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along with full-year income in the u.s. in 2018 , our domestic deferred taxes are in a net liability position as of june 30 , 2018. after other remaining provisions of tcja are adopted , we anticipate our long-term tax rate will decrease from mid-20s to low-20s . see note 12 of our consolidated financial statements set forth in item 8 of this annual report ( note 12 ) . 16 we generated cash flow from operating activities of $ 277.3 million in 2018 , driven primarily by higher cash from operations before changes in certain other assets and liabilities and lower restructuring payments . we made capital expenditures of $ 171.0 million during the year , and returned $ 65.1 million to shareholders through dividends . we further enhanced liquidity and strengthened our financial position by issuing $ 300.0 million of 4.625 percent senior unsecured notes due 2028 ( new notes ) . net proceeds were used for redemption of our previously outstanding $ 400.0 million of 2.650 percent senior unsecured notes with an original maturity of november 1 , 2019 ( $ 400.0 million notes ) on july 9 , 2018. we also entered into an amendment to the five-year , multi-currency , revolving credit facility . the amendment extends the tenor for a new five-year term to june 2023 and expands borrowing capacity from $ 600 million to $ 700 million . the prior facility was scheduled to mature in april 2021. the new facility has lower libor borrowing margins and enhanced commercial terms . we invested further in technology and innovation to continue delivering high quality products to our customers . research and development expenses included in operating expense totaled $ 38.9 million for 2018 . story_separator_special_tag style= '' text-align : center ; '' > 18 amortization of intangibles amortization expense was $ 14.7 million , $ 16.6 million and $ 20.8 million in 2018 , 2017 and 2016 , respectively . the decrease of $ 1.9 million from 2017 to 2018 was driven primarily by certain finite-lived intangible assets being fully amortized in 2018 , and the decrease of $ 4.2 million from 2016 to 2017 was driven primarily by the impact of divestiture . interest expense interest expense increased $ 1.2 million to $ 30.1 million in 2018 , compared with $ 28.8 million in 2017 primarily due to the incremental interest expense on the new notes , partially offset by lower average borrowings in 2018. interest expense increased $ 1.1 million to $ 28.8 million in 2017 , compared with $ 27.8 million in 2016 due to higher average borrowings and a higher credit facility fee . the portion of our debt subject to variable rates of interest was less than 1 percent at june 30 , 2018 , 2017 and 2016. other expense ( income ) , net in 2018 , other expense , net was $ 2.4 million compared to $ 2.2 million in 2017 . prior year income from transition services provided related to a prior divestiture that did not repeat and a gain on sale of an investment that did not repeat were partially offset by higher interest income and foreign currency transaction gains . in 2017 , other expense , net was $ 2.2 million compared to other income , net of $ 4.1 million in 2016. the year-over-year change was due primarily to foreign currency transaction losses and the prior year reduction of a contingent liability associated with a past acquisition that did not repeat in the current year , partially offset by a prior year loss on sale of assets and income from transition services provided to the acquirer of our non-core businesses . income taxes the effective tax rate for 2018 was 25.4 percent compared to 36.5 percent for 2017 . the change was primarily driven by the prior year u.s. loss , which was mostly attributable to restructuring and related charges , not being tax-effected and current year u.s. income being subject to tax as a result of the aforementioned release of the u.s. valuation allowance , in addition to the net discrete tax charges recorded in 2018 associated with tcja . the effective tax rate for 2017 was 36.5 percent ( provision on income ) compared to 12.7 percent ( provision on a loss ) for 2016 . the change was primarily driven by the 2016 discrete tax charge for a valuation allowance recorded against our net deferred tax assets in the u.s. , primarily related to asset impairment charges and the 2016 loss on divestiture . in 2012 , we received an assessment from the italian tax authority that denied certain tax deductions primarily related to our 2008 tax return . attempts at negotiating a reasonable settlement with the tax authority were unsuccessful ; and as a result , we decided to litigate the matter . the outcome of the litigation is still pending ; however , we continue to believe that the assessment is baseless , and do not anticipate making a payment in connection with this assessment . accordingly , no income tax liability has been recorded in connection with this assessment in any period . however , if the italian tax authority were to be successful in litigation , settlement of the amount alleged by the italian tax authority at its face value would result in an approximate 22 million , or $ 25 million , increase to income tax expense . net income ( loss ) attributable to kennametal net income attributable to kennametal was $ 200.2 million , or $ 2.42 eps , in 2018 , compared to $ 49.1 million , or $ 0.61 eps , in 2017 . the increase is a result of the factors previously discussed . net income attributable to kennametal was $ 49.1 million , or $ 0.61 eps , in 2017 , compared to a loss of $ 226.0 million , or $ 2.83 loss per diluted share , in 2016 . the year-over-year change is a result of the factors previously discussed . story_separator_special_tag business segment review we operate in three reportable operating segments consisting of industrial , widia and infrastructure . corporate expenses that are not allocated are reported in corporate . segment determination is based upon internal organizational structure , the manner in which we organize segments for making operating decisions and assessing performance and the availability of separate financial results . see note 20 of our consolidated financial statements set forth in item 8 of this annual report . 19 our sales and operating income ( loss ) by segment are as follows : replace_table_token_7_th industrial replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th 20 in 2018 , industrial sales of $ 1,292.1 million increased by $ 165.8 million , or 15 percent , from 2017 . general engineering sales experienced growth from the indirect channel across all regions , a more robust light and general engineering sector in emea and the americas as well as growth in sales to tooling manufacturers in emea . transportation sales to tier suppliers globally increased in the period , as well as to oems in emea and asia pacific . these increases were partially offset by lower sales to oems in the americas . conditions continue to be favorable in the aerospace sector due to growth in engine sales in the americas and asia pacific supplemented by increasing demand related to frames in the americas . oil and gas sales in the americas continue to provide overall growth in energy in addition to increases in renewable power generation sales in the americas and emea . the sales increases in asia pacific and emea were primarily driven by the performance in the transportation and general engineering end markets . the sales increase in the americas was primarily driven by the performance in the general engineering , aerospace and defense and energy end markets . in 2018 , industrial operating income was $ 187.5 million , a $ 104.7 million increase from 2017 . the primary drivers for the increase were organic sales growth , incremental restructuring and modernization benefits of approximately $ 34 million , $ 31.5 million less restructuring and related charges and favorable currency exchange impact of $ 10.7 million , partially offset by decreased manufacturing efficiency in part due to modernization efforts in progress , higher variable compensation expense due to higher than expected operating results and salary inflation . in 2017 , industrial sales of $ 1,126.3 million increased by $ 27.9 million , or 3 percent , from 2016 . general engineering sales benefited globally from growth in the indirect channel , supported by increasing demand in the u.s. energy markets and china transportation markets , and to a lesser extent the addition of new distributors . sales to airplane engine manufacturers globally was the primary driver of the sales growth in aerospace . in addition , we experienced growth in frame-related sales in emea and asia pacific that were offset by declines in the americas . oil and gas drilling and power generation in the americas contributed to the growth in energy sales while energy-related sales were down in emea and asia pacific . transportation performance was mixed for the fiscal year with overall growth coming from asia pacific . sales to tier suppliers were up , as strong asia pacific growth was offset by declines in emea and the americas . similarly , growth in sales to oems in asia pacific was offset by declines in the other regions . in addition , railroad-related sales declined primarily in the americas . the sales increase in asia pacific was driven by transportation , general engineering and aerospace and defense . the sales increase in the americas was driven by general engineering and energy and to a lesser extent aerospace and defense , offset partially by decreases in transportation . the sales increase in emea was driven by general engineering and aerospace and defense , offset partially by decreases in transportation and energy . in 2017 , industrial operating income was $ 82.8 million , a $ 7.5 million decrease from 2016 . the primary drivers of the decrease in operating income were $ 20.6 million more in restructuring charges , unfavorable currency exchange , unfavorable business mix , higher performance-based compensation and higher raw material costs , partially offset by $ 40 million incremental restructuring benefits , organic sales growth and prior period loss on divestiture and fixed asset disposal charges of $ 3.6 million and $ 2.6 million , respectively . widia replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th 21 in 2018 , widia sales of $ 198.6 million increased by $ 20.9 million , or 12 percent , from 2017 . sales in emea have benefited from the reestablishment of the national and local distribution network in central europe . sales growth was broadly strong across asia pacific , due in part to tapping into new demand streams and benefits from establishing the brand channel strategy globally . in the americas , we continue to make steady progress in establishing an effective distribution network . we have selectively exited portions of our portfolio to improve profitability . in 2018 , widia operating income was $ 4.4 million compared to an operating loss of $ 9.6 million in 2017 . the year-over-year change of $ 14.0 million was driven primarily by organic sales growth , $ 6.0 million less restructuring and related charges and incremental restructuring benefits of approximately $ 1 million , partially offset by higher variable compensation expense due to higher than expected operating results and unfavorable mix . in 2017 , widia sales of $ 177.7 million increased by $ 6.9 million , or 4 percent , from 2016 . sales benefited globally from growth in the indirect channel , supported by increasing demand in the u.s. energy markets and china transportation markets , and to a lesser extent the addition of new distributors .
| the gross profit margin for 2017 was 32.0 percent compared to 29.4 percent in 2016 . 17 operating expense operating expense in 2018 was $ 498.2 million , an increase of $ 35.0 million , or 7.6 percent , compared to $ 463.2 million in 2017 . the increase was primarily due to higher variable compensation expense of $ 14 million due to higher than expected operating results , an unfavorable currency exchange impact of $ 14.5 million and salary inflation , partially offset by incremental restructuring benefits of approximately $ 13 million and $ 2.5 million less in restructuring-related charges . operating expense in 2017 was $ 463.2 million , a decrease of $ 31.8 million , or 6.4 percent , compared to $ 495.0 million in 2016 . the decrease was primarily due to incremental restructuring benefits of approximately $ 36 million , divestiture impact of $ 10.5 million , $ 12.7 million less in restructuring-related charges and a favorable foreign currency exchange impact of $ 5.1 million , offset partially by higher performance-based compensation . restructuring and related charges and asset impairment charges restructuring and related charges legacy restructuring in prior years , we implemented certain actions to streamline the company 's cost structure . the purpose of this restructuring initiative was to improve the alignment of our cost structure with the operating environment through employee reductions and to consolidate certain manufacturing facilities . these restructuring actions were substantially completed in the september quarter of 2018 , were mostly cash expenditures and achieved annual run rate ongoing pre-tax savings of approximately $ 165 million . total restructuring and related charges since inception of $ 152.7 million have been recorded for these programs through june 30 , 2018 : $ 85.6 million in industrial , $ 13.9 million in widia , $ 45.9 million in infrastructure and $ 7.3 million in corporate . industrial simplification in the june quarter of
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therefore , determining fair value for level 1 instruments generally does not require significant management judgment , and the estimation is not difficult . level 2 instruments include inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices for identical instruments in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . our auction rate securities were classified as level 3 instruments . management used a combination of the market and income approach to derive the fair value of auction rate securities , which included third party valuation results , investment broker provided market information and available information on the credit quality of the underlying collateral . as a result , the determination of fair value for level 3 instruments requires significant management judgment and subjectivity . our level 3 instruments were classified as long-term marketable securities on our consolidated balance sheets and were entirely made up of auction rate securities that consisted of student loan asset-backed notes . during fiscal 2014 we sold all of our level 3 instruments , which consisted entirely of auction rate securities . inventory inventories are recorded at the lower of actual cost determined on a first-in-first-out basis or market . we establish provisions for inventory if it is obsolete or we hold quantities which are in excess of projected customer demand . the creation of such provisions results in a write-down of inventory to net realizable value and a charge to cost of products sold . asset impairments long-lived assets , including amortizable intangible assets , are carried on our financial statements based on their cost less accumulated depreciation or amortization . we monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . these events or changes in circumstances , including management decisions pertaining to such assets , are referred to as impairment indicators . if an impairment indicator occurs , we perform a test of recoverability by comparing the carrying value of the asset group to its undiscounted expected future cash flows . if the carrying values are in excess of undiscounted expected future cash flows , we measure any impairment by comparing the fair value of the asset group to its carrying value . fair value is generally determined by considering ( i ) internally developed discounted projected cash flow analysis of the asset group ; ( ii ) actual third-party valuations ; and or ( iii ) information available regarding the current market for similar asset groups . if the fair value of the asset group is determined to be less than the carrying amount of the asset group , an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs and is included in our consolidated statement of operations . estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized , which could impact our ability to accurately assess whether an asset has been impaired . no impairment charges were recorded for the fiscal year ended 2014 . valuation of goodwill goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized . we review goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable . when evaluating whether goodwill is impaired , we make a qualitative assessment to determine if it is more likely than not that the fair value is less than the carrying amount . if the qualitative assessment determines that it is more likely than not that the fair value is less than the carrying amount , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . if the 29 fair value of the reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and we must measure the impairment loss . the impairment loss , if any , is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of the goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . fair value of the reporting unit is determined using a discounted cash flow analysis . if the fair value of the reporting unit exceeds its carrying value , no further impairment analysis is needed . for purposes of testing goodwill for impairment , the company operates as a single reporting unit . no goodwill impairment charges were recorded for the fiscal year ended 2014 . restructuring charges expenses associated with exit or disposal activities are recognized when incurred under asc 420 , “ exit or disposal cost obligations ” for everything but severance . however , because we have a history of paying severance benefits , the cost of severance benefits associated with a restructuring charge is recorded when such costs are probable and the amount can be reasonably estimated in accordance with asc 712 , “ compensation - nonretirement postemployment benefits. ” when leased facilities are vacated , an amount equal to the total future lease obligations from the date of vacating the premises through the expiration of the lease , net of estimated sublease income , is recorded as a part of restructuring charges . story_separator_special_tag accounting for income taxes our provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse . valuation allowances are provided to reduce deferred tax assets to an amount that in management 's judgment is more-likely-than-not to be recoverable against future taxable income . at january 3 , 2015 , u.s. income taxes were not provided on approximately $ 3.3 million of the undistributed earnings of our chinese subsidiary . we intend to reinvest these earnings indefinitely . if these earnings were distributed to the u.s. in the form of dividends or otherwise , we would be subject to additional u.s. income taxes . our income tax calculations are based on application of the respective u.s. federal , state or foreign tax law . our tax filings , however , are subject to audit by the relevant tax authorities . accordingly , we recognize tax liabilities based upon our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations . in assessing the realizability of deferred tax assets , we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . any adjustment to the net deferred tax asset valuation allowance is recorded in the consolidated statements of operations in the period that the adjustment is determined to be required . stock-based compensation we use the black-scholes option pricing model to estimate the fair value of substantially all share-based awards consistent with the provisions of asc 718 , “ compensation - stock compensation. ” option pricing models , including the black-scholes model , require the use of input assumptions , including expected volatility , expected term , expected dividend rate , and expected risk-free rate of return . the assumptions for expected volatility and expected term most significantly affect the grant date fair value . 30 story_separator_special_tag 24 % in europe in fiscal 2014 on generally improving macroeconomic conditions and increased demand from customers in the industrial and communications end markets . americas revenue increased 2 % in fiscal 2014 due to increased sales volumes of late life-cycle products in the industrial end market , largely in the fourth quarter of 2014. revenue from americas decreased 5 % in fiscal 2013 , due largely to macroeconomic weakness in the region . revenue from foreign sales as a percentage of total revenue was 92 % , 91 % , and 88 % for fiscal 2014 , 2013 and 2012 , respectively . revenue by distributors our largest customers are often distributors and sales through distributors have historically made up a significant portion of our total revenue . revenue attributable to the resale of products by our primary sell-through distributors was as follows : replace_table_token_9_th revenue from sell-through distributors as a percent of total revenue was flat in fiscal 2014 as compared to 2013. revenue from sell-through distributors as a percent of total revenue declined in fiscal 2013 due primarily to increased sales to oem customers . 33 gross margin the composition of our gross margin , including as a percentage of revenue , for fiscal years 2014 , 2013 and 2012 was as follows : replace_table_token_10_th in fiscal 2014 , gross margin , as a percentage of revenue , increased 2.7 percentage points as compared to fiscal 2013. product cost improvements , driven by high volume manufacturing and strategic inventory builds in the first half of the year , combined to improve our gross margin in fiscal 2014. those product cost improvements were partially offset , however , by less favorable product and customer mix resulting from increased revenue from new products in both the consumer and communications end markets . less sell-through of fully reserved inventory and , to a lesser extent , increased expense from excess and obsolete inventory also degraded our gross margin in fiscal 2014. we expect that product and customer mix as well as downward pressure on average selling price will continue to affect our gross margin in the future . if we are unable to realize additional or sufficient product cost reductions in the future , we may experience degradation in our gross margin . in fiscal 2013 , gross margin , as a percentage of revenue , decreased 0.4 percentage points as compared to fiscal 2012. less favorable product and customer mix combined to reduce our gross margins during 2013. the adverse effect of the mix driven margin decline in 2013 was substantially offset by product cost improvements , reduced expense from excess and obsolete inventory and , to a lesser extent , more sell-through of fully reserved inventory . operating expenses research and development expense the composition of our research and development expenses , including as a percentage of revenue , for fiscal years 2014 , 2013 and 2012 was as follows : replace_table_token_11_th research and development expenses include costs for compensation and benefits , development masks , engineering wafers , depreciation , licenses , and outside engineering services . these expenditures are for the design of new products , intellectual property cores , processes , packaging , and software to support new products .
| with a diverse base of customers who in some cases manufacture end products spanning multiple end markets , the assignment of revenue to a specific end market requires the use of estimates and judgment . therefore , actual results may differ from those reported . the composition of our revenue by end market for fiscal years 2014 , 2013 and 2012 was as follows : replace_table_token_6_th our revenue in the communications end market is largely dependent on a small number of large telecommunications equipment providers . for fiscal 2014 , communications end market revenue increased 21 % primarily driven by demand to support the telecommunications infrastructure build out in china , largely in the first half of 2014. revenue in the communications end market increased 8 % when comparing fiscal 2013 to fiscal 2012 , also driven by demand related to the telecommunications infrastructure build out in china . consumer end market revenue decreased 8 % in fiscal 2014 , after increasing 180 % in fiscal 2013. consumer end market revenue decreased primarily due to lower demand at a major oem for certain of our ice40 products . consumer end market revenue increased in fiscal 2013 due in large part to the strong volume growth of our ice40 product at a major oem . for fiscal 2014 , industrial end market revenue increased 14 % when compared to fiscal 2013. this increase was primarily due to broad market strengthening in the second half of fiscal 2014 , largely in europe and japan . for fiscal 2013 , revenue decreased 16 % when compared to fiscal 2012. this decline was primarily due to reduced sales volume of end-of-life mature products . revenue by product classification the composition of our revenue by product classification for fiscal years 2014 , 2013 and 2012 was as follows : replace_table_token_7_th revenue for new products increased 16 % in fiscal 2014 , while r evenue for new products increased 144 % in fiscal 2013. in both years ,
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sponsorship contracts may include services similar to those in our brand advertising contracts , are generally for larger dollar amounts and for a longer period of time , may allow advertisers to sponsor a particular area on our websites , may include brand affiliation services and or a larger volume of services , and may require some exclusivity or premiere placements . sponsorship advertisement revenues are normally recognized on a straight-line basis over the contract period , provided we are meeting our obligations under the contract . pursuant to sponsored search contracts , which are normally for relatively small dollar amounts and are with small and medium sized enterprises , sponsored search services mainly include priority placements in our search directory and pay-for-click services consisting of displaying the text-based links of our advertisers on our websites and our website alliance network . we normally provide priority placements services for a fixed fee over the service period of the contracts . revenues on priority placements are normally recognized on a straight-line basis over the contract period provided we are meeting our obligation under the contract . pay-for-click services of displaying the text-based links to our advertisers ' websites are charged on a cost per click basis , so that an advertiser pays us only when a user clicks on the displayed link . the priority of the display of text-based links is based on the bidding price of different advertisers . revenues from the pay-for-click services are recognized as the users click on the links . material differences could result in the amount and timing of our advertising revenues for any period if management made different judgments or utilized different estimates . non-advertising revenues non-advertising revenues include revenues principally from online game and wireless services . online game revenues from our current mmorpg operations in china are earned by providing online services to game players pursuant to the item-based revenue model . for periods prior to our upgrading and re-launching of bo in december 2006 , we operated bo under the time-based revenue model , where game players are charged based on the time they spend playing the game . under the item-based revenue model , game players play games free of charge and are charged for purchases of virtual items . online game revenues are collected through sale of our prepaid game cards . we sell virtual and physical prepaid game cards to regional distributors , who in turn sub-distribute to retail outlets , including internet cafés , various websites , news stands , software stores , book stores and retail stores . we typically collect payment from our distributors upon delivery of our prepaid game cards . under both the item-based and the time-based revenue models , proceeds received from sales of prepaid cards are initially recorded as receipts in advance . for the item-based revenue model , revenue is recognized over the estimated lives of the virtual items purchased or as the virtual items are consumed . for the time-based revenue model , revenue is recognized based upon the actual usage of time units by the game players . the revenues are recorded net of business tax , sales discounts and rebates to our distributors . under our item-based revenue model , game players can access our games free of charge , but may purchase consumable virtual items , including those with a pre-determined expiration time , such as three months , or perpetual items , such as certain costumes that remain bound to a game player for the life of the game . revenues in relation to consumable virtual items are recognized as they are consumed , as our services in connection with these items have been fully rendered to our game players as of that time . revenues in relation to perpetual virtual items are recognized over their estimated lives . we will provide continual online game services in connection with these perpetual virtual items until they are no longer used by our game players . we have considered the average period that game players typically play our games and other game player behavior patterns to arrive at our best estimates for the lives of these perpetual virtual items . we have also considered that the estimated lives of perpetual virtual items may be affected by various factors , including the acceptance and popularity of expansion packs , promotional events launched and market conditions . however , given the relatively short operating history of our games , and of our most popular game tlbb in particular , our estimate of the period that game players typically play our games may not accurately reflect the estimated lives of the perpetual virtual items . we have adopted a policy of assessing the estimated lives of perpetual virtual items on a quarterly basis . all paying users ' data collected since the launch of the games are used to perform the relevant assessments . historical behavior patterns of these paying users during the period between their first log-on date and last log-on date are used to estimate the lives of perpetual virtual items . while we believe our estimates to be reasonable based on available game player information , we may revise such estimates in the future as our games ' operation periods become longer and we continue to gain more operating history and data . any adjustments arising from changes in -44- the estimates of the lives of the virtual items would be applied prospectively on the basis that such changes are caused by new information indicating a change in the game player behavior patterns . any changes in our estimate of lives of perpetual virtual items may result in our revenues being recognized on a basis different from prior periods ' and may cause our operating results to fluctuate . prepaid game cards will expire two years after the date of card production if they have never been activated . the proceeds from the expired game cards are recognized as revenue upon expiration of cards . story_separator_special_tag in contrast , once the prepaid game cards are activated and credited to a player 's personal game account , they will not expire as long as the personal game account remains active . we are entitled to suspend and close a player 's personal game account if it has been inactive for a period of 180 consecutive days . the unused balances in an inactive player 's personal game account are recognized as revenues when the account is suspended and closed . for the years ended december 31 , 2008 , 2007 and 2006 , we recognized revenues in connection with expired un-activated prepaid game cards and unused balances of activated prepaid game cards in an inactive account amounting to approximately $ 173,000 and $ 150,000 and $ 380,000 , respectively . we also derive online game revenues from licensing our games in other countries and territories . these licensing agreements provided for two revenue streams , namely an initial license fee and a monthly revenue-based royalty fee based on monthly revenues from the games and sales from ancillary products of the games . the initial license fee is based on both a fixed amount and additional amount receivable upon achieving certain sales targets . since we are obligated to provide post-sales services such as technical support and provision of updates and when-and-if-available upgrades to the licensees during the license period , the initial license fee from licensing arrangement is recognized as revenue ratably over the license period . the fixed amount of the initial license fee is recognized ratably over the remaining license period from the launch of the game , and the additional amount is recognized ratably over the remaining license period from the date such additional amount is certain . the monthly revenue-based royalty fee is recognized when earned , provided that collectability is reasonably assured . wireless revenues are derived from providing sms , rbt , wap , mms and ivr , mainly consisting of news , weather forecast , chatting , entertainment information , ring tones , and logo downloads and various other mobile related products provided to mobile phone users . wireless service fees are charged on a monthly or per message/download basis . wireless revenues and cost of revenues are recognized in the month in which the service is performed , provided no significant obligations remain . we rely on mobile network operators in china to bill mobile phone users for wireless service fees . in order to meet ownership requirements under prc law which restrict or prohibit wholly foreign owned enterprises from providing internet information and value-added telecommunication services such as wireless , we rely on sohu internet and goodfeel to contract with the mobile network operators . generally , ( i ) within 15 to 120 days after the end of each month , sohu internet or goodfeel receives statements from each of the operators confirming the amount of wireless service charges billed to that operator 's mobile phone users and ( ii ) within 30 to 180 days after delivering monthly statements , each operator remits the wireless service fees , net of its service fees , for the month to sohu internet or goodfeel . in order to recognize revenue and be paid for services provided , we rely on billing confirmations from the mobile network operators as to the actual amount of services they have billed to their mobile customers . we are unable to collect certain wireless services fees from an operator in certain circumstances due to technical issues with the operator 's network . this is referred to as the failure rate , which can vary from operator to operator . at the end of each reporting period , where an operator has not provided sohu internet or goodfeel with the monthly statements for any month confirming the amount of wireless service charges billed to that operator 's mobile phone users for the month , we , using information generated from our own internal system and historical data , make estimates of the failure rate and collectable wireless service fees and accrue revenues accordingly . the quarterly historical differences in our estimated revenues which were recorded in the financial statements compared to the actual revenue have ranged from an underestimation of $ 538,000 ( gross margin underestimate of $ 286,000 ) to an overestimation of $ 340,000 ( gross margin overestimate of $ 171,000 ) since 2002 when wireless revenues began representing a significant portion of our total revenues . we believe we have the ability to make a reasonable estimate . however , differences between the actual failure rate and bad debt rate per an operator 's statement and our internal estimates could result in material differences in the amount and timing of our revenue and cost of non-advertising revenue for any period . for the three months ended december 31 , 2008 , 71 % of our estimated wireless revenues were confirmed by the monthly statements received from the mobile network operators . our management must determine whether to record our wireless revenues using the gross or net method of reporting . determining whether revenue should be reported gross or net is based on an assessment of various factors , the primary factor is whether we are acting as the principal in offering services to the customer or whether we are acting as an agent in the transaction . to the extent we are acting as a principal in a transaction , we report as revenue the payments received on a gross basis , and report as costs of revenue the amounts attributable to services provided by mobile network operators and other vendors . to the extent we are acting as an agent in a transaction , we report on a net basis as revenue the payments received less commission and other payments to third parties . whether we are serving as principal or agent in a transaction is judgmental in nature and is determined by evaluating terms of the arrangement .
| the increase of $ 57.2 million from 2007 to 2008 consisted of : ( i ) a $ 32.6 million increase from advertisers who advertised with us during the year ended december 31 , 2008 but did not advertise on our websites during the year ended december 31 , 2007 ; ( ii ) a $ 42.6 million increase in revenues from the advertisers who advertised with us in 2007 and continued to do so in 2008 ; and ( iii ) a $ 18.0 million decrease in revenues as some of the advertisers who advertised with us during the year ended december 31 , 2007 did not advertise on our websites during the year ended december 31 , 2008. we had approximately 1,140 advertisers in 2008 as compared to 1,070 advertisers in 2007. sales to our five largest advertisers comprised 15 % and 14 % of total brand advertising revenues for the years ended december 31 , 2008 and 2007 , respectively . no single advertiser accounted for more than 10 % of total brand advertising revenues for the years ended december 31 , 2008 and 2007. our advertising customers consisted primarily of companies within automobiles , online games , real estate , fast moving consumer goods , information technology and financial services industries . the fastest growing sectors for brand advertising were online games , automobiles and fast moving consumer goods industries in 2008. as of december 31 , 2008 and 2007 , we had $ 5.2 million and $ 1.4 million of receipts in advance from advertisers , respectively . no revenues from advertising-for-advertising barter transactions were recognized . for the years ended december 31 , 2008 and 2007 , we recorded brand advertising revenues of approximately $ 1.6 million and $ 962,000 , respectively , from netdragon websoft inc. ( or netdragon ) , which is also known as fujian tian qing digital co. , ltd. ( or fujian tian qing ) in connection with its advertisements on our 17173.com website . those advertising services are provided pursuant to a three-year advertising framework agreement which is to expire in november 2009. netdragon was the owner of 17173.com website prior to our acquisition of 17173.com from it . sponsored search . sponsored search services revenue decreased by $ 0.5 million to $ 6.6 million for the year ended december 31 , 2008 as compared to $ 7.1 million for the year ended december 31 , 2007. sponsored search services
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investment activity we rely on investors to buy and sell properties in order generate commissions . investors ' desires to engage in real estate transactions are dependent on many factors that are beyond our control . the economy , supply and demand for properly positioned properties , available credit and market events impact investor sentiment and , therefore , transaction velocity . in addition , our private clients are often motivated to buy , sell and or refinance properties due to personal circumstances such as death , divorce , partnership breakups and estate planning . we believe that we are in a maturing real estate cycle . in 2016 , the sales transaction market declined after several years of robust recovery , which combined with rising interest rates is hampering sales activity . at the same time , many investors have signaled a wait-and-see attitude toward investment decisions in anticipation of the trump administration 's tax reform , regulatory easing and infrastructure initiatives as the timing and scope are unclear but once passed into law are likely to be supportive of economic expansion and real estate markets . we believe that the healthy property fundamentals and lack of over-leveraging during the past several years support an active , but more tempered , market environment . seasonality our real estate brokerage commissions and financing fees have tended to be seasonal and , combined with other factors , can affect an investor 's ability to compare our financial condition and results of operations on a quarter-by-quarter basis . historically , this seasonality has generally caused our revenue , operating income , net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year , particularly in the fourth quarter . the concentration of earnings and cash flows in the last six 38 months of the year , particularly in the fourth quarter , is due to an industry-wide focus of clients to complete transactions towards the end of the calendar year . this historical trend can be disrupted both positively and negatively by major economic or political events impacting investor sentiment for a particular property type or location , volatility in financial markets , current and future projections of interest rates , attractiveness of other asset classes , market liquidity and the extent of limitations or availability of capital allocations for larger property buyers , among others . private client investors may accelerate or delay transactions due to personal or business related reasons unrelated to economic events . in addition , our operating margins are typically lower during the second half of each year due to our commission structure for some of our senior investment sales and financing professionals . these senior investment sales and financing professionals are on a graduated commission schedule that resets annually in which higher commissions are paid for higher sales volumes . our historical pattern of seasonality may or may not continue to the same degree experienced in prior years . operating segments we follow the guidance for segment reporting , which requires reporting information on operating segments in interim and annual financial statements . an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses whose separate financial information is available and is evaluated regularly by the chief operating decision maker ( codm ) or decision making group , to perform resource allocations and performance assessments . the codms are the chief executive officer , chief operating officer and chief financial officer . the codms review aggregated financial information presented on an office-by-office basis for purposes of making operating decisions , assessing financial performance and allocating resources . based on the evaluation of our financial information , management believes that the company 's offices represent individual operating segments with similar economic characteristics that meet the criteria for aggregation into a single reportable segment for financial reporting purposes . key financial measures and indicators revenues our revenues are primarily generated from our real estate investment sales business . in addition to real estate brokerage commissions , we generate revenues from financing fees and from other revenues , which are primarily comprised of consulting and advisory fees . our business is transaction oriented and , as such , we rely on investment sales and financing professionals to continually develop leads , identify properties to sell , market those properties and close sales in a timely manner to generate a consistent flow of revenue . while our sales volume is impacted by the seasonality factors discussed above , the timing of closings is also dependent on many market and personal factors unique to a particular client or transaction , particularly clients transacting in the $ 1- $ 10 million private client market segment . these factors can cause transactions to be accelerated or delayed beyond our control . further , commission rates earned are generally inversely related to the value of the property sold . as a result of our expansion into the middle and larger transaction market segments , we have seen our overall commission rates fluctuate from period-to-period as a result of changes in the relative mix of the number and volume of transactions closed in the middle and larger transaction market segments as compared to the $ 1- $ 10 million private client market segment . these factors may result in period-to-period variations in our revenues different from historical patterns . a small percentage of our transactions include retainer fees and or breakage fees . retainer fees are credited against a success-based fee upon the closing of a transaction or a breakage fee . transactions that are terminated before completion will sometimes generate breakage fees , which are usually calculated as a set amount or a percentage of the fee that we would have received had the transaction closed . story_separator_special_tag real estate brokerage commissions we earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking to sell or investors seeking to buy properties . revenues from real estate brokerage commissions are typically recognized at the close of escrow . 39 financing fees we earn financing fees by securing financing on purchase transactions or by securing refinancing of our clients ' existing mortgage debt . we recognize financing fee revenues at the time the loan closes and we have no remaining significant obligations for performance in connection with the transaction . to a lesser extent , we also earn ancillary fees associated with financing activities . other revenues other revenues include fees generated from consulting and advisory services performed by our investment sales professionals , as well as referral fees from other real estate brokers . revenues from these services are recognized as they are performed and completed . operating expenses our operating expenses consist of cost of services , selling , general and administrative expenses and depreciation and amortization . the significant components of our expenses are further described below . cost of services the majority of our cost of services expense is commission expense . commission expenses are directly attributable to providing services to our clients for investment sales and financing services . most of our investment sales and financing professionals are independent contractors and are paid commissions ; however , there are some who are initially paid a salary and certain of our financing professionals are employees and , as such , costs of services also include employee-related compensation , employer taxes and benefits for those employees . the commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals . some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual revenue thresholds . these additional commissions are recognized as cost of services in the period in which they are earned as they relate to specific transactions closed . payment of a portion of these additional commissions are generally deferred for a period of three years , at the company 's election , and paid at the beginning of the fourth calendar year . cost of services also includes referral fees paid to other real estate brokers where the company is the principal service provider . cost of services , therefore , can vary based on the commission structure of the independent contractors that closed transactions in any particular period . selling , general and administrative expenses the largest expense component within selling , general and administrative expenses is personnel expenses for our management team and sales and support staff . in addition , these costs include facilities costs ( excluding depreciation and amortization ) , staff related expenses , sales , marketing , legal , telecommunication , network , data sources and other administrative expenses . also included in selling , general and administrative are expenses for stock-based compensation to non-employee directors , employees and independent contractors ( i.e . investment sales and financing professionals ) under the 2013 omnibus equity incentive plan ( 2013 plan ) and the 2013 employee stock purchase plan ( 2013 espp plan ) . depreciation and amortization expense depreciation and amortization expense consists of depreciation and amortization recorded on our computer software and hardware and furniture , fixture and equipment . depreciation and amortization are provided over estimated useful lives ranging from three to seven years for owned assets or over the lesser of the asset estimated useful lives or the related lease term for leasehold improvements . 40 other income ( expense ) , net other income ( expense ) , net primarily consists of net gains or losses on our deferred compensation plan assets , interest income and realized gains and losses on our marketable securities , available-for-sale , foreign currency gains and losses and other non-operating gains and losses . interest expense interest expense primarily consists of interest expense associated with the sars liability , notes payable to former stockholders and our credit agreement . provision for income taxes we are subject to u.s. and canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate . our effective tax rate fluctuates as a result of the change in the mix of our activities in the jurisdictions in which we operate due to differing tax rates in those jurisdictions . our provision for income taxes excludes the windfall benefits from shares issued in connection with our 2013 plan and 2013 espp plan . story_separator_special_tag marketable securities , available-for-sale , due to a security sold during 2016 , which no longer met our investment policy criteria . 43 interest expense there were no significant changes in interest expenses in 2016 as compared to 2015. provision for income taxes the provision for income taxes was $ 42.4 million for 2016 as compared to $ 47.0 million in 2015 , a decrease of $ 4.6 million or 9.7 % . the effective tax rate for 2016 was 39.6 % , compared with 41.5 % in 2015. the decrease in the effective tax rate was primarily due to the change in the company 's effective state tax rate on deferred taxes in 2015 , which was minimal in 2016 , lower net operating losses for our canadian operations in 2016 , which are subject to a full valuation allowance and other permanent items , primarily gains on company owned variable life insurance policies . the provisions for income taxes excludes the difference in book and tax deductions associated with the settlement of shares under the company 's 2013 plan and disqualifying dispositions of shares issued from our 2013 espp plan . such tax benefits , which aggregated $ 2.7 million in 2016 and $ 6.2 million in 2015 , respectively , were recorded directly to additional paid-in capital .
| revenues from real estate brokerage commissions increased to $ 662.2 million in 2016 from $ 632.6 million in 2015 , an increase of $ 29.6 million or 4.7 % . the increase was driven by a combination of the growth in the number of investment sales transactions ( 2.3 % ) and average transaction size ( 9.9 % ) , partially offset by a decrease in average commission rates ( 15 basis points ) due to a larger proportion of our transactions that closed in the > $ 20 million larger transaction market segment , which generate lower commission rates . 42 financing fees . revenues from financing fees increased to $ 43.4 million in 2016 from $ 42.6 million in 2015 , an increase of $ 0.9 million or 2.1 % . the increase was driven by an increase in the number of loan transactions ( 3.1 % ) due to an increase in the average number of financing professionals ( 15.3 % ) , partially offset by a decrease in average fee rates ( 2 basis points ) due in part to fees from certain larger loan transactions during 2016 as compared to 2015. larger loan transactions generally earn a lower fee percentage . other revenues . other revenues decreased to $ 11.8 million in 2016 from $ 13.9 million in 2015 , a decrease of $ 2.1 million or 15.3 % . the decrease was primarily driven by a decrease in consulting and advisory services during 2016 as compared to 2015. operating expenses our total operating expenses were $ 610.9 million in 2016 compared to $ 574.4 million in 2015 , an increase of $ 36.5 million , or 6.4 % . expenses increased primarily due to an increase in cost of services , which is predominantly variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities . selling , general and administrative costs and to a lesser extent depreciation and amortization increased as well , as described below . cost of services .
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accordingly , these are the policies management believes are the most critical to aid in fully understanding and evaluating the company 's financial condition and results of operations . revenue recognition the company generates revenue through the sale of enterprise video content management software , hardware , maintenance and support , and professional and other services . software sales may take the form of a perpetual software license , a cloud-hosted software as a service ( saas ) or a term software license . software licenses and appliances revenue includes sales of perpetual software licenses and hardware . service revenue includes saas , term software licenses , maintenance and support , and professional and other services . an individual sale can range from single year agreements for thousands of dollars to multi-year agreements for over a million dollars . the company follows a five-step model to assess each contract of a sale or service to a customer : identify the legally binding contract , identify the performance obligations , determine the transaction price , allocate the transaction price , and determine whether revenue will be recognized at a point in time or over time . revenue is recognized upon transfer of control of promised products or services ( i.e. , performance obligations ) to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for promised goods or services . the company 's performance obligations are satisfied either over time ( for cloud-hosted software as a service , maintenance and support , and other services ) or at a point in time ( for software licenses and hardware ) . the company enters into contracts that can include various combinations of software licenses , appliances , maintenance and services , some of which are distinct and are accounted for as separate performance obligations . for contracts with multiple performance obligations , the company allocates the transaction price of the contract to each distinct performance obligation , on a relative basis using its standalone selling price . the company determines the standalone selling price for software-related elements , including professional services and software maintenance and support contracts , based on the price charged for the deliverable when sold separately . with the adoption of asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) and the related amendments ( `` topic 606 '' ) beginning january 1 , 2018 , the company had a change in the accounting for revenue of its on-premise term software license arrangements . under the company 's previous revenue accounting ( `` topic 605 '' ) , the term software license and technical support elements of the combined bundle were recognized over time . in contrast , topic 606 requires the company to identify the performance obligations in the contract – that is , those promised goods and services ( or bundles of promised goods or services ) that are distinct – and allocate the transaction price of the contract to those performance obligations on the basis of standalone selling prices . the transaction price allocated to each performance obligation is then recognized either at a point in time or over time using an appropriate measure of progress . under topic 606 , the company has concluded that its on-premise term software licenses and technical support for its on-premise term software licenses are distinct from each other . as a result , the software license is now recognized upon transfer of control , which is at fulfillment , resulting in earlier revenue recognition . the revenue allocable to technical support continues to be recognized ratably over the non-cancellable committed term of the agreement . other items relating to charges collected from customers include shipping and handling charges and sales taxes charges . shipping and handling charges collected from customers as part of the company 's sales transactions are included in revenues and the associated costs are included in cost of revenues . sales taxes charged to and collected from customers as part of the company 's sales transactions are excluded from revenues and recorded as a liability to the applicable governmental taxing authority . perpetual software licenses the company 's perpetual software license arrangements grant customers the right to use the software indefinitely as it exists at the time of purchase . the company recognizes revenue for distinct software licenses once the license period has begun and the 21 software has been made available to the customer . payments for perpetual software license contracts are generally received upon fulfillment of the software product . term software licenses the company 's term software licenses differ from perpetual software licenses in that the customer 's right to use the licensed product has a termination date . prior to the adoption of topic 606 , these licenses were recognized ratably over the contractual term , beginning on the commencement date of each contract , which is typically the date the company 's product has been fulfilled . under the provisions of topic 606 , term software licenses are now recognized upon transfer of control , which is typically at fulfillment , resulting in up-front revenue recognition . the company categorizes revenue from term software licenses as subscription , maintenance and support revenue in service revenues . payments are generally received quarterly or annually in equal or near equal installments over the term of the agreement . cloud-hosted software as a service cloud-hosted software as a service ( saas ) arrangements grant customers the right to access and use the licensed products at the outset of an arrangement via third-party cloud providers . updates are generally made available throughout the entire term of the arrangement , which is generally one to three years . the company provides an online library and technical support resources in these cloud-hosted saas arrangements , which in conjunction with the saas license constitute a single , combined performance obligation , and revenue is recognized over the term of the license . payments are generally received annually in advance of the service period . story_separator_special_tag hardware the company sells appliances that are typically drop shipped from third-party suppliers selected by the company . the transaction price allocated to the appliance is generally recognized as revenue at fulfillment when the customer obtains control of the product . payments for appliances are generally received upon delivery of the hardware product . maintenance and support maintenance and support arrangements grant customers the right to software updates and technical support over the term of the maintenance and support contract . revenue from maintenance and support is generally recognized ratably over the contract term beginning on the commencement date of each contract , which is upon fulfillment of the software obligation . payments are generally received annually in advance of the service period . professional services and training professional services and training generally consist of software implementation , on-boarding services and best practices consulting . revenue from professional services contracts is typically recognized as performed , generally using hours expended to measure progress . services are generally invoiced monthly for work performed . derivative liability in conjunction with the debt financings completed in october 2016 and january 2018 , the company issued two warrants for the purchase of up to an aggregate of 1,239,286 shares of the company 's common stock and on august 31 , 2018 , issued a separate warrant to a sales partner for the purchase of up to 100,000 shares of the company 's common stock . all warrants remained unexercised and outstanding at december 31 , 2018 . the company accounts for the warrants , which are derivative financial instruments , as a current liability based upon the characteristics and provisions of the instruments . the warrants were determined to be ineligible for equity classification because of provisions that allow the holder under certain circumstances , essentially the sale of the company as defined in the warrant agreements , to receive cash payment in lieu of the company 's common shares . a warrant liability is recorded in the company 's consolidated balance sheets at its fair value on the date of issuance and is revalued on each subsequent balance sheet date until such instrument is exercised or expires , with any changes in the fair value between reporting periods recorded as other income or expense . the company estimates the fair value of this liability using option pricing models that are based on the individual characteristics of the warrants on the valuation date , which include assumptions for expected volatility , expected life and risk-free interest rate , as well as the present value of the minimum cash payment component of the instrument for the warrants , when applicable . changes in the assumptions used could have a material impact on the resulting fair value . the primary inputs affecting the value of the warrant liability are the company 's stock price and volatility in the company 's stock price , as well as assumptions about the probability and timing of certain events , such as a change in control or future equity offerings . increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability ; conversely , decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the fair value of the warrant liability . 22 royalties for third-party technology royalties for third-party technology are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid . these royalties are generally expensed to cost of revenue generally at the greater of a rate based on the contractual or estimated term or an effective royalty rate based on the total projected net revenue for contracts with guaranteed minimums . each quarter , the company also evaluates the expected future realization of its prepaid royalties , as well as any minimum commitments not yet paid to determine amounts it deems unlikely to be realized through product sales . any impairments or losses determined before the launch of a product are generally charged to general and administrative expense , and any impairments or losses determined post-launch are charged to cost of revenue . unrecognized minimum royalty-based commitments are accounted for as executory contracts , and therefore , any losses on these commitments are recognized when the underlying intellectual property is abandoned ( i.e. , cease use ) or the contractual rights to use the intellectual property are terminated . results of operations the percentage relationships to revenues of certain income and expense items for the years ended december 31 , 2018 , 2017 and 2016 , and the percentage changes in these income and expense items between years , are contained in the following table ( all amounts presented reflect only the financial results of the company 's continuing enterprise video content management software business ) : replace_table_token_4_th revenues the company generates revenue through the sale of enterprise video content management software , hardware , maintenance and support , and professional and other services . software sales may take the form of a perpetual software license , a cloud-hosted software as a service ( saas ) or a term software license . software licenses and appliances revenue includes sales of perpetual software licenses and hardware . service revenue includes saas , term software licenses , maintenance and support , and professional and other services . the table below describes qumu 's revenues by product category ( dollars in thousands ) : replace_table_token_5_th revenues can vary year to year based on the type of contract the company enters into with each customer . the $ 3.2 million decrease in total revenues from 2017 to 2018 reflects a $ 3.0 million decrease in service revenues and a $ 168,000 decrease in software licenses and appliances revenues .
| professional service revenue contingent on a customer 's acceptance , which was received in the fourth quarter of 2016. future consolidated revenues will be dependent upon many factors , including the rate of adoption of the company 's software solutions in its targeted markets and whether arrangements with customers are structured as a software license or a saas , which impacts the timing of revenue recognition . other factors that will influence future consolidated revenues include the timing of customer orders and renewals , the product and service mix of customer orders , the impact of changes in economic conditions and the impact of foreign currency exchange rate fluctuations . cost of revenues and gross profit a comparison of gross profit and gross margin by revenue category is as follows ( dollars in thousands ) : replace_table_token_6_th for the years ended december 31 , 2018 , 2017 and 2016 , gross margins are inclusive of the impact of approximately $ 1.0 million , $ 1.2 million and $ 1.3 million , respectively , in amortization expense associated with intangible assets acquired as a result of the acquisition of qumu , inc. in the fourth quarter of 2011 and kulu valley in the fourth quarter of 2014. the company had 18 , 26 and 28 service personnel at december 31 , 2018 , 2017 and 2016 , respectively . severance expense included in cost of revenues relating to cost reduction initiatives was $ 116,000 in 2016 and was insignificant for 2018 and 2017 . gross margin percentages by category and in total increased for both 2018 and 2017 , compared to the respective prior years . the 2.4 % improvement in gross margin in 2018 , compared to 2017 , was primarily driven by a 3.0 % improvement in service gross margin due to lower royalty expense associated with third-party software licenses , fewer service personnel and decreased amortization expense as
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recent developments in november 2017 , we completed a secondary offering pursuant to which stockholders sold an aggregate of 4,370,000 shares of class a common stock at a price of $ 20.25 per share , including 570,000 shares pursuant to the underwriters ' option to purchase additional class a shares . we did not receive any proceeds from the sale of the shares of our class a common stock offered in the secondary offering . our business model our business model focuses on maximizing the lifetime value of customer relationships , which is a function of the duration of a customer 's deployment of appian as well as the price and number of subscriptions of appian that a customer purchases . the costs we incur with respect to any customer may exceed revenue from that customer in earlier periods because we generally recognize costs associated with customer acquisition faster than we generate and recognize the associated revenue . we incur significant customer acquisition costs , including expenses associated with hiring new sales representatives , who generally take more than one year to become productive given the length of our sales cycle , and marketing costs , all of which are expensed as incurred . our customer contract terms vary from one to five years , with an average length of three years , with most providing for payment in advance on an annual , quarterly or monthly basis , and we recognize subscription revenue ratably over the term of the subscription period . at the same time , we believe that the costs we incur to retain customers and drive additional purchases of software are lower than our customer acquisition costs on a relative basis . over time , we expect a large portion of our customers to renew their subscriptions and purchase additional subscriptions as they continue to build more applications and add more users to our platform . over the last three completed fiscal years , we had an average subscription renewal rate of 95 % . we calculate our subscription renewal rate by dividing ( i ) the subscription revenue from renewing customers in the current 12-month period that were customers during the entirety of the prior 12-month period , giving effect to price increases but excluding additional subscriptions for additional users , or upsells , by ( ii ) our subscription revenue from all customers in the corresponding prior 12-month period that were customers during the entirety of such prior 12-month period . for example , to obtain our subscription renewal rate for the 12-month period ended december 31 , 2017 , we identified the amount of subscription revenue in 2017 from customers that were our customers for all of 2016 , and subtracted the amount of upsells to such customers in 2017. we then divided the balance of 2017 subscription revenue from such customers by all subscription revenue generated in 2016 from customers that were customers for the entirety of 2016. with respect to the average for our last three completed fiscal years , we calculated the average of the three applicable 12-month periods . we also expect the proportion of annual revenue from existing customers to grow relative to annual revenue from new customers . we believe this mix shift over time will have a positive impact on our operating margins , as we expect the percentage of revenue spent on sales and marketing to decline . we measure the effectiveness of our business model by comparing the lifetime value of our customer relationships to our customer acquisition costs . we calculate lifetime customer value as ( 1 ) average gross margin multiplied by average subscription and maintenance and support revenue from customers for a given month divided by ( 2 ) the average percentage of monthly recurring revenue that did not renew in each month for the previous 12 months . we then divide this calculated lifetime customer value by our customer acquisition cost , which is the total sales and marketing expense incurred during the corresponding month . on a rolling twelve month basis , we estimate that for each of 2017 , 2016 and 2015 the average lifetime value of a customer has exceeded 7x the associated average cost of acquiring them . key factors affecting our performance the following are several key factors that affect our performance : market adoption of our platform . our ability to grow our customer base and drive market adoption of our platform is affected by the pace at which organizations digitally transform . we expect that our revenue growth will be primarily driven by the pace of adoption and penetration of our platform . we offer a leading custom software development platform and intend to continue to invest to expand our customer base . the degree to which prospective customers 49 recognize the need for low-code software that enables organizations to digitally transform , and subsequently allocate budget dollars to purchase our software , will drive our ability to acquire new customers and increase sales to existing customers , which , in turn , will affect our future financial performance . growth of our customer base . we believe we have a substantial opportunity to grow our customer base . we define a customer as an entity with an active subscription or maintenance and support contract related to a perpetual software license as of the specified measurement date . to the extent we contract with one or more entities under common control , we count those entities as separate customers . we have aggressively invested , and intend to continue to invest , in our sales force in order to drive sales to new customers . in particular , we have recently made , and plan to continue to make , investments to enhance the expertise of our sales and marketing organization within our key industry verticals of financial services , healthcare and government . in addition , we have established relationships with strategic partners who work with organizations undergoing digital transformations . story_separator_special_tag we had a total customer count of 356 , 280 and 266 as of december 31 , 2017 , 2016 and 2015 , respectively , which includes customers with active software subscription agreements or with maintenance and support contracts , and our number of customers with active software subscription agreements was 291 , 206 and 178 as of december 31 , 2017 , 2016 and 2015 , respectively . as of december 31 , 2017 , 29 % of our commercial customers were global 2000 organizations and included 44 fortune 500 companies . our ability to continue to grow our customer base is dependent , in part , upon our ability to compete within the increasingly competitive markets in which we participate . further penetration of existing customers . our sales force seeks to generate additional revenue from existing customers by adding new users to our platform . many of our customers begin by building a single application and then grow to build dozens of applications on our platform . generally , the development of new applications on our platform results in the expansion of our user base within an organization and a corresponding increase in revenue to us because we charge subscription fees on a per-user basis for the significant majority of our customer contracts . as a result of this “ land and expand ” strategy , we have generated significant additional revenue from our customer base . our ability to increase sales to existing customers will depend on a number of factors , including the size of our sales force and professional services teams , customers ' level of satisfaction with our platform and professional services , pricing , economic conditions and our customers ' overall spending levels . mix of subscription and professional services revenue . we believe our professional services have driven customer success and facilitated the adoption of our platform by customers . during the initial period of deployment by a customer , we generally provide a greater amount of support in building applications and training than later in the deployment , with a typical engagement extending from two to six months . at the same time , many of our customers have historically purchased subscriptions only for a limited set of their total potential end users . as a result of these factors , the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period . over time , as the need for professional services associated with user deployments decreases and the number of end users increases , we expect the mix of total revenue to shift more toward subscription revenue . in addition , we intend to further grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities . these partners perform professional services with respect to any new service contracts they sign . as we expand the network of strategic partners , we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services . in 2017 , 2016 and 2015 , 51.8 % , 52.6 % and 47.8 % of our revenue , respectively , was derived from sales of subscriptions , software and support , while the remaining 48.2 % , 47.4 % and 52.2 % , respectively , was derived from the sale of professional services . investments in growth . we have made and plan to continue to make investments for long-term growth , including investment in our platform and infrastructure to continuously maximize the power and simplicity of the platform to meet the evolving needs of our customers and to take advantage of our market opportunity . we intend to continue to increase our investment in sales and marketing , as we further expand our sales teams , increase our marketing activities and grow our international operations . we expect to use a portion of the proceeds from our ipo to fund these growth strategies . 50 key metrics we monitor the following metrics to help us measure and evaluate the effectiveness of our operations ( dollars in thousands ) : replace_table_token_6_th replace_table_token_7_th subscription revenue subscription revenue is a portion of our revenue contained in the subscriptions , software and support revenue line of our consolidated statements of operations , and includes ( 1 ) software as a service , or saas , subscriptions bundled with maintenance and support and hosting services , and ( 2 ) term license subscriptions bundled with maintenance and support . as we generally sell our software on a per-user basis , our subscription revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform , as well as the price paid . we believe that increasing our subscription revenue is an indicator of the demand for our platform , the pace at which the market for our solutions is growing , the productivity of our sales force and strategic relationships in growing our customer base , and our ability to further penetrate our existing customer base . subscription revenue retention rate a key factor to our success is the renewal and expansion of subscription agreements with our existing customers . we calculate this metric over a set of customers who have been with us for at least one full year . to calculate our subscription revenue retention rate for a particular trailing 12-month period , we first establish the recurring subscription revenue for the previous trailing 12-month period . this effectively represents recurring dollars that we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction . we subsequently measure the recurring subscription revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period . subscription revenue retention rate is then calculated by dividing the aggregate recurring subscription revenue in the current trailing 12-month period by the previous trailing 12-month period .
| personnel costs increased due to $ 1.9 million in stock-based compensation expense and an increase in the number of experienced professional services employees in 2017 . billable expenses increased because we had more professional services engagements in 2017 as compared to 2016. the increase in other cost of revenue is due to increased hosting costs as sales of our cloud offering increased in 2017 . the decrease in facility and overhead costs was due to decreased rent expense . gross margin increased to 63.5 % in 2017 compared to 62.3 % in 2016 due to an increase in the gross margin of our subscriptions , software and support revenue as well as our professional services revenue . our revenue mix remained relatively constant in 2017 compared to 2016 . the gross margin of our professional services revenue in 2016 was negatively impacted by temporarily low utilization of professional services resources as they were being redeployed after the completion of a large engagement in the prior quarter . sales and marketing expense replace_table_token_18_th sales and marketing expense increased $ 27.8 million , or 51.4 % , in 2017 compared to 2016 , primarily due to a $ 21.2 million increase in sales and marketing personnel costs , a $ 3.5 million increase in facility and overhead costs , a $ 2.8 million increase in marketing costs and a $ 0.3 million increase in professional fees . personnel costs increased due to $ 3.2 million in stock-based compensation expense in 2017 , an increase in sales and marketing personnel headcount by 29.0 % from december 31 , 2016 to december 31 , 2017 , and increased sales commissions driven by our revenue growth . facility and overhead costs increased to support our personnel growth . marketing costs increased due to a rise in marketing event sponsorship and attendance . professional fees increased due to an increase in consulting fees . 59 research and development expense replace_table_token_19_th research
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if the sba reviews our loan or application , then it may take longer than 90 days for any determination to be made as to whether the note will be forgiven in whole , in part or at all . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the u.s. ( “ u.s . gaap ” ) requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to bad debts , contingencies , goodwill , income taxes , intangible assets , marketable securities , property and equipment and revenue recognition . we base our estimates on historical experience and on other assumptions we believe to be reasonable in the circumstances . actual results may differ from these estimates under different assumptions or conditions . some of our accounting policies require higher degrees of judgment than others in their application . 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 : revenue is recognized in accordance with asc 606 by applying the following steps : step 1 : identify the contract ( s ) with a customer . step 2 : identify the performance obligation ( s ) in the contract . step 3 : determine the transaction price . step 4 : allocate the transaction price to the performance obligation ( s ) in the contract . step 5 : recognize when ( or as ) the entity satisfies the performance obligation ( s ) . we derive our revenue primarily from software development services and software subscriptions . applicable revenue recognition criteria are considered separately for each performance obligation as follows : service revenue consists primarily of revenue earned from the performance of software development services . the majority of service contracts are structured as time and materials agreements . revenue for services is generally recognized as the services are performed . billing for services rendered generally occurs within one month after the services are provided . subscription revenue consists primarily of revenue earned from the sale of software products and to a lesser extent the licensing of intellectual property . the majority of subscription contracts are recurring , paid in advance and recognized over the term of the subscription , which is typically one to three years . customer arrangements may contain multiple performance obligations such as software development services , software products , and maintenance and support fees . we account for individual products and services separately if they are distinct . to determine the transaction price , we consider the terms of the contract and our customary business practices . some contracts may contain variable consideration . in those cases , we estimate the amount of variable consideration based on the sum of probability-weighted amounts in a range of possible consideration amounts . as part of this assessment , we will evaluate whether any of the variable consideration is constrained and if it is , we will not include it in the transaction price . the consideration is allocated between distinct products and services based on their stand-alone selling prices . for items that are not sold separately , we estimate the standalone selling price based on reasonably available information , including market conditions , specific factors affecting us , and information about the customer . for distinct products and services , we typically recognize the revenue associated with these performance obligations as they are delivered to the customer . products and services that are not capable of being distinct are combined with other products or services until a distinct performance obligation is identified . all revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers . 23 results of operations—the years ended december 31 , 2020 and december 31 , 2019 the following tables present our consolidated statements of operations data for the periods indicated . replace_table_token_0_th replace_table_token_1_th story_separator_special_tag style= '' color : # 000000 ; '' > professional services and outside contractors costs for product and marketing initiatives ; and charges for infrastructure and centralized costs of facilities and information technology . 27 the decrease in sales and marketing expenses was primarily due to : decreased travel costs of $ 0.8 million due to travel restrictions related to the covid-19 pandemic ; decreased consulting and marketing costs of $ 0.5 million ; and decreased training and recruiting costs of $ 0.2 million ; partially offset by increased compensation costs of $ 0.4 million ; and non-recurring severance costs related to our july 2020 restructuring plan of $ 0.2 million . research , development and engineering replace_table_token_7_th research , development and engineering expenses arise primarily from three areas that support our business model : fundamental research : investigation of new digital watermarking algorithms to increase robustness and or computational efficiency ; research of mobile device usage models and imaging sub-systems in camera-phones ; industry conference participation and authorship of papers for industry journals ; development of new intellectual property , including documentation of claims and production of supporting diagrams and materials ; research in multi-spectral analyses , machine learning , machine readable indicia and other content identification technologies ; investigation of substrates , printing techniques and printing technology relating to consumer packaged goods and thermal labels ; study and analysis of optimal illumination and imaging parameters to enable detection of digimarc barcode in high-speed sorting environments ; creation of models and sampling methodologies to enable recovering of digimarc barcode from highly soiled and highly distorted ( e.g. , crushed ) objects ; and investigation and development of enhancement strategies for variety of manufacturing processes involved in the production and formation of plastic containers and objects . story_separator_special_tag platform development : tuning and optimization of implementation models to improve resistance to non-malicious attacks and routine transformations , such as jpeg , cropping and printing ; platform creation to leverage device-specific capabilities ( e.g. , instruction sets and graphics processing units ) ; embedded systems platform creation and tuning for barcode scanners , thermal label printers , and machine vision environments ; tuning big data analytics transformation and metrics aggregation engine ; tuning data-driven internet crawling infrastructure with policy-driven feedback loop ; assembly of master book publishing catalog based on aggregation and reconciliation of multiple public data sources ; 28 c reation of automated build pipelines and tools to ensure all elements of the platform are built in consistent , secure fashion ; and building of web api frameworks to simplify the packaging and delivery of existing digimarc platform components . product development : delivery and enhancement of digimarc barcode for an expanding list of applications , including packaging for consumer packaged goods , thermal labels for fresh foods and machine vision applications for manufacturing and recycling ; improvements to the digimarc barcode manager and digimarc barcode central to provide campaign management and routing services for the digimarc discover platform ; maintenance of the web-hosted image enhancement service in support of digimarc discover platform ; development and optimization of production level image enhancement tools and quality control services ; iterative development and release of the digimarc discover application for the ios and android platforms ; development of real-time analytics portal to support anti-piracy services for the publishing industry ; and delivery of digimarc enhancement tools that support variable data printing workflows . research , development and engineering expenses consist primarily of : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of software and hardware developers and quality assurance personnel ; payments to outside contractors ; the purchase of materials and services for product development ; and charges for infrastructure and centralized costs of facilities and information technology . the increase in research , development and engineering expenses was primarily due to : increased compensation costs of $ 0.6 million ; and non-recurring severance costs related to our july 2020 restructuring plan of $ 0.6 million ; partially offset by decreased travel costs of $ 0.1 million due to travel restrictions related to the covid-19 pandemic ; and decreased training and recruiting costs of $ 0.1 million . general and administrative replace_table_token_8_th we incur general and administrative costs in the functional areas of finance , legal , human resources , executive and board of directors . costs for facilities and information technology are also managed as part of the general and administrative processes and are allocated to this area as well as each of the areas in cost of revenue , sales and marketing , and research , development and engineering . 29 general and administrative expenses consist primarily of : compensation , benefits and incentive compensation in the form of stock-based compensation and related costs of general and administrative personnel ; third party and professional fees associated with legal , accounting and human resources functions ; costs associated with being a public company ; third party costs , including filing and governmental regulatory fees and fees for outside legal counsel and translation costs , related to the filing and maintenance of our intellectual property ; charges to write off previously capitalized patent costs for patent assets we abandon ; and charges for infrastructure and centralized costs of facilities and information technology . the increase in general and administrative expenses was primarily due to : increased compensation costs of $ 0.7 million ; and increased legal costs associated with financing activities and other matters of $ 0.2 million ; partially offset by decreased travel costs of $ 0.3 million due to travel restrictions related to the covid-19 pandemic ; and decreased consulting and contracting costs of $ 0.2 million . stock-based compensation replace_table_token_9_th the increases in stock-based compensation expense were primarily due to stock-based severance costs of $ 0.5 million related to our restructuring plan implemented in july 2020 and the impact of an additional year of stock awards to employees . we anticipate incurring an additional $ 14,416 in stock-based compensation expense through december 31 , 2024 for awards outstanding as of december 31 , 2020. other income , net replace_table_token_10_th the decrease in other income , net was primarily due to lower interest income reflecting lower interest rates earned on investments , partially offset by higher average investment balances . provision for income taxes the provision for income taxes reflects current taxes , deferred taxes and withholding taxes in certain foreign jurisdictions . for the year ended december 31 , 2020 , our effective tax rate was 0 % , reflecting a full valuation allowance recorded against our deferred tax assets . the valuation allowance against deferred tax assets as of december 31 , 2020 was $ 55.6 million , an increase of $ 7.8 million from $ 47.8 million as of december 31 , 2019. we continually assess the applicability of a valuation allowance against our deferred tax assets . based upon the positive and negative evidence available as of december 31 , 2020 , and largely due to the cumulative loss incurred by us over the preceding three years , which is considered a significant piece of negative evidence when assessing the realizability of deferred tax assets , a full valuation allowance is recorded against our deferred tax assets . we will not record tax benefits on any future losses until it is determined that those tax benefits will be realized . all future reversals of the valuation allowance would result in a tax benefit in the period recognized . 30 for the year ended december 31 , 2019 , our effective tax rate was 0 % , reflecting a full valuation allowance recorded against our deferred tax assets .
