold are cost of internally manufactured products , purchases of finished goods from co-packers plus freight costs to our distribution centers and to our customers . selling , general and administrative expenses . our selling , general and administrative expenses include costs related to selling our products , as well as all other general and administrative expenses . some of these costs include administrative , marketing and internal sales force employee compensation and benefits costs , consumer advertising programs , brokerage costs , warehouse facility and distribution costs , information technology and communication costs , office rent , utilities , supplies , professional services and other general corporate expenses . in fiscal 2012 , selling , general and administrative expenses include $ 1.2 million of transaction costs for the new york style and old london acquisition . in fiscal 2011 , selling , general and administrative expenses include $ 1.4 million of transaction costs for the culver specialty brands acquisition . amortization expense . amortization expense includes the amortization expense associated with customer relationship and other intangibles . net interest expense .
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these options will vest over four years ( according to the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with , and is qualified in its entirety by , our consolidated financial statements ( including notes to the consolidated financial statements ) and the other consolidated financial information appearing elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . actual results and timing of events could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we provide a range of software products for mobile video entertainment , personalization and mobile social applications . our comprehensive software platforms include applications that allow users to : ( i ) create , download and share mobile video entertainment content in the form of video ringtones for mobile phones , ( ii ) create social picture ringtone and ringback content in the form of animated slideshows sourced from friends ' social networks , ( iii ) create remixed video clips from artists and branded content , and ( iv ) utilize fan loyalty mobile applications for contestant based reality tv shows . we believe that our services represent the next stage in the evolution of the mobile content and mobile social applications market . we anticipate that the mobile content and service market will begin to migrate from standard audio ringtones and content to high-quality video services , with social networking capability and integration with web systems . we also believe that social network information and updates will be shared regularly when friends regularly communicate by voice and by text . our video ringtone solutions and other mobile social and video applications , which encompass a suite of mobile and pc-based tools , enable users to create , download and share video and other social content with ease as part of the normal communication process , and provide our business partners with a consumer-friendly and easy-to-integrate monetization platform . we are a development stage company . from inception through december 31 , 2011 , we have raised approximately $ 31.8 million . these amounts have been used to finance our operations , as until now , we have not yet generated any significant revenues . from inception through december 31 , 2011 , we recorded losses of $ 37.5 million and net cash outflow from operations of $ 29.3 million . our average monthly cash burn rate from operations for the year ended december 31 , 2011 , was approximately $ 0.45 million . in july 2011 , we raised an aggregate amount of $ 2.5 million through the issuance of convertible notes in a private placement . on december 1 , 2011 , we raised additional $ 0.85 million through the issuance of additional 817,303 shares of common stock ( โ december 2011 financing โ ) . pursuant to the december 2011 financing , all convertible notes ( and accrued interest ) were converted into 2,671,026 shares of common stock . in february 2012 , we entered into agreements with holders ( the โ holders โ ) of certain of our outstanding special bridge and conversion warrants , pursuant to which the holders exercised warrants to purchase 3,828,993 shares of our common stock for aggregate proceeds of $ 3.6 million . refer also to note 17 to the accompanying financial statements . subsequent to year end , on march 12 , 2012 , we entered into an agreement and plan of merger ( the โ merger agreement โ ) with vip merger sub , inc. , a delaware corporation and our wholly-owned subsidiary ( โ merger sub โ ) , and innovate/protect , inc. , a delaware corporation and an intellectual property firm founded in 2011 whose wholly-owned subsidiary , i/p engine , holds eight patents that were acquired from lycos inc. ( โ innovate/protect โ ) , pursuant to which innovate/protect will merge with and into merger sub , with merger sub being the surviving corporation ( the โ surviving corporation โ ) through an exchange of capital stock of innovate/protect for capital stock of vringo ( the โ merger โ ) . under the terms of the merger agreement , upon completion of the merger , ( i ) each share of then-outstanding common stock of innovate/protect , par value $ 0.0001 per share ( โ innovate/protect common stock โ ) ( other than shares held by us , innovate/protect or any of our and their subsidiaries , which will be cancelled at the completion of the merger ) will be automatically converted into the right to receive the number of shares of our common stock , par value $ 0.01 per share ( โ vringo common stock โ ) equal to the common stock exchange ratio ( as defined below ) and ( ii ) each share of then-outstanding series a convertible preferred stock of innovate/protect , par value $ 0.0001 per share ( total 6,968 shares outstanding ) ( โ innovate/protect series a stock โ and together with the innovate/protect common stock , โ innovate/protect capital stock โ ) ( other than shares held by us , innovate/protect or any of our and their subsidiaries , which will be cancelled at the completion of the merger ) will be automatically converted into the right to receive the same number of shares of vringo series a convertible preferred stock ( โ vringo preferred stock โ ) , which 6,968 shares shall be convertible into an aggregate of 21,026,637 shares of vringo common stock . story_separator_special_tag marketing expenses marketing expenses include the salary of all business development and marketing personnel , travel expenses relating to business development activity and trade shows , as well as public relations , advertising , ongoing customer relations and customer acquisition expenses . as we increase our sales , certain commissions to agents will affect marketing expenses . general and administrative expenses general and administrative expenses primarily include the salary of our finance and administrative personnel , rental costs , legal and accounting fees , insurance , telephone and other office expenses including depreciation and amortization . non-operating income ( expenses ) non-operating income ( expenses ) includes transaction gains ( losses ) from foreign exchange rate differences , interest on deposits , bank charges , interest and discount amortization expenses on our venture loan and convertible notes . in addition , non-operating income ( expenses ) includes a gain on restructuring of venture loan in light of the settlement agreement signed june 8 , 2011. as well as fair value adjustments of derivative liabilities on account of the special bridge warrants and the conversion warrants , which are highly influenced by our stock price at the period end ( revaluation date ) . income taxes our effective tax rate differs from the statutory federal rate primarily due to differences between income and expense recognition prescribed by income tax regulations and generally accepted accounting principles . we utilize different methods and useful lives for depreciating and amortizing property and equipment and different methods and timing for certain expenses . furthermore , permanent differences arise from certain income and expense items recorded for financial reporting purposes but not recognizable for income tax purposes . in addition , our income tax expense has been adjusted for the effect of foreign income from our wholly owned subsidiary . at december 31 , 2011 , our deferred tax assets generated from our u.s. activities were entirely offset by a valuation allowance because realization depends on generating future taxable income , which , in our estimation , is not more likely than not to be generated . the deferred tax assets and liabilities generated from our subsidiary 's operations are not offset by an allowance , as in our estimation , they are more likely than not to be realized . our subsidiary generates net taxable income from services it provides to us . the subsidiary charges us for research , development , certain management and other services provided to us , plus a profit margin on such costs , which is currently 8 % . on december 5 , 2011 , the knesset ( israel 's parliament ) approved the law to change the tax burden ( legislative amendments ) - 2011. according to the new law , the corporate tax rate will be 25 % starting in 2012. however , the subsidiary is a `` beneficiary enterprise '' as defined in amendment no . 60 to the israeli law for the encouragement of capital investment , 1959 , which means that income arising from its approved research and development activities is subject to zero percent tax for a period of two years and a reduced tax rate for the subsequent five years . the subsidiary elected to receive the zero percent tax benefits for the fiscal years of 2007-2008. in january 2011 , new legislation amending the investment law was enacted . according to the amendment , the uniform tax rate applicable to the zone where the production facilities of the subsidiary are located would be 15 % in 2011 and 2012 , 12.5 % in 2013 and 2014 , and 12 % in 2015 and thereafter . under the transitory provisions of the newly legislated amendment , the subsidiary irrevocably implemented the new law while waiving benefits provided under the current law . 16 story_separator_special_tag grow at a slower rate than our corresponding revenues and marketing expenses . we also expect that our compensation costs will increase due to the recording of the expense related to the options granted to management and employees . marketing replace_table_token_6_th marketing expenses increased slightly from $ 2,183 thousand to $ 2,193 thousand ( 0 % ) during the year ended december 31 , 2011 , compared to the year ended december 31 , 2010. the main changes were higher advertising costs , mainly in connection with facetones launch ( $ 498 thousand in 2011 compared to $ 279 thousand in 2010 ) , offset by a decrease in consulting costs mainly related to the cost saving plan implemented by us in early 2011 ( $ 195 thousand in 2011 compared to $ 36 thousand in 2010 ) . during the year ended december 31 , 2010 , marketing expenses increased by $ 431 thousand ( 25 % ) , to $ 2,183 thousand , from $ 1,752 thousand in the year ended december 31 , 2009. the growth in our marketing expenses for the year ended december 31 , 2010 , was in part due to the hiring , in april 2010 , of mr. perlman , our current ceo , whose efforts are focused on marketing and business development . in addition , the growth relates to the vesting of 2010 options grants for employees , thereby increasing the respective compensation expense . furthermore , we had an increase in public relations and advertising costs in connection with new commercial launches in 2010. from inception through december 31 , 2011 , marketing expenses amounted to approximately $ 11.2 million . of this amount , approximately $ 5.0 million was attributed to salaries , $ 1.0 million was attributed to share based payments and related expenses , $ 2.2 million was attributed to travel and trade shows , $ 1.6 million was attributed to sub-contracting and consulting services , $ 1.3 million was attributed to public relations services and customer acquisition expenses and $ 0.1 million was attributed to overhead expenses . a significant portion of our marketing activity relates to the launching of services with our global partners and building a pipeline for further agreements .
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results of operations year ended december 31 , 2011 , 2010 and the development stage period ( cumulative from inception through december 31 , 2011 ) revenue replace_table_token_3_th during the year ended december 31 , 2011 , we recorded revenues of $ 718 thousand , which represents an increase of $ 507 thousand ( or 240 % ) from revenues recorded for the year ended december 31 , 2010. the increase was mainly due to increased video ringtone subscription revenue in malaysia ( $ 312 thousand in 2011 , compared to the $ 94 thousand in 2010 ) , and the united arab emirates ( $ 90 thousand in 2011 , compared to the $ 54 thousand in 2010 ) , development of facetones ( $ 75 thousand recognized in 2011 ) , development of fan loyalty application ( $ 80 thousand recognized 2011 ) , video remix platform ( $ 30 thousand recognized in 2011 ) . in the first quarter of 2012 , the number of subscribers in malaysia was reduced due to system updates of recycled numbers from the regulated carrier database . we do not expect this change to have a material effect on our future revenue . at the end of 2009 we commenced monetization of our subscription service by launching with carriers primarily in malaysia and armenia . as a result , the increase in revenue in 2010 , in the total amount of $ 191 thousand , was mainly related to revenues from those revenue-sharing agreements . in malaysia , we recognized $ 94 thousand ( compared to $ 2 thousand in 2009 ) . in armenia we recognized $ 35 thousand ( compared to $ 17 thousand in 2009 ) . in addition , we recorded $ 54 thousand from subscription service launched in 2010 in the united arab emirates .
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part ii i item 10. directors , executive officers and corporate governanc e the information required by this item is incorporated herein by reference to the material under the captions โ board of directors , executive officers and corporate story_separator_special_tag s the following discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . the following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and all other nonโhistorical statements in this discussion are forwardโlooking statements and are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those discussed in or implied by forwardโlooking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly in the section entitled โ risk factors. โ overview company overview zynerba pharmaceuticals is the leader in pharmaceutically-produced transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders . we are committed to improving the lives of patients and their families living with severe , chronic health conditions including fragile x syndrome , or fxs , autism spectrum disorder , or asd , 22q11.2 deletion syndrome , or 22q , and a heterogeneous group of rare and ultra-rare epilepsies known as developmental and epileptic encephalopathies , or dee . we are currently evaluating zygel tm , a patent-protected transdermal cannabidiol , or cbd , gel for the treatment of fxs , dee and asd . prior to february 2019 , zygel was referred to as zyn002 . in 2017 , we completed three phase 2 clinical trials for zygel and two of those studies have open-label extensions that are ongoing . in april 2018 , we initiated an open-label phase 2 clinical trial evaluating zygel in dee in children and adolescent patients with dee , and in july 2018 , we initiated what we believe will be a pivotal phase 2/3 clinical trial evaluating zygel in children and adolescent patients with fxs . in december 2018 , we announced that we will postpone the initiation of a second phase 2 clinical trial evaluating zygel in adult refractory epilepsy and our intention to evaluate zygel in asd and 22q . in march 2019 , we initiated an open-label phase 2 clinical trial evaluating zygel in children and adolescent patients with asd . cannabinoids are a class of compounds derived from cannabis plants . the two primary cannabinoids contained in cannabis are cbd and thc . clinical and preclinical data suggest that cbd has positive effects on treating behavioral symptoms of fxs , asd , 22q and seizures in patients with epilepsy . zygel is the first and only pharmaceutically-produced cbd formulated as a permeationโenhanced gel for transdermal delivery , and the formulation is patent protected through 2030. an additional patent , directed to methods of treating fxs with synthetic or purified cbd , will expire in 2038. cbd is the primary nonโeuphoric component of cannabis . in preclinical animal studies , zygel 's permeation enhancer increased delivery of cbd through the layers of the skin and into the circulatory system . these preclinical studies suggest increased bioavailability , consistent plasma levels and the avoidance of firstโpass liver metabolism of cbd when delivered transdermally . in addition , an in vitro study published in cannabis and cannabinoid research in april 2016 demonstrated that cbd is degraded to thc ( the major psychoactive cannabinoid in cannabis ) in an acidic environment such as the stomach . as a result , we believe such degradation may lead to increased psychoactive effects if cbd is delivered orally and may be avoided with the transdermal delivery of zygel , which maintains cbd in a neutral ph . zygel , which is being developed as a clear gel with once- or twice-daily dosing , is targeting treatment of behavioral symptoms of fxs , asd and 22q and reduction in seizures in patients with dee . we have been granted orphan drug designation from the fda for the use of cbd for the treatment of fxs . in our phase 1 program , zygel was demonstrated to be safe and well tolerated , provided a favorable cbd pharmacokinetic profile , and no thc was detected in plasma or urine . as of june 2018 , the zygel safety database across all clinical studies conducted by us includes data from 570 volunteers and patients . across these clinical studies , zygel has been well tolerated and consistent with previously reported data . 78 in april 2018 , we initiated the phase 2 believe 1 ( open label study to assess the safety and efficacy of zygel administered as a transdermal gel to children and adolescents with developmental and epileptic encephalopathy ) clinical trial , a six-month open label multi-dose clinical trial designed to evaluate the efficacy and safety of zygel in children and adolescents ( three to 17 years ) with dee as classified by the international league against epilepsy ( ilae ) ( scheffer et al . 2017 ) . enrollment in this study was complete in december 2018 and 48 patients with confirmed dee are being dosed in the clinical trial , 27 % of whom have either dravet or lennox-gastaut syndrome . enrolled patients will receive weight-based initial doses of 250 mg daily or 500 mg daily and during the maintenance phase patients may receive up to 1000 mg daily of zygel . the primary endpoint is change in seizure frequency from baseline . story_separator_special_tag we expect research and development expenses to continue to increase in 2019 as compared to 2018 as we continue our clinical trials . these expenditures are subject to numerous uncertainties regarding timing and cost to completion . completion of our preclinical development and 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 . the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others : ยท the number of sites included in the clinical trials ; ยท the length of time required to enroll suitable patients ; ยท the size of patient populations participating in the clinical trials ; ยท the duration of patient followโups ; ยท the development stage of the product candidates ; and ยท the efficacy and safety profile of the product candidates . due to the early stages of our research and development , we are unable to determine the duration or completion costs of our development of our product candidates . as a result of the difficulties of forecasting research and development costs of our product candidates as well as the other uncertainties discussed above , we are unable to determine when and to what extent we will generate revenue from the commercialization and sale of an approved product candidate . general and administrative expenses โ general and administrative expenses consist primarily of salaries , benefits and other related costs , including stockโbased compensation , for personnel serving in our executive , finance , legal , human resource , investor relations and commercial functions . our general and administrative expenses also include facility and related costs not included in research and development expenses , professional fees for legal services , including patentโrelated expenses , consulting , tax and accounting services , insurance , market research and general corporate 81 expenses . we expect that our general and administrative expenses will increase for the next several years as we increase our headcount with the continued development and potential commercialization of our product candidates . interest income โ interest income primarily consists of interest earned on balances maintained in our money market bank account . foreign exchange ( loss ) gain โ foreign exchange ( loss ) gain relates to the effect of exchange rates on transactions incurred by our australian subsidiary . income taxes โ the 2017 tax cuts and jobs act , which became effective in 2018 , resulted in significant changes to the u.s. corporate income tax system . these changes included a federal statutory rate reduction from 34 % to 21 % , the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation . the 2017 tax cuts and jobs act also transitioned international taxation from a worldwide system to a modified territorial system and included base erosion prevention measures on non-u.s. earnings , which has the effect of subjecting certain earnings of our foreign subsidiaries to u.s. taxation as global intangible low-taxed income ( gilti ) . the 2017 tax cuts and jobs act also included a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries ' previously untaxed foreign earnings . we recognized the provisional tax impacts related to the revaluation of the deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended december 31 , 2017. in regard to the change in the federal income tax rate as it related to our deferred tax assets and liabilities as of december 31 , 2017 , we decreased our related deferred tax assets by $ 8.7 million along with a corresponding offset against the valuation allowance for these deferred tax assets . we completed the accounting for the impacts of the 2017 tax cuts and jobs act in the fourth quarter of 2018 , which did not result in any material adjustments to the provisional estimates . as of december 31 , 2018 , we had $ 84.0 million of federal operating loss carryforwards and $ 2.3 million of research tax credit carryforwards available to offset future taxable income and income tax , respectively . these operating loss and research tax credit carryforwards will begin to expire in 2028 and 2027 , respectively . at december 31 , 2018 and 2017 , we concluded that a full valuation allowance is necessary for our deferred tax assets . the closing of our ipo in august 2015 , together with our follow-on equity offerings , private placements and other transactions that have occurred since our inception , may trigger , or may have already triggered , an โ ownership change โ pursuant to section 382 of the internal revenue code of 1986. if an ownership change is triggered , it will limit our ability to use some of our net operating loss carryforwards . in addition , since we will need to raise substantial additional funding to finance our operations , we may undergo further ownership changes in the future , which could further limit our ability to use net operating loss carryforwards . as a result , if we generate taxable income , our ability to use some of our net operating loss carryforwards to offset u.s. federal taxable income may be subject to limitations , which could result in increased future tax liability to us . additionally , u.s. tax laws limit the time during which these carryforwards may be applied against future taxes ; therefore , we may not be able to take full advantage of these carryforwards for federal income tax purposes . critical accounting policies and use of 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 .
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results of operations comparison of the years ended december 31 , 2018 and december 31 , 2017 replace_table_token_3_th revenue revenue in 2018 was related to services rendered for our zyn001 program in connection with grants received prior to 2015. grants received were recorded as deferred revenue and recognized as revenue as the designated preclinical study progressed and amounts were earned . research and development expenses research and development expenses increased by $ 4.4 million , or 19 % , to $ 27.2 million for the year ended december 31 , 2018 from $ 22.8 million for the year ended december 31 , 2017. the increase was primarily related to increased manufacturing and clinical trial costs related to our product candidates , lower amounts earned through the australian research and development tax incentive program and personnel costs , including stock-based compensation expense . these increases were partially offset by reductions in non-clinical trial costs . general and administrative expenses general and administrative expenses increased by $ 3.2 million , or 32 % , to $ 13.2 million for the year ended december 31 , 2018 from $ 10.0 million for the year ended december 31 , 2017. the increase was primarily related to increases in expenses associated with personnel costs , including stock-based compensation expense , and an increase in pre-commercialization expense for our product candidates . 83 other income ( expense ) during the years ended december 31 , 2018 and 2017 , we recognized $ 1.0 million and $ 0.5 million , respectively , in interest income . the increase in interest income was related to a higher average interest rate earned on our investments . during the years ended december 31 , 2018 and 2017 , we recognized a foreign currency loss of $ 0.5 million and a foreign currency gain of $ 0.3 million , respectively .
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the company recognizes tax-free income story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report . this discussion and analysis includes certain forward-looking statements that involve risks , uncertainties and assumptions . you should review the โ risk factors โ section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements . see โ cautionary note regarding forward-looking statements โ at the beginning of this report . overview first internet bancorp is a bank holding company that conducts its primary business activities through its wholly-owned subsidiary , first internet bank of indiana , an indiana chartered bank . first internet bank of indiana was the first state-chartered , fdic insured internet bank and commenced banking operations in 1999. first internet bancorp was incorporated under the laws of the state of indiana on september 15 , 2005. on march 21 , 2006 , we consummated a plan of exchange by which we acquired all of the outstanding shares of the bank . we offer a wide range of commercial , small business , consumer and municipal banking products and services . we conduct our consumer and small business deposit operations primarily through online channels on a nationwide basis and have no traditional branch offices . our residential mortgage products are offered nationwide primarily through an online direct-to-consumer platform and are supplemented with central indiana-based mortgage and construction lending . our consumer lending products are primarily originated on a nationwide basis over the internet as well as through relationships with dealerships and financing partners . our commercial banking products and services are delivered through a relationship banking model and include commercial real estate ( โ cre โ ) banking , commercial and industrial ( โ c & i โ ) banking and public finance . through our cre team , we offer single tenant lease financing on a nationwide basis in addition to traditional investor commercial real estate and construction loans primarily within central indiana and adjacent markets . to meet the needs of commercial borrowers and depositors located primarily in central indiana , phoenix , arizona and adjacent markets , our c & i banking team provides credit solutions such as lines of credit , term loans , owner-occupied commercial real estate loans and corporate credit cards as well as treasury management services . our public finance team , established in early 2017 , provides a range of public and municipal lending and leasing products to government entities on a nationwide basis . story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; '' > 3,325 273 3,598 417 275 692 securities โ non-taxable 1,562 ( 18 ) 1,544 258 ( 4 ) 254 other earning assets 264 41 305 ( 71 ) 183 112 total 17,589 ( 137 ) 17,452 10,228 4 10,232 interest expense interest-bearing deposits 5,290 1,808 7,098 1,390 ( 288 ) 1,102 other borrowed funds 705 713 1,418 1,571 ( 907 ) 664 total 5,995 2,521 8,516 2,961 ( 1,195 ) 1,766 increase ( decrease ) in net interest income $ 11,594 $ ( 2,658 ) $ 8,936 $ 7,267 $ 1,199 $ 8,466 2016 v. 2015 net interest income for the twelve months ended december 31 , 2016 was $ 39.7 million , an increase of $ 8.9 million , or 29.1 % , compared to $ 30.8 million for the twelve months ended december 31 , 2015 . the increase in net interest income was the result of a $ 17.5 million , or 42.1 % , increase in total interest income to $ 58.9 million for the twelve months ended december 31 , 2016 compared to $ 41.4 million for the twelve months ended december 31 , 2015 . the increase in total interest income was partially offset by an $ 8.5 million , or 79.6 % , increase in total interest expense to $ 19.2 million for the twelve months ended december 31 , 2016 compared to $ 10.7 million for the twelve months ended december 31 , 2015 . the increase in total interest income was due primarily to an increase in interest earned on loans resulting from an increase of $ 290.7 million , or 34.0 % , in the average balance of loans , including loans held-for-sale , as well as an increase in interest earned on securities resulting from an increase of $ 198.7 million , or 109.3 % , in the average balance of securities for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 . the increase in total interest income was also due to a 19 basis point ( โ bp โ ) increase in the yield earned on the securities portfolio , partially offset by a decline in the yield earned on loans , including loans held-for-sale , of 5 bps . the increase in total interest expense was driven primarily by an increase in interest expense related to interest-bearing deposits as a result of a $ 448.7 million , or 53.5 % , increase in the average balance of interest-bearing deposits for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 , and an increase of 19 bps in the cost of funds related to these deposits . interest expense related to other borrowed funds also contributed to the increase in total interest expense , due to a $ 43.7 million , or 31.3 % , increase in the average balance of other borrowed funds for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 , and an increase of 44 bps in the cost of other borrowed funds . story_separator_special_tag the increase of $ 6.2 million , or 24.4 % , compared to the twelve months ended december 31 , 2015 was primarily due to increases of $ 3.1 million in salaries and employee benefits , $ 0.9 million in premises and equipment expenses , $ 0.8 million in consulting and professional services and $ 0.5 million in deposit insurance premium expenses . the increase in salaries and employee benefits resulted from personnel growth and higher incentive compensation related to increased mortgage production . the increase in premises and equipment was primarily due to expenses associated with the company 's new headquarters location . the increase in consulting and professional fees was due to higher legal fees incurred in the normal course of business commensurate with the company 's growth and certain consulting projects that occurred during 2016. the increase in deposit insurance premium was due to the new methodology implemented by the fdic as of july 1 , 2016 , which places a heavier weighting on year-over-year asset growth used to determine the cost of fdic deposit insurance . 2015 v. 2014 noninterest expense for the twelve months ended december 31 , 2015 was $ 25.3 million , compared to $ 22.7 million for the twelve months ended december 31 , 2014 . the increase of $ 2.6 million , or 11.6 % , compared to the twelve months ended december 31 , 2014 was primarily due to increases of $ 1.9 million in salaries and employee benefits , $ 0.5 million in consulting and professional services and $ 0.3 million in marketing , advertising and promotion . the increase in salaries and employee benefits was attributable to increased headcount driven by the company 's continued growth , higher equity compensation expense , and increased short term incentive compensation . the increase in consulting and professional services was due primarily to higher legal fees incurred in the normal course of business commensurate with the company 's growth . the increase in marketing , advertising and promotion was due to higher sponsorships and online channel origination costs related to the increase in mortgage origination activity . 29 financial condition the following table presents summary balance sheet data as of the end of the last five years . replace_table_token_8_th total assets increased $ 584.5 million , or 46.0 % , to $ 1.9 billion as of december 31 , 2016 as compared to $ 1.3 billion as of december 31 , 2015 . balance sheet expansion during 2016 was funded by strong deposit growth of $ 506.8 million , or 53.0 % , and supplemented by increases in shareholders ' equity and subordinated debt resulting from capital offerings during the year . this funding was deployed to support total loan growth of $ 296.9 million , or 31.1 % , and to purchase investment securities with total securities balances increasing $ 259.7 million , or 121.5 % . loan portfolio analysis the following table provides information regarding the company 's loan portfolio as of the end of the last five years . replace_table_token_9_th the company continued to experience strong loan growth as total loans rose to $ 1.3 billion as of december 31 , 2016 , an increase of $ 296.9 million , or 31.1 % , compared to december 31 , 2015 . driving this growth was sustained production in single tenant lease financing with balances increasing $ 232.2 million , or 62.0 % , during 2016 as market conditions for this product remained favorable and the company expanded its relationships with borrowers and financing partners . additionally , other consumer loans increased $ 65.1 million , or 60.1 % , during 2016 due to the company 's recent initiative in financing home improvement loans as well as increased originations in horse trailer and recreational vehicle loans . 30 loan maturities and rate sensitivity the following table shows the contractual maturity distribution intervals of the outstanding loans in our portfolio as of december 31 , 2016 . replace_table_token_10_th the following table shows the rate sensitivity of the outstanding loans in our portfolio by the contractual maturity distribution intervals as of december 31 , 2016 . replace_table_token_11_th loan approval procedures and authority our lending activities follow written , non-discriminatory policies with loan approval limits approved by the board of directors of the bank . loan officers have underwriting and approval authorization of varying amounts based on their lending experience and product type . additionally , based on the amount of the loan , multiple approvals may be required . based on the company 's legal lending limit , the maximum the bank could lend to any one borrower at december 31 , 2016 was $ 26.0 million . our goal is to have a well-diversified and balanced loan portfolio . in order to manage our loan portfolio risk , we establish concentration limits by borrower , product type , industry and geography . to supplement our internal loan review resources , we have engaged an independent third-party loan review group , which is a key component of our overall risk management process related to credit administration . 31 asset quality replace_table_token_12_th a loan is designated as impaired , in accordance with the impairment accounting guidance when , based on current information or events , it is probable that the company will be unable to collect all amounts due ( principal and interest ) according to the contractual terms of the loan agreement . payments with delays generally not exceeding 90 days outstanding are not considered impaired . certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired . generally , loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings , unless the loan is well-secured and in the process of collection . the accrual of interest on impaired and nonaccrual loans is discontinued when , in management 's opinion , the borrower may be unable to meet payments as they become due .
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results of operations refer to item 6 of this report for a summary of the company 's financial performance for the five most recent years . during the twelve months ended december 31 , 2016 , net income was $ 12.1 million , or $ 2.30 per diluted share , compared to net income of $ 8.9 million , or $ 1.96 per diluted share , for the twelve months ended december 31 , 2015 and net income of $ 4.3 million , or $ 0.96 per diluted share , for the twelve months ended december 31 , 2014 . the increase in net income of $ 3.1 million for the twelve months ended december 31 , 2016 compared to the twelve months ended december 31 , 2015 was primarily due to an $ 8.9 million increase in net interest income and a $ 3.9 million increase in noninterest income . this was partially offset by a $ 6.2 million increase in noninterest expense , a $ 2.4 million increase in provision for loan losses and a $ 1.2 million increase in income tax expense . the increase in net income of $ 4.6 million for the twelve months ended december 31 , 2015 compared to the twelve months ended december 31 , 2014 was primarily due to an $ 8.5 million increase in net interest income and a $ 3.0 million increase in noninterest income . this was partially offset by a $ 2.6 million increase in income tax expense , a $ 2.6 million increase in noninterest expense and a $ 1.6 million increase in provision for loan losses .
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million story_separator_special_tag overview we are one of the world 's leading vertically integrated producers , marketers and distributors of high-quality fresh and fresh-cut fruit and vegetables , as well as a leading producer and marketer of prepared fruit and vegetables , juices , beverages and snacks in europe , africa and the middle east . we market our products worldwide under the del monte ยฎ brand , a symbol of product innovation , quality , freshness and reliability since 1892. our global sourcing and logistics system allows us to provide regular delivery of consistently high-quality produce and value-added services to our customers . our major producing operations are located in north , central and south america , asia and africa . production operations are aggregated on the basis of our products : bananas , other fresh produce and prepared foods . other fresh produce includes pineapples , melons , tomatoes , non-tropical fruit ( including grapes , apples , pears , peaches , plums , nectarines , avocados , citrus and kiwis ) , fresh-cut produce and other fruit and vegetables and a plastic product and box manufacturing business and third-party ocean freight services . prepared foods include prepared fruit and vegetables , juices , beverages , snacks , poultry and meat products . strategy our strategy is a combination of maximizing revenues from our existing infrastructure , entering new markets and strict cost control initiatives . we plan to continue to capitalize on the growing global demand for fresh produce and expand our reach into existing and new markets . we expect sales growth of our fresh produce products in key markets by increasing sales volume and per unit sales prices as permitted by market conditions . our strategy includes increasing volumes from existing production and distribution facilities in order to improve operating efficiencies and reduce per unit costs . we plan additional investments in production facilities to expand our product offering in established markets and continue with our recent expansion in growth markets , such as the middle east , africa and countries formerly part of the soviet union . we also plan additional investments in our north america distribution and fresh-cut fruit facilities and production operations to support our planned growth in this market . net sales our net sales are affected by numerous factors , including mainly the balance between the supply of and demand for our produce and competition from other fresh produce companies . our net sales are also dependent on our ability to supply a consistent volume and quality of fresh produce to the markets we serve . for example , seasonal variations in demand for bananas as a result of increased supply and competition from other fruit are reflected in the seasonal fluctuations in banana prices , with the first six months of each year generally exhibiting stronger demand and higher prices , except in those years where an excess supply exists . in 2013 , our overall banana sales volume increased by 7 % and our average per unit sales prices increased by 3 % . our net sales of other fresh produce were positively impacted by higher sales volumes of non-tropical fruit , principally avocados , apples and grapes combined with higher sales volume of our fresh-cut products in the middle east and north america and improved pricing of tomatoes . in our processed foods business , we generally realize the largest portion of our net sales and gross profit in the third and fourth quarters of the year . during 2013 , our prepared food net sales increased principally as a result of higher beverage sales in the middle east and africa , principally as a result of increased production and higher sales of canned pineapples and industrial products , primarily due to increased customer demand for buyers own label products and higher production in our kenya pineapple operation . since our financial reporting currency is the u.s. dollar , our net sales are significantly affected by fluctuations in the value of the currency in which we conduct our sales versus the dollar , with a strong dollar versus such currencies resulting in decreased net sales in dollar terms . including the effect of our foreign currency hedges , net sales for 2013 were negatively impacted by $ 60.1 million , as compared to 2012 , principally as a result of a weaker japanese yen and euro versus the u.s. dollar . during 2013 , our net sales were positively affected by higher sales volumes of bananas and non-tropical fruit principally sourced from independent growers in costa rica , ecuador , colombia and mexico and by higher sales volume of fresh-cut products in north america and the middle east that resulted from an expanded customer base and improved demand for our products . also positively affecting our net sales were our expansion into new markets in the middle east . our net sales growth in recent years has been achieved primarily through increased sales volume in existing markets of other fresh produce , primarily pineapples , fresh-cut products and non-tropical fruit and favorable pricing on our del monte gold ยฎ extra sweet pineapple combined with increased sales volume and per unit sales prices of bananas in existing and new markets . our net sales growth in recent years has also been attributable to a broadening of our product line with the expansion of our fresh-cut produce business , specifically increased sales to the foodservice sector and convenience stores combined with our expansion into new markets . we expect our net sales growth to continue to be driven by increased sales volumes across all of our segments . in the middle east , we expect to continue 27 to increase our net sales of our fresh produce and prepared food product offerings as a result of our expansion in various markets in the region such as turkey , saudi arabia and other regional markets . story_separator_special_tag asset impairment and other charges , net in 2013 , we recorded asset impairment and other charges totaling $ 37.1 million principally due to exit activity in brazil related to bananas , pineapples and melons , the closure of under-utilized facilities in germany , poland and the united kingdom , restructuring costs in the united kingdom , france and cameroon , the closure of under-performing banana areas in costa rica and the philippines and the unfavorable settlement of litigation in the united states . partially offsetting these charges was a gain on the sale of a previously impaired facility in the united kingdom . in 2012 , we recorded asset impairment and other charges totaling $ 3.3 million principally related to an underutilized fresh-cut facility and distribution centers in the united kingdom , flood damage in our costa rica banana operation net of insurance proceeds , credits from insurance proceeds related to prior years flood in our guatemala banana operation and other costs in hawaii . in 2011 , we recorded asset impairment and other charges totaling $ 16.3 million primarily related to asset impairments and other charges as a result of our central american melon rationalization program , an under-utilized fresh-cut facility and distribution centers in the united kingdom , our decision to abandon as isolated area in our banana operations in the philippines and a low-productivity area in costa rica and legal costs in hawaii related to the kunia well site , partially offset by insurance claims proceeds related to damages that occurred in 2010 from flooding in guatemala and an earthquake in chile . interest expense interest expense consists primarily of interest on borrowings under working capital facilities that we maintain and interest on other long-term debt primarily for capital lease obligations . in 2013 , our interest expense declined slightly , reflecting primarily lower interest rates , partially offset by higher average outstanding debt . other ( income ) expense , net other ( income ) expense , net , primarily consists of currency exchange gains or losses , equity gains and losses in unconsolidated companies and other miscellaneous income and expense items . during 2013 , other ( income ) expense , net , includes a $ 16.6 million gain related to a favorable judgment awarded in litigation combined with lower foreign exchange losses and $ 1.6 million in financial charges as a result of an unfavorable court ruling related to value added tax reporting in south america . provision for income taxes the provision for income taxes in 2013 was $ 17.2 million . income taxes consist of the consolidation of the tax provisions , computed on a separate entity basis , in each country in which we have operations . since we are a non-u.s. company with substantial operations outside the united states , a substantial portion of our results of operations is not subject to u.s. taxation . several of the countries in which we operate have favorable tax rates . we are subject to u.s. taxation on our operations in the united states . from time to time , tax authorities in various jurisdictions in which we operate audit our tax returns and review our tax positions . there are audits presently pending in various countries . there can be no assurance that any tax audits , or changes in existing tax laws or interpretations in countries in which we operate , will not result in an increased effective tax rate for us . 29 story_separator_special_tag and a credit of $ ( 0.2 ) million for insurance reimbursements related to floods in costa rica . gross profit gross profit was $ 290.4 million in 2013 compared with $ 341.7 million in 2012 , a decrease of $ 51.3 million . the decrease in gross profit was attributable to lower gross profit in all of our segments . gross profit on the banana segment decreased by $ 27.6 million principally due to higher fruit cost resulting from higher procurement and production costs , lower selling prices in europe principally the result of unfavorable exchange rates and lower per unit selling prices in north america due to competitive market pricing . also contributing to the decrease were higher ocean freight costs in the middle east due to increased shipments from central america . partially offsetting these decreases in banana gross profit were higher sales prices in asia and the middle east . worldwide banana per unit sales prices increased 3 % and per unit costs increased 5 % . gross profit in the other fresh produce segment decreased by $ 13.0 million due to lower gross profit on fresh-cut products , non-tropical fruit , non-produce operations and melons , partially offset by higher gross profit on pineapples . โฆ gross profit on fresh-cut products decreased principally due to higher production and logistics costs in north america and the middle east , partially offset by higher per unit sale prices in north america , europe and the middle east and higher sales volumes in asia . โฆ gross profit on non-tropical fruit decreased primarily due to higher fruit costs on apples in the middle east and lower selling prices on grapes in europe . โฆ gross profit on non-produce operations decreased as a result of lower sales in our chilean plastic operations due to a temporary volume reduction that resulted from downtime for plant improvement . โฆ gross profit on melons decreased primarily due to higher fruit , ocean freight and logistic costs . โฆ gross profit on pineapples increased primarily due to higher sales volumes in north america and the middle east partially offset by lower sales volumes in asia . gross profit on the prepared food segment decreased by $ 10.7 million principally as a result of lower selling prices for canned pineapple and deciduous products and higher costs for canned pineapple and industrial products , partially offset by higher gross profit on poultry and meat products in jordan .
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results of operations the following table presents , for each of the periods indicated , certain income statement data expressed as a percentage of net sales : replace_table_token_7_th the following tables present for each of the periods indicated ( i ) net sales by geographic region , ( ii ) net sales by product category and ( iii ) gross profit by product category and , in each case , the percentage of the total represented thereby : replace_table_token_8_th replace_table_token_9_th 30 2013 compared with 2012 net sales net sales in 2013 were $ 3,683.7 million compared with $ 3,421.2 million in 2012 . the increase in net sales of $ 262.5 million was primarily attributable to higher net sales of bananas , other fresh produce and prepared food . net sales in the banana segment increased by $ 147.6 million due to higher sales in all regions . worldwide banana sales volume increased 7 % . โฆ middle east banana net sales increased principally due to higher sales volumes that resulted from increased shipments from central america to new markets in the region combined with higher per unit sales prices . specifically , the opening of our new sales offices in turkey and the ukraine combined with continued expansion in other regional markets has allowed us to significantly increase our sales volume in the region . โฆ europe banana net sales increased primarily due to higher sales volume as a result of an expanded customer base in germany combined with increased direct sales initiative in the southern europe markets such as the opening of a new sales office in portugal . partially offsetting these increases were lower per unit sales prices as a result of lower consumer demand due to a weak economy and unfavorable exchange rates , principally a weaker euro .
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the sales decrease was primarily the impact of foreign currency translation as the us dollar strengthened against certain foreign currencies and lower sales volume , partially offset by price increases , as well as the company 's acquisitions . the company 's consolidated gross profit was $ 297.6 million for 2015 , a decrease of $ 46.8 million or about 14 percent from 2014. the gross profit as a percent of net sales decreased 70 basis points to 32.2 percent in 2015 from 32.9 percent in 2014. the gross profit margin change was due primarily to lost leverage on fixed cost due to lower sales . for 2015 , diluted earnings per share were $ 1.50 , an increase of 6 percent compared to 2014 diluted earnings per share of $ 1.41. adjusted earnings per share were $ 1.47 , a decrease of 16 percent versus the $ 1.76 adjusted earnings per share in 2014 ( see the table below for a reconciliation of the gaap eps to the adjusted eps ) . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > selling , general and administrative ( โ sg & a โ ) selling , general , and administrative ( sg & a ) expenses were $ 204.3 million in 2015 and decreased by $ 23.4 million or about 10 percent in 2015 compared to last year . in 2015 , increases in sg & a attributable to acquisitions were about $ 6 million or about 3 percent . additional year over year changes in sg & a costs were decreases in the year primarily due to lower marketing and selling related expenses , as well as lower costs for incentive compensation . approximately half of the lower sg & a expenses was related to foreign exchange . restructuring expenses restructuring expenses for 2015 were $ 3.0 million and reduced diluted earnings per share by approximately $ 0.04. restructuring expenses in 2015 included severance and pension costs , equipment relocation expenses , asset write-downs and primarily related to the closure of the wittlich , germany facility and other manufacturing realignment activities in europe and brazil . there were $ 16.6 million of restructuring expenses in 2014 and reduced diluted earnings per share by approximately $ 0.24. restructuring expenses in 2014 included severance costs , equipment relocation expenses , and asset write-downs primarily related to the closure of the wittlich , germany facility and other european manufacturing realignment activities . operating income operating income was $ 90.4 million in 2015 , down $ 9.7 million from $ 100.1 million in 2014 . 17 replace_table_token_8_th there were specific items in 2015 and 2014 that impacted operating income that were not operational in nature . in 2015 they were as follows : there were $ 3.0 million of restructuring charges . restructuring expenses in 2015 were $ 0.6 million in severance cost , $ 0.6 million in pension cost , $ 0.6 million expenses related to equipment transfers and freight costs , $ 0.1 million in asset write-offs and $ 1.1 million in other relocation costs primarily related to the closure of the wittlich , germany facility and other manufacturing realignment activities in europe and brazil . $ 1.2 million related to executive transition . $ 0.7 million related to business realignment cost , primarily severance , in targeted fixed cost reduction actions . $ 0.2 million in other miscellaneous costs related to closed acquisitions . in 2014 they were as follows : there were $ 16.6 million of restructuring charges . restructuring expenses in 2014 were $ 14.7 million in severance cost , $ 1.7 million expenses related to equipment transfers , freight and other relocation costs and $ 0.2 million in asset write-offs primarily related to the transfer of production activities from germany to the czech republic and other continued manufacturing realignments . $ 3.2 million in other miscellaneous costs related to closed and pending acquisitions and $ 0.2 million in legal fees incurred by franklin fueling systems . $ 2.5 million related to executive transition . $ 1.8 million of software write-offs . the company refers to these items as โ non-gaap adjustments โ for purposes of presenting the non-gaap financial measures of operating income after non-gaap adjustments and percent operating income to net sales after non-gaap adjustments to net sales ( operating income margin after non-gaap adjustments ) . the company believes this information helps investors and management understand underlying trends in the company 's business more easily and by presenting these matters in this way , gives our investors and management a more accurate picture of the actual operational performance of the company . the non-gaap adjustments are for restructuring expenses , reported separately on the income statement , as well as certain legal matters and acquisition related items which are included in sg & a on the income statement . the differences between these non-gaap financial measures and the most comparable gaap measures are reconciled in the following tables : 18 replace_table_token_9_th operating income-water systems water systems operating income , after non-gaap adjustments , was $ 90.1 million in 2015 , a decrease of 27 percent versus 2014. the 2015 operating income margin after non-gaap adjustments was 12.7 percent and decreased by 230 basis points compared to the 15.0 percent of net sales in 2014. operating income margin after non-gaap adjustments decreased in water systems primarily due to loss of operating leverage . operating income-fueling systems fueling systems operating income after non-gaap adjustments was $ 52.0 million in 2015 compared to $ 51.7 million after non-gaap adjustments in 2014. the 2015 operating income margin after non-gaap adjustments was 23.9 percent and increased by 70 basis points compared to the 23.2 percent of net sales in 2014. this increased profitability was primarily due to lower fixed costs . operating income-other operating income-other is composed primarily of unallocated general and administrative expenses . story_separator_special_tag the incremental impact of sales from acquired businesses was $ 23.5 million or about 2 percent . sales revenue decreased by $ 24.1 million or about 2 percent in 2014 due to foreign currency translation . the sales change in 2014 , excluding acquisitions and foreign currency translation , was an increase of $ 82.9 million or about 9 percent . replace_table_token_12_th net sales-water systems water systems sales were $ 824.6 million in 2014 , an increase of $ 58.2 million or 8 percent versus 2013. the incremental impact of sales from acquired businesses was $ 23.4 million or about 3 percent . foreign currency translation rate changes decreased sales $ 24.8 million , or about 3 percent , compared to sales in 2013. the sales change in 2014 , excluding acquisitions and foreign currency translation , was an increase of $ 59.6 million or about 8 percent . water systems sales in the u.s. and canada were 39 percent of consolidated sales and grew by about 5 percent compared to 2013. foreign currency translation rate changes decreased sales by about 1 percent compared to sales in 2013. the sales change in 2014 , excluding acquisitions and foreign currency translation , was an increase of $ 23 million or about 6 percent . leading the company 's growth in the u.s. and canada were sales of pioneer branded mobile pumping equipment which increased by about 70 percent in 2014 compared to the prior year . sales of surface water pumping equipment grew by 8 percent in the year . these 21 sales increases in the u.s and canada were partially offset by lower sales of groundwater pumping equipment which declined about 10 percent in 2014 due , in part , to weaker demand in the agriculture sector as a result of less favorable weather and to a lesser extent , distributor changes the company made in its primary groundwater distribution channel . water systems sales in latin america were about 14 percent of consolidated sales for 2014 and grew by about 18 percent compared to the prior year . acquisition related sales during 2014 were about $ 17 million or about 14 percent . foreign currency translation rate changes decreased sales $ 8 million , or about 7 percent , compared to sales in 2013. excluding acquisition and foreign currency translation , sales in latin america grew by about 10 percent during 2014. the 2014 year-on-year sales increase in brazil , in local currency , was 15 percent . the sales growth in brazil is a result of increasing demand for franklin submersible pumps and motors , customer acceptance of the many product line upgrades that have been implemented over the past two years , and general market conditions . new distribution outlets in chile and colombia contributed to significantly increased sales in these markets compared to 2013. these sales increases were partially offset with lower sales in argentina . water systems sales in the middle east and africa were about 11 percent of consolidated sales and increased by about 2 percent compared to 2013. water systems sales in the middle east and africa were reduced by $ 11.3 million or about 10 percent in the year due to foreign currency translation . excluding acquisitions and the impact of foreign currency translation , sales were up about 11 percent compared to 2013. the growth was driven by strong sales of groundwater pumping equipment in turkey . water systems sales in europe were about 8 percent of consolidated sales and grew by about 11 percent compared to the prior year . acquisition related sales during 2014 were about 2 percent in europe . foreign currency translation rate changes decreased sales by about 1 percent compared to sales in 2013. excluding acquisitions and foreign currency translation , european sales grew by about 10 percent during 2014. sales improvements in europe included growth in both groundwater pumping equipment and pioneer products . water systems sales in the asia pacific region were 7 percent of consolidated sales and grew by about 11 percent compared to the prior year . acquisition related sales during 2014 increased sales by about 7 percent in asia pacific . foreign currency translation rate changes decreased sales in 2014 in the asia pacific region by about 2 percent . excluding acquisitions and foreign currency translation sales grew by about 7 percent during 2014. sales in australia grew by about 28 percent led by improved pioneer product sales in the region and aided in part by the launch of the new solar powered water well pumping system . sales in taiwan and southeast asia grew by about 5 percent compared to the prior year , as the company continues to benefit from the improved customer service levels attributable to a new distribution center in singapore . these sales increases were partially offset by smaller declines in sales in japan and china . net sales-fueling systems fueling systems sales which represented 21 percent of consolidated sales were $ 223.2 million in 2014 , an increase of $ 24.1 million or about 12 percent versus 2013. the incremental impact of sales from acquired businesses was $ 0.1 million . foreign currency translation rate changes increased sales $ 0.7 million compared to sales in 2013. the sales change in 2014 , excluding acquisitions and foreign currency translation , was an increase of $ 23.3 million or about 12 percent . this growth was led by sales increases in developing markets , which grew by 15 percent compared to the prior year , as customers outside north america continue to invest in the company 's pressure pumping systems for transferring gasoline from underground tanks . as well , adoption of the company 's electronic fuel management products is increasing among international customers . fueling systems sales in more developed markets ; like the u.s. , canada and europe grew by about 11 percent compared to prior year .
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results of operations net sales net sales in 2015 were $ 924.9 million , a decrease of $ 122.9 million or about 12 percent compared to 2014 sales of $ 1,047.8 million . the incremental impact of sales from acquired businesses was $ 21.3 million or about 2 percent . sales revenue decreased by $ 89.3 million or about 9 percent in 2015 due to foreign currency translation . the sales change in 2015 , excluding acquisitions and foreign currency translation , was a decrease of $ 54.9 million or about 5 percent . replace_table_token_7_th net sales-water systems water systems sales were $ 707.6 million in 2015 , a decrease of $ 117.0 million or 14 percent versus 2014. the incremental impact of sales from acquired businesses was $ 20.8 million or about 2 percent . foreign currency translation rate changes decreased sales $ 78.3 million , or about 9 percent , compared to sales in 2014. the sales change in 2015 , excluding acquisitions and foreign currency translation , was a decrease of $ 59.5 million or about 7 percent . water systems sales in the u.s. and canada were 36 percent of consolidated sales and declined by about 20 percent in 2015 compared to the prior year . sales revenue decreased by $ 5.9 million or about 1 percent in 2015 due to foreign currency translation . in 2015 , u.s. and canada sales of pioneer branded mobile dewatering equipment declined by about 55 percent . the decline in mobile dewatering equipment is primarily attributed to reduced demand in the oil and gas end markets .
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our core portfolio consists of those properties either 100 % owned , or partially owned through joint venture interests by the operating partnership , or subsidiaries thereof , not including those properties owned through our funds . these 182 properties primarily consist of street and urban retail , and dense suburban shopping centers . the properties we operate are located primarily in markets within the united states ' top ten metropolitan areas . there are 116 properties in our core portfolio totaling approximately 6.3 million square feet excluding one in development . fund ii has four properties , two of which ( representing 0.3 million square feet ) are currently operating , one is under construction , and one is in the design phase . fund iii has eight properties , of which five ( representing 0.3 million square feet ) are currently operating and three are under development . fund iv has 53 properties , 45 of which ( representing 2.3 million square feet ) are operating and eight are under development . the majority of our operating income is derived from rental revenues from operating properties , including expense recoveries from tenants , offset by operating and overhead expenses . as our rcp venture invests in operating companies , we consider these investments to be private-equity style , as opposed to real estate , investments . since these are not traditional investments in operating rental real estate but investments in operating businesses , the operating partnership typically invests in these through a taxable reit subsidiary ( `` trs '' ) . our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns . we focus on the following fundamentals to achieve this objective : own and operate a core portfolio of high-quality retail properties located primarily in high-barrier-to-entry , densely-populated metropolitan areas and create value through accretive development and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our core asset recycling and acquisition initiative . generate additional external growth through an opportunistic yet disciplined acquisition program within our funds . we target transactions with high inherent opportunity for the creation of additional value through : โฆ value-add investments in street retail properties , located in established and `` next generation '' submarkets , with re-tenanting or repositioning opportunities , โฆ opportunistic acquisitions of well-located real-estate anchored by distressed retailers , and โฆ other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt . 38 some of these investments historically have also included , and may in the future include , joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets . maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth . significant developments during 2016 investments during the year ended december 31 , 2016 ( `` 2016 '' ) , within our core and fund portfolios we acquired 22 properties aggregating $ 864.3 million as follows : in our core portfolio we acquired nine consolidated properties with an aggregate purchase price of $ 519.6 million and two unconsolidated properties with an aggregate purchase price of $ 107.4 million ( note 4 ) . in fund iv we acquired 11 consolidated properties with an aggregate purchase price of $ 237.3 million ( note 2 ) . in addition to our real estate investments we : issued one core note receivable and three fund iv notes receivable aggregating $ 47.5 million , which were collateralized by four mixed-use real estate properties ( note 3 ) ; restructured a $ 30.9 million core mezzanine loan and replaced it with a new $ 153.4 million loan , which was made to our partners in the brandywine portfolio ( note 4 ) ; and obtained through our operating partnership an additional 8.3 % interest in fund ii from a limited partner for $ 18.4 million ( note 10 ) . dispositions of real estate during 2016 , within our fund portfolio we sold two properties for an aggregate sales price of $ 211.6 million and recognized aggregate gains of $ 94.6 million as follows : fund iii sold two consolidated properties with an aggregate sales price of $ 153.8 million and recognized an aggregate gain on disposition of properties of $ 82.0 million ( note 2 ) . one of these properties was a 65 % interest in the cortlandt town center , for which the remaining 35 % interest was carried as an unconsolidated investment after the sale . subsequently , fund iii sold the remaining 35 % interest in the cortlandt town center for $ 57.8 million , for which the gain was $ 36.0 million and our pro rata share was $ 12.6 million and was recognized within equity in earnings of unconsolidated affiliates on the consolidated statement of income ( note 4 ) . capital raised during 2016 , we issued approximately 12.9 million shares of our common stock to raise net proceeds of $ 452.4 million . of these issuances , 4.5 million shares were issued under our at-the-market equity program , 4.8 million shares were issued in a follow-on public offering and 3.6 million shares were issued in a forward sale agreement ( note 10 ) . during 2016 , we also issued common and preferred op units aggregating $ 31.4 million to a third party to acquire real estate ( note 10 ) . financings during 2016 , we obtained $ 150.0 million of new unsecured term loans in our core portfolio . in addition , we obtained or assumed 14 new consolidated mortgages aggregating $ 252.9 million ( note 7 ) . development activity during 2016 , fund iv acquired two properties in development . story_separator_special_tag it is helpful as it excludes various items included in net income that are not indicative of the operating performance , such as gains ( losses ) from sales of depreciated property , depreciation and amortization , and impairment of depreciable real estate . our method of calculating ffo may be different from methods used by other reits and , accordingly , may not be comparable to such other reits . ffo does not represent cash generated from operations as defined by generally accepted accounting principles ( `` gaap '' ) and is not indicative of cash available to fund all cash needs , including distributions . it should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity . consistent with the nareit definition , we define ffo as net income ( computed in accordance with gaap ) , excluding gains ( losses ) from sales of depreciated property and impairment of depreciable real estate , plus depreciation and amortization , and after adjustments for unconsolidated partnerships and joint ventures . 45 a reconciliation of net income attributable to acadia to ffo follows ( dollars and shares in thousands , except per share amounts ) : replace_table_token_27_th ( a ) in addition to the weighted-average common shares outstanding ( note 15 ) , basic and diluted ffo per common share also assume full conversion of a weighted-average 4,435 , 3,895 , 2,684 , 618 and 604 op units into common shares for the years ended december 31 , 2016 , 2015 , 2014 , 2013 and 2012 , respectively . diluted ffo per common share also includes the assumed conversion of 433 , 25 , 25 , 25 and 25 , respectively preferred op units into common shares for the years ended december 31 , 2016 , 2015 , 2014 , 2013 and 2012 , respectively . in addition , diluted ffo includes the effect of 151 , 297 , 309 , 392 and 456 employee share options , restricted share units and ltip units for the years ended december 31 , 2016 , 2015 , 2014 , 2013 and 2012 , respectively . 46 liquidity and capital resources uses of liquidity and cash requirements our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the funds and property acquisitions and development/re-tenanting activities within our core portfolio , ( iii ) distributions to our fund investors and ( iv ) debt service and loan repayments . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . for the year ended december 31 , 2016 , we paid dividends and distributions on our common shares , common op units and preferred op units totaling $ 98.7 million . this amount included an $ 18.8 million special dividend that was paid in january 2016 , which related to the operating partnership 's share of cash proceeds from property dispositions during 2015. the balance of the distribution was funded from the operating partnership 's share of operating cash flow . distributions of $ 78.3 million were made to noncontrolling interests in fund iii during the year ended december 31 , 2016. this resulted from proceeds related to the financing of 640 broadway and dispositions of cortlandt town center and heritage shops as discussed in note 2 and note 4 . investments in real estate during the year ended december 31 , 2016 , within our core and fund portfolios we acquired 22 properties aggregating $ 864.3 million as follows : ( i ) in our core portfolio we acquired nine consolidated properties with an aggregate purchase price of $ 519.6 million and two unconsolidated properties with an aggregate purchase price of $ 107.4 million ( note 4 ) and ( ii ) in fund iv we acquired 11 consolidated properties with an aggregate purchase price of $ 237.3 million ( note 2 ) . capital commitments during 2016 , we made capital contributions of $ 58.4 million to the funds in connection with acquisitions and development costs . capital contributed will be used by the funds to acquire and operate real estate assets . at december 31 , 2016 , our share of the remaining capital commitments to our funds aggregated $ 155.9 million as follows : fund ii was launched in june 2004 with total committed capital of $ 300.0 million of which our original share was $ 85.0 million , which has been fully funded . $ 13.1 million to fund iii . fund iii was launched in may 2007 with total committed capital of $ 502.5 million of which our original share was $ 123.3 million . $ 38.3 million to fund iv . fund ii was launched in june 2004 with total committed capital of $ 300.0 million of which our original share was $ 85.0 million . $ 104.5 million to fund v. fund v was launched in august 2016 with total committed capital of $ 520.0 million of which our original share is $ 104.5 million . development activities during the year ended december 31 , 2016 , costs associated with development activities totaled $ 142.6 million . these costs primarily related to fund ii 's city point project , fund iv 's broughton street portfolio and fund iv 's 210 bowery project . at december 31 , 2016 , we had 14 properties under development for which the estimated total cost to complete these projects through 2020 was $ 118.1 million to $ 179.3 million and our share was approximately $ 28.8 million to $ 44.1 million . structured financings during 2016 , the company received total collections of $ 42.8 million on its notes receivable , including full repayment of five notes issued in prior periods aggregating $ 29.6 million ( note 3 ) .
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results of operations see note 12 in the notes to consolidated financial statements for an overview of our three reportable segments . during the year ended december 31 , 2016 , we revised how we allocate general and administrative and income tax expenses among our segments . all prior periods presented have been revised to conform to this new presentation . a discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended december 31 , 2016 , 2015 and 2014 are addressed below : comparison of the year ended december 31 , 2016 ( `` 2016 '' ) to the year ended december 31 , 2015 ( `` 2015 '' ) replace_table_token_19_th rental income in the core portfolio decreased $ 1.0 million primarily as a resul t of a $ 9.3 million decrease due to the change in control of the brandywine portfolio ( note 4 ) offset by property acquisitions in 2015 and 2016 ( `` 2016 core acquisitions '' ) . rental income in the funds decreased $ 5.0 million primarily as a result of a decrease of $ 12.7 million relating to property dispositions in 2015 and 2016 ( `` 2016 fund dispositions '' ) . these decreases were offset by additional rental income of $ 4.3 million related to property acquisitions in 2015 and 2016 ( `` 2016 fund acquisitions '' ) . expense reimbursements in the funds decreased $ 4.2 million primarily due to the 2016 fund dispositions and a decrease in property operating expenses during 2016. the $ 1.0 million increase in other income in the core portfolio relates to termination income received at a property . replace_table_token_20_th t he $ 8.4 million increase in depreciation and amortization in the core portfolio was primarily attributable to the 2016 core acquisitions .
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through our security division , we design , manufacture and market security and inspection systems worldwide for sale primarily to u.s. and foreign government agencies , and provide turnkey security screening solutions . these products and services are used to inspect baggage , cargo , vehicles and other objects for weapons , explosives , drugs and other contraband as well as to screen people . revenues from our security division accounted for 49 % of our total consolidated revenues for fiscal 2012. healthcare division . through our healthcare division , we design , manufacture , market and service patient monitoring , diagnostic cardiology and anesthesia delivery and ventilation systems worldwide for sale primarily to hospitals and medical centers . our products monitor patients in critical , emergency and perioperative care areas of the hospital and provide such information , through wired and wireless networks , to physicians and nurses who may be at the patient 's bedside , in another area of the hospital or even outside the hospital . revenues from our healthcare division accounted for 30 % of our total consolidated revenues for fiscal 2012. optoelectronics and manufacturing division . through our optoelectronics and manufacturing division , we design , manufacture and market optoelectronic devices and provide electronics manufacturing services worldwide for use in a broad range of applications , including aerospace and defense electronics , security and inspection systems , medical imaging and diagnostics , telecommunications , office automation , computer peripherals , industrial automation , automotive diagnostic systems and renewable energy . we also provide our optoelectronic devices and value-added manufacturing services to our own security and healthcare divisions . revenues from our optoelectronics and manufacturing division accounted for approximately 21 % of our total consolidated revenues for fiscal 2012. story_separator_special_tag loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . business combinations . under the acquisition method of accounting , we allocate the fair value of the consideration paid for the businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values . we record the excess of purchase price over the aggregate fair values as goodwill . we engage third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed . these valuations require us to make significant estimates and assumptions , especially with respect to intangible assets and the fair value of contingent payment obligations . critical estimates in valuing purchased technology , customer lists and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets . if the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values , we could experience impairment charges . in addition , we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense . if our estimates of the economic lives change , depreciation or amortization expenses could be accelerated or slowed . impairment of long-lived assets . goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value . goodwill is allocated to our segments based on the nature of the product line of the acquired business . the carrying value of goodwill is not amortized , but is annually tested for impairment during our second quarter and more often if there is an indicator of impairment . intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite . we assess qualitative factors of each of our reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . such assessments indicated that it is not more likely than not that the fair value of each reporting unit is less than its carrying amount , including goodwill . thus , we have determined that it is not necessary to proceed with the two-step goodwill impairment test . there was no goodwill impairment for each of three fiscal years ended june 30 , 2012.we evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of 41 the asset may not be recoverable . an impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets . if impairment does exist , we measure the impairment loss and record it based on the discounted estimate of future cash flows . in estimating future cash flows , we group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows from other asset groups . our estimate of future cash flows is based upon , among other things , certain assumptions about expected future operating performance , growth rates and other factors . story_separator_special_tag fiscal 2011 compared with fiscal 2010. net revenues for fiscal 2011 increased $ 61.0 million , or 10 % , to $ 656.1 million from $ 595.1 million for fiscal 2010. revenues for the security division for fiscal 2011 increased $ 43.2 million , or 17 % , to $ 294.7 million , from $ 251.5 million for fiscal 2010. the increase was attributable to a $ 30.5 million , or 15 % , increase in equipment sales , primarily driven by a $ 23.4 million increase in baggage and parcel inspection , people screening and hold ( checked ) baggage screening products and a $ 3.1 million increase in revenues from our cargo inspection products . in addition , service revenues increased by $ 12.0 million , or 24 % , due to the growing installed base of products from which we derive service revenue as warranty periods expire . revenues for the healthcare division for fiscal 2011 increased $ 8.4 million , or 4 % , to $ 215.0 million , from $ 206.6 million for fiscal 2010. the increase was primarily attributable to a $ 7.8 million , or 5 % , increase in our patient monitoring product line sales with increases in all regions . revenues for the optoelectronics and manufacturing division for fiscal 2011 increased $ 21.7 million , or 13 % , to $ 192.9 million from $ 171.2 million for fiscal 2010. this increase was primarily driven by an increase in 43 commercial optoelectronics sales , which increased by $ 27.4 million , or 41 % , both to external customers and through intersegment sales , primarily to our security division . these increases were partially offset by a reduction of $ 4.7 million in contract manufacturing sales , mainly driven by the winding down of a large defense-industry related contract , which we anticipated . the optoelectronics and manufacturing division recorded intersegment sales of $ 46.5 million , compared to $ 34.2 million in the comparable prior-year period . this increase in intersegment sales is consistent with the growth of our security and healthcare divisions during the period . such intersegment sales are eliminated in consolidation . gross profit replace_table_token_8_th fiscal 2012 compared with fiscal 2011. gross profit increased $ 29.3 million , or 12 % , to $ 268.6 million for fiscal 2012 , from $ 239.3 million for fiscal 2011 , primarily as a result of a 21 % increase in sales . our gross margin during the period declined to 33.9 % from 36.5 % for the prior-year period . the decrease was mainly due to a less favorable mix of the products we sold , as sales by our healthcare division , which generates the highest gross margin of our three divisions , increased at a lesser rather than that of our security division . in addition , product mix within our security division negatively impacted gross margin as a significant portion of growth in our security division was attributable to large hardware systems integration contract . fiscal 2011 compared with fiscal 2010. gross profit increased $ 21.3 million , or 10 % , to $ 239.3 million for fiscal 2011 , from $ 218.0 million for fiscal 2010 , primarily due to a 10 % increase in sales . our gross margin percentage was flat in fiscal 2011 as compared to fiscal 2010 , as improvements in gross margin stemming from further leveraging of our manufacturing and distribution infrastructure associated with increased sales , were offset by a less favorable mix of the products we sold , as sales by our healthcare division , which generates the highest gross margin when compared to our other two divisions , did not increase as quickly as sales by our other two divisions . operating expenses replace_table_token_9_th selling , general and administrative selling , general and administrative ( sg & a ) expenses consisted primarily of compensation paid to sales , marketing and administrative personnel , professional service fees and marketing expenses . fiscal 2012 compared with fiscal 2011. for fiscal 2012 , sg & a expenses increased by $ 9.1 million , or 6 % , to $ 151.7 million , from $ 142.6 million for fiscal 2011. this $ 9.1 million increase was primarily attributable to $ 4.3 million of start-up costs related to a large turnkey screening solutions agreement , which is expected to generate revenues in fiscal 2013 and an increase in sg & a costs to support our 21 % revenue growth . as a percentage of revenue , sg & a expenses were 19.1 % for fiscal 2012 , compared to 21.7 % for the comparable prior year period as we further leveraged our infrastructure . 44 fiscal 2011 compared with fiscal 2010. for fiscal 2011 , sg & a expenses increased by $ 2.8 million , or 2 % , to $ 142.6 million , from $ 139.8 million for fiscal 2010. this increase was primarily to support revenue growth in the security and optoelectronics and manufacturing divisions , partially offset by lower spending in the healthcare division resulting from cost containment initiatives that were a part of our continuous effort to leverage our cost structure . research and development our security and healthcare divisions have historically invested substantial amounts in research and development ( r & d ) . we intend to continue this trend in future years , although specific programs may or may not continue to be funded and funding levels may fluctuate . r & d expenses included research related to new product development and product enhancement expenditures .
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consolidated results fiscal 2012 compared with fiscal 2011. we reported consolidated operating profit of $ 65.9 million for fiscal 2012 , an $ 18.1 million or 38 % improvement over the $ 47.8 million operating profit reported for fiscal 2011. this improved profitability was driven primarily by a 21 % increase in sales , which resulted in a $ 29.3 million increase in gross profit and a $ 2.0 million reduction in restructuring and other charges . these increases were partially offset by a $ 9.1 million , or 6 % , increase in selling , general and administrative ( sg & a ) expenses to support the sales growth and by a $ 4.1 million , or 9 % , increase in research and development ( r & d ) expenses in support of new product development . included in the incremental sg & a are $ 4.3 million of start-up costs related to a large turnkey screening solution agreement expected to commence operations in fiscal 2013. fiscal 2011 compared with fiscal 2010. we reported consolidated operating profit of $ 47.8 million for fiscal 2011 , a 30 % improvement over the $ 36.8 million operating profit reported for fiscal 2010. this improved profitability was driven primarily by a $ 21.3 million improvement in gross profit as a result of a 10 % increase in sales . this increase in gross profit was partially offset by a $ 2.8 million , or 2 % , increase in sg & a to support sales growth and by a $ 6.9 million , or 18 % , increase in r & d expenses in support of new product development . 39 acquisitions . historically , an active acquisition program has been an important element of our corporate strategy . over the past three years , each of our acquisitions has not been considered materially significant , either individually or in the aggregate .
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for information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements , see `` special note regarding forward-looking statements , '' and part i , item 1a , `` risk factors . '' dollars in tabular format are presented in thousands , except per share data , or as otherwise indicated . overview we are a forward-thinking women 's healthcare company dedicated to fulfilling the unmet health needs of today 's women . twirlaยฎ and our other current potential product candidates are designed to provide women with contraceptive options that offer greater convenience and facilitate compliance . our lead product candidate , twirla , also known as ag200-15 , is a once-weekly prescription combination hormonal contraceptive patch that is at the end of phase 3 clinical development . we plan to resubmit our new drug application , or nda , for twirla to the u.s. food and drug administration , or fda , in the second quarter of 2019. our planned resubmission is intended to be a complete response to the 2017 crl and will include the results from the comparative wear study , additional information on our manufacturing process , and other analyses responding to the 2017 crl . consistent with our previous nda resubmission in 2017 , we currently expect that our resubmission will be categorized as a type 2 resubmission and receive a review period of six months from the date of resubmission of the nda . following the resubmission , we anticipate that fda will likely re-inspect our contract manufacturer , corium , and hold an advisory committee meeting to review of the safety and efficacy of twirla . for more information about the regulatory history of twirla , please see part 1 , item 1 , `` businessยtwirla clinical development program and regulatory history . '' financial overview since our inception in 1997 , we have devoted substantial resources to developing and seeking regulatory approval for twirla , building our intellectual property portfolio , business planning , raising capital and providing general and administrative support for these operations . we incurred research and development expenses of $ 9.8 million , $ 14.4 million and $ 20.9 million during the years ended december 31 , 2018 , 2017 and 2016 , respectively . we anticipate that a portion of our operating expenses will continue to be related to research and development as we continue to develop twirla . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla . we have funded our operations primarily through sales of common stock , convertible preferred stock , convertible promissory notes and term loans . as of december 31 , 2018 and 2017 respectively , we had $ 7.8 million and $ 35.9 million in cash and cash equivalents . in february 2015 , we entered into a loan and security agreement with hercules capital , inc. or hercules , for a term loan of up to $ 25.0 million , which we refer to as the hercules loan agreement . a first tranche of $ 16.5 million was funded upon execution of the hercules loan agreement , approximately $ 15.5 million of which was used to repay our existing term loan . the hercules loan agreement was amended in august 2016 to , among other things , extend the period during which we could have drawn the additional tranche of $ 8.5 million to march 31 , 2017 and extended the period during which we make interest-only payments until january 31 , 2017. the hercules loan agreement was further amended in may 2017 to extend the period during which we could have drawn the additional tranche of $ 8.5 million to january 31 , 2018. the period during which the additional tranche of $ 8.5 million may be drawn has expired and therefore the $ 8.5 million can no longer be drawn by us . 103 on february 1 , 2017 , we began making principal payments with respect to the hercules loan agreement . the final payment under the hercules loan agreement was made on december 1 , 2018 and we had no outstanding borrowings under the hercules loan agreement as of december 31 , 2018. in january 2016 , we closed an underwritten public offering of 5,511,812 shares of common stock at a public offering price of $ 6.35 per share . in february 2016 , the underwriters of the public offering of common stock exercised in full their option to purchase an additional 826,771 shares of common stock at the public offering price of $ 6.35 per share , less underwriting discounts and commissions . a total of 6,338,583 shares of common stock were sold in the public offering , resulting in total net proceeds of approximately $ 37.5 million . in august 2017 , we completed an underwritten public offering of 5,333,334 shares of common stock at a public offering price of $ 3.75 per share . proceeds from our august 2017 public offering , net of underwriting discounts , commissions and other offering costs , were approximately $ 18.5 million . we have not generated any revenue and have never been profitable for any year . our net loss was $ 19.8 million , $ 28.3 million and $ 28.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . we expect to incur increased expenses and increasing operating losses for the foreseeable future as we seek the approval of our nda for twirla , which include conducting the wear study of twirla and xulane suggested by the fda and preparing for an anticipated advisory committee meeting , complete the qualification and validation of our commercial manufacturing process , initiate pre-launch commercial activities , commercially launch twirla , if approved , advance our other potential product candidates and expand our research and development programs . story_separator_special_tag our ability to generate revenue and become profitable depends on our ability to successfully commercialize twirla and any product candidates that we may advance in the future . if we fail to complete the development of twirla or any other product candidates we advance in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , will be adversely affected . 105 research and development expenses since our inception , we have focused our resources on our research and development activities . research and development expenses consist primarily of costs incurred for the development of twirla and other current and future potential product candidates , and include : expenses incurred under agreements with contract research organizations , or cros , and investigative sites that conduct our clinical trials and preclinical studies ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expenses ; the cost of acquiring , developing and manufacturing clinical trial materials , including the supply of our product candidates ; costs associated with research , development and regulatory activities ; and costs associated with equipment scale-up required for commercial production . research and development costs 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 subject enrollment , clinical site activations or information provided to us by our third-party vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis , as the majority of our past and planned expenses have been and will be in support of twirla . in 2019 , we expect our research and development expenses to remain relatively consistent with 2018 expenses . research and development expenses in 2019 will consist primarily of those costs associated with completing our wear study comparing the adhesion of twirla and xulane , preparation and resubmission of the nda for twirla , the continued development and refinement of our commercial manufacturing process and responding to information requests expected to be received from the fda as part of their review of our nda resubmission . as a result of the 2017 crl , we have significantly scaled back equipment qualification and validation of our commercial manufacturing process and resumption and completion of these activities will require additional capital . to date , our research and development expenses have related primarily to the development of twirla . for the years ended december 31 , 2018 , 2017 and 2016 , our research and development expenses were approximately $ 9.8 million , $ 14.4 million and $ 20.9 million , respectively . the following table summarizes our research and development expenses by functional area . replace_table_token_7_th 106 it is difficult to determine with any certainty the exact duration and completion costs of any of our future clinical trials of twirla or our other current and future potential product candidates we may advance . it is also difficult to determine if , when or to what extent we will generate revenue from the commercialization and sale of our product candidates that obtain regulatory approval . consistent with our previous nda resubmission in 2017 , we currently expect that our resubmission of the nda responding to the 2017 crl will be categorized as a type 2 resubmission and receive a review period of six months from the date of resubmission of the nda . we may , however , never succeed in achieving regulatory approval for twirla or any of our other potential product candidates or such approval may be delayed . the duration , costs and timing of clinical trials and development of our other potential product candidates in addition to twirla will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , the rate of subject enrollment , obtaining additional capital , and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , or experience issues with our manufacturing capabilities we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla . we will require additional capital to fund our operating needs for the remainder of the fourth quarter of 2019 and beyond including , among other items , the resumption and completion of our commercial plan for twirla , which primarily includes the validation of our commercial manufacturing process and the commercial launch of twirla , if approved , and advancing the development of our other potential product candidates .
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general and administrative expenses . general and administrative expenses decreased by 3.7 million , or 29 % , from $ 12.4 million for the year ended december 31 , 2017 to $ 8.7 million for the year ended december 31 , 2018. this decrease in general and administrative expense was primarily due to the following : a decrease in commercial development expense of $ 3.2 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. this decrease relates to the suspension 110 of our pre-commercialization activities such as brand building , advocacy and consulting as a result of the receipt of the 2017 crl ; a decrease in professional fees expense of $ 0.8 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. this decrease is primarily the result of a reduction in the use of consultants and lower legal and patent-related costs ; and an increase in personnel costs of $ 0.7 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , which partially offsets the decreases discussed above . this increase relates to the addition of personnel during the second half of 2017 to help prepare for launch of twirla , if approved . restructuring costs . in june 2018 , we announced a reduction in our workforce , which resulted in the termination of several employees primarily from our commercial and clinical teams , representing approximately thirty percent of our employees . this workforce reduction , along with other reductions in planned operating expenses was designed to preserve cash while we pursued formal dispute resolution with the fda for twirla and as we determine the regulatory path forward for the resubmission of our nda for twirla .
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the company therefore has recognized a benefit of approximately $ 1.1 million for these taxes for the year ended december 31 , 2017. during december 2017 , the sec staff issued staff accounting bulletin no . 118 ( story_separator_special_tag the following discussion of the financial condition and results of our 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 , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors set forth in item 1a 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 a biopharmaceutical company focused on the discovery and clinical development of innovative , small molecule drugs that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system , or cns . lumateperone ( also known as iti-007 ) is our lead product candidate with mechanisms of action that , we believe , may represent an effective treatment across multiple therapeutic indications . in our preclinical and clinical trials to date , lumateperone combines potent serotonin 5-ht2a receptor antagonism , dopamine receptor phosphoprotein modulation , or dppm , glutamatergic modulation , and serotonin reuptake inhibition into a single drug candidate for the treatment of acute and residual schizophrenia and for the treatment of bipolar disorder , including bipolar depression . at dopamine d2 receptors , lumateperone has been demonstrated to have dual properties and to act as both a pre-synaptic partial agonist and a post-synaptic antagonist . lumateperone has also been demonstrated to have affinity for dopamine d1 receptors and indirectly stimulate phosphorylation of glutamatergic nmda glun2b receptors in a mesolimbic specific manner . we believe that this regional selectivity in brain areas thought to mediate the efficacy of antipsychotic drugs , together with serotonergic , glutamatergic , and dopaminergic interactions , may result in efficacy for a broad array of symptoms associated with schizophrenia and bipolar disorder with improved psychosocial function . the serotonin reuptake inhibition potentially allows for antidepressant activity in the treatment of schizoaffective disorder , other disorders with co-morbid depression , and or as a stand-alone treatment for mdd . we believe lumateperone may also be useful for the treatment of other psychiatric and neurodegenerative disorders , particularly behavioral disturbances associated with dementia , autism , and other cns diseases . lumateperone is in phase 3 clinical development as a novel treatment for schizophrenia , bipolar depression and agitation associated with dementia , including ad . we had a pre-nda meeting with the fda in the first quarter of 2018 and reached agreement on the timing and content of a rolling nda submission for lumateperone for the treatment of schizophrenia . we initiated the rolling submission of our nda with the fda for lumateperone for the treatment of schizophrenia in the second quarter of 2018 , we completed this nda submission in the third quarter of 2018 and the fda accepted the nda for review in the fourth quarter of 2018. our lumateperone bipolar depression phase 3 clinical program consists of two monotherapy studies and one adjunctive study . we have completed patient enrollment in our first monotherapy study ( study 401 ) conducted in the u.s. and in the second monotherapy study ( study 404 ) conducted globally . given the relative timing of these two events and to avoid introducing potential expectation bias in the ongoing study 404 , we anticipate reporting topline results from study 401 and study 404 simultaneously in the second quarter of 2019. the study 401 dataset will remain locked and blinded until the study 404 dataset is available and then both datasets will be analyzed concurrently . subject to the outcome of these trials , we expect to submit in the second half of 2019 for fda regulatory approval for bipolar depression . our global study evaluating adjunctive lumateperone in bipolar depression ( study 402 ) is ongoing . in the second quarter of 2016 , we initiated phase 3 development of lumateperone for the treatment of agitation in patients with dementia , including ad . our iti-007-201 trial is a phase 3 multi-center , randomized , 64 double-blind , placebo-controlled clinical trial in patients with a clinical diagnosis of probable ad and clinically significant symptoms of agitation . in the fourth quarter of 2018 , an independent data monitoring committee , or dmc , completed a pre-specified interim analysis of the iti-007-201 trial , concluded that the trial is not likely to meet its primary endpoint upon completion and therefore recommended the study should be stopped for futility . as a result , we determined to discontinue the iti-007-201 trial . lumateperone was generally well tolerated in the iti-007-201 trial and the decision to discontinue the study was not related to safety . we are analyzing the data set from this trial and will determine the next steps in our program following completion of this analysis . we are also pursuing clinical development of lumateperone for the treatment of additional cns diseases and disorders . at the lowest doses , lumateperone has been demonstrated to act primarily as a potent 5-ht2a serotonin receptor antagonist . as the dose is increased , additional benefits are derived from the engagement of additional drug targets , including modest dopamine receptor modulation and modest inhibition of serotonin transporters . story_separator_special_tag research and development expenses replace_table_token_3_th research and development expenses increased to $ 132.2 million for the year ended december 31 , 2018 as compared to $ 79.4 million for the year ended december 31 , 2017 , representing an increase of approximately $ 52.8 million , or 66 % . this increase is due primarily to an increase of approximately $ 23.2 million of costs associated with lumateperone clinical costs , a $ 6.0 million increase in costs for lumateperone non-clinical efforts , approximately $ 10.5 million increase in manufacturing expense , approximately $ 2.3 million increase in stock compensation expense and an increase of approximately $ 10.8 million of non iti-007 projects and overhead expenses . expenses for other projects and overhead increased as we expanded our preclinical development of iti-333 and iti-214 , among others . internal costs increased by $ 6.5 million for the period as we hired additional staff and increased our stock based compensation expense . as development of lumateperone progresses , we anticipate costs for lumateperone to increase due primarily to ongoing and planned clinical trials relating to our lumateperone programs in the next several years as we conduct phase 3 and other clinical trials . we are also required to complete non-clinical testing to obtain fda approval and manufacture material needed for clinical trial use , which includes non-clinical testing of the drug product and the creation of an inventory of drug product in anticipation of possible fda approval . as of december 31 , 2018 , we employed 49 full time personnel in our research and development group as compared to 32 full time personnel in our research and development group at december 31,2017. we expect to hire additional staff as we increase our development efforts and grow our business in the upcoming years . we currently have several projects , in addition to lumateperone , that are in the research and development stages , including in the areas of cognitive dysfunction and the treatment of neurodegenerative diseases , including ad , among others . we have used internal resources and incurred expenses not only in relation to the development of lumateperone , but also in connection with these additional projects as well , including our pde program . we have not , however , reported these costs on a project by project basis , as these costs are broadly spread among these projects . the external costs for these projects have been modest and are reflected in the amounts discussed in this section ยยresearch and development expenses.ย 68 the research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the united states and other countries . this process typically takes years to complete and requires the expenditure of substantial resources . the steps required before a drug may be marketed in the united states generally include the following : completion of extensive pre-clinical laboratory tests , animal studies , and formulation studies in accordance with the fda 's good laboratory practice , or glp , regulations ; submission to the fda of an investigational new drug application , or ind , for human clinical testing , which must become effective before human clinical trials may begin ; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed indication ; submission to the fda of a new drug application , or nda , after completion of all clinical trials ; satisfactory completion of an fda pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient , or api , and finished drug product are produced and tested to assess compliance with current good manufacturing practices , or cgmps ; satisfactory completion of fda inspections of clinical trial sites to assure that data supporting the safety and effectiveness of product candidates has been generated in compliance with good clinical practices ; and fda review and approval of the nda prior to any commercial marketing or sale of the drug in the united states . the successful development of our product candidates and the approval process requires substantial time , effort and financial resources , and is uncertain and subject to a number of risks . we can not be certain that any of our product candidates will prove to be safe and effective , will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval , or will be granted marketing approval on a timely basis , if at all . data from pre-clinical studies and clinical trials are susceptible to varying interpretations that could delay , limit or prevent regulatory approval or could result in label warnings related to or recalls of approved products . we , the fda , or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find deficiencies in the conduct of the trials or other problems with our product candidates . other risks associated with our product candidates are described in the section entitled ยrisk factorsย in this annual report on form 10-k. general and administrative expenses general and administrative expenses increased for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 by approximately $ 6.4 million , or 27.2 % . the increase is primarily the result of an increase pre-commercialization costs of approximately $ 4.0 million , labor costs of approximately $ 1.8 million , stock compensation expense of approximately $ 457,000 , rent expense of approximately $ 405,000 and is offset partially by lower professional fees of approximately $ 443,000. salaries , bonuses and related benefit costs for our executive , finance and administrative functions for the years ended 2018 and 2017 constituted approximately 56 % and 62 % , respectively , of our total general and administrative costs .
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results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements . revenues we have not generated any revenue from product sales to date and we do not expect to generate revenues from product sales until at least the fourth quarter of 2019 , if ever . we had no revenues for the year ended december 31 , 2018 , and our revenues for the year ended december 31 , 2017 were from a government grant . we have received and may continue to receive grants from u.s. government agencies and foundations . we do not expect any revenues that we may generate in the next several years to be significant enough to fund our operations . expenses the process of researching and developing drugs for human use is lengthy , unpredictable and subject to many risks . we are unable with certainty to estimate either the costs or the timelines in which those costs will be incurred . the clinical development of lumateperone for the treatment of schizophrenia and for the treatment of bipolar depression consumes and , together with our anticipated clinical development programs for depressive disorders and iti-214 , will continue to consume a large portion of our current , as well as projected , resources . we intend to pursue other disease indications that lumateperone may address , but there are significant costs associated with pursuing fda approval for those indications , which would include the cost of additional clinical trials . our iti-002 program has a compound , iti-214 , in phase 1/2 development . we intend to pursue the development of our pde program , including iti-214 for the treatment of several cns and non-cns conditions , including cardiovascular disease . we have initiated our development program for iti-214 for parkinson 's disease .
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income ( loss ) from equity method investments is recognized as part of other income ( loss ) in the consolidated statements of operations . the carrying amounts of equity method investments are reflected in investments in the consolidated statements of financial condition . as the underlying entities that the company manages and invests story_separator_special_tag condition and results of operations the following discussion should be read in conjunction with apollo global management , llc 's consolidated financial statements and the related notes as of december 31 , 2013 and 2012 and for the years ended december 31 , 2013 , 2012 , and 2011 . this discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties . actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors , including those included in the section of this report entitled โ item 1a . risk factors. โ the highlights listed below have had significant effects on many items within our consolidated financial statements and affect the comparison of the current period 's activity with those of prior periods . general our businesses founded in 1990 , apollo is a leading global alternative investment manager . we are contrarian , value-oriented investors in private equity , credit and real estate with significant distressed expertise and a flexible mandate in the majority of our funds that 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 23 years and lead a team of 710 employees , including 277 investment professionals , as of december 31 , 2013 . 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 โprimarily invests in control equity and related debt instruments , convertible securities and distressed debt instruments ; ( ii ) credit โprimarily invests in non-control corporate and structured debt instruments ; and ( iii ) real estate โprimarily 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 . - 62 - 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 affiliated 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 , 2013 , approximately 96 % of our total aum was in funds with a contractual life at inception of seven years or more , and 7 % of our total aum was in permanent capital vehicles with unlimited duration . as of december 31 , 2013 , we had total aum of $ 161.2 billion across all of our businesses . on december 31 , 2013 , apollo investment fund viii , l.p. ( `` fund viii '' ) held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional capital from apollo and affiliated investors , and as of december 31 , 2013 , fund viii had $ 18.2 billion of uncalled commitments , or `` dry powder , '' remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2013 , fund vii had $ 3.4 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our private equity funds , generating a 39 % gross irr and a 26 % net irr on a compound annual basis from inception through december 31 , 2013 . for further detail related to fund performance metrics across all of our businesses , see โ โthe historical investment performance of our funds. โ - 63 - 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 30.21 % of the class a shares outstanding and 11.91 % of the economic interests in the apollo operating group . story_separator_special_tag regardless of the market or economic environment at any given time , apollo relies on its contrarian , value-oriented approach to consistently invest capital on behalf of its investors by focusing on opportunities that management believes are often overlooked by other investors . we believe apollo 's expertise in credit and its focus on nine core industry sectors , combined with more than 20 years of investment experience , has allowed apollo to respond quickly to changing environments . apollo 's core industry sectors cover chemicals , natural resources , consumer and retail , distribution and transportation , financial and business services , manufacturing and industrial , media and cable and leisure , packaging and materials and the satellite and wireless industries . apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . - 65 - market considerations our revenues consist of the following : management fees , which are calculated based upon any of โ net asset value , โ โ gross assets , โ โ adjusted par asset value , โ โ adjusted costs of all unrealized portfolio investments , โ โ capital commitments , โ โ adjusted assets , โ โ invested capital , โ โ capital contributions , โ or โ stockholders ' equity , โ each as defined in the applicable management agreement of the unconsolidated funds ; advisory and transaction fees relating to the investments our funds make , or individual monitoring agreements with individual portfolio companies of the private equity funds and certain credit funds as well as advisory services provided to certain credit funds ; and carried interest with respect to our funds . our ability to grow our revenues depends in part on our ability to attract new capital and investors , which in turn depends on our ability to appropriately invest our funds ' capital , and on the conditions in the financial markets , including the availability and cost of leverage , and economic conditions in the united states , western europe , asia , and to some extent , elsewhere in the world . the market factors that impact this include the following : the strength of the alternative investment management industry , including the amount of capital invested and withdrawn from alternative investments . allocations of capital to the alternative investment sector are dependent , in part , on the strength of the economy and the returns available from other investments relative to returns from alternative investments . our share of this capital is dependent on the strength of our performance relative to the performance of our competitors . the capital we attract and our returns are drivers of our assets under management , which , in turn , drive the fees we earn . in light of the current volatile conditions in the financial markets , our funds ' returns may be lower than they have been historically and fundraising efforts may be more challenging . the strength and liquidity of the u.s. and relevant global equity markets generally , and the initial public offering market specifically . the strength of these markets affects the value of , and our ability to successfully exit , our equity positions in our private equity portfolio companies in a timely manner . the strength and liquidity of the u.s. and relevant global debt markets . our funds and our portfolio companies borrow money to make acquisitions and our funds utilize leverage in order to increase investment returns that ultimately drive the performance of our funds . furthermore , we utilize debt to finance the principal investments in our funds and for working capital purposes . to the extent our ability to borrow funds becomes more expensive or difficult to obtain , the net returns we can earn on those investments may be reduced . stability in interest rate and foreign currency exchange rate markets . we generally benefit from stable interest rate and foreign currency exchange rate markets . the direction and impact of changes in interest rates or foreign currency exchange rates on certain of our funds are dependent on the funds ' expectations and the related composition of their investments at such time . for the most part , we believe the trends in these factors have historically created a favorable investment environment for our funds . however , adverse market conditions may affect our businesses in many ways , including reducing the value or hampering the performance of the investments made by our funds , and or reducing the ability of our funds to raise or deploy capital , each of which could materially reduce our revenue , net income and cash flow , and affect our financial condition and prospects . as a result of our value-oriented , contrarian investment style which is inherently long-term in nature , there may be significant fluctuations in our financial results from quarter to quarter and year to year . the financial markets encountered a series of negative events in 2007 and 2008 which led to a global liquidity and broad economic crisis and impacted the performance of many of our funds ' portfolio companies . the impact of such events on our private equity and credit funds resulted in volatility in our revenue . if the market were to experience similar periods of volatility , we and the funds we manage may experience tightening of liquidity , reduced earnings and cash flow , impairment charges , as well - 66 - as challenges in raising additional capital , obtaining investment financing and making investments on attractive terms . these market conditions can also have an impact on our ability to liquidate positions in a timely and efficient manner . for a more detailed description of how economic and global financial market conditions can materially affect our financial performance and condition , see โ item 1a .
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summary below is the summary of our total reportable segments , including management and incentive businesses , and a reconciliation of eni to net income attributable to apollo global management , llc reported in our consolidated statements of operations : replace_table_token_39_th liquidity and capital resources historical although we have managed our historical liquidity needs by looking at deconsolidated cash flows , our historical consolidated statements of cash flows reflects the cash flows of apollo , as well as those of the consolidated apollo funds . the primary cash flow activities of apollo are : generating cash flow from operations ; making investments in apollo funds ; meeting financing needs through credit agreements ; and distributing cash flow to equity holders and non-controlling interests . primary cash flow activities of the consolidated apollo funds are : raising capital from their investors , which have been reflected historically as non-controlling interests of the consolidated subsidiaries in our financial statements ; using capital to make investments ; generating cash flow from operations through distributions , interest and the realization of investments ; and distributing cash flow to investors . - 116 - while primarily met by cash flows generated through fee income and carried interest income received , working capital needs have also been met ( to a limited extent ) through borrowings as follows : replace_table_token_40_th ( 1 ) includes the effect of interest rate swaps . additionally the 2013 amh credit facilities provide for a $ 500 million revolving credit facility , which was undrawn as of december 31 , 2013. see note 14 of our consolidated financial statements for information regarding the company 's debt arrangements .
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following is a table of the changes to our asset retirement obligations for the following periods ( in thousands ) : replace_table_token_42_th the current portion of asset retirement obligations of $ 0 million and $ 1.6 million was included in `` other `` current liabilities on the story_separator_special_tag this management discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k , which have been prepared assuming we will continue as a going concern . as discussed in note 2 to the consolidated financial statements and below , the existence of a material uncertainty related to our compliance with financial covenants under our debt agreements raise substantial doubt about our ability to continue as a going concern . the consolidated financial statements do not include any adjustments that might result from this uncertainty . this management discussion and analysis contains forwardโlooking statements that involve risks , uncertainties , and assumptions as described under the heading โ cautionary note regarding forwardโlooking statements , โ in part i of this annual report on form 10-k. our actual results could differ materially from those anticipated by these forwardโlooking statements as a result of many factors , including those discussed under โ item 1a . risk factors โ and elsewhere in this annual report on form 10-k. our company we are the only producer of potash in the united states and are one of two producers of langbeinite , which we market and sell as trio ยฎ . our revenues are generated exclusively from the sale of potash and trio ยฎ . we also produce salt and magnesium chloride from our potash mining processes , the sales of which are accounted for as by-product credits to our cost of sales . these by-product credits represented approximately 2 % to 4 % of total cost of goods sold in each of the last three years . we produce potash at three solution mining facilities and two conventional underground mining facilities . our solution mining production comes from our hb mine near carlsbad , new mexico , a solution mine near moab , utah and a brine recovery mine in wendover , utah . our conventional production comes from our underground west and east mines near carlsbad , new mexico . we also operate the north compaction facility near carlsbad , new mexico , which services the west and hb mines . trio ยฎ production comes from underground conventional mining of a mixed ore body that contains both potash and langbeinite , which is mined and processed at the east facility near carlsbad , new mexico . we are in the process of transitioning our east facility to trio ยฎ -only production and expect this transition to be completed in mid-2016 . significant business trends and activities our financial results have been impacted by several significant trends , which are described below . we expect that these trends will continue to drive our results of operations , cash flows , and financial position . potash prices . our average net realized sales price for potash remained essentially flat at $ 339 per ton in the year ended december 31 , 2015 , compared to $ 332 per ton in the year ended december 31 , 2014. however , we experienced price declines sequentially during each quarter in 2015 due to concerns that global productive capacity exceeds demand . potash prices are a significant driver of profitability for our business . domestic pricing of our potash is influenced principally by the price established by our competitors . the significant price decline in the second half of 2015 was primarily due to oversupply and the impact of a strong us dollar on global producers importing tonnage into the north american potash market . the interaction of global potash supply and demand , credit , ocean , land and barge freight rates , and currency fluctuations also influence pricing . we expect potash prices will continue to be pressured throughout 2016 as global and u.s. potash supply continues to exceed demand and as commodity prices continue to be pressured . potash demand . we sold 587,000 tons of potash in the year ended december 31 , 2015 , a decrease of 328,000 tons compared to the year ended december 31 , 2014. the decrease in sales volumes resulted primarily from soft demand during the second half of 2015. our sales volumes reflect the uncertainty surrounding declining potash prices and our customers not wanting to take inventory price risk . we experienced weaker demand in the industrial markets in 2015 as compared to 2014 due to the decrease in oil and gas drilling in the u.s. we expect this trend to continue into 2016. as a result of the reduced demand , and limited inventory storage space , we temporarily curtailed production in late 2015 and early 2016 at our hb and west plants to manage inventory storage . if production continues to outpace demand , we may continue to utilize temporary curtailments to manage inventory levels . 36 our ability to supply tons to our customers on a timely basis continues to be a fundamental element of our sales strategy . we utilize our geographic location , which is an advantage relative to other producers , as well as our strong distribution system , to effectively position product closer to our customers . the specific timing of when farmers apply potash remains highly weather dependent and varies across the numerous growing regions within the u.s. the timing of potash sales is significantly influenced by the marketing programs of potash producers , as well as storage volumes closer to the farm gate . the combination of these items results in variability in potash sales and shipments , thereby increasing volatility of sales volumes from quarter to quarter and season to season . trio ยฎ prices and demand . story_separator_special_tag the audit report must not contain any going concern modification . the audit report included in this annual report on form 10-k contains a going concern modification , and therefore does not satisfy the credit facility covenant . if we are unable to provide an audit report without a going concern modification by march 31 , 2016 , or are unable to obtain a waiver of this covenant , our failure to comply with this covenant would result in an event of default that could result in the acceleration of all outstanding indebtedness . selected operating and financial data the following tables present selected operations data for the periods noted . analysis of the details of this information is contained throughout this discussion . we present this table as a summary of information relating to key indicators of financial condition and operating performance that we believe are important . we calculate average net realized sales price by deducting freight costs from gross revenues and then by dividing this result by tons of product sold during the period . 38 replace_table_token_10_th ( 1 ) additional information about our non-gaap financial measures is set forth under the heading `` non-gaap financial measures. โ ( 2 ) amounts are presented net of by-product credits . on a per-ton basis , by-product credits were $ 13 for the year ended december 31 , 2015 , $ 7 for the year ended 2014 , and $ 9 for the year ended 2013 . by-product credits were $ 7.9 million , $ 6.5 million and $ 6.5 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . ( 3 ) amounts presented exclude lower-of-cost-or-market inventory adjustments and costs associated with abnormal production . lower-of-cost-or-market inventory adjustments were $ 54 per ton and $ 8 per ton of potash sold in the year 39 ended december 31 , 2015 and 2014 , respectively . costs associated with abnormal production were $ 14 per ton of potash produced in the year ended december 31 , 2015. there were no costs associated with abnormal production in the years ended december 31 , 2014 and 2013 . 40 story_separator_special_tag royalties to federal , state , and private lessors under our mineral leases . these payments typically equal a percentage of net sales of minerals extracted and sold under the applicable lease . in some cases , federal royalties for potash are paid on a sliding scale that varies with the grade of ore extracted . our average royalty rate was 4.1 % , 3.8 % and 3.6 % in 2015 , 2014 and 2013 , respectively . income taxes we are a subchapter c corporation and , therefore , are subject to federal and state income taxes on our taxable income . our effective tax rate for the years ended december 31 , 2015 , 2014 , and 2013 was ( 40.0 ) % , 9.7 % , and 41.5 % , respectively . our effective income tax rates are impacted primarily by changes in the underlying tax rates in jurisdictions in which we are subject to income tax and permanent differences between book and tax income for the period , including the benefit associated with the estimated effect of the depletion deduction and research and development credits . during the year ended december 31 , 2015 , our effective tax rate was impacted as a result of recording an additional valuation allowance of $ 300.3 million related to existing deferred tax assets , including $ 218.8 million for property , plant , equipment and mineral properties , $ 39.3 million for federal and state net operating losses , and $ 4.2 million for federal and state alternative minimum tax credits . the additional valuation allowance was recorded due to the uncertainty around our ability to generate sufficient taxable income to realize the deferred tax assets . during the year ended december 31 , 2014 , our effective tax rate benefited from a discrete adjustment for the reversal of a $ 1.7 million valuation allowance related to our new mexico net operating loss carry forwards based on legislation passed by the state of new mexico during the first quarter of 2014. further , we benefited from a discrete adjustment related to the calculation of the benefit of the net operating loss carry back generated in 2013. the impact on our effective tax rate during 2014 of these discrete adjustments is more pronounced given the current level of income before income taxes our federal and state income tax returns are subject to examination by federal and state tax authorities . during the years ended december 31 , 2015 , 2014 , and 2013 , we recognized income tax expense of $ 150.0 million , $ 1.1 million and $ 15.8 million , respectively . in 2015 , 2014 , and 2013 , we incurred a net operating loss for income tax purposes . a portion of the net operating loss for 2013 was carried back to 2011 and 2012 with the remaining amount carried forward , along with the net operating losses for 2014 and 2015 , as a deferred tax asset . total tax expense for the year ended december 31 , 2015 , was comprised of $ 0.1 million of current income tax benefit and $ 150.1 million of deferred income tax expense . the majority of our income tax expense in 2015 resulted from the increase in our valuation allowance related to our deferred tax assets , as discussed above . total tax expense for the year ended december 31 , 2014 , was comprised of $ 1.0 million of current income tax benefit and $ 2.1 million of deferred income tax expense . total tax expense for the year ended december 31 , 2013 , was comprised of $ 14.3 million of current income tax expense and $ 30.1 million of deferred income tax expense .
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results of operations operating highlights net loss for 2015 was $ 524.8 million , or $ 6.94 per diluted share , and cash flows from operating activities were $ 22.7 million . our net loss for 2015 included long-lived asset impairment charges of $ 324 million in the fourth quarter of 2015 and a valuation allowance on our deferred tax assets , contributing to an income tax expense of $ 150 million for the year ended december 31 , 2015. potash the majority of our revenues and gross margin is derived from the production and sales of potash . potash sales as a percentage of our net sales , which we calculate as gross sales less freight costs , and gross margin were as follows for the indicated periods . replace_table_token_11_th we sold 587,000 tons of potash in 2015 compared with 915,000 tons in 2014 . the decrease in sales volume was driven by uncertainty surrounding declining potash prices resulting from global and domestic potash supplies exceeding demand . as a result , customers have limited their exposure to inventory price risk , which resulted in decreased sales volumes in 2015 as compared to 2014. our average net realized sales price of potash remained essentially flat at $ 339 per ton in 2015 , as compared to $ 332 per ton in 2014 . beginning in the third quarter 2015 , and intensifying through the fourth quarter 2015 , the potash market experienced significant price declines due to global oversupply and producers importing tonnage into the north american potash market , in some cases by global producers seeking to reduce credit risk and take advantage of the strong u.s. dollar .
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our sponsor , directors , officers and forward purchasers have agreed ( i ) to vote any shares of common stock owned by them in favor of any proposed business combination and ( ii ) not to redeem any shares of common stock owned by them in connection with a stockholder vote to approve a proposed initial business combination . our sponsor and our directors and officers are deemed to be our ยpromotersย as such term is defined under the federal securities laws . changes in control none . item 13. certain relationships and related transactions , and director independence . on may 7 , 2020 , our sponsor acquired 100 shares of class b common stock in exchange for a capital contribution of $ 25,000 , or $ 250 per share . upon completion of the initial public offering , the sponsor holds 20.0 % of the voting power of our outstanding common stock . because the voting power held by each share of class b common stock will not be adjusted upon the issuance of any forward purchase units , our sponsor will have less than 20.0 % of the voting power of the outstanding shares of our common stock . our class b common stock ( including the class a common stock issuable upon exercise thereof ) may not , subject to certain limited exceptions , be transferred , assigned or sold by the holder . our sponsor may , in its discretion , transfer , directly or indirectly , its class b common stock ( including the class a common stock issued upon conversion thereof ) to any affiliate transferee , subject to compliance with applicable securities laws . concurrently with our initial public offering , our sponsor purchased sponsor warrants in a private placement for a purchase price of $ 65,000,000 . the purchase price was determined by the company , in consultation with a third-party , nationally recognized valuation firm , to be the fair market value of the sponsor warrants . the nature of the valuation process used to value the sponsor warrants is inherently uncertain and imprecise . the sponsor warrants ' price was not determined in a negotiation between arm's-length third parties , which , had it occurred , may have resulted in a higher or lower valuation and more or less favorable terms . although we do not know what prices and terms would have resulted from a negotiation between arm's-length third parties , we believe that the purchase price of the sponsor warrants reflects fair market value . 61 the sponsor warrants will generally not be salable , transferable or exercisable until three years after story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we have not selected any specific business combination target . we intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placements of the sponsor warrants , director warrants and forward purchase units , our capital stock , debt or a combination of cash , stock and debt . our initial business combination will be a negotiated transaction , not a hostile takeover . the issuance of additional shares of our stock in a business combination , including the forward purchase securities : may significantly dilute the equity interest of investors ; may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock ; 49 could cause a change in control if a substantial number of shares of our common stock is issued , which may affect , among other things , our ability to use net operating loss carry forwards , if any , and could result in the resignation or removal of our present directors and officers ; may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and may adversely affect prevailing market prices for our shares of class a common stock and or redeemable warrants . similarly , if we issue debt instruments or otherwise incur significant indebtedness , it could result in : default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations ; acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; our inability to pay dividends on our common stock ; using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , our ability to pay expenses , make capital expenditures and acquisitions , and fund other general corporate purposes ; limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; increased vulnerability to adverse story_separator_special_tag our sponsor , directors , officers and forward purchasers have agreed ( i ) to vote any shares of common stock owned by them in favor of any proposed business combination and ( ii ) not to redeem any shares of common stock owned by them in connection with a stockholder vote to approve a proposed initial business combination . our sponsor and our directors and officers are deemed to be our ยpromotersย as such term is defined under the federal securities laws . changes in control none . item 13. certain relationships and related transactions , and director independence . on may 7 , 2020 , our sponsor acquired 100 shares of class b common stock in exchange for a capital contribution of $ 25,000 , or $ 250 per share . upon completion of the initial public offering , the sponsor holds 20.0 % of the voting power of our outstanding common stock . because the voting power held by each share of class b common stock will not be adjusted upon the issuance of any forward purchase units , our sponsor will have less than 20.0 % of the voting power of the outstanding shares of our common stock . our class b common stock ( including the class a common stock issuable upon exercise thereof ) may not , subject to certain limited exceptions , be transferred , assigned or sold by the holder . our sponsor may , in its discretion , transfer , directly or indirectly , its class b common stock ( including the class a common stock issued upon conversion thereof ) to any affiliate transferee , subject to compliance with applicable securities laws . concurrently with our initial public offering , our sponsor purchased sponsor warrants in a private placement for a purchase price of $ 65,000,000 . the purchase price was determined by the company , in consultation with a third-party , nationally recognized valuation firm , to be the fair market value of the sponsor warrants . the nature of the valuation process used to value the sponsor warrants is inherently uncertain and imprecise . the sponsor warrants ' price was not determined in a negotiation between arm's-length third parties , which , had it occurred , may have resulted in a higher or lower valuation and more or less favorable terms . although we do not know what prices and terms would have resulted from a negotiation between arm's-length third parties , we believe that the purchase price of the sponsor warrants reflects fair market value . 61 the sponsor warrants will generally not be salable , transferable or exercisable until three years after story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we are a blank check company incorporated as a delaware corporation and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . we have not selected any specific business combination target . we intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placements of the sponsor warrants , director warrants and forward purchase units , our capital stock , debt or a combination of cash , stock and debt . our initial business combination will be a negotiated transaction , not a hostile takeover . the issuance of additional shares of our stock in a business combination , including the forward purchase securities : may significantly dilute the equity interest of investors ; may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock ; 49 could cause a change in control if a substantial number of shares of our common stock is issued , which may affect , among other things , our ability to use net operating loss carry forwards , if any , and could result in the resignation or removal of our present directors and officers ; may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and may adversely affect prevailing market prices for our shares of class a common stock and or redeemable warrants . similarly , if we issue debt instruments or otherwise incur significant indebtedness , it could result in : default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations ; acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; our inability to pay dividends on our common stock ; using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , our ability to pay expenses , make capital expenditures and acquisitions , and fund other general corporate purposes ; limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; increased vulnerability to adverse
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results of operations all activities through december 31 , 2020 were related to the company 's organizational activities , preparation for the company 's initial public offering , and subsequently , identifying a target company for a business combination . we will not generate any operating revenues until after completion of our initial business combination . we generate non-operating income in the form of interest and dividends on cash and cash equivalents , and marketable securities held in the trust account . we incur ongoing expenses as a result of being a public company for legal , financial reporting , accounting and auditing compliance , as well as for due diligence expenses . for the period from may 4 , 2020 ( inception ) through december 31 , 2020 , we had a net loss of $ 1,430,298 , which consisted of legal , insurance , research , franchise tax and other expenses totaling $ 2,833,025 and a provision for income taxes of $ 289,155 , offset by interest and dividends earned on marketable securities held in the trust account and operating account of $ 1,509,419 , and an unrealized gains on marketable securities held in the trust account of $ 182,463. liquidity and capital resources our liquidity needs had been satisfied prior to the consummation of the initial public offering through a capital contribution of $ 25,000 by our sponsor in exchange for 100 shares of class b common stock , and interest bearing loans of $ 1,121,120 from our sponsor under an unsecured promissory note covering expenses related to the initial public offering . the loan was repaid in full on july 24 , 2020 , inclusive of interest .
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25 % of the options vest 12 months following issuance and the balance vests in 36 equal monthly installments thereafter . this stock option grant provides for accelerated vesting in the event of a change of control transaction or an initial public offering under which 50 % of such options ( assuming none have previously vested ) will vest immediately prior to such event . on october 19 , 2020 , mr. hua was granted stock options to purchase 41,120 shares of common stock under the 2019 plan at an exercise price per share of $ 4.86 and expiring 10 years from the date of grant . 25 % of the options vest 12 months following issuance and the balance vests in 36 equal monthly installments thereafter . this stock story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and the notes thereto appearing elsewhere in this report . this discussion contains forward-looking statements reflecting our current expectations , whose actual outcomes involve risks and uncertainties . actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors , including those discussed in the sections entitled โ risk factors , โ โ cautionary statement regarding forward-looking statements โ and elsewhere in this report . as described elsewhere in this report , all share and per share amounts set forth below have been presented on a retroactive basis to reflect a 1-for-1.580814 reverse stock split of our outstanding common stock implemented on january 12 , 2021. overview we are a developer of highly advanced and proprietary precision hardware and software grow solutions for the indoor agriculture marketplace . we believe we are the only company with an automated and fully integrated grow solution in the industry . we believe our agrify โ precision elevated โ cultivation solution is vastly differentiated from anything else on the market in that it combines our seamlessly integrated hardware and software offerings with a wide range of associated services such as consulting , engineering , and construction to form what we believe is the most complete solution available from a single provider . the totality of our product mix and service capabilities form an unrivaled ecosystem in what has historically been an extremely fragmented market . as a result , we believe we are well situated to create a dominant market position in the indoor agriculture sector . we had limited revenues from operations in each of the last two fiscal years . through 2019 , we concentrated our business with trigrow systems , inc. ( โ trigrow โ ) , acting as our exclusive distributor . during january 2020 , we acquired trigrow . and began selling our products directly to end customers . in july 2020 , we acquired hmh , a company that has been producing and assembling many of our products . recent events public offerings initial public offering on january 27 , 2021 , we entered into an underwriting agreement with maxim group llc , as representative of the underwriters named therein , in connection with our initial public offering ( the โ ipo โ ) . on january 27 , 2021 , we announced the pricing of our ipo of 5,400,000 shares of common stock for a price of $ 10.00 per share , less certain underwriting discounts and commissions . we also granted the underwriters a 45-day option to purchase up to 810,000 additional shares of our common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the ipo . 50 the ipo closed on february 1 , 2021. subsequently , the underwriters exercised the over-allotment option , and on february 4 , 2021 , we closed on the sale of an additional 810,000 shares of common stock for a price of $ 10.00 per share , less a 7 % underwriting commission . the exercise of the over-allotment option brings the total number of shares of common stock sold by us in connection with our ipo to 6,210,000 shares and the total net proceeds received in connection with the ipo to approximately $ 57 million , after deducting underwriting discounts and estimated offering expenses . subsequent public offering on february 16 , 2021 , we entered into an underwriting agreement with maxim group llc , as representative of the underwriters named therein , in connection with an underwritten public offering ( the โ february offering โ ) . on february 16 , 2021 , we announced the pricing of the february offering of 5,555,555 shares of common stock for a price of $ 13.50 per share , less certain underwriting discounts and commissions . we also granted the underwriters a 45-day option to purchase up to 833,333 additional shares of our common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the february offering . the february offering closed on february 19 , 2021. subsequently , the underwriters exercised the over-allotment option , and on march 22 , 2021 , we closed on the sale of an additional 833,333 shares of common stock for a price of $ 13.50 per share , less a 7 % underwriting commission . the exercise of the over-allotment option brings the total number of shares of common stock sold by us in connection with our february offering to 6,388,888 shares and the total net proceeds received in connection with the february offering to approximately $ 80 million , after deducting underwriting discounts and estimated offering expenses . story_separator_special_tag as part of the acquisition of hmh , we may issue stock options or shares of common stock ( at our discretion ) , at a value of up to $ 100,000 , to an executive of hmh upon achievement of certain milestones from the acquisition date through march 31 , 2021 , as a result of the efforts of the hmh executive . we concluded the earn-out , if materialized , will be considered as post business combination services . additionally , we concluded that the value associated with the earn-out to be de minimis . no earn-out was earned through december 31 , 2020 . 52 the purchase price for this business combination was allocated by us to the tangible and intangible assets acquired and liabilities assumed based on its book value which estimated the fair values on the acquisition date , with the remaining unallocated purchase price recorded as goodwill . transaction and related costs , consisting primarily of professional fees , directly related to the acquisition , totaled $ 35,000 for the year ended december 31 , 2020. all transaction and related costs were expensed as incurred and are included in selling , general and administrative expenses . the following table sets forth the components and the allocation of the purchase price for the business combination : replace_table_token_4_th the amount of revenue of hmh included in our consolidated statement of operations from the acquisition date of july 22 , 2020 to december 31 , 2020 was $ 0 . 53 the following pro forma financial information summarizes the combined results of operations for us , trigrow and hmh , as though the acquisition of trigrow and hmh occurred on january 1 , 2019. the unaudited pro forma financial information was as follows : replace_table_token_5_th the pro forma financial information for all periods presented above has been calculated after adjusting the results of trigrow and hmh to reflect the business combination accounting effects resulting from these acquisitions , including acquisition costs and the amortization expense from acquired intangible assets as though the acquisition occurred on january 1 , 2019. the historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination . the pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on january 1 , 2019. impact of coronavirus pandemic ( โ covid-19 โ ) in march 2020 , the world health organization declared the outbreak of the covid-19 virus a global pandemic . this outbreak is causing major disruptions to businesses and markets worldwide as the virus continues to spread . a number of countries as well as certain states and cities within the united states have enacted temporary closures of businesses , issued quarantine or shelter-in-place orders and taken other restrictive measures in response to covid-19 . to date , although all of our operations are operating , covid-19 has caused some disruptions to our business , such as some temporary delays in the delivery of our inventory , although recently we are no longer experiencing such delays . although the ability of our suppliers to timely ship their goods has affected some of our deliveries , currently the difficulties experienced by our suppliers have not yet materially impacted our ability to deliver products to our customers and we do not significantly depend on any one supplier . however , if this continues , it may negatively affect any inventory we may have and more significantly delay the delivery of merchandise to our customers , which in turn will adversely affect our revenues and results of operations . the extent to which covid-19 and the related global economic crisis , affect our business , results of operations and financial condition , will depend on future developments that are highly uncertain and can not be predicted , including the scope and duration of the pandemic and any recovery period , future actions taken by governmental authorities , central banks and other third parties ( including new financial regulation and other regulatory reform ) in response to the pandemic , and the effects on our produce , clients , vendors and employees . we continue to service our customers amid uncertainty and disruption linked to covid-19 and we are actively managing our business to respond to its impact . paycheck protection program loan under the coronavirus aid , relief , and economic security act on may 7 , 2020 , we entered into a loan agreement and promissory note ( collectively , the โ ppp loan โ ) with bank of america pursuant to the paycheck protection program ( the โ ppp โ ) under the recently enacted coronavirus aid , relief , and economic security act ( โ cares act โ ) administered by the u.s. small business administration ( the โ sba โ ) . we received total proceeds of $ 779,000 from the unsecured ppp loan . the ppp loan is scheduled to mature on may 7 , 2022 and has an interest rate of 1.00 % per annum and is subject to the terms and conditions applicable to loans administered by the sba under the cares act . the ppp loan may be prepaid at any time prior to its maturity with no prepayment penalties . 54 the ppp loan contains customary events of default relating to , among other things , payment defaults and breaches of representations and warranties . subject to certain conditions , the ppp loan may be forgiven in whole or in part by applying for forgiveness pursuant to the cares act and the ppp .
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results of operations comparison of years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_6_th 60 revenues our goal is to provide our customers with a variety of products to address their entire needs . our core product offering includes our agrify vertical farming units and agrify integrated grow racks with our agrify insights software , which in 2020 are supplemented with environmental control products , grow lights , and facility build-out services . during the first quarter of 2020 and in parallel with the outbreak of the covid-19 virus , we experienced a disruption in the supply chain that delay the delivery of several components necessary to the manufacturing of our agrify vertical farming units ( or avfus ) and as a result , delivery of several avfus was delayed to april 2020. we generate revenue from sales of cultivation solutions , including ancillary products and services , agrify insights software and facility build-outs . we believe that our product mix form an integrated ecosystem which allows us to be engaged with our potential customers from early stages of the grow cycle โ first during the facility build-out , to the choice of cultivation solutions and then running the grow business with our agrify insight software . we believe that delivery of each solution in the grow cycle will generate sales of additional solutions and services . the following table provides a breakdown of our revenue for the years ended december 31 , 2020 and 2019 : replace_table_token_7_th revenue from cultivation solutions and ancillary products for the years ended december 31 , 2020 and 2019 were generated mainly from the delivery of 179 avfus to a customer in washington state and 135 avfus to customers in colorado and nevada states , respectively .
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business overview we are the world 's largest provider of enterprise software and a leading provider of computer hardware products and services . our software , hardware systems , and services businesses develop , manufacture , market , host and support database and middleware software , applications software , and hardware systems , with the latter consisting primarily of computer server and storage products . our businesses provide products and services that are built upon industry standards , are engineered to work together or independently within existing customer information technology ( it ) environments and run securely on a wide range of customer it environments , including cloud computing environments . cloud computing environments provide on demand access to a shared pool of computing resources in a scalable , self-service manner , delivering advantages in speed , agility and efficiency . cloud computing has evolved from technologies and services that oracle has provided for many years , including clustering , server virtualization , service-oriented architecture ( soa ) , shared services , large-scale management automation , and more recently , engineered systems . our secure , reliable and scalable product offerings are designed to improve business efficiencies at a low total cost of ownership . we seek to be an industry leader in each of the product offering categories in which we compete and to expand into new and emerging markets . we believe our ability to offer our customers choice and flexibility in the manner in which they deploy our products and servicesยwhile maintaining enterprise-grade reliability , security and interoperability based upon industry-standardsยis important to our corporate strategy . oracle fusion applications , for example , offer customers a choice of deployment models to run our standards-based software applications in on-premise or cloud computing it environments . oracle cloud , a family of our cloud-based software subscription offerings , provides access to select oracle software applications and software platforms on a subscription basis in a secure , standards-based cloud computing environment . oracle cloud includes software applications as a service , such as oracle fusion human capital management cloud service and oracle fusion customer relationship management cloud service , and software platform services such as oracle database cloud service and oracle java cloud service , among others . we believe our internal growth and continued innovation with respect to our software , hardware and services businesses are the foundation of our long-term strategic plans . in each of fiscal 2012 and 2011 , we invested $ 4.5 billion and in fiscal 2010 we invested $ 3.3 billion in research and development to enhance our existing portfolio of products and services and to develop new products and services . we continue to focus the engineering of our hardware and software products to make them work together more effectively and deliver improved computing performance , reliability , and security to our customers . for example , oracle engineered systems , which include our oracle exadata database machine , oracle exalogic elastic cloud , and sparc supercluster products , amongst others , combine certain of our hardware and software offerings to provide engineered systems that increase computing performance and reduce storage requirements relative to our competitors ' products , creating time savings , efficiencies , and operational cost advantages for our customers . we also believe that an active acquisition program is an important element of our corporate strategy as it strengthens our competitive position , enhances the products and services that we can offer to customers , expands our customer base , provides greater scale to accelerate innovation , grows our revenues and earnings and increases stockholder value . in recent years , we have invested billions of dollars to acquire a number of companies , products , services and technologies that add to , are complementary to , or have otherwise enhanced our existing offerings . we expect to continue to acquire companies , products , services and technologies to further our corporate strategy . 38 we are organized into three businessesยsoftware , hardware systems and servicesยwhich are further divided into certain operating segments . prior to our acquisition of sun microsystems , inc. ( sun ) in january 2010 , we did not have a hardware systems business or related operating segments . each of our businesses and operating segments has unique characteristics and faces different opportunities and challenges . although we report our actual results in u.s. dollars , we conduct a significant number of transactions in currencies other than u.s. dollars . therefore , we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations . an overview of our three businesses and related operating segments follows . software business our software business , which represented 70 % , 68 % and 77 % of our total revenues in fiscal 2012 , 2011 and 2010 , respectively , is comprised of two operating segments : ( 1 ) new software licenses and ( 2 ) software license updates and product support . on a constant currency basis , we expect that our software business ' total revenues generally will continue to increase due to continued demand for our software products and software license updates and product support offerings , including the high percentage of customers that renew their software license updates and product support contracts and due to our acquisitions , which should allow us to grow our profits and continue to make investments in research and development . new software licenses : we license our database and middleware as well as our applications software and provide subscription-based access to select oracle software applications and software platforms through a cloud-based it environment to businesses of many sizes , government agencies , educational institutions and resellers . the growth in new software license revenues that we report is affected by the strength of general economic and business conditions , governmental budgetary constraints , the competitive position of our software products , our acquisitions and foreign currency fluctuations . story_separator_special_tag we expect our hardware business to have lower operating margins as a percentage of revenues than our software business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . hardware systems products : we provide a complete selection of hardware systems and related services including servers , storage , networking , virtualization software , operating systems , and management software to support diverse it environments , including public and private cloud computing environments . we engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud infrastructures . our hardware systems products consist primarily of computer server , storage and hardware-related software , including our oracle solaris operating system . our hardware systems component products are designed to be ยopen , ย or to work in customer environments that may include other oracle or non-oracle hardware or software components . we have also engineered our hardware systems products to create performance and operational cost advantages for customers when our hardware and software products are combined as oracle engineered systems . 40 our oracle engineered systems include oracle exadata database machine , oracle exalogic elastic cloud , oracle exalytics in-memory machine , sparc supercluster , oracle database appliance and the oracle big data appliance . by combining our server and storage hardware with our software , our open , integrated products better address customer on-premise and cloud computing requirements for performance , scalability , reliability , security , ease of management and lower total cost of ownership . we offer a wide range of server systems using our sparc microprocessor . our sparc servers are differentiated by their reliability , security , scalability and customer environments that they target ( general purpose or specialized systems ) . our midsize and large servers are designed to offer greater performance and lower total cost of ownership than mainframe systems for business critical applications and for customers having more computationally intensive needs . our sparc servers run the oracle solaris operating system and are designed for the most demanding mission critical enterprise environments at any scale . we also offer enterprise x86 servers . these x86 servers are primarily based on microprocessor platforms from intel corporation and are also compatible with oracle solaris , oracle linux , microsoft windows and other operating systems . our netra line of servers are aimed at the unique needs of original equipment manufacturers ( oems ) and network equipment providers . rack-optimized systems and our blade product offerings combine high-density hardware architecture and system management software that oems find particularly useful in building their own solution architectures . our storage products are designed to securely manage , protect , archive and restore customers ' mission critical data assets and consist of tape , disk , hardware-related software including file systems software , back-up and archive software and storage management software and networking for mainframe and open systems environments . the majority of our hardware systems products are sold through indirect channels , including independent distributors and value added resellers . to produce our hardware products , we rely on both our internal manufacturing operations as well as third party manufacturing partners . our internal manufacturing operations consist primarily of final assembly , test and quality control of enterprise and data center servers and storage systems . for all other manufacturing , we rely on third party manufacturing partners . we distribute most of our hardware products either from our facilities or partner facilities . we strive to reduce costs by simplifying our manufacturing processes through increased standardization of components across product types and a ยbuild-to-orderย manufacturing process in which products generally are built only after customers have placed firm orders . in addition , we seek to enhance hardware systems support processes that are designed to proactively identify and solve quality issues and to increase the amount of new hardware systems support contracts sold in connection with the sales of new hardware products . our hardware systems products revenues , cost of hardware systems products and operating margins that we report are affected by the strength of general economic and business conditions , governmental budgetary constraints , our strategy for and the competitive position of our hardware systems products , our acquisitions and foreign currency rate fluctuations . in addition , our operating margins for our hardware systems products segment have been and will be affected by the amortization of intangible assets . we have limited experience in predicting our quarterly hardware systems products revenues . the timing of customer orders and delays in our ability to timely manufacture or deliver a few large transactions could substantially affect the amount of hardware systems products revenues , expenses and operating margins that we report . hardware systems support : our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our server and storage products , such as oracle solaris , and can include product repairs , maintenance services and technical support services . typically , our hardware systems support contract arrangements are invoiced to the customer at the beginning of the support period and are one year in duration . our hardware systems support revenues that we report are influenced by a 41 number of factors , including the volume of purchases of hardware products , the mix of hardware products purchased and the percentage of our hardware systems support contract customer base that renews its support contracts . all of these factors are heavily influenced by our customers ' decisions to either maintain or upgrade their existing hardware systems ' infrastructure to newly developed technologies that are available .
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results of operations impact of acquisitions the comparability of our operating results in fiscal 2012 compared to fiscal 2011 is impacted by our acquisitions , primarily the acquisition of taleo in the fourth quarter of fiscal 2012 , rightnow in the third quarter of fiscal 2012 , atg in the third quarter of fiscal 2011 and phase forward during the first quarter of fiscal 2011. the comparability of our operating results in fiscal 2011 compared to fiscal 2010 is impacted by our acquisitions , primarily the acquisition of sun in the third quarter of fiscal 2010 and , to a lesser extent , our acquisitions of atg in the third quarter of fiscal 2011 and phase forward during the first quarter of fiscal 2011. in our discussion of changes in our results of operations from fiscal 2012 compared to fiscal 2011 and fiscal 2011 compared to fiscal 2010 , we quantify the contributions of our acquired products to the growth in new software license revenues , software license updates and product support revenues , hardware systems products revenues ( as applicable ) and hardware systems support revenues ( as applicable ) for the one year period subsequent to the acquisition date . we also are able to quantify the total incremental expenses associated with our hardware systems products and hardware systems support operating segments for fiscal 2011 in comparison to fiscal 2010. the incremental contributions of our acquisitions to our other businesses and operating segments ' revenues and expenses are not provided as they either were not separately identifiable due to the integration of these operating segments into our existing operations and or were insignificant to our results of operations during the periods presented .