| the majority of subscription contracts are recurring , paid in advance and recognized over the term of the subscription , which is typically one to three years . the increase in subscription revenue was primarily due to growth in software subscriptions to retail and government customers , partially offset by the revenue impact of a renegotiated contract with a retail supplier partner in the first quarter of 2020. revenue by geography replace_table_token_3_th the increase in domestic revenue was primarily due to growth in revenue from our domestic government and retail customers . 25 the increase in international revenue w as primarily due to growth in revenue from an international government customer . revenue by market replace_table_token_4_th the increase in government revenue was primarily due to growth in revenue from the central banks . the increase in retail revenue was primarily due to the impact of new contracts entered into with retail customers partially offset by the revenue impact of a renegotiated contract with a retail supplier partner in the first quarter of 2020. the increase in media revenue was not significant . cost of revenue service . cost of service revenue primarily includes : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of our software developers , quality assurance personnel , design professionals , product managers , business development managers and other personnel where we bill our customers for time and materials costs ; payments to outside contractors that are billed to customers ; charges for equipment directly used by customers ; depreciation for machinery , equipment and software directly used by customers ; and travel costs that are billed to customers . subscription . cost of subscription revenue primarily includes : cost of outside contractors that provide operational support for our subscription products ; internet service provider connectivity charges and image search data fees to support our subscription products ; and amortization of capitalized patent costs and patent maintenance fees . 26 gross profit replace_table_token_5_th the increase in total gross profit was primarily due to higher service
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fees earned on rts increased $ 23.2 million , or 14.7 % , primarily due to elimination of certain price discounts and higher volumes for our online clients . pom revenue increased in fiscal year 2014 primarily due to improving claim experience and lower estimates of projected claims . total expenses increased $ 59.4 million , or 2.9 % , from the prior year . total compensation and benefits increased $ 76.5 million primarily due to higher variable field wages resulting from increased revenues and increases to in-office customer service support staff . occupancy and equipment expenses increased $ 9.2 million , or 2.6 % , primarily due to a 4.8 % increase in company-owned offices . marketing and advertising expenses declined $ 33.0 million due to a planned reduction in national advertising spend . depreciation and amortization expense increased $ 23.5 million , or 25.5 % , primarily due to office upgrades and competitor acquisitions . other expenses decreased $ 7.4 million , or 2.7 % , primarily due to declines in pom and related claims , partially offset by higher consulting and travel costs . other income increased $ 8.5 million primarily due to a $ 10.1 million gain on the sale of an intangible customer list asset . other expenses increased $ 25.4 million , primarily due to an other-than-temporary impairment on afs securities of $ 12.4 million , coupled with an increase of $ 12.8 million in foreign currency losses . pretax income for fiscal year 2014 increased $ 45.2 million , or 5.5 % , over the prior year . the pretax margin for the segment increased to 28.9 % in fiscal year 2014 from 28.5 % in fiscal year 2013 . corporate – interest expense declined $ 19.0 million , or 26.3 % , due to lower interest rates on our long-term debt , coupled with lower principal balances outstanding . other expenses increased $ 7.8 million , or 22.4 % , primarily due to higher consulting and insurance expenses . other income increased $ 15.2 million , primarily due to a gain of $ 18.3 million recognized on the sale of residual interests in mortgage securitizations , partially offset by lower accretion on those residuals . other expenses were essentially flat as higher foreign currency losses in fiscal year 2014 were offset by the loss on extinguishment of debt recorded in fiscal year 2013. discontinued operations – the net loss from our discontinued operations totaled $ 24.9 million for fiscal year 2014 , compared to a net loss of $ 31.2 million in fiscal year 2013 . pretax losses of mortgage operations totaled $ 38.5 million , compared to $ 52.1 million in fiscal year 2013 , and resulted primarily from loss provisions related to scc 's estimated contingent losses for representation and warranty claims of $ 25.0 million and $ 40.0 million for fiscal years 2014 and 2013 , respectively . contingent losses – scc has accrued a liability as of april 30 , 2015 for estimated contingent losses arising from representation and warranty claims of $ 149.8 million . the estimate of accrued loss is based on the best information currently available , significant management judgment , and a number of factors that are subject to change , including developments in case law and the factors , mentioned in `` critical accounting estimates '' below . changes in any one of these factors could significantly impact the estimate . losses may also be incurred with respect to various indemnification claims or reserved contribution rights by underwriters and depositors in securitization transactions in which scc participated . scc has not concluded that a 30 2015 form 10-k | h & r block , inc. loss is probable or reasonably estimable related to these indemnification claims or reserved contribution rights , therefore there is no accrued liability for these contingent losses as of april 30 , 2015 . see additional discussion in item 1a , `` risk factors , '' `` critical accounting estimates '' below and in item 8 , note 18 to the consolidated financial statements . critical accounting estimates we consider the estimates discussed below to be critical to understanding our financial statements , as they require the use of significant judgment and estimation in order to measure , at a specific point in time , matters that are inherently uncertain . specific methods and assumptions for these critical accounting estimates are described in the following paragraphs . we have reviewed and discussed each of these estimates with the audit committee of our board of directors . for all of these estimates , we caution that future events rarely develop precisely as forecasted and estimates routinely require adjustment and may require material adjustment . see item 8 , note 1 to the consolidated financial statements , which discusses accounting policies we have selected when there are acceptable alternatives and new or proposed accounting standards that may affect our financial reporting in the future . losses arising from representations and warranties – nature of estimates required . scc accrues a liability for losses related to representation and warranty claims when those losses are believed to be both probable and reasonably estimable . development of loss estimates is subject to significant management judgment , and estimates may vary significantly period to period . assumptions and approach used . scc has entered into tolling agreements with counterparties that have made a significant majority of previously denied representation and warranty claims . these tolling agreements toll the running of any applicable statute of limitations related to potential lawsuits regarding representation and warranty claims and other claims against scc . beginning in the fourth quarter of fiscal year 2013 and continuing through fiscal year 2015 , scc has been engaged in discussions with these counterparties regarding the bulk settlement of previously denied and potential future claims . story_separator_special_tag based on settlement discussions with certain counterparties , scc believes a bulk settlement approach , rather than the loan-by-loan resolution process , will be needed to resolve all of the representation and warranty and other claims that are the subject of these discussions . on december 5 , 2014 , scc entered into a settlement agreement to resolve certain of these claims . the amount paid under the settlement agreement was fully covered by prior accruals . in the event that the ongoing efforts to settle are not successful , scc believes claim volumes may increase or litigation may result . scc will continue to vigorously contest any request for repurchase when it has concluded that a valid basis for repurchase does not exist . scc 's decision whether to engage in bulk settlement discussions is based on factors that vary by counterparty or type of counterparty and include the considerations ( described below ) used by scc in determining its loss estimate . scc 's loss estimate for representation and warranty claims is based on the best information currently available , significant management judgment , and a number of factors that are subject to change , including developments in case law and the factors mentioned below . these factors include the terms of scc 's prior bulk settlements , the terms expected to result from ongoing bulk settlement discussions , and an assessment of , among other things , historical claim results , threatened claims , terms and provisions of related agreements , counterparty willingness to pursue a settlement , legal standing of counterparties to provide a comprehensive settlement , bulk settlement methodologies used and publicly disclosed by other market participants , the potential pro-rata realization of the claims as compared to all claims and other relevant facts and circumstances when developing its estimate of probable loss . scc believes that the most significant of these factors are the terms expected to result from ongoing bulk settlement discussions , which have been primarily influenced by the bulk settlement methodologies used and publicly disclosed by other market participants and the anticipated pro-rata realization of the claims of particular counterparties as compared to the anticipated realization if all claims and litigation were resolved together with payment of scc 's related administration and legal expense . changes in any one of the factors mentioned above could significantly impact the estimate . h & r block , inc. | 2015 form 10-k 31 sensitivity of estimate to change . it is reasonably possible that future representation and warranty losses may vary from the amounts accrued for these exposures . scc currently believes the aggregate range of reasonably possible losses in excess of amounts accrued is not material . this estimated range is based on the best information currently available , significant management judgment and a number of factors that are subject to change , including developments in case law and the factors listed above . the actual loss that may be incurred could differ materially from our accrual or the estimate of reasonably possible losses . scc has accrued a liability as of april 30 , 2015 for estimated contingent losses arising from representation and warranty claims of $ 149.8 million . scc accrued incremental loss provisions of $ 16 million in fiscal year 2015 , $ 25 million in fiscal year 2014 and $ 40 million in fiscal year 2013. if the amount that scc is ultimately required to pay with respect to claims and litigation related to its past sales and securitizations of mortgage loans , together with payment of scc 's related administration and legal expense , exceeds scc 's net assets , the creditors of scc , or a bankruptcy trustee if scc were to file or be forced into bankruptcy , may attempt to assert claims against us for payment of scc 's obligations . claimants may also attempt to assert claims or seek payment directly from the company even if scc 's assets exceed its liabilities . scc 's principal assets , as of april 30 , 2015 , total approximately $ 480 million and consist primarily of an intercompany note receivable and a deferred tax asset . we believe our legal position is strong on any potential corporate veil-piercing arguments ; however , if this position is challenged and not upheld , it could have a material adverse effect on our business and our consolidated financial position , results of operations and cash flows . the accrued liability does not include potential losses related to litigation and indemnification matters discussed in item 1a , `` risk factors '' and in item 8 , note 17 to the consolidated financial statements . also see item 8 , note 18 to the consolidated financial statements . litigation and related contingencies – nature of estimates required . we accrue liabilities related to certain legal matters for which we believe it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated . assessing the likely outcome of pending or threatened litigation , including the amount of potential loss , if any , is highly subjective . assumptions and approach used . we are subject to pending or threatened litigation claims and indemnification claims , which are described in item 8 , note 17 to the consolidated financial statements . it is our policy to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters , as well as ranges of probable losses . a determination of the amount of the liability required to be accrued , if any , for these contingencies is made after analysis of each known issue and an analysis of historical experience . in cases where we have concluded that a loss is only reasonably possible or remote , or is not reasonably estimable , no liability is accrued . sensitivity of estimate to change . it is reasonably possible that future litigation and related contingent losses may vary from the amounts accrued .
| return counts in our company-owned offices , excluding returns prepared in those offices acquired during fiscal year 2015 , declined 4.6 % . international tax preparation fees increased $ 7.6 million , or 3.8 % , due primarily to pricing changes , partially offset by unfavorable exchange rates . tax preparation fees from our u.s. diy business increased $ 25.3 million , or 12.3 % , primarily due to an 8.1 % increase in paid returns . the remaining increase is due to better monetization of new and existing clients and a higher number of more complicated returns . fees earned on rts decreased $ 10.3 million , or 5.7 % , primarily due to lower assisted return volumes . revenue from fees for our pom is initially deferred , and recognized over the term of the service plan based on actual claims paid in relation to projected claims . revenue decreased $ 8.1 million , or 9.1 % , in fiscal year 2015 primarily due to a change in projected claims that resulted in an increase in revenue recognized last year . total expenses increased $ 108.6 million , or 5.1 % , from the prior year . total compensation and benefits increased $ 26.9 million primarily due to higher variable field wages resulting from increased revenues and increased training costs . occupancy and equipment expenses increased $ 11.8 million , or 3.2 % , primarily due to a 4.6 % increase in company-owned offices resulting from franchise acquisitions . marketing and advertising expenses increased $ 34.7 million due to a planned increase in national advertising spend as part of our current year marketing strategy . depreciation and amortization expense increased $ 44.3 million , or 38.4 % , primarily due to acquisitions of franchisee and competitor businesses and improvements to existing offices . other expenses decreased $ 18.6 million , or 7.1 % , primarily due to lower litigation and consulting costs in the current year . other income declined $ 9.9 million primarily due to
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to 3.89 % for 2012 , compared to 3.94 % for 2009. the following table sets forth selected financial ratios : replace_table_token_2_th 26 effect of economic trends the twelve months ended december 31 , 2011 continue to reflect the turbulent economic conditions and continued weakness in the financial markets which have negatively impacted the liquidity and credit quality of financial institutions in the united states . concerns regarding increased credit losses from the weakening economy have negatively affected capital and earnings of most financial institutions . nationally , financial institutions have experienced significant declines in the value of collateral for real estate loans and heightened credit losses , which have resulted in record levels of nonperforming assets , charge-offs and foreclosures . although management can not be certain , it expects weak economic conditions to persist in 2012. financial institutions likely will continue to experience heightened credit losses and higher levels of nonperforming assets , charge-offs and foreclosures . in light of these conditions , financial institutions also face heightened levels of scrutiny from federal and state regulators . financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . a variety and wide scope of economic factors affect financial 's success and earnings . although interest rate trends are one of the most important of these factors , financial believes that interest rates can not be predicted with a reasonable level of confidence and therefore does not attempt to do so with complicated economic models . management believes that the best defense against wide swings in interest rate levels is to minimize vulnerability at all potential interest rate levels . rather than concentrate on any one interest rate scenario , financial prepares for the opposite as well , in order to safeguard margins against the unexpected . the downward trend in short term interest rates beginning in the last quarter of 2007 was due to the actions of the federal open market committee ( fomc ) resulting from a weakening economy . the federal funds target rate set by the federal reserve has remained at 0.00 % to 0.25 % since december 2008 , following a decline from 4.25 % in december 2007 through a series of rate reductions . as liquidity increased as a result of open market operations and other government actions , longer-term interest rates decreased and the yield curve remains positively sloped . although it can not be certain , management believes that short term interest rates will remain stable for at least the first two quarters of 2012. an increase in long-term interest rates likely would have an adverse impact on the mortgage division , primarily due to reduced refinancing opportunities . the treasury department , the fdic and other governmental agencies continue to enact rules and regulations to implement the eesa , tarp , the financial stability plan , the recovery act and related economic recovery programs , many of which contain limitations on the ability of financial institutions to take certain actions or to engage in certain activities if the financial institution is a participant in the tarp capital purchase program or related programs . future regulations , or enforcement of the terms of programs already in place , may require financial institutions to raise additional capital and result in the conversion of preferred equity issued under tarp or other programs to common equity . although the company did not participate in tarp and therefore should not be directly impacted by the foregoing , there can be no assurance as to the actual impact of these programs or any other governmental program on the financial markets . stock dividends on may 19 , 2010 , financial declared a 10 % stock dividend , which was paid on july 23 , 2010 to shareholders of record on june 21 , 2010. except as otherwise described in this report , all share amounts and dollar amounts per share in this report with regard to the common stock have been adjusted to reflect these and all prior stock dividends . 27 critical accounting policies financial 's financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the financial information contained within our statements is , to a significant extent , based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing an expense , recovering an asset or relieving a liability . the bank uses historical loss factors as one factor in determining the inherent loss that may be present in the loan portfolio . actual losses could differ significantly from the historical factors that the bank uses in estimating risk . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of financial 's transactions would be the same , the timing of events that would impact the transactions could change . the allowance for loan losses is management 's estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two basic principles of accounting : ( i ) asc 450 , contingencies , which requires that losses be accrued when they are probable of occurring and are reasonably estimable and ( ii ) asc 310 , impairment of a loan , which requires that losses on impaired loans be accrued based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . guidelines for determining allowances for loan losses are also provided in the sec staff accounting bulletin no . 102 selected loan loss allowance methodology and documentation issues and the federal financial institutions examination council 's interagency guidance , interagency policy statement on the allowance for loan and lease losses ( the ffiec policy statement ) . story_separator_special_tag see management discussion and analysis results of operations allowance for loan losses and loan loss reserve below for further discussion of the allowance for loan losses . because financial has a relatively short operating history , historical trends alone do not provide sufficient information to judge the adequacy of the allowance for loan losses . therefore , management considers industry trends , peer comparisons , as well as individual classified impaired loans , in addition to historical experience to evaluate the allowance for loan losses . our method for determining the allowance for loan losses is discussed more fully under provision and allowance for loan losses for the bank below . story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > 31 noninterest income of financial noninterest income has been and will continue to be an important factor for increasing our profitability . we recognize this and our management continues to review and consider areas where noninterest income can be increased . noninterest income ( excluding securities gains and losses ) consists mortgage loan origination fees , service fees , distributions from a title insurance agency in which we have an ownership interest , and fees generated by the investment services of investment . service fees consist primarily of monthly service and minimum account balance fees and charges on transactional deposit accounts , overdraft charges , and atm service fees . the bank , through the mortgage division originates both conforming and non-conforming consumer residential mortgage loans primarily in the region 2000 area . as part of the bank 's overall risk management strategy , all of the loans originated and closed by the mortgage division are presold to mortgage banking or other financial institutions . the mortgage division assumes no credit or interest rate risk on these mortgages . because the overall mortgage loan market was suppressed , during 2011 as a result of continued declines in real estate values and a difficult credit market , mortgage loan origination decreased . the mortgage division originated 290 mortgage loans , totaling $ 49,481,000 in 2011 as compared with 374 mortgage loans , totaling $ 75,582,000 during the year ended december 31 , 2010. in 2011 , the mortgage division faced a declining real estate market and loans for new home purchase comprised 37 % of the total volume . refinancing increased significantly in response to continued historical low interest rates . for the year ended december 31 , 2011 , the mortgage division accounted for 4.49 % of financial 's total revenue as compared with 6.03 % of financial 's total revenue for the year ended december 31 , 2010. mortgage contributed $ 158,653 and $ 263,000 to financial 's pre-tax net income in 2011 and 2010 , respectively . management anticipates that residential mortgage rates will remain low by historical standards throughout 2012. despite this decrease , the mortgage division continues to improve its market share in region 2000. management expects that low rates coupled with the mortgage division 's reputation in region 2000 will allow us to continue to grow revenue at the mortgage division . service charges and fees and commissions decreased to $ 1,149,000 for the year ended december 31 , 2011 from $ 1,344,000 for the year ended december 31 , 2010. this decrease was due in large part to a decrease in commissions earned on the sale of securities to $ 69,000 for the year ended december 31 , 2011 from $ 276,000 for the year ended december 31 , 2010. the decrease was offset in part an increase in debit card fees which increased to $ 505,000 for the year ended december 31 , 2011 from $ 403,000 for the year ended december 31 , 2010. our investment division provides brokerage services through an agreement with a third-party broker-dealer . pursuant to this arrangement , the third party broker-dealer operates a service center adjacent to one of the branches of the bank . the center is staffed by dual employees of the bank and the broker-dealer . investment receives commissions on transactions generated and in some cases ongoing management fees such as mutual fund 12b-1 fees . the investment division 's financial impact on our consolidated revenue has been immaterial . although management can not predict the financial impact of investment with certainty , management anticipates it will continue to be an immaterial component of revenue in 2012. in the third quarter of 2008 , we began providing insurance and annuity products to bank customers and others , through the bank 's insurance subsidiary . the bank has one full-time and one part-time employee that are dedicated to selling insurance products through insurance . insurance generates minimal revenue and its financial impact on our consolidated revenue has been immaterial . management anticipates that insurance 's impact on noninterest income will remain immaterial in 2011 . 32 noninterest income , exclusive of gains and losses on sale of securities , decreased to $ 2,498,000 in 2011 from $ 3,160,000 in 2010. inclusive of gains and losses on sale of securities , noninterest income increased to $ 3,680,000 in 2011 from $ 3,518,000 in 2010. the following table summarizes our noninterest income for the periods indicated . replace_table_token_5_th the increase in noninterest income for 2011 as compared to 2010 was due to an increase in gains on sales of available-for-sale securities . these gains were largely offset by decreases in the other categories of non-interest income , particularly mortgage fee income . mortgage fee income decreased due to the factors discussed previously . noninterest expense of financial noninterest expenses increased from $ 13,502,000 for the year ended december 31 , 2010 to $ 13,693,000 for the year ended december 31 , 2011. the following table summarizes our noninterest expense for the periods indicated . replace_table_token_6_th the slight increase in noninterest expense was due in large part to an increase in professional , data processing , and other outside expenses and the loss on the sale or writedown of oreo . the increase in these costs was largely offset by a decrease in personnel expenses .
| the significant categories of earning assets are loans , federal funds sold , and investment securities , while deposits , fed funds purchased , and other borrowings represent interest-bearing liabilities . the level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities , as well as changes in interest rates when compared to previous periods of operation . interest income decreased to $ 19,519,000 for the year ended december 31 , 2011 from $ 21,589,000 for the year ended december 31 , 2010. this decrease was due to a decrease in the yields on average earning assets which primarily consist of loans and investment securities . interest expense decreased to $ 4,192,000 for the year ended december 31 , 2011 from $ 6,388,000 primarily as a result of the decrease in rates paid on deposit accounts , as discussed more fully below . net interest income for 2011 increased $ 126,000 to $ 15,327,000 or 0.83 % from net interest income of $ 15,201,000 in 2010. the growth in net interest income was due in large part to a decrease in our interest expense of $ 2,196,000 from $ 6,388,000 for the year ended december 31 , 2010 to $ 4,192,000 for the year ended december 31 , 2011. this decrease in interest expense was primarily due to reductions in the interest rate paid on time deposits and savings accounts , specifically savings accounts . on december 31 , 2011 , 51.7 % of the interest bearing deposits were held in a product known as the peaks savings account. during 2011 , the bank reduced the rate paid on this account from 1.00 % apy to 0.25 % to apy . the average interest rate paid on time deposits decreased by 60 basis points during 2011 as compared to 2010. the net interest margin decreased to 3.89 % in 2011 from 3.94 % in 2010. the average rate on earning assets decreased 65 basis
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· our westwood funds ® family of mutual funds ended the year with $ 3.7 billion in assets under management , a 34 % increase compared to december 31 , 2013 . · our income opportunity strategy , focused on current income and lower volatility , had net asset inflows of over $ 650 million and finished the year with $ 4.1 billion in assets under management . · westwood international advisors inc. , which manages our global equity and emerging markets equity strategies , grew assets under management to $ 3.3 billion as of december 31 , 2014 , up from $ 2.5 billion at the prior year end . this increase included over $ 200 million of inflows to our ireland-domiciled ucits fund . · total revenue was a record $ 113.2 million , a 23 % increase over 2013 . · we added a global convertible securities team to our investment platform , with approximately $ 500 million of assets under advisement , for which we provide consulting advice but for which we do not have direct discretionary investment authority , as of december 31 , 2014 . · in october 2014 , the board approved a 14 % increase in our quarterly dividend to $ 0.50 per share , or an annual rate of $ 2.00 , resulting in a dividend yield of 3.2 % using the year-end stock price of $ 61.82 . · our financial position remains strong with liquid cash and investments of $ 97.8 million as of december 31 , 2014 . 24 revenues we derive our revenues from investment advisory fees , trust fees , and other revenues . our advisory fees are generated by westwood management and westwood international , which manage client accounts under investment advisory and subadvisory agreements . advisory fees are calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements . advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter , quarterly in arrears based on assets under management on the last day of the quarter just ended , or are based on a daily or monthly analysis of assets under management for the stated period . we recognize advisory fee revenues as services are rendered . a limited number of our clients have a contractual performance-based fee component in their contracts , which generates additional revenues if we outperform a specified index over a specific period of time . we record revenue for performance-based fees at the end of the measurement period . since our advance paying clients ' billing periods coincide with the calendar quarter to which such payments relate , revenue is recognized within the quarter , and our consolidated financial statements contain no deferred advisory fee revenues . our trust fees are generated by westwood trust pursuant to trust or custodial agreements . trust fees are separately negotiated with each client and are generally based on a percentage of assets under management . westwood trust also provides trust services to a small number of clients on a fixed fee basis . most trust fees are paid quarterly in advance and are recognized as services are rendered . since billing periods for the majority of westwood trust 's advance paying clients coincide with the calendar quarter , revenue is fully recognized within the quarter and our consolidated financial statements do not contain a significant amount of deferred revenues . our other revenues generally consist of interest and investment income . although we generally invest most of our cash in u.s. treasury securities , we also invest in equity and fixed income instruments and money market funds , including seed money for new investment strategies . employee compensation and benefits employee compensation and benefits costs generally consist of salaries , incentive compensation , equity-based compensation expense and benefits . sales and marketing sales and marketing costs relate to our marketing efforts , including travel and entertainment , direct marketing and advertising costs . westwood mutual funds westwood mutual funds expenses relate to our marketing , distribution , administration and acquisition efforts related to the westwood funds ® . information technology information technology expenses are generally costs associated with proprietary investment research tools , maintenance and support , computing hardware , software licenses , telecommunications and other related costs . professional services professional services expenses generally consist of costs associated with subadvisory fees , audit , legal and other professional services . general and administrative general and administrative expenses generally consist of costs associated with the lease of our office space , investor relations , licenses and fees , depreciation , insurance , office supplies and other miscellaneous expenses . assets under management assets under management increased $ 1.4 billion , or 7 % , to $ 20.3 billion at december 31 , 2014 compared to $ 18.9 billion at december 31 , 2013. quarterly average assets under management increased $ 3.5 billion , up 21 % to $ 19.8 billion for 2014 compared with $ 16.3 billion for 2013 . 25 assets under management increased $ 4.7 billion , or 34 % , to $ 18.9 billion at december 31 , 2013 compared to $ 14.2 billion at december 31 , 2012. quarterly average assets under management increased $ 2.6 billion , up 19 % to $ 16.3 billion for 2013 compared with $ 13.7 billion for 2012. the following table sets forth our assets under management as of december 31 , 2014 , 2013 and 2012 : replace_table_token_6_th ( 1 ) aum excludes approximately $ 500 million of assets under advisement related to our global convertibles strategies , for which we currently provide consulting advice but for which we do not have direct discretionary investment authority . our assets under management disclosure reflects management 's view of our three types of accounts : institutional , private wealth and mutual funds . story_separator_special_tag · institutional includes separate accounts of corporate pension and profit sharing plans , public employee retirement funds , taft-hartley plans , endowments , foundations and individuals ; subadvisory relationships where westwood provides investment management services for funds offered by other financial institutions ; pooled investment vehicles , including ucits funds and collective investment trusts ; and managed account relationships with brokerage firms and other registered investment advisors that offer westwood products to their customers . · private wealth includes assets for which westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which westwood management provides advisory services in ten limited liability companies to high net worth individuals . investment subadvisory services are provided for the common trust funds by westwood management , westwood international and external , unaffiliated subadvisors . for certain assets in this category , westwood trust currently provides limited custody services for a minimal or no fee , but views these assets as potentially converting to fee-generating managed assets in the future . as an example , some assets in this category consist of low-basis stock currently held in custody for clients , but we believe these assets may convert to fee-generating managed assets during an inter-generational transfer of wealth at a future date . · mutual funds include the westwood funds ® , a family of mutual funds for which westwood management serves as advisor . roll-forward of assets under management replace_table_token_7_th 26 the increase in assets under management for the year ended december 31 , 2014 was primarily due to market appreciation of $ 1.3 billion and neutral net client flows . inflows were primarily inflows into institutional accounts in our emerging markets strategies and the westwood income opportunity mutual fund . outflows were primarily related to withdrawals and rebalancing by certain clients in our largecap value strategy . replace_table_token_8_th the increase in assets under management for the year ended december 31 , 2013 was primarily due to inflows of $ 4.3 billion and market appreciation of $ 3.3 billion , partially offset by outflows of $ 2.8 billion . inflows were primarily driven by inflows into institutional accounts in our emerging markets strategies ; inflows into the westwood income opportunity mutual fund and inflows from certain clients in our master limited partnership infrastructure renewal ( “ mlp ” ) strategy . outflows were primarily related to withdrawals and rebalancing by certain clients in our largecap value strategy . replace_table_token_9_th the increase in assets under management for the year ended december 31 , 2012 was primarily due to inflows of $ 2.1 billion and market appreciation of $ 1.7 billion , partially offset by outflows of $ 2.7 billion . inflows were driven primarily by inflows into institutional separate accounts , subadvisory mandates , the westwood funds ® and private wealth accounts . outflows were primarily related to withdrawals , including some account closings , by institutional separate account clients and subadvisory mandates and outflows from private wealth accounts . correction of immaterial errors during the third quarter of 2014 , we discovered an understatement of non-cash stock based compensation expense for restricted stock grants subject to both service and performance conditions that had no net effect on total stockholders ' equity . measurement dates used for fair value determination of the non-cash expense for such grants between 2006 and the second quarter of 2014 were not set in accordance with financial accounting standards board accounting standards codification no . 718 , compensation-stock compensation , and non-cash stock based compensation was thereby understated during such periods . the cumulative non-cash impact of additional stock based compensation expense for all years impacted resulted in an approximate $ 3.3 million overstatement of net income . the non-cash net income impact for each of the years ended december 31 , 2013 and 2012 was less than $ 0.1 million . 27 pursuant to staff accounting bulletin ( “ sab ” ) no . 99 , materiality , the company concluded that the misstatements were not material to any of its prior period financial statements , including its financial statements for the first and second quarters of 2014. although the misstatements were immaterial to prior periods , the prior period financial statements have been adjusted in this report in accordance with sab no . 108 , considering the effects of prior year misstatements when quantifying misstatements in current year financial statements , due to the significance of the out-of-period correction of this non-cash adjustment to the third quarter of 2014 and to facilitate comparability between current and prior year periods . historical results throughout management 's discussion and analysis of financial condition and results of operations have been adjusted for this correction of an immaterial error . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:12pt ; text-indent:9.06 % ; font-style : italic ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > westwood mutual funds . westwood mutual funds expenses increased 87 % to $ 2.2 million in 2013 compared with $ 1.2 million in 2012 primarily due to an increase of $ 0.6 million in shareholder servicing fees on higher fund assets and increased subadvisor fees . information technology . information technology expense increased by 13 % to $ 2.9 million in 2013 compared with $ 2.6 million in 2012 primarily due to an increase in software maintenance and licenses mainly for upgraded client portfolio accounting and performance reporting systems and increases in research tools and telecommunications expense . professional services . professional services expenses decreased by 4 % to $ 4.2 million in 2013 compared with $ 4.4 million in 2012 , primarily due to one-time recruiting and other fees related to hiring westwood international employees in 2012 , partially offset by an increase in legal expense in 2013. general and administrative .
| we had 130 full-time employees as of december 31 , 2014 compared to 106 at december 31 , 2013. sales and marketing . sales and marketing costs increased by 34 % to $ 1.7 million in 2014 compared with $ 1.3 million in 2013 primarily due to increased referral fees . 28 westwood mutual funds . westwood mutual funds expenses increased by 18 % to $ 2.5 million in 2014 compared with $ 2.2 million in 2013 , primarily due to increases in shareholder servicing and subadvisor fees based on a percentage of assets under management . the expense has remained consistent as a percentage of total revenues . information technology . information technology expense increased by 20 % to $ 3.5 million in 2014 compared with $ 2.9 million in 2013 primarily due to increased research expenses and maintenance and support expenses . the expense has remained consistent as a percentage of total revenues . professional services . professional services expenses increased by 16 % to $ 4.9 million in 2014 compared with $ 4.2 million in 2013 , primarily due to increases in subadvisory fees and other professional services expense , partially offset by a decrease in legal and tax advisory expenses . general and administrative . general and administrative expenses increased by 10 % to $ 5.8 million in 2014 compared with $ 5.3 million in 2013 due to increases in various support services . provision for income taxes . provision for income taxes increased by 43 % to $ 14.8 million in 2014 compared with $ 10.3 million in 2013. the effective tax rate decreased to 35.2 % in 2014 from 36.7 % in 2013 primarily due to operating income generated by westwood international in the 2014 period , which are taxed at a lower canadian tax rate , compared to operating losses generated by westwood international in the 2013 period . year ended december 31 , 2013 compared to year ended december 31 , 2012 total revenue . in 2013 our
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all share and per share amounts have been retroactively restated in the accompanying financial statements and notes for all periods presented . 69 initial public offering and follow-on offering on november 16 , 2011 , we completed our initial public offering , or ipo , raising a total of $ 37.6 million in net proceeds after deducting underwriting discounts and commissions of $ 3.0 million and offering expenses of $ 2.9 million . on february 4 , 2013 , we completed a follow-on public offering , raising a total of $ 49.0 million after deducting $ 3.1 million in underwriter discounts and commissions and offering expenses of $ 300,000. financial overview revenues from our inception through december 31 , 2012 , we have not generated any revenue from product sales . we have generated $ 7.4 million in grant revenue from our inception through december 31 , 2012 , which is primarily attributable to research and development being performed by our subsidiary , bioprotection systems corporation , or bps , under contracts and grants with the department of defense , or dod , and the national institutes of health , or nih . in the future , we may generate revenue from a variety of sources , including product sales if we develop products which are approved for sale , license fees , and milestone , research and development and royalty payments in connection with strategic collaborations or licenses of our intellectual property . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees , research and development reimbursements , milestone and other payments we may receive under potential strategic collaborations , and the amount and timing of payments we may receive upon the sale of any products , if approved , to the extent any are successfully commercialized . we do not expect to generate revenue from product sales for several years , if ever . if we fail to complete the development of our product candidates in a timely manner or to obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of : employee-related expenses , which include salaries , bonuses , benefits and share-based compensation ; the cost of acquiring and manufacturing clinical trial materials ; expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies ; facilities , depreciation of fixed assets and other allocated expenses , which include direct and allocated expenses for rent and maintenance of research facilities and equipment ; license fees for and milestone payments related to in-licensed products and technology ; and costs associated with non-clinical activities and regulatory approvals . we expense research and development expenses as incurred . product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size , duration and complexity of later stage clinical trials . we plan to increase our research and development expenses for the foreseeable future as we seek to complete development of our most advanced product candidates , and to further advance our earlier-stage research and development projects . for the years ended december 31 , 2012 , 2011 and 2010 and from our inception through december 31 , 2012 , we have incurred $ 17.8 million , $ 14.3 million , $ 12.7 million and $ 78.2 million , respectively , in research and development expenses . the following tables summarize our research and development expenses for the periods indicated : 70 replace_table_token_9_th replace_table_token_10_th at this time , we can not accurately estimate or know the nature , specific timing or costs necessary to complete clinical development activities for our product candidates . we are subject to the numerous risks and uncertainties associated with developing biopharmaceutical products including the uncertain cost and outcome of ongoing and planned clinical trials , the possibility that the fda or another regulatory authority may require us to conduct clinical or non-clinical testing in addition to trials that we have planned , rapid and significant technological changes , frequent new product and service introductions and enhancements , evolving industry standards in the life sciences industry and our future need for additional capital . in addition , we currently have limited clinical data concerning the safety and efficacy of our product candidates . a change in the outcome of any of these variables with respect to the development of any of our product candidates could result in a significant change in the costs and timing of our research and development expenses . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , information technology , legal and human resources functions . other general and administrative expenses include facility costs not otherwise associated with research and development expenses , intellectual property prosecution and defense costs and professional fees for legal , consulting , auditing and tax services . we anticipate that our general and administrative expenses will continue to increase over the next several years for , among others , the following reasons : we expect our general and administrative expenses to increase as a result of increased payroll , expanded infrastructure and higher consulting , legal , auditing and tax services and investor relations costs , and director and officer insurance premiums associated with being a public company ; we expect to incur increased general and administrative expenses to support our research and development activities , which we expect to expand as we continue to advance the clinical development of our product candidates ; and 71 we may also begin to incur expenses related to the story_separator_special_tag planned sales and marketing of our product candidates , including recruiting a specialty sales force , in anticipation of commercial launch before we receive regulatory approval , if any , of a product candidate . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and certificates of deposit . the primary objective of our investment policy is capital preservation . we expect our interest income to vary based on our cash balances . interest expense consists primarily of interest , amortization of debt discount and amortization of deferred financing costs associated with our loans payable . tax loss carryforwards the valuation allowance for deferred tax assets as of december 31 , 2012 and 2011 was $ 23.1 million and $ 18.9 million , respectively . the net change in the total valuation allowance for the years ended december 31 , 2012 and 2011 was an increase of $ 4.3 million and $ 3.9 million , respectively . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected taxable income , and tax planning strategies in making this assessment . valuation allowances have been established for the entire amount of the net deferred tax assets as of december 31 , 2012 and 2011 , due to the uncertainty of future recoverability . as of december 31 , 2012 and december 31 , 2011 , we had federal net operating loss carryforwards of $ 94.5 million and $ 76.2 million and federal research credit carryforwards of $ 2.9 million and $ 2.9 million , respectively , that expire at various dates from 2020 through 2032. sections 382 and 383 of the internal revenue code limit a corporation 's ability to utilize its net operating loss carryforwards and certain other tax attributes ( including research credits ) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50 % over any rolling three year period . state net operating loss carryforwards ( and certain other tax attributes ) may be similarly limited . an ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation 's business , results of operations , financial condition and cash flow . based on a preliminary analysis , we believe that , from its inception through december 31 , 2011 , newlink experienced section 382 ownership changes in september 2001 and march 2003 and our subsidiary experienced section 382 ownership changes in january 2006 and january 2011. these ownership changes limit newlink 's ability to utilize federal net operating loss carryforwards ( and certain other tax attributes ) that accrued prior to the respective ownership changes of newlink and our subsidiary . additional analysis will be required to determine whether changes in our ownership since december 31 , 2011 and or changes in our ownership that resulted from our follow-on offering have caused or will cause another ownership change to occur . any such change could result in significant limitations on all of our net operating loss carryforwards and other tax attributes . even if another ownership change has not occurred , additional ownership changes may occur in the future as a result of events over which we will have little or no control , including purchases and sales of our equity by our 5 % stockholders , the emergence of new 5 % stockholders , additional equity offerings or redemptions of our stock or certain changes in the ownership of any of our 5 % stockholders . we incurred no income tax expense for the years ended december 31 , 2012 , 2011 , and 2010 . income tax expense differs from the amount that would be expected after applying the statutory united states federal income tax rate primarily due to changes in the valuation allowance for deferred taxes . critical accounting policies and significant judgments and estimates we have prepared our financial statements in accordance with united states generally accepted accounting principles . our preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , expenses and related disclosures at the date of the financial statements , as well as revenues and expenses during the reporting periods . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on 72 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 could therefore differ materially from these estimates under different assumptions or conditions . we have reviewed our critical accounting policies and estimates with the audit committee of our board of directors . while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements included later in this annual report , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . expenses accrued under contractual arrangements with third parties ; accrued clinical expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses .
| interest income for the year ended december 31 , 2012 was $ 14,000 , compared to $ 11,000 for the same period in 2011 . other income ( expense ) . miscellaneous income ( expense ) , net for the year ended december 31 , 2012 was $ ( 38,000 ) , compared to $ 5,000 for the same period in 2011 . comparison of the years ended december 31 , 2011 and 2010 revenues . revenues for the twelve months ended december 31 , 2011 were $ 1.9 million , decreasing from $ 2.1 million for the same period in 2010 . the decrease in revenue of $ 207,000 was due to a one-time qualifying therapeutic discovery project grant in 2010 of $ 244,000 offset by increased grant billings on research under various dod contracts and nih grants of $ 37,000. on september 21 , 2011 , bps entered into an amendment to a dod contract extending the contract period to september 24 , 2013 and increasing the aggregate amounts for which bps may receive reimbursements by $ 3.4 million to a total of up to approximately $ 7.1 million . research and development expenses . research and development expenses for the twelve months ended december 31 , 2011 were $ 14.3 million , increasing from $ 12.7 million for the same period in 2010 . the $ 1.6 million increase was primarily due to an increase of $ 744,000 in personnel-related expenses and an increase of $ 888,000 in clinical trial expense , contract research and other expenses offset by a decrease of $ 43,000 in equipment and supplies . general and administrative expenses . general and administrative expenses for the twelve months ended december 31 , 2011 were $ 5.7 million , decreasing from $ 6.1 million for the same period in 2010 . the $ 400,000 decrease was primarily due to a decrease of $ 984,000 in legal fees and $ 65,000 in licensing fees , offset by an increase of $ 406,000 in personnel expenses , $ 108,000 in accounting expenses , $
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we monitor these indicators , in conjunction with our corporate governance practices , to ensure that our business is efficiently managed and that effective controls are maintained . the md & a discusses year-to-year comparisons between 2019 and 2018. discussions of year-to-year comparisons between 2018 and 2017 not included in this form 10-k , but can be found in “ management 's discussion and analysis of financial condition and results or operations ” in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 filed with the sec on march 1 , 2019. the key performance indicators for the twelve months ended december 31 , 2019 , 2018 , and 2017 were as follows : replace_table_token_4_th story_separator_special_tag style= '' font-family : times new roman ; font-size:10pt ; '' > 2018 pro forma revenues include revenues from some product lines whose sale was discontinued after the acquisition date and revenues from some customers whose contracts were discontinued . this is typically done for efficiency and or competitive reasons . the impact from fluctuations of the exchange rates for the foreign currencies in the countries in which we conduct operations also partially adversely affected reported revenues . during each of the years 2019 and 2018 the change in foreign currency exchange rates decreased reported consolidated operating revenues by $ ( 9.3 ) million , $ ( 6.9 ) million , respectively . the specific components of our revenue and the changes experienced during the past year are discussed immediately below . overall exchange revenues increased $ 100.0 million or 24 % as explained below : 34 insurance exchange division revenues decreased by $ 2.5 million or 1 % , principally due to challenges faced in our health content services channel , and the negative effect of foreign exchange losses associated with the strengthening u.s. dollar ebixcash exchange division revenues increased $ 102.5 million , or 47 % , due to a mix of inherent business growth and business acquisitions in the travel , foreign exchange , and software solutions sectors , offset by foreign exchange losses associated with the strengthening of the us dollar . risk compliance solutions division revenues decreased by $ 17.2 million , or 20 % , primarily due to a decline in our u.s. professional consulting services associated with some major realignments in the sector costs of services provided costs of services provided , which includes costs associated with customer support , consulting , implementation , and training services , increased $ 36.8 million or 22 % , from $ 168.4 million in 2018 to $ 205.2 million in 2019 and the company 's gross margin decreased to 64.7 % in 2019 from 66.2 % in 2018. the increase in the company 's costs of services provided and the slight decrease in the gross margin realized is due primarily to additional software development , consulting , customer support costs associated with the ebixcash exchange operations in india . product development expenses the company 's product development efforts are focused on the development of new technologies for insurance carriers , brokers and agents , and the development of new data exchanges for use in domestic and international insurance markets , and the foreign exchange and travel sectors . product development expenses increased $ 6.2 million , or 16 % , from $ 39.1 million in 2018 to $ 45.3 million in 2019 . this increase is primarily due to additional personnel costs associated with the 2018 business acquisitions of miles and indus . sales and marketing expenses sales and marketing expenses increased $ 2.0 million , or 11 % , from $ 17.6 million in 2018 to $ 19.6 million in 2019 . this increase is primarily due to advertising and marketing costs associated incurred in india to support our rapidly growing ebixcash foreign exchange , travel , and wealth management businesses . general and administrative expenses general and administrative ( `` g & a '' ) expenses increased $ 32.0 million , or 29 % , from $ 108.5 million in 2018 to $ 140.4 million in 2019 . this increase in g & a expenses is partially due to a $ 12.1 million accounts receivable reserve that was recognized in the third quarter , as a precautionary measure in regards to receivables that are due from a public sector entity in india and were billed during the 2016 through 2019 operating periods . payment of these receivables has been delayed due to liquidity issues at bsnl . the government of india has recently approved funding to bsnl and the company expects the accounts to be collectible once the government funding reaches bsnl . also contributing to the increase in g & a expenses were approximately $ 7.0 million of additional personnel costs primarily in support of our foreign currency exchange ( `` forex '' ) and travel services business operations , $ 7.6 million of commission costs associated with the forex business , and $ 15.7 million of additional facility costs primarily associated with our expanding operations in india . partially offsetting these increased costs was a $ ( 15.4 ) million reduction of acquisition earnout accrual for itzcash . amortization and depreciation expenses amortization and depreciation expenses increased to $ 3.2 million or 28 % to $ 14.5 million in 2019 from $ 11.3 million in 2018 primarily due to the amortization of intangible assets associated with the company 's 2018 india acquisitions . interest income interest income increased $ 193 thousand , or 44 % , from $ 436 thousand in 2018 to $ 629 thousand in 2019 due to the increase in restricted cash balances . interest expense interest expense increased $ 15.2 million , or 56 % from $ 27.1 million in 2018 to $ 42.3 million in 2019 . interest expense increased primarily due to the increase in the average outstanding balance on our commercial banking credit facilities , which increased 30 % to $ 722.7 million during twelve months ending december 31 , 2019 from $ 554.0 million during twelve months 35 ending december 31 , 2018. story_separator_special_tag additionally , interest expense increased due to increased balances in the working capital facility of our ebixcash operations in india which carry interest rates 9 % to 10 % . foreign exchange loss net foreign exchange loss of $ 2.4 million in 2019 consisted of $ 1.3 million of losses realized upon the settlement of certain transactions within our foreign operations that were denominated in a currency other than the subsidiary 's functional currency and $ 1.1 million of losses recognized upon the remeasurement of other transactions within our foreign operations that were denominated in a currency other than the subsidiary 's functional currency . income taxes the company recognized income tax expense of $ 220 thousand in 2019 compared to $ 32.5 million of income tax expense in 2018 , representing a decrease of $ 32.3 million . our effective tax rate decreased to 0.2 % in 2019 , compared with 25.9 % in 2018. effective tax rate in 2018 was substantially higher due to the recording of the transition tax resulting from enactment of the tcja in 2018. excluding this , the remaining decrease in the effective tax rate in 2019 versus 2018 has been primarily on account of prior year true-ups . certain units of our development operations in india are entitled to tax holiday benefits ranging from 50 % of taxable income to 100 % of taxable income , which also has the effect of lower effective tax rate . the pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the company had operations for the year ending december 31 , 2019 are as follows : replace_table_token_7_th liquidity and capital resources our principal sources of liquidity are the cash flows provided by our operating activities , and cash and cash equivalents on hand . we intend to continue to utilize cash flows generated by our ongoing operating activities , in combination with possibly expanding our commercial lending facility , and the possible issuance of additional equity or debt securities to fund capital expenditures and organic growth initiatives , to make strategic business acquisitions , to retire outstanding indebtedness , and to repurchase shares of our common stock if and as market and operating conditions warrant . we believe that anticipated cash flow provided by our operating activities , together with current cash balances and access to credit and the capital markets , if required , will be sufficient to meet our projected cash requirements for the next twelve months , although any projections of future cash needs , cash flows , and the general market conditions for credit and equity securities is subject to substantial uncertainty . in the event additional liquidity needs arise , we may raise funds from a combination of sources , including the potential issuance of debt or equity securities . however , there are no assurances that such financing will be available in amounts or on terms acceptable to us , if at all . 36 we regularly evaluate our liquidity requirements , including the need for additional debt or equity offerings , when considering potential business acquisitions , or the development of new products or services . during 2020 , the company intends to utilize its cash and other financing resources to fund organic growth initiatives , strategic business acquisitions , and new product development initiatives and service offerings . our cash and cash equivalents were $ 73.2 million and $ 137.9 million at december 31 , 2019 and 2018 , respectively . the company holds material cash and cash equivalent balances overseas in foreign jurisdictions . the free flow of cash from certain countries where we hold such balances may be subject to repatriation tax effects and other restrictions . furthermore , the repatriation of earnings from some of our foreign subsidiaries would result in the application of withholding taxes at source and taxation at the u.s. parent level upon receipt of the repatriation amounts . the approximate cash , cash equivalents , restricted cash , and short-term investments balances held in our domestic u.s. operations and each of our foreign subsidiaries as of february 24 , 2020 is presented in the table below ( figures denominated in thousands ) : replace_table_token_8_th our current ratio increased to 1.55 at december 31 , 2019 from 1.35 at december 31 , 2018 , and our working capital position increased to $ 129.0 million at december 31 , 2019 as compared to $ 110.0 million at the end of 2018 . the increase in our short-term liquidity position is primarily due to the following factors : ( a ) a $ 56.3 million reduction in other current liabilities primarily due to india acquisition consideration contingencies at the end of 2018 paid in 2019 ; ( b ) a $ 27.2 million decrease in trade accounts payable ; and , ( c ) partially offset by a $ 64.6 million decrease in cash and cash equivalents primarily due to funding of our 2018 india acquisitions . we believe that our ability to generate sustainable robust cash flow from operations will enable the company to continue to meet its debt obligations and to fund its current liabilities from current assets , including available cash balances . business combinations the company executes strategic business acquisitions in combination with organic growth initiatives as part of its expansion and growth strategy . the company looks to acquire businesses that are complementary to ebix 's existing products and services . during the year ended december 31 , 2019 , the company completed three business acquisitions , as follows : wallstreet canada- effective august 23 , 2019 , ebix acquired canada based wallstreet canada , a foreign exchange and outward remittance service provider for approximately $ 2.1 million inclusive of net acquired working capital . the valuation and purchase price allocation remains preliminary and will be finalized as soon as practicable but in no event longer than one year from the effective date of this transaction .
| the cause for the difference between the 16.6 % increase in reported 2019 revenue versus 2018 revenue , as compared to the essentially flat 2019 pro forma versus 2018 pro forma revenue is due to the effect of combining the additional revenue derived from those businesses acquired during the years 2019 and 2018 , specifically pearl , weizmann , lawson , business travels , routier , aha taxis , miles , leisure corp , mercury , indus , smartclass , centrum , transcorp , itzcash , youfirst , wall street , paul merchants , via and bebetter , with the company 's pre-existing operations . the 2019 and 2018 pro forma financial information below assumes that all such business acquisitions were made on january 1 , 2018 , whereas the company 's reported financial statements for 2019 only includes the operating results from the businesses since the effective date that they were acquired by ebix , and thusly includes twelve months of zillious , twelve months of essel forex , and eight months of wallstreet canada . similarly , the 2018 pro forma financial information below includes a full year of results for transcorp , centrum , smartclass , indus , mercury , leisure , miles , routier , business travels , aha taxis , pearl , weizmann and lawson as if they had been had been acquired on january 1 , 2018 , whereas the company 's reported financial statements for the 2018 includes only eleven months of transcorp , nine months of centrum , nine months of smartclass , six months of indus , six months of mercury , six months of leisure , five months of miles , three months of routier , three months of business travels , three months of aha taxis , one month of pearl , one month of weizmann and one month of lawson . the unaudited pro forma analysis is based on the following premises : 2019 and 2018 pro forma revenue contains actual revenue of the acquired entities before acquisition date , as reported by the sellers , as well as actual
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our research and development expenses consist of : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; external research and development expenses incurred under arrangements with third parties , such as contract research organizations , or cros , clinical sites , manufacturing organizations and consultants , including our scientific advisory board ; license fees ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we expense research and development costs to operations as incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received , rather than when the payment is made . we use our employee and infrastructure resources across multiple research and development projects . we do not allocate employee-related expenses or depreciation to any particular project . in 2014 , we began to allocate the expenses related to external research and development services , such as cros , clinical sites , manufacturing organizations and consultants by project . the table below summarizes our external allocation of research and development expenses to our clinical programs for vs-6063 , vs-4718 and vs-5584 , for the year ended december 31 , 2014. prior to 2014 , we did not track research and development expenses for specific clinical programs . our project costing methodology does not allocate personnel and other indirect costs to specific clinical programs . these unallocated research and development expenses are summarized in the table below and include $ 5.9 million of personnel costs . replace_table_token_10_th 85 due to the uncertainty in drug development and the stage of development of our product candidates , we are unable to predict the requirements , specific timing and estimated costs to complete the development of our product candidates or the timing of when material cash inflows may commence , if ever . we anticipate that our research and development expenses will increase significantly in future periods as we continue costlier development activities , including larger and later-stage clinical trials for our product candidates . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete development of our product candidates or the period , if any , in which material net cash inflows from our product candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : clinical trial results ; the scope , rate of progress and expense of our research and development activities , including preclinical research and clinical trials ; the potential benefits of our product candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any of our product candidates that we receive regulatory approval for ; the terms and timing of regulatory approvals ; and the expense of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights . 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 other regulatory authority were to require us to conduct clinical trials beyond those which 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 clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation expense , in our executive , finance and business development functions . other general and administrative expenses include allocated facility costs and professional fees for legal , patent , investor and public relations , consulting , insurance premiums , and accounting services . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation described in greater detail below . we base our estimates on our limited historical experience , known trends and events and various other factors that we believe are reasonable 86 under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. however , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . story_separator_special_tag this process involves reviewing quotations and contracts , identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses include fees paid to contract research organizations , or cros , in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to cros on our estimates of the services received and efforts expended pursuant to quotes and contracts with cros that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period . to date , there have been no material differences between our estimates of such expenses and the amounts actually incurred . stock-based compensation prior to becoming a public company , we utilized significant estimates and assumptions in determining the fair value of our common stock . we granted stock options at exercise prices not less than the fair market value of our common stock as determined by the board of directors , with input from management . the board of directors determined the estimated fair value of our common stock based on a number of objective and subjective factors , including external market conditions affecting the biotechnology industry sector and the prices at which we sold shares of redeemable convertible preferred stock , the superior rights and preferences of securities senior to our common stock at the time and the likelihood of achieving a liquidity event , such as an initial public offering or sale of our company . we utilized various valuation methodologies in accordance with the framework of the 2004 american institute of certified public accountants technical practice aid , valuation of privately-held company equity securities issued as compensation , to estimate the fair value of our common stock . each of our common stock valuations methodology included estimates and assumptions that required 87 our judgment . these estimates included assumptions regarding future performance , including the successful completion of preclinical studies and clinical trials and the time to complete an initial public offering or sale . significant changes to the key assumptions used in the valuations could have resulted in different fair values of common stock at each valuation date . we recognize stock-based compensation expense for stock options issued to employees based on the grant date fair value of the awards on a straight-line basis over the requisite service period . we record stock-based compensation expense for stock options issued to non-employees based on the estimated fair value of the services received or of the equity instruments issued , whichever is more reliably measured , based on the vesting date fair value of the awards on a straight-line basis over the vesting period . we estimate the fair value of stock option awards using the black-scholes option-pricing model . determining the fair value of share-based awards requires the use of subjective assumptions , including the expected term of the award and expected stock price volatility . the assumptions used in determining the fair value of share-based awards represent management 's best estimates , which involve inherent uncertainties and the application of management judgment . as a result , if factors change , and we use different assumptions , our share-based compensation could be materially different in the future . the risk-free interest rate used for each grant is based on a u.s. treasury instrument whose term is consistent with the expected term of the stock option . because we do not have a sufficient history to estimate the expected term , we use the simplified method as described in sab topic 14.d.2 for estimating the expected term . the simplified method is based on the average of the vesting tranches and the contractual life of each grant . because there was no public market for our common stock prior to our initial public offering , we lacked company-specific historical and implied volatility information . therefore , we used the historical volatility of a representative group of public biotechnology and life sciences companies with similar characteristics to us . in 2012 , subsequent to our initial public offering , we began to consider including our own historical volatility , based on future expectations . we have not paid and do not anticipate paying cash dividends on our shares of common stock ; therefore , the expected dividend yield is assumed to be zero . we also recognize compensation expense for only the portion of options that are expected to vest .
| the $ 2.7 million increase from the 2013 period to the 2014 period primarily resulted from an increase of $ 1.6 million in stock-based compensation expense primarily due to an increase in stock option grants , an increase in consulting fees of $ 1.0 million primarily related to preparation for potential commercialization , an increase of approximately $ 912,000 in personnel costs primarily due to an increase in salaries and headcount , and an increase of approximately $ 192,000 in occupancy expense partially due to the relocation to our new facility . these increases were partially offset by a net decrease in professional fees and other costs of $ 1.0 million . interest income . interest income increased to approximately $ 242,000 for the 2014 period from approximately $ 200,000 for the 2013 period . this increase was primarily due to a higher average investment balance for the 2014 period compared to the 2013 period . comparison of the year ended december 31 , 2013 to the year ended december 31 , 2012 research and development expense . research and development expense for the year ended december 31 , 2013 ( 2013 period ) was $ 25.9 million compared to $ 21.7 million for the year ended december 31 , 2012 ( 2012 period ) . the $ 4.2 million increase from the 2012 period to the 2013 period was primarily related to an increase of $ 4.9 million in cro expense for outsourced biology , chemistry and development services , which includes our clinical trial costs , a $ 1.8 million increase in personnel costs primarily due to increased average headcount , an approximate $ 619,000 increase in stock-based compensation expense and an increase of approximately $ 368,000 in travel fees primarily due to increased travel associated with our clinical trials . these increases were partially offset by a decrease of $ 3.5 million in license fee expense related to our agreement with pfizer , inc. 89 general and administrative expense . general and administrative expense for the 2013 period was $ 15.5 million compared to $ 10.5 million
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we used a portion of the proceeds of the sale to repay all the outstanding borrowings under our revolving bank credit facility , while the remaining balance of approximately $ 100 million was added to available cash . in september 2014 , we acquired an additional ownership interest in the fairway field ( mobile bay blocks 113 and 132 ) located in alabama state waters and the associated yellowhammer gas processing plant , which increased our ownership interest from 64.3 % to 100 % . including adjustments from an effective date of july 1 , 2014 , the adjusted purchase price was $ 17.4 million and we assumed the additional aro associated with the increased ownership interest in fairway , which we have estimated to be $ 6.1 million . the acquisition was funded from borrowings under our revolving bank credit facility and cash on hand . in may 2014 , we acquired from woodside a 20 % non-operated working interest in the producing neptune field ( deepwater atwater valley blocks 574 , 575 and 618 ) , along with an interest in the neptune tension-leg platform , associated production facilities and various interests in 24 other deepwater lease blocks . including adjustments from an effective date of november 1 , 2013 , the adjusted purchase price was $ 54.8 million and we assumed the aro associated with the woodside properties , which we have estimated to be $ 11.3 million . the acquisition was funded from borrowings under our revolving bank credit facility and cash on hand . see financial statements and supplementary data – note 7 – acquisitions and divestitures under part ii , item 8 in this form 10-k for additional information on acquisitions and divestitures . our financial condition , cash flow and results of operations are significantly affected by the volume of our oil , ngls and natural gas production and the prices that we receive for such production . our production volumes for 2016 were comprised of approximately 47 % oil and condensate , 10 % ngls and 43 % natural gas , determined using the energy-equivalent ratio of six mcf of natural gas to one barrel of crude oil , condensate or ngls . the energy-equivalent ratio does not assume price equivalency , and the energy-equivalent prices per mcfe for crude oil , ngls and natural gas may differ significantly . for 2016 , our combined total production of oil , ngls and natural gas was 9.9 % below 2015 , primarily due to natural production declines and divestiture of the yellow rose properties , partially offset by production from the big bend and dantzler fields , which began production in the fourth quarter of 2015 , and from one well completed during the year at our ewing bank 910 field . our realized sales prices received for our crude oil , ngls and natural gas production are affected by not only domestic production activities and political issues , but more importantly , international events , including both geopolitical and economic events . during 2016 and 2015 , crude oil , ngl , and natural gas realized prices were significantly below prior year prices . thus far in 2017 , prices have recovered some and have been higher than the average prices occurring during 2016. partially offsetting the declining sales prices has been a reduction in the cost of supplier goods and services in 2016 and 2015 compared to 2014 , but these have not decreased as quickly and dramatically as the price of the commodities that we sell ; therefore , margins deteriorated significantly in 2016 and 2015 along with total cash flows . the current market imbalance is predominantly supply driven caused by a number of issues that are described below . 59 the u.s. energy information administration 's ( “ eia ” ) data estimates the worldwide supply of crude oil and other petroleum liquids outpaced consumption in 2016 by 0.9 million barrels per day in addition to an oversupply in 2015 by 1.8 million barrels per day . this was the third consecutive year that inventories had built and exerted downward pressure on prices . for 2017 and 2018 , eia forecasts crude oil supply being above consumption by approximately 0.3 million barrels per day and 0.2 million barrels per day , respectively . currently , eia estimates inventory builds in the first two quarters of 2017 , inventory usage in the third quarter of 2017 , and an inventory build in the fourth quarter of 2017. the high levels of excess inventory will likely exert downward pressure on prices in the near future . worldwide crude oil supply growth in 2016 from 2015 was estimated at 0.7 % , while consumption growth was estimated at 1.6 % . the increases in production were primarily from opec , with iran , iraq and saudi arabia having the largest increases . the forecast assumes the november 2016 opec production target agreement will be largely adhered to by the countries within opec . eia forecasts supply increases in 2017 and 2018 of 1.1 % and 1.4 % , respectively , year over year . eia estimates consumption growing for most countries , except for japan and canada . according to data provided by eia , u.s. production of crude oil ( excluding other petroleum liquids ) decreased in 2016 by 6 % compared to 2015. eia 's estimate for 2017 and 2018 of u.s. crude oil production is an increase of 1.2 % and 3.3 % , respectively , year over year . as noted below , the number of rigs drilling for oil decreased dramatically in 2015 and further decreased through most of 2016 , and began to increase in the fourth quarter of 2016 and the first quarter of 2017. during 2016 , our average realized crude oil sales price was $ 37.35 , down from $ 45.05 per barrel ( 17.1 % lower ) for 2015. the two primary benchmarks reported upon are the prices for wti and brent crude oil . story_separator_special_tag as reported by the eia , wti crude oil prices averaged $ 43.29 per barrel for 2016 , down from $ 48.66 per barrel ( 11.0 % lower ) for 2015. brent crude average oil prices decreased to $ 43.67 per barrel for 2016 , down from $ 52.32 per barrel ( 16.5 % lower ) for 2015. wti and brent average crude oil prices in the fourth quarter of 2016 were higher than the prior three quarters of 2016 presenting an upward trend in crude oil prices . for 2016 , wti and brent average prices were basically at parity . our average realized oil sales price ( $ 37.35 per barrel compared to a wti benchmark price of $ 43.29 per barrel ) for 2016 differs from the benchmark crude prices due to premiums or discounts ( referred to as differentials ) , crude quality adjustments , volume weighting and other factors . all of our oil during 2016 was produced offshore in the gulf of mexico and is characterized as light louisiana sweet ( “ lls ” ) , heavy louisiana sweet ( “ hls ” ) , poseidon and others . wti is frequently used to value domestically produced crude oil , and the majority of our oil production is priced using the spot price for wti as a base price , then adjusted for the type and quality of crude oil and other factors . similar to crude oil prices , the differentials for our offshore crude oil have also experienced volatility . for example , the monthly average differentials of wti versus lls , hls and poseidon for 2016 were a positive $ 1.70 and $ 0.84 , and a negative $ 3.57 per barrel , respectively , compared to positive $ 3.72 and $ 2.76 , and a negative $ 1.04 per barrel , respectively , for 2015. the majority of our crude oil is priced similar to poseidon and , therefore , is experiencing negative differentials . in addition , a few of our crude oil fields have a negative quality bank adjustment as the crude quality ( as per american petroleum institute 's gravity and sulfur content measurement ) is below the standard crude oil quality for the pipeline . an eia report issued in early january 2017 projected wti crude oil prices for 2017 and 2018 at $ 52.50 per barrel and $ 55.18 per barrel , respectively , and brent crude oil prices for 2017 and 2018 at $ 53.50 per barrel and $ 56.18 , respectively . 60 during 2016 , our average realized ngls sales price decreased 0.6 % compared to 2015. two major components of our ngls , ethane and propane , typically make up over 70 % of an average ngl barrel . during 2016 , average prices for domestic ethane increased 12 % and average domestic propane prices increased 7 % from 2015. average price changes for other domestic ngls were a decrease of 12 % to an increase of 12 % between 2016 and 2015. per eia , production of ethane and propane increased in 2016 over 2015 by 11 % and 2 % , respectively . ethane inventories at year end were much higher than the prior year , increasing 49 % , and although ethane prices have increased from prior year levels , ethane prices remain low compared to historical levels . propane inventory levels at year end were also much higher going into the heating season and are 27 % higher than at year end 2015. as long as ethane and propane inventories remain high , the possibility of a price recovery is unlikely . as long as the price ratio of crude oil to natural gas remains wide ( as measured on a six to one energy equivalency ) , the production of ngls may continue to be high relative to historical norms , which would in turn suggest continued weak prices , or possibly further price reductions , especially for the prices of ethane and propane . many natural gas processing facilities have been and from time to time , will likely continue re-injecting ethane back into the natural gas stream after processing due to insufficient ethane demand , which negatively impacts production and natural gas prices . ethane demand is expected to increase in 2017 as petrochemical plants and expansion projects that consume ethane come online . during 2016 , our average realized natural gas sales price decreased 5.2 % compared to 2015. according to the eia , spot prices for natural gas at henry hub ( the primary u.s. price benchmark ) were 3.8 % lower in 2016 from 2015. natural gas prices are more affected by domestic issues ( as compared to crude oil prices ) , such as weather ( particularly extreme heat or cold ) , supply , local demand issues , other fuel competition ( coal ) and domestic economic conditions , and they have historically been subject to substantial fluctuation . however , with the surplus of natural gas that has plagued the industry since 2012 , natural gas prices have been weak and the fluctuations in prices have been limited to the lower end of the price range . prices in the fourth quarter of 2016 were above the previous three quarters , representing an upward trend , but price levels continue to be very weak . per eia , the increase was attributable to higher demand for electricity generation in the summer and declining production . the u.s. natural gas inventories at the end of 2016 were approximately 10 % lower than a year earlier and 2 % lower than the five year average . u.s. consumption was flat during 2016 , with commercial electricity consumption increases offsetting decreases in residential usage . u.s. supplies decreased 3 % due primarily to slightly lower production in the lower 48 states .
| for 2016 , we estimate that production deferrals were 1.4 mmboe compared to 1.8 mmboe for 2015. revenues from oil and liquids as a percent of our total revenues were 73.8 % for 2016 compared to 74.3 % for 2015. ngls realized sales prices as a percent of crude oil realized prices increased to 45.9 % for 2016 compared to 38.3 % for 2015 as crude oil prices continued to decline during most of 2016. lease operating expenses . lease operating expenses , which include base lease operating expenses , insurance , workovers , and facilities maintenance , decreased $ 40.4 million , or 20.9 % , to $ 152.4 million in 2016 compared to 2015. on a per boe basis , lease operating expenses decreased to $ 9.92 per boe during 2016 compared to $ 11.31 per boe during 2015. on a component basis , base lease operating expenses decreased $ 18.1 million , workover expense decreased $ 12.6 million , insurance premiums decreased $ 6.6 million , facilities maintenance decreased $ 2.1 million and insurance reimbursements increased $ 1.0 million ( offset to expense ) . base lease operating expenses decreased primarily due to lower costs from service providers and elimination of field expenses related to the sale of the yellow rose field , which was sold in october 2015 ; partially offset by increases in expenses related to our new deepwater fields at dantzler and big bend ; and lower pha fees ( cost offsets ) at our matterhorn field . the decrease in workover costs was primarily due to the sale of the yellow rose field and various activities that occurred in 2015 that did not reoccur in 2016. insurance premium reductions are primarily due to revisions in the energy package related to named windstorms coverage . production taxes . production taxes decreased to $ 1.9 million , or 37.1 % , during 2016 compared to $ 3.0 million in 2015 primarily due to lower commodity prices and the sale of the yellow rose field .