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49 nortech systems incorporated and subsidiaries notes to consolidated financial statements as of and for the years ended december 31 , 2019 and 2018 ( in thousands , except share and per share data ) during fiscal year ended december 31 , 2019 we did business with printed circuits , inc. which is 90 % owned by the kunin family , of which , owns a majority of our stock . we made payments totaling $ 131 during 2019 to printed circuits , inc. 50 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures in accordance with rule 13a-15 ( b ) of the exchange act , as of the end of the period covered by this annual report on form 10-k , the company 's management evaluated , with the participation of the company 's chief executive officer and chief financial officer , the effectiveness of the design and operation of the company 's disclosure controls and procedures ( as defined in rule 13a-15 ( e ) under the exchange act ) . these controls and procedures are designed to ensure that information required to be disclosed in the company 's exchange act reports is ( 1 ) recorded , processed , summarized and reported in a timely manner , and ( 2 ) accumulated and communicated to management , including the company 's chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . based upon their evaluation of these disclosure controls and procedures as of the date of the evaluation , the chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective . management 's annual report on internal control over financial reporting management of the company is responsible for establishing and maintaining adequate internal control over financial reporting . our internal control system was designed to provide reasonable assurance to management and the board of directors regarding the effectiveness of our internal control processes over the preparation and fair presentation of published financial statements . all internal control systems , no story_separator_special_tag overview we are a minnesota , united states based full-service global ems contract manufacturer offering a full range of value-added engineering , technical and manufacturing services and support including project management , design , testing , prototyping , manufacturing , supply chain management and post-market services . our products are complex wire and cable assemblies , printed circuit board assemblies , higher-level assemblies , medical devices and other box builds for a wide range of industries . we serve three major markets within the ems industry : aerospace and defense , medical , and the industrial market which includes industrial capital equipment , transportation , vision , agriculture , oil and gas . as of december 31 , 2019 , we have facilities in minnesota ; bemidji , blue earth , mankato , merrifield , milaca and maple grove . we also have facilities in monterrey , mexico and suzhou , china . our revenue is derived from complex designed products built to the customers ' specifications . the products we manufacture are engineered and designed products that require sophisticated manufacturing support . quality , on time delivery , and reliability are of upmost importance . our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service , early engagement design , and development strategy . we continue to focus on lean manufacturing initiatives , quality and on-time delivery improvements to increase asset utilization , reduce lead times and provide competitive pricing . our strategic investments have positioned us to capitalize on growth opportunities in the medical markets and improve our competitiveness by expanding our global footprint . our industrial and defense markets are focused on improving our asset utilization and profitability while transforming to a value added , solution-sell business model that supports early engagement , design for manufacturability and rapid prototyping . recent business developments the recent outbreak of novel coronavirus ( `` covid-19 '' ) has continued to spread and is currently classified as a pandemic . we recognize the seriousness of the current pandemic and are determined to address the outbreak and minimize the impact of covid-19 . our highest priority is the safety and well-being of our employees and other members in the nortech community . in all of our locations , nortech employees and contractors have been working diligently to take precautions to ensure a clean and safe environment . we are also working closely with our suppliers and customers to ensure that we are taking every feasible step to minimize disruption and to continue to deliver the products our customers ' need . as of the date of this filing , covid-19 has not had a significant impact on our business . although we currently expect that any future disruptive impact of covid-19 on our business to be temporary , this situation continues to evolve rapidly and therefore we can not predict the extent of which covid-19 's impact on nortech . we expect and are seeing that covid-19 ( and reactions to it ) are having and will have negative global financial consequences and heightened uncertainty , which may directly or indirectly negatively impact the operation of our supply chain , our liquidity and capital resources , and our workforce availability , any of which could have a material adverse effect on our business , financial condition , results of operations or cash flows . 16 critical accounting policies and estimates our significant accounting policies and estimates are summarized in โ notes to consolidated financial statements โ . some of the accounting policies require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates . such judgments are subject to an inherent degree of uncertainty . story_separator_special_tag we have an evaluation process to assess the value of the inventory that is slow moving , excess or obsolete on a quarterly basis . we evaluate our inventory based on current usage and the latest forecasts of product demand and production requirements from our customers . we believe the total reserve at december 31 , 2019 of $ 1.5 million is adequate . story_separator_special_tag times , serif ; font-size : 10pt ; margin : 0pt ; text-align : left '' > our 2018 tax rate was driven by the tax on global intangible low-taxed income provisions that was enacted in 2018 and onward . the statutory reconciliation for the years ended december 31 , 2019 and 2018 is as follows : replace_table_token_9_th net ( loss ) income our net loss in 2019 was $ 1.2 million or $ ( 0.46 ) per diluted common share . net income in 2018 was $ 0.2 million or $ 0.06 per diluted common share . liquidity and capital resources we believe that our existing financing arrangements and anticipated cash flows from operations will be sufficient to satisfy our working capital needs , capital expenditures and debt repayments for at least the next 12 months . credit facility we have a credit agreement with bank of america which was entered into on june 15 , 2017 ( as amended , the โ bank of america credit agreement โ ) , and provides for a line of credit arrangement of $ 16 million that expires on june 15 , 2022. the credit arrangement also has a $ 5 million real estate term note outstanding with a maturity date of june 15 , 2022. under the bank of america credit agreement , both the line of credit and real estate term notes are subject to variations in the libor rate . our bank of america credit agreement bears interest at the combined weighted-average interest rate of 5.5 % as of december 31 , 2019 , compared with 4.80 % as of december 31 , 2018. we had borrowings on our bank of america credit agreement of $ 10.1 million outstanding , compared with $ 9.3 million outstanding as of december 31 , 2018. there are no acceleration clauses under the bank of america credit agreement that would accelerate the maturity of our outstanding line of credit borrowings . the line of credit and real estate term notes with bank of america contain certain covenants which , among other things , require us to adhere to regular reporting requirements , abide by annual shareholder dividend limitations , maintain certain financial performance , and limit the amount of annual capital expenditures . the availability under our line is subject to borrowing base requirements , and advances are at the discretion of the lender . the line of credit is secured by substantially all of our assets . 21 the bank of america credit agreement provides for , among other things , a fixed charge coverage ratio of not less than ( i ) 1.0 to 1.0 for the three months ending december 31 , 2019 , six months ending march 31 , 2020 , nine months ending june 30 , 2020 and twelve months ending september 30 , 2020 and each fiscal quarter end thereafter . the availability under the line is subject to borrowing base requirements , and advances are at the discretion of the lender . at december 31 , 2019 , we had unused availability under our line of credit of $ 4.1 million , supported by our borrowing base . the line is secured by substantially all of our assets . in the second quarter of 2019 , our china operations entered into a line of credit arrangement with china construction bank which provides for a line of credit arrangement of 6,000,000 renminbi ( rmb ) that expires on april 3 , 2021. this line of credit bears an interest rate of 6 % and we had no amounts outstanding as of december 31 , 2019. cash flows for the years ended december 31 , 2019 and 2018 are summarized as follows : replace_table_token_10_th cash provided by operating activities for the year ended december 31 , 2019 was $ 1.0 million and for the year ended december 31 , 2018 was $ 2.4 million , both comprised primarily of net ( loss ) /income adjusted by the noncash add back of depreciation and amortization . the year-over-year decrease in cash provided by operating activities is due to the decrease in net earnings . net cash used in investing activities was $ 0.8 million and $ 1.4 million for the years ended december 31 , 2019 and 2018 , respectively . cash used in investing activities in 2019 and 2018 was primarily reinvestments in the business to purchase property and equipment . net cash used in financing activities in 2019 and 2018 of $ 0.5 million and $ 0.9 million , respectively , consisted of payments on long-term debt and capital lease partially offset by borrowing on our line of credit . off-balance sheet arrangements we do not have any significant off-balance sheet arrangements . 22 forward-looking statements this annual report on form 10-k , including โ management 's discussion and analysis of financial condition and results of operations โ in item 7 , contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. we may also make forward-looking statements in other reports filed with the sec , in materials delivered to stockholders and in press releases . such statements generally will be accompanied by words such as โ anticipate , โ โ believe , โ โ estimate , โ โ expect , โ โ forecast , โ โ intend , โ โ possible , โ โ potential , โ โ predict , โ โ project , โ or other similar words that convey the uncertainty of future events or outcomes . although we believe these forward-looking statements are
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operating results the following table presents our statements of operations data as percentages of total net sales for the years indicated : replace_table_token_4_th net s ales our net sales in 2019 were $ 116.3 million , compared to $ 113.4 million in 2018 , an increase of $ 2.9 million or 2.6 % . net sales results were varied by markets . the medical market increased by $ 12.6 million or 25.2 % with medical devices accounting for 140 % of the increase while medical component products decreased 40 % . the industrial market decreased by $ 9.6 million or 21.3 % in 2019 as compared to 2018. net sales from the aerospace and defense markets decreased by $ 0.1 million or 0.6 % in 2019 as compared to 2018 . 18 net sales by our major ems industry markets for the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_5_th net sales by timing of transfer of goods and services for year ended december 31 , 2019 and 2018 are as follows ( in millions ) : replace_table_token_6_th replace_table_token_7_th backlog our 90-day backlog at december 31 , 2019 was $ 27.3 million , compared to $ 27.4 million at the end of 2018. our aerospace and defense customers 90-day backlog increased 16.7 % compared to the prior year end , along with an increase of 2.0 % for our medical customers over the prior year . these increases were offset by a decrease of 19.4 % in our industrial customers 90-day backlog compared to the prior year end . 19 90-day backlog by our major ems industry markets are as follows : replace_table_token_8_th our 90-day backlog varies due to order size , manufacturing delays , inventory programs , contract terms and conditions and changes in timing of customer delivery schedules and releases . these variables cause inconsistencies in comparing the backlog from one period to the next .
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on october 31 , 2013 , prior to the reverse stock splits , the holders of shares of the company 's series b preferred stock elected to convert all issued and outstanding shares of such preferred stock into shares of common stock at the applicable conversion rate , which was one-to-one . 8. stock-based compensation on june 11 , 2014 , the company adopted the 2014 plan . the 2014 plan provides for the issuance of equity awards to employees and non-employees of 3,000,000 shares , plus one share for each share subject to a stock option that was outstanding under the 2011 plan as of the effective date of the 2014 plan that subsequently expires , is forfeited or is settled in cash . on february 28 , 2014 , the company adopted the employment inducement incentive award plan ( the ยinducement planย ) . the inducement plan provided for the issuance of equity awards to new employees of 1,000,000 shares . in 2011 , the company adopted the 2011 plan . the 2011 plan provided for the story_separator_special_tag and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited , to those set forth under ยitem 1a ย risk factorsย and elsewhere in this annual report on form 10-k. on october 31 , 2013 , ignyta , then known as ignyta operating , inc. , merged with and into igas acquisition corp. , a wholly-owned subsidiary of ignyta , inc. , or parent , a nevada corporation previously named infinity oil & gas company and formerly a ยshell companyย under applicable rules of the securities and exchange commission . we survived the merger as a wholly owned subsidiary of parent . in the merger , parent acquired our business and continued our business operations . the merger is accounted for as a reverse merger and recapitalization , with ignyta as the acquirer and parent as the acquired company for financial reporting purposes . as a result , the assets and liabilities and the operations that are reflected in the historical financial statements prior to the merger are those of ignyta and are recorded at the historical cost basis of ignyta , and the consolidated financial statements after completion of the merger will include the assets and liabilities of ignyta and parent , the historical operations of ignyta and the operations of the combined enterprise of ignyta and parent from and after the closing date of the merger . as a result of the accounting treatment of the merger and the change in ignyta 's business and operations from a shell company to a precision oncology biotechnology company , a discussion of the past financial results of the shell company is not pertinent or material , and the following discussion and analysis of our financial condition and results of operations are based on ignyta 's financial statements . on june 12 , 2014 , parent merged with and into ignyta , with ignyta surviving the merger and changing its name to ignyta , inc. unless the context indicates or otherwise requires , the terms ยwe , ย ยus , ย ยourย and ยour companyย refer to ( i ) ignyta for discussions relating to periods before and through the closing of the october 2013 merger , ( ii ) parent and its consolidated subsidiary , ignyta operating , for discussions relating to periods after the closing of the october 2013 merger and before the closing of the june 2014 merger , and ( iii ) ignyta for discussions relating to periods after the closing of the june 2014 merger . overview we were incorporated under the laws of the state of delaware on august 29 , 2011 with the name ยnexdx , inc.ย we changed our name to ยignyta , inc.ย on october 8 , 2012. on october 31 , 2013 , a wholly owned subsidiary of parent merged with and into our company , pursuant to which we became the wholly owned subsidiary of parent . we changed our name to ยignyta operating , inc.ย in connection with the closing of the merger . on october 31 , 2013 , prior to the closing of the merger , ( i ) all then-outstanding shares of each series of our preferred stock were voluntarily converted by the holders thereof into shares of our common stock in accordance with our certificate of incorporation , and ( ii ) we effected a three-to-one reverse stock split of our issued and outstanding shares of capital stock . all share information in this discussion and analysis relating to our capital stock gives retroactive effect to that reverse stock split . on may 20 , 2013 , we completed our acquisition of actagene oncology , inc. , or actagene , which merged with and into our company on that date . on june 12 , 2014 , we merged with and into parent , with ignyta surviving the merger , resulting in our reincorporation from nevada to delaware . in connection with this merger , each share of ignyta common stock was converted into one share of ignyta operating common stock , and we changed our name to ยignyta , inc.ย we are a precision oncology biotechnology company dedicated to discovering or acquiring , then developing and commercializing , targeted new drugs for cancer patients whose tumors harbor specific molecular alterations . story_separator_special_tag establishing relationships with third parties for such purpose ; developing and commercializing , individually or with third-party collaborators , companion diagnostics ; and a continued acceptable safety profile of the products following approval , if any . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing and likelihood of success associated with the development of that product candidate . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to facilities expansion , the hiring of additional personnel and increased fees to outside consultants , lawyers and accountants , among other expenses . additionally , increased costs associated with operating as a public company are expected to include expenses related to services associated with maintaining compliance with requirements of the sec , insurance and investor relations costs . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with united states generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of expenses during the reporting periods . we base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances at the time the estimates are made , the results of which form the basis for making judgments about the book value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we periodically evaluate our estimates and judgments , including those described in greater detail below , in light of changes in circumstances , facts and experience . 52 our critical accounting policies are those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are described in more detail in the notes to our financial statements included in this annual report on form 10-k. we believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows : revenue recognition to date , we have not generated any material revenue . income taxes deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . income tax expense is the combination of the tax payable for the year and the change during the year in deferred tax assets and liabilities . cash and cash equivalents we consider all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents . cash equivalents primarily represent amounts invested in money market funds whose cost equals market value . investments investments consist of corporate notes and bonds and commercial paper . we classify investments as available-for-sale at the time of purchase . all investments are recorded at estimated fair value . unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income , a component of stockholders ' equity . we evaluate our investments as of each balance sheet date to assess whether those with unrealized loss positions are other than temporarily impaired . impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that we will sell the securities before the recovery of our cost basis . realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income ( expense ) , net in the statement of operations . no other-than-temporary impairment charges have been recognized since inception . stock-based compensation we account for stock-based compensation in accordance with financial accounting standards board accounting standards codification topic 718 , compensation ย stock compensation , which establishes accounting for equity instruments exchanged for employee services . under such provisions , stock-based compensation cost is measured at the grant date , based on the calculated fair value of the award determined using the black-scholes option-pricing model , and is recognized as an expense , under the straight-line method , over the employee 's requisite service period ( generally the vesting period of the equity grant ) . we account for equity instruments , including restricted stock or stock options , issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees . stock options issued to non-employees are accounted for at their estimated fair value determined using the black-scholes option-pricing model .
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results of operations comparison of years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 , together with the changes in those items in dollars and as a percentage : replace_table_token_3_th revenue . we recorded revenue of $ 150,000 for the year ended december 31 , 2014. we did not record any revenue for the year ended december 31 , 2013. the increase was due to a one-time service-fee for research services conducted in the second quarter of 2014. research and development expense . research and development expense increased by approximately $ 20.3 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , an increase of 200 % . the increase in research and development expenses was primarily attributable to the milestone payment of $ 10 million to nms as part of the amendment signed in december 2014 and the payment of the upfront license fee of $ 3.5 million to nms for rights to our rxdx-103 and rxdx-104 product candidates , as well as an increase in activities relating to development of our entrectinib product candidate . we also incurred an increase between periods for personnel expenses related to hiring and engaging additional employees and consultants to help us advance our product candidates and facilities related expenses as a result of the expansion of our leased facilities space . general and administrative expense . general and administrative expenses increased by approximately $ 5.8 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , an increase of 154 % .
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if the standalone selling price is not observable through story_separator_special_tag the following discussion and analysis is intended to facilitate an understanding of our results of operations and financial condition and should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. the following discussion and analysis of our financial condition and results of operations contains forward-looking statements about our business , operations and industry that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations and intentions . actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements due to a number of factors , including those set forth under โ risk factors โ and elsewhere in this annual report on form 10-k. see โ risk factors โ and โ special note regarding forward-looking statements. โ discussion and analysis of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 is included under the heading โ item 7. management 's discussion and analysis of financial condition and results of operations โ in our annual report on form 10-k for the year ended december 31 , 2019 as filed with the sec on february 27 , 2020. overview we are a learning technology company committed to delivering connected solutions that engage learners , empower educators and improve student outcomes . as a leading provider of kโ12 core curriculum , supplemental and intervention solutions , and professional learning services , we partner with educators and school districts to uncover solutions that unlock students ' potential and extend teachers ' capabilities . we estimate that we serve more than 50 million students and three million educators in 150 countries , while our award-winning children 's books , novels , non-fiction , and reference titles are enjoyed by readers throughout the world . for nearly two centuries , our hmh books & media segment has brought renowned and awarded children 's , fiction , non-fiction , culinary and reference titles to readers throughout the world . our distinguished author list includes ten nobel prize winners , forty-nine pulitzer prize winners , and twenty-six national book award winners . we are home to popular characters and titles such as curious george , carmen sandiego , the lord of the rings , the whole 30 , the best american series , the peterson field guides , cliffsnotes , and the polar express , and published distinguished authors such as tim o'brien , temple grandin , tim ferriss , kwame alexander , lois lowry , and chris van allsburg . recent developments covid-19 prior to the spread of covid-19 in the united states , we experienced net sales results consistent with our historical first quarters . as we proceeded through the first quarter of 2020 and the impact of the covid-19 pandemic progressed , schools began to close in response to federal , state and local social distancing directives resulting in a decline in net sales and sales orders in the second half of march 2020. we implemented a number of measures intended to help protect our shareholders , employees , and customers amid the covid-19 outbreak . we also have taken actions to help mitigate some of the adverse impact of covid-19 to our profitability and cash flow in 2020 , while working proactively with schools to support them through this period of disruption with virtual learning resources . actions taken to mitigate the impact of covid-19 on our business included : ( 1 ) director , executive and senior leadership salary reductions , and for the majority of employees , a four-day work week with associated labor cost reductions , in each case beginning in april 2020 and ceasing near the end of july 2020 ; ( 2 ) a freeze on spending not directly tied to near-term billings , including a reduction in all discretionary spending such as marketing , advertising , travel , and office supplies ; ( 3 ) reduced inventory purchasing ; ( 4 ) deferral of long-term capital projects not directly contributing to billings in 2020 ; and ( 5 ) borrowing $ 150 million from our asset-backed credit facility as a pre-emptive measure to mitigate against capital market disruptions . further , we elected to defer the payment of our employer payroll taxes allowed under the coronavirus aid , relief , and economic security ( โ cares โ ) act . 31 the majority of the hmh workforce has continued to work remotely subsequent to march 2020. the four-day work week furlough program along with director , executive , and senior leadership salary reductions that we announced in march 2020 ended by the end of july . the costs associated with ending the furlough program and the salary reductions were subsequently mitigated by the 2020 restructuring plan discussed below . we also repaid $ 50.0 million of our asset-backed credit facility at the end of june and repaid the remaining outstanding $ 100.0 million during july and currently have no drawn balance on our asset-backed credit facility . further , the deferral of the payment of our employer payroll taxes allowed under the cares act during 2020 was repaid in full in december 2020. given the ongoing covid-19 situation , our education business will continue to be impacted during 2021 , and significant uncertainty is likely to persist in the marketplace . additionally , our hmh books & media business may continue to be impacted . 2020 restructuring plan we are continuing to assess our cost structure amid the covid-19 pandemic and in line with our strategic transformation plan announced in the fourth quarter of 2019 , discussed below , to ensure our cost structure is aligned to our net sales and long-term strategy . as part of this effort , o n september 4 , 2020 , we finalized a voluntary retirement incentive program , which was offered to all u.s. based employees at least 55 years of age with at least five years of service . story_separator_special_tag the level of revenues being deferred can fluctuate depending upon the mix of product offering between digital and non-digital products , the length of programs and the mix of product delivered immediately or over time . core curriculum programs , which historically represent the most significant portion of our education segment net sales , cover curriculum standards in a particular k-12 academic subject and include a comprehensive offering of teacher and student materials required to conduct the class throughout the school year . products and services in these programs include print and digital offerings for students and a variety of supporting materials such as teacher 's editions , formative assessments , supplemental materials , whole group instruction materials , practice aids , educational games and professional services . the process through which materials and curricula are selected and procured for classroom use varies throughout the united states . currently , 19 states , known as adoption states , review and approve new programs usually every six to eight years on a state-wide basis . school districts in those states typically select and purchase materials from the state-approved list . the remaining states are known as open states or open territory states . in those states , materials are not reviewed at the state level , and each individual school or school district is free to procure materials at any time , although most follow a five-to-ten year replacement cycle . the student population in adoption states represents approximately 50 % of the u.s. elementary and secondary school-age population . some adoption states provide โ categorical funding โ for instructional materials , which means that those state funds can not be used for any other purpose . our core curriculum programs typically have higher deferred sales than other parts of the business . the higher deferred sales are primarily due to the length of time that our programs are being delivered , along with greater component and digital product offerings . a significant portion of our education segment net sales is dependent upon our ability to maintain residual sales , which are subsequent 33 sales after the year of the original adoption , and our ability to continue to generate new business by developing new programs that meet our customers ' evolving needs . in addition , our market is affected by changes in state curriculum standards , which drive instruction , assessment and accountability in each state . changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards , which historically has driven demand for core curriculum programs . we also derive our education segment net sales from supplemental and intervention products that target struggling learners through comprehensive intervention solutions aimed at raising student achievement by providing solutions that combine technology , content and other educational products , as well as consulting and professional development services . we also offer products targeted at assisting english language learners . in international markets , we predominantly export and sell k-12 books to premium private schools that utilize the u.s. curriculum , which are located primarily in asia , the pacific , the middle east , latin america , the caribbean and africa . our international sales team utilizes a global network of distributors in local markets around the world . our hmh books & media segment sells works of fiction and non-fiction in the general interest and young reader 's categories , dictionaries and other reference works . while print remains the primary format in which trade books are produced and distributed , the market for trade titles in digital format , primarily ebooks , generally represents approximately 10 % of our annual hmh books & media net sales . further , hmh books & media licenses content to other publishers along with media companies . factors affecting our net sales include : education general economic conditions at the federal or state level ; state or district per student funding levels ; federal funding levels ; the cyclicality of the purchasing schedule for adoption states ; student enrollments ; adoption of new education standards ; state acceptance of submitted programs and participation rates for accepted programs ; technological advancement and the introduction of new content and products that meet the needs of students , teachers and consumers , including through strategic agreements pertaining to content development and distribution ; and the amount of net sales subject to deferrals which is impacted by the mix of product offering between digital and non-digital products , the length of programs and the mix of product delivered immediately or over time . hmh books & media consumer spending levels as influenced by various factors , including the u.s. economy and consumer confidence ; the publishing of bestsellers along with obtaining recognized authors ; film and series tie-ins to our titles that spur sales of current and backlist titles , which are titles that have been on sale for more than a year ; and market growth or contraction . state or district per-student funding levels , which closely correlate with state and local receipts from income , sales and property taxes , impact our sales as institutional customers are affected by funding cycles . most public school districts , the primary customers for k-12 products and services , are largely dependent on state and local funding to purchase materials . 34 we monitor the purchasing cycles for specific disciplines in the adoption states in order to manage our product development and to plan sales campaigns . our sales may be materially impacted during the years that major adoption states , such as florida , california and texas , are or are not scheduled to make significant purchases . for example , texas adopted reading/english language arts materials in 2018 for purchase in 2019 and 2020 .
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results of operations consolidated operating results for the years ended december 31 , 2020 and 2019 replace_table_token_2_th nm = not meaningful net sales for the year ended december 31 , 2020 decreased $ 359.4 million , or 25.8 % , from $ 1,390.7 million in 2019 to $ 1,031.3 million . the net sales decrease was driven by a $ 371.1 million decrease in our education segment , offset by a $ 11.7 million increase in our hmh books & media segment . within our education segment , the decrease was primarily due to lower net sales in extensions , which primarily consist of our heinemann brand , intervention and supplemental products as well as professional services , which decreased by $ 252.0 million from $ 632.0 million in 2019 to $ 380.0 million . within extensions , net sales decreased due to lower sales of the heinemann 's fountas & pinnell classroom , calkins and lli leveled literacy products due to a difficult comparison to prior year texas k-6 sales coupled with the impact of the covid-19 pandemic in 2020. also , contributing to the decrease was lower professional services with the decline of the in-person learning environment as a result of the covid-19 pandemic . further , there were lower net sales from core solutions which decreased by $ 119.0 million from $ 578.0 million in 2019 to $ 459.0 million , primarily due to the smaller new adoption market opportunity in texas ela , along with impacts of the covid-19 pandemic . within our hmh books & media segment , the increase in net sales was primarily due to $ 9.6 million of licensing revenue from a new production series , a $ 3.4 million increase in licensing revenue attributed to the carmen sandiego series on netflix , and strong net sales of the frontlist titles the 99 % invisible city , compromised and defined dish .
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this management 's discussion and analysis of financial condition and results of operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the private securities litigation reform act of 1995. see โ note regarding forward-looking statements โ for cautionary language regarding forward-looking statements . this management 's discussion and analysis of financial condition and results of operations includes references to our performance measures , adjusted earnings and adjusted earnings available to common shareholders , that are not based on gaap . see โ โ non-gaap and other financial disclosures โ for definitions and a discussion of these measures , and โ โ results of operations โ for reconciliations of historical non-gaap financial measures to the most directly comparable gaap measures . executive summary overview metlife is one of the world 's leading financial services companies , providing insurance , annuities , employee benefits and asset management . metlife is organized into five segments : u.s. ; asia ; latin america ; emea ; and metlife holdings . in addition , the company reports certain of its results of operations in corporate & other . see โ business โ segments and corporate & other โ and note 2 of the notes to the consolidated financial statements for further information on the company 's segments and corporate & other . management continues to evaluate the company 's segment performance and allocated resources and may adjust related measurements in the future to better reflect segment profitability . u.s. tax reform in december 2017 , u.s. tax reform was signed into law . u.s. gaap requires that the impact of tax legislation be recognized in the period in which the law was enacted . as a result , the company recognized the tax effects of u.s. tax reform for the year ended december 31 , 2017. while the company recorded a reasonable estimate of the tax effects of u.s. tax reform in the period of enactment , its income tax accounting was not complete due to uncertainties that existed at the time . accordingly , certain u.s. tax reform amounts were revised in the company 's consolidated financial statements for the year ended december 31 , 2018. in addition , given the complexities of u.s. tax reform , there still remain uncertainties surrounding aspects of the new law that may impact results in the future . see note 18 of the notes to the consolidated financial statements for a further discussion of u.s. tax reform . separation of brighthouse in august 2017 , metlife , inc. completed the separation of brighthouse financial , inc. and its subsidiaries ( โ brighthouse โ ) through a distribution of 96,776,670 shares of brighthouse financial , inc. common stock to the metlife , inc. common shareholders ( the โ separation โ ) . for information regarding the separation , the company 's 2018 sale of the f air value option ( โ fvo โ ) brighthouse financial , inc. common stock ( โ fvo brighthouse common stock โ ) , and ongoing transactions between metlife and brighthouse , see notes 3 and 12 of the notes to the consolidated financial statements . current year highlights during the year ended december 31 , 2018 , overall sales increased compared to the year ended december 31 , 2017 primarily from improved sales in our ris business and in japan . positive net flows drove an increase in our investment portfolio and investment yields improved , however , interest credited rates were higher . a favorable change in net derivative gains ( losses ) was primarily the result of changes in foreign currency exchange rates and interest rates . while u.s. tax reform positively impacted net income in both 2018 and 2017 , the impact in 2017 was significantly larger . in addition , our annual actuarial assumption review negatively impacted results when compared to 2017. our results for 2017 included a loss from the operations of brighthouse that is reflected in discontinued operations . 67 the following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year ended december 31 , 2018 : _ ( 1 ) excludes corporate & other adjusted loss available to common shareholders of $ 704 million . ( 2 ) consistent with gaap guidance for segment reporting , adjusted earnings is our gaap measure of segment performance . for additional information , see note 2 of the notes to the consolidated financial statements . 68 year ended december 31 , 2018 compared with the year ended december 31 , 2017 consolidated results - highlights net income ( loss ) available to metlife , inc. 's common shareholders up $ 1.1 billion : favorable change in net derivative gains ( losses ) of $ 1.4 billion ( $ 1.1 billion , net of income tax ) favorable change in results from divested businesses of $ 936 million ( $ 650 million , net of income tax ) included in continuing operations favorable change in income ( loss ) from discontinued operations , net of income tax , of $ 986 million net tax-related benefit in 2017 of $ 1.3 billion due to u.s. tax reform net unfavorable change from our annual actuarial assumption reviews of $ 395 million ( $ 297 million , net of income tax ) adjusted earnings available to common shareholders up $ 1.2 billion ( 1 ) see โ โ results of operations โ consolidated results โ and โ โ non-gaap and other financial disclosures โ for reconciliations and definitions of non-gaap financial measures . story_separator_special_tag in australia our results for 2016 included the following : unfavorable reserve adjustments of $ 65 million , net of income tax , resulting from modeling improvements in the reserving process a $ 44 million , net of income tax , charge related to an adjustment to reinsurance receivables in australia tax benefit of $ 25 million related to a change in tax rate in japan , which includes a benefit of $ 20 million that pertains to prior periods a $ 23 million , net of income tax , charge for an increase in litigation reserves tax charge in chile of $ 12 million as a result of tax reform legislation , which includes a charge of $ 10 million that pertains to prior periods 71 for a more in-depth discussion of our consolidated results , see โ โ results of operations โ consolidated results , โ โ โ results of operations โ consolidated results โ adjusted earnings โ and โ โ results of operations โ segment results and corporate & other. โ consolidated company outlook our enterprise strategy is founded on the principle of one metlife , where digital and simplified are the key enablers of our four strategic cornerstones : ( i ) optimizing value and risk by focusing on our businesses with higher internal rates of return , lower capital intensity , and maximum cash generation , ( ii ) driving operational excellence , by transforming into a high-performance operating company with a competitive cost structure , ( iii ) enabling our distribution channels to drive efficiency and productivity through digitalization and improved customer persistency , and ( iv ) undertaking a targeted approach to find the right solutions for the right customers through differentiated customer value propositions . this enterprise strategy has enhanced our ability to focus on the right markets , build clear differentiators , and continue to make the right investments to deliver shareholder value . post-separation , we are well-positioned in less volatile and fee-based businesses ; as a result , we expect our results to be less sensitive to interest rates . assuming interest rates follow the observable forward yield curves as of the year ended december 31 , 2018 , we expect the average ratio of free cash flow to adjusted earnings over the two-year period of 2019 and 2020 to be 65 % to 75 % , assuming a 10-year u.s. treasury rate between 2.0 % and 4.5 % . we believe that free cash flow is a key determinant of common stock dividends and common stock repurchases . in light of the move away from a sustained low interest rate environment , compounding business growth and our expense initiative , we are targeting an adjusted return on equity , excluding accumulated other comprehensive income ( โ aoci โ ) other than foreign currency translation adjustments ( โ fcta โ ) , of 12 % to 14 % over the near-term . this target reflects our unit cost improvement program and the related initiative to invest $ 1.0 billion by 2020 to generate a pre-tax profit margin improvement of $ 800 million , which represents an approximate 200 basis point decline in our direct expense ratio , excluding total notable items related to direct expenses and pension risk transfers , by 2020 from our 2015 baseline year . a key element of our enterprise strategy is to return excess capital to common shareholders through dividends and stock repurchases . in 2018 , we returned $ 5.7 billion of capital to common shareholders through common stock dividends and common stock repurchases . common stock repurchases are subject to the discretion of our board of directors and will depend upon our capital position , liquidity , financial strength and credit ratings , general market conditions , the market price of metlife , inc. 's common stock compared to management 's assessment of the stock 's underlying value , applicable regulatory approvals , and other legal and accounting factors . further , we plan to maintain a liquidity buffer of $ 3.0 to $ 4.0 billion of liquid assets at the holding companies . when making these and other projections , we must rely on the accuracy of our assumptions about future economic and business conditions , which can be affected by known and unknown risks and other uncertainties . additional guidance from the u.s. treasury , sec or the fasb may require us to revise these projections in future periods . 72 other key information basis of presentation consolidation effective january 1 , 2016 , the company converted its japan operations from a fiscal year cutoff of november 30th to calendar year-end reporting . the company reported the cumulative effect of the change in accounting principle in net income for the year ended december 31 , 2016. see notes 1 and 2 of the notes to the consolidated financial statements . discontinued operations the results of brighthouse are reflected in the company 's consolidated financial statements as discontinued operations and , therefore , are presented as income ( loss ) from discontinued operations on the consolidated statements of operations . the reporting of discontinued operations had no impact on total consolidated net income ( loss ) for any of the years presented . see note 3 of the notes to the consolidated financial statements for information on discontinued operations and ongoing transactions with brighthouse . hurricanes in 2018 , hurricanes michael and florence made landfall in the florida panhandle and north and south carolina , respectively , causing loss of life and extensive property damage . as of december 31 , 2018 , metlife 's property & casualty business recognized losses from these hurricanes of $ 27 million ( $ 21 million , net of income tax ) . additional storm-related losses may be recorded in future periods as claims are received from insureds . in 2017 , hurricanes irma and harvey made landfall in florida and texas , respectively , causing loss of life and extensive property damage .
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actuarial assumption review . results for 2017 include a $ 37 million ( $ 25 million , net of income tax ) gain associated with our annual review of actuarial assumptions related to reserves and dac , of which a $ 21 million ( $ 14 million , net of income tax ) gain was recognized in net derivative gains ( losses ) . of the $ 37 million gain , a $ 96 million ( $ 64 million , net of income tax ) gain was associated with dac , and a loss of $ 59 million ( $ 39 million , net of income tax ) was related to reserves . the $ 21 million gain recognized in net derivative gains ( losses ) associated with this review of actuarial assumptions was included within the other risks in embedded derivatives caption in the table above . as a result of our annual review of actuarial assumptions , changes were made to economic , policyholder behavior , biometric and operational assumptions . these are summarized as follows : changes in operational assumptions , most notably related to updates to maintenance expense and closed block projections , resulted in a net gain of $ 114 million ( $ 74 million net of income tax ) . changes in policyholder behavior assumptions resulted in reserve increases , partially offset by favorable dac , resulting in a net charge of $ 47 million ( $ 29 million , net of income tax ) . economic assumption updates resulted in reserve increases and dac releases , resulting in a charge of $ 19 million ( $ 13 million net of income tax ) . changes to biometric assumptions resulted in an increase in reserves , partially offset by favorable dac , resulting in a charge of $ 11 million ( $ 7 million , net of income tax ) . the most significant impacts were in the metlife holdings life and annuities businesses .
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the options vest in three equal annual installments , commencing november 30 , 2017. on november 28 , 2017 , 15,000 options were granted to mr. cohen under the 2001 plan . the options vest in three equal annual installments , commencing november 28 , 2018. on november 27 , 2018 , 20,000 options were granted to mr. cohen under the 2001 plan . the options vest in three equal annual installments , commencing november 27 , 2019. on august 13 , 2019 , 100,000 options were granted to mr. cohen under the 2001 plan . the options vest in three equal annual installments , commencing august 13 , 2020 . 38 ( 3 ) on december 15 , 2016 , 15,000 options were granted to mr. itay under the 2001 plan . the options vest in three equal annual installments , commencing november 30 , 2017. on march 17 , 2020 , 10,000 options were granted to mr. itay under the 2001 plan . the options vest in three equal annual installments , commencing march 17 , 2021 . ( 4 ) on december 15 , 2016 , story_separator_special_tag this discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained in โ item 8. financial statements and supplementary data โ of this annual report . overview we are a leading developer of contactless payment solutions , near field communication ( nfc ) technology based , for the unattended market . we have been a technology leader since 1990 , providing systems , devices and services to operators and integrators with solutions and components that are simple to implement . to date , we have deployed over one million payment solutions to our focused unattended markets : self-service kiosk , micro-markets and vending machines , entertainment and gaming , atm , mass transit ticketing validation , and fuel payments . we operate through regional offices , supporting clients and payment industry partners with its unique contactless payment solutions . on march 29 , 2021 , we entered into an agreement , or the sale agreement , for the sale of 100 % of the issued and outstanding share capital of our wholly owned polish subsidiary , asec s.a. , or asec , with vector software sp . z o.o. , or the buyer . asec is headquartered in krakow , poland and has been conducting our mass transit ticketing business in europe . the consideration for asec is $ 3,000,000 , of which approximately $ 2,100,000 shall be used to repay polish banks loans at the closing date , as mentioned in the sale agreement , further offset by minor adjustments . the sale agreement contains customary representations and warranties , as well as covenants , including an undertaking we provided not to compete with the business of asec for a period of five years after the closing and an undertaking to indemnify asec and the buyer for certain damages . our liability is limited to the purchase price actually paid by the buyer . in addition , we engaged an investment bank to explore strategic options and are investing resources in this process . we were incorporated under the laws of the state of israel on february 15 , 1990 , under the name of de-bug innovations ltd. , with unlimited duration . our name was changed to on track innovations ltd. on july 8 , 1991. we are registered with the israeli registrar of companies , under registration number 52-004286-2 and our ordinary shares are quoted on the otcqxยฎ market , or otcqx , under the symbol otivf . story_separator_special_tag times new roman , times , serif ; font-size : 10pt '' > income tax benefit , net our income tax benefit , net for each of the past two years , have been as follows ( in thousands ) : replace_table_token_7_th the decrease in our tax benefit , net , of $ 96,000 , or 91 % , in 2020 compared to 2019 is mainly attributed to income tax benefit due to previous years as recognized by our south african subsidiary in 2019. net loss from continuing operations our net loss from continuing operations for each of the past two years has been as follows ( in thousands ) : replace_table_token_8_th the decrease of net loss from continuing operations of $ 304,000 , or 6 % , in 2020 compared to 2019 is primarily due to an increase in our sales and a decrease in general and administrative expenses , partially offset by an increase in our research and development expenses , an increase in selling and marketing expenses , a decrease in other operating income and a decrease in income tax benefit , net , as described above . net loss from discontinued operations on march 29 , 2021 , we entered into an agreement to sell our polish subsidiary , asec , including its ip relating to the mass transit ticketing activity . in december 2013 , we completed the sale of certain assets , certain subsidiaries and ip directly related to our smartid division . the results from such operations and the cash flows for the reporting periods are presented in the statements of operations and in the statements of cash flow , respectively , as discontinued operations separately from continuing operations . our net loss from discontinued operations for each of the past two years has been as follows ( in thousands ) : replace_table_token_9_th the change in net loss from discontinued operations of $ 548,000 , or 101 % , in 2020 compared to 2019 is mainly attributed to a loss from the mass transit ticketing operation in 2020 as a result of the impact of covid-19 , partially offset by expenses in the amount of $ 482,000 derived from a legal proceeding with harel , an insurance company , in 2019 . story_separator_special_tag in connection with the outbreak of covid-19 , we have taken steps to protect our workforce in israel , the united states , poland , south africa and elsewhere . such steps include work from home where possible , minimizing face-to-face meetings and utilizing video conferencing as much as possible , social distancing at facilities and eliminating all international travel . so far , the main direct impact of the covid-19 pandemic has been a significant decrease in our revenues derived from mass transit ticketing activity in the polish market . revenues from such activity , that were relatively stable during the year preceding the covid-19 outbreak , decreased by approximately $ 1.3 million in 2020 compared to 2019 , mainly due to the lockdown and other restrictions and consequences of the covid-19 pandemic as started in march 2020. on march 29 , 2021 , we entered into an agreement to sell asec , including its mass transit ticketing activity , as mentioned above . the consideration for asec is $ 3,000,000 , of which approximately $ 2,100,000 shall be used to repay polish banks loans at the closing date , as mentioned in the sale agreement , further offset by minor adjustments . as part of the polish regulations and government assistance introduced in relation to the covid-19 pandemic , the polish subsidiary received a long-term loan and a consent to postpone the maturity date of a secured bank loan . both loans have been disposed of through the mass transit divestiture . in addition , recently , as a result of covid-19 , some of our customers have delayed issuance of orders in our pipeline . as a response to the effect of covid-19 , we have taken steps to reduce some costs that are not essential under the current circumstances and during the fourth quarter of 2020 we took additional steps to reduce our cash expenses , including voluntary reduction of salaries to our management and employees . another impact of covid-19 has been on product delivery , where components ' procurement lead time is longer and a shortage in components has grown as the duration of the covid-19 pandemic has continued . as long as the covid-19 pandemic continues , the components ' lead time may be longer than normal and shortage in components may continue or get worse . therefore , we maintain a comprehensive network of world-wide suppliers . we have seen a higher interest from a growing number of potential customers and partners as they forecasted that the need for our products will grow , yet execution of closing is still slow due to the current business environment . it is difficult to predict what other impacts the covid-19 pandemic may have on the company . our and certain of our subsidiaries ' manufacturing facilities and certain equipment have been pledged as security in respect of a loan received from a bank . the company 's short-term deposits in the amount of $ 105,000 have been pledged as security in respect of guarantees granted . such deposits can not be pledged to others or withdrawn without the consent of the bank . 23 as of december 31 , 2020 , we granted a guarantee to the lessor of our headquarters in israel in amount of $ 109,000 whose expiration date is may 2024. in addition , as of december 31 , 2020 , our former polish subsidiary granted performance guarantees in an aggregate amount of $ 417,000 related to the mass transit ticketing activity . the expiration dates of those guarantees range from january 2021 to september 2021. following the agreement to sell asec , we will be no longer subject to these guarantees . for the years ended december 31 , 2020 and december 31 , 2019 , we had a negative cash flow from continuing operations of $ 1.9 million and $ 3.0 million , respectively . on december 9 , 2020 , we entered into a loan financing agreement , or the loan agreement , with jerry l. ivy , jr. , descendants ' trust , or ivy , our controlling shareholder ( as such term is defined under the companies law ) , or the lender . the loan agreement provides that the lender will extend a loan to us in the amount of up to $ 1,500,000 , payable in two tranches : one of $ 625,000 at the initial closing that took place on december 17 , 2020 , and the other of $ 875,000 at the second closing subject to the terms and conditions of the loan agreement that took place on january 28 , 2021. we agreed to use the proceeds of the loan agreement to fund our operations and working capital while we explore strategic options . the amount lent under the loan agreement is secured pursuant to a debenture , or the debenture , by a first priority floating charge over all our tangible or intangible assets and other property we own , subject only to certain permitted security interests , as set forth in loan agreement , or the floating charge . the amount lent under the loan agreement and all accrued interest matures on june 17 , 2021 , or the maturity date , and will be payable in full on the maturity date , provided that the maturity date can be extended by six months at the sole option of ivy . the amount lent bears interest on all outstanding principal at an interest rate of 8.0 % per annum , or the interest ; provided , however , that upon an extension of the maturity period beyond the maturity date , the interest will automatically increase , effective as of the maturity date , to the rate of 10.0 % per annum .
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results of operations discontinued operations . on march 29 , 2021 , we entered into an agreement , for the sale of 100 % of the issued and outstanding share capital of our wholly owned polish subsidiary , asec . asec is headquartered in krakow , poland and has been conducting our mass transit ticketing business in europe ( which was attributed to our โ retail and mass transit ticketing โ segment ) . 18 year ended december 31 , 2020 , compared to year ended december 31 , 2019 sources of revenue we have historically derived a substantial majority of our revenues from the sale of our products , including both complete systems and original equipment manufacturer components . in addition , we generate revenues from licensing and transaction fees , and also , less significantly , from engineering services , customer services , and technical support . during the past two years , the revenues that we have derived from sales and from licensing and transaction fees have been as follows ( in thousands ) : replace_table_token_1_th sales . sales increased by $ 2.0 million , or 22 % , in 2020 compared to 2019. the increase in 2020 compared to 2019 , is mainly attributed to an increase in retail sales in apac , the united states and europe , partially offset by a decrease in sales of petroleum products in africa . licensing and transaction fees . licensing and transaction fees include single and periodic payments for distribution rights for our products as well as licensing our intellectual property rights to third parties . transaction fees are paid by customers based on the volume of transactions processed by systems that contain our products . the increase of $ 46,000 in 2020 , or 3 % , compared to 2019 , is mainly attributed to an increase in our licensing in europe . we have historically derived revenues from different geographical areas .
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the insurer is permitted by florida statutes to recover the entire amount of assessments from in-force and future policyholders through policy surcharges . u.s. gaap provides that the company should record an asset based on the amount of written or obligated-to-write premiums and limited to the amounts recoverable over the life of the in-force policies . foreign currency . the functional currency of the company 's indian subsidiary is the u.s. dollar . as such , the monetary assets and liabilities of this subsidiary are remeasured into u.s. dollars at the exchange rate in effect on the balance sheet date . non-monetary assets story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. forward-looking statements in addition to historical information , this annual report on form 10-k contains forward-looking statements as defined under federal securities laws . such statements , including statements about our plans , objectives , expectations , assumptions or future events , involve risks and uncertainties . these statements involve estimates , assumptions , known and unknown risks , uncertainties and other factors that could cause actual results to differ materially from any future results , performances or achievements expressed or implied by the forward-looking statements . typically , forward-looking statements can be identified by terminology such as ยanticipate , ย ยestimate , ย ยplan , ย ยproject , ย ยcontinuing , ย ยongoing , ย ยexpect , ย ยbelieve , ย ยintend , ย ยmay , ย ยwill , ย ยshould , ย ยcould , ย and similar expressions . the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effect of governmental regulation ; changes in insurance regulations ; the frequency and extent of claims ; uncertainties inherent in reserve estimates ; catastrophic events ; changes in the demand for , pricing of , availability of or collectability of reinsurance ; restrictions on our ability to change premium rates ; increased rate pressure on premiums ; and other risks and uncertainties and other factors listed under item 1aยยrisk factorsย and elsewhere in this annual report on form 10-k and in our other securities and exchange commission filings . overview general hci group , inc. is a florida-based company which through its subsidiaries is engaged in a variety of business activities , including property and casualty insurance , reinsurance , real estate and information technology . its principal business is property and casualty insurance . we began insurance operations in 2007 by participating in a ยtake-out programย which is a legislatively mandated program designed to encourage private companies to assume policies from citizens , a florida state sponsored insurance carrier . our growth since inception has resulted primarily from a series of policy assumptions from citizens and policies assumed from one florida insurance company . this growth track was beneficial to us in terms of reduced policy acquisition costs and , depending on the timing of the transaction , temporarily lower reinsurance costs . our general operating and growth strategies are to continually optimize our existing book of insurance business , manage our costs and expenses , diversify our business operations , develop and deploy new technologies to streamline operational processes , and maintain a strong balance sheet so we can quickly pursue accretive opportunities when they arise . 37 recent developments on january 14 , 2019 , our board of directors declared a quarterly dividend of $ 0.40 per common share . the dividends are to be paid march 15 , 2019 to stockholders of record on february 15 , 2019. on january 15 , 2019 , we granted 40,000 shares of restricted stock and options to purchase 110,000 of our common shares at an exercise price of $ 53 per share to our chief executive officer , paresh patel . the options will expire on january 15 , 2029. these share-based awards were granted pursuant to our 2012 omnibus incentive plan and will vest in equal annual installments over four years , so long as mr. patel remains employed by us . the grant date fair values of the restricted stock and options were approximately $ 1,918,000 and $ 1,345,000 , respectively . on february 27 , 2019 , we acquired approximately nine acres of undeveloped land located near our current headquarters in tampa , florida for a purchase price of $ 8,500,000 , which was primarily financed by our revolving credit facility . the land is a potential site for the construction of a new headquarters building . the transaction was accounted for as an asset acquisition . as such , all acquisition-related costs are capitalized . 38 story_separator_special_tag $ 54,000,000 as well as adverse development related to hurricane matthew of approximately $ 2,500,000 and adverse development related to non-catastrophe claims of approximately $ 16,200,000 primarily related to assignment of benefits litigation . see ยreserves for losses and loss adjustment expensesย under ยcritical accounting policies and estimates.ย policy acquisition and other underwriting expenses for the years ended december 31 , 2018 and 2017 were approximately $ 38,943,000 and $ 39,663,000 , respectively . the decrease from 2017 was primarily attributable to decreased commissions and premium taxes resulting from the net decrease in policies in force . general and administrative personnel expenses for the years ended december 31 , 2018 and 2017 were approximately $ 25,908,000 and $ 25,127,000 , respectively . our general and administrative personnel expenses include salaries , wages , payroll taxes , share-based compensation expenses , and employee benefit costs . factors such as merit increases , changes in headcount , and periodic restricted stock grants , among others , cause fluctuations in this expense . in addition , our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of hurricane irma claims which are recoverable from reinsurers under reinsurance contracts . story_separator_special_tag the following is a reconciliation of our net premiums written to net premiums earned for the years ended december 31 , 2017 and 2016 ( amounts in thousands ) : replace_table_token_10_th * unearned premiums are impacted by the timing and size of any takeout completed during the year net of attrition . net investment income for the years ended december 31 , 2017 and 2016 was approximately $ 11,439,000 and $ 9,087,000 , respectively . the increase in 2017 was primarily due to year-over-year increases in income from limited partnership investments and fixed-maturity securities . see note 5 ย ยinvestmentsย under net investment income to our consolidated financial statements under item 8 of this annual report on form 10-k. net realized investment gains for the years ended december 31 , 2017 and 2016 were approximately $ 4,346,000 and $ 2,601,000 , respectively . the gains in 2017 resulted primarily from sales intended to take advantage of an upturn in the security market . net other-than-temporary impairment losses for the years ended december 31 , 2017 and 2016 were approximately $ 1,467,000 and $ 2,482,000 , respectively . during 2017 , we recognized impairment losses specific to four fixed-maturity securities and six equity securities . three of these fixed-maturity securities were written down before being sold . six equity securities were impaired because each of them had been in an unrealized loss position for a length of time with no near term prospect for recovery . expenses our losses and loss adjustment expenses amounted to approximately $ 165,629,000 and $ 124,667,000 for the years ended december 31 , 2017 and 2016 , respectively . our 2017 losses and loss adjustment expenses included approximately $ 54,000,000 of net losses related to hurricane irma and additional losses of approximately $ 2,500,000 related to hurricane matthew . in addition , our losses and loss adjustment expenses included approximately $ 16,200,000 of additional losses , which reflected the continuation of reserve strengthening in response to trends involving assignment of insurance benefits and related litigation . our losses and loss adjustment expenses were also impacted by weather-related events . see ยreserves for losses and loss adjustment expensesย under ยcritical accounting policies and estimates.ย policy acquisition and other underwriting expenses for the years ended december 31 , 2017 and 2016 were approximately $ 39,663,000 and $ 42,642,000 , respectively . the decrease from 2016 was primarily attributable to decreased commissions and premium taxes resulting from policy attrition and the effect of the rate decrease . 44 general and administrative personnel expenses for the years ended december 31 , 2017 and 2016 were approximately $ 25,127,000 and $ 26,200,000 , respectively . the $ 1,073,000 decrease in 2017 was primarily attributable to the capitalization of payroll costs related to a software development project for internal use . loss on repurchases of senior notes for the year ended december 31 , 2017 was approximately $ 743,000 , resulting from the early extinguishment of our 8 % senior notes . income tax benefit for the year ended december 31 , 2017 was approximately $ 8,731,000 versus approximately $ 17,835,000 of income tax expense for the year ended december 31 , 2016 , resulting in an effective tax rate of 55.9 % for 2017 and 38.1 % for 2016. the year-over-year change was primarily attributable to our 2017 operating losses and the recognition of $ 1,400,000 in beneficial tax effects on our net deferred tax liabilities due to the lower future corporate income tax rates enacted by the 2017 tax act . ratios : the loss ratio applicable to the year ended december 31 , 2017 was 73.8 % compared with 51.2 % for the year ended december 31 , 2016. the increase was primarily attributable to losses related to hurricane irma combined with the decrease in net premiums earned which was driven in large part by the increase in ceded premiums due to the aforementioned adjustments . the expense ratio applicable to the year ended december 31 , 2017 was 42.0 % compared with 38.1 % for the year ended december 31 , 2016. the increase in our 2017 expense ratio was primarily attributable to the decrease in 2017 net premiums earned , an increase in interest expense , and the loss on repurchases of our senior notes , as described above . our combined ratio for the year ended december 31 , 2017 was 115.8 % compared with 89.3 % for the year ended december 31 , 2016. our combined ratio was negatively impacted by increased expenses for losses and loss adjustment expenses , increased interest expense , the loss on repurchases of our senior notes and a reduction in 2017 net premiums earned . due to the impact our reinsurance costs have on net premiums earned from period to period , our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance . the combined ratio to gross premiums earned for the year ended december 31 , 2017 was 72.6 % compared with 57.5 % for the year ended december 31 , 2016. the increase in 2017 was primarily attributable to the factors described above . 45 seasonality of our business our insurance business is seasonal as hurricanes and tropical storms affecting florida typically occur during the period from june 1 through november 30 each year . also , with our reinsurance treaty year typically effective on june 1 each year , any variation in the cost of our reinsurance , whether due to changes in reinsurance rates or changes in the total insured value of our policy base , will occur and be reflected in our financial results beginning june 1 each year . liquidity and capital resources throughout our history , our liquidity requirements have been met through issuances of our common and preferred stock , debt offerings and funds from operations . we expect our future liquidity requirements will be met by funds from operations , primarily the cash received by insurance subsidiaries from premiums written and investment income .
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results of operations comparison of the year ended december 31 , 2018 with the year ended december 31 , 2017 our results of operations for the year ended december 31 , 2018 reflect net income of $ 17,725,000 , or $ 2.34 earnings per diluted common share , compared with a net loss of $ 6,893,000 , or $ 0.75 loss per common share , for the year ended december 31 , 2017. losses and loss adjustment expenses were approximately $ 56,301,000 lower in 2018 , attributable to lower catastrophe losses and decreased adverse development . catastrophe losses in 2018 primarily included net losses of approximately $ 16,520,000 from hurricane michael versus net losses of approximately $ 54,000,000 from hurricane irma in 2017. the year-over-year improvement in losses and loss adjustment expenses was offset by a net $ 11,196,000 decrease in net premiums earned , a net $ 3,315,000 decrease in income from investment activities and a $ 1,329,000 increase in interest expense . income tax expense in 2018 was negatively impacted by the derecognition of deferred tax assets of approximately $ 1,825,000 related to unvested restricted stock with market conditions and the nondeductible expense of approximately $ 1,887,000 associated with the reclassified dividends on such restricted stock awards , offset by a lower federal corporate income tax rate effective january 1 , 2018. revenue gross premiums earned for the years ended december 31 , 2018 and 2017 were approximately $ 343,065,000 and $ 358,253,000 , respectively . the decrease in 2018 was primarily attributable to a net decrease in policies in force offset by an increase in the average premium per policy . premiums ceded for the years ended december 31 , 2018 and 2017 were approximately $ 129,643,000 and $ 133,635,000 , respectively , representing 37.8 % and 37.3 % , respectively , of gross premiums earned .
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during the years ended december 31 , 2018 , 2017 and 2016 , three customers accounted for approximately 20 percent , 11 percent and nine percent , two customers accounted for approximately 18 percent and 11 percent and two customers accounted for approximately 19 percent and 10 percent , respectively , of the company 's total sales . the company does not believe that the loss of any of these customers would have a material adverse effect because alternative customers are readily available . use of estimates in preparing financial statements , the company follows accounting principles generally accepted in the united states . these principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues story_separator_special_tag the following discussion is intended to assist you in understanding our results of operations and our present financial condition . our consolidated financial statements and the accompanying notes to the consolidated financial statements included elsewhere in this form 10-k contain additional information that should be referred to when reviewing this material . overview financial and operating overview financial and operating results for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 are as follows : natural gas production increase d 74.3 bcf , or 11 percent , from 655.6 bcf in 2017 to 729.9 bcf in 2018 , as a result of drilling and completion activities in the marcellus shale . crude oil/condensate/ngl production decrease d 4.1 mmbbls , or 83 percent , from 5.0 mmbbls in 2017 to 0.8 mmbbls in 2018 , as a result of the sale of our eagle ford shale assets in february 2018. equivalent production increase d 49.7 bcfe , or seven percent , from 685.3 bcfe , or 1,877.5 mmcfe per day , in 2017 to 735.0 bcfe , or 2,013.7 mmcfe per day , in 2018 . average realized natural gas price for 2018 was $ 2.54 per mcf , 10 percent higher than the $ 2.31 per mcf price realized in 2017 . total capital expenditures were $ 816.1 million in 2018 compared to $ 757.2 million in 2017 . total exploration costs were $ 113.8 million in 2018 compared to $ 21.5 million in 2017. total exploration costs include exploratory dry hole costs of $ 97.7 million and $ 3.3 million in 2018 and 2017 , respectively . drilled 97 gross wells ( 95.1 net ) with a success rate of 90.7 percent in 2018 compared to 91 gross wells ( 82.5 net ) with a success rate of 98.9 percent in 2017 . completed 94 gross wells ( 93.0 net ) in 2018 compared to 105 gross wells ( 94.2 net ) in 2017 . average rig count during 2018 was approximately 3.5 rigs in the marcellus shale and approximately 0.5 rigs in other areas , compared to an average rig count in the marcellus shale of approximately 2.0 rigs , approximately 1.0 rig in the eagle ford shale and approximately 0.4 rigs in other areas during 2017 . received net proceeds of $ 678.4 million primarily related to the divestiture of our eagle ford shale assets in south texas in february 2018 and haynesville shale assets in east texas in july 2018. repaid $ 237.0 million of our 6.51 % weighted-average senior notes which matured in july 2018 and $ 67.0 million of our 9.78 % senior notes which matured in december 2018. repurchased 38.5 million shares of our common stock for a total cost of $ 904.1 million in 2018. market conditions and commodity prices our financial results depend on many factors , particularly the commodity prices and our ability to market our production on economically attractive terms . commodity prices are affected by many factors outside of our control , including changes in market supply and demand , which are impacted by pipeline capacity constraints , inventory storage levels , basis differentials , weather conditions and other factors . in addition , our realized prices are further impacted by our hedging activities . as a result , we can not accurately predict future commodity prices and , therefore , can not determine with any degree of certainty what effect increases or decreases in these prices will have on our capital program , production volumes or revenues . we expect commodity prices to remain volatile . in addition to production volumes and commodity prices , finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success . for information about the impact of realized commodity prices on our natural gas and crude oil and condensate revenues , refer to `` results of operations '' below . see `` risk factorsโ commodity prices fluctuate widely , and low prices for an extended period would likely have a material adverse impact on our business `` and `` risk factorsโ our future performance depends on our ability to find or acquire additional natural gas and oil reserves that are economically recoverable `` in item 1a . 38 we account for our derivative instruments on a mark-to-market basis with changes in fair value recognized in operating revenues in the consolidated statement of operations . as a result of these mark-to-market adjustments associated with our derivative instruments , we will experience volatility in our earnings due to commodity price volatility . refer to โ impact of derivative instruments on operating revenues โ below and note 6 of the notes to the consolidated financial statements for more information . commodity prices have been and are expected to remain volatile . we believe that we are well-positioned to manage the challenges presented in a volatile commodity pricing environment by : continuing to exercise discipline in our capital program with the expectation of funding our capital expenditures with operating cash flows , and if required , borrowings under our revolving credit facility . story_separator_special_tag cash flows used in investing activities decrease d by $ 412.8 million from 2017 to 2018 due to $ 562.9 million higher proceeds from the sale of assets primarily due to the divestiture of our eagle ford shale assets in february 2018 and our haynesville shale assets in july 2018. this change was partially offset by $ 129.9 million higher capital expenditures and $ 20.2 million higher capital contributions associated with our equity method investments . cash flows used in investing activities increased by $ 352.9 million from 2016 to 2017 due to an increase of $ 389.4 million in capital expenditures and $ 28.6 million higher capital contributions associated with our equity method investments , partially offset by $ 65.0 million higher proceeds from the sale of assets . financing activities . cash flows used in financing activities increase d by $ 1,078.8 million from 2017 to 2018 due to $ 749.0 million higher repurchases of our common stock in 2018 , $ 297.0 million of higher net repayments of debt primarily related to maturities of certain of our senior notes during 2018 and $ 32.5 million of higher dividend payments related to an increase in our dividend rate in 2018. cash flows provided by financing activities decreased by $ 664.3 million from 2016 to 2017 due to $ 995.3 million lower net proceeds from the issuance of common stock in 2016 , $ 123.7 million of repurchases of our common stock in 2017 and $ 42.7 million of higher dividend payments related to an increase in the dividend rate in 2017 and the issuance of common stock 40 in 2016. these decreases were partially offset by $ 497.0 million of lower net repayments of debt due to the repayment of the outstanding balance on our revolving credit facility and certain of our senior notes with the proceeds from the issuance of common stock in 2016. capitalization information about our capitalization is as follows : replace_table_token_15_th _ ( 1 ) includes $ 7.0 million of borrowings outstanding under our revolving credit facility as of december 31 , 2018 . includes $ 304.0 million of current portion of long-term debt at december 31 , 2017. there were no borrowings outstanding under our revolving credit facility as of december 31 , 2017 . during 2018 , we repurchased 38.5 million shares of our common stock for $ 904.1 million . during 2018 and 2017 , we paid dividends of $ 111.4 million ( $ 0.25 per share ) and $ 78.8 million ( $ 0.17 per share ) on our common stock , respectively . in january 2018 , the board of directors approved an increase in the quarterly dividend on our common stock from $ 0.05 per share to $ 0.06 per share . in october 2018 , the board of directors approved an additional increase in the quarterly dividend on our common stock from $ 0.06 per share to $ 0.07 per share . capital and exploration expenditures on an annual basis , we generally fund most of our capital expenditures , excluding any significant property acquisitions , with cash generated from operations and , if required , borrowings under our revolving credit facility . we budget these expenditures based on our projected cash flows for the year . the following table presents major components of our capital and exploration expenditures : replace_table_token_16_th _ ( 1 ) exploration expenditures include $ 97.7 million , $ 3.8 million and $ 10.1 million of exploratory dry hole expenditures in 2018 , 2017 and 2016 , respectively . in 2018 , we drilled 97 gross wells ( 95.1 net ) and completed 94 gross wells ( 93.0 net ) , of which 27 gross wells ( 27.0 net ) were drilled but uncompleted in prior years . in 2019 , we plan to allocate the majority of our capital to the marcellus shale , where we expect to drill and complete 85 to 90 net wells and place 80 to 85 net wells on production . our 2019 capital program is expected to be approximately $ 800.0 million . we will continue to assess the natural gas price environment and may increase or decrease our capital expenditures accordingly . 41 contractual obligations we have various contractual obligations in the normal course of our operations . a summary of our contractual obligations as of december 31 , 2018 are set forth in the following table : replace_table_token_17_th _ ( 1 ) interest payments have been calculated utilizing the rates associated with our revolving credit facility and senior notes outstanding at december 31 , 2018 , assuming that our revolving credit facility and senior notes will remain outstanding through their respective maturity dates . ( 2 ) for further information on our obligations under transportation and gathering agreements and operating leases , see note 9 of the notes to the consolidated financial statements . ( 3 ) for further information on our equity investment contribution commitments , see note 4 of the notes to the consolidated financial statements . amounts related to our asset retirement obligations are not included in the above table due to the uncertainty regarding the actual timing of such expenditures . the total amount of our asset retirement obligations at december 31 , 2018 was $ 51.6 million . see note 8 of the notes to the consolidated financial statements for further details . we have no off-balance sheet debt or other similar unrecorded obligations . potential impact of our critical accounting policies our significant accounting policies are described in note 1 of the notes to the consolidated financial statements . the preparation of the consolidated financial statements , which is in accordance with accounting principles generally accepted in the united states , requires management to make certain estimates and judgments that affect the amounts reported in our financial statements and the related disclosures of assets and liabilities . the following accounting policies are our most critical policies requiring more significant judgments and estimates . we evaluate our estimates and assumptions on a regular basis .
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results of operations 2018 and 2017 compared we reported net income for 2018 of $ 557.0 million , or $ 1.25 per share , compared to net income for 2017 of $ 100.4 million , or $ 0.22 per share . the increase in net income was primarily due to higher operating revenues , lower operating expenses and higher earnings on equity method investments , partially offset by higher income tax expense . 45 revenue , price and volume variances our revenues vary from year to year as a result of changes in commodity prices and production volumes . below is a discussion of revenue , price and volume variances . replace_table_token_18_th replace_table_token_19_th natural gas revenues the increase in natural gas revenues of $ 375.1 million was due to higher natural gas prices and production . the increase in production was a result of an increase in our drilling and completion activities in the marcellus shale . crude oil and condensate revenues the decrease in crude oil and condensate revenues of $ 163.6 million was due to lower production , partially offset by higher crude oil prices . the decrease in production was the result of the sale of our eagle ford shale assets in february 2018. impact of derivative instruments on operating revenues replace_table_token_20_th brokered natural gas replace_table_token_21_th 46 the $ 23.4 million increase in brokered natural gas margin is a result of an increase in brokered activity . this increase was due to higher volumes associated with natural gas purchases that were required to satisfy certain sales obligations . operating and other expenses replace_table_token_22_th total costs and expenses from operations decrease d by $ 402.3 million from 2017 to 2018 .