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to the extent the carrying value of the loan exceeds the present value of a loan 's expected cash flows less selling expenses , a specific allowance is recorded . if the carrying value is less than the present value of the loan 's expected future cash flows , no specific allowance is recorded and the loan is not considered included in the determination of the general valuation allowance . as a substantial amount of our loan portfolio is collateralized by real estate , appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans . assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties . overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined . the assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans . the general valuation allowance is determined for loans not determined to be impaired . we segregate our loan portfolio into portfolio segments . these portfolio segments share common characteristics such as the type of loan , its purpose , its underlying collateral , and other risk characteristics . once segregated , these loans are further segregated by loan grade . to calculate the allowance by grade , we apply internally developed loss factors comprised of both quantitative and qualitative considerations . we estimate our loss factors by taking into consideration both quantitative and qualitative aspects that would affect our estimation of probable incurred losses . these aspects include , but are not limited to historical charge-offs ; loan delinquencies and foreclosure trends ; current economic trends and demographic data within our market area , such as unemployment rates and population trends ; current trends in real estate values ; charge-off trends of other comparable institutions ; the results of any internal loan reviews ; loan-to-value ratios ; our historically conservative credit risk policy ; the strength of our underwriting and ongoing credit monitoring function ; and other relevant factors . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision based on changes in economic and real estate market conditions . actual loan losses may be significantly more than the allowance for loan losses we have established , which could have a material negative effect on our financial results . see note 1 “ summary of significant accounting policies ” and note 5 “ loans ” to the accompanying consolidated financial statements contained in item 8 for additional discussion on the allowance for loan losses . business combinations . business combinations are accounted for using the acquisition method of accounting . as such , assets acquired , including identified intangible assets , and liabilities assumed are recorded at their fair value , which often involves estimates based on third party valuations , such as 40 appraisals , or internal valuations based on discounted cash flow analyses or other valuation techniques , all of which are inherently subjective . identified intangible assets are amortized based upon the estimated economic benefits to be received , which is also subjective . management will review identified intangible assets for impairment at least annually , or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable , in which case an impairment charge would be recorded . goodwill is subject to impairment testing on at least an annual basis . in addition , goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . our reporting unit for purposes of testing our goodwill for impairment is our banking operations unit , which contains all other activities performed by the company . valuation of goodwill . the testing for impairment of goodwill is a two-step process . the first step in testing for impairment is to determine the fair value of our reporting unit and compare that fair value with the carrying value of the reporting unit ( including goodwill . ) if the fair value of the reporting unit exceeds the carrying value , the second step is not necessary and goodwill is deemed not to be impaired . if the fair value of the reporting unit is less than the carrying value , the company must estimate a hypothetical purchase price for the reporting unit ( representing the unit 's fair value ) and then compare that hypothetical purchase price with the fair value of the unit 's net assets ( excluding goodwill ) . any excess of the estimated purchase price over the fair value of the reporting unit 's net assets represents the implied fair value of goodwill . an impairment loss would be recognized as a charge to earnings if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of goodwill . our annual impairment evaluation is april of each year . valuation of assets acquired in business combinations . assets acquired and liabilities assumed in business combinations are recorded at estimated fair value on their purchase date . as provided for under generally accepted accounting principles , management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities . once management has finalized the fair values of acquired assets and assumed liabilities within this 12-month period , management considers such values to be the day 1 fair values . for purchased loans , no allowance for loan loss is carried over from the acquired institution as all loans are recorded at fair value . story_separator_special_tag in determining the day 1 fair values of purchased loans , management considers a number of factors including , among other things , the remaining life of the acquired loans , estimated prepayments , estimated loss ratios , estimated value of the underlying collateral , estimated holding periods , and net present value of cash flows expected to be received . loans acquired with no evidence of credit deterioration at the date of purchase are recorded at their outstanding principal balances net of their relevant fair value premiums or discounts , forming the initial carrying value of those loans . these premiums or discounts are amortized into income over the life of the loans using the effective interest method . income recognition purchased credit impaired loans is based upon the cash flow method . under this method , the initial fair value discount on these loans is separated into two components , the accretable yield and nonaccretable difference . the accretable yield represents the excess of the expected future cash flows of these loans over the amount paid for these loans . the nonaccretable difference represents the excess of these loans contractual principal and interest over the expected amounts to be received . these cash flow estimations are performed at the date of acquisition and form the basis for the determination of the fair value of these loans . periodically , management reevaluates the expected future cash flows purchased credit impaired loans and adjusts for increases to or decreases from the previous period 's expectations . increases in future expected cash flows of a purchased credit impaired loan will result in a reversal of any allowance previously allocated with the difference increasing the accretable yield and decreases result in an additional provision for loan loss to account for the impairment of the loan . deferred income taxes . we use the asset and liability method of accounting for income taxes . 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 bases . deferred tax assets and liabilities are measured using enacted tax rates expected to 41 apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . real estate owned valuation . real estate acquired through loan foreclosure is carried at the lower of carrying amount or fair value less estimated costs to sell . any initial losses at the time of foreclosure are charged against the allowance for loan losses . valuation of these assets are periodically reviewed by management with the carrying value of such assets adjusted through noninterest expense to the then estimated fair value , net of estimated selling costs , if lower , until disposition . fair values of real estate owned are generally based on third party appraisals or other valuations of the property . business strategy we have focused primarily on improving the execution of our community oriented retail banking strategy . highlights of our current business strategy include the following : continue to focus on residential lending . we have been and will continue to be primarily a one-to-four family residential mortgage lender for borrowers in our market area . as of june 30 , 2015 , $ 264.5 million , or 85.2 % , of our total loan portfolio consisted of one-to-four family residential mortgage loans ( including home equity loans ) . in the future , we may gradually increase our residential construction and home equity loan portfolios . maintain a modest portfolio of nonresidential real estate loans . we have historically maintained a small portfolio of nonresidential real estate loans , primarily loans to churches located in our market area . however , as a result of the acquisition of stephens federal , our nonresidential real estate loans increased to $ 21.7 million , or 7.0 % of our total loan portfolio as compared to $ 8.4 million , or 3.6 % , of our total loan portfolio at june 30 , 2014. of the $ 21.7 million of nonresidential real estate loans , $ 9.4 million were loans to churches . we plan to increase our efforts toward more nonresidential real estate lending in the future in an effort to increase our loan portfolio yields and to better manage our interest rate risk . manage interest rate risk while maintaining or enhancing , to the extent practicable , our net interest margin . subject to market conditions , we have sought to enhance net interest income by emphasizing controls on the cost of funds , particularly on the deposit products that we offer , rather than attempting to maximize asset yields , as loans with high yields often involve greater credit risk and may be repaid during periods of decreasing market interest rates . in addition , in view of our strong capital position , from time to time , we place more emphasis on enhancing our net interest income than on limiting our interest rate risk . rely on community orientation and high quality service to maintain and build a loyal local customer base and maintain our status as an independent community-based institution . we were established in 1924 and have been operating continuously in oconee county since that time . by using our recognized brand name and the goodwill developed over years of providing timely , efficient banking services , we have been able to attract a solid base of local retail customers on which to continue to build our banking business .
| interest income on loans increased $ 3.0 million , or 26.7 % , to $ 14.4 million for the year ended june 30 , 2015 from $ 11.4 million for the year ended june 30 , 2014. the increase in interest income on loans primarily reflected the increase in the average balance of loans . the average balance of our loans increased to $ 285.2 million for the year ended june 30 , 2015 from $ 224.3 million for the year ended june 30 , 2014. the increase in the average balance of our loans was primarily the result of the increase in our loan portfolio from the acquisition of stephens federal . we acquired $ 95.5 million in loans at fair value . interest income on investment securities increased $ 166 thousand , or 10.7 % , to $ 1.7 million for the year ended june 30 , 2015 from $ 1.6 million for the year ended june 30 , 2014 , reflecting an increase of $ 3.3 million , or 3.3 % , in the average balances of securities to $ 103.0 million from $ 99.7 million for the years ended june 30 , 2015 and 2014 and an increase in the total average yield of our investment securities of 11 basis points to 1.67 % from 1.56 % . the increase in average balances of our investment securities is reflective of our efforts to continue to invest excess cash liquidity in high-quality investment securities during this period of low loan demand . additionally , we continue to shift more of our investment portfolio into high-quality , higher yielding municipal securities , which helps to reduce our overall tax liability as well . interest expense . interest expense decreased $ 251 thousand , or 17.0 % , to $ 1.2 million for the year ended june 30 , 2015 from $ 1.5 million for the year ended june 30 , 2014. the decrease reflected a 16 basis point decrease in the average rate paid on deposits in fiscal year 2015 to 0.37 % from 0.53 % in fiscal year
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we seek tenants who will become mission-oriented partners in relationships where our business 28 goals are aligned . this approach fuels what we believe is , enduring growth for those partners and for nhi . within the context of our growth model , we rely on cost-effective access to debt and equity capital to finance the acquisitions that drive our earnings . there is significant competition for healthcare assets from other reits , both public and private , and from private equity sources . large-scale portfolios continue to command premium pricing , due to the continued abundance of private and foreign buyers seeking to invest in healthcare real estate . this combination of circumstances creates pressure on our ability to execute acquisitions and negotiate leases that generate meaningful earnings growth for our shareholders . we emphasize growth with our existing tenants and borrowers as a way to mitigate the impact of competition . with lower capitalization rates for existing healthcare facilities , there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital . using our relationship-driven model , we continue to look for opportunities to support new and existing tenants and borrowers with the capital needed to expand existing facilities and to initiate ground-up development of new facilities . we concentrate our efforts in those markets where there is both a demonstrated demand for a particular product type and where we perceive we have a competitive advantage . the projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction . following three 25 basis-point increases in 2017 , the federal open market committee of the federal reserve announced four further interest rate increases during 2018. on july 31 , 2019 , the federal reserve lowered its benchmark interest rate 25 bps and on september 19 , 2019 , lowered it an additional 25 bps . on october 30 , 2019 , the federal reserve lowered its benchmark interest rate another 25 bps and indicated a target range for the federal funds rate of 1.50 % to 1.75 % percent . the actual path the federal funds rate takes will depend on the changing economic outlook as informed by incoming data . considering that the vote approving the rate cut was split with two committee members voting to maintain the target range , we do not see this as the beginning of a rate-cutting cycle . previous changes in the federal funds rate have been a primary source of much volatility in reit equity markets . as a result , there has been pressure on the spread between our cost of capital and the returns we earn . we expect that pressure to be partially mitigated by market forces that would tend to result in higher capitalization rates for healthcare assets and higher lease rates indicative of historical levels . managing long-term risk involves trade-offs with the competing alternative goal of maximizing short-term profitability . our intention is to strike an appropriate balance between these competing interests within the context of our investor profile . if interest rates rise , our share price may decline as investors adjust prices to reflect a dividend yield that is sufficiently in excess of a risk-free rate . for the year ended december 31 , 2019 , approximately 25.2 % of our revenue was derived from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors , primarily medicare and medicaid . such revenues are subject annually to statutory and regulatory changes and in recent years have been reduced due to federal and state budgetary pressures . over the past five years , we have selectively diversified our portfolio by directing a significant portion of our investments into properties which do not rely primarily on medicare and medicaid reimbursement , but rather on private pay sources ( assisted living and memory care facilities , senior living campuses , independent living facilities and entrance-fee communities ) . we will occasionally acquire skilled nursing facilities in good physical condition with a proven operator and strong local market fundamentals , because diversification implies a periodic rebalancing , but our recent investment focus has been on acquiring need-driven and discretionary senior housing assets . for individual tenant revenue as a percentage of total lease revenue , bickford is our largest assisted living tenant , an affiliate of holiday is our largest independent living tenant , nhc is our largest skilled nursing tenant and senior living communities is our largest entrance-fee community tenant . our shift toward private payor facilities , as well as our expansion into the discretionary senior housing market , has further resulted in a portfolio whose current composition is relatively balanced between medical facilities , need-driven and discretionary senior housing . we manage our business with a goal of increasing the regular annual dividends paid to shareholders . our board of directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis . our transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends . taxable income is determined in accordance with the internal revenue code and differs from net income for financial statements purposes determined in accordance with u.s. generally accepted accounting principles . our goal of increasing annual dividends requires a careful balance between identification of high-quality lease and mortgage assets in which to invest and the cost of our capital with which to fund such investments . we consider the competing interests of short and long-term debt ( interest rates , maturities and other terms ) versus the higher cost of new equity . we accept some level of risk associated with leveraging our investments . we intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of capital will generate sufficient returns to our shareholders . story_separator_special_tag our dividends per share for the last three years are as follows : 29 replace_table_token_12_th our investments in healthcare real estate have been partially accomplished by our ability to effectively leverage our balance sheet . however , we continue to maintain a lower-leverage balance sheet when compared with many in our peer group . we believe that our fixed charge coverage ratio , which is the ratio of adjusted ebitda ( earnings before interest , taxes , depreciation and amortization , excluding real estate asset impairments and gains on dispositions ) to fixed charges ( interest expense at contractual rates net of capitalized interest and principal payments on debt ) , and the ratio of consolidated net debt to adjusted ebitda are meaningful measures of our ability to service our debt . we use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group . we also believe this gives us a competitive advantage when accessing debt markets . we calculate our fixed charge coverage ratio as approximately 5.4x for the year ended december 31 , 2019 ( see our discussion below under the heading adjusted ebitda along with a reconciliation to our net income ) . giving effect to our acquisitions and financings on an annualized basis , our consolidated net debt to adjusted ebitda ratio is approximately 4.7x for the year ended december 31 , 2019 ( dollars in thousands ) : consolidated total debt $ 1,440,465 less : cash and cash equivalents ( 5,215 ) consolidated net debt $ 1,435,250 adjusted ebitda $ 298,437 annualized impact of recent investments 6,298 $ 304,735 consolidated net debt to adjusted ebitda 4.7 x according to the administration on aging ( “ aoa ” ) of the us department of health and human services , in 2017 , the latest year for which data is available , 50.9 million people were age 65 or older in the united states ( a 34 % increase over the last ten years ) . census estimates showed that , by 2040 , those 65 or older are expected to constitute 21.6 % of the population . the population aged 85 and above is projected to rise from 6.4 million in 2016 to 14.4 million in the us by 2040 ( a 123 % increase ) . the median value of homes owned by older homeowners age 75 and over was $ 175,000 ( with a median purchase price of $ 65,000 ) . in comparison , the median home value of all homeowners was $ 200,000. of the 12.9 million households headed by persons age 75 and over in 2017 , 76 % were owners . equipped with the basics of financial security , many will be economically able to enter the market for senior housing . these strong demographic trends provide the context for continued growth in senior housing in 2020 and the years ahead . we plan to fund any new real estate and mortgage investments during 2020 using our liquid assets and debt financing . as the weight of additional debt resulting from new acquisitions suggests the need to rebalance our capital structure , we would then expect to access the capital markets through an at-the-market ( “ atm ” ) or other equity offering . our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for access to capital at the lowest possible rates , annual dividend growth , continued low leverage , a portfolio of diversified , high-quality assets , and business relationships with experienced operators whom we make our priority , continue to be the key drivers of our business plan . critical accounting policies estimates we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require 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 period . actual results could differ from those estimates . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 30 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . valuations and impairments our tenants and borrowers who operate snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which have resulted in an increase in the cost of insurance to cover potential claims . in previous years , these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our loan investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable .
| the property was added to the master lease at a 6.71 % lease rate . under the restructured master lease , annual lease escalators ranging from 2 % to 3 % , based on portfolio revenue growth , will go into effect on november 1 , 2020. holiday settled the remaining commitment to nhi with cash of $ 17,125,000 at closing . receipt of the vero beach property and collection of remaining commitment in cash was recognized as adjustments to outstanding holiday lease receivable and resulted in the change of our straight-line receivable from holiday at the beginning of the year into a straight-line payable , which is included in the accompanying consolidated balance sheet at december 31 , 2019 as “ deferred income. ” comfort care on april 30 , 2019 , we acquired a newly-constructed 60 -unit assisted living facility in shelby , michigan which has 14 newly-constructed memory care units currently undergoing stabilization . the total commitment of $ 10,800,000 includes $ 9,560,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met . on may 20 , 2019 , we acquired a property in brighton , michigan , consisting of 73 assisted living/memory care units . the purchase price for the brighton acquisition was $ 13,500,000 , inclusive of $ 13,000,000 funded at closing with the remaining amount to be funded once certain post closing and construction requirements are met . we leased the properties to comfort care senior living ( “ comfort care ” ) , under leases which provide for initial lease rate of 7.75 % , with annual fixed escalators beginning in year three over the term of ten years plus two five -year renewal options . each lease includes a $ 3,000,000 earnout incentive which will be added to the lease base if funded . we accounted for the acquisitions as asset purchases . discovery on may 31 , 2019 , we invested $ 25,028,000 in cash for a 97.5 % equity interest in a consolidated subsidiary ( `` discovery propco '' ) ,
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as a result of these initiatives , income from fees and service charges has increased to $ 12.2 million for the year ended december 31 , 2012 as compared to $ 10.6 million for the year ended december 31 , 2007 ( exclusive of reverse mortgage fees ) and only $ 1.4 million for the year ended december 31 , 1997. the bank also offers reverse mortgage loans which are sold into the secondary market . the gain on sale from selling reverse mortgages is now included in the net gain on sales of loans available for sale . in addition to the objectives described above , the company determined to more actively manage its capital position to improve return on equity . in the fourth quarter of 2011 , and again in the fourth quarter of 2012 , the company announced its intention to repurchase up to 5 % of its outstanding common stock . for the year ended december 31 , 2012 , the company repurchased 843,370 shares of common stock for $ 11.9 million . at december 31 , 2012 , there were 834,784 shares remaining to be repurchased under the existing stock repurchase plan . story_separator_special_tag quality of the loan portfolio . these factors include changes in the size and composition of the loan portfolio , actual loan loss experience , current economic conditions , detailed analysis of individual loans for which full collectibility may not be assured , and the determination of the existence and realizable value of the collateral and guarantees securing the loan . the bank 's allowance for loan losses includes specific allowances and a general allowance , each updated on a quarterly basis . a specific allowance is determined for all loans which meet the definition of an impaired loan where the value of the underlying collateral can reasonably be evaluated and where the company has not already taken an interim charge-off . these are generally loans which are secured by real estate . the bank obtains an updated appraisal for all impaired loans secured by real estate and collateral dependent residential mortgage loans greater than 90 days delinquent . the specific allowance represents the difference between the bank 's recorded investment in the loan , net of any interim charge-offs , and the fair value of the collateral , less estimated disposal costs . a general allowance is determined for all other classified and non-classified loans . in determining the level of the general allowance , the bank segments the loan portfolio into various loan segments and classes . the loan portfolio is further segmented by delinquency status and risk rating . an estimated loss factor is then applied to each risk tranche . if a loan secured by real estate becomes 90 days delinquent , the bank obtains an updated appraisal which is subsequently updated annually as foreclosure timelines remain at elevated levels . for these loans , the estimated loss represents the difference between the bank 's recorded investment in the loan and the fair value of the collateral , less estimated selling costs . for loans 90 days delinquent not secured by real estate , the bank evaluates the fair value of the collateral and personal guarantees , if any , and identifies an estimated loss for the difference between the bank 's recorded investment in the loan and the fair value of the collateral , less estimated selling costs . for loans which are not 90 days delinquent a historical loss rate is determined for each loan segment . to determine the loss rate the bank utilizes an average of loan losses as a percent of loan principal adjusted for the estimated probability of default . the historical loss rate is adjusted for certain environmental factors including current economic conditions , regulatory environment , local competition , lending personnel , loan policies and underwriting standards , loan review system , delinquency trends , loss trends , nature and volume of the loan portfolio and concentrations of credit . the bank also considered the likely adverse impact of superstorm sandy on historical loss rates . existing economic conditions which the bank considered to estimate the allowance for loan losses include local trends in economic growth , unemployment and real estate value . an overwhelming percentage of the bank 's loan portfolio , 96.2 % , is secured by real estate , whether one-to-four family , consumer or commercial . additionally , most of the bank 's borrowers are located in ocean and monmouth counties , new jersey and the surrounding area . these concentrations may adversely affect the bank 's loan loss experience should real estate values decline further or should the markets served continue to experience difficult economic conditions , including increased unemployment or should the area be affected by a natural disaster such as a hurricane or flooding . see risk factors a continued downturn in the local economy or in local real estate values could hurt profits and risk factors superstorm sandy , or other natural disasters or hurricanes , could adversely affect asset quality and earnings . management believes the primary risk characteristics for each portfolio segment are a continued decline in the economy generally , including sustained unemployment , a decline in real estate market values and possible 46 increases in interest rates . additionally , superstorm sandy may adversely affect real estate market values and borrowers ' ability to repay their obligations . any one or a combination of these events may adversely affect the borrowers ' ability to repay the loans , resulting in increased delinquencies , loan losses and future levels of provisions . accordingly , the bank has provided for loan losses at the current level to address the current risk in the loan portfolio . although management believes that the bank has established and maintained the allowance for loan losses at adequate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . story_separator_special_tag in addition , various regulatory agencies , as part of their examination process , periodically review the bank 's allowance for loan losses . such agencies may require the bank to make additional provisions for loan losses based upon information available to them at the time of their examination . although management uses what it believes to be the best information available , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions beyond the bank 's control . reserve for repurchased loans the reserve for repurchased loans relates to potential losses on loans sold which may have to be repurchased due to an early payment default , or a violation of representations and warranties . provisions for losses are charged to gain on sale of loans and credited to the reserve , which is part of other liabilities , while actual losses are charged to the reserve . in order to estimate an appropriate reserve for repurchased loans , the bank considers recent and historical experience , product type and volume of recent whole loan sales and the general economic environment . management believes that the bank has established and maintained the reserve for repurchased loans at adequate levels , however , future adjustments to the reserve may be necessary due to economic , operating or other conditions beyond the bank 's control . valuation of mortgage servicing rights ( msr ) the estimated origination and servicing costs of mortgage loans sold in which servicing rights are retained is allocated between the loans and the servicing rights based on their estimated fair values at the time of the loan sale . servicing assets are carried at the lower of cost or fair value and are amortized in proportion to , and over the period of , net servicing income . the estimated fair value of msr is determined through a discounted analysis of future cash flows , incorporating numerous assumptions including servicing income , servicing costs , market discount rates , prepayment speeds and default rates . impairment of the msr is assessed on a quarterly basis on the fair value of those rights with any impairment recognized as a component of loan servicing fee income . impairment is measured by risk strata based on the interest rate of the underlying mortgage loan . the fair value of msr is sensitive to changes in assumptions . fluctuations in prepayment speed assumptions have the most significant impact on the fair value of msr . in the event that loan prepayments continue to increase due to increased loan refinancing , the fair value of msr would likely decline . in the event that loan prepayment activities decrease due to a decline in loan refinancing , the fair value of msr would likely increase . additionally , due to the economic downturn , default rates and servicing costs may increase in future periods which would result in a decline in the fair value of msr . any measurement of msr is limited by the existing conditions and assumptions utilized at a particular point in time , and would not necessarily be appropriate if applied at a different point in time . impairment of securities on a quarterly basis the company evaluates whether any securities are other-than-temporarily impaired . in making this determination , the company considers the extent and duration of the impairment , the nature and financial health of the issuer , the ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value and other factors relevant to specific securities , such as the credit risk of the issuer and whether a guarantee or insurance applies to the security . if a security is determined to be 47 other-than-temporarily impaired , the impairment is charged to income during the period the impairment is found to exist , resulting in a reduction to earnings for that period . during 2011 , the company recognized an other-than-temporary impairment loss on equity securities of $ 148,000 as compared to no other-than-temporary impairment loss during 2012. as of december 31 , 2012 , the company concluded that any remaining unrealized losses in the securities available for sale portfolios were temporary in nature because they were primarily related to market interest rates , market illiquidity and wider credit spreads for these types of securities . additionally , the company does not intend to sell the securities and it is more likely than not that the company will not be required to sell the securities before recovery of their amortized cost . future events that could materially change this conclusion and require an impairment loss to be charged to operations include a change in the credit quality of the issuers or a determination that a market recovery in the foreseeable future is unlikely . analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them . 48 the following table sets forth certain information relating to the company for each of the years ended december 31 , 2012 , 2011 and 2010. the yields and costs are derived by dividing income or expense by the average balance of assets or liabilities , respectively , for the periods shown except where noted otherwise . average balances are derived from average daily balances . the yields and costs include fees which are considered adjustments to yields . replace_table_token_22_th ( 1 ) amounts are recorded at average amortized cost . ( 2 ) amount is net of deferred loan fees , undisbursed loan funds , discounts and premiums and estimated loan loss allowances and includes loans held for sale and non-performing loans . ( 3 ) net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities .
| these conditions have generally had an adverse impact on the company 's results of operations . highlights of the company 's financial results for the year ended december 31 , 2012 were as follows : total assets decreased to $ 2.269 billion at december 31 , 2012 , from $ 2.302 billion at december 31 , 2011. loans receivable , net decreased $ 39.8 million , or 2.5 % , at december 31 , 2012 , as compared to december 31 , 2011 44 primarily due to weak commercial loan demand , prepayments resulting from the low interest rate environment and the sale of newly originated 30-year fixed-rate one-to-four family loans . investment and mortgage-backed securities available for sale collectively increased by $ 17.2 million , or 3.3 % , to $ 547.4 million at december 31 , 2012 , from $ 530.2 million at december 31 , 2011. deposits increased by $ 13.6 million , or 0.8 % , at december 31 , 2012 , as compared to december 31 , 2011. an increase of $ 56.3 million in core deposits ( i.e . all deposits excluding time deposits ) was partly offset by a decline in time deposits , which decreased $ 42.7 million . at december 31 , 2012 , core deposits , a key focus for the company , represented 86.8 % of total deposits . stockholders ' equity increased to $ 219.8 million at december 31 , 2012 as compared to $ 216.8 million at december 31 , 2011 including the repurchase of 843,370 shares of common stock for $ 11.9 million . at december 31 , 2012 , there were 834,784 shares remaining to be repurchased under the existing stock repurchase plan . for the year ended december 31 , 2012 , net income decreased to $ 20.0 million , or $ 1.12 per diluted share , as compared to net income of $ 20.7 million , or $ 1.14 per diluted share for the prior year . net income for the year ended december 31 , 2012 was adversely impacted by an additional
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cash provided by financing activities of $ 380,000 and $ 136,000 in fiscal 2016 and 2015 , respectively , related to proceeds from the exercise of stock options . critical accounting policies , estimates and assumptions the company believes the following discussion addresses its most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g. , contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . 19 revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2017 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered/ownership is transferred or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . returns and allowances , which reduce product revenue , are estimated using historical experience . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . inventories inventories are valued at the lower of cost or market , with cost being determined principally by using the last-in , first-out ( lifo ) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods ( see note 2 to consolidated financial statements ) . appropriate consideration is given to obsolescence , excessive levels , deterioration , possible alternative uses and other factors in determining net realizable value . the cost of work in process and finished goods includes materials , direct labor , variable costs and overhead . the company evaluates the need to record inventory adjustments on all inventories , including raw material , work in process , finished goods , spare parts and used equipment . used equipment acquired by the company on trade-in from customers is carried at estimated net realizable value . unless specific circumstances warrant different treatment regarding inventory obsolescence , the cost basis of inventories three to four years old are reduced by 50 % , while the cost basis of inventories four to five years old are reduced by 75 % , and the cost basis of inventories greater than five years old are reduced to zero . inventory is typically reviewed for obsolescence on an annual basis computed as of september 30 , the company 's fiscal year end . if significant known changes in trends , technology or other specific circumstances that warrant consideration occur during the year , then the impact on obsolescence is considered at that time . investments marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value . fair value is determined using the quoted closing or latest bid prices for level 1 investments and market standard valuation methodologies for level 2 investments . realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations . net unrealized gains and losses are reported in the consolidated statements of operations and represent the change in the fair value of investment holdings story_separator_special_tag cash provided by financing activities of $ 380,000 and $ 136,000 in fiscal 2016 and 2015 , respectively , related to proceeds from the exercise of stock options . critical accounting policies , estimates and assumptions the company believes the following discussion addresses its most critical accounting policies , which are those that are most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g. , contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . 19 revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2017 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition criteria are met : product is delivered/ownership is transferred or service is performed , persuasive evidence of an arrangement exists , the selling price is fixed or determinable , and collectability is reasonably assured . provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded . returns and allowances , which reduce product revenue , are estimated using historical experience . product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized . all product engineering and development costs , and selling , general and administrative expenses are charged to operations as incurred . provision is made for any anticipated contract losses in the period that the loss becomes evident . the allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging buckets . account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable . any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts . inventories inventories are valued at the lower of cost or market , with cost being determined principally by using the last-in , first-out ( lifo ) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods ( see note 2 to consolidated financial statements ) . appropriate consideration is given to obsolescence , excessive levels , deterioration , possible alternative uses and other factors in determining net realizable value . the cost of work in process and finished goods includes materials , direct labor , variable costs and overhead . the company evaluates the need to record inventory adjustments on all inventories , including raw material , work in process , finished goods , spare parts and used equipment . used equipment acquired by the company on trade-in from customers is carried at estimated net realizable value . unless specific circumstances warrant different treatment regarding inventory obsolescence , the cost basis of inventories three to four years old are reduced by 50 % , while the cost basis of inventories four to five years old are reduced by 75 % , and the cost basis of inventories greater than five years old are reduced to zero . inventory is typically reviewed for obsolescence on an annual basis computed as of september 30 , the company 's fiscal year end . if significant known changes in trends , technology or other specific circumstances that warrant consideration occur during the year , then the impact on obsolescence is considered at that time . investments marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value . fair value is determined using the quoted closing or latest bid prices for level 1 investments and market standard valuation methodologies for level 2 investments . realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations . net unrealized gains and losses are reported in the consolidated statements of operations and represent the change in the fair value of investment holdings
| as of september 30 , 2017 and 2016 , the cost basis of the investment portfolio was $ 87.0 million and $ 86.2 million , respectively . for the years ended september 30 , 2017 and 2016 , net investment interest and dividend income ( investment income ) was $ 0.7 million and $ 0.8 million , respectively . the net realized and unrealized gains ( losses ) on marketable securities were $ 1.3 million in fiscal 2017 versus $ 0.8 million in fiscal 2016. the total cash , cash equivalents and investments balance at september 30 , 2017 was $ 110.8 million , compared to the september 30 , 2016 cash , cash equivalents and investments balance of $ 104.2 million , an increase of $ 6.6 million . the effective income tax rate for fiscal 2017 was 30.9 % versus 25.1 % in fiscal 2016. as of september 30 , 2016 , the company had $ 647,000 in federal research and development tax credits ( r & d credits ) carryforwards . in fiscal 2017 , there were $ 332,000 of new credits generated , bringing the total r & d credits to $ 979,000 , of which all were used . there are no r & d credits carryforwards as of september 30 , 2017 . 17 as of september 30 , 2016 , the company had $ 224,000 in florida state research and development tax credits ( florida r & d credits ) carryforwards . the company received additional florida r & d credits of $ 22,000 in fiscal 2017 and used $ 91,000 , leaving $ 155,000 of florida r & d credits carryforwards as of september 30 , 2017. the $ 155,000 of florida r & d credits , which are included in net deferred and other income tax liabilities of $ ( 1,601,000 ) at september 30 , 2017 , expire in fiscal 2021. net income for the year ended september 30 , 2017 was $ 8,418,000 or $ 0.57 per diluted share versus net income of $ 7,043,000 or $ 0.48 per diluted share for the year ended september 30 , 2016. the increase
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the infill southern california industrial real estate sector has continued to exhibit strong fundamentals . these high-barrier infill markets are characterized by a relative scarcity of available product , generally operating at near full occupancy , coupled with limited ability to introduce new supply due to high land and development costs and a dearth of developable land in markets experiencing a net reduction in supply as more industrial property is converted to non-industrial uses than can be delivered . consequently , available industrial supply continues to decrease in many of our target infill submarkets , landlord concessions are at cyclically low levels and construction deliveries are falling short of demand . meanwhile , underlying tenant demand within our infill target markets continues to demonstrate growth , illustrated or driven by strong re-leasing spreads , strong renewal activity , an expanding regional economy , substantial growth in e-commerce transaction and delivery volumes , as well as further compression of delivery time-frames to consumers and to businesses , increasing the significance of last-mile facilities for timely fulfillment . despite potential concerns related to global growth , tax reform and changes to trade and tariff policies , we continue to observe a number of positive trends within our target infill markets . based on current observations within the infill southern california industrial property market and within our property portfolio , we expect these positive trends may continue into the upcoming year . in los angeles county , positive market trends continued through 2019 , as high tenant demand kept vacancy at historically low levels and average asking lease rates increased significantly during 2019. current market conditions indicate rents are likely to continue their upward trend with potential increases through 2020 , as occupancy still remains at near capacity levels and new development is limited by a lack of land availability and an increase in land and development costs . in orange county , market fundamentals remained favorable throughout 2019. with steady tenant demand and a continued low availability of industrial product in this region , average asking lease rates continued their upward trend during 2019 and vacancy remained at historically low levels . current regional market conditions indicate the potential for continued rental growth through 2020. in san diego , although there was an increase in vacancy year-over-year , net absorption was positive during 2019 and average asking lease rates increased year-over-year . in ventura county , there was a slight increase in vacancy year-over-year and a slight increase in asking lease rates year-over year . lastly , in the inland empire , new industrial product continues to be absorbed well in the market . in the inland empire west , which contains infill markets in which we operate , vacancy remained at historically low levels and asking lease rates increased year-over-year . we expect the outlook for the inland empire west to remain positive over the upcoming year . we generally do not focus on properties located within the non-infill inland empire east sub-market where available land and the development and construction pipeline for new supply is substantial . acquisitions and value-add repositioning and development of properties the company 's growth strategy comprises acquiring leased , stabilized properties as well as properties with value-add opportunities to improve functionality and to deploy our value-driven asset management programs in order to increase cash flow and value . additionally , from time to time , we may acquire land parcels or properties with excess land where we may construct new buildings . acquisitions may comprise single property investments as well as the purchase of portfolios of properties , with transaction values typically ranging from a $ 10 million minimum property investment to portfolios potentially valued in the billions of dollars . the company 's geographic focus remains infill southern california . however , from time-to-time , portfolios could be acquired comprising a critical mass of infill southern california industrial property that could include some assets located in markets outside of infill southern california . in general , to the extent non-infill-southern california assets were to be acquired as part of a larger portfolio , the company may underwrite such investments with the potential to dispose such assets over a certain period of time in order to maximize its core focus on infill southern california , while endeavoring to take appropriate steps to satisfy reit safe harbor requirements to avoid prohibited transactions under reit tax laws . a key component of our growth strategy is to acquire properties through off-market and lightly marketed transactions that are often operating at below-market occupancy or below-market rent at the time of acquisition or that have near-term lease roll-over or that provide opportunities to add value through functional or physical repositioning and improvements . through various redevelopment , repositioning , and professional leasing and marketing strategies , we seek to increase the properties ' functionality and attractiveness to prospective tenants and , over time , to stabilize the properties at occupancy rates that meet or exceed market rates . 50 a repositioning can consist of a range of improvements to a property . this may include a complete structural renovation of a property whereby we convert large underutilized spaces into a series of smaller and more functional spaces , or it may include the creation of additional square footage , the modernization of the building and property site , the elimination of functional obsolescence , the addition or enhancement of loading areas and truck access , the enhancement of fire-life-safety systems or other accretive improvements . because each repositioning effort is unique and determined based on the property , targeted tenants and overall trends in the general market and specific submarket , the timing and effect of the repositioning on our rental revenue and occupancy levels will vary , and , as a result , will affect the comparison of our results of operations from period to period with limited predictability . story_separator_special_tag as of december 31 , 2019 , eight of our properties were in various stages of repositioning or development and three of our properties were in the lease-up stage . in addition , we anticipate beginning repositioning/redevelopment work on three additional properties in the near future . the table below sets forth a summary of these properties , as well as the seven projects that were stabilized during 2019 and the four properties that were stabilized during 2018 , as the timing of these stabilizations have a direct impact on our current and comparative results of operations . in addition to the properties in the table below , we also have a range of smaller spaces in value-add repositioning or renovation , that due to their smaller size and relatively nominal amount of down-time , are not presented below , however , in the aggregate , may be substantial . replace_table_token_19_th 51 replace_table_token_20_th ( 1 ) the estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements , delays in construction , changes in scope , and other unforeseen circumstances . ( 2 ) our “ same properties portfolio ” is a subset of our consolidated portfolio and includes all properties that were wholly-owned by us as of january 1 , 2018 , and still owned by us as of december 31 , 2019 . a property with a “ y ” indicates its inclusion in the same properties portfolio and a property with a “ n ” indicates its exclusion from the same properties portfolio . ( 3 ) we expect to demolish the existing 49,976 rentable square foot building and construct a new 90,856 rentable square foot multi-unit building . ( 4 ) as of december 31 , 2019 , one unit with 25,202 rentable square foot unit is occupied and the remaining two units with a combined 47,048 rentable square feet have been pre-leased with lease commencement expected to occur in march 2020 . ( 5 ) the merge is a fully entitled industrial development site on which we plan to build six industrial buildings totaling 333,491 rentable square feet . ( 6 ) we expect to demolish the existing 63,900 rentable square foot building and construct a new 96,950 rentable square foot building . ( 7 ) we acquired conejo spectrum business park , a nine-building property during the first quarter of 2019. information presented in this table relates to one of the nine buildings , located at 2455 conejo spectrum street . ( 8 ) 9615 norwalk boulevard is a 10.26 acre storage-yard with three buildings totaling 38,362 rentable square feet . in january 2019 , we converted the tenant 's month to month land lease to a term lease with an expiration date of june 30 , 2020. we will demolish the existing buildings and construct a new 201,808 rentable square foot building upon termination of the land lease . ( 9 ) we expect to demolish the existing 70,510 rentable square foot building and construct a new 128,350 rentable square foot building . ( 10 ) we consider a repositioning property to be stabilized upon the earlier of ( i ) reaching 90 % occupancy or ( ii ) one year from the date construction work is completed . ( 11 ) repositioning construction work for 2722 fairview street was completed in 4q-2018 . although the renovated space is still vacant , based on our definition of stabilized in footnote ( 10 ) above , 2722 fairview street is considered stabilized as of 4q-2019 , one year after the completion of repositioning construction work . properties that are nonoperational as a result of repositioning or redevelopment activity may qualify for varying levels of interest , insurance and real estate tax capitalization during the development and construction period . an increase in our repositioning and development activities resulting from value-add acquisitions could cause an increase in the asset balances qualifying for interest , insurance and tax capitalization in future periods . we capitalized $ 3.9 million of interest expense and $ 1.3 52 million of insurance and real estate tax expense during the year ended december 31 , 2019 , related to our repositioning and redevelopment projects . rental revenue our operating results depend primarily upon generating rental revenue from the properties in our consolidated portfolio . the amount of rental revenue generated by these properties is affected by our ability to maintain or increase occupancy levels and rental rates at our properties , which will depend upon our ability to lease vacant space and re-lease expiring space at favorable rates . occupancy rates as of december 31 , 2019 , our consolidated portfolio , inclusive of space in repositioning as described in the subsequent paragraph , was approximately 96.1 % occupied , while our stabilized consolidated portfolio exclusive of such space was approximately 97.9 % occupied . we believe the opportunity to increase occupancy at our properties will be an important driver of future revenue growth . an opportunity to drive this growth will derive from the lease-up of recently completed repositioning projects and the completion and lease-up of repositioning and development projects that are currently under construction and planned for near-term construction . as summarized in the table under “ acquisitions and value-add repositioning and development of properties ” above , as of december 31 , 2019 , eight of our properties that will have a combined 1.1 million rentable square feet at completion are in current repositioning or development , and three properties with 0.2 million rentable square feet are in lease-up . vacant repositioning space and lease-up space at these 11 properties are concentrated in our los angeles , orange county , ventura and san diego markets , and represent 1.9 % of our total consolidated portfolio square footage as of december 31 , 2019 .
| these occupancy changes were partially driven by the completion of repositioning and development work and subsequent lease-up of space at the following six properties in our same properties portfolio during the period from january 1 , 2018 through december 31 , 2019 : ( i ) 14748-14750 nelson avenue , ( ii ) 3233 mission oaks boulevard , 58 ( iii ) 301-445 figueroa street , ( iv ) 28903 avenue paine , ( v ) 15401 figueroa street and ( vi ) 1601 alton parkway ( collectively , the “ spp stabilized properties ” ) . replace_table_token_23_th rental income on january 1 , 2019 , we adopted accounting standards codification topic 842 , leases ( “ asc 842 ” ) using the modified retrospective approach and elected the “ non-separation practical expedient ” in asc 842 that alleviates the requirement to separately present lease and non-lease components of lease contracts if certain criteria are met . as a result , we account for and present all rental income earned pursuant to tenant leases , including tenant reimbursements , as a single component in one line , “ rental income , ” in our consolidated statements of operations . prior to the adoption asc 842 , we presented rental revenue , tenant reimbursements and other income related to leases separately in our consolidated statements of operations . however , to facilitate comparability , we have reclassified 2018 amounts to conform with 2019 presentation . see note 2 to our consolidated financial statements under item 15 of this report on form 10-k for disclosure related to the adoption of asc 842. the following table reports the breakdown of 2019 rental income , as reported prior to the adoption of asc 842 , and compares this breakdown with 2018 amounts for the comparable period ( dollars in thousands ) . we believe that the below presentation of rental income is not , and is not intended to be , a presentation in accordance with gaap . we are presenting this information because we believe it is frequently used by management , investors , securities analysts and other interested parties to evaluate the company 's performance . 59 replace_table_token_24_th our same properties portfolio and total portfolio
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data from event-driven endpoints , including duration of response , event and progression-free survival and overall survival are currently immature and will require longer follow-up in order to achieve meaningful conclusions . there were no new toxicities observed in the study . fatigue , gastrointestinal toxicities and myelosuppression occurred more frequently in the combination group and resulted in a higher rate of drug discontinuations compared to azacitidine alone . exploratory follow-up data suggest that patients receiving pracinostat plus azacitidine for more than four cycles may receive clinical benefit compared to azacitidine alone . these data have been submitted for presentation at the ash annual meeting in december 2015 . 22 in december 2014 , we reached the clinical response milestone in our open-label phase ii study of pracinostat in hma refractory mds . of the first 28 patients who received pracinostat in combination with azacitidine or decitabine ( marketed as dacogen ® ) after progressing while being treated with the same hma alone , three achieved clinical responses one pr and two mcrs exceeding the pre-specified clinical improvement rate for expansion of study enrollment . the primary objective of the study was to determine if the addition of pracinostat to a hma can result in clinical benefit following disease progression with a hma alone . we completed enrollment with 39 patients in this group and will continue to follow these patients for response and survival . a second group , patients with stable disease following initial hma therapy , was closed due to insufficient enrollment . the combination of pracinostat and azacitidine or decitabine has been generally well-tolerated in the study , with no unexpected toxicities . the most common treatment-emergent adverse events include anemia , fatigue and gastrointestinal disorders . in february 2014 , the fda granted orphan drug designation to pracinostat for the treatment of aml . the designation provides orphan status to drugs defined by the fda as those intended for the safe and effective treatment , diagnosis or prevention of rare diseases that affect fewer than 200,000 people in the u.s. orphan designation qualifies us for certain development incentives , including tax credits for qualified clinical testing , prescription drug user fee exemptions and seven-year marketing exclusivity upon fda approval . we also intend to seek orphan drug designation in the u.s. and europe for pracinostat in combination with azacitidine for the treatment of aml . in november 2014 , we completed enrollment in our open-label phase ii study of pracinostat in combination with azacitidine in elderly patients with newly diagnosed aml . the study enrolled a total of 50 patients at 15 clinical sites in the u.s. interim data from the study were presented at the eha annual congress in june 2015. to date , 54 % of patients ( 27 out of 50 ) have achieved the primary endpoint of cr+cri+mlfs , including 42 % ( 21 out of 50 ) who achieved a cr . most responses occurred within the first two cycles and many continued to improve with ongoing therapy . median overall survival has not yet been reached in the study . as of our ash abstract submission on august 4 , 2015 , the one-year survival rate was approximately 60 % . the 60-day mortality rate was 10 % ( five out of 50 ) . pracinostat in combination with azacitidine was generally well tolerated in this population of elderly aml patients . the most common treatment-emergent aes included febrile neutropenia , thrombocytopenia , nausea and fatigue . we continue to follow patients for overall survival . we believe this survival analysis will be important in determining the development path forward for pracinostat in combination with azacitidine in aml . updated response and overall survival data have been submitted for presentation at the ash annual meeting in december 2015. me-344 results from our first-in-human , single-agent phase i clinical trial of me-344 in patients with refractory solid tumors were published in the april 1 , 2015 issue of cancer . the results indicated that eight of 21 evaluable patients ( 38 % ) treated with me-344 achieved stable disease or better , including five who experienced progression-free survival that was at least twice the duration of their last prior treatment before entry into the study . in addition , one of these patients , a heavily pre-treated patient with small cell lung cancer , achieved a confirmed partial response and remained on study for 102 weeks . me-344 was generally well tolerated at doses equal to or less than 10 mg/kg delivered on a weekly schedule for extended durations . treatment-related adverse events included nausea , dizziness and fatigue . dose limiting toxicities were observed at both the 15 mg/kg and 20 mg/kg dose levels , consisting primarily of grade 3 peripheral neuropathy . in may 2014 , we initiated a phase ib clinical trial of me-344 in combination with hycamtin ® ( topotecan ) in patients with solid tumors . the phase ib study is evaluating the safety and tolerability of intravenous me-344 in combination with topotecan , a chemotherapy approved by the fda for the treatment of small cell lung , ovarian and cervical cancers . in october 2014 , the first patient was dosed in the cohort-expansion stage of the study after confirming that the maximum tolerated dose of me-344 in combination with topotecan is 10 mg/kg , the same dose defined for single-agent use . the cohort-expansion stage enrolled patients into two cohorts , locally advanced or metastatic small cell lung cancer and ovarian cancer , at nine sites in the u.s. and u.k. the phase ib study enrolled a total of 13 small cell lung cancer patients and 28 ovarian cancer patients . we will continue to follow these patients for response and survival . story_separator_special_tag in may 2015 , we announced new pre-clinical data showing mitochondria-specific effects of me-344 in cancer cells , including substantially enhanced anti-tumor activity when combined with a vegfr tki . these new data showing anti-cancer effects when combining me-344 with an anti-angiogenic agent , such as a vegfr tki , to inhibit both mitochondrial and glycolytic metabolism will help to inform our next study of me-344 . pwt143 in june 2015 , we initiated a first-in-human clinical study of pwt143 in healthy subjects . preliminary data showed measurable plasma levels of pwt143 as well as significant on target activity observed at the 10 mg starting dose level . in addition , the pharmacokinetic results suggest the potential for once-daily dosing . these data have been submitted for presentation at the ash annual meeting in december 2015. we expect to initiate a phase i study of pwt143 in patients with hematologic cancers during the first half of calendar year 2016 . 23 equity transactions shelf registration statement in april 2014 , the company filed a shelf registration statement on form s-3 with the sec ( shelf registration statement ) . the shelf registration statement was declared effective by the sec in april 2014. the shelf registration statement permits the company to sell , from time to time , up to $ 150 million of common stock , preferred stock and warrants . pursuant to sec regulations , if the market value of the company 's public float is below $ 75 million , the company can not sell securities from the shelf registration statement which represent more than one-third of the market value of the company 's non-affiliated public float during any 12-month period . underwritten registered offerings in december 2014 , we completed an underwritten registered offering of 11,500,000 shares of our common stock at a price per share of $ 4.00 pursuant to the april 2014 shelf registration statement . we received net proceeds of $ 43.1 million associated with the offering . in october 2013 , we completed an underwritten registered offering of 4,375,000 shares of our common stock at a price per share of $ 8.00 pursuant to a shelf registration statement . we received net proceeds of $ 32.7 million associated with the offering . in april 2013 , we completed an underwritten registered offering of 2,030,000 shares of our common stock at a price per share of $ 7.50 pursuant to a shelf registration statement . we received net proceeds of $ 14.2 million associated with the offering . december 2012 private placement in december 2012 , we completed the sale ( the december 2012 private placement ) of 9,166,665 shares ( the initial shares ) of common stock and warrants ( the warrants ) to purchase an additional 6,416,665 shares ( the warrant shares and , together with the initial shares , the shares ) of common stock for an aggregate offering price of $ 27.5 million , pursuant to the terms a securities purchase agreement , dated november 4 , 2012 , between us and certain accredited investors identified therein . reverse stock split on december 18 , 2012 , we filed a certificate of amendment to our restated certificate of incorporation in order to effect a 1-for-6 reverse stock split of our common stock effective on december 18 , 2012. as a result of the 2012 reverse stock split , every six shares of our issued and outstanding common stock were combined into one share of common stock . the 2012 reverse stock split did not change the number of authorized shares of common stock . all financial data and share information in this annual report on form 10-k has been presented on an as-adjusted basis to give effect to the 2012 reverse stock split . s * bio asset purchase in august 2012 , we entered into a definitive asset purchase agreement with s * bio , pursuant to which we agreed to acquire certain assets comprised of intellectual property and technology including rights to pracinostat , in exchange for $ 500,000 of common stock . on august 22 , 2012 , we completed the asset purchase and issued 195,756 shares of common stock to s * bio . we also agreed to make certain milestone payments to s * bio based on the achievement of certain clinical , regulatory and net sales-based milestones , as well as to make certain contingent earnout payments to s * bio . milestone payments will be made to s * bio up to an aggregate amount of $ 75.2 million if certain u.s. , e.u . and japanese regulatory approvals are obtained and if certain net sales thresholds are met in north america , the e.u . and japan . the first milestone payment of $ 200,000 plus shares of the company 's common stock having a value of $ 500,000 will be due upon the first dosing of a patient in a phase iii clinical trial or other pivotal trial , for an indication . subsequent milestone payments will be due upon certain regulatory approvals and sales-based events . waiver agreement in december 2012 , the company entered into an agreement ( the waiver agreement ) with novogen and novogen research pty limited , a wholly-owned subsidiary of novogen ( together , the novogen parties ) , graham kelly , an individual , and andrew heaton , an individual , pursuant to which the company granted a limited waiver with respect to certain non-compete provisions contained in the asset purchase agreement dated as of december 20 , 2010 , between the company and the novogen parties . in consideration of the company 's grant of the limited waiver , upon the execution of the waiver agreement , novogen surrendered to the company for cancellation warrants held by novogen for the purchase of 166,666 shares of common stock .
| other income or expense : we received interest on cash , cash equivalents and short-term investments of $ 78,000 for the year ended june 30 , 2015 and $ 81,000 for the year ended june 30 , 2014. comparison of years ended june 30 , 2014 and 2013 research and development : research and development expenses consist primarily of clinical trial costs ( including payments to cros ) , pre-clinical study costs , cost to manufacture our drug candidates for non-clinical and clinical studies , and salaries and other personnel costs . research and development expenses increased $ 13.2 million to $ 19.3 million for the year ended june 30 , 2014 compared to $ 6.1 million for the year ended june 30 , 2013. the increase was primarily due to costs associated with phase ii clinical trials for pracinostat . additionally , we incurred costs associated with a phase i clinical trial for me-344 , as well as pre-clinical costs related to pwt143 . additionally , salaries and benefits costs , including share-based compensation of $ 1.5 million for the year ended june 30 , 2014 , increased due to hiring of additional employees and issuance of additional stock options to research and development personnel . general and administrative : general and administrative expenses increased by $ 2.8 million to $ 7.9 million for the year ended june 30 , 2014 compared to $ 5.1 million for the year ended june 30 , 2013. the increase primarily relates to higher levels of salaries and benefits , including share-based compensation of $ 3.2 million for the year ended june 30 , 2014 compared with $ 1.3 million for the year ended june 30 , 2013. other income or expense : we received interest on cash , cash equivalents and short-term investments of $ 81,000 for the year ended june 30 , 2014 and $ 37,000 for the year ended june 30 , 2013. the increase was due to higher cash and short-term investment balances . recent accounting pronouncements in may 2014 , the financial accounting standards board ( fasb ) issued asu no . 2014-09 , revenue from contracts with customers ( asu 2014-09 ) , which supersedes nearly all existing revenue recognition guidance under united states generally accepted accounting principles ( u.s . gaap ) . the core principle of asu 2014-09 is to recognize revenues when promised
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as our financial advisory revenues are primarily dependent on the successful completion of merger , acquisition , restructuring , capital raising or similar transactions , and our asset management revenues are primarily driven by the levels of assets under management , weak economic and global financial market conditions can result in a challenging business environment for m & a and capital-raising activity as well as our asset management business , but may provide opportunities for our restructuring business . on an ongoing basis , regional , macroeconomic and geopolitical factors , including trade policy and regional tax and regulatory reform , may impact our business . overall , the global macroeconomic environment remains favorable , equity market fundamentals are strong and credit is widely available . our outlook with respect to our financial advisory and asset management businesses is described below . financial advisory —the fundamentals for continued m & a activity and recent trends such as technological disruption and shareholder activism , which can be a catalyst for global strategic activity , appear to remain in place . we believe our financial advisory business is in a strong competitive position as demand continues for expert , independent strategic advice that can be levered across geographies and our range of capabilities . the global scale and breadth of our financial advisory business allows us to advise on a wide range of strategic and restructuring transactions across a variety of industries . in addition , we believe our businesses throughout north america , europe and the emerging markets position us for growth in these markets , while enhancing our relationships with , and the services that we can provide to , clients in other economies . we continue to invest in our financial advisory business by selectively hiring talented senior professionals and continuing to focus on our m & a and other advisory services . asset management —in the short to intermediate term , we expect most investor demand will come through financial institutions , and from defined benefit and defined contribution plans in developed economies because of their sheer scope and size . over the longer term , and depending upon local market conditions , we would expect an increasing share of our aum to come from the developing economies around the globe , as their retirement systems evolve and individual wealth is increasingly deployed in the financial markets . given our diversified investment platform and our ability to provide investment solutions for a global mix of clients , we believe we are positioned to benefit from opportunities across the asset management industry . we are continually developing and seeding new investment strategies that extend our existing platforms and assessing potential product acquisitions or other inorganic growth opportunities . recent examples of growth initiatives include the following investment strategies : various quantitative equity strategies , explainable ai capabilities , a u.s. systematic equity strategy , and sustainable investment strategies . we operate in a very competitive and rapidly changing environment . new risks and uncertainties emerge continuously , and it is not possible for our management to predict all risks and uncertainties , nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . see item 1a , “ risk factors ” in this form 10-k. furthermore , net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . overall , we continue to focus on the development of our business , including the generation of stable revenue growth , earnings growth and shareholder returns , the evaluation of potential growth opportunities , the investment in new technology to support the development of existing and new business opportunities , the prudent management of our costs and expenses , the efficient use of our assets and the return of capital to our shareholders . 37 certain market data with respect to our financial advisory and asset management businesses is included below . financial advisory as reflected in the following table , which sets forth global m & a industry statistics , the value and number of all completed transactions , including the subset of completed transactions involving values greater than $ 500 million , decreased in 2019 as compared to 2018. with respect to announced m & a transactions , the value and number of all transactions , including the subset of announced transactions involving values greater than $ 500 million , are flat as compared to 2018 , apart from the number of announced transactions involving values greater than $ 500 million , which decreased in 2019 as compared to 2018. replace_table_token_5_th source : dealogic as of january 3 , 2020. global restructuring activity during 2019 , as measured by the number of corporate defaults , increased as compared to 2018. the number of defaulting issuers increased to 101 in 2019 , according to moody 's investors service , inc. , as compared to 79 in 2018. net revenue trends in financial advisory are generally correlated to the level of completed industry-wide m & a transactions and restructuring transactions occurring subsequent to corporate debt defaults , respectively . however , deviations from this relationship can occur in any given year for a number of reasons . for instance , our results can diverge from industry-wide activity where there are material variances from the level of industry-wide m & a activity in a particular market where lazard has significant market share , or regarding the relative number of our advisory engagements with respect to larger-sized transactions , and where we are involved in non-public or sovereign advisory assignments . story_separator_special_tag asset management equity market indices for major markets at december 31 , 2019 generally increased as compared to such indices at december 31 , 2018. equity market indices for major markets at december 31 , 2018 generally decreased as compared to such indices at december 31 , 2017 . 38 the percentage change in major equity market indices ( i ) at december 31 , 201 9 , as compared to such indices at december 31 , 201 8 , and ( ii ) at december 31 , 201 8 , as compared to such indices at december 31 , 201 7 , is shown in the table below . replace_table_token_6_th the fees that we receive for providing investment management and advisory services are primarily driven by the level of aum and the nature of the aum product mix . accordingly , market movements , foreign currency exchange rate volatility and changes in our aum product mix will impact the level of revenues we receive from our asset management business when comparing periodic results . a substantial portion of our aum is invested in equities . movements in aum during the period generally reflect the changes in equity market indices . financial statement overview net revenue the majority of lazard 's financial advisory net revenue historically has been earned from the successful completion of m & a transactions , capital advisory services , capital raising , restructuring , shareholder advisory , sovereign advisory and other strategic advisory matters . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lam , lfg and edgewater . asset management net revenue is derived from fees for investment management and advisory services provided to clients . as noted above , the main driver of asset management net revenue is the level and product mix of aum , which is generally influenced by the performance of the global equity markets and , to a lesser extent , fixed income markets as well as lazard 's investment performance , which impacts its ability to successfully attract and retain assets . as a result , fluctuations ( including timing thereof ) in financial markets and client asset inflows and outflows have a direct effect on asset management net revenue and operating income . asset management fees are generally based on the level of aum measured daily , monthly or quarterly , and an increase or reduction in aum , due to market price fluctuations , currency fluctuations , changes in product mix , or net client asset flows will result in a corresponding increase or decrease in management fees . the majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less . institutional and individual clients , and firms with which we have strategic alliances , can terminate their relationship with us , reduce the aggregate amount of aum or shift their funds to other types of accounts with different rate structures for a number of reasons , including investment performance , changes in prevailing interest rates and financial market performance . in addition , as lazard 's aum includes significant amounts of assets that are denominated in currencies other than u.s. dollars , changes in the value of the u.s. dollar relative to foreign currencies will impact the value of lazard 's aum and the overall amount of management fees generated by the aum . fees vary with the type of assets managed and the vehicle in which they are managed , with higher fees earned on equity assets and alternative investment funds , such as hedge funds and private equity funds , and lower fees earned on fixed income and cash management products . 39 the company earns performance-based incentive fees on various investment products , including traditional products and alternative investment funds , such as hedge funds and private equity funds . for hedge funds , incentive fees are calculated based on a specified percentage of a fund 's net appreciation , in some cases in excess of established benchmarks or thresholds . the company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period , when potential uncertainties regarding the ultimate realizable amounts have been determined . the incentive fee measurement period is generally an annual period ( unless an account terminates or redemption occurs during the year ) . the incentive fees received at the end of the measurement period are not subject to reversal or payback . incentive fees on hedge funds are often subject to loss carryforward provisions in which losses incurred by the hedge funds in any year are applied against certain gains realized by the hedge funds in future periods before any incentive fees can be earned . for private equity funds , incentive fees may be earned in the form of a “ carried interest ” if profits arising from realized investments exceed a specified threshold .
| average aum for the year ended december 31 , 2019 decreased $ 7 billion , or 3 % , as compared to 2018. as of december 31 , 2019 approximately 86 % of our aum was managed on behalf of institutional clients , including corporations , labor unions , public pension funds , insurance companies and banks , and through sub-advisory relationships , mutual fund sponsors , broker-dealers and registered advisors as compared to approximately 88 % as of december 31 , 2018. as of december 31 , 2019 , approximately 14 % of our aum was managed on behalf of individual client relationships , which are principally with family offices and individuals , as compared to approximately 12 % as of december 31 , 2018. as of december 31 , 2019 , aum with foreign currency exposure represented approximately 67 % of our total aum , as compared to 70 % at december 31 , 2018. aum with foreign currency exposure generally declines in value with the strengthening of the u.s. dollar and increases in value as the u.s. dollar weakens , with all other factors held constant . 49 the following is a summary of changes in aum by asset class for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_17_th inflows in the equity asset class were primarily attributable to the global , local and multi-regional platforms , and inflows in the fixed income asset class were primarily attributable to the global , multi-regional and emerging markets platforms . outflows in the equity asset class were primarily attributable to the emerging markets , global and multi-regional equity platforms , and outflows in the fixed income asset class were primarily attributable to the emerging markets and global platforms . replace_table_token_18_th replace_table_token_19_th as of february 18 , 2020 , aum was $ 247.8 billion , a $ 0.4 billion decrease since december 31 , 2019. the decrease in aum was due to foreign exchange depreciation of $ 3.7 billion and net outflows of $ 1.4 billion , offset by market appreciation of $ 4.7 billion . 50 average aum for t he years ended december 31 , 2019 , 2018 and 201 7 for each significant asset class is set forth below . average aum generally represents the average of the monthly ending aum balances for the period . replace_table_token_20_th the following table summarizes the reported operating results attributable to the asset management segment : replace_table_token_21_th ( a ) see note 18 of notes to consolidated financial statements for information regarding business realignment . our top ten clients accounted for 28 % , 26 % and 25 % of our total aum at december 31 , 2019 , 2018 and 2017 , respectively , and no individual client constituted more than 10 % of our asset management segment
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we invest in high-quality single tenant industrial , warehouse , office , retail , and self-storage ( net lease ) properties subject to long-term leases with built-in rent escalators . portfolio information is provided on a pro rata basis , unless otherwise noted below , to better illustrate the economic impact of our various net-leased jointly owned investments . see terms and definitions below for a description of pro rata amounts . portfolio summary replace_table_token_3_th replace_table_token_4_th w. p. carey 2020 10-k – 26 ( a ) at december 31 , 2020 , operating properties consisted of 19 self-storage properties ( of which we consolidated ten , with an average occupancy of 93.9 % at that date ) , and one hotel property , with an average occupancy of 25.0 % for the year ended december 31 , 2020 ( due to the adverse effect of the covid-19 pandemic ) . we sold one of our hotel properties in january 2020 ( note 16 ) . at december 31 , 2019 , operating properties consisted of 19 self-storage properties and two hotel properties . during the second quarter of 2019 , we entered into net lease agreements for certain self-storage properties previously classified as operating properties . as a result , during the year ended december 31 , 2019 , we reclassified 27 consolidated self-storage properties from operating properties to net leases ( note 5 ) . at december 31 , 2018 , operating properties consisted of 46 self-storage properties and two hotel properties . ( b ) amount for 2018 excludes properties acquired in the cpa:17 merger ( note 3 ) . ( c ) many of our lease agreements include contractual increases indexed to changes in the cpi or similar indices in the jurisdictions in which the properties are located . when there is a decrease in cpi , rent does not decrease , since the minimum adjustment to rent will be 0 % or higher . net-leased portfolio the tables below represent information about our net-leased portfolio at december 31 , 2020 on a pro rata basis and , accordingly , exclude all operating properties . see terms and definitions below for a description of pro rata amounts and abr . top ten tenants by abr ( dollars in thousands ) tenant/lease guarantor description number of properties abr abr percent weighted-average lease term ( years ) u-haul moving partners inc. and mercury partners , lp net lease self-storage properties in the u.s. 78 $ 38,751 3.3 % 3.3 hellweg die profi-baumärkte gmbh & co. kg ( a ) do-it-yourself retail properties in germany 42 36,579 3.1 % 16.2 state of andalucía ( a ) government office properties in spain 70 31,479 2.7 % 14.0 metro cash & carry italia s.p.a. ( a ) business-to-business wholesale stores in italy and germany 20 29,723 2.5 % 6.3 pendragon plc ( a ) automotive dealerships in the united kingdom 69 23,531 2.0 % 9.4 extra space storage , inc. net lease self-storage properties in the u.s. 27 20,332 1.7 % 23.3 marriott corporation net lease hotel properties in the u.s. 18 20,065 1.7 % 2.9 eroski sociedad cooperativa ( a ) grocery stores and warehouses in spain 58 19,589 1.6 % 15.2 nord anglia education , inc. k-12 private schools in the u.s. 3 19,138 1.6 % 22.7 forterra , inc. ( a ) ( b ) industrial properties in the u.s. and canada 27 18,781 1.6 % 22.5 total 412 $ 257,968 21.8 % 12.6 ( a ) abr amounts are subject to fluctuations in foreign currency exchange rates . ( b ) of the 27 properties leased to forterra , inc. , 25 are located in the united states and two are located in canada . w. p. carey 2020 10-k – 27 portfolio diversification by geography ( in thousands , except percentages ) replace_table_token_5_th w. p. carey 2020 10-k – 28 portfolio diversification by property type ( in thousands , except percentages ) replace_table_token_6_th ( a ) includes square footage for any vacant properties . ( b ) other properties within south include assets in louisiana , arkansas , oklahoma , and mississippi . other properties within midwest include assets in missouri , kansas , nebraska , iowa , north dakota , and south dakota . other properties within east include assets in kentucky , maryland , connecticut , west virginia , new hampshire , and maine . other properties within west include assets in colorado , utah , oregon , washington , nevada , hawaii , new mexico , wyoming , montana , and alaska . ( c ) includes assets in finland , norway , mexico , hungary , portugal , the czech republic , austria , sweden , japan , slovakia , latvia , belgium , and estonia . ( d ) includes automotive dealerships . ( e ) includes abr from tenants with the following property types : education facility , hotel ( net lease ) , laboratory , fitness facility , student housing ( net lease ) , theater , and restaurant . w. p. carey 2020 10-k – 29 portfolio diversification by tenant industry ( in thousands , except percentages ) replace_table_token_7_th ( a ) includes automotive dealerships . ( b ) includes abr from tenants in the following industries : metals and mining , oil and gas , environmental industries , electricity , consumer transportation , forest products and paper , real estate , and finance . also includes square footage for vacant properties . w. p. carey 2020 10-k – 30 lease expirations ( dollars and square footage in thousands ) replace_table_token_8_th ( a ) assumes tenants do not exercise any renewal options or purchase options . terms and definitions pro rata metrics —the portfolio information above contains certain metrics prepared under the pro rata consolidation method . we refer to these metrics as pro rata metrics . we have a number of investments , usually with our affiliates , in which our economic ownership is less than 100 % . story_separator_special_tag under the full consolidation method , we report 100 % of the assets , liabilities , revenues , and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary , even if our ownership is less than 100 % . also , for all other jointly owned investments , which we do not control , we report our net investment and our net income or loss from that investment . under the pro rata consolidation method , we present our proportionate share , based on our economic ownership of these jointly owned investments , of the portfolio metrics of those investments . multiplying each of our jointly owned investments ' financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals , as applicable , may not accurately depict the legal and economic implications of holding an ownership interest of less than 100 % in our jointly owned investments . abr — abr represents contractual minimum annualized base rent for our net-leased properties , net of receivable reserves as determined by gaap , and reflects exchange rates as of december 31 , 2020. if there is a rent abatement , we annualize the first monthly contractual base rent following the free rent period . abr is not applicable to operating properties . results of operations we operate in two reportable segments : real estate and investment management . we evaluate our results of operations with a primary focus on increasing and enhancing the value , quality , and number of properties in our real estate segment . we focus our efforts on accretive investing and improving portfolio quality through re-leasing efforts , including negotiation of lease renewals , or selectively selling assets in order to increase value in our real estate portfolio . through our investment management segment , we expect to continue to earn fees and other income from the management of the portfolios of the remaining managed programs until those programs reach the end of their respective life cycles . w. p. carey 2020 10-k – 31 real estate — property level contribution the following table presents the property level contribution for our consolidated net-leased and operating properties within our real estate segment , as well as a reconciliation to net income from real estate attributable to w. p. carey ( in thousands ) : replace_table_token_9_th also refer to note 17 for a table presenting the comparative results of our real estate segment . w. p. carey 2020 10-k – 32 property level contribution is a non-gaap measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our real estate segment over time . property level contribution presents our lease and operating property revenues , less property expenses , reimbursable tenant costs , and depreciation and amortization . we believe that property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties . while we believe that property level contribution is a useful supplemental measure , it should not be considered as an alternative to net income from real estate attributable to w. p. carey as an indication of our operating performance . existing net-leased properties existing net-leased properties are those that we acquired or placed into service prior to january 1 , 2018 and that were not sold or held for sale during the periods presented . for the periods presented , there were 766 existing net-leased properties . 2020 vs. 2019 — for the year ended december 31 , 2020 as compared to 2019 , lease revenues from existing net-leased properties increased by $ 8.7 million primarily due to the acceleration of above-market lease intangibles as a result of certain lease restructurings in 2019 , $ 5.5 million related to scheduled rent increases , $ 3.7 million due to new leases , $ 2.9 million as a result of the strengthening of foreign currencies ( primarily the euro ) in relation to the u.s. dollar between the years , and $ 2.1 million related to completed construction projects on existing properties . these increases were partially offset by a decrease of $ 13.9 million due to rents not collected as a result of the covid-19 pandemic ( including reimbursable tenant costs ) . property expenses from existing net-leased properties increased primarily due to tenant vacancies during 2019 and 2020 ( which resulted in property expenses no longer being reimbursable ) , and certain reimbursable expenses being deemed not collectible as a result of the covid-19 pandemic . net-leased properties acquired in the cpa:17 merger net-leased properties acquired in the cpa:17 merger on october 31 , 2018 ( note 3 ) consisted of 272 net-leased properties , as well as one property placed into service during the first quarter of 2019 , which was an active build-to-suit project at the time of acquisition in the cpa:17 merger . the 272 net-leased properties included 27 self-storage properties acquired in the cpa:17 merger , which were reclassified from operating properties to net-leased properties during the year ended december 31 , 2019 as a result of entering into net-lease agreements during the second quarter of 2019 ( note 5 ) . for the year ended december 31 , 2020 as compared to 2019 , for these 27 properties , lease revenues increased by $ 10.3 million , depreciation and amortization decreased by $ 2.0 million ( due to the in-place lease intangible assets recorded on certain of these 27 properties becoming fully amortized during 2020 ) , and property expenses increased by $ 0.1 million , which is all captured within net-leased properties acquired in the cpa:17 merger . recently acquired net-leased properties recently acquired net-leased properties are those that we acquired or placed into service subsequent to december 31 , 2017 , excluding properties acquired in the cpa:17 merger , and that were not sold or held for sale during the periods presented .