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our income taxes as a percentage of pretax income for fiscal 2018 was 23.5 % compared to an effective tax rate of 38.3 % in fiscal 2017. our consolidated income taxes for fiscal 2018 were impacted by the enactment of the tcja . as previously mentioned , we are subject to a blended federal tax rate of 24.5 % for fiscal 2018. as a result of the tcja , we adjusted our net federal deferred income tax liabilities to remeasure such tax liabilities at the lower federal corporate rate . certain of these adjustments reduced income tax expense , and increased net income , by $ 8.0 million . in addition to these adjustments that impacted our fiscal 2018 net income , our income taxes were further reduced by $ 23.4 million principally reflecting the impact of the lower fiscal 2018 income tax rate and , to a much lesser extent , the amortization of excess deferred federal income taxes . 16 fiscal 2017 compared with fiscal 2016 replace_table_token_1_th ( a ) gas utility 's total margin represents total revenues less total cost of sales . electric utility 's total margin represents total revenues less total cost of sales and electric utility gross receipts taxes of $ 4.7 million and $ 4.8 million during fiscal 2017 and fiscal 2016 , respectively . for financial statement purposes , electric utility gross receipts taxes are included in โ operating and administrative expenses โ on the consolidated statements of income ( but are excluded from electric utility operating expenses presented above ) . ( b ) deviation from average heating degree days for the 15-year period 2000-2014 based upon weather statistics provided by noaa for airports located within gas utility 's service territory . temperatures in gas utility 's service territory during fiscal 2017 were 11.1 % warmer than normal but 2.6 % colder than during fiscal 2016. gas utility core market volumes increased 4.2 bcf ( 6.3 % ) principally reflecting the effects of the slightly colder fiscal 2017 weather and growth in the number of core market customers . total gas utility distribution system throughput increased 30.7 bcf reflecting significantly higher large firm delivery service volumes principally associated with service to a new natural gas-fired generation facility and the higher core market volumes . these increases were partially offset by lower interruptible delivery service volumes . electric utility kilowatt-hour sales were 1.1 % lower than in the prior year , principally reflecting the impact on air-conditioning sales from cooler summer temperatures . ugi utilities fiscal 2017 revenues increased $ 119.1 million reflecting a $ 121.7 million increase in gas utility revenues partially offset by slightly lower electric utility revenues . the higher gas utility revenues principally reflect an increase in core market revenues ( $ 85.1 million ) , higher large firm delivery service revenues ( $ 14.3 million ) and higher off-system sales revenues ( $ 25.0 million ) . the $ 85.1 million increase in gas utility core market revenues reflects higher average retail core market pgc rates ( $ 37.0 million ) , the effects of the higher core market throughput ( $ 28.0 million ) and the increase in ugi gas base rates effective october 19 , 2016 ( $ 20.1 million ) . the decrease in electric utility revenues principally reflects the lower electric utility volumes ( $ 1.8 million ) , slightly lower average ds rates ( $ 0.5 million ) and lower transmission revenue ( $ 0.4 million ) . ugi utilities cost of sales was $ 367.3 million in fiscal 2017 compared with $ 289.8 million in fiscal 2016 , principally reflecting higher average retail core market pgc rates ( $ 37.0 million ) , the higher gas utility retail core-market volumes ( $ 14.0 million ) and higher cost of sales associated with gas utility off-system sales ( $ 25.0 million ) . the higher gas utility cost of sales is partially offset by a decrease in electric utility cost of sales of $ 1.5 million reflecting the lower volumes sold and the slightly lower ds rates . ugi utilities total margin increased $ 41.7 million principally reflecting higher total margin from gas utility core market customers ( $ 32.7 million ) and higher large firm delivery service total margin ( $ 11.4 million ) partially offset by lower other margin . the increase in gas utility core market margin principally reflects the increase in ugi gas base rates effective october 19 , 2016 ( $ 20.1 17 million ) and the higher core market throughput ( $ 12.6 million ) . electric utility total margin decreased $ 0.8 million principally reflecting the lower volume sales and lower transmission revenue . ugi utilities fiscal 2017 operating income increased $ 27.4 million , principally reflecting the increase in total margin ( $ 41.7 million ) and higher other operating income , net ( $ 10.3 million ) . these increases in operating income were reduced by higher operating and administrative expenses ( $ 19.9 million ) and higher depreciation expense ( $ 5.0 million ) associated with increased capital expenditure activity . the higher other operating income , net , reflects a $ 5.8 million environmental insurance settlement , the absence of a charge recorded in the prior year related to environmental matters ( $ 2.5 million ) , and lower interest on pgc overcollections ( $ 1.6 million ) . the increase in ugi utilities operating and administrative expenses reflects higher pension and employee benefits expenses ( $ 7.0 million ) , higher customer accounts expense ( $ 4.2 million ) and higher regulatory asset amortization expense related to environmental remediation expenses ( $ 1.9 million ) . story_separator_special_tag cash used to fund changes in operating working capital in fiscal 2018 includes an increase in accounts receivable reflecting in large part the impact of higher natural gas prices , and estimated federal income tax overpayments resulting from tcja regulations released late in fiscal 2018 regarding bonus depreciation for utility assets . these uses of cash were partially offset by higher cash from net deferred fuel cost overcollections . cash used to fund changes in operating working capital in fiscal 2017 includes the impact of higher natural gas prices on changes in accounts receivable and inventories , and net deferred fuel cost refunds . investing activities . cash used by investing activities was $ 331.7 million in fiscal 2018 , $ 320.5 million in fiscal 2017 , and $ 252.5 million in fiscal 2016 . the increase in capital expenditures in fiscal 2018 compared to fiscal 2017 principally reflects higher expenditures associated with buildings and grounds improvements and higher replacement and betterment capital expenditures , partially offset by lower it capital expenditures . the increase in capital expenditures in fiscal 2017 compared to fiscal 2016 principally reflects higher capital expenditures associated with a pipeline expansion project and higher it capital expenditures . fiscal 2018 cash flow from investing activities includes a $ 1.9 million decrease in restricted cash in futures brokerage accounts compared to a $ 2.5 million increase in fiscal 2017 and a $ 6.0 million decrease in fiscal 2016. changes in restricted cash in futures brokerage accounts are generally the result of changes in underlying commodity prices . financing activities . cash provided by financing activities was $ 48.2 million in fiscal 2018 , $ 79.3 million in fiscal 2017 and $ 46.9 million in fiscal 2016 . financing activities cash flows are primarily the result of issuances and repayments of long-term debt , revolving credit agreement borrowings and cash dividends to ugi . in fiscal 2018 , ugi utilities entered into a $ 125 million unsecured term loan agreement and used the net proceeds principally to reduce revolving credit balances and for general corporate purposes . also in fiscal 2018 , ugi utilities repaid $ 40 million of maturing medium-term notes and $ 4.7 million of term loan debt . during fiscal 2017 , ugi utilities issued $ 100 million of senior notes and used the net proceeds principally to fund infrastructure replacement and betterment capital expenditures , it initiatives and for general corporate purposes . fiscal 2016 includes the issuance of $ 300 million of senior notes , the proceeds of which were used to repay maturing long-term debt and short-term borrowings . capital expenditures in the following table , we present capital expenditures by business segment for fiscal 2018 , fiscal 2017 and fiscal 2016 . we also provide amounts we expect to spend in fiscal 2019 . we expect to finance a substantial portion of our fiscal 2019 capital expenditures from cash generated by operations and borrowings under the credit agreement . replace_table_token_2_th fiscal 2018 gas utility capital expenditures include amounts associated with construction of a new headquarters building . fiscal 2019 estimated capital expenditures at gas utility include slightly higher main replacement and system improvement capital expenditures , expenditures associated with buildings and grounds improvements , and it expenditures associated with the replacement of an enterprise risk management ( โ erp โ ) system . the increase in estimated fiscal 2019 electric utility capital expenditures includes infrastructure replacement and upgrade expenditures and facility improvements . 19 contractual cash obligations and commitments ugi utilities has contractual cash obligations that extend beyond fiscal 2018 , including scheduled repayments of long-term debt and interest , operating lease obligations , unconditional purchase obligations for pipeline transportation and natural gas storage services , and commitments to purchase natural gas and electricity . the following table presents significant contractual cash obligations under agreements existing as of september 30 , 2018 : replace_table_token_3_th ( a ) based upon stated maturity dates . ( b ) based upon stated interest rates . the components of the โ other noncurrent liabilities โ included in our consolidated balance sheet at september 30 , 2018 , principally consist of pension and other postretirement benefit liabilities recorded in accordance with gaap and estimated obligations for environmental investigation and remediation . these liabilities are not included in the table of contractual cash obligations and commitments above because they are estimates of future payments and not contractually fixed as to timing or amount . we believe the minimum required contributions to our pension plan in fiscal 2019 will not be material . contributions to the pension plan in years beyond fiscal 2019 will depend in large part on the impacts of future returns on pension plan assets and interest rates on pension plan liabilities . for additional information on these liabilities , see notes 9 and 12 to consolidated financial statements . pension plan ugi utilities has a defined benefit pension plan covering employees hired prior to january 1 , 2009 , of ugi , ugi utilities , png , cpg and certain of ugi 's other domestic wholly owned subsidiaries ( the โ pension plan โ ) . the fair values of the pension plan 's assets totaled $ 531.7 million and $ 498.1 million at september 30 , 2018 and 2017 , respectively . at september 30 , 2018 and 2017 , the underfunded positions of the pension plan , defined as the excess of the projected benefit obligations ( โ pbos โ ) over the pension plan 's assets , were $ 79.5 million and $ 141.2 million , respectively . we believe we are in compliance with regulations governing defined benefit pension plans , including employee retirement income security act of 1974 ( โ erisa โ ) rules and regulations . required minimum contributions to the pension plan in fiscal 2019 are not expected to be material . pre-tax pension cost associated with the pension plan in fiscal 2018 was $ 11.7 million
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analysis of results of operations the following analyses compare the company 's results of operations for fiscal 2018 , fiscal 2017 and fiscal 2016 . 14 fiscal 2018 compared with fiscal 2017 replace_table_token_0_th ( a ) gas utility revenues , total margin , operating income and income before income taxes were reduced by $ 24.1 million to record the effects of income tax savings that accrued during the period january 1 , 2018 to june 30 , 2018 , in accordance with a papuc order issued may 17 , 2018 , related to the tcja ( see notes 4 and 8 to consolidated financial statements ) . although gas utility 's income before income taxes for fiscal 2018 was negatively impacted by this reduction in revenues , the after-tax impact of this reduction was offset by a reduction in fiscal 2018 income tax expense principally as a result of the lower federal income tax rate . the impact of the papuc order on revenues for the period july 1 , 2018 to september 30 , 2018 was not material . ( b ) gas utility 's total margin represents total revenues less total cost of sales . electric utility 's total margin represents total revenues less total cost of sales and electric utility gross receipts taxes , of $ 5.0 million and $ 4.7 million during fiscal 2018 and fiscal 2017 , respectively . for financial statement purposes , electric utility gross receipts taxes are included in โ operating and administrative expenses โ on the consolidated statements of income ( but are excluded from electric utility operating expenses presented above ) . ( c ) deviation from average heating degree days for the 15-year period 2000-2014 based upon weather statistics provided by the national oceanic and atmospheric administration ( โ noaa โ ) for airports located within gas utility 's service territory .
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transactions representing revenues , costs and expenses are translated using an average rate of exchange for the period , and the related gains and losses are reported as other income ( expense ) on our consolidated statement of operations . 65 note 2. new accounting pronouncements recently adopted accounting guidance asu 2010-06 in january 2010 , the fasb issued asu 2010-06 , ย improving disclosures about fair value measurements , ย which requires new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into or out of level 1 and level 2 fair-value classifications . it also requires information on purchases , sales , issuances and settlements on a gross basis in the reconciliation of level 3 fair-value assets and liabilities . these disclosures are required for fiscal years beginning on or after december 15 , 2009. the asu also clarifies existing fair-value measurement disclosure guidance about the level of disaggregation , inputs and valuation techniques , which are required to be implemented in fiscal years beginning on or after december 15 , 2010. since the requirements of this asu only relate to disclosure , the adoption of the guidance did not and will not have any effect on our financial position , results of operations or cash flows . asu 2009-13 in october 2009 , the fasb issued asu 2009-13 , story_separator_special_tag cautionary factors that may affect future results this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . you can identify these statements by the fact that they do not relate strictly to historical or current facts and use words such as ยanticipate , ย ยestimate , ย ยexpect , ย ยproject , ย ยintend , ย ยplan , ย ยbelieve , ย ยappearย and other words and terms of similar meaning . such forward-looking statements include any statements regarding expectations of earnings , revenues , gross margins , non-operating expense , tax rates , net income , funding opportunities or other financial items , as well as backlog , order levels and activity of our company as a whole or in particular markets ; any statements of the plans , strategies and objectives of management for future operations , restructuring and outsourcing initiatives ; any statements of factors that may affect our 2011 operating results ; any statements concerning proposed new products , services , developments , changes to our restructuring reserves , our competitive position , hiring levels , sales and bookings or anticipated performance of products or services ; any statements related to future capital expenditures ; any statements related to the needs or expected growth or spending of our target markets ; any statements concerning the effects of litigation on our financial condition ; any statements concerning the resolution of any tax positions or use of tax assets ; any statements concerning the effect of new accounting pronouncements on our financial position , results of operations or cash flows ; any statements regarding future economic conditions or performance ; any statements of belief ; any statements of assumptions underlying any of the foregoing ; and any statements made under the heading ยoutlook for 2011.ย from time to time , we also may provide oral or written forward-looking statements in other materials we release to the public . the risks , uncertainties and assumptions referred to above include , but are not limited to , those discussed here and the risks discussed from time to time in our other public filings . all forward-looking statements included in this annual report on form 10-k are based on information available to us as of the date of this report , and we assume no obligation to update these forward-looking statements . you are advised , however , to consult any further disclosures we make on related subjects in our forms 10-q and 8-k filed with , or furnished to , the sec . you also should read item 1a . ยrisk factorsย for factors that we believe could cause our actual results to differ materially from expected and historical results . other factors also could adversely affect us . summary of products and segments we are a leading supplier of instruments for nanoscale imaging , analysis and prototyping to enable research , development and manufacturing in a range of industrial , academic and research institutional applications . we report our revenue based on a market-focused organization : the electronics market segment , the research and industry market segment , the life sciences market segment and the service and components market segment . our products include focused ion beam systems , or fibs ; scanning electron microscopes , or sems ; transmission electron microscopes , or tems ; and dualbeam systems , which combine a fib and sem on a single platform . 28 our dualbeam systems include models that have wafer handling capability and are purchased by semiconductor and data storage manufacturers ( ยwafer-level dualbeam systemsย ) and models that have small stages and are sold to customers in several markets ( ยsmall-stage dualbeam systemsย ) . the electronics market segment consists of customers in the semiconductor , data storage and related industries such as manufacturers of solar panels and light-emitting diodes ( ยledsย ) . for the semiconductor market , our growth is driven by shrinking line widths and process nodes of 45 nanometers and smaller , the use of multiple layers of new materials such as copper and low-k dielectrics and increasing device complexity . our products are used primarily in laboratories to speed new product development and increase yields by enabling 3d wafer metrology , defect analysis , root cause failure analysis and circuit edit for modifying device structures . in the data storage market , our products offer 3d metrology for thin film head processing and root cause failure analysis . story_separator_special_tag cost of sales and gross margin our gross margin ( gross profit as a percentage of net sales ) by segment was as follows : replace_table_token_12_th cost of sales includes manufacturing costs , such as materials , labor ( both direct and indirect ) and factory overhead , as well as all of the costs of our customer service function such as labor , materials , travel and overhead . the five primary drivers affecting gross margin include : product mix ( including the effect of price competition ) , volume , cost reduction efforts , competitive pricing pressure and currency movements . cost of sales increased $ 17.2 million , or 4.9 % , to $ 365.0 million in 2010 compared to $ 347.8 million in 2009 primarily due to increased sales . currency fluctuations decreased cost of sales by $ 13.2 million in 2010 compared to 2009. gross margins were positively affected in 2010 due to purchasing and operational improvements , a lower level of competitive pricing pressure in 2010 and improved product mix with increased electronics segment sales and increased high-end tem and small dualbeam systems being sold . the net effect on our gross margin from currency fluctuations during 2010 was an approximately $ 6.6 million , or a 1.5 percentage point , increase . cost of sales decreased $ 16.8 million , or 4.6 % , to $ 347.8 million in 2009 compared to $ 364.6 million in 2008 primarily due to an approximately $ 19.1 million decrease related to currency fluctuations and lower sales . these factors were partially offset by a shift in mix to a larger percentage of our sales coming from our life sciences segment , which has lower gross margins than sales from our electronics segment . the net effect on our gross margin from currency fluctuations in 2009 was an approximately $ 9.5 million , or a 2.3 percentage point , increase . electronics the increase in electronics gross margin in 2010 compared to 2009 was primarily due to currency fluctuations , which increased the gross margin by 2.4 percentage points . in addition , we sold more of our higher-margin small dualbeam systems in 2010 compared to 2009 and faced less pricing pressure in 2010 compared to 2009. these factors were partially offset by the shipment of orders in the first quarter of 2010 that were priced during the cyclical downturn in 2009 , which was a more competitive pricing environment . later quarters of 2010 realized improved pricing as compared to 2009 as the sales priced during the more competitive environment of 2009 were shipped in previous quarters . also offsetting the improvements in 2010 was a decrease in gross margin related to inventory adjustments to write down certain older inventory . these adjustments reduced gross margin by $ 1.0 million , or 0.5 percentage points . 33 the increase in electronics gross margin in 2009 compared to 2008 was due primarily to currency fluctuations , partially offset by a shift in mix away from the higher-margin data storage and other wafer-level dualbeam products in 2009. we also sold fewer higher-margin small dualbeams in 2009 and experienced pricing pressures on certain products . similarly , significant pricing pressure on certain transactions in the first quarter of 2008 lowered gross margins in 2008. research and industry gross margins for research and industry declined in 2010 compared to 2009 primarily due to a shift in product mix away from small dualbeam and higher-end tem units . the decline in research and industry gross margins was partially offset by the positive impact of currency fluctuations in 2010 compared to 2009 , which increased gross margins by 0.9 percentage points . the increase in the research and industry gross margin in 2009 compared to 2008 resulted primarily from continued penetration of our high-end product offerings being sold into research institutions and sales of large-scale bundled systems with higher overall margins . additionally , currency fluctuations improved gross margins 2.6 percentage points . life sciences gross margins for life sciences improved in 2010 compared to 2009 due to increased sales of our higher-margin tem products . additionally , currency fluctuations increased life sciences gross margins by 1.1 percentage points in 2010 compared to 2009. the decrease in the life sciences gross margin in 2009 compared to 2008 was primarily due to aggressive pricing and unexpected higher costs of selected strategic early-stage shipments of higher-end tem products , partially offset by favorable currency fluctuations in 2009. service and components the increase in the service and components gross margin in 2010 compared to 2009 was primarily due to incremental contract revenue , as well as increased time and material sales as customers , primarily in the electronics segment , prepare for increased demand and capacity improvements . in addition , a flat cost structure and operating efficiencies also contributed to the margin increase . the increase in the service and components gross margin in 2009 compared to 2008 was primarily due to favorable currency fluctuations and improvements in part usage and cost control . research and development costs research and development ( ยr & dย ) costs include labor , materials , overhead and payments to third parties for research and development of new products and new software or enhancements to existing products and software . these costs are presented net of subsidies received for such efforts . during 2010 , 2009 and 2008 , we received subsidies from european governments for technology developments specifically in the areas of semiconductor and life science equipment . r & d costs were $ 66.3 million ( 10.5 % of net sales ) in 2010 , $ 67.7 million ( 11.7 % of net sales ) in 2009 and $ 70.4 million ( 11.7 % of net sales ) in 2008. r & d costs are reported net of subsidies and were as follows ( in thousands ) : replace_table_token_13_th 34 the decrease in r & d costs in 2010 compared to 2009 was primarily due to currency fluctuations and expense controls .
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results of operations the following table sets forth our statement of operations data ( in thousands ) : replace_table_token_8_th the following table sets forth our statement of operations data as a percentage of net sales : replace_table_token_9_th ( 1 ) percentages may not add due to rounding . net sales increased $ 56.9 million , or 9.9 % , to $ 634.2 million in 2010 compared to $ 577.3 million in 2009 and decreased $ 21.9 million , or 3.6 % , in 2009 compared to $ 599.2 million in 2008. the factors affecting net sales are discussed in more detail in the net sales by segment discussion below . currency fluctuations decreased net sales by approximately $ 6.6 million in 2010 compared to 2009 as approximately 68 % of our net sales were denominated in foreign currencies that fluctuated against the u.s. dollar . currency fluctuations decreased net sales by approximately $ 9.6 million in 2009 compared to 2008 as approximately 66 % of our net sales were denominated in foreign currencies that declined in strength against the u.s. dollar . a significant portion of our revenue is denominated in foreign currencies , especially the euro . as the u.s. dollar strengthens against these foreign currencies , this generally has the effect of reducing net sales and backlog . 30 net sales by segment net sales by market segment ( in thousands ) and as a percentage of net sales were as follows : replace_table_token_10_th electronics the $ 96.4 million , or 76.2 % , increase in electronics sales in 2010 compared to 2009 was primarily due to an increase in semiconductor and data storage company capital spending for capacity expansion and new process development . we realized increases in unit sales of our wafer-level and small dualbeam products . in addition , currency fluctuations increased electronics sales by $ 0.7 million as compared to the prior year .
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investments are classified as either short- or long-term based on their original maturities . tjx 's investments are primarily high-grade commercial paper , institutional money market funds and time deposits with major banks . f-8 as of february 1 , 2014 , tjx 's cash and cash equivalents held outside the u.s. were $ 1.1 billion , of which $ 395.2 million was held in countries where tjx has the intention to story_separator_special_tag the discussion that follows relates to our 52-week fiscal year ended february 1 , 2014 ( fiscal 2014 ) , our 53-week fiscal year ended february 2 , 2013 ( fiscal 2013 ) and our 52-week fiscal year ended january 28 , 2012 ( fiscal 2012 ) . overview we are the leading off-price apparel and home fashions retailer in the u.s. and worldwide . we sell a rapidly changing assortment of apparel , home fashions and other merchandise at prices generally 20 % to 60 % below department and specialty store regular prices on comparable merchandise , every day . we operate over 3,200 stores through our four main segments : in the u.s. , marmaxx ( which operates t.j. maxx , marshalls and tjmaxx.com ) and homegoods ; tjx canada ( which operates winners , homesense and marshalls in canada ) ; and tjx europe ( which operates t.k . maxx , homesense and tkmaxx.com in europe ) . late in fiscal 2013 tjx acquired sierra trading post ( stp ) , a leading off-price internet retailer , which operates four stores and sierratradingpost.com in the u.s. the results of stp have been reported with the marmaxx segment . fiscal 2014 was another successful year for tjx as we posted solid gains in same store sales , net sales and earnings per share on top of strong increases in both fiscal 2013 and fiscal 2012. we increased our e-commerce presence by launching our new e-commerce website tjmaxx.com during the third quarter of fiscal 2014 and successfully transitioned stp into the tjx family . we continued our focus on operating with lean inventory levels and reinvesting in our business by adding new stores , remodeling existing ones and strengthening our infrastructure to support our next level of growth . we also continued using cash to return value to our shareholders . highlights of our financial performance for fiscal 2014 include the following : ย same store sales , on a 52-week basis , increased 3 % in fiscal 2014 over an increase of 7 % in fiscal 2013 and an increase of 4 % in fiscal 2012. the fiscal 2014 increase was driven by an increase in the value of average ticket ( average unit retail ) and a slight increase in customer traffic . ย net sales increased to $ 27.4 billion for fiscal 2014 , up 6 % over the 53-week fiscal period last year . the 53 rd week increased net sales by 2 % in fiscal 2013. at february 1 , 2014 , the number of stores in operation increased 6 % and selling square footage was up 5 % over the end of fiscal 2013 . ย earnings per share for fiscal 2014 were $ 2.94 per diluted share , up 15 % compared to $ 2.55 per diluted share in fiscal 2013. this year 's earnings were favorably impacted by $ 0.11 per share from tax benefits in the third quarter , while the 53 rd week in fiscal 2013 added approximately $ 0.08 per share to that year 's earnings . ย our fiscal 2014 pre-tax margin ( the ratio of pre-tax income to net sales ) was 12.1 % , a 0.2 percentage point increase compared to our fiscal 2013 pre-tax margin , which benefitted from the 53 rd week by approximately 0.2 percentage points . ย our cost of sales ratio for fiscal 2014 improved 0.1 percentage point to 71.5 % compared to our fiscal 2013 ratio , which benefitted from the 53 rd week by approximately 0.2 percentage points . the improvement over last year was primarily due to levering of expenses on the 3 % comp sales increase . ย our selling , general and administrative expense ratio for fiscal 2014 decreased 0.1 percentage point from 16.4 % in fiscal 2013 to 16.3 % . ย our consolidated average per store inventories , including inventory on hand at our distribution centers ( which excludes inventory in transit ) and excluding our e-commerce businesses , were down 8 % at the end of fiscal 2014 . ย during fiscal 2014 , we repurchased 27.0 million shares of our common stock for $ 1.5 billion . earnings per share reflect the benefit of the stock repurchase program . in january 2014 , our board of directors authorized our 15 th stock repurchase program for an additional $ 2 billion . 24 the following is a discussion of our consolidated operating results , followed by a discussion of our segment operating results . adjusted measures exclude certain items affecting comparability . see ยadjusted financial measuresย below . net sales : consolidated net sales for fiscal 2014 totaled $ 27.4 billion , a 6 % increase over $ 25.9 billion in fiscal 2013. the increase reflected a 4 % increase from new stores , a 3 % increase from same store sales and a 1 % increase from stp , offset by a 2 % decrease attributable to the 53 rd week included in fiscal 2013. foreign currency exchange rates had an immaterial impact on fiscal 2014 net sales . consolidated net sales for fiscal 2013 totaled $ 25.9 billion , a 12 % increase over $ 23.2 billion in fiscal 2012. the increase reflected a 7 % increase from same store sales , a 3 % increase from new stores and a 2 % increase from the impact of the 53 rd week in the fiscal 2013 calendar . foreign currency exchange rates had an immaterial impact on fiscal 2013 net sales . story_separator_special_tag the 1.1 percentage point improvement in this ratio for fiscal 2013 was primarily due to improved merchandise margins , driven by lower markdowns , as well as expense leverage on the strong same store sales increase and the approximately 0.2 percentage points benefit from the 53 rd week in fiscal 2013. selling , general and administrative expenses : selling , general and administrative expenses as a percentage of net sales were 16.3 % in fiscal 2014 , 16.4 % in fiscal 2013 and 16.8 % in fiscal 2012. on an 26 adjusted basis , this ratio was 16.5 % in fiscal 2012. the improvement in this ratio for fiscal 2014 was primarily due to year-over-year favorability from a combination of items that negatively impacted last year 's expense ratio as described below . the improvement in this ratio for fiscal 2013 was primarily due to expense leverage on strong same store sales , partially offset by contributions to the tjx foundation and by expenses related to two third quarter items : a non-cash charge for the cumulative impact of a correction to our pension accrual for prior years and a non-operating charge due to the adjustment in our reserve for former operations relating to closed stores . interest expense , net : the components of interest expense , net for the last three fiscal years are summarized below : replace_table_token_5_th interest expense , net increased in fiscal 2014 as a result of the interest cost of the $ 500 million 2.50 % ten-year notes that were issued on may 2 , 2013 , partially offset by an increase in interest income and an increase in capitalized interest on major capital projects that have not yet been placed in service . income taxes : our effective annual income tax rate was 35.6 % in fiscal 2014 , 38.0 % in fiscal 2013 and 38.0 % in fiscal 2012. the decrease in the fiscal 2014 effective income tax rate as compared to fiscal 2013 was primarily due to fiscal 2014 third quarter tax benefits of approximately $ 80 million , which were primarily due to a reduction in our reserve for uncertain tax positions as a result of settlements with state taxing authorities and the reversal of valuation allowances against foreign net operating loss carryfowards . see note l to the consolidated financial statements for more information . these benefits reduced the fiscal 2014 effective income tax rate by 1.4 percentage points and 0.8 percentage points respectively . tjx 's effective rate remained constant for fiscal 2013 as compared to fiscal 2012. the fiscal 2013 effective tax rate benefitted from an increase in foreign earnings , which are taxed at lower rates , but this benefit was offset by the absence of the benefit in fiscal 2012 due to a net reduction in federal and state tax reserves . net income and diluted earnings per share : net income was $ 2.1 billion in fiscal 2014 , a 12 % increase over $ 1.9 billion in fiscal 2013 , which in turn was a 27 % increase over $ 1.5 billion in fiscal 2012. diluted earnings per share were $ 2.94 in fiscal 2014 , $ 2.55 in fiscal 2013 and $ 1.93 in fiscal 2012. the tax benefits referred to above added $ 0.11 per share to net income for fiscal 2014 , while the 53 rd week benefitted fiscal 2013 earnings per share by $ 0.08 per share . foreign currency exchange rates also affected the comparability of our results . foreign currency exchange rates had a $ 0.01 negative impact on earnings per share in fiscal 2014 as compared to fiscal 2013 and an immaterial impact on earnings per share in fiscal 2013 as compared to fiscal 2012. our stock repurchase program , which reduces our weighted average diluted shares outstanding , benefits our earnings per share . we repurchased 27.0 million shares of our stock at a cost of $ 1.5 billion in fiscal 2014 , 30.6 million shares of our stock at a cost of $ 1.3 billion in fiscal 2013 and 49.7 million shares of our stock at a cost of $ 1.4 billion in fiscal 2012. adjusted financial measures : in addition to presenting financial results in conformity with gaap , we are also presenting certain measures on an ยadjustedย basis . we have adjusted certain measures for fiscal 2012 by excluding costs related to the a.j . wright consolidation incurred in fiscal 2012. these costs include store closing costs , additional operating losses related to the a.j . wright stores closed in fiscal 2012 and the costs incurred by the marmaxx and homegoods segments to convert former a.j . wright stores to their banners and hold grand re-opening events for these stores . 27 these adjusted financial results are non-gaap financial measures . we believe that the presentation of adjusted financial results provides additional information on comparisons between periods including underlying trends of our business by excluding these items that affect overall comparability . we use these adjusted measures in making financial , operating and planning decisions and in evaluating our performance , and our board of directors uses them in assessing our business and making compensation decisions . non-gaap financial measures should be considered in addition to , and not as an alternative for , our reported results prepared in accordance with gaap . reconciliation of the adjusted financial measures to the financial measures in accordance with gaap for fiscal 2012 is provided below : replace_table_token_6_th * figures may not cross-foot due to rounding . ( 1 ) sales of a.j . wright stores prior to closing ( $ 9 million ) . ( 2 ) cost of sales , including buying and occupancy costs of a.j . wright prior to closing ( $ 15 million ) and applicable conversion costs of a.j . wright stores converted to marmaxx and homegoods banners ( $ 1 million ) . ( 3 ) operating costs of a.j . wright prior to closing and costs to close a.j .
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fiscal year ended dollars in millions february 1 , 2014 february 2 , 2013 january 28 , 2012 net sales $ 17,929.6 $ 17,011.4 $ 15,367.5 segment profit $ 2,612.7 $ 2,486.3 $ 2,073.4 segment profit as a percentage of net sales 14.6 % 14.6 % 13.5 % adjusted segment profit as a percentage of net sales * n/a n/a 13.6 % increase in same store sales 3 % 6 % 5 % stores in operation at end of period t.j. maxx 1,079 1,036 983 marshalls 942 904 884 total marmaxx 2,021 1,940 1,867 selling square footage at end of period ( in thousands ) t.j. maxx 24,712 23,894 22,894 marshalls 23,092 22,380 22,042 total marmaxx 47,804 46,274 44,936 * see ยadjusted financial measuresย above . at february 1 , 2014 and february 2 , 2013 stp operated 4 stores with a selling square footage of 83,000. net sales at marmaxx increased 5 % in fiscal 2014 as compared to fiscal 2013. same store sales for marmaxx were up 3 % in fiscal 2014 , on top of a 6 % increase in the prior year . same store sales growth at marmaxx for fiscal 2014 was driven by an increase in average ticket . we believe severe winter weather in many regions of the country , particularly in the fourth quarter , impacted our sales in fiscal 2014. same store sales were above the chain average for home fashions , and while apparel overall was below the chain average , within apparel , jewelry and accessories were well above the average . geographically , same store sales were strongest in the west coast and florida . in addition , in the third quarter of fiscal 2014 we launched our new e-commerce site , tjmaxx.com . same store sales for marmaxx were up 6 % in fiscal 2013 , on top of a 5 % increase in the prior year .
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employee stock ownership plan ( โ esop โ ) : we recognize compensation cost for esop contributions when funds become committed for the purchase of bancorp 's common shares into the esop in the year in which the employees render service entitling them to the contribution . if we contribute stock , the compensation cost is the fair value of the shares when they are committed to be released ( i.e . , when the number of shares becomes known and formally approved ) . in 2019 and 2018 , the bank only made stock contributions to the esop . income taxes : income taxes reported in the consolidated financial statements are computed based on an asset and liability approach . we recognize the amount of taxes payable or refundable story_separator_special_tag the following discussion of financial condition as of december 31 , 2019 and 2018 and results of operations for each of the years in the two-year period ended december 31 , 2019 should be read in conjunction with our consolidated financial statements and related notes thereto , included in part ii item 8 of this report . average balances , including balances used in calculating certain financial ratios , are generally comprised of average daily balances . all share and per share data have been adjusted to reflect the stock split effective november 27 , 2018. forward-looking statements the disclosures set forth in this item are qualified by important factors detailed in part i captioned forward-looking statements and item 1a captioned risk factors of this report and other cautionary statements set forth elsewhere in the report . critical accounting policies and estimates critical accounting policies are those that are both very important to the portrayal of our financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and imprecise . management has determined the following four accounting policies to be critical : allowance for loan losses : for information regarding our alll methodology , the related provision for loan losses , risks related to asset quality and lending activity , including the transition from the incurred loss model to the current expected loss model under asu no . 2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments , effective january 1 , 2020 , see item 1a - risk factors , the allowance for loan losses section in item 7 - management 's discussion and analysis of financial condition and results of operations , and note 1 - summary of significant accounting policies and note 3 - loans and allowance for loan losses in item 8 - financial statements and supplementary data of this form 10โk . other-than-temporary impairment of investment securities : for information regarding our investment securities , investment activity , and related risks , see item 1a - risk factors , note 1 - summary of significant accounting policies and note 2 - investment securities in item 8 - financial statements and supplementary data of this form 10-k. accounting for income taxes : for information on our tax assets and liabilities , and related provision for income taxes , see note 1 - summary of significant accounting policies and note 11 - income taxes in item 8 - financial statements and supplementary data of this form 10-k. fair value measurements : for information on our use of fair value measurements and our related valuation methodologies , see note 1 - summary of significant accounting policies and note 9 - fair value of assets and liabilities in item 8 - financial statements and supplementary data of this form 10-k. page-24 story_separator_special_tag style= '' overflow : hidden ; font-size:10pt ; '' > interest average income/ yield/ average income/ yield/ ( dollars in thousands ; unaudited ) balance expense rate balance expense rate assets interest-bearing due from banks 1 $ 67,192 $ 1,321 1.94 % $ 78,185 $ 1,461 1.84 % investment securities 2 , 3 555,618 15,102 2.72 % 566,883 14,512 2.56 % loans 1 , 3 , 4 1,775,193 85,062 4.73 % 1,704,390 80,406 4.65 % total interest-earning assets 1 2,398,003 101,485 4.17 % 2,349,458 96,379 4.05 % cash and non-interest-bearing due from banks 35,956 41,595 bank premises and equipment , net 6,911 8,021 interest receivable and other assets , net 109,837 86,709 total assets $ 2,550,707 $ 2,485,783 liabilities and stockholders ' equity interest-bearing transaction accounts $ 133,922 $ 347 0.26 % $ 143,706 $ 226 0.16 % savings accounts 172,273 70 0.04 % 178,907 72 0.04 % money market accounts 680,296 3,439 0.51 % 612,372 1,355 0.22 % time accounts , including cdars 106,783 595 0.56 % 137,339 542 0.39 % borrowings and other obligations 1 2,935 77 2.57 % 105 2 2.03 % subordinated debentures 1 2,673 229 8.44 % 5,025 1,339 26.29 % total interest-bearing liabilities 1,098,882 4,757 0.43 % 1,077,454 3,536 0.33 % demand accounts 1,094,806 1,085,870 interest payable and other liabilities 30,578 18,514 stockholders ' equity 326,441 303,945 total liabilities & stockholders ' equity $ 2,550,707 $ 2,485,783 tax-equivalent net interest income/margin 1 $ 96,728 3.98 % $ 92,843 3.90 % reported net interest income/margin 1 $ 95,680 3.94 % $ 91,544 3.84 % tax-equivalent net interest rate spread 3.74 % 3.72 % 1 interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms , where applicable . 2 yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value , as changes in fair value are reflected as a component of stockholders ' equity . investment security interest is earned on 30/360 day basis monthly . 3 yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21 % in 2019 and 2018 . 4 average balances on loans outstanding include non-performing loans . story_separator_special_tag the decrease compared to the prior year primarily related to a $ 956 thousand pre-tax gain on the sale of 6,500 shares of visa inc. class b restricted common stock , a $ 180 thousand federal home loan bank special dividend , and higher fee income from one-way deposit sales to third-party networks in 2018. the decrease in non-interest income was partially offset by a $ 562 thousand gain from the settlement of death benefits on bank-owned life insurance in 2019 , net of underwriting costs associated with two new bank-owned life insurance policies . page-28 non-interest expense the table below details the components of non-interest expense . replace_table_token_5_th 2019 compared to 2018 in 2019 , non-interest expense decreased by $ 296 thousand to $ 58.0 million . the decrease was primarily due to $ 1.0 million in consulting expenses related to core processing contract negotiations in 2018 , lower data processing expenses in 2019 as a result of the contract renegotiation , and lower federal deposit insurance corporation ( `` fdic '' ) deposit insurance expenses due to the fdic deposit insurance fund reserve exceeding its billing threshold in 2019. the decreases in non-interest expense were partially offset by $ 918 thousand higher salaries and related benefits as a result of annual merit increases , three additional full-time equivalent employees ( on average ) , and personnel severance , as well as higher recruiting fees recorded in other expenses . provision for income taxes income tax provisions reflect accruals for taxes at the applicable rates for federal income tax and california franchise tax based upon reported pre-tax income . provisions also reflect permanent differences between income for tax and financial reporting purposes ( such as earnings on tax exempt loans and municipal securities , boli , low-income housing tax credits , and stock-based compensation from the exercise of stock options , disqualifying dispositions of incentive stock options and vesting of restricted stock awards ) . the provision for income taxes totaled $ 11.7 million at an effective tax rate of 25.4 % in 2019 , compared to $ 10.8 million at an effective tax rate of 24.9 % in 2018 . the increase in the provision from the prior year reflected a higher level of pre-tax income and lower tax-exempt interest income . the increase in the effective tax rate was also due to a higher level of tax benefits in 2018 from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options by former employees of bank of napa post-acquisition . the tax benefits from stock-based compensation reduced the effective tax rate approximately 59 basis points in 2018 versus 10 basis points in 2019. additional fluctuations in the effective tax rate from period to period were due to the relationship of other net permanent differences to income before tax . we file a consolidated return in the u.s. federal tax jurisdiction and a combined return in the state of california tax jurisdiction . there were no ongoing federal or state income tax examinations at the issuance of this report . at december 31 , 2019 and 2018 , neither the bank nor bancorp had accruals for interest or penalties related to unrecognized tax benefits . page-29 financial condition our assets increased $ 186.4 million from december 31 , 2018 to december 31 , 2019 . cash increased $ 149.2 million , mainly due to an increase in deposits of $ 161.7 million . additionally , loan growth for 2019 was $ 79.4 million . investment securities we maintain an investment securities portfolio to provide liquidity and to generate earnings on funds that have not been loaned to customers . management determines the maturities and types of securities to be purchased based on liquidity , the interest rate risk position , and the desire to attain a reasonable investment yield balanced with risk exposure . table 5 shows the composition of the debt securities portfolio by expected maturity at december 31 , 2019 and 2018 . expected maturities differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties . we estimate and update expected maturity dates regularly based on current and historical prepayment speeds . the weighted average life of the investment portfolio at december 31 , 2019 and 2018 was approximately six and five years , respectively . table 5 investment securities replace_table_token_6_th 1 book value reflects cost , adjusted for accumulated amortization and accretion . 2 weighted average calculation is based on amortized cost of securities . 3 yields on tax-exempt municipal bonds are presented on a taxable equivalent basis , using federal tax rate of 21 % . page-30 the amortized cost of our investment securities portfolio decreased $ 61.8 million or 10 % during 2019 . we purchased $ 114.4 million in securities in 2019 , including $ 3.5 million designated as held-to-maturity and $ 110.9 million designated as available-for-sale to provide flexibility for liquidity and interest rate risk management . these purchases were offset by $ 109.0 million of paydowns , calls and maturities , and $ 66.0 million of sales during 2019 . during 2019 , we purchased $ 17.0 million in collateralized mortgage obligations ( `` cmos '' ) , $ 42.2 million in mortgage pass-through securities , $ 25.3 million in debentures of government sponsored agencies , and $ 29.9 million in obligations of state and political subdivisions . we consider agency debentures , mortgage-backed securities , and cmos issued by u.s. government sponsored entities to have low credit risk as they carry the credit support of the u.s. federal government . the debentures , cmos and mbs issued by u.s. government sponsored agencies , state and municipal securities , and sba-backed securities made up 79.6 % , 12.4 % and 7.8 % of the portfolio at december 31 , 2019 , compared to 75.6 % , 14.5 % and 9.5 % , respectively at december 31 , 2018 .
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executive summary annual earnings were $ 34.2 million in 2019 compared to $ 32.6 million in 2018 . diluted earnings were $ 2.48 per share for the year ended december 31 , 2019 , compared to $ 2.33 per share in the same period of 2018 . the following are highlights of operating and financial performance for the year ended december 31 , 2019 : the bank achieved total loan growth of $ 79.4 million , or 4.5 % in 2019 , to $ 1,843.3 million at december 31 , 2019 , from $ 1,763.9 million at december 31 , 2018 . strong credit quality remains a cornerstone of the bank 's consistent performance . non-accrual loans represented 0.01 % of the bank 's loan portfolio as of december 31 , 2019 . there was a $ 900 thousand provision for loan losses recorded in 2019 , reflecting loan growth . deposits grew $ 161.7 million , or 7.4 % , to $ 2,336.5 million at december 31 , 2019 , compared to $ 2,174.8 million at december 31 , 2018 . non-interest bearing deposits grew by $ 62.8 million in 2019 and made up 48.3 % of total deposits at year-end . for the full year of 2019 , cost of total deposits remained low at 0.20 % , compared to 0.10 % in 2018. net interest income totaled $ 95.7 million and $ 91.5 million in 2019 and 2018 , respectively . the increase of $ 4.2 million in 2019 was primarily due to higher average loan balances and asset yields and the early redemption of a high-rate subordinated debenture in the fourth quarter of 2018. positive variances were partially offset by higher balances and rates on money market accounts . the tax-equivalent net interest margin increased to 3.98 % in 2019 , compared to 3.90 % in 2018 for the same reasons .
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financial instruments - credit losses in june 2016 , the fasb issued asu 2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments , which introduces a forward-looking approach , based on expected losses , to estimate credit losses on certain types of financial instruments , including trade receivables . the estimate of expected credit losses will require entities to incorporate considerations of historical information story_separator_special_tag our discussion below of our results includes certain non-gaap financial measures that we believe provide important perspective with respect to underlying business trends . other than free cash flow , any non-gaap financial measures will be 3 denoted as adjusted measures and exclude the impact from restructuring costs consisting of : ( 1 ) expenses associated with our revised business technology strategy announced in fiscal 2016 , as a result of which we incurred costs to convert to a modernized version of our established platform as opposed to completing the implementation of an enterprise resource planning ( erp ) system ; ( 2 ) professional fees related to our three-year strategic plans ; ( 3 ) restructuring expenses within our brakes group operations ; ( 4 ) severance charges related to restructuring ; and ( 5 ) foreign non-income based taxes . in addition , fiscal 2018 results of operations are impacted by business technology transformation initiative costs , facility closure charges , multiemployer pension ( mepp ) withdrawal charges and debt extinguishment charges , which are also excluded from our non-gaap financial measures . the non-gaap financial measures presented in this report also exclude the impact of the following acquisition-related items : ( 1 ) intangible amortization expense and ( 2 ) integration costs . all acquisition-related costs in fiscal 2018 and 2017 that have been excluded relate to the fiscal 2017 acquisition of cucina lux investments limited ( the brakes acquisition ) , discussed in note 4 , โ acquisitions. โ the brakes acquisition also resulted in non-recurring tax expense in fiscal 2017 , primarily from non-deductible transaction costs . the non-gaap financial measures presented in this report further exclude certain impacts of the tax cuts and jobs act of 2017 ( the tax act ) enacted on december 22 , 2017 . the impact for fiscal 2018 includes : a provisional estimate of a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and a net benefit from remeasuring sysco 's accrued income taxes , deferred tax liabilities and deferred tax assets due to the changes in tax rates . other tax-related items impacting results of operations include foreign withholding taxes on repatriated earnings , net of foreign tax credits , and a benefit from contributions made to fund sysco 's tax-qualified united states ( u.s. ) pension plan ( the u.s. retirement plan ) . the fiscal 2018 and fiscal 2017 items described above and excluded from our non-gaap measures are collectively referred to as โ certain items. โ in addition , our three-year plan that ended in fiscal 2018 , included an adjusted return on invested capital target that excluded the brakes acquisition , and therefore , our invested capital is adjusted for the accumulation of debt incurred for the brakes acquisition that would not have been borrowed absent this acquisition . sysco 's fiscal year ends on the saturday nearest to june 30th . this resulted in a 52-week year ending june 30 , 2018 for fiscal 2018 , a 52-week year ending july 1 , 2017 for fiscal 2017 , and a 53-week year ending july 2 , 2016 for fiscal 2016. because fiscal 2016 contained one additional week as compared to fiscal 2017 , our consolidated results of operations for fiscal 2017 are not directly comparable to fiscal 2016. management believes that adjusting the fiscal 2016 consolidated results of operations for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis . sysco 's results of operations and related metrics within this section will be disclosed on both a 52-week and 53-week basis for fiscal 2017 as compared to fiscal 2016. this is calculated by deducting one-fourteenth of the total metric for the fourth quarter of fiscal 2016. any metric within this section referred to as โ adjusted โ will reflect the applicable impact of certain items . more information on the rationale for the use of these measures and reconciliations to gaap numbers can be found under โ non-gaap reconciliations. โ overview sysco distributes food and related products to restaurants , healthcare and educational facilities , lodging establishments and other foodservice customers . our primary operations are located in north america and europe . the company has aggregated certain of its operating segments into three reportable segments . โ other โ financial information is attributable to the company 's other operating segments that do not meet the quantitative disclosure thresholds . u.s. foodservice operations - primarily includes u.s. broadline operations , which distribute a full line of food products , including custom-cut meat , seafood , specialty produce , specialty imports and a wide variety of non-food products ; international foodservice operations - includes operations in the americas and europe , which distribute a full line of food products and a wide variety of non-food products . the americas primarily consists of operations in canada , bahamas , mexico , costa rica and panama , as well as our operations that distribute to international customers . our european operations primarily consist of operations in the united kingdom ( u.k. ) , france , ireland and sweden ; sygma - our u.s. customized distribution subsidiary ; and other - primarily our hotel supply operations and sysco labs , which includes our suite of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs . story_separator_special_tag we offer an assortment of sysco-branded products that we can differentiate from privately branded products , which enables us to achieve higher gross profits . as a result , we focus on sales growth for these products , now comprising 46 % of u.s. broadline sales , especially with locally managed customers . cutting edge solutions , our product innovation platform , which features our exclusive product offerings , has now delivered one million cases of new , on trend , innovative products to our customers . we have experienced continued success in category management , as we introduce new categories to capture value . inflation is a factor that contributes to the level of sales and gross profit growth and can be a factor that contributes to gross margin pressure . we experienced inflation at a rate of 2.6 % for fiscal 2018 . inflation in fiscal 2018 occurred primarily in the meat , dairy , paper and disposables and frozen potatoes and vegetables categories , partially offset by modest deflation in poultry . in the fourth quarter of fiscal 2018 , the meat category was no longer experiencing inflation . we expect inflation to continue for the balance of calendar 2018 . periods of high inflation , either overall or in certain product categories , can have an unfavorable effect on us and our customers , as high food costs can be difficult to pass on to our customers . a portion of the cost to obtain product includes inbound freight . these costs have risen in fiscal 2018 , driven by overall industry factors such as driver shortages and adjusting to electronic regulation of hours driven . changes in exchange rates can impact our foreign sales as we convert them to u.s. dollars . in fiscal 2018 , we experienced a foreign exchange benefit to total sales of 1.0 % . we have experienced higher operating expenses in fiscal 2018 , as compared to fiscal 2017 , driven by ongoing strategic investments in the business that impacted the year , including the investment in marketing associates in the u.s. and the continued investment in technology that will translate to a more enriching experience for our customers . we expect operating expenses to increase in fiscal 2019 , primarily driven by anticipated growth in case volume . we also expect transportation costs to increase due to higher fuel prices and a tight labor market . we continue to make investments in europe including the supply chain transformation occurring in the u.k. , technology and other integrations within europe . in the second quarter of fiscal 2018 , the u.s. government enacted the tax act , comprehensive tax legislation that decreased the federal corporate tax rate from 35 % to 21 % . for fiscal 2018 , sysco had a 28 % tax rate , rather than 21 % , because the law was enacted during the midpoint of the company 's fiscal year , requiring us to use a blended average rate . the company 's u.s. federal statutory tax rate for fiscal 2019 and beyond will be 21 % , and we expect our effective tax rate to be approximately 25 % . this rate is expected to be similar to the fiscal 2018 effective tax rate due to certain tax benefits that occurred in fiscal 2018 that will not fully repeat in fiscal 2019. our fiscal 2018 effective tax rate is lower than this range as a result of capital allocation initiatives . as 6 discussed in note 18 , โ income taxes , โ we have recorded provisional estimates for some components of the tax act and will refine estimates and determine applicability for other components in future periods . we continue to be focused on mergers and acquisitions as a part of our strategy and have completed several acquisitions in fiscal 2018 , including two within u.s. foodservice operations and two within international foodservice operations . within u.s. foodservice operations , we acquired hfm foodservice ( hfm ) , a hawaii-based broadline distributor with approximately $ 290 million in annual sales . acquiring hfm provided sysco with direct access to the growing hawaiian market and was in clear alignment with our strategy for disciplined , profitable growth of the business . we also acquired doerle food services ( doerle ) , a leading louisiana broadline distributor with approximately $ 250 million in annual foodservice distribution sales . acquiring doerle provided sysco with a distributor that services parts of a six-state area , including oklahoma , texas , arkansas , louisiana , mississippi and alabama . within our international foodservice operations , we acquired kent frozen foods ( kff ) , a u.k.-based distributor that distributes chilled , frozen , and ambient food products to the catering industry in the u.k. acquiring kff provided sysco europe with an enhanced presence with independent customers in the u.k. market . we also acquired eko f รฅ gel , fisk & mittemellan , a leading fresh fish preparation and distribution business in stockholm , sweden . in addition to the two acquisitions noted above , in the second quarter of fiscal 2018 , we purchased the remaining 50 % interest in our joint venture in costa rica . sysco initially acquired a 50 % interest in the foodservice company in fiscal 2015. strategy and fiscal 2020 three-year financial targets our objective to improve the overall customer experience is a core element of our success over the past few years and will continue to be a key focus as we move forward . we have identified four strategic priorities that will accelerate our current growth and guide us into the future . these priorities are to enrich the customer experience , deliver operational excellence , optimize our business and activate the power of our people .
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results of operations the following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated : replace_table_token_7_th the following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year : replace_table_token_8_th ( 1 ) other expense ( income ) , net was income of $ 22.7 million in fiscal 2018 and income of $ 15.9 million in fiscal 2017 . 8 segment results the following represents our results by reportable segments : replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th based on information in note 20 , โ business segment information โ in fiscal 2018 , u.s. foodservice operations and international foodservice operations represented approximately 67.5 % and 19.6 % , respectively , of sysco 's overall sales , compared to 67.9 % and 19.2 % , respectively , in fiscal 2017. in fiscal 2018 , u.s. foodservice operations and international foodservice operations represented approximately 92.2 % and 5.8 % , respectively , of the total segment operating income , compared to 90.7 % and 7.6 % , respectively in fiscal 2017 . this illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments . 9 cost of sales primarily includes our product costs , net of vendor consideration , and includes in-bound freight . operating expenses include the costs of facilities , product handling , delivery , selling and general and administrative activities . fuel surcharges are reflected within sales and gross profit ; fuel costs are reflected within operating expenses . along with sales , operating income is the most relevant measure for evaluating segment performance and allocating resources , as operating income includes cost of goods sold , as well as the costs to warehouse and deliver goods , which are significant and relevant costs when evaluating a distribution business .
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this discussion and other parts of this annual report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations , and intentions . in this annual report , words such as ยmay , ย ยwill , ย ยexpect , ย ยanticipate , ย ยestimate , ย ยintend , ย and similar expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) are intended to identify forward-looking statements , as described elsewhere herein . as a result of many factors , including those factors set forth in the ยrisk factorsย section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company determined to discover , develop and deliver innovative treatments that provide hope to underserved patient communities . our lead product candidate is voxelotor ( previously known as gbt440 ) , an oral , once-daily therapy that modulates hemoglobin 's affinity for oxygen , which we believe inhibits hemoglobin polymerization in sickle cell disease , or scd . we are developing voxelotor for scd . we are currently evaluating voxelotor in scd in a phase 3 clinical trial of voxelotor in adult and adolescent patients with scd . in addition , we are evaluating the safety and pharmacokinetics of single and multiple doses of voxelotor in a phase 2a clinical trial of adolescent and pediatric patients with scd , and in july 2017 we announced that we have expanded this open-label trial to include a new single-dose cohort in children aged 6-11. in december 2015 , the food and drug administration , or fda , granted fast track designation and orphan drug designation for voxelotor for the treatment of scd and in november 2016 voxelotor was granted orphan drug designation in europe for the treatment of scd . in june 2017 , the european medicines agency , or ema , granted prime designation for voxelotor for the treatment of scd . the prime program is a new regulatory mechanism that provides for early and proactive ema support to medicine developers to help patients benefit as early as possible from innovative new products that have demonstrated the potential to significantly address an unmet medical need . in september 2017 , the fda granted rare pediatric disease designation to voxelotor for the treatment of scd for the treatment of scd . in january 2018 , the fda granted breakthrough designation to voxelotor for the treatment of scd . we were conducting two phase 2a clinical trials of voxelotor for the potential treatment of idiopathic pulmonary fibrosis ( ipf ) , which is a hypoxemic pulmonary disorder . we also conducted a phase 1 study called basecamp in healthy volunteers , which was intended to support our understanding of voxelotor 's effects on hypoxemia and complement our phase 2a program in ipf . in october 2017 , based upon the totality of the data we obtained from the two phase 2a clinical studies and basecamp study we decided to halt further development of voxelotor for the potential treatment of ipf . while the results re-affirmed our confidence in the mechanism of action of voxelotor in scd , the data from the ipf proof-of-concept studies did not demonstrate sufficient overall clinical benefit to justify continuing the program in ipf . scd is marked by red blood cell , or rbc , destruction and occluded blood flow and hypoxia , leading to anemia , stroke , multi-organ failure , severe pain crises , and shortened patient life span . voxelotor inhibits abnormal hemoglobin polymerization , the underlying mechanism that causes sickling of rbcs . in our clinical trials to date of voxelotor in scd patients , we observed reduced markers of red blood cell destruction , improvements in anemia , improvements in markers of tissue oxygenation , and reduced numbers of sickled rbcs . we own or jointly own and have exclusively licensed rights to our product candidates in the united states , europe and other major markets . we are the sole owner of issued u.s. patents covering voxelotor , including its composition of matter , methods of use , and a polymorph of voxelotor . these issued patents covering voxelotor will expire between 2032 and 2035 , absent any applicable patent term extensions . we own or co-own additional pending patent applications in the united states and multiple foreign countries relating to our lead product candidate voxelotor . 73 beyond evaluation voxelotor in scd , we are also engaged in other research and development activities , all of which are currently in the pre-clinical phase . in addition , we regularly evaluate opportunities to in-license , acquire or invest in new business , technology or assets or engage in related discussions with other business entities . since our inception in 2011 , we have devoted substantially all of our resources to identifying and developing our product candidates , including conducting clinical trials and nonclinical studies and providing general and administrative support for these operations . prior to our initial public offering , or ipo , we had funded our operations primarily from the issuance and sale of redeemable convertible preferred stock . in august 2015 , we completed our ipo pursuant to which we issued 6,900,000 shares of our common stock at a price of $ 20.00 per share , resulting in proceeds of approximately $ 126.2 million , net of underwriting discounts and commissions , and offering expenses . story_separator_special_tag we use peer company price volatility as well as the historical volatility of our own common stock to estimate expected stock price volatility due to the limited trading history for our common stock since our ipo in august 2015. the comparable companies were chosen based on their similar size , stage in life cycle , or area of specialty . we will continue to apply this process until a sufficient amount of historical information regarding the volatility of our stock price becomes available . restricted stock purchases ( rsps ) and restricted stock units ( rsus ) are measured based on the fair market values of the underlying stock on the dates of grant . stock-based compensation expense was calculated based on awards at the time of grant , and is reduced for actual forfeitures at the time that the forfeitures occur . the estimated fair value of stock options , rsps and rsus is expensed on a straight-line basis over the service period of the grant and the estimated fair value of performance-contingent options , rsus and rsps is expensed using an accelerated method over the term of the award once we determine that it is probable that those performance milestones will be achieved . compensation expense for rsus and rsps that contain performance conditions is based on the grant date fair value of the award . compensation expense is recorded over the requisite service period based on management 's best estimate as to whether it is probable that the shares awarded are expected to vest . we assess the probability of the performance indicators being met on a continuous basis . fair value of each share of underlying common stock is based on the closing price of our common stock as reported on the date of grant . prior to our ipo , the fair values of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors . in order to determine the fair value of our common stock underlying option grants , our board of directors considered , among other things , contemporaneous valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provide by the american institute of certified public accountants practice guide , 75 valuation of privately-held-company equity securities issued as compensation . given the absence of a public trading market for our common stock , our board of directors exercised their judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock , including : our stage of development ; progress of our research and development efforts ; the rights , preferences and privileges of our preferred stock relative to those of our common stock ; equity market conditions affecting comparable public companies and the lack of marketability of our common stock . compensation expense for purchases under the espp is recognized based on the fair value of the common stock estimated based on the closing price of our common stock as reported on the date of offering , less the purchase discount percentage provided for in the plan . stock-based compensation expense was $ 13.7 million for the year ended december 31 , 2017 , $ 9.2 million for the year ended december 31 , 2016 and $ 3.2 million for the year ended december 31 , 2015. as of december 31 , 2017 , we had $ 35.0 million of total unrecognized stock-based compensation costs , which we expect to recognize over a weighted-average period of 2.3 years . we have not recognized , and we do not expect to recognize in the near future , any tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance on our deferred tax assets including deferred tax assets related to our net operating loss carryforwards . income taxes we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . we periodically assess the likelihood that the resulting deferred tax assets will be realized . a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized . on december 22 , 2017 , the president signed the tax cuts & jobs act ( the ยtax actย ) . the tax act , among other things , lowered the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018. consequently , our net deferred tax assets as of december 31 , 2017 were significantly reduced to reflect the estimated impact of the tax act . due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income , the net deferred tax assets have been fully offset by a valuation allowance . the significant reduction in our net deferred tax assets are fully offset by a reduction in valuation allowance , resulting in no impact to our income tax expense . as of december 31 , 2017 , our total deferred tax assets , less our total deferred tax liabilities , were $ 87.9 million . due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income , the net deferred tax assets have been fully offset by a valuation allowance . the deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards .
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results of operations comparison of the years ended december 31 , 2017 , 2016 and 2015 replace_table_token_7_th * change is not meaningful research and development research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , which include salaries , benefits and stock-based compensation ; expenses incurred under agreements with consultants , third-party research and manufacturing organizations , and investigative clinical trial sites that conduct research and development activities on our behalf ; the costs related to production of clinical supplies , including fees paid to contract manufacturers ; laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials ; and facilities and other allocated expenses , which include expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . we expense all research and development costs in the periods in which they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and the services are performed . the largest component of our total operating expenses is our investment in research and development activities , including the clinical development of voxelotor . we allocate research and development salaries , benefits , stock-based compensation and indirect costs to voxelotor and other product candidates that we may pursue on a program-specific basis .