| as of december 31 , 2020 , 2,510,709 shares remained outstanding under the forward sale agreements , which we expect to settle by december 17 , 2021 for cash proceeds of approximately $ 163.2 million ( note 1 3 ) . on october 14 , 2020 , we completed an underwritten public offering of $ 500.0 million of 2.400 % senior notes due 2031 , at a price of 99.099 % of par value . these 2.400 % senior notes due 2031 have a 10.3-year term and are scheduled to mature on february 1 , 2031 ( note 11 ) . we reduced our mortgage debt outstanding by prepaying or repaying at or close to maturity a total of $ 294.4 million of non-recourse mortgage loans with a weighted-average interest rate of 5.1 % ( note 11 ) . investment management cwi 1 and cwi 2 merger on april 13 , 2020 , the cwi 1 and cwi 2 merger closed ( note 4 ) . in connection with the termination of our advisory agreements with cwi 1 and cwi 2 , the operating partnerships of each of cwi 1 and cwi 2 redeemed the special general partner interests that we previously held , for which we received 1,300,000 shares of cwi 2 preferred stock with a fair value of $ 46.3 million and 2,840,549 shares in cwi 2 class a common stock with a fair value of $ 11.6 million ; in connection with this redemption , we recognized a non-cash net gain on sale of $ 33.0 million , which was included within equity in ( losses ) earnings of equity method investments in the managed programs and real estate in the consolidated statements of income for the year ended december 31 , 2020. the carrying value of our investment in wlt preferred stock ( formerly cwi 2 preferred stock ) was $ 46.3 million as of december 31 , 2020 , and is included within other assets , net on our consolidated balance
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the review process in hong kong is expected to conclude near the end of 2021. in addition to the united states , vascepa is currently available by prescription in canada , lebanon and the united arab emirates . in canada , vascepa has the benefit of eight years of data protection afforded through health canada ( until the end of 2027 ) , in addition to separate patent protection with expiration dates that could extend into 2039. in china and the middle east , we are pursuing such regulatory approvals and subsequent commercialization of vascepa with commercial partners . since our inception , we have devoted substantial resources to our research and development efforts , most significantly our vascepa cardiovascular outcomes trial , reduce-it . we announced topline results from reduce-it on september 24 , 2018. on november 10 , 2018 , we publicly presented primary results at the 2018 scientific sessions of the american heart association , or aha , and the results were concurrently published in the new england journal of medicine . reduce-it met its primary endpoint demonstrating a 25 % relative risk reduction , or rrr , to a high degree of statistical significance ( p < 0.001 ) , in first occurrence of major adverse cardiovascular events , or mace , in the intent-to-treat patient population with use of vascepa 4 grams/day as compared to placebo . reduce-it also showed a 26 % rrr in its key secondary composite endpoint of cardiovascular death , heart attacks and stroke ( p < 0.001 ) . on march 18 , 2019 , we publicly presented the total cardiovascular events results , and the method of calculating such events , of the reduce-it study at the american college of cardiology 's , or acc , 68 th annual scientific session and such results and methods were concurrently published in the journal of the american college of cardiology . included in such results were that vascepa reduced total events ( first and subsequent events ) by 30 % compared to placebo , reflecting that for every 1,000 patients treated for five years with vascepa versus placebo in this trial , approximately 159 mace would have been prevented with vascepa . based on reduce-it results , 13 clinical treatment guidelines or position statements from medical societies have been updated recommending the use of icosapent ethyl in at-risk patients , including those listed below : in march 2019 , the american diabetes association , or ada , issued important updates to the standard of medical care in diabetes for 2019 , including a recommendation for the use of icosapent ethyl in treating at-risk patients based on the results of the reduce-it cardiovascular outcomes study . in august 2019 , the aha recognized the results of reduce-it and recommended directing medical care away from unproven fish oil dietary supplements and to prescription drug therapy in patients with elevated tg levels . in september 2019 , the national lipid association issued a position statement recognizing the cardiovascular risk-lowering effects of icosapent ethyl based on the reduce-it results . in september 2019 , the european society of cardiology and the european atherosclerosis society updated their clinical practice guidelines for the management of dyslipidemias to incorporate findings from the reduce-it study and in august 2020 the european society of cardiology expanded their guidelines to also cover patients with acute coronary syndrome . in february 2020 , the american association of clinical endocrinologists and the american college of endocrinology released a consensus statement on the comprehensive management of type 2 diabetes . the statement included new guidance for managing patients with established or high risk for cardiovascular disease who have triglyceride levels between 135 – 499 mg/dl with icosapent ethyl which has proven benefits to prevent the next adverse cardiovascular event . in december 2020 , the guidelines for primary prevention of cardiovascular diseases in china was published in the chinese journal of cardiovascular diseases listing icosapent ethyl 2 grams twice a day , as studied in reduce-it , as a treatment consideration to further lower atherosclerotic cardiovascular risk in at-risk patients . in october 2019 , the institute for clinical and economic review , or icer , released its final evidence report regarding clinical effectiveness and economic impacts on vascepa . icer 's report indicated that vascepa was cost effective across all of the non-profit organization 's analyses , including its quality-adjusted life year metrics of < $ 50,000. the conclusion from the report is that vascepa easily meets “ commonly cited thresholds for cost-effectiveness and therefore represents a high long-term value for money ” based on the organization 's value assessment framework . in addition , an independent academic , patient-level , cost-effectiveness analysis of icosapent ethyl led by dr. william s. weintraub , m.d. , director of outcomes research with medstar cardiovascular research network , indicated that vascepa was projected to not only be cost-effective but also to reduce long-term health care costs in a majority of the scenarios analyzed . based on our analysis of branded cardiovascular drugs in the united states which have positive cardiovascular outcomes studies , we believe the wholesale acquisition cost of vascepa is the lowest . in addition , while none of these other cardiovascular drugs compete directly with vascepa and no head-to-head studies have been done between vascepa and these other drugs and the length and construct of the respective outcomes studies of these drugs vary , analysis of published clinical results from the cardiovascular outcomes studies of these drugs indicates that the number needed to treat , or nnt , for vascepa is as low or lower than for these other branded cardiovascular drugs . nnt is a measure of how many patients 87 need to be treated before one patient benefits from the therapy . story_separator_special_tag for vascepa , in this analysis , the nnt was based on the 25 % relative risk reduction demonstrated for the primary endpoint of the study , the nnt for whi ch is 21 , as opposed to one fewer mace on average per six patients treated over the five-year study period based on total events . the original pricing for vascepa was established prior to results of the reduce -it cardiovascular outcomes study during a timeframe when vascepa was only approved for the original indication as an adjunct to diet to reduce tg levels in adult patients with severe ( tg ≥500 mg/dl ) hypertriglyceridemia . we believe that this relatively low price for vascepa in the unite d states will help lead to many at-risk patients being treated by vascepa . the fda granted priority review designation to our march 2019 supplemental new drug application , or snda , seeking an expanded indication for vascepa in the united states based on the positive results of the reduce-it study . the fda grants priority review designation to applications for drugs that , if approved , have the potential to offer significant improvements in the effectiveness and safety of the treatment of serious conditions . in november 2019 , fda held an endocrinologic and metabolic drugs advisory committee , or emdac , meeting to review the reduce-it snda . the emdac voted unanimously ( 16-0 ) to recommend approval of an indication and label expansion for vascepa to reduce cardiovascular events in high-risk patients based on the reduce-it results . on december 13 , 2019 the fda approved a new indication and label expansion for vascepa capsules . vascepa is the first and only drug approved by the fda as an adjunct to maximally tolerated statin therapy to reduce the risk of myocardial infarction , stroke , coronary revascularization , and unstable angina requiring hospitalization in adult patients with elevated tg levels ( ≥150 mg/dl ) and either established cardiovascular disease or diabetes mellitus and two or more additional risk factors for cardiovascular disease . on march 30 , 2020 , the united states district court for the district of nevada , or the nevada court , decided in favor of two generic companies in our patent litigation related to their abbreviated new drug applications , or andas , that sought fda approval for sale of generic versions of vascepa . on may 22 , 2020 and august 10 , 2020 , the two generic companies , hikma pharmaceutical usa inc. , or hikma , and dr. reddy 's laboratories , inc. , or dr. reddy 's , received fda approval to market its generic versions of vascepa for the original indication of vascepa as an adjunct to diet to reduce tg levels in adult patients with severe ( ≥500 mg/dl ) hypertriglyceridemia . on september 3 , 2020 , the u.s. court of appeals for the federal circuit upheld the march ruling by the nevada court in favor of the two generic companies . on october 2 , 2020 , we filed a combined petition for panel rehearing or rehearing en banc . on november 4 , 2020 , our rehearing and en banc petitions were denied . on february 11 , 2021 , we filed a petition for a writ of certiorari with the united states supreme court to ask the court to hear our appeal in this litigation . we intend to vigorously pursue this matter , but we can not predict the outcome . in november 2020 , hikma launched their generic version of vascepa on a limited scale . on november 30 , 2020 we filed a patent infringement lawsuit against hikma for making , selling , offering to sell and importing generic icosapent ethyl capsules in and into the united states in a manner that we allege has induced the infringement of patents covering the use of vascepa to reduce specified cardiovascular risk . on january 25 , 2021 we expanded the scope of the patent infringement lawsuit to include a health care insurance provider , health net , llc . although , to date , no generics other than hikma have been launched , in addition to andas approved for hikma and dr. reddy 's , on september 11 , 2020 , teva pharmaceuticals usa , inc's. , or teva 's , anda was approved by the fda . apotex , inc. , or apotex , has applied for anda approval such application , based on public records , has not yet been approved . we believe that vascepa is not yet known to most healthcare professionals and generics companies rarely invest in product or disease state related market education . furthermore , vascepa is relatively expensive to manufacture and already sold at an affordable price as documented by third-party analysis such that saving , if any , on the price of generic vascepa is likely to come at the expense of reduced market education and development . thus , we believe that the launch of a generic version of vascepa in the united states at this early stage in the life cycle of vascepa is potentially harmful to patient care and discourages new product development , including identifying and pursuing additional indications that could be treated with vascepa . we intend to vigorously pursue these ongoing litigation matters , but can not predict the outcomes or the impact on our business . geographies outside the united states in which vascepa is sold and under regulatory review are not subject to this u.s. patent litigation and judgment . no similar litigation involving potential generic versions of vascepa is pending outside the united states . we are responsible for supplying vascepa to all markets in which the branded product is sold , including canada , lebanon and the united arab emirates where the drug is promoted and sold via collaborations with third-party companies that compensate us for such supply . subject to approvals in europe and china , we will be responsible for supplying products to those markets as well .
| the u.s. fda-approved dosing for vascepa continues to be 4 grams per day and , as expected , the majority of new and existing patients taking vascepa continue to be prescribed the 1-gram size vascepa capsules . timing of shipments to wholesalers , as used for revenue recognition , and timing of prescriptions as estimated by third-party sources such as symphony health and iqvia may differ from period to period . 97 during the years ended december 31 , 2020 and 2019 , our product revenue , net included adjustment for co-pay mitigation rebates provided by us to commercially insured patients . such support is intended for offset for a portion of the out-of-pocket expense that patients are required to pay for vascepa based upon the benefit design of their prescription drug coverage . our cost for these co-payment support payments during the years ended december 31 , 2020 and 2019 was up to $ 150 and $ 110 , respectively per 30-day prescription filled and , up to $ 450 and $ 330 , respectively per 90-day prescription filled . as is typical for the pharmaceutical industry , the majority of vascepa sales in the united states are to major commercial wholesalers which then resell vascepa to retail pharmacies . in march 2020 , covid-19 became widespread in the united states and other geographies around the globe . in recognition of guidance from public health officials , we announced on march 15 , 2020 a temporary suspension of in-person promotional activities . we resumed on a limited basis field-based , face-to-face interactions with healthcare providers beginning in june 2020. during the late part of the summer , substantially all of our field force personnel were able to resume face-to-face customer interactions , in a manner consistent with guidelines from local , state and government health officials in the united states . in the fourth quarter of 2020 , the impact of covid-19 worsened in much of the united states , with some physicians again limiting access to face-to-face interactions with our field force personnel . for a u.s. fda-approved drug like vascepa to be prescribed ,
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cost of revenues : cost of revenues for the year ended december 31 , 2014 increased $ 9.4 million or 29 % from the comparable period last year primarily due to increased labor costs , higher fleet costs and expenses related to our fleet and geographic expansion . as the company 's fleet of trucks has expanded , expenses such as labor , insurance and repairs and maintenance have increased correspondingly . labor costs also increased significantly during the third quarter due to the incremental cost to hire and train a large number of additional frac water heating operators and hot oil truck operators for our fleet expansion and additional labor costs to test and demonstrate our ability to use natural gas and wellhead gas as a fuel source . in addition , we also spent approximately $ 650,000 during 2014 to expand our safety program . as described above , changes in propane prices and volumes during the first and fourth quarter of 2014 also impacted cost of revenues as compared to the same quarters last year . gross profit : gross profit for the year ended december 31 , 2014 increased $ 703,000 or 5 % to $ 15.3 million dollars primarily due to strong well enhancement revenues during the company 's first and fourth quarter of 2014 as compared to the same periods last year . increased heating capacity during the company 's fourth quarter resulted in a $ 2.3 million or 58 % increase in gross profit over the same quarter in 2013. the fourth quarter increase in gross profits was tempered by unseasonably warm weather during october and november of 2014. further , the annual gross profits were tempered by lower frac water heating revenues during the 2014 second quarter and higher labor costs during the third quarter of 2014 as compared to the same quarters last year . gross profit as a percentage of revenue declined to 27 % for the year ended december 31 , 2014 as compared to 31 % for the comparable period last year . in addition to the factors mentioned above , the largest impact on the gross profit percentage decline was due to the mathematical impacts of higher propane costs experienced in the first quarter ( see “ propane impact discussion ” below ) . in addition , the continuing decline in revenues and the resultant lower operating margins in our fluid management business during 2014 has contributed to the overall decline in our gross profit percentage from last year . propane impact discussion : prior to january 2014 , many of our frac water heating customers in the dj basin were billed on a “ per barrel of water heated ” basis which included the price of propane . as result , our gross profit percentage was immediately impacted once propane prices started to rise in december 2013 and was further impacted as prices continued to rise significantly in january 2014. in late january and early february , the company was able to renegotiate pricing for propane with customers in the dj basin to a cost plus basis which is similar to the billing method we use in our other regions . under this method , propane is billed at cost plus a fixed dollar per gallon mark-up . this change in pricing eliminated the negative impact on gross profit and gross profit percentage due to increases in propane prices . management estimates that the negative impact to gross profits from higher propane prices under the old per barrel billing prior to price renegotiations was approximately $ 500,000 for the quarter ended march 31 , 2014 . 36 conversely , propane revenues and costs declined in the company 's most recent fourth quarter as compared to the fourth quarter of 2013. a 38 % decline in propane prices and combined with a reduction in propane volumes related to customers utilizing our new bi-fuel capabilities whereby customers provide natural gas or well gas as their fuel source thereby reducing the amount of propane used and billed to customers . although , the bi-fuel capabilities have reduced our propane revenues and costs , it has helped to gain market share in several locations . changes in propane prices impact our gross profit percentages for customers that use propane . higher propane prices tend to reduce gross profit percentages on frac heating customers which bill propane on a cost plus basis . typically , our mark-up on propane is a fixed dollar amount per gallon . therefore , as propane prices increase , this fixed dollar mark-up becomes a smaller percentage of the billed propane costs resulting in a lower gross profit percentages . the increase in propane prices also causes propane revenues to become a larger portion of total revenues . as a result , the lower propane margins tend to dilute our overall gross profit percentage . we estimate that the higher propane prices and corresponding impact diluted our overall gross profit percentage in 2014 by approximately 1 % of revenues . the company anticipates that propane prices will continue to fluctuate in the future based on the relative demand and availability of propane in different geographic areas across the united states . since the company passes along the cost of propane to its customers on a cost plus mark-up basis , fluctuations in the price of propane will continue to impact revenues , cost of revenues and gross profit percentages . decreases in propane prices will tend to reduce well enhancement revenues and cost of revenues and may increase our overall gross profit percentage as the dollar value of lower margin propane revenue and cost of revenue becomes a lower percentage of total revenue . conversely , increases in propane prices similar to what the company experienced during the company 's first quarter , will tend to increase well enhancement revenues and cost of revenues and may decrease our gross profit percentage , as the dollar value of lower margin propane revenue and cost of revenue becomes a higher percentage of total revenue . story_separator_special_tag general and administrative expenses : for the year ended december 31 , 2014 , general and administrative expenses increased $ 317,000 or 8 % from 2013. higher personnel and office costs to support the company 's growth combined with higher costs related to the company 's listing on the nyse mkt exchange were the primary reasons for the increase . stock based compensation related to option grants also contributed to the increase . bad debt expense , which is included in general and administrative expense , declined $ 153,000 partially mitigating some of the increases above . as a percentage of revenues , general and administrative expenses decreased to 8 % of revenues for the year ended december 31 , 2014 as compared to 9 % of revenues for the year ended december 31 , 2013. patent litigation and defense costs : patent litigation and defense costs increased in 2014 as compared to 2013 as a result of the company 's defense of the hotf litigation described in item 3 – litigation , and legal and professional fees related to the company 's efforts to defend the positions taken therein . it can be expected that these legal fees will continue at this higher level as long as the litigation continues . enservco and heat waves deny that they are infringing any valid , enforceable claims of the asserted hotf patents and intend to vigorously defend themselves against the lawsuit and challenge the validity of the underlying patents . 37 depreciation and amortization : depreciation and amortization expense for the year ended december 31 , 2014 increased $ 1.3 million , or 63 % from 2013 primarily due to new equipment added over the last 18 months from the company 's 2013 and 2014 capex programs . income from operations : for the year ended december 31 , 2014 , the company recognized income from operations of approximately $ 6.9 million as compared to $ 8.2 million for the comparative period last year . as discussed above , strong top line revenue growth , particularly in our core well enhancement services , was offset by higher cost of revenues associated with our fleet and geographic expansion . during 2014 , the company incurred higher labor costs to train and hire additional operators , expand our safety program , and demonstrate our ability to use natural gas and wellhead gas with our new bi-fuel system . the company also incurred additional personnel and facility costs to expand our operations in wyoming , texas and north dakota . we believe these incremental costs will benefit our future expansion efforts in 2015 and beyond . furthermore , unexpected frac water heating downtime in the second quarter and unseasonably warm weather in the fourth quarter also resulted in additional labor costs while we waited to resume services . higher operating costs including a $ 1.3 million increase in depreciation and amortization costs associated with the company 's fleet expansion also contributed to the lower income from operations . management believes that the decline in our results of operations , in particular the increase in general and administrative expenses and depreciation expense reflects the incremental costs incurred to expand our fleet and geographic footprint ( as discussed throughout this report ) . we believe that as long as we are able to control our costs and increase our revenues as a result of our expanding fleet and service areas , our financial performance will continue to improve over the long run , although on a quarter-to-quarter basis , there may still be periods of loss due to the seasonality of our operations , as discussed several times herein . interest expense : interest expense for the year ended december 31 , 2014 decreased $ 283,000 or 26 % from 2013 primarily due to reduction in effective interest rates related to 2014 pnc credit facility and capitalization of $ 139,000 of interest expense during 2014 related to the company 's fabrication of equipment under the company 's capex programs . income taxes : for the year ended december 31 , 2014 , the company recognized income tax expense of $ 2.4 million on pre-tax net income before taxes of approximately $ 6.4 million as compared to income tax expense of $ 3.1 million on pre-tax net income of $ 7.4 million in 2013. the effective tax rate on income from operations for 2014 was approximately 37 % . this rate is higher than the federal statutory corporate tax rate of 34 % primarily due to state and local income taxes . see note 7 income taxes in the notes to the accompanying audited consolidated financial statements for further details . adjusted ebitda * : management believes that , for the reasons set forth below , adjusted ebitda ( even though a non-gaap measure ) is a valuable measurement of the company 's liquidity and performance and is consistent with the measurements offered by other companies in the company 's industry . management uses these non-gaap measures in its operational and financial decision-making , believing that it is useful to eliminate certain items in order to focus on what it deems to be a more reliable indicator of ongoing operating performance and the company 's ability to generate cash flow from operations . management also believes that investors may find non-gaap financial measures useful for the same reasons , although investors are cautioned that non-gaap financial measures are not a substitute for gaap disclosures . 38 the following table presents a reconciliation of net income to adjusted ebitda for each of the periods indicated : replace_table_token_6_th * note : see discussion to follow below for use of non-gaap financial measurements . use of non-gaap financial measures : non-gaap results are presented only as a supplement to the financial statements and for use within management 's discussion and analysis based on u.s. generally accepted accounting principles ( gaap ) .
| heat waves is the only company subsidiary operating in this region . ( 5 ) includes the mississippi lime and hugoton field in kansas , oklahoma , and texas . both dillco and heat waves engage in business operations in this region . ( 6 ) consists of the southern region of the marcellus shale formation ( southwestern pennsylvania and northern west virginia ) and the utica shale formation ( eastern ohio ) . heat waves is the only company subsidiary operating in this region . revenues : revenues from operations increased $ 10.1 million or 22 % to a record annual revenue of $ 56.6 million for the year ended december 31 , 2014. the revenue growth for 2014 was primarily attributable to revenues from our well enhancement services , which increased $ 10.4 million or 28 % from 2013 and overcame a 6 % decline in revenues from fluid management services . as discussed below , the increase in well enhancement revenues during 2014 was partially offset by lower propane revenues and unseasonably warm weather during our 2014 fourth quarter . 33 well enhancement services : well enhancement services increased $ 10.4 million or 28 % to $ 47.5 million for the year ended december 31 , 2014 primarily due to a 17 % and 62 % increase in frac water heating and hot oil services , respectively . increased heating capacity due to the addition of new equipment combined with increased utilization of hot oil trucks were the primary reason for the increase over last year . the following table details the increase in heating capacity . replace_table_token_5_th notes to tables : ( 1 ) the company 's bobtail frac heaters are equal to one burner box whereas the company 's double burner frac heaters and mega frac heaters are the equivalent of 2 burner boxes . ( 2 ) average equivalent units represents the average number of trucks or burner boxes in service for each month during the period represented . ( 3 ) the increase in equivalent heating capacity represents the % change in equivalent units during
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included in those costs are charges of $ 2.9 million in 2015 related to the elimination of redundant positions within the acquired businesses and an increase in stock-based compensation expense of $ 2.6 33 million . these increases were partially offset by the favorable impact from foreign currency translation of $ 10.8 million , which resulted from the strength of the u.s. dollar relative to currencies such as the canadian dollar , the euro and the brit ish pound . fiscal 2014 versus fiscal 2013 . our total gross margins increased in 2014 primarily due to cost reduction synergies with respect to the businesses acquired since 2012. our total cost of revenues increased in 2014 primarily as a result of an increase in cost of software-enabled services revenues to support the increased demand for our fund administration services for alternative investment managers , as well as a result of costs associated with acquired businesses . the decrease in cost of perpetual licenses was primarily due to a decrease in amortization expense due to the accelerated amortization methods utilized for our intangible assets . operating expenses selling and marketing expenses consist primarily of the personnel costs associated with the selling and marketing of our products , including salaries , commissions and travel and entertainment . such expenses also include amortization of intangible assets , the cost of branch sales offices , trade shows and marketing and promotional materials . research and development expenses consist primarily of personnel costs attributable to the enhancement of existing products and the development of new software products . general and administrative expenses consist primarily of personnel costs related to management , accounting and finance , information management , human resources and administration and associated overhead costs , as well as fees for professional services . the following table sets forth the percentage of our total revenues represented by each of the following operating expenses for the periods indicated : replace_table_token_7_th the following table sets forth operating expenses ( dollars in thousands ) and percent change in operating expenses for the periods indicated : replace_table_token_8_th fiscal 2015 versus 2014 . the increase in total operating expenses in 2015 was primarily due to our acquisitions of primatics , advent , varden and dstgs , which added expenses of $ 127.2 million in the period . included in those costs are charges of $ 19.8 million related to the elimination of redundant positions within the acquired businesses and an increase in stock-based compensation expense of $ 25.2 million . ( see note 10 to our consolidated financial statements for further discussion of stock-based compensation . ) included in general and administrative expenses in 2015 are professional fees of $ 13.5 million associated with our acquisition of advent . these increases were partially offset by the favorable impact from foreign currency translation of $ 4.3 million , which resulted from the strength of the u.s. dollar relative to currencies such as the canadian dollar , the euro and the british pound . fiscal 2014 versus 2013 . the increase in total operating expenses in 2014 was primarily due an increase in selling and marketing expenses increased as we expanded the size of our sales force . additionally , general and administrative expenses as a result of legal expenses related to an ip infringement lawsuit , which was settled during the second quarter of 2014 , costs related to dstgs and prime and expenses associated with office consolidations . comparison of fiscal 2015 , 2014 and 2013 for interest , taxes and other interest income . we had interest income of $ 2.0 million in 2015 compared to $ 1.7 million in 2014 and $ 1.1 million in 2013. the increase in interest income in 2015 and 2014 resulted from higher average cash balances . 34 interest expense . we had interest expense of $ 79.3 million in 2015 compared to $ 27.2 million in 2014 and $ 42.4 million in 2013. the increase in interest expense in 2015 reflect s incremental borrowings under the credit agreement and senior notes in connection with our acquisition of advent during the third quarter of 2015 , which resulted in a higher debt balance . the decrease in interest expense in 2014 reflects the lower average debt balance resulting from repayments of the credit facility and a decrease in average interest rates resulting from the 2013 and 2014 repricings . other income , net . other income , net for 2015 , 2014 and 2013 consisted primarily of foreign currency transaction gains . loss on extinguishment of debt . we recorded a $ 30.4 million loss on extinguishment of debt in 2015 in connection with the repayment and termination of our prior facility . the loss on early extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing costs and the unamortized original issue discounts related to the prior facility for amounts accounted for as a debt extinguishment , as well as a portion of the financing costs related to the credit agreement for amounts accounted for as a debt modification . provision for income taxes . the following table sets forth the provision for income taxes ( dollars in thousands ) and effective tax rates for the periods indicated : replace_table_token_9_th our 2015 , 2014 and 2013 effective tax rates differ from the statutory rate primarily due to the effect of our foreign operations . the increase in rate from 2014 to 2015 was primarily due to nondeductible transaction costs and taxes incurred on a one time repatriation of foreign earnings , partially offset by the beneficial impact of an enacted rate change in the united kingdom and a reduction in domestic income before taxes . story_separator_special_tag the increase in effective rate from 2013 to 2014 was primarily due to an increase in domestic earnings from the prior year , the unfavorable impact of enacted tax law changes in new york , a decrease in benefits from research and development credits , and the absence of favorable items recorded in 2013 , most notably the release of an uncertain tax position , and an enacted tax law change in the united kingdom , partially offset by a decrease in expense attributable to deferred taxes recorded on foreign unremitted earnings . we had $ 580.5 million of deferred tax liabilities and $ 73.1 million of deferred tax assets at december 31 , 2015. our effective tax rate includes the effect of operations outside the united states , which historically have been taxed at rates lower than the u.s. statutory rate . while we have income from multiple foreign sources , the majority of our non-u.s. operations are in canada , india and the united kingdom , where the statutory rates were 26.5 % , 34.6 % and 20.3 % , respectively , in 2015 , 26.5 % , 34.0 % and 21.5 % , respectively , in 2014 , and 26.5 % , 34.0 % and 23.3 % , respectively , in 2013. a future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate . liquidity and capital resources our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables , to fund payments with respect to our indebtedness , to invest in research and development and to acquire complementary businesses or assets . we expect our cash on hand , cash flows from operations , and cash available under the credit agreement to provide sufficient liquidity to fund our current obligations , projected working capital requirements , fund the pending citi acquisition , and capital spending for at least the next twelve months . in july 2015 , we purchased all of the outstanding stock of advent for approximately $ 2.6 billion in cash , equating to $ 44.25 per share plus the costs , fees and expenses associated with the transaction . we funded the acquisition and refinancing of existing debt with $ 3.1 billion of debt financing , cash on hand and approximately $ 400.0 million of proceeds from the issuance and sale of our common stock in june 2015. in 2015 , we paid quarterly cash dividends of $ 0.125 per share of common stock on march 16 , 2015 , june 15 , 2015 , september 15 , 2015 and december 15 , 2015 to stockholders of record as of the close of business on march 2 , 2015 , june 1 , 2015 , september 1 , 2015 and december 1 , 2015 , respectively , totaling $ 45.5 million . our cash and cash equivalents at december 31 , 2015 were $ 434.2 million , an increase of $ 324.6 million from $ 109.6 million at december 31 , 2014. the increase in cash is primarily due to proceeds received from our borrowings and common stock offering as well as cash provided by operations , proceeds from stock option exercises and the related income tax benefits . these increases were 35 partially offset by cash used for acquisitions , repayments of debt , payment of dividends and capital expenditures . see notes 4 , 6 and 11 to our consolida ted financial statements for further discussion of equity , debt and acquisitions , respectively . net cash provided by operating activities was $ 230.6 million in 2015. cash provided by operating activities primarily resulted from net income of $ 42.9 million adjusted for non-cash items of $ 135.7 million and changes in our working capital accounts ( excluding the effect of acquisitions ) totaling $ 52.0 million . the changes in our working capital accounts were driven by an increase in deferred revenues and accrued expenses and a change in income taxes prepaid and payable . these changes were partially offset by increases in accounts receivable and prepaid expenses and other assets and a decrease in accounts payable . the increase in deferred revenues was primarily due to an increase in term license contracts as a result of our acquisition of advent . in total , cash provided by operating activities was negatively affected by payments totaling $ 66.4 million related to the financing and advent acquisition , as well as $ 4.2 million in payments related to the elimination of redundant positions with the acquired businesses . the increase in accounts receivable was primarily due to an increase in revenue and an increase in days ' sales outstanding to 47 days at december 31 , 2015 from 42 days at december 31 , 2014. the majority of advent 's term license clients are billed on an annual cycle , rather than monthly , resulting in a slightly longer collection cycle and corresponding increase in days ' sales outstanding . investing activities used net cash of $ 2,748.3 million in 2015 , primarily related to cash paid of $ 2,723.1 million for the acquisitions of advent , varden and primatics in the third and fourth quarters of 2015 , $ 13.6 million in capital expenditures , $ 7.9 million for the working capital adjustment associated with the acquisition of dstgs and $ 4.3 million in capitalized software . financing activities provided net cash of $ 2,847.1 million in 2015 , representing net cash of $ 3,068.1 million received from debt borrowings , net proceeds of $ 717.8 million from common stock issuance , $ 30.1 million from stock option exercises and related income tax windfall benefits of $ 33.0 million . these proceeds were partially offset by repayments of debt totaling $ 903.4 million , the payment of $ 46.0 million in fees related to refinancing activities , $ 45.5 million in quarterly dividends and $ 7.0 million in withholding taxes related to equity award net share settlements .
| the following table lists the businesses we have acquired since january 1 , 2013 : acquired business acquisition date acquired capabilities , products and services primatics financial november 2015 added cloud-based integrated risk , compliance and finance solution in the banking industry varden technologies september 2015 added cloud-based client and advisor communication solutions for investment firms advent software , inc. july 2015 expanded global investment management software and services dst global solutions november 2014 added investment management software and services prime management limited october 2013 expanded fund administration services in the insurance linked securities market the discussion in this part ii , item 7 of this annual report on form 10-k includes the operations of the business listed in the table above for the respective time periods each was owned by ss & c . in august 2015 , we announced the acquisition of citigroup 's alternative investor services business , or pending citi acquisition , which includes hedge fund services and private equity fund services , for $ 425 million , subject to certain adjustments . the transaction , which is subject to approvals by relevant regulatory authorities and other customary closing conditions , is expected to close in the first quarter of 2016 ( as discussed in liquidity and capital resources and note 11 to our consolidated financial statements ) . revenues . our contractually recurring revenues , which includes our maintenance and term licenses revenues and software-enabled services revenues , were $ 916.6 million in 2015 , compared to $ 708.1 million and $ 665.5 million in 2014 and 2013 , respectively . in both 2015 and 2014 , contractually recurring revenues represented 92 % of total revenues , compared to 93 % in 2013. we believe our high level of contractually recurring revenues provides us with the ability to better manage our costs and capital investments . our revenues from sales outside the united states were $ 318.0 million in 2015 , compared to $ 253.1 million and $ 246.0 million in 2014 and 2013 , respectively . as we have expanded our business , we have focused on increasing our contractually recurring revenues . since 2013 , we have seen increased demand in the financial services industry for our software-enabled services from existing and new customers . we have taken a number of steps to support that demand , such
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the company acquired value added telecommunications business license on september 28 , 2015. no impairment of intangible assets has been identified as of the balance sheet dates . intangible assets include licenses and certificates and are amortized over their useful life of five years . fair value measurements and disclosures fasb asc topic 820 , “ fair value measurements , ” defines fair value , and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures . the three levels are defined as follows : ● level 1 inputs to the valuation methodology are quoted prices ( unadjusted ) for identical assets or liabilities in active markets . ● level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . ● level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement . certain of the company 's financial instruments , including cash , accrued expenses and other payables , are carried at costs , which approximate their fair values due to their short maturities . as of june 30 , 2016 , the company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value on a recurring basis . impairment of long-lived assets in accordance with the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , accounting for the impairment or disposal of long-lived assets , long-lived assets such as property , plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable , or it is reasonably possible that these assets could become impaired as a result of technological or other industrial changes . the determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell . during the reporting periods there was no impairment loss recognized on long-lived assets . f- 11 datasea inc. notes to consolidated financial statements note 3 — summary of significant accounting policies ( continued ) revenue recognition the company recognizes revenues from professional services contracts . customers are billed , according to individual agreements . revenues from professional services are recognized on a completed-contract basis , in accordance with asc topic 605-35 , “ construction-type and production-type contracts . ” under the completed-contract basis , contract costs are recorded to projects in process and billings and or cash received are recorded to a deferred revenue liability account during the periods of construction . costs include direct material , direct labor and subcontract labor . all revenues , costs , and profits are recognized in operations upon completion of the contract . a contract is considered completed when all costs except insignificant items have been incurred and final acceptance has been received from the customer . corporate general and administrative expenses are charged to the periods as incurred . however , in the event a loss on a contract is foreseen , the company will recognize the loss as incurred . for uncompleted contracts , the deferred asset ( accumulated contract costs ) in excess of the deferred liability ( billings and or cash received ) is classified under current assets as costs in excess of billings on uncompleted contracts . the deferred liability ( billings and or cash received ) in excess of the deferred asset ( accumulated contract costs ) is classified under current liabilities story_separator_special_tag overview and recent developments the company was incorporated in the state of nevada on september 26 , 2014 under the name rose rock inc. and changed its name to the current name on may 27 , 2015 by amending its articles of incorporation . on october 29 , 2015 , the company entered into exchange agreement with the shareholders of shuhai skill ( hk ) . pursuant to the terms of the exchange agreement , the shareholders , who together owned 100 % of the ordinary shares of shuhai skill ( hk ) , transferred all of the issued and outstanding ordinary shares of shuhai skill ( hk ) to the company in exchange for the issuance of an aggregate of 20,000,000 shares of the company 's common stock , thereby causing shuhai skill ( hk ) and its wholly foreign owned subsidiaries , tianjin information and harbin information , to become wholly-owned subsidiaries of the company , and shuhai beijing to become the vie of the company through a series of contractual relationships between shuhai beijing and tianjin information . the transaction was accounted for as a reverse merger , with shuhai skill ( hk ) and its subsidiaries being the accounting survivor . accordingly , the historical financial statements presented are those of shuhai skill ( hk ) . on october 27 , 2015 , the company 's founder , xingzhong sun , sold all his 5,000,000 shares of common stock of the company to zhixin liu . following the transaction , zhixin liu and her father , fu liu , beneficially owned approximately 85.45 % of the outstanding shares of common stock . as of october 29 , 2015 , there were 55,000,000 ( post-split ) shares of common stock issued and outstanding , 45,000,000 of which were owned by zhixin liu and story_separator_special_tag the company acquired value added telecommunications business license on september 28 , 2015. no impairment of intangible assets has been identified as of the balance sheet dates . intangible assets include licenses and certificates and are amortized over their useful life of five years . fair value measurements and disclosures fasb asc topic 820 , “ fair value measurements , ” defines fair value , and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures . the three levels are defined as follows : ● level 1 inputs to the valuation methodology are quoted prices ( unadjusted ) for identical assets or liabilities in active markets . ● level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . ● level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement . certain of the company 's financial instruments , including cash , accrued expenses and other payables , are carried at costs , which approximate their fair values due to their short maturities . as of june 30 , 2016 , the company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value on a recurring basis . impairment of long-lived assets in accordance with the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , accounting for the impairment or disposal of long-lived assets , long-lived assets such as property , plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable , or it is reasonably possible that these assets could become impaired as a result of technological or other industrial changes . the determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell . during the reporting periods there was no impairment loss recognized on long-lived assets . f- 11 datasea inc. notes to consolidated financial statements note 3 — summary of significant accounting policies ( continued ) revenue recognition the company recognizes revenues from professional services contracts . customers are billed , according to individual agreements . revenues from professional services are recognized on a completed-contract basis , in accordance with asc topic 605-35 , “ construction-type and production-type contracts . ” under the completed-contract basis , contract costs are recorded to projects in process and billings and or cash received are recorded to a deferred revenue liability account during the periods of construction . costs include direct material , direct labor and subcontract labor . all revenues , costs , and profits are recognized in operations upon completion of the contract . a contract is considered completed when all costs except insignificant items have been incurred and final acceptance has been received from the customer . corporate general and administrative expenses are charged to the periods as incurred . however , in the event a loss on a contract is foreseen , the company will recognize the loss as incurred . for uncompleted contracts , the deferred asset ( accumulated contract costs ) in excess of the deferred liability ( billings and or cash received ) is classified under current assets as costs in excess of billings on uncompleted contracts . the deferred liability ( billings and or cash received ) in excess of the deferred asset ( accumulated contract costs ) is classified under current liabilities story_separator_special_tag overview and recent developments the company was incorporated in the state of nevada on september 26 , 2014 under the name rose rock inc. and changed its name to the current name on may 27 , 2015 by amending its articles of incorporation . on october 29 , 2015 , the company entered into exchange agreement with the shareholders of shuhai skill ( hk ) . pursuant to the terms of the exchange agreement , the shareholders , who together owned 100 % of the ordinary shares of shuhai skill ( hk ) , transferred all of the issued and outstanding ordinary shares of shuhai skill ( hk ) to the company in exchange for the issuance of an aggregate of 20,000,000 shares of the company 's common stock , thereby causing shuhai skill ( hk ) and its wholly foreign owned subsidiaries , tianjin information and harbin information , to become wholly-owned subsidiaries of the company , and shuhai beijing to become the vie of the company through a series of contractual relationships between shuhai beijing and tianjin information . the transaction was accounted for as a reverse merger , with shuhai skill ( hk ) and its subsidiaries being the accounting survivor . accordingly , the historical financial statements presented are those of shuhai skill ( hk ) . on october 27 , 2015 , the company 's founder , xingzhong sun , sold all his 5,000,000 shares of common stock of the company to zhixin liu . following the transaction , zhixin liu and her father , fu liu , beneficially owned approximately 85.45 % of the outstanding shares of common stock . as of october 29 , 2015 , there were 55,000,000 ( post-split ) shares of common stock issued and outstanding , 45,000,000 of which were owned by zhixin liu and
| the company 's management recognizes that the company must generate sales and additional resources to continue to develop its operations . based on increased demand for internet services in china , including internet security and big data integration , the company expects to generate revenue during the fiscal year ending june 30 , 2017 , which will be used to fund its operations . in addition , the company intends to raise additional funds through debt and equity financing or through other means that it deems necessary . however , there can be no assurance that financing will be available in amounts or terms acceptable to the company , if at all . cash flows : as of june 30 , 2016 , we had a working capital deficiency of $ 114,321. our current assets on june 30 , 2016 were $ 336,054 , primarily consisting of cash of $ 11,802 , prepaid expenses of $ 94,757 and $ 229,495 of project in progress . our current liabilities were primarily composed of accounts payable of $ 197,970 , accrued expenses and other payables of $ 75,784 and loans payable to a shareholder of $ 176,621 . - 31 - cash flow in operating activities net cash used in operating activities was $ 1,136,983 during the year ended june 31 , 2016 , which previously consisted of our net loss of $ 1,124,850 , offset by a noncash adjustment of $ 29,825 , a change in project in progress of $ 237,361 , a change in prepaid expenses and other current assets of $ 73,822 , and an increase of accounts payable of $ 204,755 , accrued expenses and other payables of $ 64,470. net cash used in operating activities was $ 195,683 for the period from february 11 , 2015 to june 30 , 2015. the cash outflow from operating activities was mainly due to net loss and payments for prepaid expenses . cash flow in investing activities net cash used in investing activities totaled $ 87,290 for the year ended june 30 , 2016 , which primarily related
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information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_19_th loan loss provision recapture for the year ended december 31 , 2015 , we recorded a loan loss provision recapture of $ 3.7 million compared to $ 2.9 million for the year ended december 31 , 2014. the loan loss provision recapture during 2015 was primarily due to the continued improvement in our loan loss experience , as well as the improved asset quality in our loan portfolio as a result of reductions in our problem loans and in the balances of certain loan classes that we believe bear higher risk , such as church and commercial real estate loans . see `` allowance for loan losses '' for additional information . non-interest income non-interest income for the year ended december 31 , 2015 totaled $ 2.9 million compared to $ 1.1 million for the year ended december 31 , 2014. the $ 1.8 million increase in non-interest income during 2015 was primarily due to a gain of $ 1.8 million on the sale of $ 164.1 million of loans in 2015 compared to a gain of $ 19 thousand on the sale of $ 3.3 million of loans in 2014. we also received a cdfi grant that was 34 $ 155 thousand larger than the grant that we received in 2014 and recorded $ 167 thousand of income from a settlement of a legal matter involving a customer . these increases more than offset the absence of any gain on restructuring of debt in 2015. in 2014 , we reported a gain on restructuring of debt of $ 365 thousand , which represented the remaining unamortized deferred gain from restructuring our senior debt in 2013 , which we recognized as other income , when we paid off the remaining senior debt in october 2014. non-interest expense non-interest expense for the year ended december 31 , 2015 totaled $ 13.4 million compared to $ 13.3 million for the year ended december 31 , 2014. the $ 67 thousand increase in non-interest expense during 2015 was primarily due to an increase of $ 1.2 million in compensation and benefits expense , primarily reflecting a special accrual of $ 1.2 million for a contribution to our esop . our board declared an additional contribution to the esop because it was not able to distribute equity incentives to management and employees while the consent order was in effect . the board felt that it was important to reward employees for their performance over the last three years and to create long term equity incentives for future performance . this increase was partially offset by a decrease of $ 413 thousand in reo expenses , a decrease of $ 280 thousand in fdic assessments , a decrease of $ 208 thousand in professional services expense , a decrease of $ 139 thousand in other expense and a decrease of $ 85 thousand in office services and supplies expense . the decrease in reo expense during 2015 was primarily due to reduced valuation write-downs reflecting fewer foreclosures and more stable property values . the decrease of $ 280 thousand in fdic assessments during 2015 was primarily due to a reduction in our assessment rate . professional services expense in 2015 was lower than in 2014 due to legal and consulting fees incurred in 2014 in connection with negotiating an extension of the maturity of the debentures . other expense decreased in 2015 due to lower appraisal expenses , primarily because we have fewer problem loans . income taxes we recorded an income tax benefit of $ 4.6 million for the year ended december 31 , 2015 compared to an income tax expense of $ 3 thousand for the year ended december 31 , 2014. based on our ability to reasonably project taxable income in future years , the income tax benefit for 2015 includes a partial reversal of a portion of the valuation allowance . we believe it is more likely than not that a portion of the deferred tax assets will be realized through future taxable income . in addition , approximately $ 3.0 million of federal net operating loss carryforwards and $ 3.0 million state net operating loss carryforwards were used to offset current taxable income for 2015. the tax expense for 2014 included the statutory minimum taxes paid to the state of california , and also reflected the use of net operating loss carryforwards to offset current taxable income in 2014. as of december 31 , 2015 we had a remaining valuation allowance on deferred tax assets of $ 2.5 million . as of december 31 , 2015 , we had net deferred tax assets of $ 4.6 million , which includes federal and california net operating loss carryforwards of $ 11.9 million and $ 29.2 million , respectively , which begin expiring in 2031 through 2034. see note 1 `` summary of significant accounting policies '' and note 11 `` income taxes '' of the notes to consolidated financial statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense ( benefit ) . section 382 of the internal revenue code imposes limitations on a corporation 's ability to utilize net operating loss carryforwards , tax credit carryovers and other income tax attributes when there is an ownership change . story_separator_special_tag generally , the rules provide that an ownership change is deemed to have occurred when the cumulative increase of each 5 % or more stockholder and certain groups of stockholders treated as 5 % or more stockholders , as determined under section 382 , exceeds 50 % over a specified `` testing '' period , generally equal to three years . section 382 applies rules regarding the treatment of new groups of stockholders treated as 5 % stockholders due to issuances of stock and other equity transactions , which may cause a change of control to occur . the company has performed an analysis of the potential impact of 35 section 382 and has determined that the company did not undergo an ownership change during 2015 or 2014 and any potential limitations imposed under section 382 do not currently apply . comparison of financial condition at december 31 , 2015 and 2014 total assets total assets were $ 402.9 million at december 31 , 2015 , which represented an increase of $ 52.0 million , or 15 % , from total assets of $ 350.9 million at december 31 , 2014. the growth in assets during 2015 , which was funded by deposit growth , was primarily due to changes in loans held for investment , which increased $ 27.5 million , and in cash and cash equivalents , which increased $ 47.0 million . the increase of $ 47.0 million in cash and cash equivalents was due to federal funds sold , part of cash and cash equivalents , increasing substantially as a result of the $ 54.7 million growth in deposits . these increases were partially offset by a decrease of $ 19.5 million in loans held for sale and a decrease of $ 2.9 million in securities available-for-sale . loans receivable held for sale we had no loans receivable held for sale at december 31 , 2015. loans receivable held for sale at december 31 , 2014 totaled $ 19.5 million and consisted of multi-family loans . during 2015 , we transferred $ 90.2 million of multi-family loans from the held-for-investment portfolio to the held-for-sale portfolio and allocated $ 57.7 million , or 51 % , of our loan originations during 2015 to the held-for-sale portfolio as part of our loan concentration risk management program . we sold $ 165.7 million of loans receivable held for sale , including origination costs of $ 1.6 million , and received $ 1.6 million in principal repayments during 2015. loans receivable held for investment our gross loan portfolio increased by $ 23.9 million to $ 309.0 million at december 31 , 2015 , from $ 285.1 million at december 31 , 2014. the increase in our loan portfolio during 2015 primarily consisted of an increase of $ 91.5 million in our single family residential real estate loan portfolio due to loan purchases , and a decrease of $ 53.9 million in our multi-family residential real estate loan portfolio due to loan sales . also , we experienced a reduction of $ 5.3 million in our commercial real estate loan portfolio and $ 8.4 million in our church loan portfolio due to principal payoffs . for the year ended december 31 , 2015 , loans originated for investment ( excluding $ 57.7 million of multi-family loans allocated to held for sale ) totaled $ 55.3 million , including origination costs of $ 416 thousand , compared to loans originated for investment of $ 96.1 million , including origination costs of $ 563 thousand , for the year ended december 31 , 2014. loan purchases , including purchase premiums of $ 498 thousand , totaled $ 100.2 million for the year ended december 31 , 2015. in contrast , we did not purchase any loans during 2014. loan repayments totaled $ 40.1 million for the year ended december 31 , 2015 , compared to $ 42.9 million for the year ended december 31 , 2014. loans transferred to our held-for-sale portfolio totaled $ 90.2 million during 2015 compared to $ 22.8 million during 2014. gross loan charge-offs during 2015 totaled $ 89 thousand , compared to gross loan charge-offs of $ 693 thousand during 2014. loans transferred to reo during 2015 totaled $ 1.2 million , compared to $ 2.6 million during 2014. allowance for loan losses we record a provision for loan losses as a charge to earnings when necessary in order to maintain the alll at a level sufficient , in management 's judgment , to absorb probable incurred losses in the loan portfolio . at least quarterly we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market . the determination of the appropriate level for the allowance 36 is based on that review , considering such factors as historical loss experience for each type of loan , the size and composition of our loan portfolio , the levels and composition of our loan delinquencies , non-performing loans and net loan charge-offs , the value of underlying collateral on problem loans , regulatory policies , general economic conditions , and other factors related to the collectability of loans in the portfolio . our alll decreased to $ 4.8 million , or 1.56 % of our gross loans receivable held for investment , at december 31 , 2015 , from $ 8.5 million , or 2.97 % of our gross loans receivable held for investment , at december 31 , 2014 , primarily reflecting $ 3.7 million of loan loss provision recapture . the loan portfolio as of december 31 , 2015 included $ 100.0 million of loans purchased for which there was no assigned allowance for loan losses . these loans were purchased at fair value and management has not noticed any deterioration of credit quality in these loans since purchase . the reduction in alll at december 31 , 2015 compared to december 31 , 2014 , and the loan loss provision recaptures during 2015 , reflect the results of our quarterly reviews of the adequacy of the alll .
| million of net interest 30 income before loan loss provision recapture reported for the year ended december 31 , 2014. the decrease in net interest income compared to 2014 was primarily due to the impact of loan sales of $ 138.7 million made during the first three quarters of 2015 , which were made to comply with prescribed loan concentration guidelines applicable to the bank . to mitigate the impact on interest income from these sales and to achieve diversity in our loan portfolio , the bank re-underwrote and purchased $ 99.7 million in single family loans during the fourth quarter of 2015 ; however , this purchase was not completed until the end of november . also , net interest income was adversely impacted by lower average interest rates earned on the loan portfolio because the average yield on the purchased single family loans was 111 basis points lower than the average yield earned on the multi-family loans that were sold , and the interest rates applicable to loan repayments were higher than those on loans that were originated in 2015. net interest income before loan loss provision recaptures was also lower because the aggregate interest expense on deposits was higher in 2015 , despite a slightly lower average cost of deposits . the higher total interest cost of our deposits , which reflected growth in our deposit base , was partially offset by lower interest expense on fhlb advances . interest income and fees on loans decreased $ 764 thousand , or 5 % , to $ 14.2 million for the year ended december 31 , 2015 , from $ 15.0 million for the year ended december 31 , 2014. the decrease in loan interest income compared to 2014 was driven by a 55 basis point decrease in the average yield on loans to 4.88 % for 2015 from 5.43 % for 2014. the lower average yield on loans for 2015 was primarily due to
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anova data , inc. on february 28 , 2019 , we acquired the business and technology assets of anova data , inc. ( `` anova '' ) , a provider of advanced analytics solutions , for total purchase consideration of 3.3 million shares of our common stock . anova is based in the u.s. , and its nextgen products provide a cloud-native , streaming analytics platform for network and subscriber optimization and monetization . we believe that the proposed acquisition reinforces and extends our strategy to expand into network optimization , security and data monetization via big data analytics and machine learning . we do not expect that the acquisition will have a material effect on our consolidated financial statements in 2019. financial overview story_separator_special_tag completed in 2020 , when the lease for this restructured facility expires . on july 25 , 2016 , we announced a program ( the `` 2016 restructuring initiative '' ) to further accelerate our investment in new technologies as the communications industry migrates to a cloud-based architecture and pursues new strategic initiatives , such as new products and an expanded go-to-market footprint in selected geographies and discrete vertical markets . we have recorded an aggregate of approximately $ 2 million of restructuring expense in connection with this initiative , primarily for severance and related costs . the amounts accrued for severance and related costs were fully paid in 2017. we expect that the amounts accrued for facilities will be paid by the end of 2019. in connection with the acquisition of taqua , we implemented a restructuring plan in the third quarter of 2016 to eliminate certain redundant positions within the combined companies . on october 24 , 2016 , the audit committee of our board of directors ( the `` audit committee '' ) approved a broader taqua restructuring plan related to headcount and redundant facilities ( collectively , the `` taqua restructuring initiative '' ) . in connection with this initiative , we have recorded approximately $ 2 million of restructuring expense for severance and related costs and estimated costs related to the elimination of redundant facilities , including adjustments recorded for changes in cost estimates for the planned restructuring activities . the actions under the taqua restructuring initiative have been implemented and accordingly , we do not expect to record additional expense in connection with this initiative . the amounts accrued for severance and related costs were fully paid by the end of the third quarter of 2017. we expect that the amounts accrued for facilities costs will be paid in 2019. critical accounting policies and estimates management 's discussion and analysis of the 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 . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . we base our estimates and judgments on historical experience , knowledge of current conditions and beliefs of what could occur in the future given available information . we consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our consolidated financial statements . the significant accounting policies that we believe are the most critical include revenue recognition , the valuation of inventory , loss contingencies and reserves , stock-based compensation , business combinations , goodwill and intangible assets , and accounting for income taxes . revenue recognition . we account for revenue in accordance with accounting standards codification ( `` asc '' ) 606 , revenue from contracts with customers ( `` asc 606 '' ) , which we adopted on january 1 , 2018 using the modified retrospective method . we derive revenue from two primary sources : products ( software and non-software products ) and services . software and non-software product revenue is generated from sales of our software with proprietary appliances that function together to deliver the products ' essential functionality . software and appliances are also sold on a standalone basis . services include customer support ( software updates and technical support ) , consulting , design services , installation services and training . a 47 typical contract includes both product and services . generally , contracts with customers contain multiple performance obligations . for these contracts , we account for individual performance obligations separately if they are distinct . the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis . ssps are typically estimated based on observable transactions when these services are sold on a standalone basis . the software licenses typically provide a perpetual right to use our software . we also sell term-based software licenses that expire and software-as-as-service ( `` saas '' ) -based software which are referred to as subscription arrangements . we do not customize our software nor are installation services required , as the customer has a right to utilize internal resources or a third-party service company . the software and appliances are delivered before related services are provided and are functional without professional services or customer support . we have concluded that our software licenses are functional intellectual property that are distinct , as the user can benefit from the software on its own . the product revenue is typically recognized upon transfer of control or when the software is made available for download , as this is the point that the user of the software can direct the use of , and obtain substantially all of the remaining benefits from , the functional intellectual property . we do not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period . story_separator_special_tag appliance products are generally sold with software to provide the customer solution . service revenue includes revenue from customer support and other professional services . we offer warranties on our products . certain of our warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended . based on the guidance in asc 606 , assurance-type warranties do not represent separate performance obligations . we also sell separately-priced maintenance service contracts which qualify as service-type warranties and represent separate performance obligations . we do not allow and have no history of accepting product returns . customer support includes software updates on a when-and-if-available basis , telephone support , integrated web-based support and bug fixes or patches . we sell our customer support contracts at a percentage of list or net product price related to the support . customer support revenue is recognized ratably over the term of the customer support agreement , which is typically one year . our professional services include consulting , technical support , resident engineer services , design services and installation services . because control transfers over time , revenue is recognized based on progress toward completion of the performance obligation . the method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided . we generally use the input method to measure progress for our contracts because we believe it best depicts the transfer of assets to the customer which occurs as we incur costs for the contracts . under the cost-to-cost measure of progress , the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation . when the measure of progress is based upon expended labor , progress toward completion is measured as the ratio of labor time expended to date versus the total estimated labor time required to complete the performance obligation . revenue is recorded proportionally as costs are incurred or as labor is expended . costs to fulfill these obligations include internal labor as well as subcontractor costs . we offer customer training courses , for which the related revenue is typically recognized as the training services are performed . our contracts with customers often include promises to transfer multiple products and services to the customer . determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment . judgment is required to determine the ssp for each distinct performance obligation . in instances where ssp is not directly observable , such as when we do not sell the product or service separately , we determine the ssp using information that may include market conditions and other observable inputs . we typically have more than one ssp for individual products and services due to the stratification of those products and services by customers and circumstances . in these instances , the company may use information such as the size of the customer and geographic region in determining the ssp . valuation of inventory . we review inventory for both potential obsolescence and potential loss of value periodically . in this review , we make assumptions about the future demand for and market value of the inventory and , based on these assumptions , estimate the amount of any excess , obsolete or slow-moving inventory . we write down our inventories if they are considered to be obsolete or at levels in excess of forecasted demand . in these cases , inventory is written down to estimated realizable value based on historical usage and expected demand . inherent in our estimates of market value in determining inventory valuation are estimates related to economic trends , future demand for our products and technical obsolescence of our products . if future demand or market conditions are less favorable than our 48 projections , additional inventory write-downs could be required and would be reflected in the cost of revenue in the period the revision is made . to date , we have not been required to revise any of our assumptions or estimates used in determining our inventory valuations . we write down our evaluation equipment at the time of shipment to our customers , as it is not probable that the inventory value will be realizable . loss contingencies and reserves . we are subject to ongoing business risks arising in the ordinary course of business that affect the estimation process of the carrying value of assets , the recording of liabilities and the possibility of various loss contingencies . an estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated . we regularly evaluate current information available to determine whether such amounts should be adjusted and record changes in estimates in the period they become known . we are subject to various legal claims . we reserve for legal contingencies and legal fees when the amounts are probable and reasonably estimable . stock-based compensation . our stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period , which is generally the vesting period . we use the black-scholes valuation model for estimating the fair value on the date of grant of employee stock options . determining the fair value of stock option awards at the grant date requires judgment regarding certain valuation assumptions , including the volatility of our stock price , expected term of the option , risk-free interest rate and expected dividends . changes in such assumptions and estimates could result in different fair values and could therefore impact our earnings . such changes , however , would not impact our cash flows .
| we recorded stock-based compensation expense of approximately $ 11 million in 2018 , $ 26 million in 2017 and $ 20 million in 2016. the expense recorded in 2017 includes approximately $ 9 million of incremental expense related to the acceleration of stock options and certain full value stock awards in connection with the merger . see `` results of operations '' in this management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) for additional discussion of our results of operations for the years ended december 31 , 2018 , 2017 and 2016 . 46 restructuring and cost reduction initiatives in connection with the merger , we implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies ( the `` merger restructuring initiative '' ) . we recorded approximately $ 16 million of restructuring expense related to the merger restructuring initiative in 2018 , comprised of approximately $ 15 million for severance and related expenses and approximately $ 1 million in connection with redundant facilities located in the czech republic , canada and the u.s. we recorded approximately $ 9 million of restructuring expense for severance and related expenses in 2017 related to the merger restructuring initiative . we anticipate that we will record additional future expense in connection with this initiative for headcount and redundant facilities aggregating approximately $ 5 million . we believe that the severance payments currently accrued will be completed in 2019 and that the payments related to redundant facilities will be completed in 2029 , when the last of the leases for these restructured facilities expires . we are actively seeking to sublease each of these facilities . we assumed genband 's restructuring liability aggregating approximately $ 4 million at the merger date ( the `` genband restructuring initiative '' ) , primarily related to headcount reductions . in 2018 , we recorded approximately $ 1 million of restructuring expense for changes in estimated costs for previously recorded initiatives , primarily changes in negotiated severance to employees in certain international locations and changes in estimated sublease income for restructured facilities . we do not expect
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however due to the lack of a written agreement or timetable for further payments of hill 's accounts receivable from odac or a return to work on hill 's existing contracts , management has reclassified the remaining accounts receivable amounting to $ 49,659,000 to a non-current asset to reflect the uncertainty surrounding the timing of the collection of the receivable . additionally , management has reclassified from current to other liabilities the accruals for certain taxes and agency fees related to the odac contracts amounting to approximately $ 9,280,000. in 2014 , we received $ 38,042,000 from a secondary offering of our common stock and $ 120,000,000 from proceeds of a new term loan , the proceeds of which were used to pay down and terminate our 2009 credit agreement of $ 25,500,000 and 2012 term loan of $ 100,000,000. we also entered into new revolving credit facilities . for further information regarding our new term loan , new revolving credit facilities , 2009 credit agreement , 2012 term loan , please see note 9 to our consolidated financial statements . we remain optimistic about maintaining our current growth strategy to pursue new business development opportunities , continue to take advantage of organic growth opportunities , continue to pursue acquisitions and strengthen our professional resources . among other things , our optimism stems from the growth of our backlog at december 31 , 2014. our total backlog is a record $ 1,080,000,000 , an increase of $ 7,000,000 from september 30 , 2014 and $ 53,000,000 from december 31 , 2013. our 12-month backlog is also a record $ 470,000,000 , an increase of $ 13,000,000 from september 30 , 2014 and $ 76,000,000 from december 31 , 2013. these increases are primarily related to significant new work in the middle east and the united states . critical accounting policies and estimates our consolidated financial statements were prepared in accordance with u.s. generally accepted accounting principles , which require us to make subjective decisions , assessments and estimates about the effect of matters that are inherently uncertain . as the number of variables and assumptions affecting the judgment increases , such judgments become even more subjective . while we believe our assumptions are reasonable and appropriate , actual results may be materially different than estimated . revenue recognition we generate revenue primarily from providing professional services to our clients . revenue is generally recognized upon the performance of services . in providing these services , we may incur reimbursable expenses , which consist of amounts paid to subcontractors and other third parties as well 29 as travel and other job related expenses that are contractually reimbursable from clients . we will include reimbursable expenses in computing and reporting our total contract revenue as long as we remain responsible to the client for the fulfillment of the contract and for the overall acceptability of all services provided . we earn our revenue from cost-plus , fixed-price and time-and-materials contracts . if estimated total costs on any contract indicate a loss , we charge the entire estimated loss to operations in the period the loss becomes known . the cumulative effect of revisions to revenue , estimated costs to complete contracts , including penalties , incentive awards , change orders , claims , anticipated losses , and other effects are recorded in the accounting period in which the events indicating a loss are known and the loss can be reasonably estimated . such revisions could occur at any time and the effects may be material . the majority of our contracts are for work where we bill the client monthly at hourly billing rates . the hourly billing rates are determined by contract terms . for governmental clients , the hourly rates are generally calculated as either ( i ) a negotiated multiplier of our direct labor costs or ( ii ) as direct labor costs plus overhead costs plus a negotiated profit percentage . for commercial clients , the hourly rates are generally taken from a standard fee schedule by staff classification or they can be at a negotiated discount from this schedule . in some cases , primarily for foreign work , a fixed monthly staff rate is negotiated rather than an hourly rate . this monthly rate is determined based upon a buildup of direct labor costs plus overhead and profit . we account for these contracts on a time-and-expenses method , recognizing revenue as costs are incurred . we account for fixed-price contracts on the `` percentage-of-completion '' method , wherein revenue is recognized as costs are incurred . under the percentage-of-completion method for revenue recognition , we estimate the progress towards completion to determine the amount of revenue and profit to be recognized . we generally utilize a cost-to-cost approach in applying the percentage-of-completion method , where revenue is earned in proportion to total costs incurred divided by total costs expected to be incurred . under the percentage-of-completion method , recognition of profit is dependent upon the accuracy of estimates . we have a history of making reasonably dependable estimates of contract revenue , the extent of progress towards completion and contract completion costs on our long-term construction management contracts . however , due to uncertainties inherent in the estimation process , it is possible that actual completion costs may vary from estimates . allowance for doubtful accounts we make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our clients to make required payments . estimates used in determining accounts receivable allowances are based on specific client account reviews and historical experience of credit losses . we also apply judgment including assessments about changes in economic conditions , concentration of receivables among clients and industries , recent write-off trends , rates of bankruptcy , and credit quality of specific clients . unanticipated changes in the financial condition of clients , the resolution of various disputes , or significant changes in the economy could impact the reserves required . story_separator_special_tag at december 31 , 2014 and 2013 , the allowance for doubtful accounts was $ 11,142,129 and $ 9,530,000 , respectively . goodwill and other intangible assets goodwill is tested annually for impairment in our third fiscal quarter or more frequently if events or circumstances indicate that there may be an impairment . we have determined that we have two reporting units , the project management unit and the construction claims unit . we made that determination based on the similarity of the services provided , the methodologies in delivering our services and the similarity of the client base in each of these units . to determine the fair value of our 30 reporting units , we use the market approach and the income approach , weighting the results of each approach . under the market approach , we determine fair value using the public company method and the quoted price method . we utilized a control premium of 30 % to arrive at the preliminary fair value for each reporting unit , and we applied a weighting of 20 % to the preliminary fair value determined by using the public company method . the quoted price method is based upon the market value of the transactions of minority interests in the publicly-traded shares of the company . we utilized a control premium of 30 % to arrive at the preliminary fair value for each reporting unit , and we applied a weighting of 50 % to the preliminary fair value determined using the quoted price method . our calculation under the income approach utilizes our internal forecasts . in the income approach ( that is , the discounted cash flow method ) , the projected cash flows reflect the cash flows subsequent to the sale of the reporting unit pursuant to the guidance in asc 350 and asc 820. consistent with applicable literature , we include in projected cash flows any expected improvements in cash flows or other changes that , in our view , a market participant would consider and be willing to pay for ( but we exclude any buyer- or entity-specific synergies ) . the projections are developed by us and are based upon cash flows that maximize reporting unit value by taking into account improvements that controlling-interest holders can make , but minority interest holders can not make . these improvements include : increasing revenues , reducing operating costs , or reducing non-operating costs such as taxes . the owners of the enterprise may also increase enterprise value by reducing risk ; for example , by diversifying the business , improving access to capital , increasing the certainty of cash flows , or optimizing the capital structure . we considered the factors listed above when developing the cash flows to support the income approach . recognizing that due to elements of control incorporated into our reporting units ' forecasts , we applied no control premium to our conclusion of value indicated by the discounted cash flows . in determining fair value , we applied a weighting of 30 % to the preliminary fair value determined using the income approach . with regard to weighting the conclusions rendered by the approaches utilized , we believe that the quoted price method provides the most reliable indication of value ( that is , a level 1 input ) ; therefore , we placed the greatest emphasis upon this method assigning a 50 % weighting . we also determined that the value using the discounted cash flow method ( to which we assigned a 30 % weighting ) provided a more reliable indication of value than the public company method ( to which we assigned a 20 % weighting ) with the relative levels of reliability contributing to the weighting accorded to each approach . application of the goodwill impairment test requires significant judgments including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for each reporting unit , the period over which cash flows will occur , and determination of the weighted average cost of capital , among other things . based on the valuation as of july 1 , 2014 , the fair values of the project management unit and the construction claims unit substantially exceeded their carrying values . changes in these estimates and assumptions could materially affect our determination of fair value and or goodwill impairment for each reporting unit . changes in future market conditions , our business strategy , or other factors could impact upon the future values of hill 's reporting units , which could result in future impairment charges . we amortize other intangible assets over their estimated useful lives and review the long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable . determining whether impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount and the asset 's residual value , if any . in turn , measurement of an impairment loss requires a determination of fair 31 value , which is based on the best information available . we use internal discounted cash flow estimates , quoted market prices when available and independent appraisals , as appropriate , to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . income taxes we make judgments and interpretations based on enacted tax laws , published tax guidance , as well as estimates of future earnings . these judgments and interpretations affect the provision for income taxes , deferred tax assets and liabilities and the valuation allowance . we evaluate the deferred tax assets to determine on the basis of objective factors whether the net assets will be realized through future years ' taxable income .
| these items are reflected as separate line items in both our total revenue and total direct expenses captions in our consolidated statements of operations . the decrease in project management reimbursable expense is primarily due to lower use of subcontractors in our northeast u.s. region , partially offset by increased subcontractors in oman and the western u.s. region . the increase in construction claims reimbursable expenses was due primarily to increases in the united kingdom due to increased use of subcontractors plus increases in other reimbursable expenses associated with the higher work volume . cost of services replace_table_token_12_th cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses . the increase in project management cost of services is primarily due to an increase in the middle east in support of increased work there and to a lesser degree to the cpi acquisition , partially offset by a decrease in brazil . the increase in the cost of services for construction claims was due primarily to increases in direct costs in the united kingdom , the middle east and asia/pacific in support of the increased cfr . 33 gross profit replace_table_token_13_th the increase in project management gross profit included an increase of $ 15,463,000 from international operations , primarily due to increases from the middle east , principally oman , qatar and iraq , partially offset by decreases in brazil and azerbaijan . the increase in construction claims gross profit was driven by increases in the united kingdom , the middle east , south africa and asia/pacific . the overall gross profit percentage increased slightly due to higher margins achieved on new work in the middle east , primarily oman and qatar for project management . selling , general and administrative ( `` sg & a '' ) expenses replace_table_token_14_th the significant components of the change in sg & a are as follows : an increase of $ 16,648,000 in unapplied labor primarily due to the impact of new hires , salary increases and a decrease in utilization in the early part of 2014. there was
| 10,808 |
based upon this analysis , it was decided to classify $ 355 thousand of the deferred tax asset as current and the balance as non-current . at december 28 , 2013 the company 's deferred tax asset included net operating loss carryforwards and other temporary differences which will require taxable income of approximately $ 6.3 million to fully utilize , assuming an effective corporate tax rate of 39 % . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . an important consideration in this analysis is the fact that none of the nol carryforwards expire before 2032. the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 28 , 2013 and december 29 , 2012 , the company had no accruals for interest or penalties related to income tax matters . the company did not have any uncertain tax positions at december 28 , 2013 or december 29 , 2012 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , of grant-date fair value , less any proceeds received on exercise of stock prices , are recognized as either an increase or decrease to additional paid-in capital upon exercise . these tax effects are either offset against currently payable taxes or the benefit of net operating loss utilization . story_separator_special_tag helvetica , sans-serif ; margin : 0 '' > accounts receivable at december 28 , 2013 totaled $ 2.9 million , flat when compared with receivables at december 29 , 2012. days sales outstanding ( dsos ) decreased to 51 days compared with dso 's of 63 at the end of q4 2012. this reduction reflects the fact that a greater percentage of revenues in 2013 occurred early in the quarter when compared with 2012 ; as a result a greater portion of sales were collected before quarter end . the accounts receivable balances at december 28 , 2013 , and december 29 , 2012 were both net of an allowance for doubtful accounts of $ 10 thousand . inventories totaled $ 2.2 million at december 28 , 2013 , approximately a 10 % reduction from the $ 2.5 million at the end of 2012. this total is in line with inventory levels maintained throughout 2013. the inventory balance at december 28 , 2013 , was net of an obsolescence reserve $ 390 thousand . the turnover in 2013 was 7.4 times based on the average of inventories over the past 5 quarter ends . this compares with 4.4 times for the same period in 2012. this increase is due primarily to 2012 turnovers being adversely impacted by the slow-down in sales during that year . all consigned inventory is shipped under existing purchase orders and per customers ' requests . of the inventory of $ 2.2 million at december 28 , 2013 , $ 980 thousand was located at customers ' locations pursuant to consigned inventory agreements . of the total inventory of $ 2.5 million at december 29 , 2012 , $ 1.1 million was located at customers ' locations pursuant to consigned inventory agreements . the company financed its working capital during 2013 with a combination of beginning cash balances and cash flow generated from operations . the company expects it will continue to be able to fund its working capital requirements during 2014 from a combination of operating cash flow , existing cash balances and borrowings under its line of credit , if necessary . the company continues to sell to a limited number of customers and the loss of any one of these customers could cause the company to require additional external financing . failure to generate sufficient revenues , raise additional capital or reduce certain discretionary spending could have a material adverse effect on the company 's ability to achieve its business objectives . in early may 2013 , the company renewed its $ 2 million revolving line of credit ( “ loc ” ) and $ 500 thousand of an equipment finance facility ( “ lease line ” ) with santander bank . both agreements mature in may 2014. the loc is secured by the accounts receivable and other assets of the company , has an interest rate of prime plus one percent ( 1 % ) and a one-year term . the loc and the lease line are cross defaulted and cross collateralized . the company is also subject to certain financial covenants within the terms of the line of credit that require the company to maintain a targeted coverage ratio as well as targeted debt to equity and current ratios . at december 28 , 2013 , the company was in compliance with existing covenants . at december 28 , 2013 , the company had $ 76 thousand net carrying value of capital equipment financed by advances and capital lease obligations under the lease line and $ 423 thousand available remaining . equipment financed by the santander equipment lease qualifies for treatment as a capital lease once converted from the lease line to a lease . at december 28 , 2013 the company had no borrowings under this loc while its borrowing base at the time would have permitted borrowings of $ 1.4 million . the covenants with santander bank are identical for the line of credit and equipment financing facility . the covenant requirements are shown below together with the actual ratios achieved for 2013 : replace_table_token_3_th management believes that cash flows from operations , existing cash balances and the leasing story_separator_special_tag based upon this analysis , it was decided to classify $ 355 thousand of the deferred tax asset as current and the balance as non-current . at december 28 , 2013 the company 's deferred tax asset included net operating loss carryforwards and other temporary differences which will require taxable income of approximately $ 6.3 million to fully utilize , assuming an effective corporate tax rate of 39 % . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . an important consideration in this analysis is the fact that none of the nol carryforwards expire before 2032. the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 28 , 2013 and december 29 , 2012 , the company had no accruals for interest or penalties related to income tax matters . the company did not have any uncertain tax positions at december 28 , 2013 or december 29 , 2012 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , of grant-date fair value , less any proceeds received on exercise of stock prices , are recognized as either an increase or decrease to additional paid-in capital upon exercise . these tax effects are either offset against currently payable taxes or the benefit of net operating loss utilization . story_separator_special_tag helvetica , sans-serif ; margin : 0 '' > accounts receivable at december 28 , 2013 totaled $ 2.9 million , flat when compared with receivables at december 29 , 2012. days sales outstanding ( dsos ) decreased to 51 days compared with dso 's of 63 at the end of q4 2012. this reduction reflects the fact that a greater percentage of revenues in 2013 occurred early in the quarter when compared with 2012 ; as a result a greater portion of sales were collected before quarter end . the accounts receivable balances at december 28 , 2013 , and december 29 , 2012 were both net of an allowance for doubtful accounts of $ 10 thousand . inventories totaled $ 2.2 million at december 28 , 2013 , approximately a 10 % reduction from the $ 2.5 million at the end of 2012. this total is in line with inventory levels maintained throughout 2013. the inventory balance at december 28 , 2013 , was net of an obsolescence reserve $ 390 thousand . the turnover in 2013 was 7.4 times based on the average of inventories over the past 5 quarter ends . this compares with 4.4 times for the same period in 2012. this increase is due primarily to 2012 turnovers being adversely impacted by the slow-down in sales during that year . all consigned inventory is shipped under existing purchase orders and per customers ' requests . of the inventory of $ 2.2 million at december 28 , 2013 , $ 980 thousand was located at customers ' locations pursuant to consigned inventory agreements . of the total inventory of $ 2.5 million at december 29 , 2012 , $ 1.1 million was located at customers ' locations pursuant to consigned inventory agreements . the company financed its working capital during 2013 with a combination of beginning cash balances and cash flow generated from operations . the company expects it will continue to be able to fund its working capital requirements during 2014 from a combination of operating cash flow , existing cash balances and borrowings under its line of credit , if necessary . the company continues to sell to a limited number of customers and the loss of any one of these customers could cause the company to require additional external financing . failure to generate sufficient revenues , raise additional capital or reduce certain discretionary spending could have a material adverse effect on the company 's ability to achieve its business objectives . in early may 2013 , the company renewed its $ 2 million revolving line of credit ( “ loc ” ) and $ 500 thousand of an equipment finance facility ( “ lease line ” ) with santander bank . both agreements mature in may 2014. the loc is secured by the accounts receivable and other assets of the company , has an interest rate of prime plus one percent ( 1 % ) and a one-year term . the loc and the lease line are cross defaulted and cross collateralized . the company is also subject to certain financial covenants within the terms of the line of credit that require the company to maintain a targeted coverage ratio as well as targeted debt to equity and current ratios . at december 28 , 2013 , the company was in compliance with existing covenants . at december 28 , 2013 , the company had $ 76 thousand net carrying value of capital equipment financed by advances and capital lease obligations under the lease line and $ 423 thousand available remaining . equipment financed by the santander equipment lease qualifies for treatment as a capital lease once converted from the lease line to a lease . at december 28 , 2013 the company had no borrowings under this loc while its borrowing base at the time would have permitted borrowings of $ 1.4 million . the covenants with santander bank are identical for the line of credit and equipment financing facility . the covenant requirements are shown below together with the actual ratios achieved for 2013 : replace_table_token_3_th management believes that cash flows from operations , existing cash balances and the leasing
| the increase was due in large part to the sales of baseplates for traction applications and , to a lesser extent , sales of baseplates for hybrid and electric vehicles and $ 0.3 million of price increases on existing products . gross margin increased in the fourth quarter of 2013 versus the fourth quarter of 2012 to $ 1,362 thousand ( 27 % of sales ) from $ 333 thousand ( 8 % of sales ) . the primary reason for the improvement in 2013 was due to higher sales volume and , to a lesser degree , price increases on existing products . selling , general and administrative expenses totaled $ 931 thousand in the fourth quarter of 2013 , up 22 % versus the fourth quarter of 2012 , due to three major factors : an increase in incentive compensation , the 401k match , which was suspended during the quarter in 2012 , and higher sales commissions associated with higher sales volume . the operating profit of $ 431 thousand in the fourth quarter 2013 compares with a operating loss of $ 427 thousand in the fourth quarter of 2012. net income in the fourth quarter of 2013 totaled $ 276 thousand , up from a net loss of $ 84 thousand in the corresponding quarter of 2012. year ended december 29 , 2012 ( “ 2012 ” ) compared to the year ended december 31 , 2011 ( “ 2011 ” ) . total revenues were $ 14.1 million in 2012 compared to total revenues of $ 19.8 million in 2011 , a 29 % decrease . this reduction of $ 5.7 million was made up of three main categories : baseplates used in the traction and high power markets , lids and heatspreaders , and revenue earned from the cooperative agreement with the u.s. army research laboratory . the traction and high power markets were adversely affected by the weak economies in europe and the slow-down of traction spending in china . the reduction in the
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intangible assets the company evaluates its intangible assets for impairment at least on an annual basis . those intangible assets that are classified as goodwill or as other intangibles with indefinite lives are not amortized . impairment testing is performed in two steps : ( i ) the company determines impairment by comparing the fair value of a reporting unit with its carrying value , and ( ii ) if there is impairment , the company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets . at the conclusion of the fiscal 2014 , the company performed its annual impairment evaluation and determined that its intangible assets were not impaired . income taxes the company has identified the united states and new york state as its major tax jurisdictions . the fiscal 2008 and forward years are still open for examination . during the year ending june 30 , 2014 the company increased its reserve for uncertain income tax positions by $ 16,000. as of june 30 , 2014 the company has a long-term accrued income tax liability of $ 169,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2014 , the company had accrued interest totaling $ 0 and $ 169,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . for the year ended june 30 , 2014 , the company recognized a net income tax expense of $ 531,000. a reconciliation of the u.s. federal statutory income tax rate to our actual effective tax rate on earnings before income taxes for fiscal 2014 is as follows ( dollars in thousands ) : replace_table_token_4_th liquidity and capital resources the company 's cash on hand as of june 30 , 2013 combined with proceeds from operating activities during fiscal 2014 were adequate to meet the company 's capital expenditure needs and debt obligations during fiscal 2014. the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017. as of june 30 , 2014 $ 2,500,000 was outstanding under this revolving line of credit . as of june 30 , 2014 , the company 's unused sources of funds consisted principally of $ 2,483,000 in cash and $ 8,500,000 unused balance available under its revolving line of credit . during the year ended june 30 , 2014 the company utilized its cash on hand at june 30 , 2013 ( $ 3,229,000 ) and a portion of its cash from operations ( $ 2,409,000 of $ 4,743,000 ) to repay outstanding debt ( $ 4,600,000 ) , purchase treasury stock ( $ 285,000 ) and purchase property , plant and equipment ( $ 753,000 ) . as of june 30 , 2014 , long-term debt consisted of the revolving credit facility and two term loans ( collectively the “ agreement ” ) , one for $ 6,000,000 which expires in june 2019 , and one for $ 6,500,000 which expires in june 2017 ( the “ term loans ” ) . repayment of the term loans commenced on september 30 , 2012. the $ 6,000,000 term loan is being repaid with 28 equal , quarterly payments of $ 75,000 with the remaining balance of $ 3,900,000 due on or before the expiration date . the $ 6,500,000 term loan is being repaid in 20 equal , quarterly payments of $ 325,000. the agreement also provides for a libor-based interest rate option of libor plus 1.5 % to 2.75 % , depending on the ratio of outstanding debt to ebitda , which is to be measured and adjusted quarterly , a prime rate-based option of the prime rate plus 0.25 % and other terms and conditions as more fully described in the agreement . in addition , the agreement provides for availability under the revolving credit facility to be limited to the lesser of $ 11,000,000 or the result of a borrowing base formula based upon the company 's accounts receivables and inventory values net of certain deductions . the company 's obligations under the agreement continue to be secured by all of its assets , including but not limited to , deposit accounts , accounts receivable , inventory , the company 's corporate headquarters in amityville , ny , equipment and fixtures and intangible assets . in addition , the company 's wholly-owned subsidiaries , with the exception of the company 's foreign subsidiaries , have issued guarantees and pledges of all of their assets to secure the company 's obligations under the agreement . all of the outstanding common stock of the company 's domestic subsidiaries and 65 % of the common stock of the company 's foreign subsidiaries has been pledged to secure the company 's obligations under the agreement . the company 's long-term debt is described more fully in note 6 to the consolidated financial statements . the agreement contains various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the agreement . the company believes its current working capital , anticipated cash flows from operations and its revolving credit agreement will be sufficient to fund the company 's operations through the next twelve months . the company takes into consideration several factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , 2014 , the company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business story_separator_special_tag intangible assets the company evaluates its intangible assets for impairment at least on an annual basis . those intangible assets that are classified as goodwill or as other intangibles with indefinite lives are not amortized . impairment testing is performed in two steps : ( i ) the company determines impairment by comparing the fair value of a reporting unit with its carrying value , and ( ii ) if there is impairment , the company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets . at the conclusion of the fiscal 2014 , the company performed its annual impairment evaluation and determined that its intangible assets were not impaired . income taxes the company has identified the united states and new york state as its major tax jurisdictions . the fiscal 2008 and forward years are still open for examination . during the year ending june 30 , 2014 the company increased its reserve for uncertain income tax positions by $ 16,000. as of june 30 , 2014 the company has a long-term accrued income tax liability of $ 169,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2014 , the company had accrued interest totaling $ 0 and $ 169,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . for the year ended june 30 , 2014 , the company recognized a net income tax expense of $ 531,000. a reconciliation of the u.s. federal statutory income tax rate to our actual effective tax rate on earnings before income taxes for fiscal 2014 is as follows ( dollars in thousands ) : replace_table_token_4_th liquidity and capital resources the company 's cash on hand as of june 30 , 2013 combined with proceeds from operating activities during fiscal 2014 were adequate to meet the company 's capital expenditure needs and debt obligations during fiscal 2014. the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017. as of june 30 , 2014 $ 2,500,000 was outstanding under this revolving line of credit . as of june 30 , 2014 , the company 's unused sources of funds consisted principally of $ 2,483,000 in cash and $ 8,500,000 unused balance available under its revolving line of credit . during the year ended june 30 , 2014 the company utilized its cash on hand at june 30 , 2013 ( $ 3,229,000 ) and a portion of its cash from operations ( $ 2,409,000 of $ 4,743,000 ) to repay outstanding debt ( $ 4,600,000 ) , purchase treasury stock ( $ 285,000 ) and purchase property , plant and equipment ( $ 753,000 ) . as of june 30 , 2014 , long-term debt consisted of the revolving credit facility and two term loans ( collectively the “ agreement ” ) , one for $ 6,000,000 which expires in june 2019 , and one for $ 6,500,000 which expires in june 2017 ( the “ term loans ” ) . repayment of the term loans commenced on september 30 , 2012. the $ 6,000,000 term loan is being repaid with 28 equal , quarterly payments of $ 75,000 with the remaining balance of $ 3,900,000 due on or before the expiration date . the $ 6,500,000 term loan is being repaid in 20 equal , quarterly payments of $ 325,000. the agreement also provides for a libor-based interest rate option of libor plus 1.5 % to 2.75 % , depending on the ratio of outstanding debt to ebitda , which is to be measured and adjusted quarterly , a prime rate-based option of the prime rate plus 0.25 % and other terms and conditions as more fully described in the agreement . in addition , the agreement provides for availability under the revolving credit facility to be limited to the lesser of $ 11,000,000 or the result of a borrowing base formula based upon the company 's accounts receivables and inventory values net of certain deductions . the company 's obligations under the agreement continue to be secured by all of its assets , including but not limited to , deposit accounts , accounts receivable , inventory , the company 's corporate headquarters in amityville , ny , equipment and fixtures and intangible assets . in addition , the company 's wholly-owned subsidiaries , with the exception of the company 's foreign subsidiaries , have issued guarantees and pledges of all of their assets to secure the company 's obligations under the agreement . all of the outstanding common stock of the company 's domestic subsidiaries and 65 % of the common stock of the company 's foreign subsidiaries has been pledged to secure the company 's obligations under the agreement . the company 's long-term debt is described more fully in note 6 to the consolidated financial statements . the agreement contains various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the agreement . the company believes its current working capital , anticipated cash flows from operations and its revolving credit agreement will be sufficient to fund the company 's operations through the next twelve months . the company takes into consideration several factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , 2014 , the company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business
| the decrease in interest expense is primarily the result of the decrease in interest rates charged by the company 's primary banks as well as the company 's reduction of its outstanding borrowings under its revolving line of credit and its term loan . other expenses remained constant at $ 14,000 for both fiscal 2014 and 2013. the company 's provision for income taxes for fiscal 2014 increased by $ 344,000 to $ 531,000 as compared to $ 187,000 for the same period a year ago . the increase in income taxes from fiscal 2013 to fiscal 2014 resulted primarily from increased income before income taxes as well as a decrease in the benefit generated by the company 's foreign manufacturing subsidiaries whose profits are not subject to income taxes . net income for fiscal 2014 increased by $ 455,000 to $ 3,476,000 as compared to $ 3,021,000 in fiscal 2013. this resulted primarily from the items discussed above . forward-looking information this annual report on form 10-k and the information incorporated by reference may include `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 and section 21e of the exchange act of 1934. the company intends the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements . all statements regarding the company 's expected financial position and operating results , its business strategy , its financing plans and the outcome of any contingencies are forward-looking statements . the forward-looking statements are based on current estimates and projections about our industry and our business . words such as `` anticipates , '' `` expects , '' `` intends , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' or variations of such words and similar expressions are intended to identify such forward-looking statements . the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements . for example , the company is highly dependent on its chief executive officer for
| 10,810 |
we have commercialized our target-selector assays for breast cancer , non-small cell lung cancer , or nsclc , gastric cancer , colorectal cancer , prostate cancer , pancreaticobiliary cancer , and ovarian cancer , and plan to continue to launch a series of cancer diagnostic assays for different predictive biomarkers assays in the united states as ldts performed in our laboratory , and enhance revenue for these products through the efforts of our sales and marketing organization . our sales strategy is to engage medical oncologists , neuro-oncologists , surgical oncologists , urologists , pulmonologists , pathologists and other physicians in the united states at private and group practices , hospitals and cancer centers . we also plan to continue to evaluate potential opportunities for the commercialization of our products and assays in other countries . additionally , sales of our proprietary blood collection tubes , or bcts , which allow for the intact transport of liquid biopsy samples for research use only , or ruo , from regions around the world , commenced during 2018 . in addition to testing for physicians and their patients , we offer clinical trials testing and research services to help increase the efficiency and economic viability of clinical trials for pharmaceutical and biopharmaceutical companies and clinical research organizations both within and outside of the united states . we are currently exploring the possibility of introducing ctdna technology outside the united states as part of ivd test kits and or testing systems utilizing our target-selector technologies . we plan to continue to cooperate with partners on accessing markets internationally either through partnerships with local groups and distributors or through the development of ivds and or test systems , including instrumentation . we also have a research and development program focused on technology enhancements , novel platform development , and evaluating clinical applications for our cancer diagnostic tests in different cancer types and clinical settings . to facilitate market adoption of our products and assays , we anticipate having to successfully complete additional clinical utility studies with clinical samples to generate clinical utility data and then publish our results in peer-reviewed scientific journals . our ability to complete such clinical studies is dependent upon our ability to leverage our collaborative relationships with leading institutions to facilitate our research , to conduct the appropriate clinical studies and to obtain favorable clinical data . we collaborate with physicians and researchers at sarah cannon research institute , university of colorado , the university of california , san diego , the john wayne cancer institute , columbia university , johns hopkins medical institute , vanderbilt university , university of texas southwestern medical center , and georgetown university and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our target-selector commercialized assays and our planned future assays , as well as for our current and planned future products . such relationships help us develop and validate the effectiveness and utility of our products , commercialized assays and our planned future assays in specific , clinical settings and provide us access to patient samples and data . we believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition . revenues the company 's commercial revenues are generated from diagnostic services provided to patient 's physicians and billed to third-party insurance payers such as managed care organizations , medicare and medicaid and patients for any deductibles , coinsurance or copayments that may be due . the company recognizes revenue in accordance with asc 606 , revenue from contracts with customers , or asc 606 , which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . we bill third-party payers on a fee-for-service basis at our list price and third-party commercial revenue is recorded net of contractual discounts , payer-specific allowances and other reserves . our development services revenues are supported by contractual agreements and generated from assay development services provided to entities , as well as certain other 74 diagnostic services provided to physicians . diagnostic services are completed upon the delivery of assay results to the prescribing physician , at which time we bill for the service . our gross commercial revenues billed are subject to estimated deductions for such contractual discounts , payer-specific allowances and other reserves to arrive at reported net revenues , which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected . these third-party payer discounts and sales allowances are estimated based on a number of assumptions and factors , including historical payment trends , seasonality associated with the annual reset of patient deductible limits on january 1 of each year , and current and estimated future payments . the estimates of amounts that will ultimately be realized from commercial diagnostic services require significant judgment by us . patients do not enter into direct agreements with us that commit them to pay any portion of the cost of the tests in the event that they have not met their annual deductible limit under their insurance policy , if any , or if their insurance otherwise declines to reimburse us . adjustments to the estimated payment amounts are recorded at the time of final collection and settlement of each transaction as an adjustment to commercial revenue . costs and expenses we classify our costs and expenses into four categories : cost of revenues , research and development , sales and marketing , and general and administrative . our costs and expenses principally consist of facility costs and overhead , personnel costs , outside services and consulting costs , laboratory consumables , development costs , and legal fees . cost of revenues . story_separator_special_tag our cost of revenues consists principally of facility costs and overhead , personnel costs , and laboratory and manufacturing supplies and materials . we are pursuing various strategies to reduce and control our cost of revenues , including automating aspects of our processes , developing more efficient technology and methods , and attempting to negotiate improved terms and volume discounts with our suppliers . research and development expenses . we incur research and development expenses principally in connection with our efforts to develop and improve our tests . our primary research and development expenses consist of direct personnel costs , laboratory equipment and consumables , and overhead expenses . we anticipate that research and development expenses will remain consistent in the near-term , principally to develop and validate tests in our pipeline and to perform work associated with clinical utility studies and development collaborations . in addition , we expect that our costs related to collaborations with research and academic institutions will increase . all research and development expenses are charged to operations in the periods in which they are incurred . sales and marketing expenses . our sales and marketing expenses consist principally of personnel and related overhead costs for our sales team and their support personnel , travel and entertainment expenses , and other selling costs including sales collaterals and trade shows . we anticipate sales and marketing expenses to increase as we work on generating higher revenues and marketing additional offerings . general and administrative expenses . general and administrative expenses consist principally of personnel-related expenses , professional fees , such as legal , accounting and business consultants , insurance costs , and other general expenses . we expect that our general and administrative expenses will increase as we expand our business operations . we further expect that general and administrative expenses will increase due to increased information technology , legal , insurance , accounting and financial reporting expenses associated with expanded commercial activities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates based on historical experience and make various assumptions , which management believes to be reasonable under the circumstances , which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 75 the notes to our audited financial statements , which are included elsewhere in this annual report , contain a summary of our significant accounting policies . we consider the following accounting policies critical to the understanding of the results of our operations : revenue recognition ; stock-based compensation ; and going concern . revenue recognition and related reserves our commercial revenues are generated from diagnostic services provided to patient 's physicians and billed to third-party insurance payers such as managed care organizations , medicare and medicaid and patients for any deductibles , coinsurance or copayments that may be due . we recognize revenue in accordance with asc 606 , revenue from contracts with customers , or asc 606 , which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . contracts for our commercial revenues , while we market directly to physicians , our customer is the patient . patients do not enter into direct agreements with us , however , a patient 's insurance coverage requirements would dictate whether or not any portion of the cost of the tests would be patient responsibility . accordingly , we establish a contract with a commercial patient in accordance with other customary business practices , as follows : approval of a contract is established via the order and accession , which are submitted by the patient 's physician . we are obligated to perform our diagnostic services upon receipt of a sample from a physician , and the patient and or applicable payer are obligated to reimburse us for services rendered based on the patient 's insurance benefits . payment terms are a function of a patient 's existing insurance benefits , including the impact of coverage decisions with cms and applicable reimbursement contracts established between us and payers , unless the patient is a self-pay patient , whereby we bill the patient directly after the services are provided . once we deliver a patient 's assay result to the ordering physician , the contract with a patient has commercial substance , as we are legally able to collect payment and bill an insurer and or patient , regardless of payer contract status or patient insurance benefit status . consideration associated with commercial revenues is considered variable and constrained until fully adjudicated , with net revenues recorded to the extent that it is probable that a significant reversal will not occur . our development services revenues are supported by contractual agreements and generated from assay development services provided to entities , as well as certain other diagnostic services provided to physicians , and revenues are recognized upon delivery of the performance obligations in the contract . performance obligations a performance obligation is a promise in a contract to transfer a distinct good or service , or a bundle of goods or services , to the customer .
| the decrease in net estimated revenue per commercial accession delivered as compared to the prior year is primarily the result of lower net revenue per accession delivered from the portion of our accession volume related to our rt-pcr covid-19 testing and a reduced number of biomarkers reported for each oncology case . total accessions received for the year ended december 31 , 2020 were 200,326 , inclusive of 199,268 commercial accessions . the following table sets forth certain information regarding commercial accessions delivered during the years ended december 31 , 2019 and 2020 , as follows : replace_table_token_4_th * ( 1 ) not meaningful due to covid-19 volume . additionally , overall development revenues stayed relatively flat as compared to the same period in the prior year . the net revenue per development services accession increased primarily due to the higher number of biomarkers ordered during the current period as compared to the same period in the prior year , partially offset by a lower number of development services accessions delivered as follows : replace_table_token_5_th costs and expenses cost of revenues . cost of revenues was approximately $ 21,337,000 for the year ended december 31 , 2020 , compared with approximately $ 10,978,000 for the year ended december 31 , 2019 , representing an increase of $ 10,359,000 , or 94 % primarily resulting from increased revenues related to our rt-pcr covid-19 testing business . as we continue to leverage the fixed components of our costs , our cost of revenues as a percentage of net revenues decreased by approximately 120.8 % for the year ended december 31 , 2020 as compared to the same period in the prior year . cost of revenues are comprised of , but not limited to , expenses related to personnel costs , materials , shipping and other direct costs , as well as equipment depreciation and software amortization expenses . research and development expenses . research and development expenses were approximately $ 5,220,000 for the year ended december 31 , 2020 , compared with approximately $ 4,697,000 for the year
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operating income-distribution distribution operating income was $ 11.5 million in 2020 and operating income margin was 3.5 percent . distribution operating income was $ 3.6 million in 2019 and operating income margin was 1.2 percent . operating income and operating income margin increased in distribution due to higher sales volumes . operating income-eliminations/other operating income-eliminations/other is composed primarily of inter-segment sales and profit eliminations and unallocated general and administrative expenses . the inter-segment profit elimination impact in 2020 increased operating loss about $ 0.2 million . the inter-segment elimination of operating income effectively defers the operating income on sales from water systems to distribution in the consolidated financial results until the transferred product is sold from the distribution segment to its third-party customer . unallocated general and administrative expenses were higher by $ 3.3 million or about 6 percent to last year , primarily due to higher variable performance-based compensation expenses . interest expense interest expense for 2020 and 2019 was $ 4.6 million and $ 8.2 million , respectively , and decreased primarily as a result of lower debt levels . other income or expense other income or expense was a loss of $ 0.8 million and $ 0.4 million , respectively in 2020 and 2019. foreign exchange foreign currency–based transactions produced a loss for 2020 of $ 1.4 million , primarily due to changes in the value of the argentinian peso relative to the u.s. dollar . foreign currency–based transactions produced a loss for 2019 of $ 1.6 million , primarily due to changes in the value of the argentinian peso relative to the u.s. dollar . income taxes the provision for income taxes in 2020 and 2019 was $ 22.5 million and $ 20.8 million , respectively . the effective tax rate for 2020 was about 18 percent and before the impact of discrete events was about 21 percent . the effective tax rate for 2019 was about 18 percent and before the impact of discrete events was about 20 percent . the tax rate was lower than the statutory rate of 21 percent primarily due to foreign earnings taxed at lower statutory rates , as well as recognition of the u.s. deduction for foreign derived intangible income , and certain incentives and discrete events . discrete events in 2020 include a benefit related to a realized foreign currency translation loss on the settlement of an intercompany loan . net income net income for 2020 was $ 101.2 million compared to 2019 net income of $ 96.0 million . net income attributable to franklin electric co. , inc. for 2020 was $ 100.5 million , or $ 2.14 per diluted share , compared to 2019 net income attributable to franklin electric co. , inc. of $ 95.5 million or $ 2.03 per diluted share . capital resources and liquidity sources of liquidity the company 's primary sources of liquidity are cash on hand , cash flows from operations , revolving credit agreements , and long-term debt funds available . the company believes its capital resources and liquidity position at december 31 , 2020 is adequate to meet projected needs for the foreseeable future . the company expects that ongoing requirements for operations , capital expenditures , pension obligations , dividends , share repurchases , and debt service will be adequately funded from cash on hand , operations , and existing credit agreements . 16 as of december 31 , 2020 , the company had a $ 300.0 million revolving credit facility . the facility is scheduled to mature on october 28 , 2021. as of december 31 , 2020 , the company had $ 295.9 million borrowing capacity under the credit agreement as $ 4.1 million in letters of commercial and standby letters of credit were outstanding and undrawn . no revolver borrowings were outstanding as of the end of the year . in addition , the company maintains an uncommitted and unsecured private shelf agreement with nyl investors llc , an affiliate of new york life , and each of the undersigned holders of notes ( the `` new york life agreement '' ) with a remaining borrowing capacity of $ 125.0 million as of december 31 , 2020. the new york life agreement matures on september 26 , 2025. the company also has other long-term debt borrowings outstanding as of december 31 , 2020. see note 10 - debt for additional specifics regarding these obligations and future maturities . at december 31 , 2020 , the company had $ 75 million of cash and cash equivalents held in foreign jurisdictions , which the company intends to use to fund foreign operations . there is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions . cash flows the following table summarizes significant sources and uses of cash and cash equivalents : replace_table_token_7_th cash flows from operating activities 2020 vs 2019 net cash provided by operating activities was $ 211.9 million for 2020 compared to $ 177.7 million for 2019. the increase in cash provided by operating activities was primarily due to increased earnings and a decrease of $ 30.6 million in working capital requirements related to improved customer collections and inventory management and more favorable payment terms with vendors . cash flows from investing activities 2020 vs. 2019 net cash used in investing activities was $ 78.8 million in 2020 compared to $ 41.8 million in 2019. the increase was primarily attributable to increased acquisition activity . cash flows from financing activities 2020 vs. 2019 net cash used in financing activities was $ 66.6 million in 2020 compared to $ 126.7 million in 2019. the decrease in cash used in financing activities was primarily attributable to a decrease in net debt repayments , down approximately $ 70 million in the current year . story_separator_special_tag other uses of cash in financing activities include an increase in dividend payments of $ 2.0 million and an increase in common stock repurchases of $ 8.8 million . 17 aggregate contractual obligations the majority of the company 's contractual obligations to third parties relate to debt obligations . in addition , the company has certain contractual obligations for future lease payments and purchase obligations . the payment schedule for these contractual obligations is as follows : replace_table_token_8_th the company has pension and other post-retirement benefit obligations not included in the table above which will result in estimated future payments of approximately $ 1 million in 2021. the company also has unrecognized tax benefits , none of which are included in the table above . the unrecognized tax benefits of approximately $ 0.6 million have been recorded as liabilities and the company is uncertain as to if or when such amounts may be settled . related to the unrecognized tax benefits , the company has also recorded a liability for potential penalties and interest of $ 0.1 million . accounting pronouncements for information regarding recent accounting pronouncements , refer to note 2 - accounting pronouncements , in the notes to consolidated financial statements in the sections entitled `` '' adoption of new accounting standards '' and `` accounting standards issued but not yet adopted '' , included in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k. critical accounting estimates management 's discussion and analysis of its financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and the related disclosure of contingent assets and liabilities . management evaluates estimates on an ongoing basis . estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . there were no material changes to estimates or methodologies used to develop those estimates in 2020. the company 's critical accounting estimates are identified below : inventory valuation the company uses certain estimates and judgments to value inventory . inventory is recorded at the lower of cost or market . the company reviews its inventories for excess or obsolete products or components . based on an analysis of historical usage , management 's evaluation of estimated future demand , market conditions , and alternative uses for possible excess or obsolete parts , carrying values are adjusted . the carrying value is reduced regularly to reflect the age and current anticipated product demand . if actual demand differs from the estimates , additional reductions would be necessary in the period such determination is made . excess and obsolete inventory is periodically disposed of through sale to third parties , scrapping , or other means . business combinations the company follows the guidance under fasb accounting standards codification ( “ asc ” ) topic 805 , business combinations . the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . the company shall report in its financial statements provisional amounts for the items for which accounting is incomplete . goodwill is adjusted for any changes to provisional amounts made within the measurement period . the company utilizes management estimates and an independent third-party valuation firm to assist in determining the fair values of assets acquired and liabilities assumed . such estimates and valuations require the company to make significant assumptions , including projections of future events and operating performance . the company has not made any material changes to the method of valuing fair values of assets acquired and liabilities assumed during the last three years . 18 trade names and goodwill according to fasb asc topic 350 , intangibles - goodwill and other , intangible assets with indefinite lives must be tested for impairment at least annually or more frequently as warranted by triggering events that indicate potential impairment . the company uses a variety of methodologies in conducting impairment assessments including income and market approaches . for indefinite-lived assets apart from goodwill , primarily trade names for the company , if the fair value is less than the carrying amount , an impairment charge is recognized in an amount equal to that excess . the company has not made any material changes to the method of evaluating impairments during the last three years . in compliance with fasb asc topic 350 , goodwill is not amortized . goodwill is tested at the reporting unit level for impairment annually or more frequently as warranted by triggering events that indicate potential impairment . reporting units are operating segments or one level below , known as components , which can be aggregated for testing purposes . the company 's goodwill is allocated to the global water systems , fueling systems and distribution units . as the company 's business model evolves , management will continue to evaluate its reporting units and review the aggregation criteria . in assessing the recoverability of goodwill , the company determines the fair value of its reporting units by utilizing a combination of both the market value and income approaches . the market value approach compares the reporting units ' current and projected financial results to entities of similar size and industry to determine the market value of the reporting unit .
| sales growth in latin america and emena were partially offset by lower sales in the asia pacific markets . net sales-fueling systems fueling systems sales were $ 245.1 million in 2020 , a decrease of $ 48.5 million or about 17 percent from 2019. foreign currency translation changes increased sales $ 0.4 million or less than 1 percent compared to sales in 2019. the fueling systems sales change in 2020 , excluding foreign currency translation , was a decrease of $ 48.9 million or about 17 percent . fueling systems sales in the u.s. and canada declined by about 9 percent during 2020. the decrease was in all product lines and due to declining demand for new filling stations . internationally , fueling systems revenues declined by about 28 percent , driven by lower sales in asia pacific , primarily china and india . china sales were about $ 18 million in 2020 compared to 2019 fueling systems china sales of about $ 45 million . net sales-distribution distribution sales were $ 328.4 million in 2020 , versus 2019 sales of $ 291.8 million . distribution segment organic sales increased about 13 percent compared to 2019. more favorable weather conditions in most of the united states versus the prior year contributed to the revenue growth . cost of sales cost of sales as a percent of net sales for 2020 and 2019 was 65.3 percent and 67.4 percent , respectively . correspondingly , the gross profit margin was 34.7 percent and 32.6 percent , respectively . the company 's consolidated gross profit was $ 433.1 million for 2020 , up $ 5.0 million from the gross profit of $ 428.1 million in 2019. the increase in gross profit and gross profit margin was primarily driven by price realization , product sales mix and cost management . selling , general and administrative ( “ sg & a ” ) selling , general , and administrative expenses were $ 300.1 million in 2020 and increased
| 10,812 |
the company determines whether tpe exists by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers . however , due to the difficulty in obtaining third party pricing , possible differences in the company 's market strategy from that of its peers and the potential that products and services offered by the company may contain a significant level of differentiation and or customization such that the comparable pricing of products with similar functionality can not be obtained , the company generally is unable to reliably determine tpe . based on the selling price hierarchy established by asu 2009-13 , when the company is unable to establish selling price using vsoe or tpe , the company will establish an esp . esp is the price at which the company would transact a sale if the product or service were sold on a stand-alone basis . the company establishes its best estimate of esp considering internal factors relevant to its pricing practices such as costs and margin objectives , standalone sales prices of similar products , percentage of the fee charged for a primary product or service relative to a related product or service , and customer segment and geography . additional consideration is also given to market conditions such as competitor pricing strategies and market trend . the company reviews its determination of vsoe , tpe and esp on an annual basis or more frequently as needed . in the mis segment , revenue attributed to initial ratings of issued securities is recognized when the rating is issued . revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed , generally one year . in the case of commercial mortgage-backed securities , structured credit , international residential mortgage-backed and asset-backed securities , issuers can elect to pay all future monitoring fees upfront . these fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities , which was approximately 27 years on a weighted average basis at december 31 , 2015. at december 31 , 2015 , 2014 and 2013 , deferred revenue related to these securities was approximately $ 121 million , $ 107 million and $ 97 million , respectively . multiple element revenue arrangements in the mis segment are generally comprised of an initial rating and the related monitoring service . in instances where monitoring fees are not charged for the first year monitoring effort , fees are allocated to the initial rating and monitoring services based on the relative selling price of each service to the total arrangement fees . the company generally uses esp in determining the selling price for its initial ratings as the company rarely sells initial ratings separately without providing related monitoring services and thus is unable to establish vsoe or tpe for initial ratings . mis estimates revenue for ratings of commercial paper for which , in addition to a fixed annual monitoring fee , issuers are billed quarterly based on amounts outstanding . revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available . the estimate is determined based on the issuers ' most recent reported quarterly data . at december 31 , 2015 , 2014 and 2013 , accounts receivable included approximately $ 24 million , $ 22 million and $ 21 million , respectively , related to accrued commercial paper revenue . historically , mis has not had material differences between the estimated revenue and the actual billings . furthermore , for certain annual monitoring services , fees are not invoiced until the end of the monitoring period , however , revenue is recognized ratably over the monitoring period . at december 31 , 2015 , 2014 and 2013 , accounts receivable included approximately $ 146.4 million , $ 127.8 million and $ 96.7 million , respectively , relating to accrued monitoring service revenue . in the ma segment , products and services offered by the company include software licenses and related maintenance , subscriptions , and professional services . revenue from subscription based products , such as research and data subscriptions and certain software-based credit risk management subscription products , is recognized ratably over the related subscription period , which is principally one year . revenue from sale of perpetual licenses of credit processing software is generally recognized at the time the product master or first copy is delivered or transferred to and accepted by the customer . software maintenance revenue is recognized ratably over the annual maintenance period . revenue from professional services rendered is generally recognized as the services are performed . if uncertainty exists regarding customer acceptance of the product or service , revenue is not recognized until acceptance occurs . a large portion of annual research and data subscriptions as well as annual software maintenance is invoiced in november , december and january of each year . products and services offered within the ma segment are sold either stand-alone or together in various combinations . in instances where a multiple element arrangement includes software and non-software deliverables , revenue is allocated to the non-software deliverables and to the software deliverables , as a group , using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy . revenue is recognized for each element based upon the conditions for revenue recognition previously described . if the arrangement contains more than one software deliverable , the arrangement consideration allocated to the software deliverables as a group is allocated to each software deliverable using vsoe . in the instances where the company is not able to determine vsoe for all of the deliverables of an arrangement , the company allocates the revenue to the undelivered elements equal to its vsoe and the residual revenue to the delivered elements . story_separator_special_tag if the company is unable to determine vsoe for an undelivered element , the company defers all revenue allocated to the software deliverables until the company has delivered all of the elements or when vsoe has been determined for the undelivered elements . in cases where software implementation services are considered essential and vsoe of fair moody 's 2015 10k 29 value exists for post-contract customer support ( pcs ) , once the delivery criteria have been met on the standard software , license and service revenue is recognized on a percentage-of-completion basis as implementation services are performed , while pcs is recognized over the coverage period . if vsoe of fair value does not exist for pcs , once the delivery criteria have been met on the standard software , service revenue is recognized on a zero profit margin basis until essential services are complete , at which point total remaining arrangement revenue is then spread ratably over the remaining pcs coverage period . if vsoe does not exist for pcs at the beginning of an arrangement but is established during implementation , revenue not recognized due to the absence of vsoe will be recognized on a cumulative basis . accounts receivable allowance moody 's records an allowance for estimated future adjustments to customer billings as a reduction of revenue , based on historical experience and current conditions . such amounts are reflected as additions to the accounts receivable allowance . additionally , estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance . actual billing adjustments and uncollectible account write-offs are charged against the allowance . moody 's evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current aging status of customer accounts . moody 's also considers the economic environment of the customers , both from an industry and geographic perspective , in evaluating the need for allowances . based on its analysis , moody 's adjusts its allowance as considered appropriate in the circumstances . this process involves a high degree of judgment and estimation and could involve significant dollar amounts . accordingly , moody 's results of operations can be affected by adjustments to the allowance . management believes that the allowance for uncollectible accounts receivable is adequate to cover anticipated adjustments and write-offs under current conditions . however , significant changes in any of the above factors , or actual write-offs or adjustments that differ from the estimated amounts could impact the company 's consolidated results of operations . contingencies accounting for contingencies , including those matters described in note 18 to the consolidated financial statements , is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome . in many cases , the outcomes of such matters will be determined by third parties , including governmental or judicial bodies . the provisions made in the consolidated financial statements , as well as the related disclosures , represent management 's best estimates of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate . the company regularly reviews contingencies and as new information becomes available may , in the future , adjust its associated liabilities . for claims , litigation and proceedings and governmental investigations and inquiries not related to income taxes , where it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated , the company records liabilities in the consolidated financial statements and periodically adjusts these as appropriate . when the reasonable estimate of the loss is within a range of amounts , the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range . in other instances , because of uncertainties related to the probable outcome and or the amount or range of loss , management does not record a liability but discloses the contingency if significant . as additional information becomes available , the company adjusts its assessments and estimates of such matters accordingly . in view of the inherent difficulty of predicting the outcome of litigation , regulatory , governmental investigations and inquiries , enforcement and similar matters and contingencies , particularly where the claimants seek large or indeterminate damages or where the parties assert novel legal theories or the matters involve a large number of parties , the company can not predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters . the company also can not predict the impact ( if any ) that any such matters may have on how its business is conducted , on its competitive position or on its financial position , results of operations or cash flows . as the process to resolve any pending matters progresses , management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects , if any , on its operations and financial condition . however , in light of the large or indeterminate damages sought in some of them , the absence of similar court rulings on the theories of law asserted and uncertainties regarding apportionment of any potential damages , an estimate of the range of possible losses can not be made at this time . the company 's wholly-owned insurance subsidiary insures the company against certain risks including but not limited to deductibles for worker 's compensation , employment practices litigation , employee medical claims and terrorism , for which the claims are not material to the company . in addition , for claim years 2008 and 2009 , the insurance subsidiary insured the company for defense costs related to professional liability claims .
| global cfg revenue of $ 1,112.7 million in 2015 was flat compared to 2014. excluding unfavorable changes in fx translation rates , revenue grew 4 % over the prior year primarily due to the benefits from changes in the mix of fee type , new fee initiatives and certain pricing increases , primarily in the u.s. as well as higher rated issuance volumes for investment-grade corporate debt in the u.s. the growth in rated issuance volumes for investment-grade corporate debt , which was more pronounced in the first half of 2015 , reflects an increase in m & a activity and continued favorable market conditions for much of the year . additionally , revenue from the icra acquisition and higher monitoring fees reflecting growth in the number of outstanding rated issuances contributed to the increase over the prior year . these increases were partially offset by a decline in bank loan issuance in the u.s. and emea as banks reduced supply to adhere more closely to the u.s. shared national credit program regarding highly leveraged transactions . the increases were also partially offset by declines in high-yield corporate debt across all non-u.s. regions reflecting widening credit spreads in this sector resulting from weak commodity prices coupled with current macroeconomic uncertainties in emerging markets . additionally , there was an approximate $ 41 million unfavorable impact from changes in fx translation rates compared to the prior year . transaction revenue represented 69 % of total cfg revenue in 2015 , compared to 70 % in the prior year period . in the u.s. , revenue in 2015 was $ 752.9 million , or $ 65.6 million higher than the prior year . internationally , revenue of $ 359.8 million in the 2015 decreased $ 62.2 million compared to the prior year . global sfg revenue of $ 449.1 million in 2015 increased $ 22.6 million , or 5 % , compared to 2014. excluding the unfavorable impact of fx translation rates , sfg revenue grew 10 % reflecting an increase in u.s. cmbs
| 10,813 |
higher fiber costs could affect producer profit margins if they are unable to pass along price increases to pulp customers or purchasers of surplus energy . generally weak lumber markets for most of 2012 resulted in reduced sawmill activity and log harvesting in the regional fiber baskets for our mills . in 2013 , the lumber markets improved globally which had the effect of increasing supply of chips and increased demand for saw logs and higher quality pulp logs , which put upward pressure on log pricing . additionally , higher energy prices and a focus on green or renewable energy , while benefiting our surplus power sales , led to an overall increase in demand for wood residuals in germany from other renewable energy producers such as pellet producers . this increased demand and competition for fiber put upward pressure on fiber prices . a recovery in u.s. housing starts which commenced in the latter part of 2012 and continued in 2013 and 2014 resulted in increased sawmill activity . this increased the supply of wood chips for the celgar mill and reduced its need for pulp logs , which are generally a higher cost for the mill than wood chips . wood chip supply in germany was stable during the course of 2014 due to stable sawmill production and lower demand from pellet producers and board manufacturers resulting from lower energy prices and warmer winter weather . production costs also depend on the total volume of production . high operating rates and production efficiencies permit us to lower our average cost by spreading fixed costs over more units . higher operating rates also permit us to increase our generation and sales of surplus renewable energy and chemicals . our production levels are also dependent on , among other things , the number of days of scheduled and unscheduled downtime at our mills . in 2014 , 2013 and 2012 , we had 24 , 33 and 40 days of scheduled maintenance downtime , respectively . going forward in 2015 , we have scheduled maintenance downtime of 36 days , or approximately 50,200 admts . unexpected maintenance downtime , which has not materially affected us during any of the periods described in this discussion , can be particularly disruptive in our industry . our product mix is also important because premium grades of nbsk pulp generally achieve higher prices and profit margins . our financial performance for any reporting period is impacted by changes in the u.s. dollar to euro and canadian dollar exchange rates . changes in currency rates affect our operating results because most of our operating costs at our german mills are incurred in euros . most of our operating costs at the celgar mill are in canadian dollars . these costs do not fluctuate with the u.s. dollar to euro or canadian dollar exchange rates . thus , an increase in the strength of the u.s. dollar versus the euro and the canadian dollar decreases our operating costs and increases our operating margins and income from operations . conversely , a weakening of the 55 u.s. dollar against the euro and the canadian dollar tends to increase our operating costs and decrease our operating margins and income from operations . our energy and chemical sales are made in local currencies and , as a result , decline in u.s. dollar terms when the u.s. dollar strengthens and increase when the u.s. dollar weakens . on average , in 2013 , the u.s. dollar declined by approximately 3 % and increased by approximately 3 % , respectively , versus the euro and the canadian dollar compared to 2012. based upon the exchange rate at the end of 2014 , the u.s. dollar strengthened by approximately 12 % and 8 % in value against the euro and the canadian dollar , respectively , since the end of 2013. we also periodically enter into interest rate , foreign currency , pulp price and energy price derivative contracts to partially protect against the effect of such changes . gains or losses on such derivatives are included in our earnings , either as they are settled or as they are marked to market for each reporting period . stendal entered into the stendal interest rate swap contract in august 2002 to fix the interest rate on indebtedness during the full term of the prior stendal loan facility . the stendal interest rate swap contract remains in place after the prior stendal loan facility was repaid . changes in long-term interest rates result in our recording unrealized non-cash gains or losses on the stendal interest rate swap contract when it is marked to market on a quarterly basis . such non-realized gains or losses can materially impact our operating results for any reporting period . see quantitative and qualitative disclosures about market risk . we do not believe that inflation has had a material impact on revenues or income during 2014. significant actions in 2014 , we took the following significant actions : in april 2014 , we completed our registered public offering of 8,050,000 shares of our common stock for net proceeds of approximately $ 53.9 million ; in september 2014 , we amended and restated the prior stendal facilities to provide stendal with greater financial flexibility , recapitalized our stendal mill and acquired substantially all of the prior minority shareholder 's interest and certain other rights to acquire all of the economic interest in stendal and eliminate the minority interest in our stendal mill ; in the fourth quarter of 2014 , we amended the celgar working capital facility to , among other things , extend its term and reduce its borrowing cost ; in the fourth quarter of 2014 , we paid out and discharged our 2017 senior notes and the prior stendal facilities through the issuance of the 2019 and 2022 senior notes , cash on hand and borrowings under our revolving credit facilities and we established the new stendal revolving credit facility , referred to herein as the refinancing ; we reduced our debt by over story_separator_special_tag $ 290.0 million , increased our total equity by over $ 90.0 million and , as a result , improved our balance sheet ; we significantly increased our financial and operational flexibility and simplified our structure by eliminating restrictive covenants within the prior stendal facilities , reducing our debt , extending the maturity of our long-term debt , enhancing the terms of our revolving credit facilities and eliminating our restricted group structure ; 56 we had record pulp production , pulp sales volumes and energy sales volumes ; we implemented a tall oil plant at the rosenthal mill and a chip screening project at the celgar mill ; and we continued to improve mill operations and efficiencies , which allowed us to achieve record annual pulp production and energy generation . current market environment demand from china was stable throughout the year and supply was slightly under-balanced , which resulted in higher prices in 2014 compared to 2013. at year end , world producer inventories of nbsk pulp were at about 31 days ' supply . in addition , we expect to see continued growth in nbsk demand in emerging markets , particularly in china , driven by increasing strong demand from tissue producers . as our operating costs are primarily incurred in euros and canadian dollars and our principal product , nbsk pulp , is quoted in u.s. dollars , our business and operating margins materially benefit from the current strengthening of the u.s. dollar . going forward , while we continue to benefit from a stronger u.s. dollar , it will partially be offset as in 2015 the rapid strengthening of the u.s. dollar has put downward pressure on pulp prices , as a stronger u.s. dollar increases costs to our european and asian customers . story_separator_special_tag deferred income tax benefit of $ 22.0 million . in 2013 , the net loss attributable to common shareholders was $ 26.4 million , or $ 0.47 per basic and diluted share , which included a net gain of $ 19.7 million on the stendal interest rate derivative and fixed price pulp swaps and a deferred tax provision of $ 11.5 million . in 2014 , operating ebitda increased by 117 % to $ 239.8 million from $ 110.3 million in 2013 , primarily as a result of higher pulp prices , lower per unit fiber costs , the strengthening of the u.s. dollar versus the euro and canadian dollar and higher energy sales volumes . operating ebitda is defined as operating income ( loss ) plus depreciation and amortization and non-recurring capital asset impairment charges . we use operating ebitda as a benchmark measurement of our own operating results , and as a benchmark relative to our competitors . we consider it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not actual cash costs , and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities . in addition , we believe operating ebitda is commonly used by securities analysts , investors and other interested parties to evaluate our financial performance . 59 operating ebitda does not reflect the impact of a number of items that affect our net income ( loss ) attributable to common shareholders , including financing costs and the effect of derivative instruments . operating ebitda is not a measure of financial performance under the accounting principles generally accepted in the united states of america , referred to as gaap , and should not be considered as an alternative to net income ( loss ) or income ( loss ) from operations as a measure of performance , nor as an alternative to net cash from operating activities as a measure of liquidity . operating ebitda has significant limitations as an analytical tool , and should not be considered in isolation , or as a substitute for analysis of our results as reported under gaap . some of these limitations are that operating ebitda does not reflect : ( i ) our cash expenditures , or future requirements , for capital expenditures or contractual commitments ; ( ii ) changes in , or cash requirements for , working capital needs ; ( iii ) the significant interest expense , or the cash requirements necessary to service interest or principal payments , on our outstanding debt ; ( iv ) noncontrolling interests in our stendal nbsk pulp mill operations prior to our acquisition of 100 % of the economic interest of stendal in september 2014 ; ( v ) the impact of realized or marked to market changes in our derivative positions , which can be substantial ; and ( vi ) the impact of impairment charges against our investments or assets . because of these limitations , operating ebitda should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business . see the statement of cash flows set out in our consolidated financial statements included herein . because all companies do not calculate operating ebitda in the same manner , operating ebitda as calculated by us may differ from operating ebitda or ebitda as calculated by other companies . we compensate for these limitations by using operating ebitda as a supplemental measure of our performance and by relying primarily on our gaap financial statements . the following table provides a reconciliation of net income ( loss ) attributable to common shareholders to operating income and operating ebitda for the periods indicated : replace_table_token_15_th year ended december 31 , 2013 compared to year ended december 31 , 2012 in 2013 , pulp revenues increased by approximately 2 % to $ 996.2 million from $ 979.8 million in 2012 , primarily due to higher average pulp sales realizations , partially offset by lower sales volume .
| energy and chemical revenues increased by approximately 10 % to $ 101.5 million in 2014 from $ 92.2 million in 2013 , primarily because of record energy sales volumes resulting from project blue mill coming online at our stendal mill at the end of 2013. pulp production increased by approximately 3 % to 1,485,011 admts in 2014 from 1,444,475 admts in 2013. we had an aggregate of 24 days ( approximately 31,600 admts ) of scheduled maintenance downtime at our mills in 2014 , compared to 33 days in 2013. during 2014 , our celgar mill took ten days of scheduled maintenance downtime , or approximately 14,000 admts , our stendal mill took four days of scheduled maintenance downtime , or approximately 7,500 admts , and our rosenthal mill took ten days of scheduled maintenance downtime , or approximately 10,100 admts . pulp sales volumes increased by approximately 3 % to 1,486,356 admts in 2014 from 1,440,147 admts in 2013 , primarily due to generally steady demand throughout 2014. average list prices for nbsk pulp in europe were approximately $ 928 per admt in 2014 , compared to approximately $ 864 per admt in 2013. average pulp sales realizations increased by approximately 5 % to $ 715 per admt in 2014 from approximately $ 683 per admt last year , primarily due to higher list prices . costs and expenses in 2014 decreased by approximately 4 % to $ 1,013.3 million from $ 1,056.7 million in 2013 , primarily due to lower per unit fiber costs and the overall impact on costs of the stronger u.s. dollar . in 2014 , operating depreciation and amortization marginally decreased to $ 77.7 million from $ 78.3 million in 2013. selling , general and administrative expenses decreased to $ 47.9 million from $ 51.2 million in 2013 . 58 transportation costs decreased to $ 88.6 million in 2014 from $ 90.0 million in 2013. on average , our overall per unit fiber costs in 2014 decreased by approximately 7 % from 2013 , primarily as a result of lower average fiber costs in the markets from which our mills source their fiber and the strengthening of the u.s. dollar versus the canadian dollar . our per unit fiber costs for our celgar mill decreased during 2014 compared to last year due to strong sawmill activity in the region . our per unit fiber costs at our german mills declined due to sawmills running at high rates , a stronger supply of logs and lower demand from pellet producers and board manufacturers . in 2015 , we currently expect our overall per unit fiber costs to be generally
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we exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities , our recognition of revenues and expenses , and our disclosure of commitments and contingencies at the date of the financial statements . on an on-going basis , we evaluate our estimates and judgments . we base our estimates and judgments on a variety of factors , including our historical experience , knowledge of our business and industry and current and expected economic conditions , that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary . while we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies , we can not guarantee that the results will always be accurate . since the determination of these estimates requires the exercise of judgment , actual results could differ from such estimates . a description of significant accounting policies that require us to make estimates and assumptions in the preparation of our consolidated financial statements is as follows : revenue recognition . we recognize revenue in accordance with asc 606 , which became effective as of january 1 , 2018 ( see note 2 and 5 in the form 10-k for impact of adoption and other related disclosures ) . asc 606 requires a five-step approach to determine the appropriate method of revenue recognition for each contractual arrangement : step 1 : identify the contract ( s ) with a customer step 2 : identify the performance obligation ( s ) in the contract step 3 : determine the transaction price step 4 : allocate the transaction price to the performance obligation ( s ) in the contract step 5 : recognize revenue when ( or as ) the entity satisfies a performance obligation we have entered into various license agreements for our owned trademarks . under asc 606 , our agreements are generally considered symbolic licenses , which contain the characteristics of a right-to-access license since the customer is simultaneously receiving the intellectual property ( “ ip ” ) and benefiting from it throughout the license period . we assess each license agreement at inception and determine the performance obligation ( s ) and appropriate revenue recognition method . as part of this process , we apply judgments based on historical trends when estimating future revenues and the period over which to recognize revenue . 24 we generally recognize revenue for license agreements under the following methods : 1. licenses with guaranteed minimum royalties ( “ gmrs ” ) : generally , guaranteed minimum royalty payments ( fixed revenue ) are recognized on a straight-line basis over the term of the contract , as defined in each license agreement . 2. licenses with both gmrs ( fixed revenue ) and earned royalties ( variable revenue ) : earned royalties in excess of fixed revenue are only recognized when we are reasonably certain that the guaranteed minimum payments for the period , as defined in each license agreement , will be exceeded . additionally , we have categorized certain contracts as variable when there is a history and future expectation of exceeding gmrs . we recognize income for these contracts during the period corresponding to the licensee 's sales . 3. licenses that are sales-based only or earned royalties : earned royalties ( variable revenue ) are recognized as income during the period corresponding to the licensee 's sales . payments received as consideration for the grant of a license or advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized into revenue under the methods described above . contract assets represent unbilled receivables and are presented within accounts receivable , net on the consolidated balance sheets . contract liabilities represent unearned revenues and are presented within the current portion of deferred revenue on the consolidated balance sheets . we disaggregate revenue into two categories : licensing agreements and other , which is comprised of revenue from sources such as editorial content for books , television , sales commissions and vendor placement commissions . with respect to editorial content for books , we receive advance payments from our publishers and recognize revenue when manuscripts are delivered to and accepted by the publishers . revenue is also earned from book publishing when sales on a unit basis exceed the advanced royalty . television sponsorship revenues are generally recorded ratably across the period when new episodes initially air . revenue from media content is recognized at a point in time , when the content is delivered and accepted . commission revenues and vendor placement commission revenues are recorded in the period the commission is earned . we entered into a transaction with a media company for which we receive advertising credits as part of the consideration exchanged . these transactions are recorded at the estimated fair value of the advertising credits received , as their fair value is deemed more readily determinable than the fair value of the trademark licensing right provided by us , in accordance with asc 845 , nonmonetary transactions . the fair value of the advertising credits are recorded as revenue and in other assets when earned , and expensed when the advertising credits are utilized . we recorded revenue of $ 3.7 million for each year ended december 31 , 2018 and 2017 related to the advertising credits . we recorded $ 1.3 million of expense related to the advertising credits utilized for the year ended december 31 , 2018. we did not record any expense related to the advertising credits for the year ended december 31 , 2017 as they had not yet been utilized . goodwill and intangible assets . story_separator_special_tag goodwill is tested for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis ( on october 1 st ) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . the company considered its market capitalization and the carrying value of its assets and liabilities , including goodwill , when performing its goodwill impairment test . in evaluating goodwill for impairment , we first assessed qualitative factors to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount . qualitative factors considered included , for example , macroeconomic and industry conditions , overall financial performance , and other relevant entity-specific events . if we bypassed the qualitative assessment , or concluded that it was more likely than not that the fair value of a reporting unit was less than its carrying value , we then performed a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment to be recognized , if any . if the carrying value of the reporting unit 's goodwill exceeded the implied fair value of the goodwill , an impairment loss was recognized in the amount of that excess , not to exceed the carrying amount of goodwill . see 25 note 2 – summary of significant accounting policies in notes to our consolidated financial statements for further information . intangible assets represent trademarks , customer agreements and patents related to our brands and a favorable lease . finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets . indefinite-lived intangible assets are not amortized , but instead are subject to impairment evaluation . the carrying value of intangible assets and other finite-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . indefinite-lived intangible assets are tested for impairment on an annual basis ( on october 1 st ) and between annual tests if an event occurs or circumstances change that indicate that the carrying amount of the indefinite-lived intangible asset may not be recoverable . when conducting our impairment assessment of indefinite-lived intangible assets , we initially perform a qualitative evaluation of whether it is more likely than not that the asset is impaired . if it is determined by a qualitative evaluation that it is more likely than not that the asset is impaired , we then test the asset for recoverability . recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to its future discounted net cash flows . if the carrying amount of such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . assumptions used in our fair value estimates are as follows : ( i ) discount rates ; ( ii ) projected annual revenue growth rates ; and ( iii ) projected long-term growth rates . our estimates also factor in economic conditions and expectations of management which may change in the future based on period-specific facts and circumstances . due to the identification of impairment indicators during the quarter ended september 30 , 2018 , specifically the impairment of certain tradenames due to reduced growth expectations and the impact of licensee transitions for these brands , we performed impairment testing of our indefinite-lived assets at september 30 , 2018 , which replaced our october 1 st annual test . as a result of our testing , we recorded a non-cash impairment charge of $ 17.9 million relating to our indefinite-lived intangible assets during the quarter ended september 30 , 2018. due to the identification of impairment indicators during the quarter ended september 30 , 2017 , specifically the impairment of certain tradenames due to reduced contractual minimums or reduced sales forecasts in key distribution channels , we performed impairment testing of our goodwill and indefinite-lived assets at september 30 , 2017 , which replaced our october 1 st annual test . as a result of our testing , we recorded a non-cash impairment charge of $ 36.5 million relating to our indefinite-lived intangible assets during the quarter ended september 30 , 2017. due to the identification of impairment indicators during the year ended december 31 , 2017 , we performed impairment testing of our goodwill and indefinite-lived assets during the fourth quarter of 2017. as a result of our testing , we recorded a non-cash goodwill impairment charge of $ 304.1 million during the fourth quarter of 2017. income taxes . current income taxes are based on the respective periods ' taxable income for federal , foreign and state income tax reporting purposes . deferred tax liabilities and assets are determined based on the difference between the financial statement and income tax bases of assets and liabilities , using statutory tax rates in effect for the year in which the differences are expected to reverse . in accordance with asu no . 2015‑17 “ balance sheet classification of deferred taxes ” , all deferred income taxes are reported and classified as non-current . a valuation allowance is required if , based on the weight of available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . management considers the scheduled reversal of deferred income tax liabilities , projected future taxable income , and tax planning strategies in making this assessment .