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this strategy is viewed as providing an opportunity to increase revenues through the creation of a competitive advantage over other financial institutions . the company also strives to remain operationally efficient to improve profitability while enabling the banks to offer more competitive loan and deposit rates . the principal sources of company revenues and cash flows are : ( i ) interest and fees earned on loans made or held by the company and banks ; ( ii ) interest on investments , primarily on bonds , held by the banks ; ( iii ) fees on wealth management services ; ( iv ) service charges on deposit accounts maintained at the banks ; ( v ) merchant and card fees ; ( vi ) gain on the sale of loans held for sale ; and ( vii ) securities gains . the company 's principal expenses are : ( i ) interest expense on deposit accounts and other borrowings ; ( ii ) salaries and employee benefits ; ( iii ) data processing costs primarily associated with maintaining the banks ' loan and deposit functions ; ( iv ) occupancy expenses for maintaining the banks ' facilities ; ( v ) professional fees ; and ( vi ) business development . the largest component contributing to the company 's net income is net interest income , which is the difference between interest earned on earning assets ( primarily loans and investments ) and interest paid on interest bearing liabilities ( primarily deposit accounts and other borrowings ) . one of management 's principal functions is to manage the spread between interest earned on earning assets and interest paid on interest bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk . the company reported net income of $ 17,014,000 for the year ended december 31 , 2018 compared to $ 13,697,000 for the year ended december 31 , 2017. this represents an increase in net income of 24 % when comparing 2018 with 2017. the improvement in earnings in 2018 from 2017 is primarily the result of improved loan interest income and decreased income tax expense , offset in part by elevated deposit interest expense and higher salary and employee benefits . earnings per share for 2018 were $ 1.83 compared to $ 1.47 in 2017. all five banks demonstrated profitable operations during 2018 and 2017. the company 's return on average equity for 2018 was 10.09 % compared to 8.02 % in 2017 , and the return on average assets for 2018 was 1.23 % compared to 1.00 % in 2017. the increase in return on average equity and return on average assets when comparing 2018 to 2017 was primarily a result of higher net income . the increase in return on average equity and return on average assets when comparing 2018 to 2017 was primarily a result of higher net income . the following discussion will provide a summary review of important items relating to : โ challenges โ key performance indicators โ industry results โ critical accounting policies โ income statement review โ balance sheet review โ asset quality review and credit risk management โ liquidity and capital resources โ interest rate risk โ inflation โ forward-looking statements and business risks โ non-gaap financial measures 24 challenges management has identified certain events or circumstances that have the potential to negatively impact the company 's financial condition and results of operations in the future and is attempting to position the company to best respond to those challenges . โ if interest rates increase significantly over a relatively short period of time due to improving national employment levels or higher inflationary numbers , the interest rate environment may present a challenge to the company . increases in interest rates may negatively impact the company 's net interest margin if interest expense increases more quickly than interest income , thus placing downward pressure on net interest income . the company 's earning assets ( primarily its loan and investment portfolio ) have longer maturities than its interest bearing liabilities ( primarily deposits and other borrowings ) ; therefore , in a rising interest rate environment , interest expense will tend to increase more quickly than interest income as the interest bearing liabilities reprice more quickly than earning assets , resulting in a reduction in net interest income . in response to this challenge , the banks model quarterly the changes in income that would result from various changes in interest rates . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . โ if market interest rates in the three to five year term remain at low levels as compared to the short term interest rates , the interest rate environment may present a challenge to the company . the company 's earning assets ( typically priced at market interest rates in the three to five year range ) will reprice at lower interest rates , but the deposits will not reprice at significantly lower interest rates , therefore the net interest income may decrease . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . โ the agricultural community is subject to commodity price fluctuations . extended periods of low commodity prices , higher input costs or poor weather conditions could result in reduced profit margins , reducing demand for goods and services provided by agriculture-related businesses , which , in turn , could affect other businesses in the company 's market area . moreover , the recent changes in u.s. trade policy , including the imposition of tariffs by the u.s. government and retaliatory tariffs imposed in response by foreign governments , could create further volatility for commodities prices as the volume of exports of agricultural products to these foreign markets could be adversely impacted . story_separator_special_tag reliance on nondeposit liabilities declined by $ 47.5 billion ( 2.3 % ) from the previous quarter , as trade liabilities were reduced by $ 23.1 billion ( 8.9 % ) and other liabilities fell by $ 24.4 billion ( 6 % ) . the number of banks on the โ problem bank list โ declines to 60 the number of banks on the fdic 's โ problem bank list โ declined from 71 to 60 at year-end 2018 , the fewest since first quarter 2007. total assets of problem banks fell from $ 53.3 billion to $ 48.5 billion . during the fourth quarter , two new charters were added , 70 institutions were absorbed by mergers , and there were no bank failures . for full-year 2018 , eight new charters were added , 259 institutions were absorbed by mergers , and there were no bank failures . critical accounting policies the discussion contained in this item 7 and other disclosures included within this annual report are based on the company 's audited consolidated financial statements which appear in item 8 of this annual report . these statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the financial information contained in these statements is , for the most part , based on the financial effects of transactions and events that have already occurred . however , the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . the company 's significant accounting policies are described in the โ notes to consolidated financial statements โ accompanying the company 's audited financial statements . based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments , management has identified the allowance for loan losses , the assessment of other-than-temporary impairment for investment securities and the assessment of goodwill to be the company 's most critical accounting policies . 28 allowance for loan l osses the allowance for loan losses is established through a provision for loan losses that is treated as an expense and charged against earnings . loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely . the company has policies and procedures for evaluating the overall credit quality of its loan portfolio , including timely identification of potential problem loans . on a quarterly basis , management reviews the appropriate level for the allowance for loan losses , incorporating a variety of risk considerations , both quantitative and qualitative . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , known information about individual loans and other factors . qualitative factors include various considerations regarding the general economic environment in the company 's market area . to the extent actual results differ from forecasts and management 's judgment , the allowance for loan losses may be greater or lesser than future charge-offs . due to potential changes in conditions , it is at least reasonably possible that change in estimates will occur in the near term and that such changes could be material to the amounts reported in the company 's financial statements . for further discussion concerning the allowance for loan losses and the process of establishing specific reserves , see the section of this annual report entitled โ asset quality review and credit risk management โ and โ analysis of the allowance for loan losses โ . fair value and other - than - temporary impairment of investment securities the company 's securities available-for-sale portfolio is carried at fair value with โ fair value โ being defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . a fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or , in the absence of a principal market , the most advantageous market for the asset or liability . the price in the principal ( or most advantageous ) market used to measure the fair value of the asset or liability is not adjusted for transaction costs . an orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities ; it is not a forced transaction . market participants are buyers and sellers in the principal market that are ( i ) independent , ( ii ) knowledgeable , ( iii ) able to transact , and ( iv ) willing to transact . declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses . in estimating other-than-temporary impairment losses , management considers ( 1 ) the intent to sell the investment securities and the more likely than not requirement that the company will be required to sell the investment securities prior to recovery ( 2 ) the length of time and the extent to which the fair value has been less than cost and ( 3 ) the financial condition and near-term prospects of the issuer . due to potential changes in conditions , it is at least reasonably possible that change in management 's assessment of other-than-temporary impairment will occur in the near term and that such changes could be material to the amounts reported in the company 's financial statements . goodwill goodwill arose in connection with acquisitions in 2018 , 2014 and 2012. goodwill is tested annually for impairment or more often if conditions indicate a possible impairment . for the purposes of goodwill impairment testing , determination of the fair value of a reporting unit involves the use of significant estimates and assumptions .
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industry results the fdic quarterly banking profile reported the following results for the fourth quarter of 2018 net income rises $ 33.8 billion over fourth quarter 2017 to $ 59.1 billion the 5,406 fdic-insured commercial banks and savings institutions reported quarterly net income of $ 59.1 billion in the fourth quarter , an increase of $ 33.8 billion ( 133.4 % ) from a year earlier . improvement in quarterly net income was attributable to higher net operating revenue ( the sum of net interest income and noninterest income ) and lower income tax expenses . assuming the effective tax rate before the new tax law , quarterly net income would have totaled an estimated $ 50.3 billion , up $ 7.9 billion ( 18.5 % ) from 12 months ago . the average return on assets was 1.33 % for the quarter , up from 0.58 % in fourth quarter 2017. the percentage of unprofitable banks in the fourth quarter declined to 6.5 % from 16.6 % a year ago . full-year 2018 net income grows to $ 236.7 billion growth in net operating revenue ( up $ 53.1 billion , or 7 % ) , coupled with lower income tax expenses ( down $ 36.9 billion , or 37.7 % ) and loan-loss provisions ( down $ 1.1 billion , or 2.2 % ) , lifted full-year 2018 net income to $ 236.7 billion , an improvement of $ 72.4 billion ( 44.1 % ) from 2017. assuming the effective tax rate before the new tax law , full-year 2018 net income would have totaled an estimated $ 207.9 billion , compared with $ 183.1 billion in 2017. the average net interest margin ( nim ) rose from 3.25 % in 2017 to 3.40 % , as average asset yields ( up 43 basis points ) exceeded average funding costs ( up 28 basis points ) . the average return on assets for 2018 was 1.35 % , up from 0.97 % for 2017 . 26 net interest income increases 8.1 % from a year earlier quarterly net interest income rose to $ 140.2 billion , up $ 10.5
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๏ปฟ ๏ปฟ 63 sb/rh hol dings , llc consolidated statements of financial position september 30 , 2018 and 2017 ( in millions ) ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ replace_table_token_24_th ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ ๏ปฟ see accompanying notes to the consolidated financial statements 64 sb/rh holdings , llc consolidated statements of income years ended september story_separator_special_tag ๏ปฟ the following is management 's discussion of the financial results , liquidity and other key items related to our performance and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report . the following is a combined report of sbh and sb/rh , and the following discussion includes sbh and certain matters related to sb/rh as signified below . unless the context indicates otherwise , the terms the โ company , โ โ we , โ โ our โ or โ us โ are used to refer to sbh and its subsidiaries and sb/rh and its subsidiaries , collectively . business overview ๏ปฟ refer to item 1 - business and note 1 โ description of business to the consolidated financial statement , included elsewhere within this annual report for an overview of our business . ๏ปฟ divestitures ๏ปฟ ยท global batteries & appliances ( โ gba โ ) โ the assets and liabilities associated with gba have been classified as held for sale and the respective operations have been classified as discontinued operations and reported separately for all periods presented . spectrum entered into a definitive acquisition agreement with energizer where they will acquire from spectrum its global batteries and lights ( โ gbl โ ) business for an aggregate purchase price of $ 2.0 billion in cash , subject to customary purchase price adjustments . spectrum has been actively marketing the hpc business with interested parties for a separate transaction ( s ) . see note 23 โ subsequent events to the consolidated financial statements , included elsewhere in this annual report , for further developments over gba divestitures and gac divestiture subsequent to september 30 , 2018 . ยท insurance operations โ on november 30 , 2017 , fgl completed the fgl merger with cf corporation and the cf entities pursuant to the fgl merger agreement , as further detailed in note 3 โ divestitures to the consolidated financial statements , included elsewhere in this annual report . pursuant to the fgl merger agreement , except for certain shares specified in the fgl merger agreement , each issued and outstanding share of common stock of fgl was automatically cancelled and converted into the right to receive $ 31.10 in cash . the total consideration received by hrg as a result of the completion of the fgl merger was $ 1,488.3 million . in addition , pursuant to a share purchase agreement , on november 30 , 2017 , front street re ( delaware ) ltd. sold to the cf entities all of the issued and outstanding shares of front street for $ 65.0 million , which was subject to reduction for customary transaction expenses . ยท compass โ on july 1 , 2016 , hgi energy entered into an agreement to sell its equity interest in compass to a third party pursuant to the compass sale agreement , as further detailed in note 3 โ divestitures to the consolidated financial statements , included elsewhere in the annual report . during the year ended september 30 , 2016 , the transactions contemplated by the compass sale agreement were consummated . the sale represented the disposal of all of hrg 's oil and gas properties , which were accounted for using the full-cost method prior to their disposal . ๏ปฟ see note 3 โ divestitures to the consolidated financial statements , included elsewhere in this annual report , for more information on the assets and liabilities classified as held for sale and discontinued operations . ๏ปฟ spectrum merger ๏ปฟ on july 13 , 2018 , sbh closed its agreement and plan of merger with its majority owned subsidiary . sbh has incurred significant transaction costs associated with the spectrum merger that may impact the comparability of the consolidated results of operations . effective as of the closing date of the spectrum merger , management and control of the organization was assumed by its majority-owned subsidiary , spectrum , and the company continues to operate as the consumer products company that was principally conducted by its majority owned subsidiary . see note 4 โ acquisitions to the consolidated financial statements , included elsewhere in this annual report , for more information on the spectrum merger and associated transaction costs . ๏ปฟ additionally , as a result of the spectrum merger , hrg and spectrum will join in the filing of u.s. consolidated tax return starting july 13 , 2018. the form of the spectrum merger allows for the hrg capital and net operating loss carryforwards to be able to be used to offset spectrum 's future income and the u.s. tax gain on the sale of the gbl business to energizer . as a result , sbh released $ 365.3 million of valuation allowance on its net deferred tax assets since it is now more likely than not that the assets will be realized . as of sep tember 30 , 2018 , sbh had $ 247.3 million of valuation allowance recorded on u.s. deferred tax assets , primarily net operating losses and tax credits subject to certain ownership change limitations on their use . acquisitions ๏ปฟ the following acquisition activity has a significant impact on the comparability of the financial results on the consolidated financial statements . ๏ปฟ ยท petmatrix โ on june 1 , 2017 , the company completed the acquisition of petmatrix llc , a manufacturer and marketer of rawhide-free dog chews consisting primarily of the dreambone ยฎ and smartbonesยฎ brands . story_separator_special_tag while we believe organic net sales and adjusted ebitda are useful supplemental information , such adjusted results are not intended to replace our financial results in accordance with accounting principles generally accepted in the united states ( โ gaap โ ) and should be read in conjunction with those gaap results . ๏ปฟ organic net sales . we define organic net sales as net sales excluding the effect of changes in foreign currency exchange rates and or impact from acquisitions ( where applicable ) . we believe this non-gaap measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rate and or acquisitions . we use organic net sales as one measure to monitor and evaluate our regional and segment performance . organic growth is calculated by comparing organic net sales to net sales in the prior year . the effect of changes in currency exchange rates is determined by translating the period 's net sales using the currency exchange rates that were in effect during the prior comparative period . net sales are attributed to the geographic regions based on the country of destination . we exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period . the following is a reconciliation of net sales to organic net sales of sbh and sb/rh for the year ended september 30 , 2018 compared to net sales for the year ended september 30 , 2017 , and the net sales to organic net sales for the year ended september 30 , 2017 compared to the year ended september 30 , 2016 respectively : ๏ปฟ replace_table_token_4_th ๏ปฟ 35 adjusted ebitda . adjusted ebitda is a non-gaap metric used by management that we believe provides useful information to investors because it reflects the ongoing operating performance and trends of our segments , excluding certain non-cash based expenses and or non-recurring items during each of the comparable periods . it also facilitates comparisons between peer companies since interest , taxes , depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies . adjusted ebitda is also used for determining compliance with the company 's debt covenant . see note 11 - debt in the notes to the consolidated financial statements , included elsewhere within this annual report , for additional detail . ๏ปฟ ebitda is calculated by excluding the company 's income tax expense , interest expense , depreciation expense and amortization expense ( from intangible assets ) from net income . adjusted ebitda further excludes : ๏ปฟ ยท share based compensation expense as it is a non-cash based compensation cost , see note 17 - share based compensation to the consolidated financial statements , included elsewhere within this annual report for further details ; ยท acquisition and integration charges that consist of transaction costs from acquisition transactions during the period or subsequent integration related project costs directly associated with the acquired business , see note 4 โ acquisitions to the consolidated financial statements , included elsewhere within this annual report for further details ; ยท restructuring and related charges , which consist of project costs associated with restructuring initiatives across the segments , see note 5 - restructuring and related charges to the consolidated financial statements , included elsewhere within this annual report for further details ; ยท non-cash purchase accounting inventory adjustments recognized in earnings subsequent to an acquisition ( when applicable ) ; ยท non-cash asset impairments or write-offs realized on goodwill , intangible assets , and property plant and equipment ( when applicable ) ; ยท incremental costs associated with a safety recall in pet . see note 18 โ commitments and contingencies to the consolidated financial statements , included elsewhere within this annual report for further details ; ยท transaction costs directly associated with the spectrum merger . see note 4 โ acquisitions to the consolidated financial statements , included elsewhere within this annual report for further details ; ยท non-recurring hrg net operating costs considered to be redundant or duplicative as a result of the spectrum merger and not considered a component of the continuing commercial products company post-merger , including compensation and benefits , directors fees , professional fees , insurance , public company costs , amongst others , and including interest and other non-recurring income that will ultimately be eliminated following the transaction ; including a one-time cost for the termination of a legacy hrg pension plan of $ 1.2 million and one-time lease termination cost for the hrg new york based corporate office of $ 3.1 million during the year ended september 30 , 2018 ; ยท net operating results of salus as it is not considered a component of the continuing commercial products company ; and ยท other adjustments as further discussed . ๏ปฟ during the year ended september 30 , 2018 , other adjustments consist of incremental costs for separation of key senior executives and costs attributable to flood damage at the company 's corporate headquarters in wisconsin . during the fiscal year ended september 30 , 2017 , other adjustment consist of the devaluation of cash and cash equivalents denominated in venezuelan currency . during the fiscal year ended september 30 , 2016 , other adjustments consist of onboarding costs of a key executive . 36 the following is a reconciliation of net income to adjusted ebitda for the years ended september 30 , 2018 , 2017 and 2016 for sbh : ๏ปฟ replace_table_token_5_th ๏ปฟ ๏ปฟ 37 the following is a reconciliation of net income to adjusted ebitda for the years ended september 30 , 2018 , 2017 and 2016 for sb/rh : ๏ปฟ replace_table_token_6_th ๏ปฟ 38 story_separator_special_tag note 11 - debt in notes to the consolidated financial statements included elsewhere within this annual report for additional information regarding outstanding debt . ๏ปฟ 39 income taxes .
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consolidated results of operations ๏ปฟ sbh ๏ปฟ the following is summarized consolidated results of operations for sbh for the years ended september 30 , 2018 , 2017 and 2016 : ๏ปฟ replace_table_token_7_th ๏ปฟ net sales . net sales for the year ended september 30 , 2018 increased $ 136.4 million , or 4.5 % , with an increase in organic sales of $ 50.2 million , or 1.7 % . net sales for the year ended september 30 , 2017 decreased $ 19.9 million , or 0.7 % , with a decrease in organic net sales of $ 43.7 million , or 1.4 % . the following sets forth net sales by segment for the years ended september 30 , 2018 , 2017 and 2016 : ๏ปฟ replace_table_token_8_th ๏ปฟ the following sets forth the principal components of the change in net sales from the year ended september 30 , 2018 to the year ended september 30 , 2017 , and from the year ended september 30 , 2017 to the year ended september 30 , 2016 : ๏ปฟ replace_table_token_9_th ๏ปฟ gross profit . gross profit for the year ended september 30 , 2018 decreased $ 23.5 million primarily attributable to the decline in gross profit margin from 39.1 % to 36.7 % primarily driven by operating inefficiencies from restructuring initiatives in the gac and hhi segments , inflation in raw material costs primarily in hhi and gac , and increased production costs associated with start-up on operating facilities impacted by the product safety recall in pet , operating inefficiencies from the european pet distribution center consolidation , and unfavorable private label product mix .
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refer to note 4 , business restructuring and cost reduction actions ; note 5 , business combinations ; note 22 , income taxes ; and note 23 , supplemental information , to the consolidated financial statements for details on these transactions . on a non-gaap basis , the effective tax rate was 24.2 % in both 2013 and 2012. discontinued operations during the second quarter of 2012 , the board of directors authorized the sale of our homecare business , which had previously been reported as part of the merchant gases operating segment . in 2012 , we sold the majority of our homecare business to the linde group for sale proceeds of ย 590 million ( $ 777 ) and recognized a gain of $ 207.4 ( $ 150.3 after-tax , or $ .70 per share ) . in addition , an impairment charge of $ 33.5 ( $ 29.5 after-tax , or $ .14 per share ) was recorded to write down the remaining business , which was primarily in the united kingdom and ireland , to its estimated net realizable value . in 2013 , we recorded an additional charge of $ 18.7 ( $ 13.6 after-tax , or $ .06 per share ) to update our estimate of the net realizable value . in 2014 , a gain of $ 3.9 was recognized for the sale of the remaining homecare business and settlement of contingencies on the sale to the linde group . refer to note 3 , discontinued operations , to the consolidated financial statements for additional details on this business . 26 segment analysis merchant gases replace_table_token_7_th 2014 vs. 2013 underlying sales increased 4 % due to higher volumes of 3 % and higher pricing of 1 % . in the u.s. and canada , sales increased 7 % , with volumes up 3 % and price up 4 % . volumes increased as higher liquid oxygen , nitrogen , and argon volumes were partially offset by lower helium volumes due to supply limitations . volumes also increased as a result of our epco carbondioxide products , inc. acquisition . pricing was higher due to improved pricing in liquid oxygen , liquid nitrogen , and helium . in europe , sales increased 4 % , with favorable currency impacts of 4 % , primarily from the euro and the pound sterling . volumes were flat as higher volumes in liquid oxygen , nitrogen , and argon were offset by lower helium volumes and lower cylinder volumes as construction remains weak . in asia , sales increased 4 % due to higher volumes of 5 % , partially offset by lower pricing of 1 % . volumes increased with higher liquid oxygen , nitrogen , and argon volumes across the region , partially offset by lower helium volumes . pricing decreased as higher helium pricing was more than offset by lower pricing in liquid oxygen , nitrogen , and argon , particularly in china , driven in part by a higher mix of wholesale customers . in latin america , sales decreased 8 % , as higher volumes of 1 % , and higher pricing of 2 % was more than offset by unfavorable currency impacts of 11 % from the brazilian real and chilean peso . volumes increased in brazil and were only modestly higher in chile as the economy slowed . operating income decreased 1 % , primarily due to higher operating costs of $ 25 , prior year gains from sales of assets and investments of $ 10 , and lower price recovery of power and fuel costs of $ 3 , partially offset by higher volumes of $ 31. operating margin decreased 80 basis points ( bp ) from prior year , primarily due to higher power and fuel costs . merchant gases equity affiliates ' income of $ 140.1 decreased $ 4.9 , primarily from unfavorable currency impacts in mexico , south africa , and india and lower oilfield services volume in mexico . 2013 vs. 2012 underlying sales increased 1 % due to higher pricing of 1 % . the acquisition of indura s.a. had a favorable impact on sales of 11 % . in the u.s. and canada , sales increased 5 % , with volumes up 2 % and price up 3 % . volumes increased primarily due to higher liquid oxygen and liquid nitrogen , partially offset by helium supply limitations . in europe , sales decreased 3 % , with volumes down 3 % primarily due to overall economic weakness in the region . in asia , sales increased 3 % due to higher volumes of 2 % and favorable currency of 2 % , partially offset by lower pricing of 1 % . volumes increased primarily due to higher liquid oxygen and liquid nitrogen volumes . operating income increased 6 % , primarily due to higher acquisitions of $ 48 and lower operating costs of $ 13 , partially offset by lower price recovery of power and fuel costs of $ 25 and lower volumes of $ 10. the lower operating costs included the impact from the prior year cost reduction plan in europe , partially offset by higher pension costs . 27 operating income in 2013 also included $ 10 for gains from sales of assets and investments . operating margin decreased 100 bp , primarily due to the impact of the indura s.a. acquisition and higher power and fuel costs . merchant gases equity affiliates ' income of $ 145.0 increased $ 7.9 , primarily as a result of improved performance in our mexican equity affiliate . tonnage gases replace_table_token_8_th 2014 vs. 2013 volumes decreased 7 % , as strong demand in the united states gulf coast hydrogen system was more than offset by lower volumes in latin america and the exit from our pui business . the lower pui volumes decreased sales by 4 % . as of the end of story_separator_special_tag refer to note 4 , business restructuring and cost reduction actions ; note 5 , business combinations ; note 22 , income taxes ; and note 23 , supplemental information , to the consolidated financial statements for details on these transactions . on a non-gaap basis , the effective tax rate was 24.2 % in both 2013 and 2012. discontinued operations during the second quarter of 2012 , the board of directors authorized the sale of our homecare business , which had previously been reported as part of the merchant gases operating segment . in 2012 , we sold the majority of our homecare business to the linde group for sale proceeds of ย 590 million ( $ 777 ) and recognized a gain of $ 207.4 ( $ 150.3 after-tax , or $ .70 per share ) . in addition , an impairment charge of $ 33.5 ( $ 29.5 after-tax , or $ .14 per share ) was recorded to write down the remaining business , which was primarily in the united kingdom and ireland , to its estimated net realizable value . in 2013 , we recorded an additional charge of $ 18.7 ( $ 13.6 after-tax , or $ .06 per share ) to update our estimate of the net realizable value . in 2014 , a gain of $ 3.9 was recognized for the sale of the remaining homecare business and settlement of contingencies on the sale to the linde group . refer to note 3 , discontinued operations , to the consolidated financial statements for additional details on this business . 26 segment analysis merchant gases replace_table_token_7_th 2014 vs. 2013 underlying sales increased 4 % due to higher volumes of 3 % and higher pricing of 1 % . in the u.s. and canada , sales increased 7 % , with volumes up 3 % and price up 4 % . volumes increased as higher liquid oxygen , nitrogen , and argon volumes were partially offset by lower helium volumes due to supply limitations . volumes also increased as a result of our epco carbondioxide products , inc. acquisition . pricing was higher due to improved pricing in liquid oxygen , liquid nitrogen , and helium . in europe , sales increased 4 % , with favorable currency impacts of 4 % , primarily from the euro and the pound sterling . volumes were flat as higher volumes in liquid oxygen , nitrogen , and argon were offset by lower helium volumes and lower cylinder volumes as construction remains weak . in asia , sales increased 4 % due to higher volumes of 5 % , partially offset by lower pricing of 1 % . volumes increased with higher liquid oxygen , nitrogen , and argon volumes across the region , partially offset by lower helium volumes . pricing decreased as higher helium pricing was more than offset by lower pricing in liquid oxygen , nitrogen , and argon , particularly in china , driven in part by a higher mix of wholesale customers . in latin america , sales decreased 8 % , as higher volumes of 1 % , and higher pricing of 2 % was more than offset by unfavorable currency impacts of 11 % from the brazilian real and chilean peso . volumes increased in brazil and were only modestly higher in chile as the economy slowed . operating income decreased 1 % , primarily due to higher operating costs of $ 25 , prior year gains from sales of assets and investments of $ 10 , and lower price recovery of power and fuel costs of $ 3 , partially offset by higher volumes of $ 31. operating margin decreased 80 basis points ( bp ) from prior year , primarily due to higher power and fuel costs . merchant gases equity affiliates ' income of $ 140.1 decreased $ 4.9 , primarily from unfavorable currency impacts in mexico , south africa , and india and lower oilfield services volume in mexico . 2013 vs. 2012 underlying sales increased 1 % due to higher pricing of 1 % . the acquisition of indura s.a. had a favorable impact on sales of 11 % . in the u.s. and canada , sales increased 5 % , with volumes up 2 % and price up 3 % . volumes increased primarily due to higher liquid oxygen and liquid nitrogen , partially offset by helium supply limitations . in europe , sales decreased 3 % , with volumes down 3 % primarily due to overall economic weakness in the region . in asia , sales increased 3 % due to higher volumes of 2 % and favorable currency of 2 % , partially offset by lower pricing of 1 % . volumes increased primarily due to higher liquid oxygen and liquid nitrogen volumes . operating income increased 6 % , primarily due to higher acquisitions of $ 48 and lower operating costs of $ 13 , partially offset by lower price recovery of power and fuel costs of $ 25 and lower volumes of $ 10. the lower operating costs included the impact from the prior year cost reduction plan in europe , partially offset by higher pension costs . 27 operating income in 2013 also included $ 10 for gains from sales of assets and investments . operating margin decreased 100 bp , primarily due to the impact of the indura s.a. acquisition and higher power and fuel costs . merchant gases equity affiliates ' income of $ 145.0 increased $ 7.9 , primarily as a result of improved performance in our mexican equity affiliate . tonnage gases replace_table_token_8_th 2014 vs. 2013 volumes decreased 7 % , as strong demand in the united states gulf coast hydrogen system was more than offset by lower volumes in latin america and the exit from our pui business . the lower pui volumes decreased sales by 4 % . as of the end of
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results of operations discussion of consolidated results replace_table_token_5_th 2014 vs. 2013 sales of $ 10,439.0 increased 3 % , or $ 258.6. underlying business increased 2 % , as higher volumes in the merchant gases and electronics and performance materials segments were partially offset by lower volumes in our tonnage gases segment , including the exit from our pui business which reduced sales by 1 % . higher energy and raw material contractual cost pass-through to customers increased sales by 1 % . currency was flat as the impacts from a stronger euro were offset by a weaker chilean peso . 2013 vs. 2012 sales of $ 10,180.4 increased 6 % , or $ 568.7. underlying business decreased 1 % , primarily due to lower volumes resulting from our previous decision to exit the pui business and lower electronics demand , partially offset by higher volumes in the tonnage gases , performance materials , and equipment businesses . the acquisitions of indura s.a. and da nanomaterials increased sales by 5 % . higher energy and raw material contractual cost pass-through to customers increased sales by 2 % . operating income 2014 vs. 2013 on a gaap basis , operating income of $ 1,328.2 increased $ 3.8. current year operating income was reduced by $ 310.1 for a goodwill and intangible asset impairment charge , $ 12.7 for a business reorganization and cost reduction charge , and $ 5.5 for pension settlement losses . prior year operating income was reduced by a charge of $ 231.6 for a business restructuring and cost reduction plan and $ 10.1 for advisory costs .
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million , which represented the fair value of the swap agreement at the time of settlement . this amount is being amortized as an offset to interest expense over the 10-year term of the debt , and the unamortized balance is reflected as a gain , net of tax , in accumulated other comprehensive loss . in fiscal 2010 , the company entered into two interest rate swap agreements that effectively converted $ 250.0 million of fixed rate debt maturing in fiscal 2013 and $ 200.0 million story_separator_special_tag our discussion below of our results includes certain non-gaap financial measures that we believe provide important perspective with respect to underlying business trends . any non-gaap financial measure will be denoted as an adjusted measure and our fiscal 2013 comparisons to fiscal 2012 exclude the impact from business transformation project costs , multiemployer pension plan charges , severance charges , executive retirement plans restructuring , a one-time acquisition related charge and facility closure charges . collectively , these are referred to as excluded charges . our fiscal 2012 comparisons to fiscal 2011 exclude the impact from business transformation project costs , multiemployer pension plan charges , severance charges , corporate-owned life insurance ( coli ) policies and certain tax benefits . more information on the rationale for the use of these measures and reconciliations to gaap numbers can be found under โ non-gaap reconciliations. โ overview sysco distributes food and related products to restaurants , healthcare and educational facilities , lodging establishments and other foodservice customers . our operations are primarily located throughout the united states , bahamas , canada , ireland and northern ireland and include broadline companies ( which include our custom-cut meat operations ) , sygma ( our chain restaurant distribution subsidiary ) , specialty produce companies , hotel supply operations , a company that distributes specialty imported products and a company that distributes to international customers . we consider our primary market to be the foodservice market in the united states and canada and estimate that we serve about 18 % of this approximately $ 235 billion annual market . according to industry sources , the foodservice , or food-away-from-home , market represents approximately 48 % of the total dollars spent on food purchases made at the consumer level in the united states . industry sources estimate the total foodservice market in the united states experienced a real sales increase of approximately 1.3 % in calendar year 2012 and a decline of 0.1 % in calendar year 2011. real sales changes do not include the impact of inflation or deflation . general economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and , in turn , can impact our customers and our sales . we believe the current general economic conditions , including pressure on consumer disposable income , have contributed to a decline in the foodservice market . historically , we have grown at a faster rate than the overall industry and believe we have continued to grow our market share in this fragmented industry . highlights fiscal 2013 was a year in which we progressed with our business transformation p roject while facing a challenging business and economic environment . the foodservice industry has not fully participated in the overall economic recovery primarily due to constrained consumer spending for food-away-from-home . our results of operations reflect these challenges as well as expenses related to our business transformation project , payroll costs , charges from the withdrawal from multiemployer pension plans and increased fuel expense . we believe our sales growth and expense management on a cost per cases basis was acceptable , however gross profit did not grow as we planned due partially to competitive pressures and a shift in customer mix . w e will remain focused on the execution of our business plan and initiatives from our business transformation p roject , with the goal for these items to contribute to the long-term success of our customers and in turn , growth in our earnings . we acquired 14 companies during fiscal 2013 , which represents annualized sales in excess of $ 1 billion . we expect these acquisitions will contribute to our sales growth , enhance our international market presence and product assortment . comparison of results from fiscal 2013 to fiscal 2012 : ยท sales increased 4.8 % , or $ 2.0 billion to $ 44.4 billion . ยท operating income decreased 1 2.3 % , or $ 2 32.2 million , to $ 1 . 7 billion . ยท adjusted operating income decreased 1.7 % , or $ 36.4 million , to $ 2.1 billion . ยท net earnings decreased 11 . 5 % , or $ 12 9.2 million , to $ 1.0 billion . ยท adjusted net earnings increased 0.1 % , or $ 1.4 million , to $ 1.3 billion . ยท basic earnings per share in fiscal 2013 was $ 1.6 8 , a 1 2.0 % decrease from the comparable prior year period amount of $ 1.91 per share . diluted earnings per share in fiscal 2013 was $ 1.6 7 , a 12.1 % decrease from the comparable prior year period amount of $ 1.90 per share . ยท adjusted diluted earnings per share was $ 2.14 in fiscal 2013 , a 0.5 % decrease from the comparable prior year amount of $ 2.15 per share . see โ non-gaap reconciliations โ for an explanation of these non-gaap financial measures . 17 trends and strategy trends general economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and , in turn , can impact our customers and our sales . consumer confidence has improved since 2008 , however it remains below its historical highs . we believe that the consumer is currently concerned about lingering unemployment levels and lack of growth in personal income . story_separator_special_tag day-to-day , our business decisions are driven by our mission to market and deliver great products to our customers with exceptional service , with the aspirational vision of becoming each of our customers ' most valued and trusted business partner . we have identified five strategies to help us achieve our mission and vision : ยท profoundly enrich the experience of doing business with sysco : our primary focus is to help our customers succeed . we believe that by building on our current competitive advantages , we will be able to further differentiate our offering to customers . our competitive advantages include our sales force of over 7,000 mark eting associates ; our diversified product base , which includes quality-assured sysco brand products ; the suite of services we provide to our customers such as business reviews and menu analysis ; and our wide geographic presence in the united states and canada . in addition , we have a portfolio of businesses spanning broadline , specialty meat , chain restaurant distribution , specialty produce , hotel amenities , specialty import and export which serves our customers ' needs across a wide array of business segments . through our sysco ventures platform , we are developing a suite of technology solutions that help support the administrative needs of our customers . we believe this strategy of enriching the experience of doing business with sysco will increase customer retention and profitably accelerate sales growth with both existing and new customers . ยท continuously improve productivity in all areas of our business : our multi-year business transformation project is designed to improve productivity and reduce costs . an integrated software system is included in this project and will support a majority of our business processes to further streamline our operations and reduce costs . these systems are commonly referred to as enterprise resource planning ( erp ) systems . we view the technology as an important enabler of this project ; however the larger outcome of this project will be from transformed processes that standardize portions of our operations . this includes a shared business service center to centrally manage certain back-office functions that are currently performed at a majority of our operating companies . this project includes other components to lower our cost structure through improved productivity without impacting our service to our customers . w e continue to optimize warehouse and delivery activities across the corporation to achieve a more efficient delivery of products to our customers and we seek to improve sales productivity and lower general and administrative costs . we also have a product cost reduction and category management initiative to use market data and customer insights to make changes to product pricing and product assortment . ยท expand our portfolio of products and services by initiating a customer-centric innovation program : we continually explore opportunities to provide new and improved products , technologies and services to our customers . ยท explore , assess and pursue new businesses and markets : this strategy is focused on identifying opportunities to expand the core business through growth in new international markets and in adjacent areas that complement our core foodservice distribution business . as a part of our ongoing strategic analysis , we regularly evaluate business opportunities , including potential acquisitions and sales of assets and businesses . ยท develop and effectively integrate a comprehensive , enterprise-wide talent management process : our ability to drive results and grow our business is directly linked to having the best talent in the industry . we are committed to the continued enhancement of our talent management programs in terms of how we recruit , select , train and develop our associates throughout sysco as well as succession planning . our ultimate objective is to provide our associates with outstanding opportunities for professional growth and career development . business transformation project our multi-year business transformation project consists of : ยท the design and deployment of an erp system to implement an integrated software system to support a majority of our business processes and further streamline our operations ; ยท a cost transformation initiative to lower our cost structure ; ยท a product cost reduction and category management initiative to use market data and customer insights to make changes to product pricing and product assortment ; and ยท several other initiatives . we deployed our erp system to three additional locations in fiscal 2013 and experienced improved functionality in many areas compared to past deployments . our shared services center , sysco business services , continues to expand and provide a broader array of centralized administrative services . the majority of the system functionality is performing as designed ; however , we have identified areas for improvement to certain components of the system that we want to address before we continue deploying to additional locations . these improvements include simplifying certain processes to improve response times and reduce system loads . we believe that this will improve system stability and result in improved ability to scale the system as we move forward . while these 19 improvements are being made , we will continue implementing individual modules such as our human resource module and continue with other business transformation initiatives . we intend to deploy the system to one additional location around the end of this calendar year . if our updates are successful , we anticipate that further deployment will resume early in calendar 2014. our deployment schedule will be further defined at that time . our cost transformation initiative seeks to lower our cost structure by $ 300 million to $ 350 million annually by fiscal 2015. these include initiatives to increase our productivity in the warehouse and delivery activities including fleet management and maintenance activities . it also involves improving sales productivity and reducing general and administrative expenses , partially through aligning compensation and benefit plans . efforts from our cost transformation initiatives in fiscal 2013 spanned many areas of operations .
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results of operations the following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated : replace_table_token_7_th the following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the prior year : replace_table_token_8_th ( 1 ) other expense ( income ) , net was income of $ 17.5 million in fiscal 2013 , $ 6.8 million in fiscal 2012 and $ 14.2 million in fiscal 2011 . sales sales for fiscal 2013 were 4.8 % higher than fiscal 2012. sales for fiscal 2013 increased as a result of product cost inflation and the resulting increase in selling prices , sales from acquisitions that occurred within the last 12 months and case volume growth . our sales growth in fiscal 2013 was greater with our large regional and national customers as compared to sales growth with our independent restaurant customers . we believe our independent sales growth has been negatively influenced by lower consumer sentiment . case volumes excluding acquisitions within the last 12 months improved 1.3 % in fiscal 2013. our case volumes represent our results from our broadline and sygma segments only . sales from acquisitions within the last 12 months favorably impacted sales by 1.5 % for fiscal 2013. our acquisition activity has been greater in fiscal 2013 as compared to fiscal 2012. we estimate the carryover impact into fiscal 2014 will cause sales to increase by approximately 1.0 % .
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the exhibits listed below are filed as part of this annual report on form 10-k. certain of the exhibits , as indicated , have been previously filed and are incorporated herein by reference . exhibit no . identification of exhibit 2 asset purchase agreement with first aid only , inc. dated as of june 2 , 2014 ( 1 ) 3 ( i ) certificate of organization of the company ( 2 ) amendment to certificate of organization of registrant dated september 24 , 1968 ( 2 ) amendment to certificate of incorporation of the company dated april 27 , 1971 ( 3 ) amendment to certificate of incorporation of the company dated june 29 , 1971 ( 3 ) 3 ( ii ) bylaws ( 11 ) 4 specimen of common stock certificate ( 3 ) 10.1 non-salaried director stock option plan dated april 22 , 1996 * ( 4 ) 10.1 ( a ) amendment no . 1 to the non-salaried director stock option plan * ( 5 ) 10.1 ( b ) amendment no . 2 to the non-salaried director stock option plan * ( 6 ) 10.3 2002 acme united employee stock option plan as amended ( 12 ) 10.4 severance pay plan dated september 28 , 2004 * ( 15 ) 10.5 ( a ) salary continuation plan dated september 28 , 2004 , as amended ( 14 ) * 10.6 2005 non-salaried director stock option plan ( 13 ) 10.8 deferred compensation plan dated october 2 , 2007 * ( 16 ) 10.9 2012 acme united employee stock option plan ( 17 ) 10.10 ( a ) revolving loan agreement with hsbc , dated april 5 , 2012 ( 18 ) 10.10 ( b ) amendment no . 1 to revolving loan agreement with hsbc dated ( 19 ) 48 10.10 ( c ) amended and restated note 10.10 ( d ) amendment no . 2 to revolving loan agreement with hsbc dated october 2013 10.11 change in control plan as amended dated february 24 , 2011 * ( 20 ) 21 subsidiaries of the registrant 23.1 consent of marcum llp , independent registered public accounting firm 31.1 certification of walter johnsen pursuant to rule 13a-14 ( a ) and 15d-14 ( a ) and section 302 of the sarbanes-oxley act of 2002 31.2 certification of paul driscoll pursuant to rule 13a-14 ( a ) and 15d-14 ( a ) and section 302 of the sarbanes-oxley act of 2002 32.1 certification of walter johnsen pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of paul driscoll pursuant to section 906 of the sarbanes-oxley act of 2002 * indicates a management contract or a compensatory plan or arrangement ( 1 ) previously filed as an exhibit to the company 's form 8-k/a filed on august 19 , 2014 . ( 2 ) previously filed in s-1 registration statement no . 230682 filed with the commission on november 7 , 1968 and amended by amendment no . 1 on december 31 , 1968 and by story_separator_special_tag forward-looking information the company may from time to time make written or oral โ forward-looking statements โ including statements contained in this report and in other communications by the company , which are made in good faith pursuant to the โ safe harbor โ provisions of the private securities litigation reform act of 1995. such statements are based on our beliefs as well as assumptions made by and information currently available to us . when used in this document , words like โ may , โ โ might , โ โ will , โ โ except , โ โ anticipate , โ โ believe , โ โ potential , โ and similar expressions are intended to identify forward-looking statements . actual results could differ materially from our current expectations . 16 these forward-looking statements include statements of the company 's plans , objectives , expectations , estimates and intentions , which are subject to change based on various important factors ( some of which are beyond the company 's control ) . the following factors , in addition to others not listed , could cause the company 's actual results to differ materially from those expressed in forward looking statements : the strength of the domestic and local economies in which the company conducts operations , the impact of uncertainties in global economic conditions , changes in client needs and consumer spending habits , the impact of competition and technological change on the company , the company 's ability to manage its growth effectively , including its ability to successfully integrate any business or property which it might acquire , and currency fluctuations . for a more detailed discussion of these and other factors affecting us , see the risk factors described in item 1a of this annual report on form 10-k. the company undertakes no obligation to publicly update or revise any forward-looking statement , whether as a result of new information , future events , or otherwise , except as required by law . critical accounting policies the following discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . the company 's significant accounting policies are more fully described in note 2 of the notes to consolidated financial statements . certain accounting estimates are particularly important to the understanding of the company 's financial position and results of operations and require the application of significant judgment by the company 's management and can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management . story_separator_special_tag two assumptions , the discount rate and the expected return on plan assets , are important elements of expense and liability measurement . we determine the discount rate used to measure plan liabilities as of the december 31 measurement date . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . in estimating this rate , we look at rates of return on fixed-income investments of similar duration to the liabilities in the plan that receive high , investment grade ratings by recognized ratings agencies . using these methodologies , we determined a discount rate of 3.50 % to be appropriate as of december 31 , 2015 , which is an increase of .27 percentage points from the rate used as of december 31 , 2014. the expected long-term rate of return on assets considers the company 's historical results and projected returns for similar allocations among asset classes . in accordance with generally accepted accounting principles , actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligation in future periods . for the u.s. pension plan , our assumption for the expected return on plan assets was 6.0 % for 2015. for more information concerning these costs and obligations , see the discussion in note 6 โ pension and profit sharing , in the notes to the company 's consolidated financial statements in this report . 18 accounting for stock-based compensation . stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period . the company uses the black-scholes option - pricing model to determine fair value of the awards , which involves certain subjective assumptions . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( โ expected term โ ) , the estimated volatility of the company 's common stock price over the expected term ( โ volatility โ ) and the number of options for which vesting requirements will not be completed ( โ forfeitures โ ) . changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation , and the related amount recognized on the consolidated statements of operations . refer to note 11 - stock option plans - in the notes to consolidated financial statements in this report for a more detailed discussion . story_separator_special_tag higher tax rate than the countries in which our subsidiaries operate compared to 2014. off-balance sheet transactions the company did not engage in any off-balance sheet transactions during 2015. liquidity and capital resources during 2015 , working capital increased by approximately $ 5.5 million compared to december 31 , 2014. inventory increased by approximately $ 1.8 million , or 5 % , which corresponds to the increase in sales . the company expects that changes in inventory levels will continue to be consistent with changes in sales , including the seasonal impact on the company 's revenue stream . inventory turnover , calculated using a twelve month average inventory balance , decreased to 2.0 from 2.2 at december 31 , 2014. the reserve for slow moving and obsolete inventory was $ 698,592 at december 31 , 2015 compare to $ 825,087 at december 31 , 2014. further , we do not anticipate significant increases in the allowance for slow moving and obsolete inventory in the ordinary course of business . receivables increased by approximately $ 65,000. the average number of days sales outstanding in accounts receivable was 64 days in 2015 compared to 63 days in 2014. accounts payable and other current liabilities decreased by approximately $ 3.4 million . 20 at december 31 , 2015 , total debt outstanding under the company 's revolving credit facility ( referred to below ) increased by approximately $ 1.8 million compared to total debt at december 31 , 2014. the change in debt was primarily due to the increase in inventory . as of december 31 , 2015 , $ 25,912,652 was outstanding and $ 14,087,348 was available for borrowing under the company 's revolving credit facility . under its revolving credit facility with hsbc bank , n.a. , the company may borrow up to $ 40 million at an interest rate of libor plus 1.75 % . all principal amounts outstanding under the agreement are required to be repaid in a single amount on april 5 , 2017 , the date the facility expires ; interest is payable monthly . funds borrowed under the facility may be used for working capital , general operating expenses , share repurchases , acquisitions and certain other purposes . at december 31 , 2015 the company was in compliance with the covenants then in effect under the amended loan agreement . capital expenditures during 2015 and 2014 were $ 1,756,732 and $ 2,042,173 , respectively , which were , in part , financed with borrowings under the company 's revolving credit facility . the company believes that cash on hand , and cash generated from operating activities , together with funds available under its revolving credit facility , are expected , under current conditions , to be sufficient to finance the company 's planned operations for at least the next twelve months . recently issued accounting standards in august 2015 , the fasb issued asu no . 2015-14 , which defers the effective date of asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) by one year . asu 2015-14 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services . as a result , the asu is now effective for fiscal years ,
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results of operations 2015 compared with 2014 on april 7 , 2014 , the company sold its fremont , nc distribution facility for $ 850,000 in cash . the facility originally served as a manufacturing site for the company 's scissors and rulers . in conjunction with the sale of the property , the company recorded a liability of $ 300,000 in the second quarter of 2014 , related to environmental remediation of the property . the accrual included the total estimated costs of remedial activities and post-remediation operating and maintenance costs . the balance remaining in the accrual at december 31 , 2015 was approximately $ 80,000. additional information concerning the sale of the property is set forth in note 16 โ sale of property , in the notes to condensed consolidated financial statements . on june 2 , 2014 , the company purchased certain assets of first aid only , located in vancouver , wa , a supplier of smart complianceยฎ first aid kits , refills , and safety products that meet regulatory requirements for a broad range of industries . the company purchased inventory , accounts receivable , equipment , patents , trademarks and other intellectual property for approximately $ 13.8 million using funds borrowed under its revolving credit facility with hsbc . additional information concerning the acquisition of first aid only assets is set forth in note 17 โ business combinations , in the notes to condensed consolidated financial statements . net sales in 2015 , sales increased by $ 2,590,000 or 2 % to $ 109,812,000 compared to $ 107,222,000 in 2014 ( 5 % in constant currency ) .
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the construction products operating segment provides floor preparation , grouts and mortars for tile setting as well as sealants and related products for heating , ventilation and air conditioning installations . we acquired the global industrial adhesives and synthetic polymers business of forbo holding ag on march 5 , 2012. the forbo industrial adhesives business acquired is referred to as the ยacquired businessย in the management 's discussion and analysis . see item 1. business and note 2 to the consolidated financial statements . the integration of the acquired business involved a significant amount of restructuring and capital investment to optimize the new combined entity . in addition to this acquisition , we announced our intentions to take a series of actions in our existing eimea operating segment to improve the profitability and future growth prospects of this operating segment . we combined these two initiatives into a single project which we refer to as the ยbusiness integration projectย . we divested our latin america paints business on august 6 , 2012. in accordance with financial accounting standards board ( fasb ) accounting standards codification asc 205-20 , ยdiscontinued operationsย we have classified the results of this business as discontinued operations . see item 1. business and note 2 to the consolidated financial statements . total company : when reviewing our financial statements , it is important to understand how certain external factors impact us . these factors include : changes in the prices of our raw materials that are primarily derived from refining crude oil and natural gas global supply of and demand for raw materials economic growth rates , and currency exchange rates compared to the u.s. dollar we purchase thousands of raw materials , the majority of which are petroleum/natural gas derivatives . the price of these derivatives impact the cost of our raw materials . however , the supply of and demand for key raw materials has a greater impact on our costs . as demand increases in high-growth areas , the supply of key raw materials may tighten , resulting in certain materials being put on allocation . natural disasters , such as hurricanes , also can have an impact as key raw material producers are shut down for extended periods of time . we continually monitor capacity utilization figures , market supply and demand conditions , feedstock costs and inventory levels , as well as derivative and intermediate prices , which affect our raw materials . with over 75 percent of our cost of sales accounted for by raw materials , our financial results are extremely sensitive to changing costs in this area . in 2014 , we generated 42 percent of our net revenue in the united states and 34 percent in eimea . the pace of economic growth in these areas directly impacts certain industries to which we supply products . for example , adhesives-related revenues from durable goods customers in areas such as appliances , furniture and other 17 woodworking applications tend to fluctuate with the overall economic activity . in business components such as construction products and insulating glass , revenues tend to move with more specific economic indicators such as housing starts and other construction-related activity . the movement of foreign currency exchange rates as compared to the u.s. dollar impacts the translation of the foreign entities ' financial statements into u.s. dollars . as foreign currencies strengthen against the dollar , our revenues and costs increase as the foreign currency-denominated financial statements translate into more dollars . the fluctuations of the euro against the u.s. dollar have the largest impact on our financial results as compared to all other currencies . in 2014 , the currency fluctuations had a negative impact on net revenue of $ 6.8 million as compared to 2013. key financial results and transactions for 2014 included the following : net revenue increased 2.8 percent from 2013 primarily driven by a 3.5 percent increase in sales volume . gross profit margin decreased to 25.3 percent from 27.9 percent in 2013 and 27.4 percent in 2012. cash flow generated by operating activities from continuing operations was $ 29.7 million in 2014 as compared to $ 132.7 million in 2013 and $ 108.6 million in 2012. we acquired prospec construction products business on september 3 , 2014 for $ 26.2 million . the global economic conditions were mixed in 2014. demand in north america saw the growth momentum built in the second half of 2013 weaken notably in the first quarter of 2014. however market conditions improved the rest of the year . the recovery in europe remains weak though conditions stabilized during the year . we experienced continued growth in our asian markets , particularly in china . our total year organic sales growth , which we define as the combined variances from product pricing , sales volume and small acquisitions , was 3.1 percent for 2014 compared to 2013. in 2014 our diluted earnings per share from continuing operations was $ 0.97 per share compared to $ 1.87 per share in 2013 and $ 1.34 per share in 2012. the lower earnings per share from continuing operations in 2014 resulted from production inefficiencies related to the business integration project , erp system implementation costs in north america and higher special charges , net costs for the business integration project . special charges , net in 2014 were $ 51.5 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 45.2 million negative impact on net income and a negative $ 0.88 effect on diluted earnings per share . special charges , net in 2013 were $ 45.1 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 35.3 million negative impact on net income and a negative $ 0.69 effect on diluted earnings per share . story_separator_special_tag critical accounting policies and significant estimates : management 's discussion and analysis of our results of operations and financial condition are based upon 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 financial statements requires us to make estimates and judgments that affect the 19 reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are pension and other postretirement plan assumptions ; goodwill impairment assessment ; long-lived assets recoverability ; product , environmental and other litigation liabilities ; and income tax accounting . pension and other postretirement plan assumptions : we sponsor defined-benefit pension plans in both the u.s. and non-u.s. entities . also in the u.s. we sponsor other postretirement plans for health care and life insurance benefits . expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated . these calculations are based on our assumptions related to the discount rate , expected return on assets , projected salary increases and health care cost trend rates . note 10 to the consolidated financial statements includes disclosure of assumptions employed in these measurements for both the non-u.s. and u.s. plans . the discount rate assumption is determined using an actuarial yield curve approach , which results in a discount rate that reflects the characteristics of the plan . the approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan . we use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan . a higher discount rate reduces the present value of the pension obligations . the discount rate for the u.s. pension plan was 4.10 percent at november 29 , 2014 , as compared to 4.77 percent at november 30 , 2013 and 3.83 percent at december 1 , 2012. net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year . a discount rate reduction of 0.5 percentage points at november 29 , 2014 would increase u.s. pension and other postretirement plan expense approximately $ 0.4 million ( pre-tax ) in fiscal 2015. discount rates for non-u.s. plans are determined in a manner consistent with the u.s. plan . the expected long-term rate of return on plan assets assumption for the u.s. pension plan was 7.75 percent in 2014 compared to 7.75 percent for 2013 and 8.00 percent for 2012. our expected long-term rate of return on u.s. plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income . management , in conjunction with our external financial advisors , determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations . for 2014 the expected long-term rate of return on the target equities allocation was 8.5 percent and the expected long-term rate of return on the target fixed-income allocation was 5.0 percent . the total plan rate of return assumption included an estimate of the impact of diversification and the plan expense . for 2015 , the expected long-term rate of return on assets will continue to be 7.75 percent with an expected long-term rate of return on the target equities allocation of 8.5 percent and an expected long-term rate of return on target fixed-income allocation of 5.0 percent . a change of 0.5 percentage points for the expected return on assets assumption would impact u.s. net pension and other postretirement plan expense by approximately $ 2.2 million ( pre-tax ) . management , in conjunction with our external financial advisors , uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets . the most recent 10-year and 20-year historical equity returns are shown in the table below . our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames . replace_table_token_6_th ( * ) beginning in 2006 , our target allocation migrated from 100 percent equities to our current allocation of 60 percent equities and 40 percent fixed-income . the historical actual rate of return for the fixed income of 9.2 percent is since inception ( 9 years ) . 20 the expected long-term rate of return on plan assets assumption for non-u.s. pension plans was a weighted-average of 6.17 percent in 2014. the expected long-term rate of return on plan assets assumption used in each non-u.s. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan . management , in conjunction with our external financial advisors , develops expected rates of return for each plan , considers expected long-term returns for each asset category in the plan , reviews expectations for inflation for each local jurisdiction , and estimates the impact of active management of the plan 's assets . our largest non-u.s. pension plans are in the united kingdom and germany . the expected long-term rate of return on plan assets for germany was 5.75 percent and the historical rate of return since inception ( 17 years ) for the total asset portfolio in germany was 4.4 percent . the expected rate of return on our german portfolio of 5.75 percent assumes that market returns will improve in the future to be more in line with historical market patterns observed over longer time frames .
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summary of cash flows cash flows from operating activities from continuing operations replace_table_token_38_th net income including non-controlling interest was $ 50.2 million in 2014 , $ 97.2 million in 2013 and $ 125.9 million in 2012. depreciation and amortization expense totaled $ 70.5 million in 2014 compared to $ 61.7 million in 2013 and $ 57.4 million in 2012. the higher depreciation and amortization expense in 2014 was directly related to the significant increase in capital expenditures in 2014 and 2013. changes in net working capital ( trade receivables , inventory and trade payables ) accounted for a use of cash of $ 69.6 million , $ 2.8 million and $ 39.2 million in 2014 , 2013 and 2012 , respectively . following is an assessment of each of the net working capital components : trade receivables , net ย changes in trade receivables resulted in an $ 18.9 million use of cash in 2014 as compared to $ 7.3 million use of cash in 2013 and a $ 17.3 million use of cash in 2012. the larger use of cash in 2014 was partially related to higher net revenue and a one day higher dso compared to 2013. the dso was 56 days at november 29 , 2014 , 55 days at november 30 , 2013 and 56 days at december 1 , 2012. inventory ย changes in inventory resulted in a $ 36.2 million use of cash in 2014 as compared to a use of cash of $ 11.8 million in 2013 and a use of cash of $ 17.1 million in 2012. inventory days on hand were 58 days at the end of 2014 as compared to 53 days at the end of 2013 and 53 days at the end of 2012 , respectively .
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overview the bank provides financial services to individuals and businesses from our main office in parkville , maryland , and from our three additional full-service banking offices in arbutus , bel air and pasadena , maryland . our primary market area includes the baltimore metropolitan area and its surrounding counties . our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits , together with funds generated from operations and borrowings , primarily in one- to four-family residential mortgage loans , nonresidential real estate loans , construction and land development loans , home equity loans and lines of credit , and , to a lesser extent , commercial business loans and consumer loans . we retain our loans in portfolio depending on market conditions . we sell a majority of our fixed-rate one- to four-family residential mortgage loans in the secondary market . we also invest in various investment securities . our revenue is derived principally from interest on loans and investments and loan sales . our primary sources of funds are deposits and principal and interest payments on loans and securities . we also have access to federal home loan bank advances which are available and may be utilized from time to time . 34 our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities . our results of operations are also affected by our provisions for loan losses , non-interest income and non-interest expense . non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market , fees and service charges on deposit accounts , income from bank-owned life insurance policies and sales of securities . non-interest expense currently consists primarily of expenses related to salaries and employee benefits , occupancy , data processing related operations , professional fees , real estate owned and other expenses . an increase in interest rates will present us with a challenge in managing our interest rate risk . as a general matter , our interest-bearing liabilities may reprice or mature more quickly than our interest-earning assets , which can result in interest expense increasing more rapidly than increases in interest income as interest rates increase . therefore , increases in interest rates may adversely affect our net interest income and net economic value , which in turn would likely have an adverse effect on our results of operations . as described in ยmanagement of market risk , ย our net interest income and our net economic value would decrease as a result of an instantaneous increase in interest rates . to help manage interest rate risk , we promote core deposit products and we are diversifying our loan portfolio by continuing to sell a portion of our longer term conforming fixed-rate one-to four-family residential real estate loans and increase nonresidential real estate lending with shorter repricing terms . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . we expect our return on equity to remain relatively low until we are able to leverage the additional capital we received from the stock offering . business strategy we intend to continue to operate as a well-capitalized and profitable community-oriented bank dedicated to providing exceptional personal service to our individual and business customers . we believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace , our presence in the communities we serve and our long-standing history of providing superior , relationship-based customer service . our core business strategies are discussed below . continue to originate and sell certain residential real estate loans . residential mortgage lending has historically been a significant part of our business , and we recognize that originating one- to four-family residential real estate loans is essential to our status as a community-oriented bank . during the year ended december 31 , 2020 , we originated $ 54.1 million in one- to four-family residential real estate loans , selling $ 37.3 million in one- to four-family residential real estate loans and recording gains of $ 1.1 million on the sale of those loans . similarly , during the year ended december 31 , 2019 , we originated $ 28.7 million in one- to four-family residential real estate loans , selling $ 8.9 million in one- to four-family residential real estate loans and recording gains of $ 215,000 on the sale of those loans . we intend to continue to sell in the secondary market a portion of the long-term conforming fixed-rate one- to four-family residential real estate loans that we originate to increase non-interest income and manage the interest rate risk of our loan portfolio . increase nonresidential real estate lending . in order to increase the yield on our loan portfolio and reduce the term to repricing , we plan to increase our nonresidential real estate lending while maintaining what we believe are conservative underwriting standards . we will focus our nonresidential real estate lending on small businesses located in our market area , targeting owner-occupied businesses . maintain high asset quality . strong asset quality is critical to the long-term financial success of a community bank . we attribute our high asset quality to maintaining conservative underwriting standards , the diligence of our loan collection personnel and the stability of the local economy . at december 31 , 2020 , our non-performing assets to total assets ratio was 0.41 % . because substantially all of our loans are secured by real estate , and the level of our non-performing loans has been low in recent years , we believe that our allowance for loan losses is adequate to absorb the probable losses inherent in our loan portfolio . increase core deposits , with an emphasis on low-cost commercial demand deposits . story_separator_special_tag 36 in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies , these assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences . valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized . in evaluating the need for a valuation allowance , we must estimate our taxable income in future years and the impact of tax planning strategies . if we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance , an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made . conversely , if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized , the related valuation allowance would be reduced and a benefit to earnings would be recorded . the ongoing covid-19 pandemic and measures intended to prevent its spread and mitigate its adverse effects may have a material adverse effect on our business , results of operations , financial condition and prospects . any such effect will depend on future developments which are uncertain and difficult to predict . the covid-19 pandemic has created , and may continue to create , significant disruptions of the united states and global economies and financial markets . governments , businesses , and the public have taken and will continue to take actions to contain the spread of covid-19 and mitigate its effects , including quarantines , travel bans , ยstay at homeย orders , cancellation of events and travel , closures of businesses and schools , fiscal stimulus , and legislation intended to provide monetary aid and other relief . the scope , duration , and ultimate adverse effect of covid-19 continue to evolve and can not be known at this time . covid-19 and related efforts to contain it have disrupted economic activity and the functioning of financial markets , impacted interest rates , and created financial uncertainty . the united states government has attempted to mitigate some of the most severe anticipated economic effects of the virus . enactment of the cares act , the distribution of vaccinations and monetary assistance in various forms are intended to help contain spread of the virus and its economic impact . however , there can be no assurance that these actions will be effective . to date , our bank has avoided many of the adverse financial effects of the virus . nevertheless , the outbreak has adversely impacted , and may further adversely impact , our workforce and operations , and the operations of our borrowers and other customers . we may experience losses due to these adverse factors negatively impacting our business and or causing our customers to be unable to meet obligations to us . in addition , the business and operations of third-party service providers who provide critical services for us could be adversely impacted . covid-19 has caused us to reconsider and modify certain of our business practices , including adoption of work from home and social distancing policies and procedures for our employees and customers . because the technology in employees ' homes may be more limited or less reliable than in our offices , the bank 's work from home measures introduce additional operational risk , including increased cybersecurity risk . in response to the covid-19 pandemic , we provided payment relief to qualified commercial and mortgage/consumer loans customers . as of december 31 , 2020 , almost all of the loans granted modifications/deferrals had returned to their original payment plans without a significant impact on payment delinquencies . for additional information , see note 4 of notes to consolidated financial statements . we may further adjust our business practices if required by government authorities or we determine are in the best interests of our employees and customers . there is no certainty that such measures will be sufficient to mitigate risks to us posed by the virus or will otherwise be satisfactory to government authorities . the extent to which covid-19 impacts our business , results of operations , financial condition and prospectus will depend on future developments , which are highly uncertain and are difficult to predict , including , but not limited to , the duration and spread of the outbreak , its severity , actions taken to contain the virus or treat its impact , the rollout and effectiveness of vaccination programs for the virus , and how quickly and to what extent normal economic and operating conditions can resume . even after the covid-19 outbreak has subsided , we may continue to experience adverse impacts as a result of covid-19 's economic impact . 37 comparison of financial condition at december 31 , 2020 and december 31 , 2019 total assets .