| during the year ended december 31 , 2018 , the company recorded non-cash impairment charges of $ 17.9 million for indefinite-lived intangible assets related to the trademarks of two of the company 's brands : ellen tracy and caribbean joe . fair value for each trademark was determined based on the income approach using estimates of future discounted cash flows . the impairments arose due to reduced growth expectations and the impact of licensee transitions for these brands . during the year ended december 31 , 2017 , we recorded non-cash impairment charges of $ 304.1 million related to our goodwill and $ 36.5 million for indefinite-lived intangible assets related to the trademarks of five of our non-core brands : caribbean joe , revo , franklin mint , nevados , and ful . fair value for each trademark was determined based on estimates of future discounted cash flows . the trademark impairments arose due to reduced contractual minimums or reduced sales forecasts in key distribution channels for these brands . the goodwill impairment was triggered in the fourth quarter of 2017 by the continued decline of our stock price and the related decline in our market capitalization . during the fourth quarter of 2017 , our stock price and market capitalization declined approximately 41 % , consistent with the decline in market capitalization of similar companies in our sector . 28 loss on sale of assets . during the year ended december 31 , 2018 , the company recorded a loss on sale of assets of $ 7.1 million related to the sale of the revo trademark on april 19 , 2018 , recognized during the first quarter of 2018 , and the ful trademark on may 30 , 2018 , recognized during the second quarter of 2018. other expense . other expense during the year ended december 31 , 2018 consists of immaterial items . other expense during the year ended december 31 , 2017 consisted of a
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we financed the acquisition with available cash , the issuance of $ 500 million of 3.30 % ten-year senior notes , and commercial paper borrowings under our cp program . the results of this acquisition are included in our uscis segment and are not material for 2012. we repurchased 1.9 million shares of our common stock on the open market for $ 85.1 million during 2012. business environment and company outlook we expect u.s. mortgage refinancing activity to remain strong through the first half of 2013 but then trend down in the second half of 2013. we also expect a continuation of modest economic growth in most of our served markets . the environment will continue to be challenging as various countries deal with their particular political , fiscal , and economic issues . however , we continue to expect that our ongoing investments in new product innovation , business execution , enterprise growth initiatives , technology infrastructure , strategic acquisitions , and continuous process improvement will enable us , in a modestly growing economy , to deliver long term average organic revenue growth ranging between 6 % and 8 % with additional growth of 1 % to 2 % derived from strategic acquisitions . we also expect to grow earnings per share at a somewhat faster rate than revenue as a result of both operating and financial leverage . in 2013 , we expect total revenue growth from continuing operations of 10 % to 12 % , as the impact of our acquisition of the csc credit services business will more than outweigh the negative impact of the expected decline in u.s. mortgage volumes . 29 results of operations — twelve months ended december 31 , 2012 , 2011 and 2010 consolidated financial results operating revenue replace_table_token_6_th revenue from continuing operations increased by 10 % compared to 2011. the deconsolidation of our brazilian business , which resulted from the merger of our business into a larger entity during the second quarter of 2011 , negatively impacted revenue growth by $ 35.4 million in 2012 , compared to the prior year , while all other revenue increased by 12 % compared to 2011. the growth in 2012 was driven by strong execution of key strategic initiatives and the impact of increased mortgage refinancing activity in the u.s. the effect of foreign exchange rates , in locations other than brazil , reduced revenue by $ 12.5 million in 2012 compared to the prior year . revenue from continuing operations increased by 5 % in 2011 compared to 2010. the deconsolidation of our brazilian business , which resulted from the merger of our business into bvs during the second quarter of 2011 , negatively impacted revenue by $ 48.7 million , compared to the prior year , while all other revenue increased by 8 % compared to 2010 , primarily driven by strong execution of key strategic initiatives across each of our businesses . the favorable effect of foreign exchange rates , in locations other than brazil , did not have a material impact on revenue . 30 operating expenses replace_table_token_7_th cost of services . cost of services from continuing operations increased $ 70.3 million in 2012 compared to the prior year . the increase was due primarily to the impact of increased salary expense , direct production expenses and contract service expenses of $ 79.7 million as well as smaller increases in other expenses to support revenue growth . the increase in expense in 2012 was partially offset by decreases related to the deconsolidation of our brazilian business . the impact of changes in foreign currency exchange rates decreased our cost of services by $ 3.4 million . the slight increase in cost of services from continuing operations in 2011 , when compared to 2010 , was due primarily to the impact of increased salary and benefits expense and contract services expenses of $ 31.1 million , and by the impact of changes in foreign currency exchange rates which increased our cost of services by $ 7.2 million , largely offset by decreases related to the deconsolidation of our brazilian business . selling , general and administrative expenses . the increase in selling , general and administrative expense from continuing operations in 2012 , as compared to 2011 , included a $ 38.7 million non-cash pension settlement charge that occurred in the fourth quarter of 2012. the remaining increase was primarily due to increased salary , incentive , and professional and contractor services expenses of $ 70.2 million as well as higher marketing and other expenses partially offset by decreases in expenses related to the deconsolidation of our brazilian business . the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expense by $ 2.7 million . selling , general and administrative expense from continuing operations increased $ 57.1 million in 2011 compared to 2010. the increase was primarily due to increased salary and incentive expense of $ 33.3 million , higher advertising expenses of $ 9.1 million and higher severance costs offset by decreases in expenses related to the deconsolidation of our brazilian business . the impact of changes in foreign currency exchange rates increased our selling , general and administrative expense by $ 5.2 million in 2011. depreciation and amortization . the slight decrease in depreciation and amortization expense in 2012 , as compared to 2011 , is primarily due to the decline in amortization of certain purchased intangibles acquired as part of the talx acquisition in 2007 which fully amortized during the second quarter of 2011 and the amortization and depreciation decrease resulting from the deconsolidation of our brazilian business . this decrease was partially offset by our two 2011 acquisitions within workforce solutions . story_separator_special_tag depreciation and amortization expense from continuing operations increased in 2011 as compared to 2010 due to $ 6.6 million of incremental depreciation and amortization expense related to our fourth quarter 2010 acquisition of anakam and our 2011 acquisitions partially offset by the decline in amortization of certain purchased intangibles acquired as part of talx in 2007 which fully amortized at the end of the second quarter of 2011 and the amortization and depreciation decrease resulting from the deconsolidation of our brazilian business . 31 operating income and operating margin replace_table_token_8_th in 2012 , operating expenses increased at a slightly faster rate than revenue , and operating income increased at a lower rate than revenue , due to a $ 38.7 million pension settlement recorded during the fourth quarter of 2012 , partially offset by improvements in margins in four of our business segments . the overall operating margin decreased in 2012 compared to the prior year period due primarily to the pension settlement in 2012 which negatively impacted margin by 180 basis points , and by increases in corporate expenses other than the pension settlement , which increased faster than revenues . these negative impacts on operating margin were partially offset by improvements in margins in our uscis , international , workforce solutions and personal solutions businesses , driven by revenue growth . operating income from continuing operations for 2011 increased faster than revenue due to operating leverage from revenue growth and business mix as well as the deconsolidation of brazil , which reduced reported revenue , but which had little impact on operating profit because it had been operating near break-even . these factors resulted in operating margin improvement of 90 basis points to 24.0 % compared to 2010. other expense , net replace_table_token_9_th nm - not meaningful interest expense increased slightly in 2012 , when compared to the same period in 2011 , due to the issuance of $ 500 million of 3.30 % ten-year senior notes in december 2012. our consolidated debt balance has increased at december 31 , 2012 , as a result of the issuance of $ 500 million of 3.30 % senior notes and additional borrowings in the form of commercial paper to fund the acquisition of csc credit services . the decrease in the average cost of debt for 2012 is due to the issuance of the $ 500 million senior notes at a lower interest rate and additional low rate commercial paper outstanding on average year to date which caused the average cost of debt to decrease as compared to the prior year period . interest expense decreased slightly in 2011 , when compared to the same period in 2010 , due to lower average debt balances outstanding for 2011 as compared to 2010. our consolidated debt balance increased at december 31 , 2011 , as a result of additional borrowings in the form of commercial paper , on which interest rates and accordingly interest expense were very low . the increase in the average cost of debt for 2011 is due to less low rate commercial paper outstanding on average throughout the year which caused the average cost of debt to increase as compared to the prior year period . other expense ( income ) , net , from continuing operations for 2012 , decreased $ 14.3 million , as compared to the prior year periods . the decrease is primarily due to the merger of our brazilian business during the second quarter of 2011. on may 31 , 2011 , we completed the merger of our brazilian business with boa vista servicos s.a. ( “ bvs ” ) , which was accounted for as a sale and deconsolidated , in exchange for a 15 % equity interest in bvs ( “ the brazilian transaction ” ) . we recorded a $ 10.3 million pre-tax loss on the brazilian transaction in other expense ( income ) , net . other expense , net , was also reduced in 2012 by higher income from our minority investment in russia and interest earned of higher cash balances during 2012 . 32 other expense ( income ) , net , from continuing operations for 2011 increased $ 9.0 million as compared to the prior year . the increase is primarily due to the merger of our brazilian business during the second quarter of 2011. we recorded a $ 10.3 million pre-tax loss on the brazilian transaction in other expense ( income ) , net . income taxes replace_table_token_10_th our effective rate was 36.2 % for 2012 , down from 41.2 % for the same period in 2011. the 2011 rate was higher primarily due to the impact of the brazilian transaction which increased our effective rate by 5.2 % . in addition , the 2012 rate increased by 4.7 % compared to the prior year due the one-time effects of certain international tax planning implemented during the year . this is offset by a 3.5 % one-time benefit associated with a tax method change approved by tax authorities in 2012. in addition , the 2012 rate benefited from certain federal , state and international benefits that we do not expect to recur in future years . we expect our effective tax rate in 2013 to be in the range of 35 % to 37 % . our effective rate was 41.2 % for 2011 , up from 35.1 % for the same period in 2010. the 2011 rate was higher primarily due to the impact of the brazilian transaction which increased our effective rate by 5.2 % . in addition , the 2010 rate benefited from certain state benefits that did not recur in 2011. this is partially offset by a cumulative income tax benefit resulting from the recognition of an income tax deduction related to several prior years .
| revenue increased 35 % in 2012 when compared to 2011 due primarily to increased sales in core mortgage reporting services as a result of higher mortgage refinancings stimulated by historically low mortgage interest rates ; the sale of newer mortgage information products which help lenders better manage risk ; and growth in settlement services revenue as a result of the favorable market conditions and increased market share from existing customers . revenue increased in 2011 primarily due to increased sales of settlement services as a result of increased market share from existing customers partially offset by the declines in core mortgage reporting services due to lower refinancing activity as compared to the comparable periods of 2010. consumer financial marketing services . revenue decreased in 2012 , as compared to 2011 , resulting from a decline in demand for wealth-based consumer information services due to reductions in their use for credit marketing by some large financial institutions . this decrease was partially offset in by growth in traditional credit-based pre-screen revenue and increased portfolio management revenue . revenue for 2011 increased , as compared to 2010 , due to continued growth in credit-based pre-screen and portfolio management revenue as well as strong market penetration of wealth-based consumer information services . u.s. consumer information solutions operating margin . uscis operating margins increased 110 basis points to 37.3 % in 2012 due to the benefits of strong revenue growth in a business with significant fixed costs . in 2011 , improved margins in online credit services and cfms resulting from solid revenue growth were offset by lower margins in mortgage solutions due to less favorable product mix and by expense investment and increased acquisition-related amortization associated with our fourth quarter 2010 acquisition of anakam . 34 international replace_table_token_13_th international revenue in 2012 decreased 1 % compared to the prior year . while the deconsolidation of brazil negatively impacted revenue by $ 35.4 million in 2012 , revenue in our other geographies increased by 6 % in 2012 as compared to 2011. local currency revenue , excluding brazil , increased 9 %
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providing top-quartile total returns to investors pnmr 's strategic goal to provide top quartile total return to investors over the 2012 to 2016 period is based on five-year ongoing earnings per share growth plus five-year average dividend yield from a group of regulated electric utility companies with similar market capitalization . top quartile total return currently is equal to an average annual rate of 10 % to 13 % . ongoing earnings , which is a non-gaap financial measure , excludes certain non-recurring , infrequent , and other items from earnings determined in accordance with gaap . pnmr targets a dividend payout ratio of 50 % to 60 % of its ongoing earnings . the annual common stock dividend was raised by 16 % in february 2012 , 14 % in february 2013 , 12 % in december 2013 , and 8 % in december 2014. pnmr expects to provide above-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target . the board will continue to evaluate the dividend on an annual basis , considering sustainability and growth , capital planning , and industry standards . business focus in addition to its strategic goals , pnmr 's strategy and decision-making are focused on safely providing reliable , affordable , and environmentally responsible power to create enduring value for customers , communities , and stockholders . to accomplish this , pnmr works closely with customers , stakeholders , legislators , and regulators to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities . reliable and affordable power pnmr and its utilities are aware of the important roles they play in enhancing economic vitality in their new mexico and texas service territories . management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and economic growth . when considering expanding or relocating to other communities , businesses consider energy affordability and reliability to be important factors . pnm and tnmp strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a superior customer experience . the utilities also work to ensure that rates reflect actual costs of providing service . investing in pnm 's and tnmp 's infrastructure is critical to ensuring reliability and meeting future energy needs . both utilities have long-established records of providing customers with reliable electric service . in september 2011 , tnmp began its deployment of smart meters in homes and businesses across its texas service area . through the end of 2014 , tnmp had completed installation of more than 184,000 smart meters , which is approximately 80 % of the anticipated total . tnmp 's deployment is expected to be completed in 2016. a- 29 as part of the state of texas ' long-term initiative to create a smart electric grid , installation of smart meters will ultimately give consumers more data about their energy consumption and help them make more informed decisions . tnmp is currently installing a new outage management system that will leverage capabilities of the smart meters to enhance tnmp 's responsiveness to outages . during the 2012 to 2014 period , pnm and tnmp together invested $ 1,062.8 million in utility plant , including substations , power plants , nuclear fuel , and transmission and distribution systems . in 2012 , pnm announced plans for the 40 mw natural gas-fired la luz peaking generating station , to be located near belen , new mexico . the facility is expected to go into service in late 2015. on july 17 , 2014 , pnm completed the purchase of rio bravo , formerly known as delta , a 132 mw gas-fired peaking facility , which has served pnm jurisdictional needs under a 20-year ppa since 2000. nmprc rules require that investor owned utilities file an irp every three years . the irp is required to cover a 20-year planning period and contain an action plan covering the first four years of that period . pnm filed its 2014 irp on july 1 , 2014. the four-year action plan was consistent with the replacement resources identified in pnm 's application to retire sjgs units 2 and 3 discussed below . pnm indicated that it planned to meet its anticipated long-term load growth with a combination of additional renewable energy resources , energy efficiency , and natural gas-fired facilities . environmentally responsible power pnmr has a long-standing record of environmental stewardship . pnm 's environmental focus has been in three key areas : developing strategies to meet regional haze rules at the coal-fired sjgs as cost-effectively as possible while providing broad environmental benefits that also demonstrate progress in addressing proposed new federal regulations for co 2 emissions from existing power plants preparing to meet new mexico 's increasing renewable energy requirements as cost-effectively as possible increasing energy efficiency participation another area of emphasis is the reduction of the amount of fresh water used during electricity generation at pnm 's power plants . the fresh water used per mwh generated has dropped by 25 % since 2002 , primarily due to the growth of renewable energy sources , the expansion of afton to a combined-cycle plant that has both air and water cooling systems , and the use of gray water for cooling at luna . as discussed below , pnm has requested approval to shut down sjgs units 2 and 3 , which would reduce water consumption at that plant by about 50 % . in addition to the above areas of focus , the company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste . the company has performed well in this area in the past and expects to continue to do so in the future . renewable energy pnm 's 2013 renewable procurement strategy almost doubled pnm 's existing solar capacity with the addition of 21.5 mw of utility-owned solar capacity . story_separator_special_tag in addition to the solar expansion , the 2013 plan included a 20-year agreement to purchase energy from a geothermal facility built near lordsburg , new mexico . the facility began providing power to pnm in january 2014. the current capacity of the facility is 4 mw and future expansion may result in up to 10 mw of generation capacity . pnm 's 2014 renewable procurement strategy included the construction of an additional 23 mw of utility-owned solar capacity , a 20 year ppa for the output of an existing 102 mw wind energy center beginning in 2015 , and the purchase of recs in 2014 and 2015 to meet the rps . pnm 's 2015 renewable energy procurement plan meets rps and diversity requirements within the rct in 2015 and 2016. pnm 's proposed new procurements include the construction of 40 mw of pnm-owned solar pv facilities in 2015 , which are contemplated in pnm 's application to retire sjgs units 2 and 3 discussed below . in addition to pnm 's utility-owned pv solar facilities , pnm owns the 500 kw pnm prosperity energy storage project , which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited . the project features one of the largest combinations of battery storage and pv energy in the nation and involves extensive research and development of smart grid concepts . the facility was the nation 's first solar storage facility fully integrated into a utility 's power grid . pnm has a ppa for the output from a 204 mw wind facility and purchases power from a customer-owned distributed solar generation program that had an installed capacity of 39 mw at the end of 2014. these renewable resources are key means for pnm to meet the rps and related regulations , which require pnm to achieve prescribed levels of energy sales from renewable sources , if that can be accomplished without exceeding the rct cost limit set by the nmprc . pnm makes renewable procurements consistent with the plans approved by the nmprc . pnm believes its currently planned resources will enable it to comply with the nmprc 's diversity requirements . pnm will continue to procure renewable resources while balancing the bill impact to customers in order to meet new mexico 's escalating rps requirements . a- 30 sjgs pnm continues its efforts to comply with the epa regional haze rule in a manner that minimizes the cost impact to customers while still achieving broad environmental benefits . additional information about bart at sjgs is contained in note 16. in august 2011 , epa issued a fip for regional haze that would have required the installation of scrs on all four units at sjgs by september 2016. following approval by the majority of the other sjgs owners , pnm , nmed , and epa agreed on february 15 , 2013 to pursue a revised plan that could provide a new bart path to comply with federal visibility rules at sjgs . the terms of the non-binding agreement would result in the retirement of sjgs units 2 and 3 by the end of 2017 and the installation of sncrs on units 1 and 4 by the later of january 31 , 2016 or 15 months after epa approval of a rsip from the state of new mexico . the rsip has been approved by the eib and epa . the rsip would achieve similar visibility improvements as the installation of scrs on all four units at sjgs at a lower cost to pnm customers . it has the added advantage of reducing other emissions beyond nox , including so 2 , particulate matter , co 2 , and mercury , as well as reducing water usage . in december 2013 , pnm made a filing with the nmprc requesting certain approvals necessary to effectuate the rsip . on october 1 , 2014 , pnm filed a stipulation with the nmprc that , if approved , would settle this case . the stipulation is supported to by the staff of the nmprc , the nmag , and nmiec . the stipulation is opposed by other intervenors . under the terms of the stipulation , pnm would : retire sjgs units 2 and 3 at december 31 , 2017 and recover over 20 years 50 % of their undepreciated net book value at that date , after transferring $ 26 million to sjgs unit 4 , and earn a regulated return on those costs acquire an additional 132 mw of sjgs unit 4 include pnm 's ownership of pvngs unit 3 as a resource to serve new mexico retail customers effective january 1 , 2018 at a value of $ 221.1 million ( $ 1,650 per kw ) file for recovery of up to $ 90.6 million of costs for the installation of sncr equipment and the additional equipment to comply with naaqs requirements on sjgs units 1 and 4 not recover approximately $ 20 million of increased operations and maintenance expenses and other costs incurred in connection with caa compliance there would be no initial cost for pnm to acquire the additional 132 mw of sjgs unit 4 although pnm 's share of capital improvements , including the costs of installing sncrs , and operating expenses would increase to reflect the increased ownership . a public hearing in the nmprc case was held in january 2015. pnm expects a decision from the nmprc in the second quarter of 2015. pnm is unable to predict if the nmprc will approve the stipulation . if the stipulation is approved as filed , pnm anticipates that upon approval it would incur a regulatory disallowance , which would include the write-off of 50 % of the undepreciated investment in sjgs units 2 and 3 , an offset to the regulatory disallowance to reflect including the investment in pvngs unit 3 in the ratemaking process at the stipulated value , and other impacts of the stipulation .
| the company projects that its total capital requirements , consisting of construction expenditures and dividends , will total $ 2,528.5 million for 2015-2019. the construction expenditures include estimated amounts related to environmental upgrades at sjgs to address regional haze and the identified sources of replacement capacity under the revised plan for compliance described in note 16. the construction expenditures also include additional renewable resources anticipated to be required to meet the rps , additional peaking resources needed to meet needs outlined in pnm 's current irp , environmental upgrades at four corners , the purchase of the leased portion of the eip , and the purchase of the assets underlying three of the pvngs unit 2 leases at the expiration of those leases . in addition to internal cash generation , the company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing , new debt issuances , and or new equity in order to fund its capital requirements during the 2015-2019 period . the company currently believes that its internal cash generation , existing credit arrangements , and access to public and private capital markets will provide sufficient resources to meet the company 's capital requirements . a- 34 results of operations segment information the following discussion is based on the segment methodology that pnmr 's management uses for making operating decisions and assessing performance of its various business activities . see note 2 for more information on pnmr 's operating segments . the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto . trends and contingencies of a material nature are discussed to the extent known . refer also to disclosure regarding forward looking statements in part i , item 1 and to part ii , item 7a . risk factors . pnm the table below summarizes operating results for pnm : replace_table_token_14_th the table below summarizes the significant changes to total revenues , cost of energy , and margin : replace_table_token_15_th a- 35 the following
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our consortium data covers loan-level mortgage performance , appraisal , as well as mortgage application data and is in excess of 300 million records . we are also the industry 's first parcel-based geocoder and have developed a proprietary spatial database covering more than 150 million parcel polygons across the us . we believe the quality of the data we offer is distinguished by our broad range of data sources and our experience in aggregating , organizing , normalizing , processing , and delivering data to our clients . with our data as a foundation , we have built strong analytics capabilities and a variety of value-added business services to meet our clients ' needs for property tax processing , property valuation , hazard risk , property risk and replacement cost , flood plain location determination , other geospatial data , analytics , and related services . 30 overview of business environment and company developments merger agreement in february 2021 , corelogic entered into the merger agreement with the acquirer and acquisition sub , providing for the merger , subject to the terms and conditions set forth therein . the acquirer and acquisition sub are affiliates of stone point capital partners and insight partners . in the event the merger is completed , except as otherwise provided in the merger agreement , each share of common stock issued and outstanding immediately prior to the effective time would be converted into the right to receive the merger consideration . consummation of the merger is subject to customary closing conditions , including , among other things , receipt of the requisite stockholder approval . the consummation of the merger is not subject to a financing condition , and the acquirer has obtained equity and debt financing commitments for the purpose of financing the merger and the other transactions contemplated by the merger agreement . either we or the acquirer may terminate the merger agreement in certain circumstances , including if ( i ) the merger shall not have been consummated on or before 5:00 p.m. ( new york city time ) on august 9 , 2021 , ( ii ) any of certain governmental authorities of competent jurisdiction has issued a final non-appealable law or order prohibiting the merger , ( iii ) the requisite stockholder approval is not obtained at the stockholders ' meeting duly convened therefor or ( iv ) the other party materially breaches , and does not cure , any representation or covenant that would cause the related condition to the other party 's obligation to consummate the merger not to be satisfied , in each case subject to certain limitations set forth in the merger agreement . if we terminate the merger agreement because ( i ) the acquirer or acquisition sub materially breaches , and does not cure , any representation or covenant that would cause any conditions to our obligation to consummate the merger not to be satisfied or ( ii ) all conditions to the merger have been and continue to be satisfied ( subject to customary exceptions ) and the acquirer fails to consummate the merger after receiving written notification from us , we would be entitled to receive a termination fee from the acquirer of $ 330 million . if the merger agreement is terminated by us or the acquirer under other certain circumstances specified in the merger agreement , we would be obligated to pay a termination fee of $ 165 million to the acquirer . see the risk factor titled “ if the merger agreement is terminated , under certain conditions , we may be obligated to pay the acquirer a substantial termination fee , which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations ” under “ risk factors ” in item 1a of part i of this annual report on form 10-k for further information about the termination fee we may be obligated to pay . please refer to note 21 - subsequent events - proposed merger of the notes to consolidated financial statements included in item 8 - financial statements and supplementary data of part ii of this annual report on form 10-k for further information . on february 16 , 2021 , the board received an unsolicited acquisition proposal from costar to acquire the company in an all-stock transaction . the board is carefully reviewing the proposal in consultation with outside legal counsel and financial advisors . the merger agreement remains in full force and effect , and the board has not withdrawn or modified its recommendation that the stockholders of corelogic vote in favor of the approval of the merger , the merger agreement and the transactions contemplated hereby . rights agreement amendment in february 2021 , in connection with the execution of the merger agreement , corelogic also entered into the rights agreement amendment with equiniti trust company , in order to ( i ) render the rights agreement inapplicable to the merger and the transactions contemplated by the merger agreement , ( ii ) ensure that in connection with the transactions contemplated by the merger agreement , none of the acquirer , acquisition sub , or any of their “ affiliates ” or “ associates ” ( each as defined in the rights agreement ) shall be deemed to be or become an “ acquiring person ” ( as defined below ) and ( iii ) provide that the “ expiration date ” ( as defined in the rights agreement ) shall occur immediately prior to the effective time . unsolicited proposal and proxy contest proposals in june 2020 , we received the unsolicited proposal from senator and cannae to acquire the company for $ 65.00 per share in cash , which initial proposal was increased by senator and cannae on september 2020 by $ 1.00 per share to $ 66.00 per share in cash . story_separator_special_tag our board , in consultation with its independent financial and legal advisors , unanimously determined to reject the unsolicited proposal , as it significantly undervalues the company , raises serious regulatory concerns and is not in the best interests of the company and its stockholders . in july 2020 , we received written notification from the ftc that it is conducting an investigation ( “ ftc investigation ” ) of the proposed acquisition of the company by senator and cannae and requesting that we produce information in connection with that investigation . in august 2020 , we received a civil investigative demand from 31 the ftc in connection with the ftc investigation into senator and cannae , requesting that the company produce additional information in connection with that investigation . in july 2020 , in connection with the unsolicited proposal , senator and cannae issued a press release announcing the proxy contest proposals . although our board opposed the actions being pursued by senator and cannae because they believed these proposals were not in the best interests of the company 's stockholders , in august 2020 , the board of directors determined to call a special meeting to provide stockholders the opportunity to vote and express their views . the board of directors set the special meeting for november 2020 , with a record date of september 18 , 2020. the special meeting resulted in the removal of three members of our board and the appointment of three of senator and cannae 's nominees to our board , each with a term expiring at the company 's 2021 annual meeting of stockholders . in october 2020 , we issued a press release confirming that we are engaging with third parties that have indicated interest in a potential acquisition of the company at a value at or above $ 80 per share . in november 2020 , we issued a press release announcing that our board would conduct a thorough strategic review ( the “ strategic review ” ) to maximize shareholder value . this strategic review ultimately culminated in our entry into the merger agreement with the acquirer and acquisition sub on february 4 , 2021. our board , including each of the directors elected at the november special meeting , has unanimously approved the merger agreement , the merger and the other transactions contemplated by the merger agreement . however , the consummation of the merger is subject to customary closing conditions , including , among other things , receipt of the requisite stockholder approval . in addition , our board continues to review the unsolicited acquisition proposal from costar , consistent with its fiduciary duties and the terms of the merger agreement . these events have required us , and will continue to require us , to incur significant legal and advisory fees and expenses , and require significant time and attention by management and our board of directors . for a further discussion of risks , uncertainties and other factors relating to the unsolicited proposal , the proxy contest proposals , the ftc investigation and the merger agreement that could impact our business and operating results , see the section entitled “ risk factors ” in item 1a of part i of this annual report on form 10-k. in connection with the unsolicited proposal , proxy contest proposals and related strategic transaction process , we have incurred expenses of approximately $ 54.0 million for year ended december 31 , 2020. covid-19 the global covid-19 pandemic and the mitigation efforts by governments to attempt to control its spread have adversely impacted the global economy , leading to disruptions and volatility in the global financial markets . most states and many countries have issued policies intended to stop or slow the further spread of the disease . our first priority remains ensuring the safety and health of our employees , clients , and others with whom we partner in conducting our business . we have deployed risk-mitigation activities , safety practices , and business continuity strategies so that we can continue offering our clients consistent service offerings while continuing to protect our employees . the volume of us mortgage loan originations serves as a key market driver for more than half of our business . we believe the volume and related volatility of real estate and mortgage transactions is primarily affected by real estate prices , the availability of funds for mortgage loans , mortgage interest rates , housing supply , employment levels , actions by the federal reserve , and the overall state of the us economy . mortgage interest rates are extremely low by historical standards , and are resulting in higher demand for refinance activity , while the purchase market has been adversely impacted by reduced construction and sales of new and existing homes , and more recently , the covid-19 pandemic and resulting economic instability . for the year ended december 31 , 2020 , our continuing operations experienced unfavorable business and revenue impacts of approximately $ 18.7 million related to the covid-19 pandemic , exclusive of the increased mortgage refinance volumes . we have also incurred covid-19 related expenses of approximately $ 3.0 million for year ended december 31 , 2020. as of december 31 , 2020 , the impact we have experienced as a result of the covid-19 pandemic has not had a significant impact on our financial condition , cash flows , control environment , or any related disclosures . we will continue to monitor our business trends , financial condition , and liquidity , and are taking steps to manage our operating cash flows , by prioritizing our investments , and evaluating our capital needs and activities . our liquidity as of december 31 , 2020 consisted primarily of $ 167.4 million of cash and cash equivalents , and $ 450.0 million of unused committed capacity under our revolving credit facility , and we are in compliance with all financial covenants . 32 business environment the volume of us mortgage loan originations serves as a key market driver for more than half of our business .
| excluding acquisition activity , the decrease of $ 40.6 million was primarily due to favorable product mix due to the impact of our amc transformation program and business exits , offset by higher operating revenues . selling , general and administrative expense our consolidated selling , general and administrative expenses were $ 537.6 million for the year ended december 31 , 2020 , an increase of $ 73.8 million , or 15.9 % , when compared to 2019. excluding acquisition activity of $ 4.9 million , the increase of $ 68.9 million was primarily due to higher costs from the unsolicited proposal , proxy contest proposals , and related strategic transaction process of $ 54.0 million , higher other external services costs of $ 24.8 million , and $ 0.6 million in compensation , primarily due to higher variable compensation costs relating to operating performance , partially offset by lower travel costs of $ 9.8 million and lower other expenses of $ 0.7 million . depreciation and amortization our consolidated depreciation and amortization expense was $ 174.4 million for the year ended december 31 , 2020 , a decrease of $ 0.7 million , or 0.4 % , when compared to 2019. excluding acquisition activity of $ 1.6 million , the decrease of $ 2.3 million is primarily due to assets that were fully impaired . 35 impairment loss our consolidated impairment loss totaled $ 2.3 million for the year ended december 31 , 2020 , a decrease of $ 45.5 million , or 95.2 % , when compared to 2019 , primarily due to prior write-offs of client lists of $ 32.3 million , software of $ 12.3 million , and licenses of $ 3.3 million related to the transformation of our amc business , offset by current year impairment charges related to software and operating lease assets . operating income our consolidated operating income was $ 331.0 million for the year ended december 31 , 2020 , an increase of $ 208.9 million ,
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an emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies . as an emerging growth company , among other things : · we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the sarbanes-oxley act ; · we are permitted to provide less extensive disclosure about our executive compensation arrangements ; and · we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements . we have elected to use an extended transition period for complying with new or revised accounting standards . we may take advantage of the other provisions for up to five years or such earlier time that we are no longer an emerging growth company . we will cease to be an emerging growth company upon the earliest to occur of : ( i ) the last day of the first fiscal year in which our annual gross revenues exceed $ 1 billion , ( ii ) the date that we become a `` large accelerated filer '' as defined in rule 12b-2 under the exchange , which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter , or ( iii ) the date on which we have issued more than $ 1 billion in non-convertible debt during the preceding three-year period . factors impacting our operating results our results of operations are affected by a number of factors and depend on the rental revenue we receive from the properties that we acquire , the timing of lease expirations , general market conditions , the regulatory environment in the medical-use cannabis industry , and the competitive environment for real estate assets that support the regulated medical-use cannabis industry . rental revenues we receive income primarily from rental revenue generated by the properties that we acquire . the amount of rental revenue depends upon a number of factors , including : · our ability to enter into leases with increasing or market value rents for the properties that we acquire ; and · rent collection , which primarily relates to each of our future tenant 's financial condition and ability to make rent payments to us on time . the properties that we acquire consist of real estate assets that support the regulated medical-use cannabis industry . changes in current favorable state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties . conditions in our markets positive or negative changes in regulatory , economic or other conditions , drought , and natural disasters in the markets where we acquire properties may affect our overall financial performance . - 43 - competitive environment we face competition from a diverse mix of market participants , including but not limited to , other companies with similar business models , independent investors , hedge funds and other real estate investors , hard money lenders , as well as would be clients , cannabis operators themselves , all of whom may compete with us in our efforts to acquire real estate zoned for cannabis cultivation and production operations . competition from others may diminish our opportunities to acquire a desired property on favorable terms or at all . in addition , this competition may put pressure on us to reduce the rental rates below those that we expect to charge for the properties that we acquire , which would adversely affect our financial results . operating expenses our operating expenses include general and administrative expenses , including personnel costs , legal , accounting , and other expenses related to corporate governance , public reporting and compliance with the various provisions of u.s. securities laws . as we have with the lease at our initial property , we generally expect to structure our leases so that the tenant is responsible for taxes , maintenance , insurance , and structural repairs with respect to the premises throughout the lease term . increases or decreases in such operating expenses will impact our overall financial performance . our qualification as a reit we have been organized and we intend to elect , and to operate our business so as to qualify , to be taxed as a reit , for u.s. federal income tax purposes , commencing with our taxable year ending december 31 , 2017. shares of our common stock are subject to restrictions on ownership and transfer that are intended , among other purposes , to assist us in qualifying and maintaining our qualification as a reit . in order for us to qualify as a reit under the code , the relevant sections of our charter provide that , subject to certain exceptions , no person or entity may own , or be deemed to own , by virtue of the applicable constructive ownership provisions of the code , more than 9.8 % ( in value or number of shares , whichever is more restrictive ) of the aggregate of our outstanding shares of stock or more than 9.8 % ( in value or number of shares , whichever is more restrictive ) of our outstanding common stock or any class or series of our outstanding preferred stock . story_separator_special_tag guidelines also provide that our aggregate borrowings ( secured and unsecured ) will not exceed 50 % of the cost of our tangible assets at the time of any new borrowing , subject to our board of directors ' discretion . story_separator_special_tag operating activities cash flows provided by operating activities for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 were approximately $ 1,693,000. cash flows provided by operating activities were generally provided by contractual rent and security deposits from our initial property , partially offset by costs of operating our initial property . investing activities cash flows used in investing activities for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 were approximately $ 30.0 million , for the purchase of our initial property . our investment in our initial property was funded from the net proceeds of our initial public offering . financing activities cash flows provided by financing activities for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 were approximately $ 61.3 million . in december 2016 , the company completed its initial public offering and received net proceeds of approximately $ 61.1 million . see note 3 to the consolidated financial statements for more details . dividends the company is required to pay dividends to its stockholders at least equal to 90 % of its taxable income in order to qualify and maintain its qualification as a reit . we are a newly formed company and have not paid or declared a distribution to stockholders as of march 22 , 2017. our ability to pay dividends is dependent upon our ability to generate cash flows and to make accretive new investments . funds from operations and adjusted funds from operations funds from operations ( “ ffo ” ) and ffo per share are operating performance measures adopted by the national association of real estate investment trusts , inc. ( “ nareit ” ) . nareit defines ffo as the most commonly accepted and reported measure of a reit 's operating performance equal to “ net income ( loss ) ( computed in accordance with gaap ) , excluding gains ( or losses ) from sales of property , plus depreciation and amortization related to real estate properties , and after adjustments for unconsolidated partnerships and joint ventures. ” management believes that net income ( loss ) , as defined by gaap , is the most appropriate earnings measurement . however , management believes ffo and ffo per share to be supplemental measures of a reit 's performance because they provide an understanding of the operating performance of our properties without giving effect to certain significant non-cash items , primarily depreciation expense . historical cost accounting for real estate assets in accordance with gaap assumes that the value of real estate assets diminishes predictably over time . however , real estate values instead have historically risen or fallen with market conditions . we believe that by excluding the effect of depreciation , ffo and ffo per share can facilitate comparisons of operating performance between periods . we report ffo and ffo per share because these measures are observed by management to also be the predominant measures used by the reit industry and by industry analysts to evaluate reits and because ffo per share is consistently reported , discussed , and compared by research analysts in their notes and publications about reits . for these reasons , management has deemed it appropriate to disclose and discuss ffo and ffo per share . - 46 - management believes that affo and affo per share are also appropriate supplemental measures of a reit 's operating performance . we calculate affo by adding to ffo certain non-cash expenses , consisting primarily of non-cash stock-based compensation expense and forfeited class b common shares . our computation of ffo and affo may differ from the methodology for calculating ffo and affo utilized by equity reits and , accordingly , may not be comparable to such reits . further , ffo and affo do not represent cash flow available for management 's discretionary use . ffo and affo should not be considered as an alternative to net income ( loss ) ( computed in accordance with gaap ) as an indicator of our financial performance or to cash flow from operating activities ( computed in accordance with gaap ) as an indicator of our liquidity , nor is it indicative of funds available to fund our cash needs , including our ability to pay dividends or make distributions . ffo and affo should be considered only as supplements to net income ( loss ) computed in accordance with gaap as measures of operations . the table below is a reconciliation of net loss to ffo and affo for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016. included in our net loss for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 was approximately $ 3.7 million , or $ 3.85 per common share ( basic and diluted ) , of noncash forfeited class b common shares , related to the issuance of class b common stock to our founders at $ 0.001 per share ( par value ) and subsequent redemption of all such shares of class b common stock by us for $ 0.001 per share ( par value ) immediately prior to the completion of our initial public offering in december 2016. as a result of the redemption of all shares of class b common stock , although gaap requires that we record this as stock-based compensation expense , none of the founders received any value from their purchase of the shares of class b common stock , as all such shares of class b common stock were redeemed by us at the original purchase price prior to our initial public offering .
| general and administrative expenses for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 were $ 770,000 , of which approximately $ 566,000 was related to consulting services provided by igp advisers llc , a company that was owned by certain of our officers , in connection with our initial public offering , and approximately $ 204,000 was related to compensation-related and occupancy costs related to our employees and corporate office . stock-based compensation . stock-based compensation for equity awards is based on the grant date fair value of restricted stock that was granted to certain of our employees and non-employee members of our board of directors in 2016 and is recognized over the requisite service period . forfeited class b common shares . we recognized stock-based compensation expense of approximately $ 3.7 million for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 , related to the issuance of class b common stock to our founders at $ 0.001 per share ( par value ) and subsequent redemption of all such shares of class b common stock by us for $ 0.001 per share ( par value ) immediately prior to the completion of our initial public offering in december 2016. we estimated the fair value of these shares at the june 15 , 2016 grant date and at subsequent modification dates using a monte carlo simulation model . the fair value calculation was primarily based on management 's estimates of the probability of its initial public offering and the estimated proceeds of such offering . as a result of the redemption of all shares of class b common stock , although gaap requires that we record this stock-based compensation expense , none of the founders received any value from their purchase of the shares of class b common stock , as all such shares of class b common stock were redeemed by us at the original purchase price prior to our initial public offering . organization costs . organization costs for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 related primarily to costs related to our formation .
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upon the anticipated closing in the first quarter of 2013 , neer expects to record a gain which is expected to be excluded from 2013 adjusted earnings . the operations of these projects were not material to nee 's consolidated statements of income for the years ended december 31 , 2012 , 2011 and 2010 and the transaction is not expected to have a material effect on ongoing future financial results . see note 1 - assets and liabilities associated with assets held for sale . the following table provides details of the adjustments considered in computing nee 's adjusted earnings discussed above . replace_table_token_13_th ( a ) $ 37 million of losses , $ 193 million of gains and $ 176 million of gains , respectively , are included in neer 's net income ; the balance is included in corporate and other . ( b ) $ 92 million is included in neer 's net income ; the balance is included in corporate and other . the change in unrealized mark-to-market activity from non-qualifying hedges is primarily attributable to changes in forward power and natural gas prices , as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized . as a general rule , a gain ( loss ) in the non-qualifying hedge category is offset by decreases ( increases ) in the fair value of related physical asset positions in the portfolio or contracts , which are not marked to market under gaap . 43 2012 summary nee 's net income for 2012 was $ 12 million , or 3 cents per share , lower than 2011 primarily due to lower results at corporate and other and neer , partly offset by higher earnings at fpl . fpl 's increase in net income in 2012 was primarily driven by investments in plant in service which resulted in higher use of fpl 's surplus depreciation credit , as permitted under the 2010 rate agreement , to earn an 11 % regulatory roe on its retail rate base , as well as higher cost recovery clause results and higher afudc - equity . the 2010 rate agreement was effective through december 31 , 2012. see outlook below for a discussion of t he 2012 rate agreement . fpl 's planned smart meter installations throughout florida are approximately 96 % complete , with a cumulative total of 4.3 million smart meters installed . in 2012 , fpl maintained a typical residential bill that was the lowest of all 55 utilities in florida and 26 % below the national average based on a rate per kwh as of july 2012. neer 's earnings decreased in 2012 prima rily due to net unrealized mark-to-market losses from non-qualifying hedge activity in 2012 compared to gains on such hedges in 2011 and lower results from the existing asset portfolio , partly offset by the absence of the loss on sale of natu ral gas-fired generating assets and impairment charges recorded in 2011 and higher results in 2012 from new investments and the customer supply and proprietary power and gas trading businesses . in 2012 , neer added over 1,500 mw of wind capacity , including its first wind project in the province of ontario , canada , and placed its 10,000 th mw of wind capacity into service . corporate and other 's earnings in 2012 decreased primarily due to the absence of state deferred income tax benefits related to state tax law changes and an income tax benefit related to the dissolution of a subsidiary recorded in 2011. nee and its subsidiaries , including fpl , require funds to support and grow their businesses . these funds are primarily provided by cash flow from operations and short- and long-term borrowings and , from time to time , issuance of equity securities . as of february 8 , 2013 , nee 's total net available liquidity was approximately $ 5.7 billion , of which fpl 's portion was approximately $ 3.1 billion . outlook fpl 's 2012 rate agreement provides , among other things , base rate predictability through december 2016 , including allowances for rate increases when the modernized cape canaveral , rivera beach and port everglades power plants are placed in service , and , as discussed in more detail below , permits fpl to amortize the reserve up to $ 400 million over the 2013 to 2016 period . fpl 's allowed regulatory roe over this period will be 10.50 % , with a range of plus or minus 100 basis points . nee 's strategy at both of its principal businesses seeks to meet customer needs more economically and reliably than competitors . meeting customer needs frequently requires the commitment of large capital expenditures to projects that have long lives and such commitments are difficult to reverse once made . both fpl and neer have made commitments to a variety of major capital projects that are expected to be completed over the next several years . while nee management believes that these projects individually and collectively are attractive investments with the potential to create value for shareholders , there can be no guarantee that all or any of these projects will be successful . because of their importance , management focuses particular attention on these large projects . in 2013 , nee expects to focus efforts in particular on the following initiatives : at fpl : sustaining fpl 's customer value proposition : the combination of low bills , good reliability and excellent customer service that fpl currently provides its customers is both an objective of fpl 's strategy and an important contributor to its long-term business success . fpl seeks to , at a minimum , maintain and ideally improve its overall customer value proposition . major capital projects : fpl is currently engaged in a large capital expansion program and its objective is to bring these projects in on schedule and within budget . story_separator_special_tag this program includes : modernizing its cape canaveral , riviera beach and port everglades power plants to high-efficiency natural gas-fired units ( approximately 1,200 mw each at cape canaveral and riviera beach and 1,280 mw at port everglades ) to be placed in service by june 2013 , june 2014 and mid-2016 , respectively , and adding at least 510 mw of capacity at its existing nuclear units at st. lucie and turkey point , to be placed in service by the spring of 2013 , of which approximately 395 mw are in service as of december 31 , 2012 . 44 natural gas pipeline : in december 2012 , fpl issued an rfp to build a third major natural gas pipeline to serve peninsular florida . the proposed new pipeline will have an upstream segment which originates at an existing hub in western alabama and ends at a new hub to be built in central florida . the downstream segment will originate at the new hub in central florida and connect with fpl 's system in martin county . fpl plans to propose a self-build option for the downstream segment of the pipeline , which , if selected , is expected to be built , owned and operated by a ferc-regulated affiliate . the ferc-regulated affiliate is prepared to consider investing in support of a selected upstream segment to facilitate timely construction . the bids are due in april 2013 , with the winning proposal ( s ) expected to be selected by the end of june 2013. the pipeline will be subject to regulatory approvals . at neer : maintaining excellence in day-to-day operations : neer has developed a track record of generally running its facilities reliably and cost-effectively . the company seeks to , at minimum , maintain and ideally improve its operating performance . solar : add nearly 900 mw of new solar generation by 2016 , including the completion of the construction of the spain solar projects in 2013 ( see note 13 - commitments for recent changes in law that could negatively affect the spain solar projects ) , the 250 mw genesis solar project in california , the 550 mw desert sunlight solar project in california , in which neer has a 50 % equity investment , and the 250 mw mccoy solar pv project located in the mojave desert near the genesis and desert sunlight solar projects . wind : add approximately 600 mw of new canadian wind generation by the end of 2015 and 175 mw of new u.s. wind generation in 2013. continue to develop a backlog for u.s. wind for 2013 and 2014 in light of the ptc extension under the taxpayer relief act . at lone star : achieve commercial operations by the end of the first quarter of 2013 on approximately 330 miles of transmission lines and other associated facilities in texas . in addition , nee and fpl devote effort to numerous other initiatives designed to support their long-term growth and development . there can be no guarantees that nee or fpl will be successful in attaining their goals with respect to any of these initiatives . for additional information on certain of the above matters , see item 1. business . story_separator_special_tag march 1 , 2010 , and permitted fpl to vary the amount of surplus depreciation credit taken in any calendar year up to certain limits , provided that in any year of the 2010 rate agreement fpl was required to use enough surplus depreciation credit to maintain an earned regulatory roe within the range of 9.0 % - 11.0 % . during 2012 , 2011 and 2010 , fpl recorded $ 480 million , $ 187 million and $ 4 million of surplus depreciation credit . see item 1. business - fpl - fpl regulation for additional information on the 2010 fpsc rate order and the 2010 rate agreement . effective january 2013 through december 2016 , fpl 's base rates will be determined by the 2012 rate agreement , which was approved by the fpsc in january 2013. key elements of the 2012 rate agreement include , among other things , the following : new retail base rates and charges were established in january 2013 resulting in an increase in retail base revenues of $ 350 million on an annualized basis . fpl 's allowed regulatory roe will be 10.50 % , with a range of plus or minus 100 basis points . if fpl 's earned regulatory roe falls below 9.50 % , fpl may seek retail base rate relief . if the earned regulatory roe rises above 11.50 % , any party to the 2012 rate agreement other than fpl may seek a review of fpl 's retail base rates . retail base rates will be increased by the annualized base revenue requirements for fpl 's three modernization projects ( cape canaveral , riviera beach and port everglades ) as each of the modernized power plants becomes operational ( which is expected by june 2013 , june 2014 and mid-2016 , respectively ) . cost recovery of wcec unit no . 3 , which was placed in service in may 2011 , will continue to occur through the capacity clause ; however , such recovery will not be limited to the projected annual fuel cost savings as was the case in the previous rate agreement . subject to certain conditions , fpl must amortize , over the term of the 2012 rate agreement , a depreciation reserve surplus remaining at the end of 2012 under the 2010 rate order ( approximately $ 224 million ) and may amortize a portion of fpl 's fossil dismantlement reserve up to a maximum of $ 176 million ( collectively , the reserve ) , provided that in any year of the 2012 rate agreement , fpl must amortize at least enough reserve to maintain a 9.50 % earned regulatory roe but may not amortize any reserve that would result in an earned regulatory roe in excess of 11.50 % .
| in 2010 through 2012 , fpl earned a regulatory roe of 11.0 % , as permitted by the 2010 rate agreement . in 2012 and in 2011 , growth in earnings for fpl was driven by : investment in plant in service which resulted in higher use of fpl 's surplus depreciation credit to earn an 11.0 % regulatory roe on its retail rate base , higher cost recovery clause results , and for 2012 , higher afudc - equity . beginning in 2013 , fpl 's allowed regulatory roe range under the 2012 rate agreement is 9.50 % to 11.50 % . 45 fpl 's operating revenues consisted of the following : replace_table_token_14_th retail base as permitted by the 2010 rate agreement , in 2012 and 2011 , fpl collected approximately $ 52 million and $ 101 million , respectively , in additional retail base revenues through the capacity clause related to the placement in service of wcec unit no . 3 in may 2011. also included in 2012 retail base revenues were approximately $ 18 million of unbilled revenues associated with new retail base rates under the 2012 rate agreement ( see fpsc rate orders below ) , which were billed in 2013. additional base revenues of approximately $ 22 million were collected in 2012 related to new nuclear capacity which was placed in service in 2011 , as permitted by the fpsc 's nuclear cost recovery rule . in 2013 , fpl expects to collect approximately $ 245 million of additional base revenues related to new nuclear capacity of approximately 365 mw , which was placed in service in 2012. a base rate increase pursuant to the 2010 fpsc rate order increased 2011 retail base revenues by approximately $ 8 million . fpsc rate orders during the period 2010 to 2012 , fpl 's base rates were established by the 2010 fpsc rate order and the 2010 rate agreement which , among other things , during this period : provided an approximately $ 75 million base rate increase on an annualized basis ,
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operating income decreased to 27 % of revenue in 2018 from 34 % of revenue in 2017 , however net income increased to 27 % of revenue in 2018 from 23 % of revenue in 2017 due to a significantly lower effective tax rate . income tax expense in 2017 included a one-time tra 17 nsition tax on unrepatriated foreign earnings under the tax cuts and jobs act signed into law on december 22 , 2017. net income per diluted share increased to $ 1.24 in 2018 from $ 0.98 in 2017. the following table sets forth certain consolidated financial data for continuing operations as a percentage of revenue : replace_table_token_4_th story_separator_special_tag # 000000 ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; background-color : # cceeff ; border-top:1px solid # 000000 ; '' > $ 116,445 rd & e expenses increased due to higher personnel-related costs resulting primarily from headcount additions to support new product initiatives . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted , as well as a decrease in the estimated forfeiture rate in 2018. rd & e expenses as a percentage of revenue were 14 % in 2018 compared to 13 % in 2017. we believe that a continued commitment to rd & e activities is essential in order to maintain or achieve a leadership position for our existing products and to provide innovative new product offerings , as well as to provide engineering support for strategic customers . in addition , we consider our ability to accelerate time to market for new products to be critical to our revenue growth . therefore , we expect to continue to make significant rd & e investments in the future , and we target our annual rd & e spending to be between 10 % and 15 % of revenue . this percentage is impacted by revenue levels and investing cycles . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2018 increased by $ 41,971,000 , or 19 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_5_th sg & a expenses increased due to higher personnel-related costs resulting primarily from headcount additions , principally sales personnel . in addition to salaries and fringe benefits , these personnel-related costs included sales commissions and travel expenses related to the additional headcount . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted , as well as a decrease in the estimated forfeiture rate in 2018. depreciation expense increased from the prior year due primarily to information technology investments in infrastructure , security , and business applications , including a new enterprise resource planning ( erp ) system that was placed into service in the middle of 2018. offsetting these increases were lower expenses related to incentive compensation plans , including company bonuses and sales commissions , resulting from lower levels of achievement on performance plans that were set at the beginning of the year . non-operating income ( expense ) the company recorded foreign currency losses of $ 1,064,000 in 2018 and $ 1,601,000 in 2017. the foreign currency gains and losses result primarily from the revaluation and settlement of accounts receivable , accounts payable , and intercompany balances that are reported in one currency and collected or paid in another . investment income increased by $ 5,173,000 , or 54 % , from the prior year . the increase was primarily due to higher yields on the company 's portfolio of debt securities . 19 the company recorded other expense of $ 219,000 in 2018 and $ 338,000 in 2017. other income ( expense ) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions , as well as rental income , net of associated expenses , from leasing space in buildings adjacent to the company 's corporate headquarters . income tax expense the company 's effective tax rate was 7 % of the company 's pre-tax income in 2018 compared to 34 % in 2017. the tax act on december 22 , 2017 , the tax cuts and jobs act of 2017 ( tax act ) was signed into law . the tax act resulted in a decrease in the u.s. federal statutory corporate tax rate from 35 % to 21 % . as a result of the reduction in anticipated tax rate , the company remeasured its deferred tax positions as of december 31 , 2017 at the new enacted tax rate , and accordingly , recorded tax expense of $ 12,523,000 in 2017 from the associated write-down of its deferred tax assets . in 2018 , the company recorded an increase in tax expense of $ 3,240,000 from the write-down of its deferred tax assets primarily relating to guidance under the tax act regarding stock-based compensation . the tax act subjects unrepatriated foreign earnings to a one-time transition tax , regardless of the company 's financial statement assertion related to indefinite reinvestment or whether the company ultimately repatriates any of the foreign earnings , for which the company recorded estimated tax expense of $ 101,379,000 in 2017. in 2018 , the company revised its estimate of the one-time transition tax and recorded a decrease in tax expense of $ 11,028,000 , which resulted in a revised estimate for the one-time transition tax of $ 90,351,000 payable over eight years . the tax act replaces the current system of taxing u.s. corporations on repatriated foreign earnings with a partial territorial system that provides a 100 % dividends-received deduction to domestic corporations for foreign-source dividends received from 10 % or more owned foreign corporations . the company recorded a decrease in tax expense of $ 3,843,000 in 2017 from the reversal of the tax effect of a 2016 dividend paid in 2017 from a wholly-owned foreign subsidiary to its domestic entity . story_separator_special_tag the company will continue to gather and analyze information on historical unrepatriated foreign earnings and monitor state laws relating to this income to finalize both the federal and state tax impact . the tax act limits certain deductions and these limitations may impact the value of existing deferred tax assets . the company will continue to review the impact of these limitations as regulatory guidance is issued . other discrete tax items the effective tax rate also included a decrease in tax expense of $ 8,488,000 in 2018 , $ 38,569,000 in 2017 , and $ 11,889,000 in 2016 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises . the company can not predict the level of stock option exercises by employees in future periods . in 2018 , tax expense included a provision for state income taxes of $ 620,000 from a change in management 's financial statement assertion related to the indefinite reinvestment of foreign earnings . management has determined that earnings from its legal entity in china will remain indefinitely reinvested to provide sufficient local funding for growth , and that earnings from all other jurisdictions will not be indefinitely reinvested resulting in the additional state income tax provision . other discrete tax events resulted in a net decrease in tax expense of $ 2,467,000 in 2018 and a net decrease in tax expense of $ 2,502,000 in 2017 , consisting primarily of i ) the final true-up of the prior year 's tax accrual upon filing the related tax returns and ii ) the expiration of the statutes of limitations for certain reserves for income tax uncertainties . excluding the impact of these discrete tax events , the company 's effective tax rate was 14 % in 2018. the company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the united states , ireland , and china . the statutory tax rate is 12.5 % in ireland and 25 % in china , compared to the u.s. federal statutory corporate tax rate of 21 % . international rights to certain of the company 's intellectual property are held by a subsidiary whose legal jurisdiction does not tax this income , resulting in a foreign effective tax rate lower than the above mentioned statutory rates . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue revenue for the year ended december 31 , 2017 increased by $ 236,568,000 , or 45 % , from the prior year . changes in foreign currency exchange rates did not have a material impact on revenue . revenue increased by 32 % in the americas , 43 % in europe , and 63 % in asia due to a higher volume of machine vision products sold in all regions . although the increase in revenue came from a variety of industries , strong sales in the logistics industry was a large 20 contributor to the growth in the americas and strong sales in the consumer electronics industry was a large contributor to the growth in europe and asia . gross margin gross margin as a percentage of revenue was 75.6 % in 2017 compared to 75.2 % in 2016. the increase in gross margin was due to the favorable impact of material cost reductions and volume purchasing , as well as manufacturing efficiencies achieved from a higher revenue level as fixed manufacturing costs were spread over a larger revenue base . these decreases were partially offset by higher revenue from a material customer in the consumer electronics industry under a preferred pricing arrangement , and to a lesser extent , an increased level of projects in the logistics industry that require installation services with lower margins . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2017 increased by $ 20,936,000 , or 27 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_6_th rd & e expenses increased due to higher personnel-related costs resulting primarily from headcount additions , which included engineering talent from six business acquisitions completed since august 2016. the company also incurred higher spending on outsourced engineering to support new product initiatives . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted early in 2017. selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2017 increased by $ 54,618,000 , or 33 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_7_th sg & a expenses increased due to higher personnel-related and recruiting costs resulting from headcount additions , principally sales personnel . in addition , higher incentive compensation plan expenses , including sales commission and company bonus plans , were recorded in 2017 as a result of the additional headcount and higher achievement levels based upon the company 's performance . travel expenses and sales demonstration equipment costs were also higher in 2017 due to additional sales personnel and the higher business level . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted early in 2017. in 2017 , the company incurred costs for outside services related to the preliminary project and application development stages for a new enterprise resource planning ( erp ) system , which is the management information system that integrates the company 's manufacturing , order fulfillment , and financial activities . non-operating income ( expense ) the company recorded foreign currency losses of $ 1,601,000 in 2017 and foreign currency gains of $ 101,000 in 2016. the foreign currency losses in 2017 resulted primarily from the revaluation and settlement of accounts receivable denominated in u.s. dollars recorded on the books of the company 's irish subsidiary , for which the functional currency 21 is the euro .
| revenue from customers based in the americas increased by 25 % from the prior year driven by strong sales in the logistics industry . revenue from customers based in greater china increased by 16 % from 2017 , although this business was relatively flat in the fourth quarter of 2018 over the fourth quarter of 2017. revenue from customers based in europe decreased by 6 % and revenue from customers based in other asia regions decreased by 8 % from the prior year . revenue for both the europe and asia regions outside of greater china was impacted by the lower sales in the consumer electronics industry noted above . as of the date of this report , we expect revenue for the first quarter of 2019 to be lower than the fourth quarter of 2018. in addition to the sequential decrease in revenue we typically experience in the first quarter as many manufacturing customers spend their capital budgets by the calendar year end , we are experiencing slower order trends in the automotive industry in the americas and lower demand from customers based in greater china . gross margin gross margin as a percentage of revenue was 74.4 % in 2018 compared to 75.6 % in 2017. the decrease in gross margin was due primarily to a higher percentage of total revenue from the logistics industry . certain sales in this industry are for application-specific customer solutions , which typically have lower gross margins due to deployment services . unfavorable product mix for sales in the logistics industry also contributed to the lower gross margin percentage . 18 the company 's gross margin percentage has ranged in the mid 70s for the past several years . as of the date of this report , we expect the gross margin percentage for the first quarter of 2019 to continue to be within this historical range , but toward the lower end of this range due to anticipated unfavorable product mix toward sales in the logistics industry . operating
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23 there were seven hydrogen installations for the year ended december 31 , 2016 , for which the company recognized revenue . in addition , 11 additional sites were constructed and held as leased property during the year ended december 31 , 2016. revenue – services performed on fuel cell systems and related infrastructure . revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts . at december 31 , 2018 , there were 12,083 fuel cell units and 42 hydrogen installations under extended maintenance contracts , an increase from 9,768 and 6,796 fuel cell units and 32 and 22 hydrogen installations at december 31 , 2017 and 2016 , respectively . revenue from services performed on fuel cell systems and related infrastructure for the year ended december 31 , 2018 increased $ 5.8 million , or 35.8 % , to $ 22.0 million from $ 16.2 million for the year ended december 31 , 2017. included within revenue from services was provision for common stock warrants of $ 2.0 million and $ 3.5 million for the years ended december 31 , 2018 and 2017 , respectively , contributing to the increase in revenue . the increase in service revenues was due to the increase in units under service contracts . the revenue increase was not as significant as the increase in number of units under service contracts mainly due to deployments that occurred later in 2018 and , therefore , did not earn or only partially earned service revenue for 2018 as well as the occurrence of slightly less billable incidents and nonrecurring revenue . the average number of units under extended maintenance contracts in 2018 was 10,782 , compared to 8,072 in 2017. this 33.6 % increase in average units serviced throughout the year is directionally consistent with the fluctuation in revenue after considering the impact of the noncash provision for common stock warrants . revenue from services performed on fuel cell systems and related infrastructure for the year ended december 31 , 2017 decreased $ 1.1 million , or 6.6 % , to $ 16.2 million from $ 17.3 million for the year ended december 31 , 2016. included within revenue was provision for common stock warrants of $ 3.5 million for the year ended december 31 , 2017 , contributing to the decrease in revenue . there was no provision of common stock warrants for the year ended 2016. the increase in service revenues was due to the increase in units under service contracts . the revenue increase was not as significant as the increase in number of units under service contracts mainly due to deployments that occurred later in 2017 and , therefore , did not earn or only partially earned service revenue for 2017 as well as the occurrence of slightly less billable incidents and nonrecurring revenue . the average number of units under extended maintenance contracts in 2017 was 7,947 , compared to 6,554 in 2016. this 21.3 % increase in average units serviced throughout the year is directionally consistent with the fluctuation in revenue after considering the impact of the noncash provision for common stock warrants . revenue – power purchase agreements . revenue from ppas represents payments received from customers for power generated through the provision of equipment and service . the equipment and service can be associated with sale/leaseback transactions in which the company sells fuel cell systems and related infrastructure to a third-party , leases them back and operates them at customers ' locations who are parties to ppas with the company . alternatively , the company can retain the equipment as leased property and provide it to customers under ppas . at december 31 , 2018 , there were 37 genkey sites associated with ppas , as compared to 33 at december 31 , 2017 and 25 at december 31 , 2016. revenue from ppas for the year ended december 31 , 2018 increased $ 10.0 million , or 77.7 % , to $ 22.9 million from $ 12.9 million for the year ended december 31 , 2017. included within revenue was provision for common stock warrants of $ 0.3 million and $ 7.4 million for the years ended december 31 , 2018 and 2017 , respectively , contributing to the increase in revenue . the remaining increase is due to the increased number of sites the company has deployed with these types of arrangements . the average number of sites under ppa arrangements was 35 in 2018 , as compared to 30 in 2017. revenue from ppas for the year ended december 31 , 2017 decreased $ 0.8 million , or 6.0 % , to $ 12.9 million from $ 13.7 million for the year ended december 31 , 2016. included within revenue was provision for common stock warrants of $ 7.4 million for the year ended december 31 , 2017 , contributing to the decrease in revenue . there was no provision of common stock warrants for the year ended 2016. this decrease is largely offset by the increased number of sites the company has deployed with these types of arrangements . the average number of sites under ppa arrangements was 30 in 2017 , as compared to 21 in 2016. revenue – fuel delivered to customers . revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the company from a third party . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen , which is then sold to its customers . at december 24 31 , 2018 , there were 72 sites associated with fuel contracts , as compared to 58 at december 31 , 2017 and 40 at december 31 , 2016. the sites generally are the same as those which had purchased hydrogen installations within the genkey solution . revenue associated with fuel delivered to customers for the year ended december 31 , 2018 increased $ 14.3 million , or 175.1 % , to $ 22.5 story_separator_special_tag million from $ 8.2 million for the year ended december 31 , 2017. included within revenue was provision for common stock warrants of $ 3.1 million and $ 10.1 million for the years ended december 31 , 2018 and 2017 , respectively , contributing to the increase in revenue . the remaining increase in revenue is primarily due to an increase of sites taking fuel deliveries in 2018 , compared to 2017. the average number of sites receiving fuel deliveries was 66 in 2018 , as compared to 50 in 2017 , as well as increase in price . revenue associated with fuel delivered to customers for the year ended december 31 , 2017 decreased $ 2.7 million , or 25.2 % , to $ 8.2 million from $ 10.9 million for the year ended december 31 , 2016. included within revenue was provision for common stock warrants of $ 10.1 million for the year ended december 31 , 2017 , contributing to the decrease in revenue . there was no provision of common stock warrants for the year ended 2016. the increase in revenue is due to an increase of sites taking fuel deliveries in 2017 , compared to 2016. the average number of sites receiving fuel deliveries was 50 in 2017 , as compared to 33 in 2016. cost of revenue – sales of fuel cell systems and related infrastructure . cost of revenue from sales of fuel cell systems and related infrastructure includes direct materials , labor costs , and allocated overhead costs related to the manufacture of our fuel cells such as gendrive units and gensure stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations . cost of revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2018 increased $ 29.6 million , or 54.0 % , to $ 84.4 million , compared to the year ended december 31 , 2017 of $ 54.8 million , driven by the previously stated greater number of units and hydrogen installations recognized as revenue . gross margin generated from sales of fuel cell systems and related infrastructure was 21.3 % for the year ended december 31 , 2018 , up from 12.5 % for the year ended december 31 , 2017 , due to the level of the provision for common stock warrants recorded , which had a 4.3 % and 12.1 % impact on revenue , respectively . cost of revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2017 increased $ 25.3 million , or 85.5 % , to $ 54.8 million , compared to the year ended december 31 , 2016 of $ 29.5 million , driven by the previously stated greater number of units and hydrogen installations recognized as revenue . gross margin generated from sales of fuel cell systems and related infrastructure was 12.5 % for the year ended december 31 , 2017 , down from 26.1 % for the year ended december 31 , 2016 , due to increase the level of the provision for common stock warrants recorded , as previously discussed . the provision for common stock warrants had a 12.1 % impact on gross margin for the year ended december 31 , 2017. also , impacting the change year over year were product mix changes as well as expediting costs associated with a significant ramp up of production volume related to acquiring a large customer account that required higher deployments during the year ended december 31 , 2017 as compared to the same period in 2016. cost of revenue – services performed on fuel cell systems and related infrastructure . cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor , material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts . at december 31 , 2018 , there were 12,083 fuel cell units and 42 hydrogen installations under extended maintenance contracts , compared to 9,768 and 32 at december 31 , 2017 and 6,796 and 22 at december 2016 , respectively . cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended december 31 , 2018 increased $ 3.9 million , or 19.6 % , to $ 23.7 million , compared to the year ended december 31 , 2017 of $ 19.8 million . gross margin improved to ( 7.7 % ) for the year ended december 31 , 2018 from ( 22.3 % ) for the year ended december 31 , 2017. the change versus the prior year is due to the decrease in the level of the provision for common stock warrants recorded , as previously discussed , as well as a reduction in costs resulting from changes in product configuration rolled out to new key accounts and leverage of the existing fixed costs in the field . the provision for common stock warrants had an 8.1 % and 17.6 % impact on revenue , respectively . cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended december 31 , 2017 increased $ 0.7 million , or 3.9 % , to $ 19.8 million , compared to the year ended december 31 , 2016 of 25 $ 19.1 million . gross margin declined to ( 22.3 % ) for the year ended december 31 , 2017 from ( 9.9 % ) for the year ended december 31 , 2016. the change versus the prior year is due to increase in the level of the provision for common stock warrants recorded offset by reduction in costs resulting from changes in product configuration rolled out to new key accounts and leverage of the existing fixed costs in the field . the provision for common stock warrants a 17.6 % impact on revenue for the year ended december 31 , 2017. cost of revenue—provision for loss contracts related to service . during 2015 , the company recognized a $ 10.1
| the amount reclassified from cost of revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on ppas for the years ended december 31 , 2017 and 2016 was $ 3.1 million and $ 3.1 million , respectively . the company does not consider the impact of the prior period correction to be material to the prior period consolidated financial statements . the company also removed related fuels cell units and infrastructure sites from its services metrics , for purposes of discussing its results of operations . in 2017 , in separate transactions , the company issued to each of amazon and walmart warrants to purchase shares of the company 's common stock . the company recorded a portion of the estimated fair value of the warrants as a reduction of revenue based upon the projected number of shares of common stock expected to vest under the warrants , the proportion of purchases by amazon , walmart and their affiliates within the period relative to the aggregate purchase levels required for vesting of the respective warrants , and the then-current fair value of the warrants . beginning in september 2018 , the provision for common stock warrants is allocated to our individual revenue line items based on estimated contractual cash flows by revenue stream . prior period amounts have been reclassified to be consistent with current period presentation . the amount of provision for common stock warrants recorded as a reduction of revenue during the year ended december 31 , 2018 , 2017 and 2016 , respectively is shown in the table below ( in thousands ) : replace_table_token_3_th 22 revenue , cost of revenue , gross profit/ ( loss ) and gross margin for the years ended december 31 , 2018 , 2017 , and 2016 , was as follows ( in thousands ) : replace_table_token_4_th revenue – sales of fuel cell systems and related infrastructure . revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells , such as gendrive units and gensure stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site
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revenue associated with acquisitions accounted for 5 percentage points of revenue growth for the year ended october 31 , 2016 when compared to 2015. net revenue of $ 2,856 million in 2015 decreased 3 percent when compared to 2014. foreign currency movements had an unfavorable impact of 4 percentage points on the year-over-year compare . the revenue increase associated with acquisitions accounted for approximately 1 percentage point for the year ended october 31 , 2015 when compared to 2014 . 32 revenue from the communications solutions group represented approximately 60 percent of total revenue for the year ended october 31 , 2016 and increased 3 percent when compared to 2015. the communications solutions group contributed 1 percentage point to the total revenue growth in 2016 , with growth in europe , japan and asia pacific excluding japan , while the americas revenue was flat when compared to 2015. excluding revenue from anite , the communications solutions group revenue declined year-over-year as weakness in the smartphone supply chain and restructuring and consolidation activities in the industry offset strength in 5g technologies and data center expansion . for 2015 , the communications solutions group represented approximately 59 percent of total revenue and declined 4 percent when compared to 2014 , with declines in europe , asia pacific excluding japan and japan , partially offset by growth in the americas . the communication solutions group contributed 2 percentage points to the total keysight revenue decrease in 2015. revenue from the electronic industrial solutions group represented approximately 26 percent of total revenue for 2016 and grew 2 percent year-over-year when compared to the same period last year . the electronic industrial solutions group contributed 1 percentage point to total revenue growth in 2016 , with growth in asia pacific excluding japan and japan , partially offset by declines in europe and the americas . revenue from the electronic industrial solutions group represented approximately 27 percent of total revenue for 2015 and declined 1 percent year-over-year when compared to 2014. the electronic industrial solutions group 's contribution to the total revenue decline for 2015 was negligible , with declines in asia pacific excluding japan and japan , partially offset by growth in the americas and europe . revenue from the services solutions group represented approximately 14 percent of total revenue for both 2016 and 2015 , and was flat when compared year-over-year . the services solutions group contribution to the total revenue growth was negligible in 2016 , with growth in the americas and japan , partially offset by decline in asia pacific excluding japan , while europe was flat . for 2015 , the services solutions group had no impact on the overall decline . growth in the americas , europe and japan was partially offset by decline in asia pacific excluding japan . backlog backlog represents the amount of revenue expected from orders that have already been booked , including orders for goods and services that have not been delivered to customers , orders invoiced but not yet recognized as revenue , and orders for goods that were shipped but not invoiced , awaiting acceptance by customers . at october 31 , 2016 , our unfilled backlog was approximately $ 807 million as compared to approximately $ 779 million at october 31 , 2015. for the communications solutions group , our backlog was approximately $ 459 million at october 31 , 2016 as compared to approximately $ 442 million at october 31 , 2015. for the electronic industrial solutions group , our backlog was approximately $ 218 million at october 31 , 2016 as compared to approximately $ 211 million at october 31 , 2015. within our services solutions group , our backlog was approximately $ 130 million at october 31 , 2016 as compared to approximately $ 126 million at october 31 , 2015. we expect that a majority of the backlog will be recognized as revenue within six months . we believe backlog on any particular date , while indicative of short-term revenue performance , is not necessarily a reliable indicator of medium or long-term revenue performance . 33 costs and expenses replace_table_token_7_th replace_table_token_8_th gross margin remained flat in 2016 compared to 2015 as the favorable impacts from a higher percentage of revenue from software and r & d solutions , lower inventory and warranty charges were offset by unfavorable impacts from acquisition-related intangible amortization . gross margin remained flat in 2015 compared to 2014 primarily due to lower depreciation , warranty and inventory charges , offset by the unfavorable impact of lower revenue volume . excess and obsolete inventory charges were $ 17 million in 2016 , $ 28 million in 2015 and $ 33 million in 2014. sales of previously written-down inventory were $ 2 million in 2016 , $ 2 million in 2015 and $ 1 million in 2014. research and development expense increased 10 percent in 2016 compared to 2015 due to increased expenses associated with acquired companies and our continued investment in research and development programs . as a percentage of total revenue , research and development expenses increased 1 percentage point to 15 percent in 2016 from 14 percent in 2015. research and development expense increased 7 percent in 2015 compared to 2014. the increased expenditure was due to our continued investment in research and development programs and increased costs due to the acquisitions , partially offset by the favorable impact of currency movements . as a percentage of total revenue , research and development expenses increased 2 percentage points to 14 percent in 2015 from 12 percent in 2014. we expect investment in research and development to continue at current levels and have focused our development efforts on strategic growth opportunities . selling , general and administrative expenses increased 4 percent for 2016 , compared to the same period last year , primarily driven by the acquisition of anite , higher field selling costs , higher intangible amortization and higher separation-related costs , partially offset by the favorable impact from foreign currency movements and lower share-based compensation expense . story_separator_special_tag selling , general and administrative expenses were flat in 2015 when compared to 2014 , primarily driven by lower separation costs and the favorable impact of currency movements , offset by increases in share-based compensation , restructuring programs and increased costs due to acquisitions , primarily anite . other operating expense ( income ) , net for 2016 and 2015 was $ ( 25 ) million and $ ( 18 ) million , respectively , which includes primarily rental income . the increase in other operating income for 2016 was largely driven by a gain on the sale of land . operating margin decreased 1 percentage point in 2016 when compared to 2015 , primarily driven by the impacts of acquisition-related intangible amortization , higher integration costs and the addition of the anite cost structure , partially offset by favorable impacts from foreign currency movements and lower share-based compensation expense . operating margins declined 1 percentage point in 2015 compared to 2014 on lower revenue volume and increases in research and development expenses , restructuring programs , acquisition and integration related expenses , offset by decline in separation costs and the favorable impact of foreign currency . as of october 31 , 2016 , our headcount was approximately10,300 compared to 10,250 in 2015. interest expense interest expense for the year ended october 31 , 2016 and 2015 was $ 47 million and $ 46 million , respectively , and relates to interest on our senior notes issued in october 2014 . 34 income taxes replace_table_token_9_th for 2016 , the effective tax rate was 8 percent , which is lower than the u.s. statutory rate primarily due to a higher percentage of earnings in the non-u.s. jurisdictions taxed at lower statutory tax rates . also , the tax rate was lower than the u.s. statutory rate due to the net tax benefit of $ 45 million resulting from the repatriation of earnings from japan , which includes a u.s. tax expense of $ 27 million offset by $ 72 million of foreign tax credits recorded in connection with the repatriation . for 2015 , the effective tax rate was a benefit of 32 percent , which is lower than the u.s. statutory rate primarily due to the retroactive benefit of two tax incentives in singapore approved during 2015. also , the tax rate was lower than the u.s. statutory rate due to a higher percentage of earnings in the non-u.s. jurisdictions taxed at lower statutory tax rates . for 2014 , the effective tax rate was 18 percent . the 18 percent effective tax is lower than the u.s. statutory rate primarily due to a higher percentage of earnings in non-u.s. jurisdictions taxed at lower statutory tax rates in particular singapore , where we benefited from tax incentives for the first three quarters of 2014 , which resulted in $ 40 million lower income tax expense . the 2014 rate was also favorably impacted by a $ 55 million benefit from a prior year reserve release , which was offset by $ 62 million of tax expense as a result of the repatriation of foreign earnings . we benefit from tax incentives in several different jurisdictions , most significantly in singapore , and several jurisdictions have granted tax incentives that require renewal at various times in the future . the tax incentives provide lower rates of taxation on certain classes of income and require various thresholds of investments and employment or specific types of income in those jurisdictions . the tax incentives are due for renewal between 2024 and 2025. the impact of the tax incentives decreased income taxes by $ 34 million , $ 250 million and $ 40 million in 2016 , 2015 , and 2014 , respectively . in accordance with the guidance on the accounting for uncertainty in income taxes , for all u.s. and other tax jurisdictions , we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes and interest will be due . if our estimate of income tax liabilities proves to be less than the ultimate assessment , a further charge to expense would be required . if events occur and the payment of these amounts ultimately proves to be unnecessary , the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary . we include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the combined and consolidated statements of operations . for the majority of our entities , the open tax years for the irs , state and most foreign audit authorities are from august 1 , 2014 through the current tax year . for certain historical agilent foreign entities that keysight retained as part of the separation , the tax years generally remain open back to the year 2005. for certain entities acquired during 2015 , the tax years also remain open back to the year 2006. given the number of years and numerous matters that remain subject to examination in various tax jurisdictions , we are unable to estimate the range of possible changes to the balance of our unrecognized tax benefits . for fiscal 2014 and prior , we have calculated our taxes on a separate return basis . however , the amounts recorded for fiscal 2014 and prior are not necessarily representative of the amounts that would have been reflected in the financial statements had we been an entity that operated independently of agilent . consequently , our results after our separation from agilent may be materially different than those periods prior to the separation . segment overview in fiscal year 2016 , we completed an organizational change to align our organization with the industries we serve . as a result of this organizational realignment , we have three reportable operating segments : communications solutions group , electronic industrial solutions group and services solutions group .
| orders associated with acquisitions accounted for 5 percentage points of order growth for the year ended october 31 , 2016 when compared to 2015. total orders in 2015 were $ 2,853 million , a decrease of 4 percent when compared to 2014. foreign currency movements had an unfavorable impact of 4 percentage points on the year-over-year comparison . orders associated with acquisitions accounted for 1 percentage point of order growth for the year ended october 31 , 2015 when compared to 2014. keysight 's net revenue of $ 2,918 million in 2016 increased 2 percent when compared to 2015. foreign currency movements had no impact on the year-over-year comparison . the revenue increase associated with acquisitions accounted for approximately 5 percentage points for the year ended october 31 , 2016 when compared to 2015. excluding acquisitions , revenue declined year-over-year as weakness in the smartphone supply chain and restructuring and consolidation activities in the industry offset strength in 5g technologies and data center expansion . net revenue of $ 2,856 million in 2015 decreased 3 percent when compared to 2014. foreign currency movements had an unfavorable impact of 4 percentage points on the year-over-year comparison . the revenue increase associated with acquisitions accounted for approximately 1 percentage point for the year ended october 31 , 2015 when compared to 2014. net income was $ 335 million in 2016 compared to net income of $ 513 million and $ 392 million in 2015 and 2014. in 2016 , 2015 and 2014 , we generated operating cash flows of $ 416 million , $ 376 million and $ 563 million . respectively . looking forward , we believe the long-term growth rate of our markets is 2 to 3 percent , although near-term macroeconomic indicators remain mixed . our focus is on delivering value through innovative electronic design and test solutions as well as continuously improving our operational efficiency . we accelerated our efforts in both wireless communications and software by acquiring anite in august 2015. this
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replace_table_token_5_th provision for loan losses the provision for loan losses is a charge to income necessary to maintain the allowance for loan losses at a level considered appropriate by management . factors impacting the provision include loan portfolio growth , changes in the quality and composition of the loan portfolio , the level of nonperforming loans , delinquency and charge-off trends , and current economic conditions . the provision expense for the year ended december 31 , 2019 , was $ 1.8 million , a decrease of $ 180,000 from $ 2.0 million for the year ended december 31 , 2018 . as of december 31 , 2019 , the allowance for loan losses totaled $ 13.9 million , or 0.97 % , of loans hfi compared to $ 12.5 million as of december 31 , 2018 , or 0.94 % , of loans hfi . noninterest income our primary sources of noninterest income are service charges on deposit accounts , debit card fees , fees related to the sale of mortgage loans , brokerage income from advisory services , and other loan and deposit fees . noninterest income increased $ 1.4 million to $ 16.0 million for the year ended december 31 , 2019 , compared to the prior year . the increase in noninterest income was mainly due to higher mortgage loan income , higher sbic income , a change in equity securities mark-to-market valuation , higher brokerage income , and higher loan and deposit fee income . these increases were partially offset by decreases in boli income and in other income . 49 the table below presents , for the periods indicated , the major categories of noninterest income : replace_table_token_6_th mortgage loan income increased $ 895,000 for 2019 , compared to the prior year . this growth was attributed to increased demand for new and refinanced mortgage loans due to a lower mortgage interest rate environment and a higher dollar amount of mortgage loans closed in 2019. sbic income increased $ 310,000 to $ 819,000 for 2019 , compared to the prior year due to higher income from an sbic limited partnership of which red river bank is a member . this increase was a result of an additional $ 214,000 dividend received from the sbic in the second quarter of 2019 and a $ 96,000 increase in distributions for 2019 . the gain or loss on equity securities is a mark-to-market adjustment primarily driven by a change in the interest rate environment . due to fluctuations in market rates between periods , equity securities had a mark-to-market gain of $ 115,000 for 2019 , compared to an $ 85,000 loss for 2018 . bank-owned life insurance income decreased $ 188,000 to $ 544,000 for 2019 , compared to $ 732,000 for 2018 . this decrease was attributed to $ 173,000 in insurance proceeds received in 2018. brokerage income increased $ 181,000 to $ 2.1 million for 2019 , compared to 2018 . this increase was due to the addition of new brokerage clients as well as additional funds invested by existing clients . red river bank 's investment group has experienced incremental revenue growth over the last 12 months . assets under management increased 28.5 % to $ 633.1 million as of december 31 , 2019 , from $ 492.6 million as of december 31 , 2018 . loan and deposit income increased $ 162,000 for 2019 , compared to the prior year . this increase was primarily related to higher credit card income as a result of a larger number of credit cards outstanding and higher credit card transaction volume in 2019. other income decreased $ 207,000 for 2019 , compared to 2018 . this decrease was due to a $ 253,000 reduction in gain on oreo transactions , partially offset by a $ 24,000 increase in oreo income in 2019. operating expenses operating expenses are composed of all employee expenses and costs associated with operating our facilities , obtaining and retaining customer relationships , and providing services . for the year ended december 31 , 2019 , operating expenses totaled $ 47.3 million , an increase of $ 3.9 million , or 9.0 % , compared to $ 43.4 million for the year ended december 31 , 2018 . the increase in operating expenses was mainly due to higher personnel expenses , data processing expense , and occupancy and equipment expenses , partially offset by the lack of an fdic insurance assessment in the second half of 2019 . 50 the following table presents , for the periods indicated , the major categories of operating expenses : replace_table_token_7_th personnel expenses are the largest component of operating expenses and include payroll expenses , incentive compensation , benefit plans , health insurance , and payroll taxes . personnel expenses were $ 27.8 million for 2019 , an increase of $ 1.7 million compared to 2018. the increase in personnel expenses was related to an increase in back office staff to support increasing volumes and to prepare to operate as a public company , as well as personnel for the new northshore market . for 2019 and 2018 , we had 325 and 320 full-time equivalent employees , respectively . in addition , revenue-based commission compensation increased for the year ended december 31 , 2019 , compared to the prior year , due to higher mortgage and brokerage income . data processing expense increased $ 496,000 to $ 1.9 million for 2019 compared to 2018 . this increase was due to an increase in loan and deposit account volume and activity as well as $ 285,000 less in refunds received from our data processing center in 2019 compared to 2018. occupancy and equipment expenses increased $ 476,000 to $ 5.0 million for 2019 compared to 2018 as a result of opening our market headquarters building in the southeast market and entering the northshore market with a temporary lpo that was closed and replaced with a new full-service banking center . loan and deposit expenses increased $ 296,000 to $ 1.1 million for 2019 compared to 2018 . story_separator_special_tag the increase was the result of approximately $ 86,000 of nonrecurring loan development expenses , a $ 70,000 increase in credit card expenses due to a larger number of credit cards outstanding and more transaction volume in 2019 , and a $ 48,000 increase in collection expenses . additionally , 2018 benefited from the receipt of a $ 71,000 negotiated rebate from a vendor , resulting in lower loan and deposit expenses during that period . regulatory assessment expense decreased $ 291,000 in 2019 compared to 2018 . the bank was notified by the fdic that it did not have an fdic insurance assessment for the third and fourth quarters of 2019. therefore , no fdic insurance assessment expense was incurred for these periods . the fdic insurance assessment expense for 2019 was $ 250,000 compared to $ 518,000 in 2018. advertising expense increased $ 263,000 to $ 1.0 million for 2019 compared to 2018 . the increase was primarily attributed to media campaigns and marketing events in our newer markets in 2019 . other taxes increased $ 252,000 to $ 1.6 million for 2019 compared to 2018 . the increase was due to a $ 263,000 increase in state of louisiana bank stock tax resulting from having higher deposit account balances and higher net income for the applicable tax years . technology expenses increased $ 223,000 to $ 2.3 million for 2019 compared to the prior year . this increase was primarily a result of network expansion in the new northshore market , cybersecurity and information technology infrastructure enhancements , and new software to operate as a public company . 51 income tax expense the amount of income tax expense is influenced by the amounts of our pre-tax income , tax-exempt income , and other nondeductible expenses . deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . our effective income tax rates have differed from the u.s. statutory rate due to the effect of tax-exempt income from loans , securities and life insurance policies , and the income tax effects associated with stock-based compensation . for the years ended december 31 , 2019 and 2018 , income tax expense totaled $ 5.6 million and $ 5.3 million , respectively . the 2019 effective income tax rate was 18.5 % compared to 18.7 % for 2018. financial condition general as of december 31 , 2019 , total assets were $ 1.99 billion which was $ 127.6 million , or 6.9 % , higher than total assets of $ 1.86 billion as of december 31 , 2018 . within total assets , compared to december 31 , 2018 , loans hfi increase d by $ 110.5 million , afs securities increase d by $ 27.7 million , and interest-bearing deposits in other banks decrease d by $ 10.5 million . for liabilities , compared to december 31 , 2018 , deposits increased $ 75.5 million and junior subordinated debentures were completely paid off and the related trusts terminated as of december 31 , 2019 . as of december 31 , 2019 , the loans hfi to deposits ratio was 83.60 % , and the noninterest-bearing deposits to total deposits ratio was 33.98 % . stockholders ' equity increased $ 58.2 million from december 31 , 2018 , mainly due to the $ 26.8 million of proceeds from the ipo , net of expenses and underwriting commissions , and $ 24.8 million of net income . securities our securities portfolio is the second largest component of earning assets and provides a significant source of revenue . as of december 31 , 2019 , our securities portfolio was 17.1 % of total assets . it is designed primarily to provide and maintain liquidity , generate a favorable return on investments without incurring unnecessary interest rate and credit risk , and complement our lending activities . we may invest in various types of liquid assets that are permissible under governing regulations and approved by our investment policy , which include u.s. treasury obligations , u.s. government agency obligations , certificates of deposit of insured domestic banks , mortgage-backed and mortgage-related securities , corporate notes having an investment rating of `` a '' or better , municipal bonds , and certain equity securities . total securities were $ 339.5 million as of december 31 , 2019 , an increase of $ 27.8 million , or 8.9 % , from $ 311.7 million as of december 31 , 2018. the $ 339.5 million was comprised of $ 335.6 million in afs securities and $ 3.9 million in equity securities . investment activity during 2019 included $ 145.6 million of securities purchased during the year , partially offset by $ 58.9 million in sales and $ 67.1 million in maturities , prepayments , and calls . the market value of the investment portfolio increased $ 9.5 million for the year ended december 31 , 2019. as of december 31 , 2019 and 2018 , all securities were classified as afs . in the fourth quarter of 2018 , all htm securities owned were reclassified to afs , allowing these securities to be available for liquidity purposes as needed . in 2019 , we sold $ 58.9 million of securities , consisting of a mix across various sectors that had short-term remaining maturities . these transactions included mostly lower yielding securities , along with a few strategic higher yielding securities which also had short average lives . we were able to obtain a small gain on these transactions , and the proceeds from the sales were used to purchase mortgage-backed and tax-exempt municipal securities , both at higher yields . these realignment transactions reduced the amount of securities repricing in the short-term and partially mitigated our exposure to a decreasing rate environment . the securities portfolio tax-equivalent yield was 2.32
| the increase in net income is due to a $ 4.4 million increase in net interest income , a $ 1.4 million increase in noninterest income , partially offset by a $ 3.9 million increase in operating expenses . the return on average assets for the year ended december 31 , 2019 , was 1.30 % and 1.29 % for the year ended december 31 , 2018 . the return on average equity was 10.86 % for the year ended december 31 , 2019 , and 12.46 % for the year ended december 31 , 2018 . our efficiency ratio for the year ended december 31 , 2019 , was 59.46 % , compared to 58.86 % for the year ended december 31 , 2018 . net interest income and net interest margin our operating results depend primarily on our net interest income . fluctuations in market interest rates impact the yield on interest-earning assets and the rate paid on interest-bearing liabilities . changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income . to evaluate net interest income , we measure and monitor : ( 1 ) yields on loans and other interest-earning assets ; ( 2 ) the costs of deposits and other funding sources ; ( 3 ) net interest spread ; and ( 4 ) net interest margin . since noninterest-bearing sources of funds , such as noninterest-bearing deposits and stockholders ' equity , also fund interest-earning assets , net interest margin includes the benefit of these noninterest-bearing funding sources . the federal reserve sets the target federal funds rate , which is the cost of immediately available overnight funds , and influences other market rates , such as the prime rate . these market rates impact pricing of certain assets and liabilities used by financial institutions . our net interest income and net interest margin are directly affected by these rates and their changes . during 2018 , the target federal funds rate increased 100 bps ( 25 bps in each of march , june , september , and december ) , and was 2.50 % as
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with respect to financial market activity , our profitability is sensitive to a variety of factors , including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions , the volatility of the equity and fixed income markets , the level and shape of various yield curves , the volume and value of trading in securities , and the value of our customers ' assets under management . the municipal underwriting market is challenging as state and local governments reduce their debt levels . investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks . investor confidence has been dampened by continued uncertainty surrounding the u.s. fiscal and debt ceiling , the debt concerns in europe , and sluggish employment growth . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . at december 31 , 2016 , the key indicators of the markets ' performance , the nasdaq , the s & p 500 , and dow jones industrial average closed 7.5 % , 9.5 % , and 13.4 % higher than their december 31 , 2015 , closing prices , respectively . as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . 30 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > except as noted in the following discussion of variances , the underlying reasons for the increase in revenue can be attributed principally to the increased number of private client group offices and financial advisors in our global wealth management segment and the increased number of revenue producers in our institutional group segment , and the acquisitions of de la rosa on april 3 , 2014 , oriel on july 31 , 2014 , and 1919 investment counsel on november 7 , 2014. the results of operations for de la rosa , oriel , and 1919 investment counsel are included in our results prospectively from the date of their respective acquisitions . commissions – for the year ended december 31 , 2015 , commission revenues increased 11.1 % to $ 749.5 million from $ 674.4 million in 2014. the increase is primarily attributable to an increase in mutual fund and equity transactions . principal transactions – for the year ended december 31 , 2015 , principal transactions revenues decreased 5.0 % to $ 389.3 million from $ 409.8 million in 2014. the decrease from 2014 is primarily attributable to lower institutional equity brokerage revenues as a result of lower volumes . the decrease is partially offset by the revenues generated by the sterne fixed income business acquired in june 2015. investment banking – for the year ended december 31 , 2015 , investment banking revenues decreased 13.1 % , to $ 503.1 million from $ 578.7 million in 2014. the decrease is primarily attributable to a decrease in advisory fees , partially offset by an increase in capital-raising revenues . capital-raising revenues increased 0.8 % to $ 307.6 million for the year ended december 31 , 2015 , from $ 305.2 million in 2014. for the year ended december 31 , 2015 , equity capital-raising revenues decreased 23.7 % to $ 177.5 million from $ 232.5 million in 2014. for the year ended december 31 , 2015 , fixed income capital-raising revenues increased 79.0 % to $ 130.1 million from $ 72.7 million in 2014. advisory fees decreased 28.5 % to $ 195.5 million for the year ended december 31 , 2015 , from $ 273.5 million in 2014. the decrease is primarily attributable to a decrease in the number of completed advisory transactions during 2015 , as well as a decline in the number of larger transactions that were completed in 2014. asset management and service fees – for the year ended december 31 , 2015 , asset management and service fee revenues increased 27.9 % to $ 493.8 million from $ 386.0 million in 2014. the increase is primarily a result of an increase in the number and value of fee-based accounts . see “ asset management and service fees ” in the global wealth management segment discussion for information on the changes in asset management and service fees revenues . other income – for the year ended december 31 , 2015 , other income increased 320.9 % to $ 62.2 million from $ 14.8 million in 2014. other income primarily includes investment gains , including gains on our private equity investments , and loan originations fees from stifel bank . 33 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_6_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in “ results of operations – global wealth management ” for additional information on stifel bank 's average balances and interest income and expense . year ended december 31 , 2016 , compared with year ended december 31 , 2015 net interest income – net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2016 , net interest income increased 70.1 % to $ 227.5 million from $ 133.7 million in 2015. for the year ended december 31 , 2016 , interest revenue increased 64.3 story_separator_special_tag % to $ 294.3 million from $ 179.1 million in 2015 , principally as a result of a $ 107.0 million increase in interest revenue generated from the growth in interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 9.8 billion during the year ended december 31 , 2016 , compared to $ 5.2 billion during 2015 at average interest rates of 2.50 % and 2.65 % , respectively . for the year ended december 31 , 2016 , interest expense increased 47.3 % to $ 66.9 million from $ 45.4 million in 2015. the increase is primarily attributable to our july 2016 issuance of $ 200.0 million senior notes , the write-off of debt issuance costs as a result of the redemption of our company 's $ 150.0 million 5.375 % senior notes in july 2016 , and the december 2015 issuance of $ 300.0 million of 3.50 % senior notes . the increase in interest expense is also attributable to an increase in interest expense paid on the interest-bearing liabilities of stifel bank . year ended december 31 , 2015 , compared with year ended december 31 , 2014 net interest income – for the year ended december 31 , 2015 , net interest income decreased 7.6 % to $ 133.7 million from $ 144.7 million in 2014. for the year ended december 31 , 2015 , interest revenue decreased 3.7 % to $ 179.1 million from $ 186.0 million in 2014 , principally as a result of a $ 6.3 million decrease in interest revenue generated from interest-earning assets of stifel bank due to a decline in interest rates . the average interest-earning assets of stifel bank increased to $ 5.2 billion during the year ended december 31 , 2015 , compared to $ 5.0 billion in 2014 at average interest rates of 2.65 % and 2.87 % , respectively . 34 for the year ended december 31 , 2015 , interest expense increased 10.0 % to $ 45.4 million from $ 41.3 million in 2014. the increase is primarily attributable to an increase in interest expense associated with our july 2014 issuance of $ 300.0 million of 4.250 % senior notes , offset by the reduction of interest paid as a result of the redemption of the $ 175.0 million 6.70 % senior notes in january 2015 and a decline in interest expense paid on the interest-bearing liabilities of stifel bank . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_7_th year ended december 31 , 2016 , compared with year ended december 31 , 2015 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions , and increased administrative overhead to support the growth in our segments . compensation and benefits – compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes , and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits . other compensation costs , including base salaries , stock-based compensation amortization , and benefits , are more fixed in nature . for the year ended december 31 , 2016 , compensation and benefits expense increased 10.0 % to $ 1.7 billion from $ 1.6 billion in 2015. the increase is principally due to the following : 1 ) increased variable compensation as a result of increased revenue production , and 2 ) an increase in fixed compensation for additional administrative support staff . compensation and benefits expense for the year ended december 31 , 2016 , includes a non-cash charge of $ 58.6 million ( pre-tax ) related to the expensing of certain restricted stock awards granted to employees of barclays . during 2016 , the company 's board of directors removed the continuing service requirements associated with restricted stock units that were granted to certain employees of barclays in december 2015. as a result of the modification , the awards were expensed at date of modification . the fair value of the awards is based upon the closing price of our company 's common stock on the date of the grant of the awards . compensation and benefits expense as a percentage of net revenues was 67.0 % for the year ended december 31 , 2016 , compared to 67.3 % for the year ended december 31 , 2015. occupancy and equipment rental – for the year ended december 31 , 2016 , occupancy and equipment rental expense increased 11.5 % to $ 231.3 million from $ 207.5 million in 2015. the increase is primarily due to the increase in rent and depreciation expense . communications and office supplies – communications expense includes costs for telecommunication and data transmission , primarily for obtaining third-party market data information . for the year ended december 31 , 2016 , communications and office supplies expense increased 6.9 % to $ 139.6 million from $ 130.7 million in 2015. the increase is primarily attributable to an increase in quote and communication equipment expense . commissions and floor brokerage – for the year ended december 31 , 2016 , commissions and floor brokerage expense increased 4.2 % to $ 44.3 million from $ 42.5 million in 2015. the increase is primarily attributable to an increase in trade execution costs . other operating expenses – other operating expenses primarily include license and registration fees , litigation-related expenses , which consist of amounts we reserve and or payout for legal and regulatory matters , travel and entertainment , promotional , and professional service expenses . for the year ended december 31 , 2016 , other operating expenses increased 21.3 % to $ 291.6 million from $ 240.5 million in 2015.
| investment banking – investment banking revenues include : ( i ) capital-raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) advisory fees related to corporate debt and equity offerings , municipal debt offerings , merger and acquisitions , private placements , and other investment banking advisory fees . for the year ended december 31 , 2016 , investment banking revenues increased 2.0 % , to $ 513.0 million from $ 503.1 million in 2015. the increase is primarily attributable to an increase in advisory fees , which was positively impacted by the eaton partners acquisition , partially offset by a decrease in capital-raising revenues . capital-raising revenues decreased 16.6 % to $ 256.4 million for the year ended december 31 , 2016 , from $ 307.6 million in 2015. for the year ended december 31 , 2016 , equity capital-raising revenues decreased 18.8 % to $ 144.1 million from $ 177.5 million in 2015. for the year ended december 31 , 2016 , fixed income capital-raising revenues decreased 13.7 % to $ 112.3 million from $ 130.1 million in 2015. advisory fees increased 31.3 % to $ 256.6 million for the year ended december 31 , 2016 , from $ 195.5 million in 2015. the increase is primarily attributable to an increase in the number of completed advisory transactions during 2016. asset management and service fees – asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients . investment advisory fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2016 , asset management and service fee revenues increased 18.0 % to $ 582.8 million from $ 493.8 million in 2015. the increase is primarily a result of an increase in the number and value of fee-based accounts . the growth of asset management
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upon the terms and subject to the conditions set forth in the merger agreement , merger sub will merge with and into novitium , with novitium surviving the merger as a wholly-owned subsidiary of parent ( the “ merger ” ) . the closing of the merger ( the “ closing ” ) will occur ( a ) within five business days after all of the conditions to the closing set forth in the merger agreement are satisfied or waived or ( b ) at such other time , date and place as may be agreed by parent and novitium , subject to the completion of a minimum period . the merger consideration will consist of a combination of ( i ) an estimated cash amount of $ 89.5 million , subject to various adjustments and expected to be financed in part by a $ 25.0 million private investment in public equity ( “ pipe investment ” ) ( as defined below ) and in part by new debt financing , ( ii ) an aggregate of 2,466,667 shares of parent common stock , and ( iii ) up to $ 46.5 million in contingent future earn-out payments . we will finance the transaction with a new $ 340.0 million senior secured credit facility ( the “ facility ” ) , consisting of a $ 300.0 million term loan and a $ 40.0 million revolving credit facility , the issuance of approximately $ 74.0 million in equity to the sellers , and a $ 25.0 million pipe investment by ampersand capital partners . the new debt financing will be secured by substantially all the assets of ani and its subsidiaries and used for the cash portion of the acquisition and to refinance ani 's existing senior credit facilities . concurrently with the execution of the merger agreement , on march 8 , 2021 , parent entered into an equity commitment and investment agreement ( the “ investment agreement ” ) with ampersand 2020 limited partnership ( the “ pipe investor ” ) , an affiliate of ampersand capital partners , pursuant to which we agreed to issue and sell to the pipe investor , and the pipe investor agreed to purchase , 25,000 shares of our series a convertible preferred stock ( the “ pipe shares ” ) , for a purchase price of $ 1,000 per share and an aggregate purchase price of $ 25.0 million , in a private placement ( the “ pipe investment ” ) . the completion of the merger transaction is subject to various closing conditions , including approval by ani stockholders of the issuance of ani common stock in connection with the merger . for more information about the pending merger transaction , please see the form 8-k filed on march 9 , 2021 by ani pharmaceuticals , inc. , which is incorporated by reference herein . fiscal 2020 developments asset acquisitions in july 2020 , we acquired an anda and certain related inventories from a private company for total consideration of $ 4.3 million . the transaction was funded using cash on hand . 41 in may 2020 , we entered into an agreement with a private company to purchase an anda and api for one currently marketed generic drug product and certain api for $ 0.2 million . the transaction was funded using cash on hand . in january 2020 , we completed the acquisition of the u.s. portfolio of 23 generic products and api and finished goods related to certain of those products from amerigen pharmaceuticals , ltd. ( `` amerigen '' ) for a purchase consideration of $ 56.8 million and up to $ 25.0 million in contingent payments over the next three years . the product portfolio at the time of the acquisition included ten commercial products , three approved products with launches pending , four filed products and four in-development products as well as a license to commercialize two approved products . the transaction was funded using cash on hand and $ 15.0 million in borrowings under our $ 75.0 million revolver . product launches during 2020 , we launched the following products . refer to our website at www.anipharmaceuticals.com for further information on the products , including indications/treatments . replace_table_token_2_th cortrophin gel re-commercialization update in april 2020 , the food and drug administration ( “ fda ” ) issued a refusal to file ( “ rtf ” ) letter for our supplemental new drug application ( “ snda ” ) for cortrophin gel . since this time , our efforts have been focused on the preparation of a complete resubmission of the snda . we immediately retained a prominent regulatory consulting firm to support our efforts and augment the capabilities of our internal cortrophin development team . in addition , we restructured the composition of the internal team . we have performed a comprehensive review of the original snda filing and prepared an internal gap assessment . the resultant remediation activities are currently in-progress and we currently anticipate re-submitting the snda in the second quarter of 2021. in addition , in the third quarter of 2019 , we began purchasing materials that are intended to be used commercially in anticipation of fda approval of cortrophin gel and the resultant product launch . under u.s. gaap , we can not capitalize these pre-launch purchases of materials as inventory prior to fda approval , and accordingly , they are charged to expense in the period in which they are incurred . we expect these pre-launch purchases of material to increase significantly in the future as we build raw materials , api and finished goods for the expected launch of this product . management transition on may 10 , 2020 , our former president and chief executive officer , arthur s. przybyl , departed the company . our board of directors retained an executive search firm to lead the search for a new president and chief executive officer . story_separator_special_tag in august 2020 , we announced that nikhil lalwani was named our president and chief executive officer and his employment was effective september 8 , 2020 , at which time he also joined our board of directors . 42 covid-19 impact we continue to closely monitor the impact of the novel coronavirus ( “ covid-19 ” ) pandemic on our business and the geographic regions where we operate . during the three months ended june 30 , 2020 , per iqvia/ims data , total market generic and brand prescriptions in the united states declined when compared to each of the previous calendar quarters during the trailing 12 months . the decline was in part attributable to the covid-19 pandemic , including but not limited to negative impacts from “ shelter-in-place ” and quarantine orders in certain states , restrictions on travel , the prohibition of elective medical procedures , and the related downstream impact of the global economic activity during this period . the decline in prescriptions due to the covid-19 pandemic negatively impacted our generic and brand net revenues during the three months ended june 30 , 2020. during the three month periods ending september 30 , 2020 and december 31 , 2020 , iqvia/ims data indicates both brand and generic total market prescription volume increased when compared to the three month period ended june 30 , 2020 , in part due to the easing of covid-19 related restrictions . however , total market prescription volume did not increase to pre-pandemic levels during this period . we have not experienced a significant impact to our manufacturing operations ; however , we have seen minor disruptions to our supply chain from the covid-19 pandemic during 2020. our manufacturing facilities in baudette , minnesota and oakville , ontario have remained open throughout the pandemic and have operated in accordance with local , state and national safety guidelines . the pandemic has not impacted our access to capital and has not significantly impacted our use of funds , including but not limited to capital expenditures , spend on research and development activities and business development opportunities . we are unable to predict the impact that the covid-19 pandemic will have on our future financial condition , results of operations and cash flows due to numerous uncertainties . these uncertainties include the scope , severity and duration of the pandemic , the level of success of continued actions taken to contain the pandemic or mitigate its impact , including the availability of vaccines , and the direct and indirect economic effects of the pandemic and containment measures , among others . the outbreak of covid-19 in many countries , including the united states and canada , has had a significant adverse impact on global economic activity and has contributed to significant volatility and negative pressure in financial markets . as a result , the covid-19 pandemic has negatively impacted almost every industry , either directly or indirectly . further , the impacts of a potential worsening of global economic conditions and the continued disruptions to , and volatility in , the credit and financial markets , pharmaceutical supply chains , patient access to healthcare as well as other unanticipated consequences remain unknown . story_separator_special_tag of termination benefit expenses related to the departure of our former president and ceo , comprised of $ 3.4 million of stock-based compensation expense and $ 3.1 million of expense for salary continuation , bonus , and fringe benefits , increased quality assurance and outside testing expenses , and increased headcount . we also incurred $ 0.8 million in recruitment and related legal charges associated with our ceo search . the increases were tempered by a decrease in legal fees . ● depreciation and amortization expense was $ 44.6 million for the years ended december 31 , 2020 and 2019. in 2020 , the non-recurrence of amortization expense related to the january 2019 royalty buy out decreased amortization expense , and this decrease was offset by the amortization of the andas and marketing and distribution rights acquired in january 2020 from amerigen and the anda acquired in july 2020 . ● as described in note 13 , cortrophin pre-launch charges , in the notes to the consolidated financial statements in part ii , item 8. of this annual report on form 10-k , we recognized cortrophin pre-launch charges of $ 11.3 million in the year ended december 31 , 2020. we recognized cortrophin pre-launch charges of $ 6.7 million in the year ended december 31 , 2019. we currently expect to incur total expense related to this activity of approximately $ 15.0- $ 20.0 million for 2021 . ● we recognized an impairment charge of $ 0.4 million in relation to a marketing and distribution right intangible asset during the year ended december 31 , 2020. we recognized an impairment charge of $ 75 thousand in relation to our ranitidine product right intangible asset during the year ended december 31 , 2019. other expense , net replace_table_token_7_th for the year ended december 31 , 2020 , we recognized other expense , net of $ 9.9 million versus other expense , net of $ 13.2 million for the same period in 2019 , a decrease of $ 3.2 million . interest expense , net for 2020 consists primarily of interest expense on our term loan , ddtl , and revolver . interest expense , net for 2019 consists primarily of interest expense on our convertible debt , including amortization of related debt discount , and interest expense on borrowings under our term loan and ddtl . for the year ended december 31 , 2020 and 2019 , there was $ 0.1 million of interest capitalized into construction in progress . the decrease in expense in 2020 is due primarily to the non-recurrence of amortization of the debt discount related to the convertible debt , which matured and was repaid in november 2019. the decrease was tempered by increased borrowing rates on the term loan and ddtl and new borrowings under the revolver .
| these actions resulted in a decline in generic prescriptions during the year ended december 31 , 2020 , primarily during the second quarter ended june 30 , 2020 , when compared to the year ended december 31 , 2019 . ● net revenues for branded pharmaceutical products were $ 48.0 million during the year ended december 31 , 2020 , a decrease of 24.8 % compared to $ 63.8 million for the same period in 2019. the primary reasons for the decrease were lower unit sales of inderal la , inderal xl and innopran xl , as well as a decrease in sales of 44 arimidex and atacand . during the year ended december 31 , 2020 , and primarily during the second quarter ended june 30 , 2020 , the overall brand pharmaceutical product market and our brand revenue results were negatively impacted by the covid-19 pandemic , including but not limited to effects from “ shelter-in-place ” orders and the prohibition of elective medical procedures . these actions resulted in a decline in brand prescriptions during the year ended december 31 , 2020 , primarily during the second quarter ended june 30 , 2020 , when compared to the year ended december 31 , 2019 . ● contract manufacturing revenues were $ 9.2 million during the year ended december 31 , 2020 , a decrease of 17.2 % compared to $ 11.1 million for the same period in 2019 , due to a decreased volume of orders from contract manufacturing customers in the period . ● royalty and other were $ 4.0 million during the year ended december 31 , 2020 , an increase of $ 1.1 million from $ 2.9 million for the same period in 2019 , primarily due to an increase in product development revenues earned by ani canada and an increase in royalty revenues . cost of sales ( excluding depreciation and amortization ) year ended december 31 , ( in thousands ) 2020 2019 change % change cost of sales ( excl . depreciation and amortization ) $ 87,157
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determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates . these estimates include the amount and timing of projected future cash flows of each project or technology , revenue growth rates , projected cost of sales , customer attrition rates , the discount rate used to discount those cash flows to present value , the assessment of the asset 's useful life , and the consideration of legal , technical , regulatory , economic , and competitive risks . as these are significant estimates , we would obtain the assistance of a third-party valuation specialist in estimating fair values of intangible assets for significant acquisitions . goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to at least annual impairment testing . it is our policy to perform our annual impairment testing in the fourth quarter . the identification and measurement of goodwill impairment involves the estimation of the fair value of our business . estimates of fair value are based on the best information available as of the date of the assessment . we completed our goodwill impairment testing of our single reporting unit during the fourth quarter of 2020. we performed our impairment test utilizing the market capitalization approach to determine whether the fair value of a reporting unit is less than its carrying amount . based upon our assessment , the fair value of our reporting unit continues to exceed carrying value . for our indefinite-lived intangible assets , trademarks and tradenames , we performed our impairment testing as of the fourth quarter of 2020 utilizing the relief from royalty income based approach to determine whether the fair value is less than its carrying amount . a considerable amount of management judgment and assumptions are required in performing the impairment testing . the key assumptions used in the impairment testing were long-term revenue growth projections , royalty rates , discount rates and general industry , market and macro-economic conditions . based upon our assessment , the fair value continues to exceed carrying value . intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization . intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . the carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset . an impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value . see note 6 for further discussion of goodwill and other intangible assets . pension plan we sponsor a defined benefit pension plan ( the “ pension plan ” ) that was frozen in 2009. it covered substantially all our united states based employees at the time it was frozen . in conjunction with the pension plan , we recorded a pension benefit obligation totaling $ 101.2 million as of december 31 , 2020. in accounting for this pension plan , we are required to make a number of assumptions , including the expected rate of return on plan assets and discount rate . in determining the expected rate of return on plan assets , we consider the relative weighting of plan assets , the historical performance of total plan 24 assets and individual asset classes and economic and other indicators of future performance . the discount rate represents the interest rate used in estimating the present value of projected cash flows to settle the company 's pension obligations . the discount rate assumption is determined by using a full yield curve approach , which involves applying the specific spot rates along the yield curve used in the determination of the benefit obligation that correlates to the relevant projected cash flows . see note 12 for further discussion of the pension plan . story_separator_special_tag expenses in light of our expectation that our revenues will be depressed over the next several months . while we expect that we will be well positioned when surgeries begin to return to their pre-pandemic levels , we are unable to predict with certainty how long the covid-19 pandemic will last , or how severe its economic impact will be . even after the covid-19 pandemic and government responses thereto have subsided , residual economic and other effects may have an impact on the demand for post-pandemic surgery levels that are difficult to predict . if the downturn is more severe and prolonged than we currently expect , we may need to take further steps to reduce our costs , or to refinance our debt . we had total cash on hand at december 31 , 2020 of $ 27.4 million , of which approximately $ 26.3 million was held by our foreign subsidiaries outside the united states with unremitted earnings . during 2020 , we redeployed $ 15.8 million of cash from certain non-u.s. subsidiaries primarily for u.s. debt reduction which consisted primarily of earnings that were taxed in 2017 as part of the deemed repatriation toll charge implemented by tax reform . we may repatriate funds from certain foreign subsidiaries in the future . refer to note 8 for further details . operating cash flows our net working capital position was $ 226.5 million at december 31 , 2020. net cash provided by operating activities was $ 64.5 million in 2020 and $ 95.1 million in 2019 generated on net income of $ 9.5 million in 2020 and $ 28.6 million in 2019. the decrease in cash provided by operating activities in 2020 as compared to 2019 was mainly driven by lower sales and net income in 2020 resulting from the covid-19 pandemic . story_separator_special_tag significant impacts to operating cash flows in 2020 include increases from accounts receivable as fourth quarter sales in 2020 were lower than the same period in 2019 offset by decreases in operating cash flow caused by higher inventories on lower sales compared to the same period a year ago . use of cash in other assets declined in 2020 compared to 2019 as lower sales force activity caused by the pandemic resulted in lower field inventory requirements . investing cash flows net cash used in investing activities decreased to $ 13.6 million in 2020 compared to $ 387.7 million in 2019 primarily due to the $ 365 million payment for the buffalo filter acquisition in 2019 and $ 3.2 million in cash received from the sale of a facility during 2020. capital expenditures were $ 13.0 million and $ 20.1 million in 2020 and 2019 , respectively . financing cash flows financing activities in 2020 used cash of $ 52.1 million compared to providing cash of $ 300.9 million in 2019. below is a summary of the significant financing activities : during 2019 , we received proceeds of $ 345.0 million related to the issuance of 2.625 % convertible notes as further described below . during 2019 , we entered into a $ 265.0 million term loan in conjunction with the refinancing of our senior credit agreement . this new term loan replaced the previous term loan and resulted in payments of $ 13.3 million during the year ended december 31 , 2020 compared to $ 110.7 million in net proceeds in the prior year . we had net repayments on our revolving line of credit of $ 13.0 million and $ 92.0 million in 2020 and 2019 , respectively . in 2019 , we paid $ 51.2 million to purchase hedges related to our convertible notes . partially offsetting this , were proceeds of $ 30.6 million from the issuance of warrants as further described below . we paid $ 2.7 million and $ 6.5 million in 2020 and 2019 , respectively , in contingent consideration related to prior acquisitions . in 2020 , we paid debt issuance costs of $ 3.2 million in connection with the april 17 , 2020 and november 20 , 2020 amendments of our sixth amended and restated senior credit agreement as further described below compared to $ 16.2 million in 2019 related to the sixth amended and restated senior credit agreement and 2.625 % convertible notes . 28 on february 7 , 2019 , we entered into a sixth amended and restated senior credit agreement consisting of : ( a ) a $ 265.0 million term loan facility and ( b ) a $ 585.0 million revolving credit facility . the revolving credit facility will terminate and the loans outstanding under the term loan facility will mature on the earlier of ( i ) february 7 , 2024 or ( ii ) 91 days prior to the earliest scheduled maturity date of the 2.625 % convertible notes due in 2024 described below , ( if , as of such date , more than $ 150.0 million in aggregate principal amount of such convertible notes ( or any refinancing thereof ) remains outstanding ) . the term loan facility is payable in quarterly installments increasing over the term of the facility . proceeds from the term loan facility and borrowings under the revolving credit facility were used to repay the then existing senior credit agreement and in part to finance the acquisition of buffalo filter . as noted above , on april 17 , 2020 , we amended our sixth amended and restated senior credit agreement to suspend our required leverage ratios for up to four quarters . on november 20 , 2020 , we entered into a third amendment under our senior credit agreement to lower the applicable margin on the loans and lower the interest floor on eurocurrency loans agreed upon in april as forecasted results are expected to be better than anticipated . we have certain minimum liquidity and fixed charge coverage ratio requirements . interest rates are adjusted so that the applicable margin for base rate loans is 2.00 % per annum and for eurocurrency rate loans is 3.00 % per annum , and the applicable commitment fee rate for the revolving credit facility is 0.50 % . following the suspension period , the applicable margin will depend upon conmed 's consolidated senior secured leverage ratio , using the pricing grid set forth in the november 2020 amendment . interest rates were at libor ( subject to 0.50 % floor ) plus an interest rate margin of 3.00 % ( 3.50 % at december 31 , 2020 ) . there were $ 241.8 million in borrowings outstanding on the term loan facility as of december 31 , 2020. there were $ 207.0 million in borrowings outstanding under the revolving credit facility as of december 31 , 2020. our available borrowings on the revolving credit facility at december 31 , 2020 were $ 375.5 million with approximately $ 2.5 million of the facility set aside for outstanding letters of credit . the sixth amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets . the sixth amended and restated senior credit agreement contains covenants and restrictions which , among other things , require the maintenance of certain financial ratios and restrict dividend payments and the incurrence of certain indebtedness and other activities , including acquisitions and dispositions . we were in full compliance with these covenants and restrictions as of december 31 , 2020. we are also required , under certain circumstances , to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales . on january 29 , 2019 , we issued $ 345.0 million in 2.625 % convertible notes due in 2024 ( the `` notes '' ) .
| we believe the deferral of non-urgent procedures has had a lesser impact on our general surgery lines as a result of the nature of the products and procedures in which they are used and this belief was borne out in the second half of the year as we experienced sequential growth from the third to the fourth quarter , including continued growth in our buffalo filter ® and airseal ® products throughout 2020. cost of sales cost of sales was $ 402.2 million in 2020 compared to $ 430.4 million in 2019. gross profit margins were 53.4 % in 2020 and 54.9 % in 2019. the decrease in gross profit margin of 1.5 percentage points in 2020 was driven by the following : $ 6.6 million in costs related to plant underutilization due to abnormally low production as a result of decreased sales caused by the covid-19 pandemic ; an increase of $ 1.1 million in costs related to the consolidation of certain manufacturing operations related to winding down operations at certain locations and moving production lines to other facilities ( $ 4.0 million in 2020 compared to $ 2.9 million in 2019 ) ; an increase of $ 1.5 million in business acquisition costs ( $ 2.8 million in 2020 compared to $ 1.3 million in 2019 ) ; $ 2.2 million in costs related to product rationalization ; and $ 1.1 million in restructuring costs related to a voluntary separation arrangement as a result of the covid-19 pandemic . refer to note 14 for further details . selling and administrative expense selling and administrative expense was $ 373.8 million in 2020 compared to $ 400.1 million in 2019. selling and administrative expense as a percentage of net sales was 43.3 % in 2020 and 41.9 % in 2019 . 26 the decrease in selling and administrative expense in 2020 was driven mainly by actions taken to reduce expenses in response to the covid-19 pandemic . we experienced reduced travel due to safety measures put in place and reduced trade show costs as shows were cancelled during the year . we also had lower commission costs during 2020 as sales declined compared to the prior year . in addition , during 2020 , we incurred $ 4.8 million in severance costs related to a voluntary termination program and costs associated with the restructuring of our sales force , a $ 2.1 million write-off of field inventory used for customer demonstration and evaluation of products resulting from the product rationalization initiative and $ 1.2 million in
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excluding $ 5.6 million in transaction costs , which include the settlement of outstanding options , the recognition of manufacturer 's profit in beginning inventory , and $ 0.2 million in stock-based compensation , cps as a percentage of net sales for fiscal 2003 decreased to 85.6 % from 86.7 % for fiscal 2002. this decrease in cps , excluding transaction costs and stock-based compensation , reflects continued improvements in overall productivity and cost . 20 depreciation and amortization . fiscal 2002 included $ 2.3 million of goodwill amortization that was not recorded in fiscal 2003 due to our adoption of statement of financial accounting standards ( sfas ) 142 goodwill and other intangible assets at the beginning of fiscal 2003. during fiscal 2003 , d & a increased by $ 4.7 million due to increased asset values as a result of the transaction . fiscal 2003 also includes $ 1.8 million of additional depreciation for shortened useful lives on assets to be disposed of in connection with the planned closure of our picayune , mississippi manufacturing facility in fiscal 2004. selling and administrative expenses . included in fiscal 2003 s & a was $ 9.7 million of stock option payout expense related directly to the transaction and $ 0.9 million of compensation expense related to stock options issued during fiscal 2003. excluding the effect of the stock option related expenses , s & a for fiscal 2003 decreased $ 1.2 million to $ 12.0 million generally as a result of ongoing cost reduction initiatives . merger-related transaction costs . during fiscal 2003 and fiscal 2002 , we expensed $ 2.5 million and $ 1.5 million , respectively , of merger-related transaction costs , which consisted primarily of professional fees related to the transaction . restructuring and impairment charge ( adjustment ) . during fiscal 2002 , we recorded a $ 1.2 million restructuring charge related to ongoing lease payments for a plant in elizabeth , new jersey . included in fiscal 2003 was a $ ( 0.5 ) million restructuring adjustment representing a change in estimated future lease payments on closed facilities . during the fourth quarter of fiscal 2003 , we recorded a $ 0.3 million restructuring charge in association with the closure of our picayune , mississippi manufacturing facility as described above . interest expense , net . interest expense , net , in fiscal 2003 includes $ 8.7 million of transaction related expenses as follows : $ 5.1 million related to the tender , consent and redemption premiums and $ 1.7 million related to the write-off of deferred financing fees , each associated with redemption of our $ 100.0 million 10 1/4 % senior subordinated notes due 2007 , and $ 1.9 million related to the write-off of a bridge loan commitment fee , which was expensed when the bridge loan commitment expired , undrawn , at the closing of the transaction . excluding the $ 8.7 million in transaction related interest , interest expense , net , increased $ 6.3 million in fiscal 2003 over fiscal 2002 , primarily related to higher debt associated with financing the transaction . as a result of the increase in senior subordinated debt from $ 100.0 million to $ 200.0 million in fiscal 2003 to finance the transaction , annual interest expense will increase approximately $ 9.8 million annually . in fiscal 2003 , interest expense on the $ 200 million senior subordinated noted due 2010 was included in interest expense from february 7 , 2003. financial advisory fees . these represent fees paid to kelso as part of a financial advisory agreement that became effective with the transaction . financial advisory fees will approximate $ 0.5 million annually . there were no comparable financial advisory fees in fiscal 2002. other , net . other expense of $ 0.6 million in fiscal 2003 related primarily to loss on disposal of fixed assets . provision for ( benefit from ) income taxes . the change in the provision for income taxes in fiscal 2003 from fiscal 2002 resulted from changes in income ( loss ) before income taxes ( based on the factors discussed above ) and from changes in effective tax rates . seasonality sales of certain of our products are to some extent seasonal , with sales levels generally higher in the second half of our fiscal year due primarily to higher demand for paint and related products during warmer periods . on an aggregate basis , however , our sales have not been significantly affected by seasonality . liquidity and capital resources the nampac acquisition required total cash of approximately $ 213.8 million , which was used to acquire all of the outstanding nampac stock . the cash requirements for the nampac acquisition were funded , in part , by a $ 30.0 million equity contribution ( through bco holding ) from affilates of kelso , other existing equity investors and certain members of our senior management and from a portion of the proceeds from the term loan ( as defined below ) . 21 in connection with the nampac acquisition , we entered into a $ 255.0 million credit facility with various lenders and deutsche bank trust company americas , as administrative agent . the credit facility consists of ( a ) a $ 225.0 million term loan facility ( the term loan ) , which matures june 30 , 2011 ( or april 15 , 2010 , if all of the notes , including any additional notes issued under the related indenture , have not been refinanced as of april 15 , 2010 upon the terms specified in the credit agreement ) and ( b ) a $ 30.0 million revolving credit facility ( the revolver ) , which matures june 30 , 2009 ( the term loan and revolver , collectively , the credit facility ) . story_separator_special_tag the transaction required total cash of approximately $ 306.8 million , which was used to fund the cash consideration paid to the predecessor stockholders and option holders under the merger agreement , repay the debt existing on february 6 , 2003 , including our 10¼ % $ 100 million senior subordinated notes due 2007 , and pay fees and expenses associated with the transaction . the cash requirements of the transaction were financed through an equity financing of $ 80.0 million by outside equity investors including affiliates of kelso , borrowings of approximately $ 25.0 million under our than existing credit facility and $ 200.0 million of proceeds from the offering of our 10 % senior subordinated notes due 2010. in addition , in connection with the transaction , certain of the predecessor stockholders and option holders exchanged bway stock and options valued at approximately $ 20.3 million for bco holding stock and options . our cash requirements for operations and capital expenditures during fiscal 2004 and fiscal 2003 were primarily financed through internally generated cash flows and borrowings under our revolving credit facility . during fiscal 2004 , cash and cash equivalents increased $ 27.1 million and net credit facility borrowings decreased $ 17.2 million . we had no revolver borrowings outstandings at october 3 , 2004. of the $ 225.0 million initially borrowed under the term loan , we made a voluntary prepayment of $ 10.0 million in september 2004 leaving a balance of $ 215.0 million outstanding at october 3 , 2004. subsequent to year-end in december 2004 , we made additional voluntary prepayments of $ 19.1 million and a mandatory repayment of $ 0.6 million , which represents the proceeds from an asset sale . repayments on the term loan , whether scheduled or voluntary , permanently reduce the loan . interest accrues on the term loan and the revolver at an applicable margin plus either ( a ) a base rate ( which is the higher of prime or 0.5 % in excess of the overnight federal funds rate ) or ( b ) a eurodollar rate . for the term loan , the applicable margins are initially fixed at 1.25 % for base rate loans and at 2.25 % for eurodollar rate loans , and range down to 1.00 % and 2.00 % , respectively , based upon meeting specified consolidated leverage ratio targets . for the revolver , the applicable margins are initially fixed at 1.75 % for base rate loans and 2.75 % for eurodollar rate loans , and range down to 1.00 % and 2.00 % , respectively , based upon meeting specified consolidated leverage ratio targets . borrowing at the base rate or the eurodollar rate is at our discretion . after december 31 , 2004 , rate margins are subject to quarterly change based on our ratio of consolidated indebtedness to consolidated ebitda ( earnings before interest , taxes , depreciation and amortization ) , each as defined in the underlying credit agreement . at october 3 , 2004 , we had $ 5.5 million in standby letter of credit commitments that reduced our available borrowings under the revolver to $ 24.5 million . at october 3 , 2004 , we did not have any outstanding revolver borrowings . the following table presents financial information on our cash flows and changes in cash and cash equivalents for the fiscal years 2004 , 2003 and 2002 : replace_table_token_14_th 22 net income ( loss ) , adjusted for depreciation , amortization of other intangibles and deferred financing costs , the write-off of deferred financing costs and stock-based compensation expense , provided cash from operating activities of $ 41.8 million and $ 26.0 million in fiscal 2004 and 2003 , respectively . cash from operating activities was also provided by decreases in inventories ( $ 7.5 million ) and income tax refunds , net of payments ( $ 2.5 million ) in fiscal 2004 and by an increase in accrued liabilities ( $ 18.8 million ) in fiscal 2003. cash used in operating activities was primarily used to decrease accounts payable ( $ 9.8 million and $ 6.5 million in fiscal 2004 and 2003 , respectively ) . a further use of operating cash in fiscal 2003 was the payment of income taxes ( $ 7.7 million ) . net cash used in investing activities for capital expenditures was $ 19.1 million and $ 13.5 million in fiscal 2004 and 2003 , respectively . we used cash for investing activities of approximately $ 202.5 million , which is net of $ 11.3 cash acquired , for the nampac acquisition and $ 23.2 million for the sst acquisition in fiscal 2004 and 2003 , respectively . in fiscal 2004 , we received approximately $ 0.2 million for working capital adjustments related to the sst acquisition . in fiscal 2003 , we also used $ 19.9 million for merger costs associated with the transaction . increased capital expenditures in fiscal 2004 related primarily to investments in capacity to support new business and capital spending associated with the acquisitions . net cash provided by financing activities was primarily from the term loan proceeds of $ 225.0 million and the $ 30.0 million capital contribution from our parent , bco holding , in fiscal 2004. the primarily uses of cash for financing activities in fiscal 2004 were to repay all outstanding borrowings under our than existing revolving credit facility ( $ 17.2 million ) , to repay a portion of the term loan ( $ 10.0 million ) , to decrease unpresented bank drafts ( $ 18.1 million ) and to pay for financing costs associated with the new credit facility ( $ 6.8 million ) . in fiscal 2003 , net cash provided by financing activities was primarily from proceeds from the notes ( $ 200.5 million ) and the issuance of capital stock to bco holding ( $ 80.0 million ) , each as part of the transaction , and net borrowings under our than existing revolving credit facility ( $ 17.2 million ) .