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general . net income was $ 943,000 for the year ended december 31 , 2020 compared to $ 908,000 for the year ended december 31 , 2019. the increase was due to several factors including an increase in non-interest income of $ 1.0 million to $ 1.6 million for the year ended december 31 , 2020 from $ 592,000 for the year ended december 31 , 2019 , an increase in provision for loan losses of $ 175,000 to $ 350,000 for the year ended december 31 , 2020 from $ 175,000 for the year ended december 31 , 2019 , offset by decrease in net interest income of $ 349,000 , or 4.59 % , to $ 7.3 million for the year ended december 31 , 2020 from $ 7.6 million for the year ended december 31 , 2019 and an increase in non-interest expense of $ 372,000 , or 5.47 % , to $ 7.1 million for the year ended december 31 , 2020 from $ 6.8 million for the year ended december 31 , 2019. interest income . interest and dividend income decreased $ 234,000 , or 2.60 % , to $ 8.8 million for the year ended december 31 , 2020 from $ 9.0 million for the year ended december 31 , 2019. the decrease in interest income was due to a decrease in the average yield on interest-earning assets for the year ended december 31 , 2020 compared to the average yield on interest-earning assets for the year ended december 31 , 2019 offset by an increase in the average interest-earning assets for year ended december 31 , 2020 compared to the average interest-earning assets for the year ended december 31 , 2019. interest income on loans increased $ 497,000 , or 6.81 % , to $ 7.8 million for the year ended december 31 , 2020 from $ 7.3 million for the year end december 31 , 2019. the increase was primarily due to an increase in the
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replace_table_token_24_th replace_table_token_25_th management of market risk our most significant form of market risk is interest rate risk because , as a financial institution , the majority of our assets and liabilities are sensitive to changes in interest rates . therefore , a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates . our board of directors is responsible for the review and oversight of our asset/liability strategies . the asset/liability committee of our board of directors meets monthly and is charged with developing an asset/liability management plan . our board of directors has established an asset/liability management committee , consisting of senior management . senior management meets daily to review pricing and liquidity needs and to assess our interest rate risk . this committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities , for determining the level of risk that is appropriate , given our business strategy , operating environment , capital , liquidity and performance objectives , and for managing this risk consistent with the guidelines approved by our board of directors . the techniques we are currently using to manage interest rate risk include : using pricing strategies in an effort to balance the proportions of 30-year and 15-year fixed rate loans in our portfolio ; maintaining a modest portfolio of adjustable-rate one- to four-family residential loans ; funding a portion of our operations with deposits with terms greater than one year ; 50 focusing our business operations on local retail customers who value our community orientation and personal service and who may be somewhat less sensitive to interest rate changes than wholesale deposit customers ; and maintaining a strong capital position , which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities . depending on market conditions , from time to time we place more emphasis on enhancing net interest margin rather than matching the interest rate sensitivity of our assets and liabilities . in particular , we believe that the increased net interest income resulting from a mismatch in the maturity of our assets and liabilities portfolios can , during periods of stable or declining interest rates , provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates . as a result of this philosophy , our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines due to the difference between long- and short-term interest rates . an important measure of interest rate risk is the amount by which the net present value of ( `` npv '' ) an institution 's cash flow from assets , liabilities and off balance sheet items changes in the event of a range of assumed changes in market interest rates . we have prepared an analysis of estimated changes in our npv under the assumed instantaneous changes in the united states treasury yield curve . the financial model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of the npv . set forth below is an analysis of the changes to the economic value of our equity as of june 30 , 2012 in the event of designated changes in the united states treasury yield curve . at june 30 , 2012 , our npv exposure related to these hypothetical changes in market interest rates was within the current guidelines we have established . replace_table_token_26_th certain shortcomings are inherent in the methodology used in the above interest rate risk measurement . modeling changes in net portfolio value requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . in this regard , the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities . in addition , this the net portfolio value table does not reflect the impact of a change in interest rates on the credit quality of our assets . accordingly , although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time , such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results . our policies generally do not permit us to engage in derivative transactions , such as futures , options , caps , floors or swap transactions ; however , such transactions may be entered into with the prior approval of the asset/liability management committee or the board of directors for hedging purposes only . 51 liquidity and capital resources our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships . our cash flows are derived from operating activities , investing activities and financing activities . net cash flows provided by operating activities were $ 5.4 million for the year ended june 30 , 2012 and $ 4.1 million for the year ended june 30 , 2011. net cash flows provided by operating activities consisted primarily of our net income . net cash flows used in investing activities were $ 17.3 million for the story_separator_special_tag replace_table_token_24_th replace_table_token_25_th management of market risk our most significant form of market risk is interest rate risk because , as a financial institution , the majority of our assets and liabilities are sensitive to changes in interest rates . therefore , a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates . our board of directors is responsible for the review and oversight of our asset/liability strategies . the asset/liability committee of our board of directors meets monthly and is charged with developing an asset/liability management plan . our board of directors has established an asset/liability management committee , consisting of senior management . senior management meets daily to review pricing and liquidity needs and to assess our interest rate risk . this committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities , for determining the level of risk that is appropriate , given our business strategy , operating environment , capital , liquidity and performance objectives , and for managing this risk consistent with the guidelines approved by our board of directors . the techniques we are currently using to manage interest rate risk include : using pricing strategies in an effort to balance the proportions of 30-year and 15-year fixed rate loans in our portfolio ; maintaining a modest portfolio of adjustable-rate one- to four-family residential loans ; funding a portion of our operations with deposits with terms greater than one year ; 50 focusing our business operations on local retail customers who value our community orientation and personal service and who may be somewhat less sensitive to interest rate changes than wholesale deposit customers ; and maintaining a strong capital position , which provides for a favorable level of interest-earning assets relative to interest-bearing liabilities . depending on market conditions , from time to time we place more emphasis on enhancing net interest margin rather than matching the interest rate sensitivity of our assets and liabilities . in particular , we believe that the increased net interest income resulting from a mismatch in the maturity of our assets and liabilities portfolios can , during periods of stable or declining interest rates , provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates . as a result of this philosophy , our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines due to the difference between long- and short-term interest rates . an important measure of interest rate risk is the amount by which the net present value of ( `` npv '' ) an institution 's cash flow from assets , liabilities and off balance sheet items changes in the event of a range of assumed changes in market interest rates . we have prepared an analysis of estimated changes in our npv under the assumed instantaneous changes in the united states treasury yield curve . the financial model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of the npv . set forth below is an analysis of the changes to the economic value of our equity as of june 30 , 2012 in the event of designated changes in the united states treasury yield curve . at june 30 , 2012 , our npv exposure related to these hypothetical changes in market interest rates was within the current guidelines we have established . replace_table_token_26_th certain shortcomings are inherent in the methodology used in the above interest rate risk measurement . modeling changes in net portfolio value requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . in this regard , the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities . in addition , this the net portfolio value table does not reflect the impact of a change in interest rates on the credit quality of our assets . accordingly , although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time , such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results . our policies generally do not permit us to engage in derivative transactions , such as futures , options , caps , floors or swap transactions ; however , such transactions may be entered into with the prior approval of the asset/liability management committee or the board of directors for hedging purposes only . 51 liquidity and capital resources our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities . while maturities and scheduled amortization of loans and securities are predictable sources of funds , deposit flows and mortgage prepayments are greatly influenced by general interest rates , economic conditions and competition . we generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships . our cash flows are derived from operating activities , investing activities and financing activities . net cash flows provided by operating activities were $ 5.4 million for the year ended june 30 , 2012 and $ 4.1 million for the year ended june 30 , 2011. net cash flows provided by operating activities consisted primarily of our net income . net cash flows used in investing activities were $ 17.3 million for the
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general . net income increased to $ 4.0 million for the year ended june 30 , 2012 from $ 2.3 million for the year ended june 30 , 2011 , an increase of $ 1.7 million , or 74.5 % , from june 30 , 2011. the increase was primarily attributed to a decrease in interest expense of $ 1.7 million for the year ended june 30 , 2012. the decrease in interest expense resulted in an increase in net interest income of $ 1.8 million , or 17.2 % . additionally , an increase in noninterest income of $ 307 thousand , or 313.3 % , and a decrease in noninterest expense of $ 976 thousand , or 14.8 % also contributed to the overall increase in net income . the increase in noninterest income was primarily due to gains on sales of real estate owned and gains on sales of available-for-sale securities of $ 131 thousand and $ 185 thousand , respectfully , for the year ended june 30 , 2012 as compared to $ 7 thousand for the year ended june 30 , 2011 , and the decrease in noninterest expense was primarily due to a decrease in charitable contribution expense of $ 1.7 million from the year ended june 30 , 2011. in 2011 , we incurred $ 1.7 million in charitable contribution expense related to the cash and common stock contributed to a charitable foundation as part of our mutual to stock conversion . interest income .
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to noncontrolling interests ย ย ย ( 83,656 ) ( 83,656 ) partner contributions in noncontrolling interests ย ย ย 1,000 1,000 stock-based plan activity 495 6 54,851 ย ย 54,857 ย 54,857 repurchase of common stock ( 3,080 ) ( 31 ) ( 175,027 ) ย ย ( 175,058 ) ย ( 175,058 ) debt conversions 185 1 ( 539 ) ย ย ( 538 ) ย ( 538 ) balance as of december 31 story_separator_special_tag introduction the following discussion and analysis is provided to increase the understanding of , and should be read in conjunction with , the consolidated financial statements and accompanying notes . for purposes of reviewing this document , `` segment profit '' is calculated as revenue less cost of revenue and earnings attributable to noncontrolling interests excluding : corporate general and administrative expense ; interest expense ; interest income ; domestic and foreign income taxes ; and other non-operating income and expense items . for a reconciliation of segment profit to earnings before taxes , see `` 15. operations by business segment and geographical area '' in the notes to consolidated financial statements . results of operations story_separator_special_tag outside of the united states . consolidated backlog was $ 39.5 billion as of december 31 , 2011 , $ 34.9 billion as of december 31 , 2010 , and $ 26.8 billion as of december 31 , 2009. the increase in backlog during 2011 and 2010 was due to the strength of the new award activity noted above in the industrial & infrastructure and oil & gas segments . backlog was lower at the end of 2009 primarily because of the impact of the global recession on new award activity , as well as certain project cancellations and scope reductions attributable to the global credit crisis and falling oil prices . the industrial & infrastructure and oil & gas segments made up the vast majority of backlog for all three years , but at lower levels in 2009 compared to both 2010 and 2011. as of december 31 , 2011 , approximately 78 percent of consolidated backlog related to projects located outside of the united states . for a more detailed discussion of operating performance of each business segment , corporate general and administrative expense and other items , see `` ย segment operations '' and `` ย corporate , tax and other matters '' below . discussion of critical accounting policies the company 's discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's significant accounting policies are described in the notes to consolidated financial statements . the preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . estimates are based on information available as of the date of the financial statements and , accordingly , actual results in future periods could differ from these estimates . significant judgments and estimates used in the preparation of the consolidated financial statements apply to the following critical accounting policies : engineering and construction contracts contract revenue is recognized on the percentage-of-completion method based on contract cost incurred to date compared to total estimated contract cost . contracts are generally segmented between types of services , such as engineering and construction , and accordingly , gross margin related to each activity is recognized as those separate services are rendered . the percentage-of-completion method of revenue recognition requires the company to prepare estimates of cost to complete for contracts in progress . in making such estimates , judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials , labor cost and productivity , the impact of change orders , liability claims , contract disputes and achievement of contractual performance standards . changes in total estimated contract cost and losses , if any , are recognized in the period they are determined . pre-contract costs are expensed as incurred . the majority of the company 's engineering and construction contracts provide for reimbursement of cost plus a fixed or percentage fee . as of december 31 , 2011 , 85 percent of the company 's backlog was cost reimbursable while 15 percent was for fixed-price , lump-sum , guaranteed maximum or unit price contracts . in certain instances , the company provides guaranteed completion dates and or achievement of other performance criteria . failure to meet schedule or performance guarantees could result in unrealized incentive fees or liquidated damages . in addition , increases in contract cost can result in non-recoverable cost which could exceed revenue realized from the projects . 31 claims arising from engineering and construction contracts have been made against the company by clients , and the company has made claims against clients for cost incurred in excess of current contract provisions . the company recognizes revenue , but not profit , for certain significant claims when it is determined that recovery of incurred cost is probable and the amounts can be reliably estimated . under accounting standards codification ( `` asc '' ) 605-35-25 , these requirements are satisfied when the contract or other evidence provides a legal basis for the claim , additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company 's performance , claim-related costs are identifiable and considered reasonable in view of the work performed , and evidence supporting the claim is objective and verifiable . recognized claims against clients amounted to $ 298 million and $ 209 million as of december 31 , 2011 and 2010 , respectively . cost , but not profit , associated with unapproved change orders is accounted for in revenue when it is probable that the cost will be recovered through a change in the contract price . story_separator_special_tag as of december 31 , 2011 , the company had deferred tax assets of $ 614 million which were partially offset by a valuation allowance of $ 145 million and further reduced by deferred tax liabilities of $ 94 million . the valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized . the allowance for 2011 primarily relates to the deferred tax assets on certain net operating and capital loss carryforwards for u.s. and non-u.s. subsidiaries and certain reserves on investments . the company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance , if necessary . the factors used to assess the likelihood of realization are the company 's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company 's effective tax rate on future earnings . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met . previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met . the company recognizes potential interest and penalties related to unrecognized tax benefits within its global operations in income tax expense . retirement benefits the company accounts for its defined benefit pension plans in accordance with statement of financial accounting standards ( `` sfas '' ) no . 87 , `` employers ' accounting for pensions , '' as amended by sfas no . 158 , `` employers ' accounting for defined benefit pension and other postretirement plans '' ( asc 715-30 ) . as required by asc 715-30 , the unfunded or overfunded projected benefit obligation is recognized in the company 's financial statements . assumptions concerning discount rates , long-term rates of return on plan assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period . the company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements , tax deductibility , reporting considerations and other factors . assuming no changes in current assumptions , the company expects to fund between $ 30 million and $ 60 million for the calendar year 2012 , 33 which is expected to be in excess of the minimum funding required . if the discount rates were reduced by 25 basis points , plan liabilities for the u.s. and non-u.s. plans would increase by approximately $ 18 million and $ 26 million , respectively . segment operations the company provides professional services on a global basis in the fields of engineering , procurement , construction , maintenance and project management . the company is organized into five business segments : oil & gas , industrial & infrastructure , government , global services and power . for more information on the business segments see `` item 1 ย business '' above . oil & gas revenue and segment profit for the oil & gas segment are summarized as follows : replace_table_token_6_th revenue in 2011 increased three percent compared to 2010 primarily because of increased construction-related activities , including a greater content of customer-furnished materials for projects that were awarded in 2010. revenue in 2010 decreased 35 percent compared to 2009 due to reduced project execution activities as a number of large projects that were awarded from 2006 through 2008 had been completed or were near completion . in addition , revenue in 2010 was impacted by slower new award activity during 2009 and the first half of 2010. segment profit in 2011 decreased 20 percent compared to 2010 primarily because the 2010 results were favorably impacted by contributions of certain large projects that were completed or nearing completion , as well as various other large projects that achieved their peak earnings that year . in addition , 2010 segment profit was favorably impacted by the successful resolution of some disputed items and the expiration of certain warranty obligations . segment profit in 2010 decreased 53 percent compared to 2009 due to the reduced project execution activities and reduced new awards , noted above , that also caused the decline in revenue in 2010. in addition , segment profit in 2009 included the net positive impact of close-out issues for certain projects nearing completion , with the approval of change orders and the successful resolution of disputed items . segment profit margin was 3.5 percent in 2011 compared to 4.4 percent in 2010 and 6.2 percent in 2009. the reduction in segment profit margin for 2011 compared to 2010 was primarily due to a shift in the mix of work from higher margin engineering activities to lower margin construction activities , with a corresponding higher content of customer-furnished materials . the successful resolution of some disputed items and the expiration of certain warranty obligations in 2010 also contributed to the higher segment profit margin in 2010 , relative to 2011. segment profit margin was higher in 2009 than in both 2010 and 2011 primarily due to the aforementioned net positive impact of close-out issues in 2009 for certain projects nearing completion . segment profit margin in 2010 and 2011 was also negatively impacted by lower operating leverage with the contraction of business volume , along with a more competitive business environment .
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summary of overall company results consolidated revenue for 2011 increased 12 percent to a record $ 23.4 billion from $ 20.8 billion for 2010 principally due to substantial growth in the mining and metals business line of the industrial & infrastructure segment , as well as revenue growth in the oil & gas , government and global services segments . this revenue growth was partially offset by the significant revenue decline in the power segment in 2011. consolidated revenue for 2010 decreased five percent to $ 20.8 billion from $ 22.0 billion for 2009 primarily due to a significant revenue decline in the oil & gas segment which was partially offset by large revenue increases in the industrial & infrastructure and government segments . the generally sluggish global economy and the uncertain economic conditions in europe and other markets have resulted in a highly competitive business environment that has continued to put increased pressure on margins . this trend is expected to continue and , in certain cases , may result in more lump-sum project execution for the company . in some instances , margins are being negatively impacted by the change in the mix of work performed ( e.g. , a higher mix of construction-related work and a higher content of customer-furnished materials , which typically generate lower margins than engineering work or projects without customer-furnished materials ) . earnings before taxes for 2011 increased 79 percent to $ 1.0 billion from $ 560 million in 2010. earnings for the 2011 period increased primarily due to a reduced level of project charges compared to 2010. during 2010 , the company recorded significant charges for two infrastructure projects , both discussed in more detail in `` ย industrial & infrastructure '' below .
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key matters we discuss below several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) `` operating cash costs '' as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2016 ( in millions , except per share amounts ) : replace_table_token_34_th net sales in 2016 were higher than in 2015 , mainly as a result of higher sales volume of copper ( +18.3 % ) , silver ( +18.9 % ) and zinc ( +4.6 % ) , partially offset by lower prices for copper and molybdenum . net sales decreased from 2014 to 2015 , due to lower metal prices for copper , molybdenum and silver , partially offset by an increase in copper and zinc sales volume . 72 the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , both of which increased in each of the years in the periods above . in 2016 , cost of sales increased by $ 106.5 million and depreciation , amortization and depletion increased by $ 136.4 million . in 2015 , cost of sales increased by $ 87.1 million and depreciation , amortization and depletion increased by $ 65.7 million . the increase in cost of sales in both periods was due to higher copper sales volume , which increased by 18.3 % and 12.3 % in 2016 and 2015 , respectively . however , cost of sales only increased by 3.6 % and 3.1 % in the respective years , as a result of our lower unit costs . this reduction in unit cost is attributable to the lower unitary cost for our new production as well as lower cost for fuel and other production inputs . the increase in depreciation was mainly due to investment and maintenance capital acquisitions at most of our operations . net income attributable to scc in 2016 was 5.4 % higher mainly due to the above noted factors . production : the table below highlights , mine production data of our company for the three years ended december 31 , 2016 : replace_table_token_35_th the table below highlights copper production data at each of our mines for the three years ended december 31 , 2016 : replace_table_token_36_th 2016 compared to 2015 : mined copper in 2016 increased 346.1 million pounds , compared to 2015 production . this increase was due to : higher production at our buenavista mine due to the ramping up of the new concentrator and better concentrate grades and recoveries . higher production at the la caridad mine due to higher concentrate grades , partially offset by lower production at the cuajone and toquepala mines due to lower ore grades and concentrate recoveries . molybdenum production decreased 3.6 million pounds in 2016 , compared to 2015 , principally due to lower production at our peruvian mines because of lower grades . silver production increased 2.9 million ounces in 2016 due to higher production at our buenavista and immsa mines . zinc 73 production increased by 26.6 million pounds in 2016 due to a year of full production without the flooding problems that we encountered in prior years . 2015 compared to 2014 : mined copper in 2015 increased 146.4 million pounds , compared to 2014 production . this increase was due to : higher production at our buenavista mine due to higher throughput at the concentrator and better ore grades , as well as higher production from the sx-ew iii plant . higher production at the toquepala mine and la caridad mine due to better ore grades and recoveries . higher production at the immsa mines due to higher throughput at the concentrators , slightly reduced by lower production at the cuajone mine due to lower ore grades . molybdenum production increased 0.5 million pounds in 2015 , compared to 2014 , and silver production increased 0.3 million ounces in 2015. zinc production decreased by 10.4 million pounds in 2015 , continuing the slide seen in the prior year . operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies . this non-gaap information should not be considered in isolation or as substitute for measures of performance determined in accordance with gaap . a reconciliation of our operating cash cost per pound to the cost of sales ( exclusive of depreciation , amortization and depletion ) as presented in the consolidated statement of earnings is presented under the subheading , `` non-gaap information reconciliation '' , beginning on page 90. we disclose operating cash cost per pound of copper produced , both without and with the inclusion of by-product revenues . we define operating cash cost per pound of copper produced without by-product revenues as cost of sales ( exclusive of depreciation , amortization and depletion ) , plus selling , general and administrative charges , treatment and refining charges net of sales premiums ; less the cost of purchased concentrates , workers ' participation and other miscellaneous charges , including royalty charges , and the change in inventory levels ; divided by total pounds of copper produced by our own mines . in our calculation of operating cash cost per pound of copper produced , we exclude depreciation , amortization and depletion , which are considered non-cash expenses . exploration is considered a discretionary expenditure and is also excluded . story_separator_special_tag these factors , which affect each commodity to varying degrees , include international economic and political conditions , levels of supply and demand , the availability and cost of substitutes , inventory levels maintained by producers and others and , to a lesser degree , inventory carrying costs and currency exchange rates . in addition , the market prices of certain metals have on occasion been subject to rapid short-term changes due to economic concerns and financial investments . for 2017 , assuming that expected metal production and sales are achieved , that tax rates are unchanged and giving no effect to potential hedging programs , metal price sensitivity factors would indicate the following change in estimated annual net income attributable to scc resulting from metal price changes : replace_table_token_38_th business segments : we view our company as having three reportable segments and manage it on the basis of these segments . these segments are ( 1 ) our peruvian operations , ( 2 ) our mexican open-pit operations and ( 3 ) our mexican underground operations , known as our immsa unit . our peruvian operations include the toquepala and cuajone mine complexes and the smelting and refining plants , industrial railroad and port facilities that service both mines . our mexican open-pit operations include la caridad and buenavista mine complexes , the smelting and refining plants and support facilities , which service both mines . our immsa unit includes five underground mines , a coal mine , and several industrial processing facilities . segment information is included in our review of `` results of operations '' in this item and also in note 18 `` segment and related information '' of our consolidated financial statements . inflation and exchange rate effect of the peruvian sol and the mexican peso : our functional currency is the u.s. dollar and our revenues are primarily denominated in u.s. dollars . significant portions of our operating costs are denominated in peruvian sol and mexican pesos . accordingly , when inflation and currency devaluation/appreciation of the peruvian and mexican currency occur , our operating results can be affected . in recent years , we do believe such changes have not had a material effect on our results and financial position . please see item 7a `` quantitative and qualitative disclosures about market risk '' for more detailed information . 76 capital investment program : we made capital investments of $ 1,118.5 million in 2016 , $ 1,250.0 million in 2015 ( including the el pilar acquisition ) and $ 1,529.8 million in 2014. in general , the capital investments and projects described below are intended to increase production , decrease costs or address social and environmental commitments . the table below sets forth our capital investments for the three years ended december 31 , 2016 ( in millions ) : replace_table_token_39_th in 2017 , we plan to invest $ 1,105.2 million in capital projects . in addition to our ongoing capital maintenance and replacement spending , our principal capital programs include the following : projects in mexico : we have concluded our $ 3.5 billion investment program in mexico and all of the projects under this program will be in full operation in 2017. buenavista projectsยsonora : the buenavista program is being completed on time and $ 100 million below our budget , including the crushing , conveying and spreading system for leachable ore project ( quebalix iv ) . this project will reduce processing time as well as mining and hauling costs , increasing production by improving sx-ew copper recovery . the installed conveyor system is operating steadily . the project has reached 99 % progress and $ 285.7 million have been invested as of december 31 , 2016 from a budget of $ 444.2 million . 77 projects in peru : we are currently working on five copper projects in peru with a total capital investment for these projects of $ 2,900 million . toquepala concentrator expansion projectยtacna : this $ 1.2 billion project includes a new state-of-the-art concentrator which will increase annual copper production by 100,000 tons to 217,000 tons in 2018 and 260,000 tons in 2019 , and will also increase annual molybdenum production by 3,100 tons . through december 31 , 2016 , we have invested $ 550.4 million in the project . the project has reached 53 % progress and is expected to be completed in the second quarter of 2018. the project to improve the crushing process at toquepala with the installation of a high pressure grinding roll ( hpgr ) system , has as its main objective , to ensure that our existing concentrator will operate at its maximum milling capacity of 60,000 tons per day , even with an increase of the ore material hardness index . additionally , recoveries will be improved and production enhanced with a better ore crushing . the budget for this project is $ 40 million and as of december 31 , 2016 , we have invested $ 21.9 million in this project . we expect that it will be completed by the fourth quarter of 2017. cuajone projectsยmoquegua : the heavy mineral management optimizing project consists of installing a primary crusher at the cuajone mine pit with a conveyor system for moving the ore to the concentrator . the project aims to optimize the hauling process by replacing rail haulage , thereby reducing operating and maintenance costs as well as the environmental impact of the cuajone mine . the crusher will have a processing capacity of 43.8 million tons per year . the main components , including the crusher and the seven kilometer overland conveyor belt , have been acquired and we are well underway with electromechanical assembly . as of december 31 , 2016 , we have invested $ 150.9 million in this project out of the approved capital budget of $ 215.5 million .
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executive summary this management 's discussion and analysis of financial condition and results of operations relates to and should be read together with our audited consolidated financial statements as of and for each of the years in the three-year period ended december 31 , 2016. therefore , unless otherwise noted , the discussion below of our financial condition and results of operations is for southern copper corporation and its subsidiaries ( collectively , `` scc , '' the '' company , '' `` our , '' and `` we '' ) on a consolidated basis for all periods . our financial results may not be indicative of our future results . this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in the forward-looking statements as a result of a number of factors . see item 1 `` businessยcautionary statement . '' executive overview business : our business is primarily the production and sale of copper . in the process of producing copper , a number of valuable metallurgical by-products are recovered , which we also produce and sell . market forces outside of our control largely determine the sale prices for our products . our management , therefore , focuses on value creation through copper production , cost control , production enhancement and maintaining a prudent capital structure to remain profitable . we endeavor to achieve these goals through capital spending programs , exploration efforts and cost reduction programs . our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices . we are one of the world 's largest copper mining companies in terms of production and sales with our principal operations in peru and mexico . we also have an active ongoing exploration program in chile , argentina and ecuador .
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we have accrued for tax contingencies for potential tax assessments , and in 2015 we recognized a $ 1.8 million story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; font-weight : bold ; text-decoration : none ; '' > 2014 revenues were $ 341.7 million in 2015 , compared to $ 309.3 million in 2014 . on a constant currency basis , revenues would have been $ 350.6 million in 2015 , an increase of $ 41.3 million from 2014. infusion therapy : net infusion therapy sales were $ 244.8 million in 2015 , an increase of $ 28.5 million , or 13 % , from 2014 . on a constant currency basis , net infusion therapy sales would have been $ 249.9 million in 2015 , an increase of $ 33.6 million , or 16 % , from 2014. the increase in infusion therapy sales is primarily due to new customers and higher volume to existing customers . domestic infusion therapy sales were $ 181.8 million in 2015 , an increase of $ 26.4 million , or 17 % , from 2014. the increase in domestic infusion therapy sales was from $ 12.2 million in higher sales to pfizer , and $ 14.2 million in higher direct domestic sales , both due to increased unit sales related to increased utilization and new customers . international infusion therapy sales were $ 63.0 million in 2015 , an increase of $ 2.1 million , or 3 % , from 2014. international infusion therapy sales outside of europe increased $ 3.7 million and were offset by $ 1.6 million in lower european sales due to the decline in the exchange rate of the euro to the u.s. dollar . on a constant currency basis , international infusion therapy sales would have increased $ 7.2 million in 2015 , compared to 2014. critical care : net critical care sales were $ 54.3 million in 2015 , a decrease of $ 0.8 million , or 1.4 % , from 2014. on a constant currency basis , net critical care sales would have been $ 55.2 million in 2015 , an increase of $ 0.2 million from 2014 . 26 the decrease in critical care sales is primarily due the decline in the exchange rate of the euro to the u.s. dollar and lower domestic unit sales . domestic critical care sales were $ 39.2 million in 2015 , a decrease of $ 1.4 million from 2014. international critical care sales were $ 15.1 million in 2015 , an increase of $ 0.6 million , or 4 % , from 2014 primarily due to increased sales outside of europe , partially offset by the effect of the decline in the exchange rate of the euro to the u.s. dollar . on a constant currency basis , international critical care sales would have increased $ 1.6 million in 2015 , compared to 2014. oncology : net oncology sales were $ 41.4 million in 2015 , an increase of $ 4.7 million from 2014. on a constant currency basis , net oncology sales would have been $ 44.2 million in 2015 , an increase of $ 7.5 million , or 21 % , from 2014. domestic oncology sales were $ 20.0 million in 2015 , an increase of $ 4.2 million , or 27 % , from 2014. the increase in domestic oncology was from $ 1.4 million in higher sales to pfizer and $ 2.8 million in higher direct domestic sales , both due to increased unit sales . international oncology sales were $ 21.5 million in 2015 , an increase of $ 0.6 million , or 3 % , from 2014. on a constant currency basis , international oncology sales would have increased $ 3.4 million in 2015 , compared to 2014. gross margins for 2015 and 2014 were 52.9 % and 49.0 % , respectively . the increase in gross margin was due to favorable customer and product mix , operational efficiencies and favorable foreign exchange rates on our operations expenses due to the decline in the average exchange rate of the mexican peso to the u.s. dollar . selling , general and administrative ( sg & a ) expenses were $ 83.2 million , or 24 % of revenues , in 2015 compared with $ 88.9 million , or 29 % of revenues , in 2014 . the decrease in sg & a expense is primarily due to $ 5.8 million in lower sales and marketing compensation and benefits , promotion expenses and travel expenses and $ 1.8 million lower legal fees , partially offset by $ 3.0 million in higher stock compensation expenses . the lower sales and marketing expenses are primarily due to the restructuring of the u.s. sales organization in the third quarter of 2014 and the decline in the average exchange rate of the euro to the u.s. dollar . research and development ( r & d ) expenses were $ 15.7 million , or 5 % of revenues , in 2015 compared to $ 18.3 million , or 6 % , of revenues in 2014 . the decrease in r & d expenses was primarily from lower r & d project expenses related to the development of a new hemodynamic monitor for our critical care market . restructuring and strategic transaction expenses were $ 8.5 million , or 2 % of revenues , in 2015 compared to $ 5.1 million , or 1 % of revenues , in 2014. in 2015 , we incurred $ 4.2 million in restructuring charges , primarily related to the authorized closure of our vrable , slovakia facilities . we incurred $ 2.5 million in restructuring charges primarily related to an agreement with dr. lopez , a member of our board of directors and a former employee in our research and development department , pursuant to which we bought out dr. lopez 's right to employment under his then-existing employment agreement . story_separator_special_tag the lower sales and marketing expenses are primarily due to the restructuring of the u.s. sales organization in the third quarter of 2014. r & d expenses were $ 18.3 million , or 6 % of revenues , in 2014 compared to $ 12.4 million , or 4 % , of revenues in 2013. the increase in r & d expenses was primarily from increased compensation and benefit expenses from an increase in r & d employees and increased external r & d project expenses . restructuring and strategic transaction expenses were $ 5.1 million , or 1 % of revenues , in 2014 compared to $ 1.4 million in 2013. in 2014 , we reorganized our selling and corporate infrastructure , resulting in a reduction in workforce of 69 employees . the $ 3.5 million restructuring charge is comprised of employee termination benefits and other associated costs . in 2014 , we incurred $ 1.6 million in charges associated with a strategic transaction that did not go forward . in 2013 , we incurred $ 1.4 million in charges associated with a strategic transaction that did not go forward . 28 other income was $ 0.8 million in 2014 and in 2013. income taxes were accrued at an estimated annual effective tax rate of 34 % in 2014 compared to 23 % in 2013. the rate differed from the statutory corporate rate of 35 % principally because of the effect of foreign and state income taxes , tax credits , deductions for domestic production activities and discrete tax items related to the conclusion of state tax examinations . liquidity and capital resources during 2015 , our cash , cash equivalents and investment securities increased by $ 30.6 million from $ 346.8 million at december 31 , 2014 to $ 377.4 million at december 31 , 2015 . operating activities : our cash provided by operations was $ 54.9 million in 2015 . net income plus adjustments for non-cash net expenses contributed $ 80.7 million to cash provided by operations . net cash used by operations as a result of changes in operating assets and liabilities was $ 25.8 million . the changes in operating assets and liabilities included a $ 20.5 million increase in accounts receivable , an $ 8.3 million increase in inventories , a $ 7.7 million net change in prepaid and deferred income taxes and $ 1.8 million increase in prepaid expenses and other assets , partially offset by a $ 9.4 million increase in accrued liabilities and a $ 3.1 million increase in accounts payable . the increase in accounts receivable was primarily due to higher revenue in the fourth quarter of 2015 compared to the fourth quarter of 2014 and an increase in days sales outstanding . the increase in inventory was primarily due to an increase in forecasted sales and inventory from south africa . the net changes in prepaid and deferred income taxes was primarily due to a loss on the sale of assets to medline and the utilization of an excelsior net operating loss carryover . the $ 9.4 million increase in accrued liabilities was primarily due to restructuring charges accruals , acquisition accruals and accrued compensation and benefits . the increase in accounts payable and increase in prepaid expenses and other assets were a result of timing . investing activities : our cash used by investing activities was $ 11.2 million in 2015 , which was primarily comprised of $ 56.8 million related to the acquisition of exc and $ 13.0 million in capital purchases , partially offset by $ 29.0 million in proceeds from the sale of a business , net investment sales of $ 26.9 million and $ 3.6 million in proceeds from the sale of our building . our property , plant and equipment purchases were primarily for additional investments in molds , machinery and equipment in our manufacturing operations in the united states and mexico and in it to benefit world-wide operations . while we can provide no assurances , we estimate that our capital expenditures in 2016 will approximate $ 18 million to $ 20 million . we anticipate making additional investments in molds , machinery and equipment in our manufacturing operations in the united states and mexico to support new and existing products and in it to benefit world-wide operations . additionally , we expect to expand our mexico manufacturing plant for the anticipated increase in operations as a result of the slovakian plant closure . we expect to use our cash and investments to fund our capital purchases . amounts of spending are estimates and actual spending may substantially differ from those amounts . financing activities : our cash provided by financing activities was $ 25.0 million in 2015 . cash provided by the exercise of stock options and shares purchased by our employees under the employee stock purchase plan was $ 17.2 million , resulting in 469,445 shares issued to our employees and directors . the tax benefits from share awards was $ 9.3 million in 2015 , which fluctuates based principally on when employees choose to exercise their vested stock options . in 2015 , we withheld 17,299 shares of our common stock from vested restricted stock units as consideration for making $ 1.5 million in payments for the employee 's share award tax withholding obligations . in july 2010 , our board of directors approved a new share purchase plan to purchase up to $ 40.0 million of our common stock . we had no purchases of our common stock during 2015. to date , we have purchased $ 17.5 million of our stock from this plan , leaving a balance of $ 22.5 million available for future purchases . this plan has no expiration date . we have a substantial cash and investment security position generated from profitable operations and stock sales , principally from the exercise of employee stock options .
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business overview we are a leader in the development , manufacture and sale of innovative medical devices used in infusion therapy , oncology and critical care applications . our product line include needlefree connection devices , custom infusion sets , cstd for the handling of hazardous drugs , advanced sensor catheters , closed blood sampling systems and innovative hemodynamic monitoring systems . our products are used in acute care hospitals and ambulatory clinics in more than 60 countries throughout the world . we categorize our products into three main market segments : infusion therapy , critical care and oncology . our primary products include : infusion therapy needlefree connector products โฆ microclave ยฎ and microclave clear ยฎ โฆ neutron ยฎ โฆ nanoclave ยฎ โฆ clave ยฎ โฆ swabcap ยฎ custom infusion sets tego ยฎ needlefree hemodialysis connector critical care hemodynamic monitoring systems closed blood sampling and conservation systems other critical care products and accessories oncology chemolock cstd and components chemoclave cstd and components diana hazardous drug compounding system revenues for 2015 , 2014 and 2013 were $ 341.7 million , $ 309.3 million and $ 313.7 million , respectively . we currently sell our products through direct channels , which include distributors and the end users of our products and as an oem supplier . our largest customer is pfizer due to its acquisition of hospira in september 2015. pfizer accounted for 36 % of our worldwide revenues in 2015 and 2014 and 39 % of our worldwide revenues in 2013 . pfizer is a major supplier of infusion pumps and i.v . solutions , and helps us achieve market share where they have multiple products under contract with a customer or broader international distribution channels than we can have on our own .
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you should review the sections titled โ special note regarding forward-looking statements โ and โ risk factors โ for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we created the first experience management platform to manage customer , employee , product , and brand experiences . our platform serves as a business operating system for experience management . the qualtrics experience management platform , or qualtrics xm , is a system of action that helps companies design and improve the experiences they provide to their many constituents across these four core experiences . we have more than 13,500 customers , including 85 % of the fortune 100 as of december 31 , 2020. our revenue was $ 763.5 million , $ 591.2 million , and $ 401.9 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , representing year-over-year growth of 29 % and 47 % , respectively . for the years ended december 31 , 2020 , 2019 , and 2018 , our net loss was $ 272.5 million , $ 1,007.6 million , and $ 37.3 million , respectively . the results of our operations for the years ended december 31 , 2020 , 2019 , and 2018 were impacted by equity and cash settled stock-based compensation expense and advisory and legal costs related to the 2018 abandoned ipo and the sap acquisition . we generate revenue by selling subscriptions to our xm platform and integrated solutions , as well as professional services . over 99 % of our contracts have a subscription period of one year or longer , and we primarily bill annually in advance . subscription revenue comprised over 75 % of our total revenue for the year ended december 31 , 2020. we have a diversified customer base consisting of organizations of various sizes across virtually all industries . our largest customer accounted for less than 2 % of revenue in 2020 , and our largest industries by annual recurring revenue , or arr , as of december 31 , 2020 were financial services , professional and business services , education , technology , government , and healthcare . arr is calculated by annualizing subscription revenue in the last month of a period . we price and package our software subscriptions solutions based on the capacity , use case , and functionality needs of our customers . this pricing and packaging includes volume of expected responses , number of users accessing our platform , number of employees , and level of functionality provided , such as dashboards , iq functionality , and integrations . we have also recently begun to offer use case pricing that simplifies pricing for customers seeking to address specific needs . our customers often expand their subscriptions as they increase volume of responses , add solutions and integrations , grow users and employees , and increase features and workflows within each solution . our professional services consist primarily of research services , through our designxm offering , which allows customers to gain market intelligence by procuring a curated group of respondents and returning actionable results , while conforming to best-practice design and methodology , as well as implementations , configurations , and integration and engineering services to help customers deploy our xm platform . other professional services revenue consists of consulting and training fees . subsequent events on february 1 , 2021 , we completed an ipo , in which we issued and sold 59,449,903 shares of our common stock at a public offering price of $ 30.00 per share . we received net proceeds of approximately $ 1,688 million , after deducting the underwriting discounts and commissions of $ 89.2 million and offering expenses of $ 6 million . we used the net proceeds from the ipo to repay the intercompany indebtedness to sap . 54 on december 23 , 2020 , silver lake partners vi de ( aiv ) , l.p. ( โ silver lake โ ) agreed to purchase $ 550 million of shares of our class a common stock , comprising ( a ) 15,018,484 shares at $ 21.64 per share and ( b ) $ 225 million of shares at the initial public offering price of $ 30 per share , in a concurrent private placement transaction ( the โ silver lake investment โ ) . on february 1 , 2021 , we closed our private placement transaction with silver lake . for a description of subsequent events , see item 8 of part ii , financial statements and supplementary data - note 17 , โ subsequent events. โ key factors affecting our performance we believe that the growth and future success of our business depends on many factors . while each of these factors presents significant opportunities for our business , they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations . customer acquisition and expansion we are focused on continuing to acquire new customers to support our long-term growth . we have invested , and expect to continue to invest , heavily in our sales and marketing efforts to drive customer acquisition . as of december 31 , 2020 , we had more than 13,500 customers , including 85 % of the fortune 100. our customers include businesses of all sizes , academic institutions , and government organizations . we define the number of customers at the end of any particular period as the number of parties or individual legal entities that have entered into a separate subscription contract with us . for avoidance of doubt , international subsidiaries of parent entities are not separately counted , but business units , brands , and academic institutions are counted if they are distinct legal entities . a single organization or customer may have multiple paid business accounts . story_separator_special_tag during the year ended december 31 , 2020 and 2019 , these expenses were partially offset by $ 20.2 million and 56 $ 8.7 million in charges to sap for indirect benefits we provided , such as salaries and benefits of qualtrics ' sales staff to support sap . we expect these indirect benefits and the related costs to continue in the near future . these amounts may fluctuate from period to period based on the nature and extent of the indirect benefits received and provided . in 2020 we recorded $ 224.0 million in equity and cash settled stock-based compensation expense compared to $ 876.2 million and $ 4.6 million in 2019 and 2018 , respectively . the increase from 2018 to 2019 was due to performance based awards that were recognized as a result of the sap acquisition and the modification of unvested awards , at the time of the sap acquisition , to liability-classified awards to be settled in cash , which resulted in mark-to-market accounting for these awards . the decrease from 2019 to 2020 was primarily due to the timing of vesting of liability-classified awards and the decrease in sap 's stock price . our 2020 stock-based compensation expense of $ 224.0 million consisted entirely of liability-classified awards . we settled $ 388.6 million of liability-classified awards in cash in 2020. our 2019 stock-based compensation expense of $ 876.2 million consisted of $ 185.8 million of equity-classified awards recognized as a result of the sap acquisition and $ 690.4 million of liability-classified awards , of which $ 312.8 million were settled in cash in 2019. our 2018 stock-based compensation expense of $ 4.6 million consisted entirely of equity-classified awards . as a result of this increase in equity and cash settled stock-based compensation , our cost of revenue , research and development , sales and marketing , and general and administrative costs increased significantly in absolute dollars and as a percentage of revenue during the year ended 2019 compared to 2018. these changes are described in additional detail within our results of operations . sap segment reporting since the sap acquisition , certain of our financial results have been presented as an operating segment within sap 's publicly reported financial results . these euro-reported financial results are prepared under international financial reporting standards , or ifrs , and presented on a non-ifrs basis . the sap segment results differ from our standalone financial results primarily due to : differences in reporting currency , differences between ifrs and gaap , differences in the reporting of certain related party transactions between qualtrics and sap , sap 's reporting of expenses related to certain corporate overhead functions , and differences in the reporting related to the sap acquisition . response to covid-19 in response to the covid-19 pandemic , we have taken broad actions to mitigate the impact of this public health crisis on our business . in response , we have implemented , among other measures , a covid-19 task force , a temporary work from home policy across all offices globally , new operating guidelines for our offices based on local conditions , restrictions on work-related travel , and additional wellness benefits for employees , all of which have the potential to result in a significant disruption to how we operate our business . our customers and partners have similarly been impacted . our xm platform enables customers to focus on managing their customer , employee , product , and brand experiences , which is increasingly important in a digitally connected world . although we believe our business is well-suited to navigate the current environment , the ultimate duration and extent of the covid-19 pandemic can not be accurately predicted at this time , and the direct or indirect impact on our business , results of operations , and financial condition will depend on future developments that are highly uncertain . we have experienced , and may continue to experience , an adverse impact on certain parts of our business . the conditions caused by the pandemic have adversely affected or may in the future adversely affect , among other things , demand , spending by new customers , renewal and retention rates of existing customers , the length of our sales cycles , sales productivity , the value and duration of subscriptions , collections of accounts receivable , our it and other expenses , our ability to recruit , and the ability of our employees to travel , all of which could adversely affect our business , results of operations , and financial condition . we have also experienced , and may continue to experience , certain positive impacts on other aspects of our business , including an increase in sales of our platform to state , local , and federal governments and non-profit organizations to help them navigate through the pandemic . moreover , we have seen a reduction in certain operating expenses due to reduced business travel , deferred hiring for some positions , and the virtualization or cancellation of 57 customer and employee events . at our virtual event work different this year , we explored how successful organizations are listening to and taking action on the feedback from their customers and employees to reimagine the future of work . additionally , we believe that the covid-19 pandemic could also accelerate customer transformation into digital businesses , which we expect will generate additional opportunities for us in the future . the global impact of covid-19 continues to rapidly evolve , and we will continue to monitor the situation and the effects on our business and operations closely . we do not yet know the full extent of potential impacts on our business or operations . in particular , due to our subscription-based business model , the effect of the covid-19 pandemic may not be fully reflected in our revenue until future periods . given the uncertainty , we can not reasonably estimate the impact on our future results of operations , cash flows , or financial condition . for additional details , see โ risk factors.
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results of operations the following table sets forth our results of operations for the periods presented : replace_table_token_1_th ( 1 ) includes equity and cash settled stock-based compensation expense , as follows : replace_table_token_2_th _ ( a ) as a result of the sap acquisition , our stock-based compensation expense reflects the recognition of both equity-classified awards and liability-classified awards . liability-classified awards are settled in cash in accordance with sap 's employee equity compensation programs . 2020 stock-based compensation expense consisted of $ 224.0 million of liability-classified awards . during the year ended december 31 , 2020 awards of $ 388.6 million were settled in cash . 2019 stock-based compensation expense consisted of $ 185.8 million of equity-classified awards that was recognized as a result of the sap acquisition , and $ 690.4 million of liability-classified awards , of which $ 312.8 million were settled in cash in 2019 . 2018 stock-based compensation expense consisted entirely of equity-classified awards . liability-classified awards are recorded according to mark-to-market accounting . 61 ( 2 ) includes amortization of acquired intangible assets as follows : replace_table_token_3_th the following table sets forth our results of operations for the periods presented as a percentage of our total revenue for those periods : replace_table_token_4_th comparison of the years ended december 31 , 2020 and 2019 revenue replace_table_token_5_th subscription revenue increased by $ 145.4 million , or 34 % , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. this increase was due primarily to increased demand for our solutions from 62 new and existing customers . of the increase in subscription revenue for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , approximately $ 92.0 million was attributable to existing customers and approximately $ 53.4 million was attributable to new customers .
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13. leases the company leases restaurant facilities , office space and certain equipment under operating leases that expire on various dates through august 2035 . lease terms for traditional shopping centers generally include a base term of 10 years , with options to extend these leases for additional periods of five to 15 years . typically , the lease includes rent escalations , which are expensed on a straight- 63 noodles & company notes to consolidated financial statements ( continued ) line story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with item 6 . `` selected financial data '' and our consolidated financial statements and related notes included in item 8 . `` financial statements and supplementary data . '' in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including , but not limited to , those discussed in item 1a . `` risk factors '' and elsewhere in this report . we operate on a 52- or 53- week fiscal year ending on the tuesday closest to december 31. fiscal years 2014 and 2013 , which ended on december 30 , 2014 and december 31 , 2013 , respectively , each contained 52 weeks . fiscal year 2011 , which ended on january 3 , 2012 , contained 53 weeks . we refer to our fiscal years as 2014 , 2013 and 2012 . our fiscal quarters each contained 13 operating weeks , with the exception of the fourth quarter of 2011 , which had 14 operating weeks . noodles & company your world kitchen overview noodles & company is a high growth , fast casual restaurant concept offering lunch and dinner within a fast growing segment of the restaurant industry . we opened our first location in 1995 , offering noodle and pasta dishes , staples of many cuisines , with the goal of delivering fresh ingredients and flavors from around the world under one roof . today , our globally inspired menu includes a wide variety of high quality , cooked-to-order dishes , including noodles and pasta , soups , salads and sandwiches , which are served on china by our friendly team members . we believe we offer our customers value with per person spend of approximately $ 8.25 in 2014 . 2014 highlights and trends restaurant development . new restaurants have contributed substantially to our revenue growth and in 2014 , we opened 49 company-owned restaurants and 10 franchise restaurants for a total of 59 restaurants opened system-wide . the company also purchased 19 restaurants from two franchisees during 2014 . as of december 30 , 2014 , we had 386 company-owned restaurants and 53 franchise restaurants in 32 states and the district of columbia . in 2015 , we anticipate 12 % to 14 % system-wide unit growth . comparable restaurant sales . comparable restaurant sales increased by 0.2 % system-wide in 2014 . comparable restaurant sales represent year-over-year sales comparisons for restaurants open for at least 18 full periods . catering . during 2014 we rolled out a catering program to all of our restaurants system-wide . we believe there is significant demand for this offering , which is designed for groups of 20 or more people . key measures we use to evaluate our performance to evaluate the performance of our business , we utilize a variety of financial and performance measures . these key measures include revenue , average unit volumes ( `` auvs '' ) , comparable restaurant sales , restaurant contribution , ebitda and adjusted ebitda . revenue restaurant revenue represents sales of food and beverages in company-owned restaurants . several factors affect our restaurant revenue in any period , including the number of restaurants in operation and per restaurant sales . franchise royalties and fees represent royalty income and initial franchise fees . while we expect that the majority of our revenue and net income growth will be driven by company-owned restaurants , our franchise restaurants remain an important part of our financial success . seasonal factors cause our revenue to fluctuate from quarter to quarter . our revenue per restaurant is typically lower in the first and fourth quarters due to reduced winter and holiday traffic and higher in the second and third quarters . as a result of these factors , our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly . 28 average unit volumes ( `` auvs '' ) auvs consist of the average annualized sales of all company-owned restaurants for the trailing 12 periods . auvs are calculated by dividing restaurant revenue by the number of operating days within each time period and multiplying by 361 , which is equal to the number of operating days we have in a typical year . this measurement allows management to assess changes in consumer traffic and per person spending patterns at our restaurants . comparable restaurant sales comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base . we define the comparable restaurant base to include restaurants open for at least 18 full periods . as of 2014 , 2013 and 2012 , there were 295 , 248 and 216 restaurants , respectively , in our comparable restaurant base for company-owned locations . this measure highlights performance of existing restaurants , as the impact of new restaurant openings is excluded . comparable restaurant sales growth is generated by increases in traffic , which we calculate as the number of entrรฉes sold , or changes in per person spend , calculated as sales divided by traffic . per person spend can be influenced by changes in menu prices and the mix and number of items sold per person . measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base . story_separator_special_tag occupancy costs occupancy costs include rent , common area maintenance and real estate tax expense related to our restaurants and is expected to grow proportionally as we open new restaurants . other restaurant operating costs other restaurant operating costs include the costs of utilities , restaurant-level marketing , credit card processing fees , restaurant supplies , repairs and maintenance and other restaurant operating costs . like other costs , it is expected to grow proportionally as restaurant revenue grows . general and administrative expense general and administrative expense is composed of payroll , other compensation , travel , marketing , accounting fees , legal fees and other expenses related to the infrastructure required to support our restaurants . general and administrative expense also includes the non-cash stock compensation expense related to our employee stock incentive plan . general and administrative expense can be expected to grow as we grow , including incremental legal , accounting , insurance and other expenses incurred as a public company . depreciation and amortization our principal depreciation and amortization charges relate to depreciation of fixed assets , including leasehold improvements and equipment , from restaurant construction and ongoing maintenance . pre-opening costs pre-opening costs relate to the costs incurred prior to the opening of a restaurant . these include management labor costs , staff labor costs during training , food and supplies utilized during training , marketing costs and other related pre-opening costs . pre-opening costs also include rent recorded between date of possession and opening date for our restaurants . asset disposals , closure costs and restaurant impairments asset disposals , closure costs and restaurant impairments include the loss on disposal of assets related to retirements and replacement of leasehold improvements or equipment , non-cash restaurant closure and impairment charges . debt extinguishment in both 2013 and 2012 , we amended our credit facility to extend the maturity date and to reduce interest rates on borrowings . as a result of these amendments , a portion of the existing and new fees were treated as debt extinguishment . 31 interest expense interest expense consists primarily of interest on our outstanding indebtedness and amortization of debt issuance costs over the life of the related debt reduced by capitalized interest . provision for income taxes provision for income taxes consists of federal , state and local taxes on our income . restaurant openings , closures and relocations the following table shows restaurants opened , closed or relocated in the years indicated . replace_table_token_8_th _ ( 1 ) represents franchise restaurants acquired by the company . ( 2 ) we account for relocated restaurants under both restaurant openings and closures and relocations . during 2012 , we closed one restaurant and relocated another restaurant . in fiscal 2013 , we closed one restaurant at the end of its lease term . 32 story_separator_special_tag . general and administrative expense included $ 1.5 million and $ 4.3 million of stock-based compensation expense in 2014 and 2013 , respectively , and $ 500,000 of management fees in 2013. depreciation and amortization depreciation and amortization increased by $ 4.2 million in 2014 compared to 2013 , due primarily to an increased number of restaurants . as a percentage of revenue , depreciation and amortization increased to 6.1 % in 2014 from 5.9 % in 2013 , due to depreciation on restaurants not in the comparable base that , on average , have a higher cost basis of assets , as well as investments in technology . pre-opening costs pre-opening costs increased by $ 0.6 million in 2014 compared to 2013 , due to 49 restaurant openings in 2014 compared to 43 in 2013 . as a percentage of revenue , pre-opening costs remained flat at 1.1 % in 2014 and 2013 . 35 asset disposals , closure costs and restaurant impairments asset disposals , closure costs and restaurant impairments increased by $ 0.2 million in 2014 compared to 2013 due primarily to a $ 0.5 million expense for the disposal of furniture and fixture inventory related to the dissolving of a relationship with an overseas vendor , offset by decreased disposals of other assets . debt extinguishment in 2013 , debt extinguishment expense was $ 0.6 million as a result the november 2013 amendment to our credit facility that extended the maturity date and reduced the interest rates on borrowings . a portion of the existing and new fees were treated as debt extinguishment expense . interest expense interest expense decreased by $ 1.8 million in 2014 compared to 2013 . the decrease was primarily due to lower average borrowings in 2014 due to the payoff of the majority of our outstanding debt in conjunction with our ipo in 2013. provision for income taxes provision for income taxes increased by $ 2.4 million in 2014 compared to 2013 , due to an increase in pre-tax net income in 2014 , offset by a decrease to our effective income tax rate . our effective tax rate decreased to 38.4 % in 2014 from 41.7 % in 2013 primarily due to the impact of non-deductible follow-on offering transaction costs in 2013 , offset by increased employment credits in 2014 . 36 fiscal year ended december 31 , 2013 compared to fiscal year ended january 1 , 2013 fiscal year 2013 and 2012 each contained 52 operating weeks . the table below presents our operating results for 2013 and 2012 , and the related year-over-year changes : replace_table_token_11_th _ * not meaningful . ( 1 ) fiscal year 2013 included $ 500,000 of management fee expense and 2012 included $ 1.0 million of management fee expense , in accordance with our management services agreement and through the class c common stock dividend paid to the holder of the one outstanding share of our class c common stock . in connection with our ipo , the management services agreement expired and the one share of class c common stock was redeemed .
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results of operations the following table summarizes key components of our results of operations for the periods indicated as a percentage of our total revenue , except for the components of restaurant operating costs , which are expressed as a percentage of restaurant revenue . fiscal years 2014 , 2013 and 2012 each contained 52 operating weeks . each fiscal quarter contained 13 weeks . replace_table_token_9_th _ ( 1 ) as a percentage of restaurant revenue . ( 2 ) fiscal year 2013 included $ 500,000 of management fee expense and fiscal year 2012 included $ 1.0 million of management fee expense , in accordance with our management services agreement and through the class c common stock dividend paid to the holder of the one outstanding share of our class c common stock . in connection with our ipo , the management services agreement expired and the one share of class c common stock was redeemed . additionally , we incurred $ 0.7 million of expenses related to our follow-on offering which closed in december of 2013 . 33 fiscal year ended december 30 , 2014 compared to fiscal year ended december 31 , 2013 fiscal years 2014 and 2013 contained 52 operating weeks . the table below presents our operating results for 2014 and 2013 , and the related year-over-year changes : replace_table_token_10_th _ * not meaningful . ( 1 ) fiscal year 2013 included $ 500,000 of management fee expense , in accordance with our management services agreement and through the class c common stock dividend paid to the holder of the one outstanding share of our class c common stock . in connection with our ipo , the management services agreement expired and the one share of class c common stock was redeemed .
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john a. hardy , chief executive officer of the fund , fraser atkinson , director and chairman of the audit committee , alessandro benedetti , executive story_separator_special_tag overview equus is a bdc that provides financing solutions for privately held middle market and small capitalization companies . we began operations in 1983 and have been a publicly traded closed-end fund since 1991. our investment objective is to seek the highest total return , consisting of capital appreciation and current income . in june 2005 , we retained moore clayton capital advisors , inc. ( โ mcca โ ) as our registered investment adviser to manage our portfolio and provide access to investment opportunities . our investment advisory agreement with mcca terminated on june 30 , 2009 and we have since internalized the management of the fund . we now directly employ our management team and incur the costs and expenses associated with fund operations . there is no outside investment advisory organization providing services to us under a fee-based advisory agreement , or an administrative organization charging us for services rendered . we expect that , because of management internalization , certain expenses of the fund will not increase commensurate with an increase in the size of the fund and , therefore , we can achieve efficiencies in our cost structure if we are able to grow the fund . as a bdc , we are required to comply with certain regulatory requirements . for instance , we generally have to invest at least 70 % of the fund 's total assets in โ qualifying assets , โ including securities of private u.s. companies , certain public u.s. companies with a total market capitalization not in excess of $ 250 million , cash , cash equivalents , u.s. government securities and short-term high-quality debt investments . equus is a ric under subchapter m of the code . to qualify as a ric , we must meet certain source of income and asset diversification requirements . if we comply with the provisions of subchapter m , the fund generally does not have to pay corporate-level income taxes on any income that distributed to our stockholders . investment income . we generate investment income from interest payable on the debt securities that the fund holds , dividends received on equity interests in our portfolio companies and capital gains , if any , realized upon sales of equity and , to a lesser extent , debt securities in the investment portfolio . our equity investments may include shares of common and preferred 21 stock , membership interests in limited liability companies and warrants to purchase additional equity interests . these equity securities may or may not pay dividends , and the exercise prices of warrants that we acquire in connection with debt investments , if any , vary by investment . our debt investments in portfolio companies may be in the form of senior or subordinated loans and may be unsecured or have a first or second lien on some or all of the assets of the borrower . our loans typically have a term of three to seven years and bear interest at fixed or floating rates . interest on these debt securities is generally payable either quarterly or semiannually . some promissory notes held by the fund provide that a portfolio company may elect to pay interest in cash or provide that discount interest may accrete in the form of original issue discount or payment-in-kind ( pik ) over the life of the notes by adding unpaid interest amounts to the principal balance . amortization of principal on our debt investments is generally deferred for several years from the date of initial investment . the principal amount of these debt securities and any accrued but unpaid interest generally will become due at maturity . we also earn interest income at market rates on investments in short-term marketable securities . from time to time , we generate income from time to time in the form of commitment , origination and structuring fees in connection with our investments . we recognize all such fees when earned . expenses . currently , our primary operating expenses include director fees and expenses , professional fees , compensation expense , and general and administrative fees . during 2011 , we incurred non-recurring expenses including settlement expenses , related to the various legal proceedings described in item 3 above , were $ 0.3 million and offering costs of $ 0.4 million . during 2010 , professional fees and other expenses incidental to our annual meeting and proxy contest were $ 0.7 million . prior to the internalization described above , our primary operating expenses consisted of investment advisory and management fees payable to mcca for its work in identifying , evaluating , negotiating , closing and monitoring investments . mcca provided us with the services of its investment professionals and our former administrator , equus capital administration company , inc. ( โ ecac โ ) provided us the services of its administrative staff as well as its investment professionals . mcca also provided and paid for the management services necessary to run the fund 's business . under the advisory agreement between mcca and the fund , mcca received a management fee equal to an annual rate of 2 % of our net assets , which was paid quarterly in arrears . under the advisory agreement , we also agreed to pay an incentive fee to mcca based on both realized investment income and net realized capital gains less unrealized capital depreciation . this incentive fee was equal to ( a ) 20 % of the excess , if any , of our net investment income for each quarter that exceeded a quarterly hurdle rate equal to 2 % ( 8 % annualized ) of our net assets , and ( b ) 20 % of our net realized capital gain less unrealized capital depreciation . the incentive fee calculated in clause ( b ) was paid on an annual basis . story_separator_special_tag the applicable methods prescribed by such principles and policies are described below : publicly-traded portfolio securities โinvestments in companies whose securities are publicly traded are generally valued at their quoted market price at the close of business on the valuation date . privately-held portfolio securities โthe fair value of investments for which no market exists is determined on the basis of procedures established in good faith by our board of directors . as a general principle , the current โ fair value โ of an investment would be the amount we might reasonably expect to receive for it upon its current sale , in an orderly manner . appraisal valuations are necessarily subjective and the estimated values arrived at by the fund may differ materially from amounts actually received upon the disposition of portfolio securities . during the first 12 months after an investment is made , the fund utilizes the original investment amount to determine the fair value unless significant developments have occurred during this 12 month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . after the 12 month period , or if material events have occurred within the twelve month period , fund management considers a two step process when appraising investments of privately held companies . the first step involves determining the enterprise value of the portfolio company . during this step , fund management considers three different valuation approaches : a market approach , an income approach , and an asset approach . the particular facts and circumstances of each portfolio company determine which approach , or combination of approaches , will be utilized . the second step when appraising equity investments of privately held companies involves allocating value to the various debt and equity securities of the company . fund management allocates value to these securities based on their relative priorities . for equity securities such as warrants , the fund may also incorporate alternative methodologies including the black-scholes option pricing model . market approach โ the market approach typically employed by fund management calculates the enterprise value of a company as a multiple of earnings before interest , taxes , depreciation and amortization ( โ ebitda โ ) generated by the company for the trailing twelve month period . adjustments to the company 's ebitda , including those for non-recurring items , may be considered . multiples are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . the fund will apply liquidity and other discounts it deems appropriate to equity valuations where applicable . the fund may also use , when available , third-party transactions in a portfolio company 's securities as the basis of valuation ( the โ private market method โ ) . the private market method will be used only with respect to completed transactions or firm offers made by sophisticated , independent investors . income approach โ the income approach typically utilized by fund management calculates the enterprise value of a company utilizing a discounted cash flow model incorporating projected future cash flows of the company . projected future cash flows consider the historical performance of the company as well as current and projected market participant performance . discount rates are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . the fund will apply liquidity and other discounts it deems appropriate to equity valuations where applicable . 23 asset approach โ the fund considers the asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative of a liquidation analysis . this situation may arise when a portfolio company : 1 ) can not generate adequate cash flow to meet the principal and interest payments on its indebtedness ; 2 ) is not successful in refinancing the its debt upon maturity ; 3 ) fund management believes the credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions may result in the company 's inability to meet future obligations ; or 4 ) the portfolio company 's reorganization or bankruptcy . consideration is also given as to whether a liquidation event would be orderly or forced . fund management considers that the fund 's general intent is to hold its loans to maturity when appraising its privately held debt investments . as such , fund management believes that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , the fund performs a yield analysis to determine if a debt security has been impaired . certificates of deposit purchased by the fund generally will be valued at their face value , plus interest accrued to the date of valuation . the audit committee of the board of directors may engage independent , third-party valuation firms to conduct independent appraisals and review management 's preliminary valuations of each privately-held investment that the fund ( a ) has held for more than one year and ( b ) holds on its books at a fair value of at least $ 2.0 million in order to make their own independent assessment . any third-party valuation data would be considered as one of many factors in a fair value determination . the audit committee then would recommend the fair values for all privately-held securities based on all relevant factors to the board of directors for final approval . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 19.2 million and $ 27.7 million as of december 31 , 2011 and 2010 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities .
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results of operations investment income and expense year ended december 31 , 2011 as compared to year ended december 31 , 2010 total income from portfolio securities declined to $ 0.5 million for 2011 from $ 2.9 million for 2010. this decrease was largely due to declines in interest bearing promissory notes during 2011 along with the impairment of accrued interest related to the interest bearing promissory notes of conglobal industries holding , inc. and spectrum management , llc for the period . professional fees decreased to $ 1.2 million for 2011 from $ 1.4 million for 2010. the legal fees and solicitation costs in 2010 were higher due to our annual shareholder meeting held in may 2010 and resulting proxy contest . the fund also incurred expenses related offering costs of $ 0.4 million and settlement costs of $ 0.3 million for 2011. as a result of the factors described above , net investment loss after expenses was ( $ 3.5 ) million for 2011 as compared to a net investment loss of ( $ 0.8 ) million for 2010. year ended december 31 , 2010 as compared to year ended december 31 , 2009 total income from portfolio securities declined to $ 2.9 million for 2010 from $ 3.7 million for 2009. this decrease was largely due to declines in interest bearing promissory notes during 2010 along with the restructuring of our holding in conglobal industries holding , inc. in the third quarter 2009 , resulting in the recognition of additional accrued interest for the period . during the first six months of 2009 , the former investment adviser received management fee compensation at an annual rate of 2 % of the net assets of the fund paid quarterly in arrears .
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level 2 financial assets consist of government national mortgage association ( gnma ) mortgage-backed securities held by the company 's wholly-owned limited purpose federal thrift subsidiary , sei private trust company ( sptc ) , federal home loan bank ( fhlb ) and other u.s. government agency short-term notes held by sidco . the financial assets held by sidco were purchased as part of a cash management program requiring only short term , top-tier investment grade government and corporate securities . the financial assets held by sptc are debt securities issued by gnma and are backed by the full faith and credit of the 66 u.s. government . these securities were purchased for the sole purpose of satisfying applicable regulatory requirements and have maturity dates which range from 2023 to 2041. the fair value of the company 's investment funds sponsored by lsv is measured using the net asset value per share story_separator_special_tag ( in thousands , except share and per-share data ) this discussion reviews and analyzes the consolidated financial condition at december 31 , 2020 and 2019 , the consolidated results of operations for the years ended december 31 , 2020 , 2019 and 2018 , and other factors that may affect future financial performance . this discussion should be read in conjunction with the selected financial data included in item 6 of this annual report and the consolidated financial statements and notes to the consolidated financial statements included in item 8 of this annual report . certain information contained in this discussion is or may be considered forward-looking . forward-looking statements relate to future operations , strategies , financial results , expenditures and other uses of capital or other developments . forward-looking statements are based upon estimates and assumptions that involve certain judgments , risks and uncertainties , many of which are beyond our control or are subject to change . although we believe our assumptions are reasonable , they could be inaccurate . our actual future revenues and income could differ materially from our expected results . further information about factors that could materially affect its results of operations and financial condition include , but are not limited to , the discussion contained in item 1a , risk factors , in this annual report on form 10-k. we have no obligation to publicly update or revise any forward-looking statements . overview story_separator_special_tag $ 501.4 million and diluted earnings per share increased to $ 3.24 per share in 2019 compared to $ 3.14 per share in 2018. we believe the following items were significant to our business results during 2019 : revenue from asset management , administration and distribution fees increased primarily from higher assets under administration in our investment managers segment due to sales of new business and market appreciation . average assets under administration increased $ 80.2 billion , or 14 % , to $ 635.8 billion during 2019 as compared to $ 555.6 billion during 2018. information processing and software servicing fees in the private banks segment decreased by $ 10.4 million during 2019 due to previously announced client losses and decreased non-recurring fees . revenues in the institutional investors segment declined $ 11.2 million during 2019 due to acquisitions , plan curtailments and fee compression from increased competition related to the continued contraction of the u.s. corporate defined benefit market . asset funding from new sales partially offset the decline in revenues . our proportionate share in the earnings of lsv decreased by $ 7.9 million , or 5 % , in 2019 due to lower assets under management from negative cash flows and lost clients . market appreciation during 2019 partially offset the decline in lsv 's average assets under management . lower performance fees earned by lsv also negatively impacted earnings . operating expenses were favorably impacted by cost containment measures implemented in late 2018 and early 2019. these expenses primarily consist of operational , technology and marketing costs and are mainly related to solutions offerings as well as servicing existing and acquiring new clients . these operating expenses are primarily included in compensation , benefits and other personnel costs on the accompanying consolidated statements of operations . we capitalized $ 33.1 million in 2019 for swp as compared to $ 43.4 million in 2018. amortization expense related to swp increased to $ 42.3 million during 2019 as compared to $ 39.9 million during 2018 due to continued development . the proportion of expenses related to maintenance and support of swp , which are not capitalized , has increased as compared to costs related to development and enhancements eligible for capitalization . 30 our effective tax rate during 2019 was 20.6 % as compared to 17.6 % during 2018. the increase in the effective tax rate was primarily due to reduced tax benefits from a lower volume of stock option exercise activity . we continued the stock repurchase program during 2019 and purchased approximately 6,225,000 shares at an average price of $ 55.96 per share for a total cost of $ 348.3 million . impact of covid-19 and other events the occurrence of unforeseen or catastrophic events , including the emergence of a pandemic or other widespread health emergency or concerns over the possibility of such an emergency , could create economic and financial disruptions , and could lead to operational difficulties that could impair our ability to manage our business . in december 2019 , a novel strain of coronavirus ( covid-19 ) was identified in wuhan , china . covid-19 quickly spread globally , leading the world health organization to declare the covid-19 virus outbreak a global pandemic in march 2020. since that time , governmental authorities have implemented numerous and varying measures to stall the spread and ameliorate the impact of covid-19 , including travel bans and restrictions , quarantines , curfews , shelter in place and safer-at-home orders , business shutdowns and closures , and have also implemented multi-step policies with the goal of re-opening domestic and global markets . story_separator_special_tag as a consequence of the hardware failure , transactional activities on our platforms were extremely limited on july 1 and 2 , 2020. all systems were restored to 100 % functionality by july 6 , 2020 and have operated as such since . this event was not caused by a third-party actor . while there were direct and indirect expenses in each of the third and fourth quarters of 2020 , and we expect there will continue to be costs associated with the outage going-forward , it is not expected these will be material . in response to the outage , we have launched a project internally , that has been supported by a ten-week review of our infrastructure and the design of our technical and operational resiliency plans by an independent third-party expert , to identify tactical and strategic improvements that we should consider making across our enterprise technology footprint . during the fourth quarter of 2020 , we made the following changes to and investments in our technology infrastructure that we believe will enhance our operating resiliency : we changed the application load balancing on our servers of what we identified as business critical applications to create redundancies within the compute , network , and storage infrastructures in an effort to reduce the risk of single points of failure within our infrastructure ; we implemented the metro configuration for our servers utilizing a mirrored storage array for what we have identified as critical business applications . publicly available vendor literature maintains that the metro configuration provides enhanced disaster recovery and data mobility solutions over traditional symmetrix remote data facility , or sdrf , solutions . we believe the metro configuration will enable data replication among our servers to a redundant array without data loss so that if a failure occurs on a primary storage array , we expect that the backup array will operate as the primary , without service interruption ; and we invested in additional compute and storage for the sei wealth platform to augment the hardware we already own and use . according to the publicly available white papers from the vendor we use , the โ cloud in a box โ solution that we consume delivers : โฆ the highest levels of database performance available ; โฆ outstanding i/o and sql processing performance for online transaction processing ( oltp ) , data warehousing ( dw ) and consolidation of mixed workloads ; โฆ extreme performance for all types of database applications by leveraging a massively parallel grid architecture using real application clusters and exadata storage ; โฆ breakthrough analytic and i/o performance , is simple to use and manage ; and โฆ mission-critical availability and reliability . we believe that our investment in additional compute and storage capacity to replicate the core sei wealth platform database and data warehouse on premise to a separate physical storage array will increase our system resiliency and reduce downtime in the event of an outage . we expect that our ongoing initiative to improve system resiliency will lead to additional recommendations for improvements that will result in additional investments of capital in hardware , software and personnel . we expect these costs will include both new investments as well as a reprioritization of current spend . currently , we are not able to fully estimate the total amount of additional expense as this will be part of an ongoing strategy around recovery and resiliency . one sei strategy in 2020 , we invested in our one sei strategy . the one sei strategy is a company-wide initiative to open business opportunities across the entire company by leveraging existing and new sei platforms and making them accessible to all types of clients , adjacent markets and other non-sei platforms . as we execute on our strategy , we have incurred 32 significant costs during 2020 to integrate , modularize and leverage these technologies in our service offerings for the front , middle and back-office . the majority of these costs have been recognized in the investments in new businesses segment . to date , we have not capitalized any software development costs related to the one sei strategy . we expect these investments will continue throughout most of 2021 as we continue to deliver on our one sei strategy . investment processing and software servicing fees investment processing and software servicing fees in our private banks segment primarily include application and business-process-outsourcing services , professional fees and transaction-based services . application and business-process-outsourcing services revenues are based upon the type and number of investor accounts serviced or as a percentage of the market value of the clients ' asset processed on our platforms . professional services revenues are earned from contracted , project-oriented services . transaction-based revenues are primarily earned from fees earned on securities trades executed on behalf of our clients . approximately 40 % of our investment processing and software servicing fees are earned as a percentage of the market value of clients ' asset processed , primarily from swp and our mutual fund trading solution clients . investment management platforms our investment management platforms include investment management programs and back-office investment processing outsourcing services and are generally offered on a bundled basis . although we believe the breadth of our business solutions offer a competitive advantage , factors such as the underperformance of investment products that we manage relative to our competitors or to benchmarks and client preferences for passive investment products offered through an unbundled model have resulted in cash outflows and a loss of management fees primarily impacting the investment advisors segment . 33 ending asset balances this table presents ending asset balances of our clients , or of our clients ' customers , for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest .
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consolidated summary sei is a leading global provider of technology-driven wealth and investment management solutions . we deliver comprehensive platforms , services and infrastructureโencompassing technology , operational , and investment management servicesโto help wealth managers , financial advisors , investment managers , family offices , institutional and private investors create and manage wealth . investment processing fees are earned as either monthly fees for contracted services or as a percentage of the market value of our clients ' assets processed on our platforms . investment operations and investment management fees are earned as a percentage of assets under management , administration or advised assets . as of december 31 , 2020 , through our subsidiaries and partnerships in which we have a significant interest , we manage , advise or administer approximately $ 1.2 trillion in hedge , private equity , mutual fund and pooled or separately managed assets , including approximately $ 368.7 billion in assets under management and $ 786.7 billion in client assets under administration . our affiliate , lsv asset management ( lsv ) , manages $ 93.7 billion of assets which are included as assets under management . our condensed consolidated statements of operations for the years ended 2020 , 2019 and 2018 were : replace_table_token_7_th * variances noted `` nm '' indicate the percent change is not meaningful .
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the following discussion and analysis , with the exception of cash flow information , is presented in the context of continuing operations unless otherwise identified . our financial performance for 2013 is summarized as follows : year-end at-risk managed care membership of 2,723,200 , an increase of 298,700 members , or 12.3 % over 2012 . premium and service revenues of $ 10.5 billion , representing 37.0 % growth year over year . health benefits ratio of 88.6 % , compared to 89.6 % in 2012 . general and administrative expense ratio of 8.8 % , compared to 8.8 % in 2012 . total operating cash flows of $ 382.5 million , or 2.3 times net earnings . diluted net earnings per share of $ 2.87 , compared to $ 1.65 in 2012 . the following items contributed to our revenue and membership growth over the last two years : acariahealth . in april 2013 , we completed the acquisition of acariahealth , a specialty pharmacy company , for $ 142.5 million . the transaction consideration was financed through a combination of centene common stock and cash on hand . california . in november 2013 , our california subsidiary , california health and wellness plan ( chwp ) , began operating under a new contract with the california department of health care services to serve medicaid beneficiaries in 18 rural counties under the state 's medi-cal managed care rural expansion program . also in november 2013 , chwp began operating under a new contract to serve medi-cal beneficiaries in imperial county . florida . in august 2013 , our florida subsidiary , sunshine health , began operating under a contract with the florida agency for health care administration to serve members of the medicaid managed care ltc program . enrollment began in august 2013 and will be implemented by region and continue through march 2014. kansas . in january 2013 , our subsidiary , sunflower state health plan , began operating under a statewide contract to serve members in the state 's kancare program , which includes tanf , abd ( dual and non-dual ) , foster care , ltc and chip beneficiaries . louisiana . in february 2012 , louisiana healthcare connections ( lhc ) , began operating through a joint venture under a new contract in louisiana to provide healthcare services to medicaid enrollees participating in the bayou health program . lhc completed its three-phase membership roll-out for the three geographical service areas during the second quarter of 2012. in november 2012 , the covered services provided by lhc expanded to include pharmacy benefits . during the fourth quarter of 2012 , we acquired the ownership interest of our joint venture partner , bringing our ownership to 100 % . massachusetts . in july 2013 , our joint venture subsidiary , centurion , began operating under a new contract with the department of corrections in massachusetts to provide comprehensive healthcare services to individuals incarcerated in massachusetts state correctional facilities . centurion is a joint venture between centene and mhm services inc. mississippi . in december 2012 , our subsidiary , magnolia health plan , began operating under an expanded contract to provide managed care services statewide to medicaid members as well as providing behavioral health services . 32 missouri . in july 2012 , our majority owned subsidiary , home state health plan , began operating under a new contract with the office of administration for missouri to serve medicaid beneficiaries in the eastern , central , and western managed care regions of the state . new hampshire . in december 2013 , our subsidiary , new hampshire healthy families , began operating under a new contract with the department of health and human services to serve medicaid beneficiaries . ohio . in july 2013 , our ohio subsidiary , buckeye community health plan ( buckeye ) , began operating under a new and expanded contract with ohio department of job and family services ( odjfs ) to serve medicaid members statewide through ohio 's three newly aligned regions ( west , central/southeast , and northeast ) . buckeye also began serving members under the abd children program in july 2013. tennessee . in september 2013 , our joint venture subsidiary , centurion , began operating under a new contract to provide comprehensive healthcare services to individuals incarcerated in tennessee state correctional facilities . texas . in march 2012 , we began operating under contracts in texas that expanded its operations through new service areas including the 10 county hidalgo service area and the medicaid rural service areas of west texas , central texas and north-east texas , as well as the addition of star+plus in the lubbock service area . the expansion also added the management of outpatient pharmacy benefits in all service areas and products , as well as inpatient facility services for the star+plus program . washington . in july 2012 , we began operating under a new contract with the washington health care authority to serve medicaid beneficiaries in the state , operating as coordinated care . we expect the following items to contribute to our future growth potential : we expect to realize the full year benefit in 2014 of business commenced during 2013 in california , florida , massachusetts , new hampshire , ohio , and tennessee as discussed above . in february 2014 , our mississippi subsidiary , magnolia health plan , was awarded a statewide managed care contract to continue serving members enrolled in the mississippi coordinated access network ( mississippican ) program , as one of two contractors . under the new contract , magnolia will continue providing outpatient , behavioral health , pharmacy , vision and dental services , and will also begin providing non-emergency transportation as of july 1 , 2014. in january 2014 , we acquired a majority interest in u.s. medical management , llc , a management services organization and provider of in-home health services for high acuity populations , for approximately $ 200.0 million . story_separator_special_tag in some instances , our base premiums are subject to an adjustment , or risk score , based on the acuity of our membership . generally , the risk score is determined by the state analyzing submissions of processed claims data to determine the acuity of our membership relative to the entire state 's membership . some contracts allow for additional premiums associated with certain supplemental services provided such as maternity deliveries . 36 our contracts with states may require us to maintain a minimum health benefits ratio or may require us to share profits in excess of certain levels . in certain circumstances , our plans may be required to pay a rebate to the state in the event profits exceed established levels . we recognize reductions in revenue in the current period for these programs . other states may require us to meet certain performance and quality metrics in order to receive additional or full contractual revenue . for performance-based contracts , we do not recognize revenue subject to refund until data is sufficient to measure performance . revenues are recorded based on membership and eligibility data provided by the states , which is adjusted on a monthly basis by the states for retroactive additions or deletions to membership data . these eligibility adjustments are estimated monthly and subsequently adjusted in the period known . we continuously review and update those estimates as new information becomes available . it is possible that new information could require us to make additional adjustments , which could be significant , to these estimates . our specialty services generate revenues under contracts with state programs , healthcare organizations , and other commercial organizations , as well as from our own subsidiaries . revenues are recognized when the related services are provided or as ratably earned over the covered period of services . premium and service revenues collected in advance are recorded as unearned revenue . premium and service revenues due to us are recorded as premium and related receivables and are recorded net of an allowance based on historical trends and our management 's judgment on the collectibility of these accounts . as we generally receive payments during the month in which services are provided , the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of our financial condition or results of operations . some states enact premium taxes , similar assessments and provider and hospital pass-through payments , collectively , premium taxes , and these taxes are recorded as a component of revenues as well as operating expenses . we exclude premium taxes from our key ratios as we believe the premium tax is a pass-through of costs and not indicative of our operating performance . the centers for medicare and medicaid services ( cms ) deploys a risk adjustment model that retroactively apportions medicare premiums paid according to health severity and certain demographic factors . the model pays more for members whose medical history indicates they have certain medical conditions . under this risk adjustment methodology , cms calculates the risk adjusted premium payment using diagnosis data from hospital inpatient , hospital outpatient , physician treatment settings as well as prescription drug events . the company estimates the amount of risk adjustment based upon the diagnosis and pharmacy data submitted and expected to be submitted to cms and records revenues on a risk adjusted basis . operating expenses medical costs medical costs include payments to physicians , hospitals , and other providers for healthcare and specialty services claims . medical costs also include estimates of medical expenses incurred but not yet reported , or ibnr , and estimates of the cost to process unpaid claims . we use our judgment to determine the assumptions to be used in the calculation of the required ibnr estimate . the assumptions we consider include , without limitation , claims receipt and payment experience ( and variations in that experience ) , changes in membership , provider billing practices , healthcare service utilization trends , cost trends , product mix , seasonality , prior authorization of medical services , benefit changes , known outbreaks of disease or increased incidence of illness such as influenza , provider contract changes , changes to medicaid fee schedules , and the incidence of high dollar or catastrophic claims . our development of the ibnr estimate is a continuous process which we monitor and refine on a monthly basis as claims receipts and payment information becomes available . as more complete information becomes available , we adjust the amount of the estimate , and include the changes in estimates in medical expense in the period in which the changes are identified . additionally , we contract with independent actuaries to review our estimates on a quarterly basis . the independent actuaries provide us with a review letter that includes the results of their analysis of our medical claims liability . we do not solely rely on their report to adjust our claims liability . we utilize their calculation of our claims liability only as additional information , together with management 's judgment , to determine the assumptions to be used in the calculation of our liability for medical costs . 37 while we believe our ibnr estimate is appropriate , it is possible future events could require us to make significant adjustments for revisions to these estimates . accordingly , we can not assure you that medical costs will not materially differ from our estimates . results of operations depend on our ability to manage expenses associated with health benefits and to accurately predict costs incurred . the health benefits ratio , or hbr , represents medical costs as a percentage of premium revenues ( excluding premium taxes ) and reflects the direct relationship between the premium received and the medical services provided .
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segment results the following table summarizes our operating results by segment for the year ended december 31 , ( in millions ) : replace_table_token_14_th managed care premium and service revenues increased 55.6 % in the year ended december 31 , 2012 , due to the addition of our illinois , louisiana , mississippi , missouri and washington contracts , texas expansion , pharmacy carve-ins in texas and ohio , and organic membership growth . earnings from operations decreased $ 99.0 million in the year ended december 31 , 2012 , 42 primarily due to higher medical costs in our texas health plan specifically in the expansion areas and increased flu costs during the fourth quarter of 2012. specialty services premium and service revenues increased 77.0 % in the year ended december 31 , 2012 , due to ( 1 ) the carve-in of pharmacy services in texas and ohio , ( 2 ) specialty company revenue related to the growth in our medicaid segment and the associated specialty services provided to this increased membership and ( 3 ) the arizona expansion . earnings from operations increased $ 3.2 million in the year ended december 31 , 2012 , reflecting growth in our pharmacy business and the associated specialty services provided to our increased medicaid membership , partially offset by the impairment loss of $ 28.0 million recorded in 2012 and a high level of medical costs in celtic insurance company , especially for members converted in the first quarter of 2012. liquidity and capital resources shown below is a condensed schedule of cash flows for the years ended december 31 , 2013 , 2012 and 2011 , used in the discussion of liquidity and capital resources ( $ in millions ) . replace_table_token_15_th cash flows provided by operating activities normal operations are funded primarily through operating cash flows and borrowings under our revolving credit facility .
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( 3 ) on april 9 , 2014 , 47,134 options were granted to each of nadav kidron and miriam kidron under the 2008 plan at an exercise price of $ 12.45 per share ; 15,710 of such options vested on april 30 , 2014 and the remainder vested in eight equal monthly installments , commencing on may 31 , 2014. the options have an expiration date of april 9 , 2024 . 43 ( 4 ) on june 30 , 2017 , 147,000 options were granted to nadav kidron under the 2008 plan at an exercise price of $ 7.77 per share ; 49,000 of such options vested on december 31 , 2017 , 49,000 of such options were forfeited on december 31 , 2018 as a result of the company 's share price not reaching the target and the remaining 49,000 vest on december 31 , 2019 , subject to the company share price reaching the target of $ 12.50 per share . the options expire on june 30 , 2027 . ( 5 ) on january 31 , 2018 , 97,000 options were granted to nadav kidron under the 2008 plan at an exercise price of $ 8.14 per share ; 24,250 of such options vested on january 1 , 2019 and the remaining options vest in 3 equal installments of 24,250 on each of january 1 , 2020 , january 1 , 2021 and january 1 , 2022. the options expire on january 31 , 2028 . ( 6 ) on june 30 , 2017 , 69,000 options were granted to miriam kidron under the 2008 plan at an exercise price of $ 7.77 per share ; 23,000 of such options vested on december 31 , 2017 , 23,000 of such options vested on december 31 , 2018 and the remaining 23,000 of such options vest on december 31 , 2019. the options have an expiration date of june 30 , 2027 . ( 7 ) on january 31 , 2018 , 47,000 options were granted to miriam kidron under the 2008 plan at an exercise price of $ 8.14 per share ; 11,750 of such options vested on january 1 , 2019 and the remaining options vest in 3 equal installments of 11,750 on each of january 1 , 2020 , january 1 , 2021 and january 1 , 2022. the options expire on january 31 , 2028 . ( 8 ) on november 13 , 2014 , 9,788 rsus , representing a right to receive shares of the company 's common stock , were granted to nadav kidron . the rsus vested in two equal installments , each of 4,894 shares , on november 30 and december 31 , 2014. the shares of common stock underlying the rsus will be issued upon request of the grantee . ( 9 ) on february 23 , 2015 , 79,848 rsus , representing a right to receive shares of the company 's common stock , were granted to nadav kidron . the rsus vested in 23 installments consisting of one installment of 6,654 shares on february 28 , 2015 and 22 equal monthly installments of 3,327 shares each , commencing march 31 , 2015. the shares of common stock underlying the rsus will be issued upon request of the grantee . ( 10 ) on june 30 , 2017 , 75,000 rsus , representing a right to receive shares of the company 's common stock , were granted to miriam kidron . the rsus vested immediately , have an exercise price of $ 0.012 per share of common stock and expire on june 30 , 2027 . ( 11 ) on february 26 , 2019 , 196,500 options were granted to nadav kidron under the 2008 plan at an exercise price of $ 3.16 per share ; the options vest in four installments of 49,125 on each of december 31 , 2019 , december 31 , 2020 , december 31 , 2021 and december 31 , 2022 . ( 12 ) on february 26 , 2019 , 104,000 options were granted to miriam kidron under the 2008 plan at an exercise price of $ 3.16 per share ; the options vest in four installments of 26,000 on each of december 31 , 2019 , december 31 , 2020 , december 31 , 2021 and december 31 , 2022 . ( 13 ) on june 17 , 2019 , 33,146 options were granted to avraham gabay under the 2008 plan at an exercise price of $ 3.55 per share ; 5,396 of the options shall vest on december 31 and the remining options shall vest in 3 equal installments of 9,250 on each of december 31 , 2020 , december 31 , 2021 and december 31 , 2022 . ( 14 ) on september 11 , 2019 , the options were canceled and re-granted under the 2019 plan in the same amounts and under the same terms as the original grants . compensation committee interlocks story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere herein and in our consolidated financial statements . in addition to our consolidated financial statements , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in โ cautionary statement regarding forward-looking statements โ and โ item 1a . risk factors. story_separator_special_tag the approval we received from the iia for the license agreement was subject to payment of increased royalties and an increased ceiling , all in accordance with the provisions of the r & d law . the r & d law further permits the iia , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for the import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also provides that know-how developed under an approved research and development program may not be transferred or licensed to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred or licensed to any third parties outside israel absent iia approval which may be granted in certain circumstances as follows : ( a ) the grant recipient pays to the iia a portion of the sale or license price paid in consideration for the purchase or license of such iia-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be , in accordance with certain formulas included in the r & d law ; ( b ) the grant recipient receives know-how from a third party in exchange for its iia-funded know-how ; or ( c ) such transfer of iia-funded know-how is made in the context of iia approved research and development cooperation projects or consortia . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient to notify the iia of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli entity becoming an interested party in the recipient , and requires the new non-israeli interested party to undertake to the iia to comply with the r & d law . in addition , the rules of the iia may require the provision of additional information or representations in respect of certain such events . for this purpose , โ control โ is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . โ means of control โ refers to voting rights or the right to appoint directors or the chief executive officer . an โ interested party โ of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties holds 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . 26 failure to meet the r & d law 's requirements may subject us to mandatory repayment of grants received by us ( together with interest and penalties ) , as well as expose us to criminal proceedings . in addition , the israeli government may from time to time audit sales of products which it claims incorporate technology funded through iia programs which may lead to additional royalties being payable on additional products . general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , travel expenses , business development costs , insurance expenses and other general costs . general and administrative expenses decreased by 9 % from $ 4,083,000 for fiscal 2018 to $ 3,722,000 for fiscal 2019. the decrease in costs incurred related to general and administrative activities during fiscal 2019 , is primarily attributable to a decrease in stock-based compensation costs and is partially offset by an increase in salaries and related expenses . during fiscal 2019 , as part of our general and administrative expenses , we incurred expenses of $ 591,000 related to stock-based compensation costs , as compared to $ 972,000 during fiscal 2018. the decrease is mainly attributable to the progress in amortization of awards granted in prior periods and to option forfeitures during the period . financial income , net net financial income , net was $ 576,000 for fiscal 2019 as compared to net financial income of $ 800,000 for fiscal 2018. the decrease is mainly attributable to a decrease in fair market value of some investments and to the change in accounting method which classifies such losses under profit and loss rather than other comprehensive income . taxes on income taxes on income were $ 300,000 recognized for fiscal 2019 as compared to no tax expenses in fiscal 2018. the increase is due to the withholding taxes during 2019 in connection with the receipt of a milestone payment pursuant to the license agreement , while no withholding taxes applied in fiscal 2018. comparison of fiscal 2018 to fiscal 2017 for a discussion of fiscal 2018 compared to fiscal 2017 , see management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k for the fiscal year ended august 31 , 2018.
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results of operations critical accounting policies our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements . we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 23 revenue recognition : revenue is recognized when delivery has occurred , evidence of an arrangement exists , title and risks and rewards for the products are transferred to the customer and collection is reasonably assured .
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# 23 critical accounting policies in order to prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america , we were required to make estimates and assumptions that affected the amounts reported in these statements . there are uncertainties inherent in making these estimates and assumptions , which could materially affect our results of operations and financial position . we consider the following to be critical accounting policies : the allowance for loan losses : the adequacy of the allowance for loan losses is sensitive to changes in current economic conditions that may make it difficult for borrowers to meet their contractual obligations . any downward trend in the economy , regional or national , may require us to increase the allowance for loan losses resulting in a negative impact on our results of operations and financial condition at the same time that other areas of our operations , including new loan originations and assets under administration in our trust department may also be experiencing negative pressures from the same underlying negative economic conditions . liabilities for retirement plans : we have a variety of pension and retirement plans . liabilities under these plans rely on estimates of future salary increases , numbers of employees and employee retention , discount rates and long-term rates of return on plan investments . changes in these assumptions due to changes in the financial markets , the economy , our own operations or applicable law and regulation may result in material changes to our liability for postretirement expense , with consequent impact on our results of operations and financial condition . valuation allowance for deferred tax assets : accounting standards require a reduction in the carrying amount of deferred tax assets by a valuation allowance if , based on the weight of available evidence , it is more likely than not ( a likelihood of more than 50 % ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized . our analysis of the need for a valuation allowance for deferred tax assets is , in part , based on an estimate of future taxable income . goodwill : accounting standards require that goodwill be tested for impairment at a level of reporting referred to as a reporting unit . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . an entity may assess qualitative factors to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill or apply a two-step impairment analysis . if , after assessing the qualitative factors , it is determined that the fair value of a reporting unit is less than its carrying amount , we must perform the two-step impairment test . the first step of the goodwill impairment test , used to identify potential impairment , compares the fair value of a reporting unit with its carrying amount , including goodwill . the second step of the goodwill impairment test , used to measure the amount of impairment loss , compares the implied fair value of a reporting unit 's goodwill with the carrying amount of that goodwill . other than temporary decline in the value of debt and equity securities : accounting standards require that , for individual securities classified as either available-for-sale or held-to-maturity , an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary . when an other-than-temporary impairment has occurred , the amount of the other-than-temporary impairment recognized in earnings depends on whether we intend to sell the security or whether or not it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss . if we intend to sell the security or if it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment ' s amortized cost basis and its fair value at the balance sheet date . if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . any significant economic downturn might result , and historically have on occasion resulted , in an other-than-temporary impairment in securities held in our portfolio . valuation methods for securities : most of the securities portfolio , which includes u.s. treasury and agency securities , mortgage-backed securities , collateralized mortgage obligations , municipal securities , corporate debt and equity securities are priced using industry-standard models that consider various assumptions that include time value , yield curves , volatility factors , prepayment speeds , default rates , loss severity , current market and contractual prices for the underlying financial instruments , as well as other relevant economic measures . substantially all of these assumptions are either observable in the marketplace , derived from observable data or are supported by observable levels at which transactions are executed in the marketplace . municipal and corporate securities are valued using a type of matrix , or grid , pricing in which securities are benchmarked against the treasury rate based on credit rating . these model and matrix measurements are classified as level 2 in the fair value hierarchy . story_separator_special_tag the statute also contains provisions that may impact the company 's accounting for some of its benefit plans in future periods . the exact extent of the health reform act 's impact , if any , can not be determined until final regulations are promulgated and interpretations of the health reform act become available . liquidity and access to credit markets : we did not experience any liquidity problems or special concerns during 2012 , nor did we during 2011 or 2010. the terms of our lines of credit with our correspondent banks , the fhlbny and the federal reserve bank have not changed ( see our general liquidity discussion on page 46 ) . in general , we rely on asset-based liquidity ( i.e. , funds in overnight investments and cash flow from maturing investments and loans ) with liability-based liquidity as a secondary source ( our main liability-based sources are overnight borrowing arrangements with our correspondent banks , term credit arrangement advances from the fhlbny and the federal reserve bank discount window ) . during the recent financial crisis , many financial institutions , small and large , relied extensively on the fed 's discount window to support their liquidity positions , but we did not . we maintain , and periodically test , a contingent liquidity plan to ensure that we can generate an adequate amount of available funds to meet a wide variety of potential liquidity crises , including a severe crisis . fdic shift from deposit-based to asset-based insurance premiums ; reduction in premiums : the dodd-frank act changed the basis on which insured banks would be assessed deposit insurance premiums , which has had a beneficial effect on the rates we pay and our overall premiums . beginning with the second quarter of 2011 , the calculation of regular fdic insurance premiums for insured institutions changed so as to be based on adjusted assets ( as defined ) rather than deposits . this had the effect of imposing fdic insurance fees not only on deposits but on other sources of funding as well , including short-term borrowings and repurchase agreements . the rate , however , given the significantly larger base on which premiums would be assessed ( total assets versus insured deposits ) , was set at a lower percentage than the rate applicable under the old formula . because our banks , like most community banks , have a much higher ratio of deposits to total assets than the large banks maintain , the new lower rate even applied to a larger base has resulted in a significant decrease in our fdic premiums , while even with the lower rates , the premiums paid by larger banks have generally increased . visa transactions - reversal of the litigation reserve : on march 28 , 2008 , visa inc. redeemed , for cash , from its member banks , including glens falls national , 38.7 % of the visa class b shares held by the member banks , using some of the proceeds realized by visa from the initial public offering and sale of its class a shares just then completed . with another portion of the ipo proceeds , visa established a $ 3 billion escrow fund to cover certain , but not necessarily all , of its continuing litigation liabilities under various antitrust claims , which its member banks would otherwise be required to bear . we maintained at year-end 2008 a $ 294 thousand accrual for our estimated proportional share of future visa litigation costs , beyond the implicit reserve reflected in visa 's book valuation of our b shares . in 2008 , we did not recognize on our books any dollar value for our remaining class b visa shares , in accordance with sec guidance , in view of the fact that any future deposits by visa into the escrow fund for covered litigation , while simultaneously reducing our proportionate exposure as a visa member for the litigation , would also directly reduce the dollar value of our class b shares . since the first quarter of 2008 , visa has settled several claims falling within the category of covered litigation , and from time-to-time has deposited substantial additional amounts into the escrow fund for covered litigation . such deposits have reduced visa 's book value of its outstanding class b shares proportionately . we did not recognize any income or expense after 2008 resulting from such additional deposits by visa into the escrow fund as it was not determinable with an appropriate level of certainty what # 26 the impact was of such funding on the company 's contingent obligation beyond its class b visa shares to which the company has not recognized any economic value for these shares . most recently , in july 2012 , visa and mastercard entered into a memorandum of understanding ( `` mou '' ) with a class of plaintiffs to settle certain additional antitrust claims involving merchant discounts . visa 's share of this settlement also will be paid out of its escrow fund . in light of the current state of covered litigation at visa , which is winding down , as well as the remaining dollar amounts in visa 's escrow fund , we determined in the second quarter 2012 to reverse the entire amount of our remaining visa litigation-related accrual , which was $ 294 thousand pre-tax . this reversal reduced our other operating expenses for the year ending december 31 , 2012. we believed then , and continue to believe , that the multi-billion dollar balance that visa maintains in its escrow fund is substantially sufficient to satisfy the company 's contingent liability for the remaining covered litigation . the company continues not to recognize any economic value for its remaining shares of visa class b common stock . increase in stockholders ' equity : at december 31 , 2012 , our tangible book value per share ( calculated based on stockholders ' equity reduced by intangible assets including goodwill and other intangible assets ) amounted to $ 12.42
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summary of 2012 financial results we reported net income for 2012 of $ 22.2 million , representing diluted earnings per share ( `` eps '' ) of $ 1.85 , an increase of two cents , or 1.1 % from our 2011 result . return on average equity ( `` roe '' ) for the 2012 year continued to be strong at 12.88 % , although down from the roe of 13.45 % for the 2011 year . return on average assets ( `` roa '' ) for 2012 continued to be strong at 1.11 % , although down from roa of 1.13 % for 2011 . both decreases were principally due to our shrinking net interest margin , which led to a slight decrease , 0.6 % , in our net interest income , despite the fact that our earning assets grew and our asset quality remained strong . the decrease in net interest income was more than offset by a 4.5 % increase in our noninterest income . total assets were $ 2.023 billion at december 31 , 2012 , which represented an increase of $ 60.1 million , or 3.1 % , above the $ 1.963 billion level at december 31 , 2011 . stockholders ' equity was $ 175.8 million at december 31 , 2012 , an increase of $ 9.44 million or 5.7 % , from the year earlier level . the components of the change in stockholders ' equity since year-end 2011 are presented in the consolidated statement of changes in stockholders ' equity on page 59 , and are discussed in more detail in the last section of this overview on page 27 entitled , โ increase in stockholder equity. โ regulatory capital : at period-end , we continue to exceed all current regulatory minimum capital requirements at both the holding company and bank levels , by a substantial amount .
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the potential liability for a given claim could range from zero to a maximum of $ 1,000,000 , depending upon the circumstances , and insurance deductible or retention in place story_separator_special_tag this report contains forward-looking statements , which are subject to inherent uncertainties . these uncertainties include , but are not limited to , variations in weather , changes in the regulatory environment , customer preferences , general economic conditions , increased competition , the outcome of outstanding litigation , and future developments affecting environmental matters . all of these are difficult to predict , and many are beyond the ability of the company to control . certain statements in this annual report on form 10-k that are not historical facts , but rather reflect the company 's current expectations concerning future results and events , constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. the words โ believes โ , โ expects โ , โ intends โ , โ plans โ , โ anticipates โ , โ hopes โ , โ likely โ , โ will โ , and similar expressions identify such forward-looking statements . such forward-looking statements involve known and unknown risks , uncertainties and other important factors that could cause the actual results , performance or achievements of the company , or industry results , to differ materially from future results , performance or achievements expressed or implied by such forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's view only as of the date of this form 10-k. the company undertakes no obligation to update the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events , conditions or circumstances . overview the company is a leading manufacturer of flexible metal hose , and is currently engaged in a number of different markets , including construction , manufacturing , transportation , petrochemical , pharmaceutical and other industries . the company 's business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose and accessories . the company 's products are concentrated in residential and commercial construction , and general industrial markets , with a comprehensive portfolio of intellectual property and patents issued in various countries around the world . the company 's primary product , flexible gas piping , is used for gas piping within residential and commercial buildings . through its flexibility and ease of use , the company 's tracpipe ยฎ and tracpipe ยฎ counterstrike ยฎ flexible gas piping , along with its fittings distributed under the trademarks autosnap ยฎ and autoflare ยฎ , allows users to substantially cut the time required to install gas piping , as compared to traditional methods . the company 's products are manufactured at its exton , pennsylvania facilities in the united states , and in banbury , oxfordshire in the united kingdom . a majority of the company 's sales across all industries are generated through independent outside sales organizations such as sales representatives , wholesalers and distributors , or a combination of both . the company has a broad distribution network in north america and to a lesser extent in other global markets . changes in financial condition the company 's cash balance of $ 37,938,000 at december 31 , 2017 , increased $ 2,620,000 ( 7.4 % ) from the $ 35,318,000 balance at december 31 , 2016. the company paid a dividend of $ 8,578,000 during the first quarter of 2017 which was accrued at december 31 , 2016 , and also purchased a building in exton , pa for approximately $ 2,500,000 in february 2017. in july and october 2017 , the company paid dividends each in the amount of $ 2,220,000 , as detailed in note 6 , โ shareholders ' equity โ . those cash outflows were partially offset by income generated from operations during 2017. property and equipment โ net was $ 6,998,000 at december 31 , 2017 , compared to $ 4,402,000 at december 31 , 2016 , increasing $ 2,596,000 ( 59.0 % ) . as noted above , the company purchased a building in exton , pa for approximately $ 2,500,000. this facility was previously leased . dividends payable was $ 2,220,000 and $ 8,578,000 at december 31 , 2017 and december 31 , 2016 , respectively , decreasing $ 6,358,000 ( 74.1 % ) . on june 9 , 2017 , the company announced that it would begin paying regular quarterly dividends . on december 13 , 2017 , the company declared its third regular quarterly dividend of the year in the amount of $ 0.22 per share , which was then paid to shareholders in january 2018. at december 31 , 2016 , dividends payable reflected the $ 0.85 special dividend per share declared by the board earlier that month . this dividend was then paid to shareholders in january of 2017 , thus reducing the cash balance , as described above . a full discussion of dividends is provided in note 6 , โ shareholders ' equity โ . - 18 - story_separator_special_tag roman , times , serif ; font-size : 10pt '' > the company reported comparative results from operations for the twelve-month period ended december 31 , 2016 and 2015 as follows : replace_table_token_6_th net sales . the company 's sales for the full year of 2016 were $ 94,051,000 , representing an increase of $ 773,000 , or 0.8 % over the $ 93,278,000 generated in 2015. the company believes that some customers purchased ahead during the fourth quarter of 2015 , which eroded sales from the first quarter of 2016 , most notably january 2016. the company was however able to make up that shortfall during the remaining months of the year through diversification and by expanding its relationships with other customers . gross profit . the company 's gross profit margins increased between the two periods , being 61.5 story_separator_special_tag the amounts of certain incentives are known with reasonable certainty at the time of sale , while others are projected based upon the most reliable information available at the reporting date . commissions are accounted for as a selling expense . accounts receivable and provision for doubtful accounts accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future . the estimated allowance for uncollectible amounts is based primarily on specific analysis of accounts in the receivable portfolio and historical write-off experience . while management believes the allowance to be adequate , if the financial condition of the company 's customers were to deteriorate , resulting in their inability to make payments , additional allowances may be required . inventories inventories are valued at the lower of cost or market . the cost of inventories is determined by the first-in , first-out ( fifo ) method . the company generally considers inventory quantities beyond two years of non-usage , measured on a historical usage basis , to be excess inventory and reduces the gross carrying value of inventory accordingly . goodwill in accordance with financial accounting standards board ( fasb ) asc topic 350 , intangibles โ goodwill and other , the company performed an annual impairment test in accordance with this guidance as of december 31 , 2017 and also at december 31 , 2016. these analyses did not indicate any impairment of goodwill at the end of either period . stock based compensation plans in 2006 , the company adopted a phantom stock plan ( the โ plan โ ) , which allows the company to grant phantom stock units ( units ) to certain key employees , officers or directors . the units each represent a contractual right to payment of compensation in the future based upon the market value of the company 's common stock . the units follow a vesting schedule of three years from the grant date , and are then paid upon maturity . in accordance with fasb asc topic 718 , stock compensation , the company uses the black-scholes option pricing model as its method for determining the fair value of the units . further details of the plan are provided in note 11. product liability reserves product liability reserves represent the estimated unpaid amounts under the company 's insurance policies with respect to existing claims . the company uses the most current available data to estimate claims . as explained more fully under note 10 , commitments and contingencies , for various product liability claims covered under the company 's general liability insurance policies , the company must pay certain defense and settlement costs within its deductible or self-insured retention limits , ranging primarily from $ 25,000 to $ 1,000,000 per claim , depending on the terms of the policy in the applicable policy year , up to an aggregate amount . the company is vigorously defending against all known claims . fair value of financial and nonfinancial instruments the company measures financial instruments in accordance with fasb asc topic 820 , fair value measurements and disclosures . the accounting standard defines fair value , establishes a framework for measuring fair value under gaap , and enhances disclosures about fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . the standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows : level 1 inputs are quoted prices ( unadjusted ) in active markets for identical assets or liabilities ; level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liability , either directly or indirectly ; and level 3 inputs are unobservable inputs that reflect the company 's own assumptions about the assumptions market participants would use in pricing the asset or liability . the company relies on its actively traded share value โ a level 1 input โ in determining the fair value of the reporting unit in its annual impairment test as described in the fasb asc topic 350 , intangibles - goodwill and other . - 22 - earnings per common share basic earnings per share have been computed using the weighted-average number of common shares outstanding . for the periods presented , there are no dilutive securities . consequently , basic and dilutive earnings per share are the same . currency translation assets and liabilities denominated in foreign currencies are translated into u.s. dollars at exchange rates prevailing on the balance sheet dates . the statements of operations are translated into u.s. dollars at average exchange rates for the period . adjustments resulting from the translation of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders ' equity . exchange gains and losses resulting from foreign currency transactions are included in the statements of operations ( other income ( expense ) ) in the period in which they occur . income taxes the company accounts for tax liabilities in accordance with asc topic 740 , income taxes . under this method the company recorded tax expense , related deferred taxes and tax benefits , and uncertainties in tax positions . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled .
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results of operations twelve-months ended december 31 , 2017 vs. december 31 , 2016 the company reported comparative results from operations for the twelve-month period ended december 31 , 2017 and 2016 as follows : replace_table_token_5_th net sales . the company 's sales for the full year of 2017 were $ 101,799,000 , reflecting an increase of $ 7,748,000 , or 8.2 % over the $ 94,051,000 of sales generated in 2016. the majority of the increase was related to an increase in unit volume , combined with higher sales prices that were necessary to help offset a rise in the company 's material costs . gross profit . the company 's gross profit margins decreased slightly between the two periods , being 60.7 % and 61.5 % for the twelve-months ended december 31 , 2017 and 2016 , respectively . selling expenses . selling expenses consist primarily of employee salaries and associated overhead costs , commissions , and the cost of marketing programs such as advertising , trade shows and related communication costs , and freight . selling expense was $ 16,359,000 and $ 15,694,000 for 2017 and 2016 , respectively , representing a year over year increase of $ 665,000 or 4.2 % . the increase was primarily attributable to a rise in freight and commissions , which change in conjunction with sales unit volume . for the same periods , selling expense as a percentage of net sales was 16.1 % and 16.7 % , respectively . general and administrative expenses . general and administrative expenses consist primarily of employee salaries , benefits for administrative , executive and finance personnel , legal and accounting , insurance , and corporate general and administrative services . general and administrative expenses were $ 17,897,000 and $ 17,108,000 for the years ended december 31 , 2017 and 2016 , respectively , increasing $ 789,000 ( 4.6 % ) between periods .
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see notes 3 and 13 to the consolidated financial statements for more information on the acquisition . on june 13 , 2013 , the company completed the acquisition of plum for $ 249 million , subject to customary purchase price adjustments . plum is a leading provider of premium , organic foods and snacks that serve the nutritional needs of babies , toddlers and children . see note 3 to the consolidated financial statements for more information on the acquisition . on august 12 , 2013 , the company announced that it is in final and exclusive negotiations for the potential sale of its simple meals business in europe . the company has reflected the results of the business as discontinued operations in the consolidated statements of earnings for all years presented . the business was historically included in the international simple meals and beverages segment . the assets and liabilities of the european business have been reflected in assets and liabilities held for sale in the consolidated balance sheet as of july 28 , 2013 . see note 4 to the consolidated financial statements for additional information . key strategies campbell 's long-term goal is to create shareowner value by driving sustainable , profitable net sales growth . the company is seeking to achieve this goal by increasing the strength of its core business and by expanding into higher-growth spaces , including new consumer segments , categories , channels and geographies . campbell is focused in three core categories : simple meals , healthy beverages and snacks . its strategic priorities are to profitably grow its soup and simple meals business in north america , expand its international presence , and continue to drive growth in snacks and healthy beverages . in 2013 , the company made meaningful progress in advancing these objectives . in managing its core soup and simple meals business in north america , campbell seeks to align investment in each business in the portfolio with the growth potential of the category and the brand . it grew net sales and operating earnings in u.s. soup in 2013 by improving execution and optimizing key drivers of demand , including brand positioning , communication , merchandising and pricing , taste , distribution and innovation . in 2014 , campbell will continue its efforts to strengthen its north american business through improved execution , brand building and innovation . it plans to introduce more than 30 new soup products , ranging from a new line of campbell 's homestyle ready-to-eat soups to flavor-infused swanson broths . it will expand its presence in the dinner sauce category with the launch of campbell 's slow cooker sauces . it will also focus on driving growth in its new plum business , a line of premium , organic foods and snacks for babies , toddlers and young children , which the company acquired in 2013. in 2013 , campbell also acquired bolthouse farms , a business that gives the company a strong platform for access to packaged fresh segments that are aligned with significant consumer trends . in combination , bolthouse farms ' beverages business and the 13 company 's line of v8 branded beverages provide campbell with a healthy beverages portfolio that spans the range from shelf-stable value offerings to mainstream products to fresh , super-premium beverages . in 2014 , campbell expects to continue to drive growth in bolthouse farms by leveraging its robust innovation pipeline and by investing in brand building . it plans to improve the performance of its v8 beverages business through disciplined focus on the drivers of demand , continued expansion in energy drinks and other growth segments in the shelf-stable beverages category , and close attention to cost management . the introduction of v8 harvest , a fresh tomato-based 100 % vegetable juice , will represent the first entry of the v8 brand into the super-premium beverage segment . in campbell 's baking and snacking portfolio , pepperidge farm expects continued growth in 2014 , driven primarily by its cracker business . with the introduction of goldfish puffs , a puffed cheese snack product designed primarily for teens , pepperidge farm will begin to expand the goldfish brand into adjacent categories . at arnott 's in australia , the company will focus on growing the core biscuits business with innovative flavors and new pack sizes and on driving productivity and reducing costs . campbell is seeking to expand its presence in international markets by extending the product platforms of many of its current businesses and by pursuing business development opportunities in faster-growing developing markets . in 2014 , the company intends to leverage new strategic alliances in mexico with grupo jumex and conservas la costeรฑa to drive profitable growth in beverages , soups and simple meals through access to expanded manufacturing and distribution capabilities . in indonesia , it plans to continue to drive growth in biscuits through increased penetration in the general trade . in malaysia , it will focus on improved in-store execution behind its prego and kimball sauce brands . the company 's acquisition of kelsen during the first quarter of 2014 provides an immediate opportunity for growth in the large baked snacks category in china . story_separator_special_tag in gross margin percentage partially offset by a lower effective tax rate . the decline in gross margin was due to cost inflation , increased promotional spending and unfavorable mix , partly offset by higher selling prices and productivity improvements . earnings per share benefited from a reduction in the weighted average diluted shares outstanding , which was primarily due to share repurchases under the company 's strategic share repurchase programs . net earnings ( loss ) attributable to noncontrolling interests the company owns a 60 % controlling interest in a joint venture formed with swire pacific limited to support the development of the company 's business in china . story_separator_special_tag north america foodservice sales declined 8 % primarily due to declines in frozen soup products , reflecting the loss of a major restaurant customer , and higher levels of trade spending to remain competitive . in 2012 , north america foodservice sales increased 3 % primarily due to gains in refrigerated soup . gross profit gross profit , defined as net sales less cost of products sold , increased by $ 102 million in 2013 and decreased by $ 78 million in 2012 from 2011. as a percent of sales , gross profit was 36.2 % in 2013 , 39.2 % in 2012 , and 40.4 % in 2011. the 3.0 and 1.2 percentage-point decreases in gross margin percentage in 2013 and 2012 were due to the following factors : replace_table_token_10_th marketing and selling expenses marketing and selling expenses as a percent of sales were 11.8 % in 2013 , 13.1 % in 2012 , and 12.7 % in 2011. marketing and selling expenses increased 1 % in 2013 from 2012. the increase was primarily due to the impact of the bolthouse farms acquisition ( approximately 3 percentage points ) ; higher selling expenses ( approximately 2 percentage points ) ; and higher marketing expenses to support innovation efforts ( approximately 2 percentage points ) , partially offset by lower advertising and consumer promotion expenses , primarily in the u.s. soup business ( approximately 6 percentage points ) . marketing and selling expenses increased 4 % in 2012 from 2011 primarily due to higher advertising and consumer promotion expenses ( approximately 3 percentage points ) and higher other marketing expenses ( approximately 1 percentage point ) . advertising and consumer promotion expenses increased 6 % in 2012 from 2011 , reflecting brand-building investments across many key brands . 18 administrative expenses administrative expenses as a percent of sales were 8.4 % in 2013 , 8.1 % in 2012 and 2011. administrative expenses increased by 17 % in 2013 from 2012 , primarily due to the impact of the bolthouse farms acquisition ( approximately 10 percentage points ) and higher incentive compensation costs ( approximately 7 percentage points ) . administrative expenses increased 1 % in 2012 from 2011 , primarily due to higher compensation and benefit costs ( approximately 2 percentage points ) ; and higher general administrative costs and inflation ( approximately 3 percentage points ) , partially offset by cost savings from restructuring initiatives and other factors ( approximately 4 percentage points ) . research and development expenses research and development expenses increased $ 12 million or 10 % in 2013 from 2012. the increase was primarily due to higher incentive compensation and benefit costs ( approximately 7 percentage points ) ; the impact of the bolthouse farms acquisition ( approximately 2 percentage points ) ; and higher costs associated with product innovation in north america ( approximately 1 percentage point ) . research and development expenses decreased $ 4 million or 3 % in 2012 from 2011. the decrease was primarily due to cost savings initiatives and other factors ( approximately 6 percentage points ) , partially offset by higher costs associated with product innovation in north america and the asia pacific region ( approximately 2 percentage points ) , and inflation ( approximately 1 percentage point ) . other expenses/ ( income ) other expenses in 2013 included $ 10 million of transaction costs and $ 14 million of amortization of intangible assets associated with the acquisition of bolthouse farms . other expenses in 2012 included $ 5 million of transaction costs associated with the acquisition of bolthouse farms . operating earnings segment operating earnings increased 7 % in 2013 from 2012 and decreased 8 % in 2012 from 2011. an analysis of operating earnings by segment follows : replace_table_token_11_th ( 1 ) see note 8 to the consolidated financial statements for additional information on restructuring charges . earnings from u.s. simple meals increased 11 % in 2013 versus 2012. the improvement in operating earnings was due to solid gains in u.s. soup , partially offset by a decline in u.s. sauces mostly due to increased marketing spending in support of new items . for the segment , higher selling prices and productivity savings were partially offset by cost inflation . earnings from u.s. simple meals in 2012 and 2011 were comparable , as earnings gains in u.s. soup were mostly offset by declines in u.s. sauces . for the segment , higher selling prices , productivity improvements and lower promotional spending were mostly offset by lower volumes and cost inflation . earnings from global baking and snacking increased $ 1 million in 2013 , reflecting growth in pepperidge farm mostly offset by lower earnings in arnott 's . earnings from global baking and snacking decreased 11 % in 2012 versus 2011 primarily due to cost inflation , increased promotional spending and higher advertising expense , partly offset by higher selling prices and productivity improvements . promotional spending was increased to support the businesses . earnings from international simple meals and beverages increased 2 % in 2013 versus 2012. the increase was primarily due to lower losses in china , reflecting lower marketing expenses partially offset by a lower gross margin percentage . 19 earnings from international simple meals and beverages decreased 17 % in 2012 versus 2011. the decrease in operating earnings was primarily due to lower earnings in the asia pacific region and canada , and increased costs associated with the company 's market expansion in china , partially offset by the benefit of exiting the russian market . earnings from u.s. beverages decreased 10 % in 2013 versus 2012 , primarily due to lower sales and a lower gross margin percentage , partially offset by reduced advertising expenses . earnings from u.s. beverages decreased 26 % in 2012 versus 2011 primarily due to cost inflation , increased promotional spending and advertising expense , partly offset by productivity improvements .
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executive summary this executive summary provides significant highlights from the discussion and analysis that follows . net sales increased 12 % in 2013 to $ 8.052 billion . the acquisition of bolthouse farms and plum contributed 11 points of the growth . gross profit , as a percent of sales , decreased to 36.2 % from 39.2 % a year ago . the decline was primarily attributable to the acquisition of bolthouse farms and the impact of restructuring-related costs recognized in the current year . earnings from continuing operations per share were $ 2.17 in 2013 , compared to $ 2.29 in 2012. the current year included $ .31 per share of expense from items that impacted comparability , as discussed below . the prior year included $ .02 per share of expense from items that impacted comparability , as discussed below . in 2013 , the company reported a loss from discontinued operations of $ .73 per share , compared to earnings of $ .12 per share in 2012. the current year included $ .89 per share of expense from items that impacted comparability . the prior year included $ .01 per share of expense from items that impacted comparability , as discussed below . net earnings attributable to campbell soup company - 2013 compared with 2012 the following items impacted the comparability of net earnings and net earnings per share : continuing operations in 2013 , the company incurred transaction costs of $ 10 million ( $ 7 million after tax or $ .02 per share ) associated with the acquisition of bolthouse farms .
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see note 8 story_separator_special_tag the following discussion should be read in conjunction with the company 's financial statements and accompanying notes included in item 8 , โ financial statements and supplementary data โ of this annual report on form 10-k. overview the company is a commercial real estate finance company that primarily originates , acquires , invests in and manages performing commercial first mortgage loans , subordinate financings , cmbs and other commercial real estate-related debt investments . the company refers to these asset classes as its target assets . the company is externally managed and advised by the manager , an indirect subsidiary of apollo . the company 's principal business objective is to make investments in its target assets in order to provide attractive risk adjusted returns to stockholders over the long term , primarily through dividends and secondarily through capital appreciation . as of december 31 , 2015 , the company held a diversified portfolio comprised of approximately $ 994,301 of commercial mortgage loans , $ 931,351 of subordinate loans , $ 493,149 of cmbs and $ 153,193 of cmbs , held-to-maturity . the company has financed this portfolio as of december 31 , 2015 with $ 925,774 of borrowings under the company 's master repurchase agreements , $ 118,201 of participations sold and $ 254,750 aggregate principal amount of convertible senior notes . the company is a maryland corporation that was organized in 2009 and has elected to be taxed as a reit for u.s. federal income tax purposes , commencing with the year ended december 31 , 2009. the company generally is not subject to u.s. federal income taxes on its taxable income to the extent that it annually distributes its taxable income to stockholders and maintains its intended qualification as a reit . the company also intends to operate its business in a manner that will permit it to remain excluded from registration as an investment company under the 1940 act . story_separator_special_tag and has been underwritten to generate an irr of approximately 11 % . see โ โ investments โ above for a discussion of how irr is calculated . during february 2015 , the company closed a $ 92,500 ( $ 72,500 of which was funded at closing ) first mortgage loan for the predevelopment of a mixed-use multifamily and retail development aggregating approximately 330,000 square feet in downtown brooklyn , new york . the two-year , floating-rate first mortgage loan has an appraised ltv of 57 % and has been underwritten to generate an irr of approximately 21 % on a levered basis . see โ โ investments โ above for a discussion of how irr is calculated . during april 2015 , the company closed a $ 37,500 financing , consisting of a $ 22,000 mezzanine loan and a $ 15,500 preferred equity investment for two multifamily properties , totaling 621 units of collateral located in southern florida . the floating-rate financing has a two-year initial term and three one-year extension options . the repeat borrower , an international commercial real estate owner and operator , provided a $ 25,000 payment guarantee on the financing . the subordinate financing has an appraised ltv of 89 % and was underwritten to generate an irr of approximately 14 % . see โ โ investments โ above for a discussion of how irr is calculated . during june 2015 , the company closed a $ 45,000 mezzanine loan secured by a portfolio of 36 office , flex and industrial properties totaling approximately 3.5 million square feet located throughout long island , new york . the floating rate mezzanine loan has a two-year initial term , with three one-year extension options and is part of a $ 200,000 financing which consists of a $ 155,000 first mortgage loan and the company 's $ 45,000 mezzanine loan . the mezzanine loan has an appraised ltv of 79 % and has been underwritten to generate an irr of approximately 12 % . see โ โ investments โ above for a discussion of how irr is calculated . during june 2015 , the company acquired a $ 45,400 pari passu note that is part of a $ 227,000 first mortgage loan secured by a portfolio of 21 limited service and extended stay hotels totaling 2,690 keys throughout 13 states . the floating rate loan has 35 a two-year term with one one-year extension option . the first mortgage loan has an appraised ltv of 63 % and has been underwritten to generate an irr of approximately 8 % on an unlevered basis . the company anticipates financing the loan , and on a levered basis , the loan was underwritten to generate an irr of approximately 16 % . see โ โ investments โ above for a discussion of how irr is calculated . during june 2015 , the company closed a $ 25,000 mezzanine loan secured by the pledge of the equity interests in a 744-key full-service resort hotel located in phoenix , arizona . the fixed-rate loan has a ten-year term and is part of a $ 120,000 financing , which includes a $ 95,000 first mortgage loan and the company 's mezzanine loan . the subordinate financing has an appraised ltv of 58 % and was underwritten to generate an irr of approximately 12 % . see โ โ investments โ above for a discussion of how irr is calculated . during june 2015 , the company closed a $ 45,000 first mortgage loan secured by 63,300 square feet of existing retail space for re-development that spans a full block in the south beach section of miami , florida . the floating-rate loan has an 18-month initial term , with two six-month extension options and a loan-to-capitalization ( โ ltc โ ) of 65 % . the loan has been underwritten to generate an irr of approximately 8 % on an unlevered basis . see โ โ investments โ above for a discussion of how irr is calculated . story_separator_special_tag the loan has been underwritten to generate an irr of approximately 13 % . see โ โ investments โ above for a discussion of how irr is calculated . during october 2015 , the company closed a $ 55,000 mezzanine loan for the acquisition and predevelopment of an existing building into a condominium and multifamily property on the upper west side neighborhood of new york city . the mezzanine loan is part of a $ 93,750 financing , comprised of a $ 38,750 first mortgage loan and the company 's mezzanine loan . the floating rate loan has a three-year initial term with one six-month extension option and an appraised ltv of 81 % . the loan has been underwritten to generate an irr of approximately 13 % . see โ โ investments โ above for a discussion of how irr is calculated . during november 2015 , the company closed a $ 5,910 first mortgage loan in connection with the acquisition of a retail parcel in downtown brooklyn , new york . the first mortgage loan is cross-collateralized and cross-defaulted with $ 115,500 of first mortgage loans the company originated in february and august 2015 , as the retail property is on the same block as , but is not adjacent to , the buildings securing the first mortgage loan . the floating-rate loan has a 15-month term ( coterminous with the remaining term on the $ 115,500 of first mortgage loans ) , an appraised ltv of 76 % and was underwritten to generate an irr of approximately 9 % on an unlevered basis . see โ โ investments โ above for a discussion of how irr is calculated . during december 2015 , the company closed a $ 43,500 first mortgage loan ( $ 42,000 of which was funded at closing ) secured by a 180-key luxury resort located in st. thomas , u.s. virgin islands . the floating rate loan has a two year initial term and three one-year extension options and an appraised ltv of 62 % . the first mortgage loan was underwritten to generate a levered irr of approximately 13 % . see โ โ investments โ above for a discussion of how irr is calculated . during december 2015 , the company closed a $ 50,000 mezzanine loan for the acquisition of a 468-key , all suite , full-service hotel located in the times square district of new york city . the floating-rate loan has a fifteen-month initial term with a three-month extension option and is part of a $ 425,000 financing consisting of a $ 175,000 first mortgage loan and a $ 250,000 mezzanine loan . the first mortgage lender retained $ 100,000 of the mezzanine loan and investment funds managed by apollo acquired the remaining $ 100,000 of the mezzanine loan , which is pari passu to the company 's mezzanine loan . the mezzanine loan has an underwritten ltv of 73 % and has been underwritten to generate an irr of approximately 16 % . see โ โ investments โ above for a discussion of how irr is calculated . during december 2015 , the company closed a $ 55,000 first mortgage loan ( $ 54,000 of which was funded at closing ) secured by a 262,282 square foot biomedical office and laboratory building located in richmond , virginia . the floating rate loan has a two-year initial term with two one-year extension options and an appraised ltv of 66 % . the loan has been underwritten to generate a levered irr of approximately 16 % . see โ โ investments โ above for a discussion of how irr is calculated . during december 2015 , the company closed a ยฃ55,000 ( or $ 82,000 ) mezzanine loan for the pre-development of a luxury residential project comprising 150,135 square feet of net saleable area in the mayfair neighborhood of london , uk . the floating-rate loan has a nine-month initial term with a three-month extension option and is part of a ยฃ225,000 financing consisting of a ยฃ125,000 senior loan and a ยฃ100,000 mezzanine loan . investment funds managed by apollo acquired the remaining ยฃ45,000 of the mezzanine loan , which is pari passu to the company 's mezzanine loan . the mezzanine loan has a loan-to-cost of 59 % and has been underwritten to generate an internal rate of return irr of approximately 14 % . see โ โ investments โ above for a discussion of how irr is calculated . additionally , the company funded additional investments of $ 263,215 related to loans closed prior to 2015. repayments . during april 2015 , the company received the full repayment from a commercial mortgage loan secured by a hotel in silver spring , maryland . during june 2015 , the company received the full repayment of a subordinate loan secured by a pledge of the equity interest in a borrower that owns a mixed use property located in the central business district of pittsburgh , pennsylvania . 37 during july 2015 , the company received the full repayment of a subordinate loan secured by the pledge of the equity interests in a borrower that acquired five adjacent commercial buildings in the gramercy park neighborhood of new york city . during august 2015 , the company sold a subordinate loan secured by a pledge of the equity interest in a borrower that owns a portfolio of hotels throughout the united states and retained an interest only strip that bore interest at 3.4 % . the loan was repaid in december 2015. during august 2015 , the company sold a subordinate loan secured by a pledge of the equity interest in a borrower that owns a hotel in new york , new york . the company retained the rights to the prepayment penalty and received a prepayment fee $ 333 during december 2015. during september 2015 , the company received the full repayment of a subordinate loan secured by a pledge of the equity interest in a borrower that owns a ski resort in california .
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results of operations all non-u.s. dollar denominated assets and liabilities are translated to u.s. dollars at the exchange rate prevailing at the reporting date and income , expenses , gains , and losses are translated at the prevailing exchange rate on the dates that they were recorded . investments the following table sets forth certain information regarding the company 's commercial real estate debt portfolio as of december 31 , 2015 : replace_table_token_5_th ( 1 ) assumes extension options are exercised . see โ - liquidity and capital resources - borrowings under various financing arrangements โ below for a discussion of the company 's repurchase agreements . ( 2 ) includes $ 30,127 of restricted cash related to the ubs facility . ( 3 ) the underwritten internal rates of return ( โ irr โ ) for the investments shown in the above table and elsewhere in this annual report on form 10-k reflect the returns underwritten by the manager , taking into account leverage and calculated on a weighted average basis assuming no dispositions , early prepayments or defaults but assuming that extension options are exercised and that the cost of borrowings remains constant over the remaining term . with respect to certain loans , the underwritten irr calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments , and assumes no defaults . irr is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment . it is the discount rate that makes the net present value of all cash outflows ( the costs of investment ) equal to the net present value of cash inflows ( returns on investment ) .
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we are managed by , and our properties are leased and developed by , vornado realty trust ( โ vornado โ ) ( nyse : vno ) . we have seven properties in the greater new york city metropolitan area . we compete with a large number of property owners and developers . our success depends upon , among other factors , trends of the global , national and local economies , the financial condition and operating results of current and prospective tenants and customers , the availability and cost of capital , construction and renovation costs , taxes , governmental regulations , legislation , population and employment trends , zoning laws , and our ability to lease , sublease or sell our properties , at profitable levels . our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due . year ended december 31 , 2015 financial results summary net income for the year ended december 31 , 2015 was $ 76,907,000 , or $ 15.04 per diluted share , compared to $ 67,925,000 , or $ 13.29 per diluted share for the year ended december 31 , 2014. funds from operations ( โ ffo โ ) for the year ended december 31 , 2015 was $ 107,648,000 , or $ 21.06 per diluted share , compared to $ 96,980,000 , or $ 18.98 per diluted share for the year ended december 31 , 2014. quarter ended december 31 , 2015 financial results summary net income for the quarter ended december 31 , 2015 was $ 23,572,000 , or $ 4.61 per diluted share , compared to $ 18,161,000 , or $ 3.55 per diluted share for the quarter ended december 31 , 2014. ffo for the quarter ended december 31 , 2015 was $ 31,730,000 , or $ 6.21 per diluted share , compared to $ 25,508,000 , or $ 4.99 per diluted share for the quarter ended december 31 , 2014 . 22 overview โ continued square footage , occupancy and leasing activity as of december 31 , 2015 our portfolio was comprised of seven properties aggregating 2,437,000 square feet . as of december 31 , 2015 , our office and retail properties had an occupancy rate of 99.7 % and the alexander apartment tower had an occupancy rate of 25.6 % . significant tenants bloomberg l.p. ( โ bloomberg โ ) accounted for $ 94,468,000 , $ 91,109,000 and $ 88,164,000 , or approximately 45 % of our total revenues in each of the years ended december 31 , 2015 , 2014 and 2013 , respectively . no other tenant accounted for more than 10 % of our total revenues . if we were to lose bloomberg as a tenant , or if bloomberg were to be unable to fulfill its obligations under its lease , it would adversely affect our results of operations and financial condition . in order to assist us in our continuing assessment of bloomberg 's creditworthiness , we receive certain confidential financial information and metrics from bloomberg . in addition , we access and evaluate financial information regarding bloomberg from other private sources , as well as publicly available data . in october 2014 , bloomberg exercised its option to extend leases that were scheduled to expire in december 2015 for a term of five years , covering 192,000 square feet of office space at our 731 lexington avenue property . in january 2016 , we entered into a lease amendment with bloomberg which extends the lease term related to this space to be coterminous with the other 697,000 square feet of office space leased by bloomberg through february 2029 , with a ten-year extension option . in connection with the lease amendment , bloomberg provided a $ 200,000,000 letter of credit , which amount may be reduced in certain circumstances . we may draw on this letter of credit subject to certain terms of the lease amendment , including an event of default by bloomberg . financing in august 2015 , we completed a $ 350,000,000 refinancing of the retail portion of 731 lexington avenue . the interest-only loan is at libor plus 1.40 % ( 1.67 % as of december 31 , 2015 ) and matures in august 2020 , with two one-year extension options . critical accounting policies and estimates our financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( โ gaap โ ) , which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . this summary should be read in conjunction with a more complete discussion of our accounting policies included in note 2 to the consolidated financial statements in this annual report on form 10-k. real estate real estate is carried at cost , net of accumulated depreciation and amortization . as of december 31 , 2015 and 2014 , the carrying amount of our real estate , net of accumulated depreciation and amortization , was $ 803,939,000 and $ 783,902,000 , respectively . maintenance and repairs are expensed as incurred . depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components . if we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate , depreciation expense may be misstated . we capitalize all property operating expenses directly associated with and attributable to , the development and construction of a project , including interest expense . story_separator_special_tag operating expenses operating expenses were $ 76,218,000 in the year ended december 31 , 2015 , compared to $ 69,897,000 in the prior year , an increase of $ 6,321,000. this increase was due to ( i ) higher real estate taxes of $ 4,438,000 ; ( ii ) higher reimbursable operating expenses of $ 1,904,000 ; and ( iii ) higher operating expenses of $ 1,565,000 related to the alexander apartment tower ; partially offset by ( iv ) lower bad debt expense of $ 1,019,000 and lower non-reimbursable expenses of $ 567,000. depreciation and amortization depreciation and amortization was $ 31,086,000 in the year ended december 31 , 2015 , compared to $ 29,196,000 in the prior year , an increase of $ 1,890,000. this increase was primarily due to depreciation related to the portion of the alexander apartment tower that was placed in service during the second half of 2015. story_separator_special_tag financings , including mortgage or construction loans secured by our properties and proceeds from asset sales . we anticipate that cash flows from continuing operations over the next twelve months , together with existing cash balances , will be adequate to fund our business operations , cash dividends to stockholders , debt amortization , recurring capital expenditures and development expenditures related to the alexander apartment tower . dividends on january 20 , 2016 , we increased our regular quarterly dividend to $ 4.00 per share ( a new indicated annual rate of $ 16.00 per share ) . the new dividend , if continued for all of 2016 , would require us to pay out approximately $ 82,000,000. the alexander apartment tower the alexander apartment tower , located above our rego park ii shopping center , contains 312 units aggregating 255,000 square feet . the estimated cost of this project is approximately $ 125,000,000 , of which $ 118,540,000 ( including a development fee payable to vornado ) has been incurred as of december 31 , 2015. we expect to incur the remaining costs during the first quarter of 2016. in december 2015 , we received an updated tco covering approximately 93 % of the apartment tower where construction has been substantially completed , and accordingly 93 % has been placed in service . we expect to receive the tco for the remaining 7 % in 2016. during the year ended december 31 , 2015 , we leased 84 of the 312 units . we expect to reach stabilized occupancy in 2017. financing activities and contractual obligations below is a summary of our outstanding debt and maturities as of december 31 , 2015. we intend to refinance our maturing debt as it comes due . replace_table_token_4_th below is a summary of our contractual obligations and commitments as of december 31 , 2015. replace_table_token_5_th 28 liquidity and capital resources โ continued commitments and contingencies insurance we maintain general liability insurance with limits of $ 300,000,000 per occurrence and per property , and all-risk property and rental value insurance coverage with limits of $ 1.7 billion per occurrence , including coverage for acts of terrorism , with sub-limits for certain perils such as floods and earthquakes on each of our properties . fifty ninth street insurance company , llc ( โ fnsic โ ) , our wholly owned consolidated subsidiary , acts as a direct insurer for coverage for acts of terrorism , including nuclear , biological , chemical and radiological ( โ nbcr โ ) acts , as defined by the terrorism risk insurance program reauthorization act , which expires in december 2020. coverage for acts of terrorism ( including nbcr acts ) is up to $ 1.7 billion per occurrence and in the aggregate . coverage for acts of terrorism ( excluding nbcr acts ) is fully reinsured by third party insurance companies with no exposure to fnsic . for nbcr acts , fnsic is responsible for a $ 275,000 deductible ( $ 348,000 effective january 1 , 2016 ) and 15 % of the balance ( 16 % effective january 1 , 2016 ) of a covered loss , and the federal government is responsible for the remaining 85 % ( 84 % effective january 1 , 2016 ) of a covered loss . we are ultimately responsible for any loss incurred by fnsic . we continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism . however , we can not anticipate what coverage will be available on commercially reasonable terms in the future . we are responsible for deductibles and losses in excess of our insurance coverage , which could be material . our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance . although we believe that we have adequate insurance coverage for purposes of these agreements , we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future . if lenders insist on greater coverage than we are able to obtain , it could adversely affect our ability to finance our properties . rego park i litigation on june 24 , 2014 , sears roebuck and co. ( โ sears โ ) filed a lawsuit in the supreme court of the state of new york against vornado and us ( and certain of our subsidiaries ) with regard to space that sears leases at our rego park i property . sears alleges that the defendants are liable for harm sears has suffered as a result of ( a ) water intrusions into the premises , ( b ) two fires in february 2014 that caused damages to those premises , and ( c ) alleged violations of the americans with disabilities act in the premises ' parking garage . sears asserts various causes of actions for damages and seeks to compel compliance with landlord 's obligations to repair the premises and to provide security , and to compel us to abate a nuisance that sears claims was a cause of the water intrusions into its premises .
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general and administrative expenses general and administrative expenses were $ 5,406,000 in the year ended december 31 , 2015 , compared to $ 5,032,000 in the prior year , an increase of $ 374,000. this increase was primarily due to higher stock-based compensation expense as a result of deferred stock units granted to a newly appointed member of our board of directors during the second quarter of 2015 , comprised of an initial award of $ 150,000 and a $ 56,000 annual award . interest and other income , net interest and other income , net was $ 5,949,000 in the year ended december 31 , 2015 , compared to $ 2,434,000 in the prior year , an increase of $ 3,515,000. this increase was primarily due to ( i ) $ 2,141,000 of dividend income from our investment in common shares of macerich and ( ii ) $ 2,100,000 of income in connection with a settlement agreement with a former bankrupt tenant at our rego park i property , partially offset by ( iii ) lease termination income of $ 800,000 in the prior year . interest and debt expense interest and debt expense was $ 24,239,000 in the year ended december 31 , 2015 , compared to $ 32,068,000 in the prior year , a decrease of $ 7,829,000. this decrease was primarily due to ( i ) savings of $ 4,160,000 resulting from the refinancing of the retail portion of 731 lexington avenue on august 5 , 2015 at libor plus 1.40 % , or 1.67 % as of december 31 , 2015 ( the prior loan had a fixed rate of 4.93 % ) ; ( ii ) savings of $ 2,081,000 resulting from the refinancing of the office portion of 731 lexington avenue on february 28 , 2014 at libor plus 0.95 % , or 1.28 % as of december 31 , 2015 ( the prior loan had a fixed rate of 5.33 % ) ; and ( iii ) higher capitalized
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the purpose of this section is to discuss and analyze our consolidated financial condition , liquidity and capital resources and results of operations for the twelve months ended november 30 , 2020 and 2019. for a discussion of our results of operations and liquidity and capital resources for the eleven months ended november 30 , 2018 , see `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of our annual report on form 10-k for the fiscal year ended november 30 , 2019 , which was filed with the sec on january 29 , 2020 , and exhibit 99.1 , part ii , item 7 of our form 8-k , which was filed with the sec on june 3 , 2020. this analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report and the following `` cautionary statement for forward-looking information . '' cautionary statement for forward-looking information statements included in this report may contain forward-looking statements . such statements may relate , but are not limited , to projections of revenues , income or loss , development expenditures , plans for growth and future operations , competition and regulation , as well as assumptions relating to the foregoing . such forward-looking statements are made pursuant to the safe-harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are inherently subject to risks and uncertainties , many of which can not be predicted or quantified . when used in this report , the words `` will , '' `` could , '' `` estimates , '' `` expects , '' `` anticipates , '' `` believes , '' `` plans , '' `` intends '' and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties . future events and actual results could differ materially from those set forth in , contemplated by or underlying the forward-looking statements . factors that could cause actual results to differ materially from any results projected , forecasted , estimated or budgeted or may materially and adversely affect our actual results include , but are not limited to , those set forth in item 1a . risk factors and elsewhere in this report and in our other public filings with the sec . undue reliance should not be placed on these forward-looking statements , which are applicable only as of the date hereof . except as may be required by law , we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > 26 our 2020 financial results from continuing operations were impacted by : record pre-tax income of $ 1,177.5 million from jefferies group reflecting record total net revenues of $ 5,197.5 million , including : โฆ record investment banking net revenues of $ 2,398.2 million , including record advisory net revenues of $ 1,053.5 million , record equity underwriting net revenues of $ 902.0 million and debt underwriting net revenues of $ 546.0 million ; โฆ record combined capital markets net revenues of $ 2,469.7 million , including record equities net revenues of $ 1,128.9 million and record fixed income net revenues of $ 1,340.8 million ; and โฆ record asset management revenues ( before allocated net interest ) of $ 256.8 million . pre-tax loss of $ 24.6 million related to our merchant banking businesses reflecting : โฆ record performance from idaho timber and a positive contribution from vitesse energy finance ; โฆ a gain of $ 61.5 million from effective short-term hedges against mark-to-market and fair value decreases in some of our other investments within merchant banking ; โฆ a $ 44.2 million non-cash charge to write down the value of our investment in wework in the first half of 2020 ; โฆ non-cash charges of $ 73.9 million related to write-downs of real estate investments at homefed ; and โฆ non-cash charge of $ 13.2 million to write down vitesse energy finance 's oil and gas assets in the denver-julesburg basin ( `` dj basin '' ) and $ 34.6 million to write down the value of our investment in jetx energy to reflect the decline in oil prices . our 2019 financial results from continuing operations were impacted by : a nonrecurring tax benefit of $ 544.6 million related to the closing of our available for sale portfolio , which triggered the realization of lodged tax benefits from earlier years ; the special dividend of our interest in spectrum brands of $ 451.1 million , removing the investment from our merchant banking portfolio going forward ; a $ 205.0 million pre-tax gain on the sale of our remaining 31 % interest in national beef ; a $ 72.1 million pre-tax gain on the revaluation of our 70 % interest in homefed to fair value in connection with the acquisition of the remaining common stock of homefed ; and a reduction during 2019 to the estimated fair value of wework of $ 182.3 million . our 2018 financial results from continuing operations were impacted by : a $ 418.8 million mark-to-market decrease in the value of our investment in spectrum brands/hrg group , inc. ( `` hrg '' ) ; a $ 221.7 million pre-tax gain on the sale of our garcadia interests ; a $ 70.9 million increase in the estimated fair value of wework ; a $ 62.1 million impairment loss related to our investment in fxcm ; and a $ 47.9 million impairment loss related to our investment in golden queen mining company , llc ( `` golden queen '' ) . investment banking and capital markets , and asset management our investment banking and capital markets segment and asset management segment primarily consist of our investment in jefferies group . story_separator_special_tag 29 our overall results included record net revenues across each region , including the americas , europe , and asia pacific . each of our regional businesses is continuing to benefit from our overall global expansion and network . we believe we provided consistent and exceptional advisory and execution capabilities to our clients globally throughout this unprecedented period . on a product basis , our overall results included record net revenues in our global cash equities businesses and across most of our global electronic trading businesses , as well as our domestic and international convertibles businesses . our electronic trading and convertibles franchises continued to maintain several market-leading positions , while our cash equities franchise continued to improve its market share and competitive positioning . in november 2020 , greenwich associates ranked our international convertibles business as # 1 in europe and asia , excluding japan , with significant market share and continued momentum . the record results in our global cash equities businesses were driven by increased client activity , market volumes and improved trading . while global market trading volumes and higher volatility drove an increase in commissions , our results in asia pacific were also driven by our expansion and investment in the region in 2019 and 2020 across advisory and execution capabilities . the record results in our global convertibles business was driven by strong primary and secondary trading activity and higher volatility , and also the expansion of the business in london we undertook in late 2018. our global electronic trading business achieved record results , which were driven by increased global market volumes , volatility , and the continued strength of the global platform . our exchange traded funds business had higher results driven by increased trading revenues and the better market environment . fixed income net revenues fixed income is comprised of net revenues from : executing transactions for clients and making markets in securitized products , investment grade , high-yield , emerging markets , municipal and sovereign securities and bank loans , as well as foreign exchange execution on behalf of clients ; interest rate derivatives and credit derivatives ; and financing services offered to clients . fixed income net revenues totaled a record $ 1,340.8 million for 2020 , an increase of 96.8 % compared with net revenues of $ 681.4 million for 2019 , a result of strong client activity both in primary and secondary markets across products and regions , as well as periods of elevated market volatility . our overall results included record net revenues regionally in each of the americas , europe and asia , as the business successfully managed through the markets ' high volumes and levels of uncertainty during the year . our global rates businesses generated record net revenues for 2020 , driven by higher volatility and wider bid-offer spreads , particularly during the second quarter . our results for 2020 also benefited from low interest rates and a favorable market environment , compared to 2019 when economic challenges and uncertainties , such as brexit , limited client activity and trading opportunities . record results in our leveraged credit , european and asian credit and investment grade corporates businesses resulted from robust revenues across regions and products due to increased client activity and higher levels of volatility during 2020. similarly , record revenues from our global emerging markets business benefited from more favorable market conditions driving strong investor demand , as well as an increase in new issuance . revenues in our u.s. securitized markets group were higher due to an increase in demand for new issuance in the securitization markets and as the relative higher yields on securitized products drove investor demand in the second half of 2020. the record results were partially offset by lower revenues in our municipal securities business , which was impacted by a significant sell-off in the second quarter of 2020 before stabilizing and recovering over the second half of 2020 . 30 other other is comprised of revenues from : berkadia and other investments ( other than jefferies finance , which is included in other investment banking ) ; principal investments in private equity and hedge funds managed by third-parties or related parties and that are not part of our asset management platform ; and investments held as part of employee benefit plans , including deferred compensation plans ( for which we incur an equal and offsetting amount of compensation expenses ) . net revenues from our other business category totaled $ 121.3 million for 2020 , an increase of $ 62.8 million compared with $ 58.5 million for 2019. results for 2020 include net revenues of $ 68.9 million due to our share of the net income of berkadia compared with net revenues $ 88.2 million in 2019. the lower net revenues for 2020 are due to the impairment of mortgage servicing rights as a result of lower interest rates and a decline in loan originations due to the impact of covid-19 in the second quarter of 2020 , with increased volumes and improved valuations returning in the latter part of the year . the results for 2020 also include gains of $ 61.5 million from hedges that were bought and sold in the first quarter as we took a negative view of the market due to the onset of the covid-19 pandemic . compensation and benefits compensation and benefits expense consists of salaries , benefits , commissions , annual cash compensation awards and share-based awards to employees . cash awards are recorded during the year of the award unless there are future service period requirements . those with future service requirements are amortized into compensation expense over the required service period . share-based awards to employees and senior executive awards are also amortized over their respective vesting periods . compensation and benefits expense increased to $ 2,735.1 million in 2020 from $ 1,641.8 million in 2019. the following table provides a summary of compensation and benefits expense ( dollars in thousands ) : replace_table_token_9_th a significant portion of compensation expense remains variable .
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results of operations we are engaged in investment banking and capital markets , asset management and direct investing . jefferies group , our largest subsidiary , is now the largest independent full-service global investment banking firm headquartered in the u.s. during the first quarter of 2020 , we changed our internal structure with regard to our operating segments . previously , our segments consisted of ( 1 ) investment banking , capital markets and asset management , which included all of the financial results of jefferies group ; ( 2 ) merchant banking ; and ( 3 ) corporate . in the first quarter of 2020 , we appointed co-presidents of asset management and created a separate fourth operating segment that consists of the asset management activity previously included in our investment banking , capital markets and asset management segment , together with asset management activity previously 23 included in our merchant banking segment . our segments consist of : ( 1 ) investment banking and capital markets ; ( 2 ) asset management ; ( 3 ) merchant banking ; and ( 4 ) corporate . in the fourth quarter of 2018 , we changed our fiscal year end from a calendar year basis to a fiscal year ending on november 30. our 2018 fiscal year consists of the eleven month transition period beginning january 1 , 2018 through november 30 , 2018. jefferies group has a november 30 year end . prior to the fourth quarter of 2018 , because our fiscal year end was december 31 , we reflected jefferies group in our consolidated financial statements utilizing a one month lag . in connection with our change in fiscal year end to november 30 , we eliminated the one month lag utilized to reflect jefferies group results beginning with the fourth quarter of 2018. therefore , our results for the eleven months ended november 30 , 2018 , include twelve month results for jefferies group and eleven months for the remainder of our results .
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on february 12 , 2016 , we entered into a new credit agreement ( the `` new credit agreement '' ) among the company , certain of our subsidiaries who become borrowers under the new credit agreement , jpmorgan chase bank , n.a. , as administrative agent , swing line lender and letter of credit issuer , and the other lenders referred to therein . the new credit agreement provides for a $ 500 million , five-year , senior unsecured revolving credit facility ( the `` revolving credit facility '' ) with a sublimit of up to $ 100 million in letters of credit . the new credit agreement also provides for a $ 300 million , five-year , term loan facility ( the `` term loan facility '' ) available to us in a single draw . in connection with the execution and delivery of the new credit agreement , we borrowed $ 200 million under the revolving credit facility and $ 300 million under the term loan facility on february 12 , 2016 ( the `` closing date '' ) . we used a portion of the proceeds of the borrowings made on the closing date under the new credit agreement to prepay all outstanding loans and accrued and unpaid interest thereon under the company 's credit agreement , dated as of february 18 , 2014 ( the `` prior credit agreement '' ) . upon the repayment of all outstanding loans under the prior credit agreement , the prior credit agreement was terminated . we intend to use $ 225 million of borrowings under the revolving credit facility to retire all amounts outstanding under our 5.85 % senior unsecured notes due april 30 , 2016 on their due date . we expect to use future borrowings under the revolving credit facility for acquisitions , working capital and other general corporate purposes . on february 16 , 2016 we announced that munish nanda , president , americas , has been appointed president , americas and europe and eli melhem , president , asia-pacific , has been appointed president , asia-pacific , the middle east , and africa . these changes will help drive synergies in sales , product development and operational practices throughout the regions . on february 9 , 2016 , mario sanchez , president , emea of the company , gave notice of his decision to resign from the company effective april 1 , 2016. the company expects that mr. sanchez will assist in the transition of his duties for the duration of his employment with the company . on february 16 , 2016 , we reached an agreement in principle to settle all claims in the class action cases captioned ponzo v. watts regulator co. and klug v. watts regulator co. , matters pending in the united states district courts for the district of massachusetts and district of nebraska , respectively . the ponzo and klug matters were each brought as putative nationwide class actions seeking to recover damages and other relief based on the alleged failure of water heater connectors and floodsafe connectors , respectively . the total settlement amount is $ 14 million , of which watts is expected to pay approximately $ 4.1 million as its portion of the settlement , after insurance proceeds . the settlement is subject to the completion of a final written settlement agreement , preliminary court approval , and final court approval after a fairness hearing . 28 story_separator_special_tag command=add_tablewidth , '' 100 % '' -- > replace_table_token_12_th the increase ( decrease ) in operating income ( loss ) is attributable to the following : replace_table_token_13_th the decrease in consolidated operating income was largely due to non-cash goodwill impairment charge recorded in emea for $ 129.7 million , the settlement of certain long-term obligations , including pension obligations , of $ 64.7 million in corporate and an increase in restructuring charges . other factors contributing to the decrease included an increase in sg & a and unfavorable foreign exchange , offset partially by contribution from the aerco acquisition . the americas organic operating income decrease was primarily due to increased sg & a expenses related to product liability costs of $ 8.1 million and transformation-related costs of $ 7.1 million . emea organic operating income decrease was primarily due to volume decline . 31 interest expense . interest expense increased $ 4.4 million , or 22.1 % , in 2015 as compared to 2014 primarily due to the interest on borrowings used to purchase aerco in december 2014. other ( income ) expense , net . other ( income ) expense , net , fluctuated $ 5.5 million to an income balance of $ 2.4 million in 2015 as compared to 2014 , primarily due to net foreign currency transaction gains in 2015 compared to losses in 2014 as a result of the depreciation of the euro , the chinese yuan and the canadian dollar against the u.s. dollar and depreciation of the canadian dollar against the euro in 2015. income taxes . our effective income tax rate changed to ( 1.7 % ) in 2015 , from 39.5 % in 2014. the significant change in the tax rate was due to the impact that non-deductible and other income tax reserve items had on a loss before income taxes reported in 2015 compared to 2014 , primarily related to the goodwill impairment charge and the settlement of our pension plan and supplemental employee retirement plan obligations . net ( loss ) income . story_separator_special_tag net loss for 2015 was ( $ 112.9 ) million , or ( $ 3.24 ) per common share , compared to $ 50.3 million , or $ 1.42 per common share , for 2014. results for 2015 include an after-tax charge of $ 126.8 million , or $ 3.63 per common share , for a goodwill and other long-lived asset impairment charges ; $ 44.6 million , or $ 1.28 per common share , for long-term obligation settlements including pension obligations ; $ 13.9 million , or $ 0.40 per common share , for restructuring ; $ 9.0 million , or $ 0.26 per common share , for the emea and americas transformation deployment costs ; $ 3.7 million , or $ 0.11 per common share , for legal and other settlements ; and $ 0.9 million , or $ 0.03 per common share , for acquisition related costs . results for 2014 include net after-tax charges of $ 38.5 million , or $ 1.09 per common share , including acquisitions and impairment related costs of $ 0.51 , restructuring and other net charges of $ 0.39 , and emea and americas transformation deployment costs of $ 0.19. results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales . our business is reported in three geographic segments : americas , emea and asia-pacific . our net sales in each of these segments for the years ended december 31 , 2014 and 2013 were as follows : replace_table_token_14_th the change in net sales was attributable to the following : replace_table_token_15_th 32 our products are sold to wholesalers , diy chains , and oems . the change in organic net sales by channel was attributable to the following : replace_table_token_16_th organic net sales in the americas wholesale , diy and oem markets increased in 2014 compared to 2013. the increase was driven by growth in all principal products lines , and in particular , growth in our residential and commercial flow product lines . organic net sales in the emea wholesale market decreased as compared to 2013 primarily due to softening in the france , germany and italy wholesale markets . decreases in the diy channel were primarily due to decreases in the france diy market . decreases in the oem channel were primarily due to decreases in the germany and italy markets , partially offset by increases in our electronic controls and drains businesses . organic net sales in the asia-pacific wholesale market increased as compared to 2013 primarily due to increased sales in residential valve and heating products and the expansion in the east and north regions of china . the net decrease in sales due to foreign exchange was primarily due to the depreciation of the canadian dollar against the u.s. dollar . we can not predict with any degree of certainty whether foreign currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales . the change in net sales due to acquisition relates to the acquisition of aerco in december 2014. gross profit . gross profit and gross profit as a percent of net sales ( gross margin ) for 2014 and 2013 were as follows : replace_table_token_17_th americas ' gross margin remained consistent compared to 2013 due primarily to incremental wholesale volume and pricing , offset by the manufacturing inefficiencies in the foundry in the first half of 2014 and lower pricing in our diy channel . emea 's gross margin increased primarily due to cost reductions and production efficiencies driven from ongoing restructuring initiatives offsetting lower overhead absorption related to reduced manufacturing volumes . 33 selling , general and administrative expenses . selling , general and administrative expenses , or sg & a expenses , increased $ 1.3 million , or 0.3 % , in 2014 as compared to 2013. the increase in sg & a expenses was attributable to the following : replace_table_token_18_th the organic decrease in sg & a expenses was primarily due to decreased legal costs of $ 18.5 million and a decrease in product liability costs of $ 3.5 million offset by increased non-recurring transformation deployment costs in the americas and emea of $ 8.1 million , acquisition costs of $ 4.5 million , increased personnel costs of $ 2.7 million , increased commission and freight costs of $ 4.1 million and lower depreciation and amortization of $ 0.7 million . the primary driver of the decrease in legal cost relates to the agreement to settle all claims in the trabakoolas et al. , v. watts water technologies , inc. , et al. , matter . the net settlement charged to operations amounted to $ 13.6 million in 2013. refer to note 15 of the notes to consolidated financial statements in this annual report on form 10-k for more detail . the non-recurring americas and emea deployment costs consist primarily of external consulting and it related costs . the acquisition costs of $ 4.5 million relate to the aerco acquisition . the decrease in sg & a expenses from foreign exchange was primarily due to the depreciation of the canadian dollar against the u.s. dollar in 2014. acquired sg & a costs relate to the aerco acquisition . total sg & a expenses , as a percentage of sales , were 26.9 % in 2014 and 27.5 % in 2013. restructuring and other charges . in 2014 , we recorded a net charge of $ 15.2 million primarily for involuntary terminations and other costs incurred as part of our emea restructuring initiatives , a reduction-in-force in the americas and corporate and reductions-in-force in asia-pacific . restructuring charges in 2013 were $ 8.7 million . for a more detailed description of our current restructuring plans , see note 4 of notes to consolidated financial statements in this annual report on form 10-k. goodwill
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results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales . our business is reported in three geographic segments : americas , emea and asia-pacific . our net sales in each of these segments for the years ended december 31 , 2015 and december 31 , 2014 were as follows : replace_table_token_7_th the change in net sales was attributable to the following : replace_table_token_8_th our products are sold to wholesalers , oems and diy chains . the change in organic net sales by channel was attributable to the following : replace_table_token_9_th organic net sales in the americas increased $ 19.7 million compared to 2014 due to growth in our wholesale markets , particularly relating to commercial boilers , backflow and valve product sales and drainage products . weather issues in the northeast , midwest and south central u.s. over the first half of 2015 partially offset the sales increases during the year . organic net sales into the emea wholesale , diy and oem markets decreased as compared to 2014 primarily due to the struggling end-markets in france , germany and russia . these decreases were partially offset by increased sales in the middle east and uk markets and in our electronics business . organic net sales in the asia-pacific wholesale market increased as compared to 2014 primarily due to increased sales of residential valve and heating products that were sold into expanded geographic regions within china . outside china , we also increased sales in australia during the year . 29 the net decrease in sales due to foreign exchange was primarily due to the depreciation of the euro and the canadian dollar against the u.s. dollar in 2015. we can not predict whether foreign currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales .
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in the last three years , we have also derived revenues from the operation of international quality control centers ( โ qc centers โ ) ; one of which was divested in 2018 and one of which was divested in 2019. we will continue to derive revenues from the remaining international commissary in the united kingdom . we believe that in addition to supporting both company and franchised profitability and growth , these activities contribute to product quality and consistency throughout the papa john 's system . โ we strive to obtain high-quality restaurant sites with good access and visibility and to enhance the appearance and quality of our restaurants . we believe these factors improve our image and brand awareness . our expansion strategy is to cluster restaurants in targeted markets , thereby increasing consumer awareness and enabling us to take advantage of operational , distribution and advertising efficiencies . โ detailed below is a progression of new unit growth ( decline ) for our domestic and international restaurants : โ replace_table_token_6_th โ the average cash investment for the three domestic traditional company-owned restaurants opened during 2019 was approximately $ 322,000 , exclusive of land and any tenant improvement allowances we received , compared to $ 345,000 average investment for the six domestic traditional units opened in 2018. average annual company-owned sales for our most recent domestic comparable restaurant base were $ 1.05 million for 2019 , compared to $ 1.07 million for 2018 and $ 1.19 million ( $ 1.17 million on a 52-week basis ) for 2017. the comparable sales for company-owned restaurants were negative 2.7 % in 2019 , negative 9.0 % in 2018 and positive 0.4 % in 2017 . โ comparable sales โ represents sales generated by traditional restaurants open for the entire twelve-month period reported . the comparable sales for north america franchised units decreased 2.0 % in 2019 , 6.7 % in 2018 and 0.1 % in 2017. the comparable sales for system-wide international units increased 1.1 % in 2019 , decreased 1.6 % in 2018 , and increased 4.4 % in 2017 . โ 35 strategy โ we are committed to delivering on our brand promise โ better ingredients . better pizza. โ with a strategic focus in five key areas : โ โ building a culture of leaders who believe in inclusivity , diversity and winning . โ improving unit-level profitability and viability of our operations and franchisees . โ establishing our pizza as a high-quality pizza in the marketplace via commercial platforms . โ leveraging our technology infrastructure to position our business operations for success . โ expanding our footprint both domestically and internationally . โ recent business matters โ in 2019 , the company continued to focus on a strategic turnaround effort that includes the specific actions described below . โ starboard investment . beginning in the third quarter of 2018 , the company began evaluating a wide range of strategic opportunities that culminated in the strategic investment in the company by certain funds affiliated with , or managed by , starboard value lp ( โ starboard โ ) . on february 3 , 2019 , the company entered into a securities purchase agreement ( the โ securities purchase agreement โ ) with starboard pursuant to which starboard made a $ 200 million strategic investment in the company 's newly designated series b convertible preferred stock ( โ series b preferred stock โ ) . in addition , on march 28 , 2019 , starboard made an additional $ 50 million investment in the series b preferred stock pursuant to an option that was included in the securities purchase agreement . see โ note 8 โ of โ notes to consolidated financial statements โ for more information related to the series b preferred stock and related transaction costs . the company also issued $ 2.5 million of series b preferred stock on the same terms as starboard to certain franchisees of the company . in connection with starboard 's investment , starboard was granted certain corporate governance rights , including the right to appoint two new independent directors , including jeffrey c. smith , chief executive officer of starboard , who was appointed chairman of the board . โ franchisee assistance and marketing investment . beginning in the third quarter of 2018 , the company began providing various forms of increased support and financial assistance to the north america franchise system in response to declining north america sales . in july 2019 , the company announced a new program , developed with the support of the company 's elected franchise advisory council , to make investments in marketing and brand initiatives as well as to provide scheduled financial assistance for traditional north america franchisees beginning in the third quarter of 2019 and expected to continue through 2020. under the program , the company is making marketing investments to support the long-term strength of the brand . the company has also extended financial assistance to its traditional north america franchisees in the form of lower royalties , royalty-based service incentives , and targeted relief through 2020 , thus providing franchisees with certainty on the schedule of remaining royalty relief . the company incurred significant costs ( defined as โ special charges โ ) of approximately $ 36.8 million associated with this program in the last six months of 2019 and expects to incur $ 25 million to $ 30 million of special charges associated with this program in 2020. for more details , see the special charges detailed in โ items impacting comparability ; non-gaap measures โ within โ item 7. management 's discussion and analysis of financial condition and results of operations โ for additional information . โ new management restructure . in august 2019 , the company appointed robert lynch as the company 's new president and chief executive officer . on november 6 , 2019 , the company also announced an executive management restructure . the updated management structure is intended to align with the company 's strategic focus . โ positive comparable sales . story_separator_special_tag โ insurance reserves โ our insurance programs for workers ' compensation , owned and non-owned automobiles , general liability , property , and health insurance coverage provided to our employees are funded by the company up to certain retention levels under our retention programs . retention limits generally range from $ 100,000 to $ 1.0 million . โ losses are accrued based upon undiscounted estimates of the liability for claims incurred and for events that have occurred but have not been reported using certain third-party actuarial projections and our claims loss experience . the determination of the recorded insurance reserves is highly judgmental and complex due to the significant uncertainty in the potential value of reported claims and the number and potential value of incurred by not report claims , the application of significant judgment in making those estimates and the use of various actuarial valuation methods . the estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of claims differ significantly from historical trends used to estimate the insurance reserves recorded by the company . the company records estimated losses above retention within its reserve with a corresponding receivable for expected amounts due from insurance carriers . โ noncontrolling interests โ at december 29 , 2019 , the company has four joint ventures consisting of 192 restaurants , which have noncontrolling interests as compared to three joint ventures in 2018. consolidated net income is required to be reported separately at amounts attributable to both the parent and the noncontrolling interests . additionally , disclosures are required to clearly identify and distinguish between the interests of the parent company and the interests of the noncontrolling owners , including a disclosure on the face of the consolidated statements of operations of income attributable to the noncontrolling interest holder . โ the following summarizes the redemption feature , location and related accounting within the consolidated balance sheets for these four joint venture arrangements : โ โ โ โ โ โ type of joint venture arrangement location within the balance sheets recorded value โ โ โ โ โ joint ventures with no redemption feature permanent equity carrying value โ โ โ โ โ option to require the company to purchase the noncontrolling interest - not currently redeemable or redemption not probable temporary equity carrying value โ see โ note 11 โ of โ notes to consolidated financial statements โ for additional information . โ 38 intangible assets โ goodwill โ we evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount . such tests are completed separately with respect to the goodwill of each of our reporting units , which includes our domestic company-owned restaurants , united kingdom ( โ pjuk โ ) , china , and preferred marketing solutions operations . we may perform a qualitative assessment or move directly to the quantitative assessment for any reporting unit in any period if we believe that it is more efficient or if impairment indicators exist . โ we elected to perform a qualitative assessment for our domestic company-owned restaurants , united kingdom , china , and preferred marketing solutions operations in the fourth quarter of 2019. as a result of our qualitative analyses , we determined that it was more-likely-than-not that the fair values of our reporting units were greater than their carrying amounts . subsequent to completing our goodwill impairment tests , no indicators of impairment were identified . see โ note 13 โ of โ notes to consolidated financial statements โ for additional information . โ income tax accounts and tax reserve โ papa john 's is subject to income taxes in the united states and several foreign jurisdictions . significant judgment is required in determining papa john 's provision for income taxes and the related assets and liabilities . the provision for income taxes includes income taxes paid , currently payable or receivable and those deferred . โ deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse . deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards ( e.g. , net operating losses , capital losses , and foreign tax credits ) . the effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted . valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize . โ on december 22 , 2017 , the tax cuts and jobs act ( the โ tax act โ ) was enacted , significantly decreasing the u.s. federal income tax rate for corporations effective january 1 , 2018. on that same date , the securities and exchange commission also issued staff accounting bulletin ( โ sab โ ) 118 , which provides guidance on accounting for the tax effects of the tax act . sab 118 provides a measurement period that should not extend beyond one year from the tax act enactment date for companies to complete the accounting under asc 740 , โ income taxes. โ as a result , we remeasured our deferred tax assets , liabilities and related valuation allowances in 2017. this remeasurement yielded a 2017 benefit of approximately $ 7.0 million due to the lower income tax rate . the company completed its analysis of the tax act in 2018. see โ items impacting comparability โ and โ note 20 โ for additional information . our net deferred income tax liability was approximately $ 800,000 at december 29 , 2019 . โ tax authorities periodically audit the company . we record reserves and related interest and penalties for identified exposures as income tax expense .
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review of consolidated results โ revenues . for the reasons discussed above , consolidated revenues decreased $ 43.6 million , or 2.6 % , to $ 1.62 billion in 2019 , compared to $ 1.66 billion in 2018 . โ โ replace_table_token_13_th โ note : the year ended december 30 , 2018 has been restated to reflect the correction of an immaterial error to consolidate the operations of pjmf , as discussed in more detail in โ note 2 โ , โ note 5 โ and โ note 27 โ of โ notes to consolidated financial statements โ . โ costs and expenses . total costs and expenses were approximately $ 1.60 billion , or 98.8 % of total revenues in 2019 compared to $ 1.63 billion , or 98.1 % , in 2018. the increase in total costs and expenses , as a percentage of revenues , was primarily due to the following : โ domestic company-owned restaurants expenses were $ 526.2 million in 2019 , or 80.7 % of related revenues , as compared to the prior year expenses of $ 577.7 million , or 83.4 % of related revenues , in 2018 primarily due to a 1.0 % benefit from lower food costs including the favorable impact of current year promotions , a 0.4 % benefit from lower workers ' 47 compensation , automobile and general insurance costs and a 0.5 % benefit from lower advertising costs . in addition , restaurant expenses as percentage of revenues benefited from lower loyalty program costs due to the expiration of rewards . โ north america commissary expenses were $ 569.2 million in 2019 , or 92.9 % of related revenues compared to $ 575.1 million in 2018 , or 94.3 % of related revenues in 2018. the 1.4 % decrease in expenses , as a percent of related revenues , was primarily due to additional franchise support given to restaurants through lower pricing in 2018 that did not occur in 2019 . โ international expenses were $ 57.7 million in 2019 , or 56.1 % of related revenues , compared to prior year expenses of $ 67.8
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this annual report on form 10-k , including the following sections , contains forward-looking statements within the meaning of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the โ risk factors โ section in item 1a of this annual report on form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements , which reflect events or circumstances occurring after the date of this form 10-k. overview we are a clinical-stage , oncology-focused biopharmaceutical company with a vision of transforming lives with safer , more effective therapies . we are pioneering a novel class of investigational antibody therapeutics , based on our probody technology platform , for the treatment of cancer . the probody therapeutic approach is designed to more specifically target antibody therapeutics to the tumor microenvironment and minimize drug activity in healthy tissue and in circulation . we believe this approach has the potential to make meaningful enhancements to the combined efficacy and safety profile of antibody therapeutics , known as the โ therapeutic window โ and also to enable new targeted therapies . we believe that probody therapeutics have the potential to create or widen the therapeutic window for certain antibody therapeutics , allowing for the development of new approaches to the treatment of cancer . we are utilizing our probody platform to develop a pipeline of potential best-in-class immunotherapies against clinically-validated targets and potential first-in-class therapeutics against novel , difficult to drug targets . furthermore , we believe the probody therapeutic approach has the potential to enable safer , more effective combination therapy for cancer . our most advanced product candidate is cx-072 , a wholly owned probody therapeutic targeting programmed cell death ligand 1 ( โ pd-l1 โ ) , a clinically and commercially validated immuno-oncology target . cx-072 is designed to uncouple the anti-cancer activity of pd-l1 inhibitors from the associated autoimmune toxicities by inhibiting pd-l1 in the tumor microenvironment with minimal engagement in healthy tissue . we are currently evaluating cx-072 in a phase 1/2 study that we call proclaim-cx-072 . this study is designed to assess the safety , activity , and translational biology of cx-072 as a single agent and in combination with other anticancer therapies . we disclosed initial clinical proof of concept data on cx-072 at various oncology conferences in 2018. in february 2019 , we disclosed additional clinical safety and efficacy data on cx-072 at a research and development day hosted by cytomx management ( โ cytomx r & d day โ ) . our second most advanced product candidate is cx-2009 , a wholly owned probody drug conjugate directed against cd166 , a novel drug target . probody drug conjugates are unique , cytomx-designed probody therapeutic versions of a class of drugs called antibody drug conjugates ( adcs ) , which are antibodies that have been conjugated to a small molecule cytotoxic agent via a labile chemical linker . because our probody therapeutics are designed to minimize binding of potent anti-cancer therapy to normal tissues , we believe we can address a new class of targets with attractive molecular features that were previously unsuitable because of high expression on normal tissues . cd166 is an example of this kind of target . cd166 is highly and homogenously expressed in multiple different tumors types , which makes it an attractive target for a probody drug conjugate therapeutic ; however , the high expression of cd166 on normal tissues makes this a difficult target to drug with a traditional adc . cx-2009 is currently in the dose escalation portion of a phase 1/2 study . in february 2019 , we disclosed initial clinical data on cx-2009 at the cytomx r & d day . in addition to our wholly owned programs , we have entered into several strategic collaborations with leading oncology-focused pharmaceutical companies , such as abbvie inc. , through its subsidiary abbvie ireland unlimited company ( โ abbvie โ ) , amgen , inc. ( โ amgen โ ) and bristol-myers squibb company ( โ bms โ ) . the most advanced program from our partnerships is a bms-986249 , a ctla-4 probody therapeutic , which bms is currently advancing through the dose escalation phase of a phase 1/2 clinical trial . we are also treating patients in a phase 1/2 clinical study for cx-2029 , a pdc targeting the highly expressed target , cd71 that we have partnered with abbvie . we have also extended our probody platform to the t-cell engaging bispecific modality . our most advanced program in that modality is an epidermal growth factor receptor-cd3 ( โ egfr-cd3 โ ) t-cell bispecific , which is currently in lead optimization stage , and which we are developing in partnership with amgen . we currently have three product candidates enrolling patients in clinical trials that we are conducting and one product candidate enrolling patients in clinical trials which our partner , bms , is conducting , but we do not have any product candidates approved for sale , and we continue to incur significant research and development and general administrative expenses related to our operations . we are not profitable and have incurred losses in each year since our founding in 2008. our net loss was $ 84.6 million , $ 43.1 million and $ 58.9 million for 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 and 2017 we had an accumulated deficit of $ 315.0 million and $ 219.5 million , respectively . we expect to continue to incur significant losses for the foreseeable future . 77 regulatory agencies , including the fda , regulate many aspects of a product candidate 's life cycle , including research and development and preclinical and clinical testing . story_separator_special_tag outside professional services consist of legal , accounting and audit services and other consulting fees . allocated expenses consist of rent expense related to our office and research and development facility . we expect to incur additional expenses as a result of operating as a public company , including expenses related to compliance with the rules and regulations of the sec and the sarbanes-oxley act of 2002 and those of any national securities exchange on which our securities are traded , additional insurance expenses , investor relations activities and other administrative and professional services . we also expect to increase our administrative headcount to operate as a public company and as we advance our product candidates through clinical development , which will also increase our general and administrative expenses . interest income interest income primarily consists of interest income from our cash equivalents and short-term investments , and accretion of discounts or amortization of premiums on our short-term investments . other income ( expense ) , net other income ( expense ) , net consists primarily of changes to currency exchange rates . provision for ( benefit from ) income taxes income taxes are recorded in accordance with asc 740 , accounting for income taxes , or asc 740 , which provides for deferred taxes using an asset and liability approach . we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns . we determine our deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities , which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . valuation allowances are provided , if based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we also account for uncertain tax positions in accordance with the provisions of asc 740. when uncertain tax positions exist , we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized . the determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances . on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( โ tax act โ ) , which includes significant changes to the u.s. corporate tax system . effective january 1 , 2018 , the tax act reduced the u.s. federal corporate tax rate from 35 % to 21 % , and transitioned from a worldwide tax system to a territorial tax system , and eliminated or reduced certain domestic deductions among other changes . the tax act introduced new provisions including the global intangible low-taxed income ( โ gilti โ ) , foreign derived intangible income ( โ fdii โ ) , base erosion anti-abuse tax ( โ beat '' ) , expanded bonus depreciation and changed deductions for executive compensation and interest expense . see `` part ii . item 8. financial statements and supplementary data , note 14. income taxes '' in the accompanying notes to the consolidated financial statements for more information regarding the impact of the tax act . comparison of years ended december 31 , 2018 and 2017 revenue year ended december 31 , 2018 2017 change ( in thousands ) revenue $ 59,502 $ 71,623 $ ( 12,121 ) 79 revenue decreased by $ 12.1 million during the year ended december 31 , 2018 compared to the corresponding period in 2017. the following table summarizes our revenue by collaboration partner during the respective periods : replace_table_token_4_th the variances in revenue for 2018 compared to 2017 were partially due to the adoption of asc 606. under asc 605 , total revenue for 2018 would have been $ 66.0 million , a decrease of $ 5.6 million from $ 71.6 million in 2017 , primarily due to a $ 3.0 million net decrease in milestone payments , as well as a $ 2.6 million decrease in the recognition of deferred revenues in 2018. in 2017 , a total of $ 24.0 million in milestone payments were recognized , including $ 14.0 million ( net of the payment of an associated license fee of $ 1.0 million to seattle genetics ( โ sgen โ ) under the seattle genetics agreement ) received from abbvie for meeting the criteria to begin the cd71 glp toxicology studies under the abbvie agreements and $ 10.0 million received from bms related to the ind filing for bms-986249 in 2017. in 2018 , a $ 21.0 million milestone payment ( net of the payment of an associated sublicense fee of $ 4.0 million to sgen ) was received from abbvie for the achievement of the successful ind filing criteria related to cx-2029 . the $ 2.6 million decrease in recognition of deferred revenue under asc 605 was attributable to a decrease of $ 11.8 million related to immunogen , partially offset by a $ 6.2 million increase and a $ 3.1 million increase related to bms and amgen , respectively . the difference between the amount of revenue recognized under asc 606 and the amount that would have been recognized under asc 605 was primarily a result of the difference in how revenue is recognized related to the $ 21.0 million ( net of the payment of an associated sublicense fee of $ 4.0 million to sgen ) cd71 milestone payment . under asc 606 , the milestone payment is included in the transaction price and recognized over time based on the total estimated percentage completed to-date . under asc 605 , the entire $ 21.0 million would have been recognized upon satisfaction of the successful ind filing criteria .
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summary statement of cash flows the following table summarizes our cash flows for the periods presented : replace_table_token_10_th cash flows from operating activities during the year ended december 31 , 2018 , cash used in operating activities was $ 75.5 million , which consisted of a net loss of $ 84.6 million , adjusted by non-cash charges of $ 17.1 million and a net decrease of $ 8.0 million in our operating assets and liabilities . the non-cash charges primarily consisted of $ 16.9 million in stock-based compensation and $ 1.9 million in depreciation and amortization , partially offset by $ 1.7 million in accretion of discounts on our short-term investments . the net decrease in our operating assets and liabilities of $ 8.0 million was primarily attributable to : a net decrease in deferred revenue of $ 38.2 million resulting from the recognition of $ 59.2 million in upfront fees and milestone payments under asc 606 pursuant to our collaboration agreements , offset by the $ 21.0 million ( net of the payment of an associated sublicense fee of $ 4.0 million to sgen ) new milestone addition to deferred revenue in 2018 resulting from the abbvie cx-2029 milestone payment received ; a decrease of $ 4.9 million resulting from the increase in prepaid expenses and other current assets ; partially offset by an increase in cash flows from accounts receivable primarily from the $ 10.0 million we received from bms for achieving the milestone of ind filing of bms-986249 in 2018 ; an increase of $ 24.8 million in accrued liabilities , income tax payable and other long-term liabilities resulting primarily from a $ 13.3 million increase in income tax payable , a $ 10.3 million in accrued liabilities driven by increases in laboratory services , ucsb sublicense fee accrual and cro expenses accrual relating to clinical trial activities ; and an increase in accounts payable of
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we believe that these assets will provide greater returns than similar assets in other markets , as a result of the population growth , public commitment , and significant private investment that characterize these areas . we are operated by affiliates of cim group . cim group is a vertically-integrated owner and operator of real assets with multi-disciplinary expertise and in-house research , acquisition , credit analysis , development , financing , leasing , and onsite property management capabilities . cim group is headquartered in los angeles , california and has offices in oakland , california ; bethesda , maryland ; dallas , texas ; new york , new york ; chicago , illinois ; and phoenix , arizona . our wholly-owned subsidiary , cim urban , is party to an investment management agreement with the operator , pursuant to which the operator provides certain services to cim urban . in addition , we are party to a master services agreement with the administrator , pursuant to which the administrator provides , or arranges for other service providers to provide management and administration services to us . properties as of december 31 , 2018 , our real estate portfolio consisted of 21 assets , all of which are fee-simple properties . as of december 31 , 2018 , our 19 office properties ( including one parking garage and two development sites , one of which is being used as a parking lot ) , totaling approximately 3.4 million rentable square feet , were 93.2 % occupied and one hotel with an ancillary parking garage , which has a total of 503 rooms , had revpar of $ 129.73 for the year ended december 31 , 2018 . strategy our strategy is principally focused on the acquisition of class a and creative office assets in vibrant and improving metropolitan communities throughout the united states ( including improving and developing such assets ) in a manner that will consistently grow our nav and cash flow per share of common stock . our strategy is centered around cim group 's community qualification process . we believe this strategy provides us with a significant competitive advantage when making real estate acquisitions . the qualification process generally takes between six months and five years and is a critical component of cim group 's evaluation . cim group examines the characteristics of a market to determine whether the district justifies the extensive efforts cim group undertakes in reviewing and making potential acquisitions in its qualified communities . qualified communities generally fall into one of two categories : ( i ) transitional densely-populated districts that have dedicated resources to become vibrant metropolitan communities and ( ii ) well-established , thriving metropolitan areas ( typically major central business districts ) . qualified communities are distinct districts which have dedicated resources to become or are currently vibrant communities where people can live , work , shop and be entertained , all within walking distance or close proximity to public transportation . these areas also generally have high barriers to entry , high population density , positive population trends and support for investment . cim group believes that a vast majority of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located . cim group typically spends significant time and resources qualifying targeted communities prior to making any acquisitions . since 1994 , cim group has qualified 122 communities and has deployed capital in 72 of these qualified communities . although we may not deploy capital exclusively in qualified communities , it is expected that most of our assets will be identified through this systematic process . cim group seeks to maximize the value of its holdings through active onsite property management and leasing . cim group has extensive in-house research , acquisition , credit analysis , development , financing , leasing and onsite property 70 management capabilities , which leverage its deep understanding of metropolitan communities to position properties for multiple uses and to maximize operating income . as a vertically-integrated owner and operator , cim group has in-house onsite property management and leasing capabilities . property managers prepare annual capital and operating budgets and monthly operating reports , monitor results and oversee vendor services , maintenance and capital improvement schedules . in addition , they ensure that revenue objectives are met , lease terms are followed , receivables are collected , preventative maintenance programs are implemented , vendors are evaluated and expenses are controlled . cim group 's real assets management committee reviews and approves strategic plans for each asset , including financial , leasing , marketing , property positioning and disposition plans . in addition , the real assets management committee reviews and approves the annual business plan for each property , including its capital and operating budget . cim group 's organizational structure provides for continuity through multi-disciplinary teams responsible for an asset from the time of the original investment recommendation , through the implementation of the asset 's business plan , and any disposition activities . cim group 's investments and development teams are separate groups that work very closely together on transactions requiring development expertise . while the investments team is responsible for acquisition analysis , both the investments and development teams perform the due diligence , evaluate and determine underwriting assumptions and participate in the development management and ongoing asset management of cim group 's opportunistic assets . the development team is also responsible for the oversight and or execution of securing entitlements and the development/repositioning process . in instances where cim group is not the lead developer , cim group 's in-house development team continues to provide development and construction oversight to co-sponsors through a shadow team that oversees the progress of the development from beginning to end to ensure adherence to the budgets , schedules , quality and scope of the project to maintain cim group 's vision for the final product . story_separator_special_tag other than the asset sale , there can be no guarantee that any of the transactions involved in the program to unlock embedded value in our portfolio and improve trading liquidity of our common stock will occur or , if any or all of them occur , that they will occur in the form currently contemplated . repayment of certain indebtedness . we have used and may use a portion of our unrestricted cash and net proceeds from the asset sale to repay balances on certain of the company 's indebtedness ( the โ debt repayment โ ) . return of capital to holders of common stock . the company intends to use the net proceeds from the asset sale ( other than to the extent used for the debt repayment ) and a portion of our unrestricted cash balances and or funds from our revolving credit facility , to return capital to holders of our common stock for consideration approximating our net asset value ( โ nav โ ) per share of common stock , after certain adjustments , in one or more transactions , which may take the form of a special dividend , private repurchase or tender offer ( collectively , the โ return of capital event โ ) . cim reit liquidation . as of march 15 , 2019 , cim urban reit , llc , a fund operated by affiliates of cim group ( โ cim reit โ ) , beneficially owned 89.7 % of our outstanding common stock . we have been informed that , if the return of capital event occurs , cim group intends to liquidate cim reit by distributing to its members , consisting of 26 institutional investors , all shares of our common stock then held by cim reit ( the โ cim reit liquidation โ ) . we expect that such distribution , if it occurs , will increase our public float significantly ( from approximately 9 % as of march 15 , 2019 ) , which is expected to improve trading volume over time and make our common stock eligible for inclusion in several indices . preferred stock . the company believes that there will be more clarity to the makeup of the company 's portfolio , the aggregate sale price in any asset sales and the trading price of the company 's common stock relative to its nav following the program to unlock embedded value in our portfolio and improve trading liquidity of our common stock , if it is consummated . the company has met and consulted with certain holders of the preferred stock ( as defined in `` item 1a . risk factors '' ) as it considers such engagement to be important and expects to continue to provide updates at significant milestones during the program to unlock embedded value in our portfolio and improve trading liquidity of our common stock . following the program to unlock embedded value in our portfolio and improve trading liquidity of our common stock , the company intends to finalize any alternatives for its preferred stockholders with terms that the company believes such holders will then find satisfactory . rental rate trends office statistics : the following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods : replace_table_token_25_th ( 1 ) as part of the asset sale and as previously described , the company has sold certain properties and is actively marketing additional properties for sale . the information presented in this table represents historical information without giving effect to the asset sale . 72 ( 2 ) we acquired one office property during the year ended december 31 , 2018 , and we acquired one office property and sold six office properties and one parking garage during the year ended december 31 , 2017 . excluding these properties , the occupancy and annualized rent per occupied square foot were 93.1 % and $ 43.64 as of december 31 , 2018 , 94.1 % and $ 40.82 as of december 31 , 2017 and 92.9 % and $ 39.10 as of december 31 , 2016 . ( 3 ) subsequent to december 31 , 2018 , we sold five office properties and one parking garage . excluding these properties and the properties noted in ( 2 ) , the occupancy and annualized rent per occupied square foot were 92.4 % and $ 42.67 as of december 31 , 2018 , 91.8 % and $ 40.57 as of december 31 , 2017 and 89.8 % and $ 38.58 as of december 31 , 2016 . ( 4 ) other than as set forth in ( 5 ) below , represents gross monthly base rent under leases commenced as of the specified periods , multiplied by twelve . this amount reflects total cash rent before abatements . total abatements for the years ended december 31 , 2018 , 2017 and 2016 were $ 5,146,000 , $ 3,128,000 and $ 4,251,000 , respectively . where applicable , annualized rent has been grossed up by adding annualized expense reimbursements to base rent . annualized rent for certain office properties includes rent attributable to retail . ( 5 ) 1130 howard street was acquired on december 29 , 2017. the annualized rent as of december 31 , 2017 for 12,944 rentable square feet of the building is presented using the actual rental income under a signed lease with a different tenant who took possession in march 2018 , as the space was occupied by the prior owner and annualized rent under the short-term lease was de minimis . over the next four quarters , we expect to see expiring cash rents as set forth in the table below : replace_table_token_26_th ( 1 ) as part of the asset sale and as previously described , the company has sold certain properties and is actively marketing additional properties for sale . the information presented in this table represents historical information without giving effect to the asset sale .
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summary segment results during the years ended december 31 , 2017 and 2016 , cim commercial operated in four segments : office , hotel and multifamily properties and lending . set forth and described below are summary segment results for our four segments included in continuing operations . replace_table_token_35_th revenues office revenue : office revenue includes rental revenues , expense reimbursements and lease termination income from office properties . office revenue decreased to $ 174,004,000 , or by 7.2 % , for the year ended december 31 , 2017 compared to $ 187,435,000 for the year ended december 31 , 2016 . the decrease was primarily due to the sale of one office property in san francisco , california in march 2017 , the sale of one office property in charlotte , north carolina in june 2017 , the sale of one office property and one parking garage in sacramento , california in june 2017 , the sale of two office properties in washington , d.c. in august and october 2017 , and the sale of one office property in los angeles , california in september 2017 , partially offset by an increase in expense reimbursements revenue at certain of our washington , d.c. properties , one of which was sold in august 2017 , an increase in lease termination income at one of our california properties due to recognition of fees in connection with the early termination of a large tenant who vacated in december 2017 , which space has been leased to a new tenant whose rent commenced on january 1 , 2018 , and an increase at certain of our california and washington , d.c. properties due to increases in both occupancy and rental rates . hotel revenue : hotel revenue decreased to $ 38,585,000 , or by 20.2 % , for the year ended december 31 , 2017 compared to $ 48,379,000 for the year ended december 31 , 2016 .
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overview historically , our principal business has consisted of attracting deposits from the general public and the business community and making loans secured by various types of collateral , including real estate and other consumer assets . we are significantly affected by prevailing economic conditions , particularly interest rates , as well as government policies concerning , among other things , monetary and fiscal affairs , housing and financial institutions and regulations regarding lending and other operations , privacy and consumer disclosure . attracting and maintaining deposits is influenced by a number of factors , including interest rates paid on competing investments offered by other financial and non-financial institutions , account maturities , fee structures and levels of personal income and savings . lending activities are affected by the demand for funds and thus are influenced by interest rates , the number and quality of lenders and regional economic conditions . sources of funds for lending activities include deposits , borrowings , repayments on loans , cash flows from maturities of investment securities and income provided from operations . our earnings depend primarily on our level of net interest income , which is the difference between interest earned on our interest-earning assets , consisting primarily of loans and investment securities , and the interest paid on interest-bearing liabilities , consisting primarily of deposits , borrowed funds , and trust-preferred securities . net interest income is a function of our interest rate spread , which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest- bearing liabilities , as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities . also contributing to our earnings is noninterest income , which consists primarily of service charges and fees on loan and deposit products and services , net gains and losses on sale of assets , and mortgage loan service fees . net interest income and noninterest income are offset by provisions for loan losses , general administrative and other expenses , including salaries and employee benefits and occupancy and equipment costs , as well as by state and federal income tax expense . the bank has a strong mortgage lending focus , with the majority of its loan originations in single-family residential mortgages , which has enabled it to successfully market home equity loans , as well as a wide range of shorter term consumer loans for various personal needs ( automobiles , recreational vehicles , etc. ) . in recent years we have also focused on adding commercial loans to our portfolio , both real estate and non-real estate . we have made significant progress in this initiative . as of december 31 , 2017 , commercial real estate and land loans and commercial business loans represented 47.6 % and 12.8 % of the total loan portfolio , respectively . the purpose of this diversification is to mitigate our dependence on the mortgage market , as well as to improve our ability to manage our interest rate spread . the bank 's management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio , which provides a steady source of fee income . as of december 31 , 2017 , we had mortgage servicing rights , net of $ 6.58 million compared to $ 5.85 million as of december 31 , 2016. gain on sale of loans also provides significant fee income or noninterest income in periods of high mortgage loan origination volumes . such income will be adversely affected in periods of lower mortgage activity . fee income is also supplemented with fees generated from our deposit accounts . the bank has a high percentage of non-maturity deposits , such as checking accounts and savings accounts , which allows management flexibility in managing its spread . non-maturity deposits and certificates of deposit do not automatically reprice as interest rates rise . in recent years , management 's focus has been on improving our core earnings . core earnings can be described as income before taxes , with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced portfolio . management believes that we will need to continue to focus on increasing net interest margin , other areas of fee income , and control operating expenses to achieve earnings growth going forward . management 's strategy of growing the loan portfolio and deposit base is expected to help achieve these goals : loans typically earn higher rates of return than investments ; a larger deposit base will yield higher fee income ; increasing the asset base will reduce the relative impact of fixed operating costs . the biggest challenge to management 's strategy is funding the growth of our balance sheet in an efficient manner . though deposit growth this last year was steady , it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes . 23 other than in limited circumstances for certain high-credit-quality customers , we do not offer โ interest onl y โ mortgage loans on residential ( 1-4 family ) properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as โ option arm โ loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . story_separator_special_tag the standard also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses , as well as the credit quality and underwriting standards of an organization 's portfolio . these disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements . additionally , the standard amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration . the amendments in this update are effective for fiscal years beginning after december 15 , 2019 , including interim periods within those fiscal years . all entities may adopt the amendments in this update earlier as of the fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . an entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective ( that is , a modified-retrospective approach ) . the company believes the amendments in this update will have an impact on the company 's consolidated financial statements and is working to evaluate the significance of that impact . in that regard , we have established a working group under the direction of our chief financial officer and chief credit officer . the group is composed of individuals from the finance and credit administration areas of the company . we are currently developing an implementation plan , including assessment of processes , segmentation of the loan portfolio and identifying and adding data fields necessary for analysis . the adoption of this standard is likely to result in an increase in the allowance for loan and lease losses as a result of changing from an โ incurred loss โ model to an โ expected loss โ model . while we currently can not reasonably estimate the impact of adopting this standard , we expect the impact will be influenced by the composition , characteristics and quality of our loan and securities portfolios , as well as the general economic conditions and forecasts as of the adoption date . in january 2017 , the fasb issued asu no . 2017-04 , intangibles โ goodwill and other ( topic 350 ) to amend and simplify current goodwill impairment testing to eliminate step 2 from the current provisions . under the new guidance , an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit 's fair value . an entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary . the guidance will be effective for the company on january 1 , 2020 and is not expected to have a significant impact on the company 's consolidated financial statements . we have improved our internal reporting systems as it relates to profitability by divisions and markets within the company . we expect these systems to help in our evaluation of potential impairment . in march 2017 , the fasb issued asu no . 2017-08 , receivables โnonrefundable fees and other costs ( subtopic 310-20 ) to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date . currently , entities generally amortize the premium as a yield adjustment over the contractual life of the security . the guidance does not change the accounting for callable debt securities held at a discount . for public business entities , the guidance is effective for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . early adoption is permitted , including in an interim period . we have currently been following this guidance based on our internal investment policy guidelines . there is little impact on our consolidated financial statements , as we typically do not invest in these types of securities . critical accounting policies certain accounting policies are important to the understanding of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances , including , but without limitation , changes in interest rates , performance of the economy , financial condition of borrowers and laws and regulations . the following are the accounting policies we believe are critical . 25 allowance for loan losses we recognize that losses will be experienced on loans and that the risk of loss will vary with , among other things , the type of loan , the creditworthiness of the borrower , general economic conditions and the quality of the collateral for the loan . we maintain an allowance for loan losses to absorb losses inherent in the loan portfolio . the allowance for loan losses represents management 's estimate of probable losses based on all available information . the allowance for loan losses is based on management 's evaluation of the collectability of the loan portfolio , including past loan loss experience , known and inherent losses , information about specific borrower situations and estimated collateral values , and current economic conditions . the loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses . the methodology for assessing the appropriateness of the allowance includes a review of historical losses , internal data including delinquencies among others , industry data , and economic conditions . as an integral part of their examination process , the frb and the montana division of banking will periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management .
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results of operations comparison of operating results for the years ended december 31 , 201 7 and 201 6 net income eagle 's net income for the year ended december 31 , 2017 was $ 4.10 million compared to $ 5.13 million for the year ended december 31 , 2016. the decrease of $ 1.03 million was primarily due to an increase in noninterest expense of $ 2.62 million , a decrease in noninterest income of $ 1.66 million and an increase in income tax expense of $ 329,000. this was partially offset by an increase of $ 3.58 million in net interest income after loan loss provision . basic and diluted earnings per share were $ 1.01 and $ 0.99 , respectively , for the year ended december 31 , 2017 compared to $ 1.36 and $ 1.32 , respectively , for the prior period . net interest income net interest income increased to $ 23.77 million for the year ended december 31 , 2017 , from $ 20.79 million for the year ended december 31 , 2016. this increase of $ 2.98 million , or 14.3 % , was due to an increase in interest and dividend income of $ 3.95 million partially offset by an increase in interest expense of $ 976,000. interest and dividend income total interest and dividend income was $ 27.86 million for the year ended december 31 , 2017 , compared to $ 23.91 million for the year ended december 31 , 2016 , an increase of $ 3.95 million , or 16.5 % .
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