| the $ 29.7 million decrease in metal packaging segment net sales is primarily a result of the loss of coffee container sales when folgers switched to alternative packaging and to our intentional reduction in material center services sales to meet internal demand . increases in other metal container sales and the pass through of steel surcharges partially offset these declines . cost of products sold . replace_table_token_10_th segment cost of products sold ( excluding depreciation and amortization ) ( cps ) increased $ 56.5 million . as a percentage of consolidated net sales , segment cps increased to 86.4 % in fiscal 2004 from 85.6 % in fiscal 2003. these changes are due to changes within the two segments as discussed below . segment cps from plastics packaging contributed approximately $ 80.6 million in additional cps in fiscal 2004 over fiscal 2003 as a result of the acquisitions . segment cps from metal packaging decreased $ 24.1 million from fiscal 2003 primarily due to the overall decrease in metal packaging sales partially offset by an increase in raw material costs associated with steel surcharges . the decrease in the metal packaging segment gross margin percentage from 14.4 % in fiscal 2003 to 14.1 % in fiscal 2004 is primarily a result of the increased raw material costs associated with the reduction in steel availability , which impacts production scheduling , the timing of steel surcharge pass through and higher costs associated with spot market purchases of steel . corporate undistributed expenses of $ 0.2 million in each of fiscal 2004 and 2003 represents stock based compensation associated with options issued after the transaction . acquisition related expenses represent the recognition of manufacturer 's profit in beginning inventory resulting from the nampac acquisition in fiscal 2004 and $ 2.2 million related to the transaction in fiscal 2003. acquisition related expenses in fiscal 2003 also include $ 3.4 million of expenses directly related to the transaction , including $ 2.9 million for the settlement of stock options . 18 depreciation and amortization . replace_table_token_11_th depreciation and amortization ( d & a ) associated with our plastics packaging segment increased $
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the remaining receivables from that september 2008 securitization were re-securitized in september 2010 in a structure that maintained sale treatment for accounting purposes . in 2011 , we completed three securitizations of approximately $ 335.6 million in newly originated contracts . during 2012 we completed four securitizations of approximately $ 603.5 million in contracts , including $ 58.2 million in contracts that were repurchased from 2006 and 2007 securitizations in 2012. the 2011 and 2012 securitizations were all structured as secured financings and none utilized financial guarantees . when structured to be treated as a sale for accounting purposes , the assets and liabilities of the special-purpose subsidiary are not consolidated with us . accordingly , the transaction removes the sold automobile contracts from our consolidated balance sheet , the related debt does not appear as our debt , and our consolidated balance sheet shows , as an asset , a retained residual interest in the sold automobile contracts . the residual interest represents the discounted value of what we expect will be the excess of future collections on the automobile contracts over principal and interest due on the asset-backed securities . that residual interest appears on our consolidated balance sheet as `` residual interest in securitizations , `` and the determination of its value is dependent on our estimates of the future performance of the sold automobile contracts . of our managed portfolio outstanding at december 31 , 2012 , only our september 2010 securitization was structured to be treated as a sale for accounting purposes . credit risk retained whether a sale of automobile contracts in connection with a securitization or warehouse credit facility is treated as a secured financing or as a sale for financial accounting purposes , the related special-purpose subsidiary may be unable to release excess cash to us if the credit performance of the related automobile contracts falls short of pre-determined standards . such releases represent a material portion of the cash that we use to fund our operations . an unexpected deterioration in the performance of such automobile contracts could therefore have a material adverse effect on both our liquidity and our results of operations , regardless of whether such automobile contracts are treated for financial accounting purposes as having been sold or as having been financed . for estimation of the magnitude of such risk , it may be appropriate to look to the size of our `` managed portfolio , `` which represents both financed and sold automobile contracts as to which such credit risk is retained . our managed portfolio as of december 31 , 2012 was approximately $ 897.6 million , which includes a third party servicing portfolio of $ 11.6 million on which we earn only servicing fees and have no credit risk . critical accounting policies we believe that our accounting policies related to ( a ) allowance for finance credit losses , ( b ) amortization of deferred originations costs and acquisition fees , ( c ) term securitizations , ( d ) finance receivables and related debt measured at fair value and ( e ) income taxes are the most critical to understanding and evaluating our reported financial results . such policies are described below . allowance for finance credit losses in order to estimate an appropriate allowance for losses incurred on finance receivables , we use a loss allowance methodology commonly referred to as `` static pooling , `` which stratifies our finance receivable portfolio into separately identified pools based on the period of origination . using analytical and formula driven techniques , we estimate an allowance for finance credit losses , which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts . for each monthly pool of contracts that we purchase , we begin establishing the allowance in the month of acquisition and increase it over the subsequent 11 months , through a provision for credit losses charged to our consolidated statement of operations . net losses incurred on finance receivables are charged to the allowance . we evaluate the adequacy of the allowance by examining current delinquencies , the characteristics of the portfolio , prospective liquidation values of the underlying collateral and general economic and market conditions . as circumstances change , our level of provisioning and or allowance may change as well . 33 broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio , as does the weighted average age of the receivables at any given time . our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives , with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months , after which they gradually decrease . the historical weighted average seasoning of our total owned portfolio excluding fireside , is summarized in the table below : replace_table_token_20_th the credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluating contracts for purchase from dealers . we regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the credit performance of our portfolio , while maintaining competitive programs and levels of service for our dealers . as a result of such modifications , for receivables originated beginning with the third quarter of 2008 , we have found the early credit performance of those static portfolios to be significantly better than most earlier portfolios at similar vintage time frames . amortization of deferred originations costs and acquisition fees upon purchase of a contract from a dealer , we generally either charge or advance the dealer an acquisition fee . in addition , we incur certain direct costs associated with originations of our contracts . story_separator_special_tag all such acquisition fees and direct costs are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method . term securitizations our term securitization structure has generally been as follows : we sell automobile contracts we acquire to a wholly-owned special purpose subsidiary , which has been established for the limited purpose of buying and reselling our automobile contracts . the special-purpose subsidiary then transfers the same automobile contracts to another entity , typically a statutory trust . the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . through 2008 , we generally purchased external credit enhancement for most of our term securitizations in the form of a financial guaranty insurance policy , guaranteeing timely payment of interest and ultimate payment of principal on the senior asset-backed securities , from an insurance company . however , in our eight most recent securitizations since 2010 , we have not purchased financial guaranty insurance policies and do not expect to do so in the near future . we structure our securitizations to include internal credit enhancement for the benefit the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts . the specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held by the trusts and on other conditions , and may also be varied by agreement among us , our special purpose subsidiary , the insurance company and the trustee . such levels have increased and decreased from time to time based on performance of the various portfolios , and have also varied from one transaction to another . the agreements governing the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance . 34 our september 2008 securitization and the subsequent re-securitization of the remaining receivables from such transaction in september 2010 were each in substance sales of the underlying receivables , and have been treated as sales for financial accounting purposes . they differ from those treated as secured financings in that the trust to which our special-purpose subsidiaries sold the automobile contracts met the definition of a `` qualified special-purpose entity '' under statement of financial accounting standards no . 140 ( asc 860 10 65-2 ) . as a result , assets and liabilities of those trusts are not consolidated into our consolidated balance sheet . historically , our warehouse credit facility structures were similar to the above , except that ( i ) our special-purpose subsidiaries that purchased the automobile contracts pledged the automobile contracts to secure promissory notes that they issued , ( ii ) no increase in the required amount of internal credit enhancement was contemplated , and ( iii ) we did not purchase financial guaranty insurance . since october 2009 , we have established new funding facilities and gradually increased our contract purchases . more recently , we increased our short-term contract financing resources by $ 200 million by entering into agreements for a $ 100 million credit facility in december 2010 and for another $ 100 million credit facility in february 2011. in may 2012 we entered into another $ 100 million credit facility with a new lender and in december we extended the december 2010 credit facility to february 2013. our current maximum revolving warehouse financing capacity is $ 200 million . upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes , whether a term securitization or a warehouse financing , we retain on our consolidated balance sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness . under the september 2008 and september 2010 securitizations , and other term securitizations completed prior to july 2003 that were structured as sales for financial accounting purposes , we removed from our consolidated balance sheet the automobile contracts sold and added to our consolidated balance sheet ( i ) the cash received , if any , and ( ii ) the estimated fair value of the ownership interest that we retained in the automobile contracts sold in the transaction .
| the weighted average interest rate on finance receivables held by consolidated subsidiaries increased to 19.6 % at december 31 , 2012 , compared to 18.5 % at december 31 , 2011. the reason for the increase is that contracts we purchased in 2012 had a higher weighted average interest rate than the weighted average interest rate of aggregate finance receivables held by consolidated subsidiaries at december 31 , 2011. offsetting the increase in interest income on finance receivables held by subsidiaries , was a decrease in interest income on our residual interest in securitizations of $ 356,000 , and a decrease in interest earned on cash deposits ( including restricted cash deposits ) of $ 87,000. servicing fees totaling $ 2.3 million in the year ended december 31 , 2012 decreased $ 2.0 million , or 47.0 % , from $ 4.3 million in the prior year . the decrease in servicing fees is the result of the continuing amortization of our third-party servicing portfolio ( owned by a subsidiary of compucredit corporation ) and of our owned non-consolidated portfolio . as of december 31 , 2012 and 2011 , our managed portfolio owned by consolidated vs. non-consolidated subsidiaries and by third parties was as follows : 38 replace_table_token_25_th ( 1 ) percentages may not add up to 100 % due to rounding at december 31 , 2012 , we were generating income and fees on a managed portfolio with an outstanding principal balance of $ 897.6 million compared to a managed portfolio with an outstanding principal balance of $ 794.6 million as of december 31 , 2011. at december 31 , 2012 and 2011 , the managed portfolio composition was as follows : replace_table_token_26_th ( 1 ) percentages may not add up to 100 % due to rounding other income decreased $ 1.3 million , or 11.9 % , to $ 9.6 million in the year ended december 31 , 2012 from $ 10.9 million during the prior year . the year-over-year decrease is the result of a variety of factors including $ 479,000 in negative fair value adjustments to the portfolio and related debt of the fireside portfolio in 2012 , compared to $ 626,000 in positive adjustments in the prior year . in addition we experienced aggregate decreases of $ 452,000 in recoveries on the receivables from the 2002 acquisition and sales tax refunds . decreases in other income were partially offset by increases $ 541,000 from direct mail and related products and services that we offer to our dealers , and increases of $ 38,000 in remittances from third-party providers of convenience fees paid by our customers for web based and other electronic payments . expenses . our operating expenses consist primarily of provisions for
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because each payer makes its own decision as to whether to establish a policy or enter into a contract to reimburse for our testing services , seeking these approvals is a time-consuming and costly process . in addition , clinicians may decide not to order our tests if the cost of the test is not covered by insurance . because we require an ordering physician to requisition a test , our revenue growth also depends on our ability to successfully promote the adoption of our testing services and expand our base of ordering clinicians . we believe that establishing coverage from third-party payers , including the centers for medicare and medicaid services , or cms , is an important factor in gaining adoption by ordering clinicians . we have received approval as a medicare provider , which allows us to bill for our services to medicare patients . in october , 2016 , we announced that cms had set final pricing for our multi-gene tests for hereditary breast cancer-related disorders at $ 925.00 per test , an increase from the interim payment per test of $ 622.53. in october , 2015 , we entered into a national master business agreement ( the “ agreement ” ) with blue cross and blue shield association ( “ bcbsa ” ) . the agreement facilitates our ability to enter into supply agreements for our products and services with bcbsa affiliates , licensees and certain other entities . the agreement does not provide for the sale of our products or services directly , nor is there any commitment by bcbsa to purchase products or services from us . as of december 31 , 2016 , we had secured payer contracts with several regional bcbsa plans , as well as with other third-party payers , providing coverage for patients in a total of ten states , as well as those covered by the federal employee plan . in july 2016 , we entered into an agreement to become part of aetna 's laboratory network , effective in august 2016. in october , 2016 , we announced that we entered into national provider agreements for laboratory services with each of unitedhealthcare insurance company and humana , effective january 1 , 2017 and december 1 , 2016 , respectively . the addition of these and other provider agreements , once effective , brings our current total covered lives in network to over 175 million . in cases where we have established reimbursement rates with third-party payers , we face additional challenges in complying with their procedural requirements for reimbursement . these requirements may vary from payer to payer , and it may be time-consuming and require additional resources to meet these requirements . we may also experience delays in or denials of coverage if we do not adequately comply with these requirements . in addition , we have experienced , and may continue to experience , temporary delays in reimbursement when we transition to being an in-network provider with a payer . we expect to continue to focus our resources on increasing adoption of , and expanding coverage and reimbursement for , our current tests and any future tests we may develop . however , if we are not able to continue to obtain and maintain adequate reimbursement from third-party payers for our testing services and expand the base of clinicians ordering our tests , we may not be able to effectively increase the number of billable tests or our revenue . 41 ability to lower the costs associated with performing our tests reducing the costs associated with performing our genetic tests is both a near-term focus and a strategic objective of ours . over the long term we will need to reduce the cost of raw materials by improving the output efficiency of our assays and laboratory processes , modifying our platform-agnostic assays and laboratory processes to use materials and technologies that provide equal or greater quality at lower cost , improving how we manage our materials and negotiating favorable terms for our materials purchases . we also intend to design and implement hardware and software tools that will reduce personnel cost for both laboratory and clinical operations by increasing personnel efficiency and thus lowering labor costs per test . ability to expand our genetic content as we reduce our costs , we intend to continue to expand our test menus by steadily releasing additional genetic content for the same or lower prices per test , ultimately leading to affordable whole genome services . the breadth and flexibility of our offering will be a critical factor in our ability to address new markets for genetic testing services . both of these will be critical to our ability to continue to grow the volume of billable tests we deliver . investment in our business and timing of expenses we plan to continue to invest significantly in our genetic testing and information management business . we deploy state-of-the-art and costly technologies in our genetic testing services , and we intend to significantly scale our infrastructure , including our testing capacity and information systems . we also expect to incur software development costs as we seek to further automate our laboratory processes and our genetic interpretation and report sign-out procedures , to scale our customer service capabilities and to expand the functionality of our website . as part of our growth , we also plan to hire additional personnel , including software engineers , sales and marketing personnel , research and development personnel , medical specialists , biostatisticians and geneticists . we will also incur additional costs related to the build-out of our new production facility and headquarters . in addition , we expect to incur ongoing expenses as a result of operating as a public company . the expenses we incur may vary significantly by quarter , as we focus on building out different aspects of our business . how we recognize revenue our historical revenue has been recognized when cash is received . story_separator_special_tag while we recognized $ 3.6 million of test revenue on an accrual basis in the year ended december 31 , 2016 , and while we anticipate the number of payers for whom we recognize revenue upon delivery of test results will increase in the future , we do not expect to recognize significant amounts of revenue on an accrual basis for some time . until we achieve and maintain a predictable pattern of collection at a consistent payment amount from a large number of payers , we will continue to recognize the substantial majority of our revenue when cash is received . because the timing and amount of cash payments received from payers is difficult to predict , we expect that our revenue will fluctuate significantly in any given quarter . for the years ended december 31 , 2016 , 2015 and 2014 , amounts billed for tests delivered totaled $ 62.6 million , $ 24.3 million , and $ 6.6 million , respectively . in the year ended december 31 , 2016 , we recognized revenue of $ 21.7 million related to amounts billed for tests delivered during 2016 , $ 0.2 million related to collaboration revenue earned in 2016 , $ 2.9 million related to amounts billed for tests delivered during 2015 and $ 0.2 million related to amounts billed for tests delivered in 2014. of the total revenue recognized for the years ended december 31 , 2016 of $ 25.0 million , $ 21.3 million was recognized for test revenue upon cash receipt , $ 3.6 million was recognized for test revenue on an accrual basis and $ 0.1 million was recognized for collaboration revenue on an accrual basis . it is difficult to predict future revenue from previously delivered but unpaid tests . accordingly , we can not provide any assurance as to when , if ever , or to what extent any of these amounts will be collected . because we are in the early stages of commercializing our tests , we have had limited payment and collection history . notwithstanding our efforts to obtain payment for these tests , payers may deny our claims , in whole or in part , and we may never receive revenue from any previously delivered but unpaid tests . revenue from these tests , if any , may not be equal to the billed amount due to a number of factors , including differences in reimbursement rates , the amounts of patient co-payments , the existence of secondary payers and claims denials . in addition , private payers often ask us to refrain from submitting claims for a period of up to 60 days after contract execution , which can cause 42 the timing of payments to vary significantly during the months after c ontract signing , which may in turn cause our revenues to vary significantly from quarter to quarter . we incur and recognize expenses for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met . accordingly , any revenue that we receive in respect of previously delivered but unpaid tests will favorably affect our results of operations in future periods . financial overview revenue we generate revenue from the sale of our tests , which provide the analysis , and associated interpretation of the sequencing of parts of the genome . clients are billed upon delivery of test results to the physician . for most of our customers , we do not have sufficient history of collection and are not yet able to determine a predictable pattern of collection , and therefore we currently recognize revenue when cash is received . our ability to increase our revenue will depend on our ability to increase our market penetration , obtain contracted reimbursement coverage from third-party payers and increase the rate at which we are paid for tests performed . cost of revenue cost of revenue reflects the aggregate costs incurred in delivering test results to clinicians and includes expenses for materials and supplies , personnel costs , equipment and infrastructure expenses associated with testing and allocated overhead including rent , equipment depreciation and utilities . costs associated with performing our test are recorded as the patient 's sample is processed regardless of whether and when revenue is recognized with respect to that test . as a result , our cost of revenue as a percentage of revenue may vary significantly from period to period because we generally do not recognize revenue in the period in which costs are incurred . we expect cost of revenue to generally increase in line with the increase in the number of tests we perform . however , we expect that the cost per test will decrease over time due to the efficiencies we may gain as test volume increases and from automation and other cost reductions . operating expenses our operating expenses are classified into three categories : research and development , selling and marketing , and general and administrative . for each category , the largest component is personnel costs , which include salaries , employee benefit costs , bonuses , commissions , as applicable , and stock-based compensation expense . research and development research and development expenses represent costs incurred to develop our technology and future tests . these costs are principally for process development associated with our efforts to expand the number of genes we can evaluate in our tests , with our efforts to lower the cost of performing our test . in addition , we incur process development costs to further develop the software we use to operate our laboratory , analyze the data it generates , process customer orders , deliver reports and automate our business processes . these costs consist of personnel costs , laboratory supplies and equipment expenses , consulting costs and allocated overhead including rent , information technology , equipment depreciation and utilities . we expense all research and development costs in the periods in which they are incurred .
| research and development the increase in research and development expenses of $ 1.8 million for the year ended december 31 , 2016 compared to the same period in 2015 was primarily driven by costs related to the continued development of our 46 assay platforms . personnel costs increased by $ 7.0 million reflecti ng additional headcount and increased stock-based compensation costs of $ 3.4 million . reference materials costs increased by $ 0.3 million , also reflecting increased headcount , and data storage costs increased by $ 0.2 million . these cost increases were part ially offset by the effects of reduced validation sequencing activities and increased test volumes in 2016. costs of reagents and laboratory materials decreased by $ 2.5 million , as validation sequencing activity was greater in 2015 than in 2016 , due princi pally to the expansion of our test menu introduced in october 2015. increased test volumes resulted in a greater allocation of resources , by $ 1.8 million , to cost of revenue in 2016. in addition , equipment costs decreased by $ 0.5 million , costs associated with software and software licenses decreased by $ 0.3 million , and consulting costs decreased by $ 0.3 million . selling and marketing the increase in selling and marketing expenses of $ 6.2 million for the year ended december 31 , 2016 compared to the same period in 2015 was due primarily to increased personnel costs of $ 6.1 million , primarily reflecting increased headcount , increased sales commissions of $ 1.5 million , increased stock-based compensation costs of $ 1.0 million and increased severance costs of $ 0.5 million primarily associated with the program to streamline our organization . in addition , costs associated with software and software licenses increased by $ 0.9 million , allocations of technology and facilities-related expenses increased by $ 0.7 million and travel costs increased by $ 0.5 million . these increases were partially offset by a reduction of $ 1.2 million in market collaboration costs due to the termination of certain collaboration projects and reductions in other consulting costs of $ 0.8 million . general and administrative
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subject to qualifying and maintaining our qualification as a reit , we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . subject to qualifying and maintaining our qualification as a reit , we opportunistically hedge our credit risk , interest rate risk , and foreign currency risk ; however , at any point in time we may choose not to hedge all or a portion of these risks , and we will generally not hedge those risks that we believe are appropriate for us to take at such time , or that we believe would be impractical or prohibitively expensive to hedge . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2019 , we financed the vast majority of our agency rmbs assets , and a portion of our credit assets , through repos , which we account for as collateralized borrowings . we expect to continue to finance the vast majority of our agency rmbs through the use of repos . in addition to financing assets through repos , we also enter into other secured 54 borrowing transactions , which are accounted for as collateralized borrowings , to finance certain of our loan assets . we have also obtained , through the securitization markets , term financing for certain of our non-qualified mortgage , or `` non-qm , '' loans , certain of our consumer loans , and certain of our leveraged corporate loans . additionally , we have issued unsecured long-term debt . as of december 31 , 2019 , outstanding borrowings under repos and total other secured borrowings ( which include other secured borrowings and other secured borrowings , at fair value , as presented on our consolidated balance sheet ) were $ 3.2 billion , of which approximately 58 % , or $ 1.9 billion , relates to our agency rmbs holdings . the remaining outstanding borrowings relate to our credit portfolio . as of december 31 , 2019 , we also had $ 86.0 million outstanding of unsecured long-term debt , maturing in september of 2022 , or the `` senior notes . '' the senior notes bear interest at a rate of 5.50 % , subject to adjustment based on changes , if any , in the ratings of the senior notes . the indenture governing the senior notes contains a number of covenants , including several financial covenants . the senior notes were issued in connection with an exchange of our previously issued unsecured long-term debt ( the `` old senior notes '' ) on february 13 , 2019 ( the `` note exchange '' ) , in connection with our intended election to be taxed as a reit . at the time of the note exchange , the senior notes were rated a by egan-jones rating company 1 . see note 11 of the notes to our consolidated financial statements as of december 31 , 2019 for further detail on the senior notes and the note exchange . as of december 31 , 2019 , our book value per share of common stock , calculated using total stockholders ' equity less the aggregate liquidation preference of outstanding preferred stock , was $ 18.48. our debt-to-equity ratio was 3.8:1 as of december 31 , 2019 . our debt-to-equity ratio does not account for liabilities other than debt financings and does not include debt associated with securitization transactions accounted for as sales . our recourse debt-to-equity ratio was 2.6:1 as of december 31 , 2019 . during the year ended december 31 , 2019 we repurchased 50,825 shares of our common stock at an average price per share of $ 15.39 and a total cost of $ 0.8 million . in addition to making discretionary repurchases , we from time to time use 10b5-1 plans to increase the number of trading days available to implement these repurchases . on july 22 , 2019 , we completed a follow-on offering of 3,500,000 shares of our common stock , which generated net proceeds , after underwriters ' discount and offering costs , of $ 60.7 million . on july 25 , 2019 , we issued an additional 525,000 shares of our common stock in connection with the exercise of the underwriters ' option granted in the initial offering . the exercise of the underwriters ' option resulted in net proceeds to us of an additional $ 9.1 million , after underwriters ' discount and offering costs . on october 22 , 2019 , we issued 4,600,000 shares of 6.750 % series a fixed-to-floating rate cumulative redeemable preferred stock , $ 0.001 par value per share ( `` series a preferred stock '' ) , of which 600,000 shares were issued pursuant to the exercise of the underwriters ' over-allotment option . the issuance and sale of the 4,600,000 shares of series a preferred stock resulted in total net proceeds to us of approximately $ 111.0 million , after underwriters ' discount and offering costs . at the time of issuance , the series a preferred stock was rated bbb+ by egan-jones rating company 1 . on november 21 , 2019 , we completed a follow-on offering of 4,200,000 shares of our common stock , which generated net proceeds , after underwriters ' discount and offering costs , of $ 75.3 million . on december 3 , 2019 , we issued an additional 630,000 shares of our common stock in connection with the exercise of the underwriters ' option granted in the initial offering . the exercise of the underwriters ' option resulted in net proceeds to us of an additional $ 11.2 million , after underwriters ' discount and offering costs . story_separator_special_tag on january 24 , 2020 , we completed a follow-on offering of 5,290,000 shares of our common stock , of which 690,000 shares were issued pursuant to the exercise of the underwriters ' option . the issuance and sale of 5,290,000 common shares generated net proceeds , after underwriters ' discount and offering costs , of $ 95.3 million . we will elect to be taxed as a reit under the internal revenue code of 1986 , as amended , or `` the code , '' upon the filing of our tax return for the taxable year ended december 31 , 2019. provided that we maintain our qualification as a reit , we generally will not be subject to u.s. federal , state , and local income tax on our reit taxable income that is currently distributed to our stockholders . any taxes paid by a domestic taxable reit subsidiary , or `` trs , '' will reduce the cash available for distribution to our stockholders . reits are subject to a number of organizational and operational requirements , including a requirement that they currently distribute at least 90 % of their annual reit taxable income excluding net capital gains . 1 a rating is not a recommendation to buy , sell or hold securities . ratings may be subject to revision or withdrawal at any time by the assigning rating organization . each rating should be evaluated independently of any other rating . 55 on february 28 , 2019 , we filed a certificate of conversion with the secretary of state of the state of delaware ( the `` secretary of state '' ) to convert from a delaware limited liability company to a delaware corporation ( the `` conversion '' ) and change our name to ellington financial inc. ( the `` corporation '' ) . the conversion became effective on march 1 , 2019 , and upon effectiveness , each of our existing common shares representing limited liability company interests , no par value , converted into one issued and outstanding , fully paid and nonassessable share of common stock , $ 0.001 par value per share , of the corporation . our targeted asset classes our targeted asset classes currently include investments in the u.s. and europe ( as applicable ) in the categories listed below . subject to qualifying and maintaining our qualification as a reit , we expect to continue to invest in these targeted asset classes . also , we expect to hold certain of our targeted assets through one or more trss . as a result , a portion of the income from such assets will be subject to u.s. federal corporate income tax . 56 asset class principal assets agency rmbs . whole pool pass-through certificates ; . partial pool pass-through certificates ; . agency collateralized mortgage obligations , or `` cmos , '' including interest only securities , or `` ios , '' principal only securities , or `` pos , '' inverse interest only securities , or `` iios '' ; and clos . retained tranches from clo securitizations , including participating in the accumulation of the underlying assets for such securitization by providing capital to the vehicle accumulating assets ; and . other clo debt and equity tranches . cmbs and commercial mortgage loans . cmbs ; and . commercial mortgage loans and other commercial real estate debt . consumer loans and abs . consumer loans ; . abs , including abs backed by consumer loans ; and . retained tranches from securitizations to which we have contributed assets . mortgage-related derivatives . to-be-announced mortgage pass-through certificates , or `` tbas '' ; . credit default swaps , or `` cds , '' on individual rmbs , on the abx , cmbx and primex indices and on other mortgage-related indices ; and . other mortgage-related derivatives . non-agency rmbs . rmbs backed by prime jumbo , alt-a , manufactured housing , and subprime mortgages ; . rmbs backed by fixed rate mortgages , adjustable rate mortgages , or `` arms , '' option-arms , and hybrid arms ; . rmbs backed by first lien and second lien mortgages ; . investment grade and non-investment grade securities ; . senior and subordinated securities ; . ios , pos , iios , and inverse floaters ; . collateralized debt obligations , or `` cdos '' ; . rmbs backed by european residential mortgages , or `` european rmbs '' ; and . retained tranches from securitizations in which we have participated . residential mortgage loans . residential non-performing mortgage loans , or `` npls '' ; . re-performing loans , or `` rpls , '' which generally are loans that were modified and or formerly npls where the borrower has resumed making payments in some form or amount ; . residential `` transition loans , '' such as residential bridge loans and residential `` fix-and-flip '' loans ; . non-qm loans ; and . retained tranches from securitizations to which we have contributed assets . other . real estate , including commercial and residential real property ; . strategic debt and or equity investments in loan originators and mortgage-related entities ; . corporate debt and equity securities and corporate loans ; . mortgage servicing rights , or `` msrs '' ; . credit risk transfer securities , or `` crts '' ; and . other non-mortgage-related derivatives . 57 agency rmbs our agency rmbs assets consist primarily of whole pool ( and to a lesser extent , partial pool ) pass-through certificates , the principal and interest of which are guaranteed by a federally chartered corporation , such as the federal national mortgage association , or `` fannie mae , '' the federal home loan mortgage corporation , or `` freddie mac , '' or the government national mortgage association , within the u.s. department of housing and urban development , or `` ginnie mae , '' and which are backed by arms , hybrid arms , or fixed-rate mortgages .
| this period-over-period increase was primarily due to the larger size of the credit portfolio for the year ended december 31 , 2019 , as well as higher average asset yields on this portfolio . for the year ended december 31 , 2019 , interest income from our agency rmbs was $ 37.4 million , as compared to $ 31.1 million for the year ended december 31 , 2018 . this year-over-year increase was primarily due to the larger size of the agency portfolio for the year ended december 31 , 2019 , partially offset by lower average asset yields on this portfolio . the following table details our interest income , average holdings of yield-bearing assets , and weighted average yield based on amortized cost for the years ended december 31 , 2019 and 2018 : replace_table_token_11_th ( 1 ) amounts exclude interest income on cash and cash equivalents ( including when posted as margin ) and long positions in u.s. treasury securities . also excludes long holdings of corporate securities that represent components of certain relative value trading strategies . some of the variability in our interest income and portfolio yields is due to the catch-up premium amortization adjustment . for the year ended december 31 , 2019 , we had a negative catch-up premium amortization adjustment of approximately $ ( 4.7 ) million , which decreased our interest income . excluding the catch-up premium amortization adjustment , the weighted average yield of our agency portfolio and our total portfolio was 3.16 % and 5.91 % , respectively , for the year ended december 31 , 2019 . by comparison , for the year ended december 31 , 2018 the catch-up premium amortization adjustment decreased interest income by approximately $ ( 0.1 ) million , which slightly decreased our interest income . excluding the catch-up premium amortization adjustment , the weighted average yield of our agency portfolio and our total portfolio was 3.26 % and 5.85 % , respectively for the year ended december 31 , 2018 . interest expense interest
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story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance and administrative functions . general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal , patent , consulting , investor and public relations , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance , and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company . other income , net other income , net consists of interest earned on our cash equivalents and investment balances , net of investment charges consolidated statements of operations replace_table_token_2_th comparison of the years ended december 31 , 2018 and 2017 research and development expenses research and development expenses were $ 19.7 million for the year ended december 31 , 2018 compared to $ 9.6 million for the year ended december 31 , 2017 . the following table summarizes our research and development expenses for the years ended december 31 , 2018 and 2017 . 121 replace_table_token_3_th the $ 10.1 million increase in expense is primarily attributable to the $ 4.9 million increase in expenses to third parties progressing the preclinical development of our lead solid tumor product candidate , tc-210 . during 2018 , there was an increase in personnel expenses of $ 4.0 million due to our increase in headcount , an increase in allocated facilities costs of $ 1.3 million and an increase in other research and development expenses of $ 0.2 million , primarily attributable to an increase in scientific advisory board fees and equipment maintenance contracts . these increases were offset by a decrease of $ 0.2 million in preclinical expenses related to our platform development . the decrease in platform development costs is the result of us shifting our focus and resources to the advancement of our lead product candidate , tc-210 . general and administrative expenses general and administrative expenses were $ 6.8 million for the year ended december 31 , 2018 , compared to $ 3.6 million for the year ended december 31 , 2017 . the increase in general and administrative expenses was primarily due to an increase in personnel costs of $ 2.3 million due to our increase in headcount , an increase in professional service expenses of $ 0.6 million and an increase in facility and other expenses of $ 0.3 million . other income , net interest income , net was $ 2.2 million for the year ended december 31 , 2018 , compared to $ 0.1 million for the year ended december 31 , 2017 . the increase was due to interest income as a result of a higher average cash balance in our commercial and investment accounts in 2018. liquidity and capital resources since our inception , we have incurred net losses and generated negative cash flows from operations . since inception , we have funded our operations with proceeds from the sale of our series a and series b preferred stock . we have received aggregate gross cash proceeds of approximately $ 44.5 million in connection with the sale of our series a preferred stock and $ 125.0 million in connection with the sale of our series b preferred stock . as of december 31 , 2018 , we had cash , cash equivalents and investments of $ 123.2 million . in february 2019 , we completed our initial public stock offering which provided net cash proceeds of $ 80.2 million . 122 cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_4_th operating activities durin g the year ended december 31 , 2018 , we used $ 18.8 million of cash in operating activities , resulting primarily from our net loss of $ 24.3 million offset by non-cash charges of $ 2.3 million , which related to depreciation and amortization , stock-based compensation , interest receivable , and a net decrease in operating assets and liabilities of $ 3.2 million . the net decreases in operating assets and liabilities were primarily attributable to the timing in which we paid our vendors . during the year ended december 31 , 2017 , we used $ 12.0 million of cash in operating activities , primarily resulting from our net loss of $ 13.1 million offset by non-cash charges of $ 0.7 million , which primarily consisted of depreciation and stock-based compensation , and a net decrease in operating assets and liabilities of $ 0.3 million . investing activities during the year ended december 31 , 2018 , cash used in investing activities was $ 76.3 million , consisting primarily of purchases of investments net of maturities of $ 75.3 million and purchases of property and equipment of $ 1.0 million . during the year ended december 31 , 2017 , cash provided by investing activities was $ 7.7 million , consisting primarily of maturities of investments of $ 14.8 million , offset by related purchases of short-term investments of $ 6.5 million , purchases of property and equipment of $ 0.4 million and an increase in restricted cash of $ 0.3 million . financing activities during the year ended december 31 , 2018 and 2017 , net cash provided by financing activities was $ 123.0 and $ 16.1 million , respectively , in each case consisting primarily of net cash proceeds from the sale and issuance of our series a and series b preferred stock . story_separator_special_tag we also received proceeds of $ 0.1 million and $ 44 during the years ended december 31 , 2018 and 2017 , respectively , in connection with the exercise of stock options , including options that were unvested and remain subject to repurchase until vesting . funding requirements we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we advance the preclinical studies and clinical trials of our product candidates in development and w e will incur additional costs associated with operating as a public reporting company . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to establishing sales , marketing , distribution and other commercial infrastructure to commercialize such products . 123 in addition , our expenses will increase as we : commence enrollment of clinical trials for our product candidates ; seek regulatory approval for any product candidates that successfully complete preclinical and clinical trials ; establish manufacturing capabilities in-house for the production of preclinical and clinical supply ; hire additional clinical , medical , research and operational personnel ; and maintain , expand , and protect our intellectual property portfolio . as of december 31 , 2018 , we had cash , cash equivalents and short-term investments of $ 123.2 million . in february 2019 , we completed our ipo which generated net cash proceeds of $ 80.2 million . we believe that the net proceeds from the ipo , together with our existing cash , cash equivalents and investments , will enable us to fund our operating expenses and capital expenditure requiremen ts at least into 2022. we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we expect . additionally , changing circumstances may cause us to consume capital significantly faster than we currently anticipate , and we may need to spend more money than currently expected because of circumstances beyond our control . accordingly , we will need to obtain substantial additional funding in connection with our continuing operations . until such time , if ever , as we can generate substantial product revenue , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances , and marketing , distribution , or licensing arrangements . to the extent that we raise additional capital through the sale of equity or convertible debt securities , your ownership interest will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder . debt financing and preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making acquisitions or capital expenditures , or declaring dividends . if we raise additional funds through collaborations , strategic alliances , or marketing , distribution , or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or drug candidates , or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or other arrangements when needed , we may be required to delay , limit , reduce , or terminate our research , product development , or future commercialization efforts , or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves . critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses , and the disclosure of contingent assets and liabilities in our consolidated financial statements . we base our estimates on historical experience , known trends and events , and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 3 to our consolidated financial statements appearing elsewhere in this annual report , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . 124 research and development expenses research and development expenses consist primarily of costs incurred in connection with the development of our product candidates . we expense research and development costs as incurred . as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advance payments . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of the estimates with the service providers and make adjustments , if necessary .
| at this time , we can not reasonably estimate or know the nature , timing , and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates . the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the following : the timing and progress of our preclinical studies and clinical trials , which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors ; the number and scope of preclinical and clinical programs we decide to pursue ; the progress of the development efforts of parties with whom we may enter into collaboration arrangements ; our ability to maintain our current research and development programs and to establish new ones ; our ability to establish licensing or collaboration arrangements ; our ability to complete investigational new drug application ( ind ) -enabling studies and successfully submit ind or comparable applications ; whether we are required by the u.s. food and drug administration ( fda ) or similar foreign regulatory authorities to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates ; the timely receipt of necessary marketing approvals from the fda and similar foreign regulatory authorities ; our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our product candidates or any future product candidates , remain in good standing with regulatory agencies and develop , validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices ( cgmp ) ; our ability to demonstrate to the satisfaction of the fda and similar foreign regulatory authorities the safety , potency , purity and acceptable risk to benefit profile of our product candidates
| 10,832 |
these plans and results are used by management to evaluate the performance of each segment and to make decisions on the allocation of resources . effective april 1 , 2018 , we merged our americas coils business into the cis segment to accelerate operational improvements and organizational efficiencies and formed the vts segment by combining our americas , europe , and asia operations to enable us to operate as a more global , product-based organization . vehicular thermal solutions ( 59 percent of fiscal 2019 net sales ) our vts segment provides powertrain and engine cooling products , including , but not limited to , radiators , charge air coolers , condensers , oil coolers , egr coolers , and fuel coolers , to oems in the automotive , commercial vehicle , and off-highway markets in north america , south america , europe , and asia . in addition , our vts segment also serves brazil 's automotive and commercial vehicle aftermarkets . sales volume in the vts segment increased during fiscal 2019 , as compared with the prior year , primarily due to higher sales to certain key end markets in north america and asia . in north america , we benefited from a substantial recovery in the off-highway market and experienced sales volume increases to automotive customers , despite a relatively flat automotive market . the north american commercial vehicle market experienced significant growth during the year ; however , our sales growth to commercial vehicle customers lagged behind the overall market trend , primarily due to the planned wind-down of certain commercial vehicle programs . in asia , we benefited from growth of the off-highway markets in china and korea and maturing automotive program volumes in china . in order to meet growing regional demand , we expanded our manufacturing capacity in changzhou , china during fiscal 2019. tariffs unfavorably impacted our vts segment 's financial results during fiscal 2019 , both directly and indirectly . impacts of tariffs on our raw material costs included the direct cost of tariffs on certain imported items from china ; rising prices from domestic sources , as certain suppliers leveraged tariffs to impose cost increases ; and resourcing costs , as certain domestic suppliers have chosen to exit supplying certain products altogether due to capacity constraints resulting from increased demand . the unfavorable impacts of tariffs were partially offset by the implementation of strict cost control in other areas . 22 looking forward to fiscal 2020 , we anticipate varied levels of growth in our key end markets . to meet increased demand in asia , we will complete our expansion of manufacturing capacity in our locations near chennai , india and yangzhou , china . we expect the global automotive markets will be relatively flat . in regard to the global commercial vehicle markets , we expect a decline in north america , europe and asia and growth in south america . we expect our commercial vehicle sales will decrease compared with fiscal 2019 , primarily due to the planned wind-downs of certain programs in europe and north america . however , we expect growth in our commercial vehicle business in china , primarily due to increasing production of euro 6 engines that have additional modine content . in regard to global off-highway markets , we anticipate modest growth in the majority of both construction and agricultural markets . as recently announced , we are evaluating strategic alternatives for our automotive business . a primary objective of our evaluation is optimizing our vts segment 's profitability profile . the automotive market exhibits different industry dynamics , growth trajectories , and strategic opportunities , as compared with the commercial vehicle and off-highway markets we serve , and generally requires higher capital investment from its supply base . while we are continuing to explore various alternatives to best serve our customers and provide the greatest return for our shareholders , we currently believe a sale of the automotive business is the most likely path forward . we remain firmly committed to the commercial vehicle and off-highway markets and making the necessary investments to ensure our global business is successful . commercial and industrial solutions ( 32 percent of fiscal 2019 net sales ) our cis segment provides a broad offering of thermal management products to the hvac & r markets , including solutions tailored to indoor and mobile climates , food storage and transport-refrigeration , and industrial processes . cis 's primary product groups include coils , coolers , and coatings . our coils products include custom-designed condensers , evaporators , round-tube solutions , as well as steam and water/fluid coils . our coolers include commercial refrigeration units , which are used across the food supply chain as well as for precision climate control for other applications such as data centers , and other types such as carbon dioxide and ammonia unit coolers , remote condensers , transformer oil coolers , and brine coolers . in addition , we offer proprietary coating solutions for corrosion protection , prolonging the life of heat-transfer equipment . during fiscal 2019 , cis experienced above-market sales growth , primarily driven by strong market dynamics . the data center cooling and commercial refrigeration markets both yielded stronger than expected demand . in order to meet growing and regional demand , we expanded our manufacturing capacity in both serbia and mexico . we expect modest growth in each of the cis markets we serve during fiscal 2020. looking forward , we will continue to work on manufacturing strategies to ensure we are offering competitive solutions and operating in regions with the most cost-effective footprint . additionally , we aim to capitalize on opportunities arising from energy and environmental regulations ; we believe we are well-positioned to be the partner of choice to provide our customers innovative commercial and industrial thermal management solutions . story_separator_special_tag building hvac systems ( 9 percent of fiscal 2019 net sales ) our bhvac segment manufactures and distributes a variety of original equipment and aftersales hvac products , primarily for commercial buildings and related applications in north america , the united kingdom , mainland europe , the middle east , asia , and africa . we sell and distribute our heating , ventilation and cooling products through wholesalers , distributors , consulting engineers , contractors and building owners for applications such as warehouses , repair garages , greenhouses , residential garages , schools , data centers , manufacturing facilities , hotels , hospitals , restaurants , stadiums , and retail stores . our heating products include gas ( natural and propane ) , electric , oil and hydronic unit heaters , low- and high-intensity infrared , and large roof-mounted direct- and indirect-fired makeup air units . our ventilation products include single-packaged vertical units and unit ventilators used in school room applications , air-handling equipment , and rooftop packaged ventilation units used in a variety of commercial building applications . our cooling products include precision air conditioning units used primarily for data center cooling applications , air- and water-cooled chillers , and ceiling cassettes , which are also used in a variety of commercial building applications . 23 economic conditions , such as demand for new commercial construction , building renovations , including hvac replacement , growth in data centers and school renovations , and higher efficiency requirements , are growth drivers for our building hvac products . during fiscal 2019 , sales improved across all of our north america product platforms , including heating , ventilation , air conditioning , and aftersales . our u.k. business experienced sales volume improvements in air conditioning equipment and aftersales . in fiscal 2019 , we made the strategic decision to sell our business in south africa and , as a result , recorded a $ 2 million loss on the sale . we expect continued growth in each of the hvac markets we serve during fiscal 2020. the markets we serve are heavily impacted by construction activity , building regulations , and owner/occupant comfort requirements . growth rates in these markets have recently shown some strength , as manufacturing , housing , and business investment continue to increase . in fiscal 2020 , we expect sales growth in our bhvac segment through the introduction of new and unique products for the markets we serve and focused market share gains . consolidated results of operations on november 30 , 2016 , we acquired luvata hts for consideration totaling $ 415.6 million ( $ 388.2 million , net of cash acquired ) . this business is a leading global supplier of coils , coolers and coatings to the heating , ventilation , air conditioning , and refrigeration industry . we 've consolidated financial results from this business within our cis segment since the acquisition date ; accordingly , fiscal 2017 included four months of financial results from the acquired business . on january 29 , 2019 , we announced that we are evaluating strategic alternatives for our automotive business within our vts segment . our primary objectives include optimizing the vts segment 's profitability and reprioritizing capital investments across all of our businesses . while we are continuing to explore various alternatives , we currently believe a sale of the automotive business is the most likely path forward . we expect to complete our evaluation in fiscal 2020 to determine what actions we may take as a result , if any . fiscal 2019 net sales increased $ 110 million , or 5 percent , from the prior year , primarily due to higher sales in each of our operating segments . gross profit increased $ 9 million , yet gross margin declined 50 basis points to 16.5 percent , as the benefit from higher sales volume was more than offset by unfavorable material costs , including the impacts of tariffs , and temporary operating inefficiencies largely resulting from increased volumes and new program launches at certain facilities . sg & a expenses decreased $ 2 million , or 70 basis points as a percentage of sales . during fiscal 2019 , we recorded $ 10 million of restructuring expenses , primarily related to targeted headcount reductions within the vts segment . fiscal 2019 operating income increased $ 18 million to $ 110 million . the impacts of our accounting for the tax act significantly impacted our $ 5 million income tax benefit in fiscal 2019 , as compared with an income tax provision of $ 40 million in the prior year . as a result of the higher operating income and the impact of income taxes , our fiscal 2019 net earnings of $ 86 million improved $ 62 million compared with the prior year . fiscal 2018 net sales increased $ 600 million , or 40 percent , from the prior year , primarily due to $ 444 million of additional sales from our cis segment and higher sales in our other operating segments . we owned the luvata hts business ( cis segment ) for four months in fiscal 2017. gross profit increased $ 103 million , including $ 66 million of additional contribution from our cis segment . sg & a expenses increased $ 43 million , primarily due to a $ 39 million increase in sg & a expenses in our cis segment . during fiscal 2018 , we recorded $ 16 million of restructuring expenses , primarily related to a facility closure in our cis segment and targeted headcount reductions in our vts segment . fiscal 2018 operating income increased $ 50 million to $ 92 million . our fiscal 2018 net earnings of $ 24 million increased $ 9 million compared with the prior year , primarily due to the $ 50 million increase in operating income , partially offset by $ 38 million of provisional income tax charges associated with the tax act and higher interest expense .
| the increase in sg & a expenses primarily resulted from higher environmental charges related to previously-owned manufacturing facilities in the u.s. and higher compensation-related expenses , partially offset by a $ 2 million favorable impact of foreign currency exchange rate changes . restructuring expenses increased $ 2 million , primarily due to higher severance expenses . operating income decreased $ 19 million to $ 65 million , primarily due to lower gross profit and higher sg & a and restructuring expenses . year ended march 31 , 2018 compared with year ended march 31 , 2017 : vts net sales increased $ 144 million , or 12 percent , in fiscal 2018 compared with the prior year , primarily due to higher sales volume to off-highway and automotive customers and a $ 42 million favorable impact of foreign currency exchange rate changes . gross profit increased $ 19 million , primarily due to higher sales volume . gross margin declined 30 basis points , primarily due to unfavorable material costs , the absence of favorable customer pricing settlements recorded in the prior year , and higher depreciation expense resulting from recent production capacity investments , partially offset by improved operating efficiencies . in addition , foreign currency exchange rate changes had a favorable $ 7 million impact on gross profit . sg & a expenses increased $ 4 million compared with the prior year , primarily due to a $ 3 million unfavorable impact of foreign currency exchange rate changes , higher compensation-related expenses , and higher environmental charges related to a previously-owned manufacturing facility in the u.s. , partially offset by the absence of a $ 2 million charge recorded in the prior year related to a legal matter in brazil , which has since been settled and paid . as a percentage of sales , sg & a expenses decreased 80 basis points to 8.4 percent . restructuring expenses decreased $ 3 million , primarily due to lower plant consolidation and equipment transfer costs . in fiscal 2017 , we sold three manufacturing facilities and , as a result , recognized gains totaling $ 2 million . 27 replace_table_token_7_th year ended march 31 , 2019 compared with year ended march 31 , 2018 : cis net sales increased
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during the second quarter of 2011 , we also acquired : cam communications , inc. , a company specializing in equipment construction and network services for telecommunications carriers ; halsted communications , ltd. , an install-to-the-home contractor operating primarily in portions of new york , pennsylvania , and new england , whose primary customer is directv ® ; and optima network services , inc. , a wireless infrastructure services company headquartered in california . see note 3 acquisitions and other investments in the notes to the consolidated financial statements for details of our second quarter 2011 acquisitions . in addition to integration and growth opportunities associated with our recent acquisitions , we also seek opportunities to expand our geographic presence , capabilities and service offerings in traditional business areas , such as telecommunications and install-to-the-home services . overview of financial results overall , 2011 revenue grew to $ 3.0 billion , an increase of $ 700.9 million , or 30 % , from the prior year . acquisitions completed during the second quarter of 2011 contributed $ 265.3 million , or 9 % of our 2011 revenues . organic revenue of $ 2.7 billion grew by $ 435.7 million , or 19 % , versus the same period in the prior year . strong end-user demand for new technologies in the wireless and install-to-the-home industries , pipeline construction and increased levels of activity in energy transmission were key growth drivers . while overall revenue growth was strong , revenues in certain areas of our business were negatively impacted by general economic conditions and industry factors . our renewable project revenues declined versus the prior year as a result of tightened access of our customers to project financing , changes to our customers ' capital spending plans and competitive pressure on pricing . net income and diluted earnings per share were $ 106.0 million and $ 1.23 per share , respectively , for the year ended december 31 , 2011 , representing an increase of $ 15.5 million and $ 0.18 per share , or 17 % and 17 % , respectively , versus 2010. factors contributing to our 2011 results included revenue growth , as previously discussed , improved leveraging of general and administrative expenses as a percentage of revenue , partially offset by an increase in our costs of revenue as a percent of sales . also impacting our 2011 results was a $ 29.0 million pre-tax gain on the remeasurement of our equity investment in ec source , which was acquired in may 2011. the gain was recorded within other income ( expense ) . 31 costs of revenue as a percent of sales increased from 84.0 % in 2010 to 86.6 % in 2011. the increase was driven by several factors , including new directstar commission arrangements effective in 2011 as well as lower margins on certain projects in the second half of 2011. our pipeline projects in the northeastern part of the united states were negatively affected by adverse weather conditions . severe flooding in the northeastern united states beginning in the third quarter of 2011 negatively impacted working conditions and decreased productivity and profitability on certain projects . the marcellus shale basin of the northeastern united states had above average amounts of rainfall in the second half of 2011. an unusually wet summer , coupled with the effects of hurricane irene in august and tropical storm lee in september , caused significant flooding conditions in this region . wireless projects , for which revenue growth has been robust , have experienced higher costs of revenue due to certain growth-related project inefficiencies . while we were able to meet the increased levels of demand for wireless services , we incurred higher labor and other costs in order to complete certain projects . costs of revenue on renewable projects were also higher in comparison to the prior year due in large part to lower utilization of certain costs as a result of decreased revenues , as discussed above . in addition , 2011 costs of revenue was negatively impacted by a $ 6.4 million charge related to our multi-employer pension plans . in november 2011 , we voluntarily withdrew from one of the multi-employer pension plans in which we participate . see note 12 other retirement plans and note 16 commitments and contingencies in the notes to the consolidated financial statements for additional details . diluted earnings per share was favorably impacted in 2011 by a lower diluted share count resulting from several recent transactions . total diluted shares decreased by approximately 4.2 million shares , from 90.9 million shares in 2010 to 86.7 million shares in 2011. during the first quarter of 2011 , we exchanged 94 % of our original senior convertible notes issued in 2009 ( the original convertible notes ) for new senior convertible notes ( the new convertible notes ) that have an optional physical ( share ) , cash or combination settlement feature , resulting in 10.4 million fewer diluted shares outstanding as compared with 2010. in addition , our board of directors authorized a share repurchase program during the fourth quarter of 2011. we repurchased 4.6 million shares under this program , which reduced our 2011 diluted average share count by 0.6 million shares . these decreases were partially offset by the issuance of 5.1 million shares in connection with our ec source business combination in may of 2011 and the issuance of 1.9 million shares in december 2010 in connection with a purchase agreement amendment for one of our historical acquisitions . see note 2 earnings per share and note 3 acquisitions and other investments in the notes to the consolidated financial statements for additional information . economic , industry and market factors despite the results we achieved during 2011 , we recognize that we continue to operate in a challenging business environment , as do our customers . we closely monitor the effect that changes in economic and market conditions may have on our customers . story_separator_special_tag general economic conditions , as well as the highly competitive nature of our industry , have resulted in pricing pressure for the services we provide . work is often awarded through a bidding process , where price is often a principal factor in the selection process . in the face of increased pricing pressure , we strive to maintain our profit margins through productivity improvements and cost reduction programs . other market and industry factors , such as tightened access to capital for customers in the industries we serve and or changes to our customers ' capital spending plans , can result , and have resulted , in decreased levels of demand in certain portions of our business , such as our renewables projects , which were negatively impacted by such trends in 2011. in addition , we operate in industries affected by market and regulatory impacts beyond our control . changes in technology , tax and other incentives , renewable energy portfolio standards and new or changing regulatory requirements affecting the industries we serve can impact demand for our services . fluctuations in market prices for oil , gas and other fuel sources can also impact demand for our pipeline and renewable energy construction services . while we actively monitor economic , industry and market factors affecting our business , we can not predict the impact such factors may have on our future results of operations , liquidity and cash flows . impact of seasonality and cyclical nature of business our revenues and results of operations can be subject to seasonal and other variations . these variations are influenced by weather , customer spending patterns , bidding seasons , project schedules and timing , particularly for large non-recurring projects , and holidays . typically , our revenues are lowest in the first quarter of the year because cold , snowy or wet conditions cause delays . revenues in the second quarter are typically higher than in the first quarter , as some projects begin , but continued cold and wet weather can often impact second quarter productivity . the third and fourth quarters are typically the best of the year , as a greater number of projects are underway and weather is normally more accommodating to work on projects . in the fourth quarter , many projects tend to be completed by customers seeking to spend their capital budget before the end of the year , which generally has a positive impact on our revenues . however , the holiday season and inclement weather can cause delays , which could reduce revenues and increase costs on affected projects . any quarter may be positively or negatively affected by out of the ordinary weather patterns , such as excessive rainfall or warm winter weather , making it difficult to predict quarterly revenue and margin variations . see overview of results above for discussion of the negative impact on our productivity and margins of severe flooding in the northeastern united states beginning in the third quarter of 2011 . 32 additionally , our industry can be highly cyclical . fluctuations in end-user demand within the industries we serve , or in the supply of services within those industries , can impact demand for our services . as a result , our business may be adversely affected by industry declines or by delays in new projects . variations in project schedules or unanticipated changes in project schedules , in particular in connection with large construction and installation projects , can create fluctuations in revenues , which may adversely affect us in a given period . the financial condition of our customers and their access to capital ; variations in project margins ; regional , national and global economic and market conditions ; regulatory or environmental influences ; and acquisitions or strategic investments can also materially affect quarterly results . accordingly , our operating results in any particular period may not be indicative of the results that can be expected for any other period . revenue we provide engineering , building , installation , maintenance and upgrade services to our customers . the primary industries served by our customers are communications , utilities and government . customer revenues by industry for the periods indicated were as follows ( in millions ) : replace_table_token_9_th approximately 60 % of our revenue is derived from projects performed under master service and other service agreements , which are generally multi-year agreements . certain of our master service agreements are exclusive up to a specified dollar amount per work order for each defined geographic area , but do not obligate our customers to undertake any large infrastructure projects or other work with us . work performed under master service and other service agreements is typically generated through work orders , each of which is performed for a fixed fee . services provided under these agreements range from engineering , project management and installation work to maintenance and upgrade services . master service agreements and other service agreements are frequently awarded on a competitive bidding basis , although customers are sometimes willing to negotiate contract extensions beyond their original terms without re-bidding . our master service and other service agreements have various terms , depending upon the nature of the services provided , and typically provide for termination on short or no advance notice . the remainder of our work is generated pursuant to contracts for specific projects or jobs that may require the construction and installation of an entire infrastructure system or specified units within an infrastructure system . customers are billed with varying frequency , generally monthly or upon attaining specific milestones . such contracts generally include retainage provisions under which 2 % to 15 % of the contract price is withheld from us until the work has been completed and accepted by the customer . revenues by type of contract for the periods indicated were as follows ( in millions ) : replace_table_token_10_th as shown in the table above , just over 40 % of our 2011 revenues were from non-recurring , project specific work .
| install-to-the-home and energy transmission project activity was also strong in 2011 , increasing by approximately $ 146 million and $ 138 million , respectively , including approximately $ 155 million of revenues from acquired businesses . otherwise strong revenue growth was partially offset by approximately $ 118 million in lower levels of activity on renewable energy projects versus 2010 as a result of tightened access of our customers to project financing and delays resulting from changes to our customers ' capital spending projects . costs of revenue . our costs of revenue were $ 2.6 billion , or 86.6 % of revenue , for the year ended december 31 , 2011 , compared to $ 1.9 billion , or 84.0 % of revenue , for the corresponding period in 2010 , a $ 667.2 million , or 34.4 % , increase . the dollar increase is partially attributable to higher costs associated with increased revenues , as described above . as a percentage of revenue , costs of revenue increased 260 basis points . the basis point increase was driven by several factors , including an increase of approximately $ 27 million in certain commissions paid by directstar . wages , including subcontractor costs increased as a percent of revenue by approximately 110 basis points , as a result of changes in our project mix as well as higher costs on certain of our pipeline , wireless , and renewable projects . for example , pipeline projects were negatively impacted by the flooding conditions we experienced on our marcellus shale basin pipeline projects in the second half of 2011. severe flooding in the northeastern united states , caused by above average rainfall coupled with the effects of hurricane irene in august and tropical lee in september , hurt our pipeline projects in the marcellus shale basin . in addition , we experienced higher labor costs on wireless projects as a result of certain growth-related project inefficiencies . our renewable projects were negatively impacted by lower levels of utilization as a result
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significant fair value measures are subject to detailed analytics and management review and approval . our entire investment portfolio reported at fair value is priced by third-party brokers and or by independent pricing vendors . we generally receive three or more broker and vendor quotes on pass-through principal and interest ( p & i ) agency rmbs , and generally receive multiple broker or vendor quotes on all other securities , including interest-only agency rmbs and inverse interest-only agency rmbs . we also receive three vendor quotes for the msr in our investment portfolio . for agency rmbs , the third-party pricing vendors and brokers use pricing models that commonly incorporate such factors as coupons , primary and secondary mortgage rates , rate reset periods , issuer , prepayment speeds , credit enhancements and expected life of the security . for msr , vendors use pricing models that generally incorporate observable inputs such as principal balance , note rate , geographical location , loan-to-value ( ltv ) ratios , fico , appraised value and other loan characteristics , along with observed market yields and trading levels . pricing vendors will customarily incorporate loan servicing cost , servicing fee , ancillary income , and earnings rate on escrow as observable inputs . unobservable or model-driven inputs include forecast cumulative defaults , default curve , forecast loss severity and forecast voluntary prepayment . we evaluate the prices we receive from both third-party brokers and pricing vendors by comparing those prices to actual purchase and sale transactions , our internally modeled prices calculated based on market observable rates and credit spreads , and to each other both in current and prior periods . we review and may challenge valuations from third-party brokers and pricing vendors to ensure that such quotes and valuations are indicative of fair value as a result of this analysis . we then estimate the fair value of each security based upon the median of the final broker quotes received , and we estimate the fair value of msr based upon the average of prices received from third-party vendors , subject to internally-established hierarchy and override procedures . 33 table of c ontents we utilize “ bid side ” pricing for our agency rmbs and , as a result , certain assets , especially the most recent purchases , may realize a markdown due to the “ bid-offer ” spread . to the extent that this occurs , any economic effect of this would be reflected in accumulated other comprehensive income . considerable judgment is used in forming conclusions and estimating inputs to our level 3 fair value measurements . level 3 inputs such as interest rate movements , prepayments speeds , credit losses and discount rates are inherently difficult to estimate . changes to these inputs can have a significant effect on fair value measurements . accordingly , there is no assurance that our estimates of fair value are indicative of the amounts that would be realized on the ultimate sale or exchange of these assets . the company classified 8.2 % of its total assets as level 3 fair value assets at december 31 , 2020. critical accounting estimates the preparation of financial statements in accordance with u.s. gaap requires us to make certain judgments and assumptions , based on information available at the time of our preparation of the financial statements , in determining accounting estimates used in preparation of the statements . our significant accounting policies are described in note 2 to the consolidated financial statements , included under item 8 of this annual report on form 10-k. accounting estimates are considered critical if the estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and if different estimates reasonably could have been used in the reporting period or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on our financial condition , results of operations or cash flows . the methods used by us to estimate fair value for afs securities and msr may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values . furthermore , while we believe that our valuation methods are appropriate and consistent with other market participants , the use of different methodologies , or assumptions , to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date . we use inputs that are current as of the measurement date , which in periods of market dislocation , may have reduced transparency . classification and valuation of available-for-sale securities our securities investments consist primarily of agency rmbs and non-agency securities that we classify as available-for-sale , or afs . all assets classified as afs , excluding certain agency interest-only mortgage-backed securities , are reported at estimated fair value with changes in fair value included in accumulated other comprehensive income , a separate component of stockholders ' equity , on an after-tax basis . on july 1 , 2015 , we elected the fair value option for agency interest-only securities acquired on or after such date . all agency interest-only securities acquired on or after july 1 , 2015 are carried at estimated fair value with changes in fair value recorded as a component of ( loss ) gain on investment securities in the consolidated statements of comprehensive ( loss ) income . in accordance with asu no . 2016-13 , financial instruments-credit losses ( topic 326 ) : measurement of credit losses on financial instruments , we use a discounted cash flow method to estimate and recognize an allowance for credit losses on both agency and non-agency afs securities that are not accounted for under the fair value option . story_separator_special_tag the estimated allowance for credit losses is equal to the difference between the prepayment adjusted contractual cash flows with no credit losses and the prepayment adjusted expected cash flows with credit losses , discounted at the effective interest rate on the afs security that was in effect upon adoption of the standard . the contractual cash flows and expected cash flows are based on management 's best estimate and take into consideration current prepayment assumptions , lifetime expected losses based on past loss experience , current market conditions , and reasonable and supportable forecasts of future conditions . the allowance for credit losses on agency afs securities relates to prepayment assumption changes on interest-only agency rmbs . the allowance for credit losses causes an increase in the afs security amortized cost and recognizes an allowance for credit losses in the same amount , with the provision for credit losses recognized in earnings ( within ( loss ) gain on investment securities ) and the balance of the unrealized loss recognized in either other comprehensive ( loss ) income , net of tax , or ( loss ) gain on investment securities , depending on the accounting treatment . classification and valuation of mortgage servicing rights we account for our msr at fair value , with changes in fair value recorded in gaap net ( loss ) income , rather than at amortized cost . fair value is generally determined based on prices obtained from third-party pricing vendors . although msr transactions are observable in the marketplace , the details of those transactions are not necessarily reflective of the value of our msr portfolio . third-party vendors use both observable market data and unobservable market data ( including prepayment speeds , delinquency levels , discount rates and cost to service ) as inputs into models , which help to inform their best estimates of fair value market price . 34 table of c ontents interest income recognition interest income on securities is accrued based on the outstanding principal balance and their contractual terms . premiums and discounts associated with agency rmbs and non-agency securities rated aa and higher at the time of purchase , are amortized and accreted , respectively , as an adjustment to interest income over the life of such securities using the contractual method under asc 310-20 , nonrefundable fees and other costs , which is applied at the individual security level based upon each security 's effective interest rate . each security 's effective interest rate is calculated at the time of purchase by solving for the discount rate that equates the present value of that security 's remaining contractual cash flows , assuming no principal prepayments , to its purchase price . when applying the contractual effective interest method , as principal prepayments occur , an amount of the unamortized premium or discount is recognized in interest income such that the contractual effective interest rate on the remaining security balance is unaffected . interest income on non-agency securities that were purchased at a discount to par value and were rated below aa at the time of purchase and agency and non-agency interest-only securities that can be contractually prepaid or otherwise settled in such a way that we would not recover substantially all of our recorded investment is recognized based on the security 's effective interest rate using the prospective method under asc 325-40 , investments - other : beneficial interests in securitized financial assets . at the time of acquisition , the security 's effective interest rate is calculated by solving for the single discount rate that equates the present value of our best estimate of the amount and timing of the cash flows expected to be collected from the security to its purchase price . on at least a quarterly basis , we review and , if appropriate , make adjustments to our cash flow projections based on input and analysis received from external sources , internal models , and management 's judgment about interest rates , prepayment rates , the timing and amount of credit losses , and other factors . changes in cash flows from those originally projected , or from those estimated at the last evaluation , may result in a prospective change in the effective interest rate and interest income recognized on such securities . derivative financial instruments and hedging activities we apply the provisions of asc 815 , which requires the recognition of all derivatives as either assets or liabilities on our consolidated balance sheets and to measure those instruments at fair value . the fair value adjustments of our current derivative instruments affect net income as the hedge for accounting purposes is being treated as an economic , or trading , hedge and not as a qualifying hedging instrument . derivatives are primarily used for hedging purposes rather than speculation . we utilize third-party pricing vendors and broker quotes to value our financial derivative instruments . if our hedging activities do not achieve their desired results , our reported gaap net ( loss ) income may be adversely affected . income taxes our financial results are generally not expected to reflect provisions for current or deferred income taxes , except for those taxable benefits or provisions recognized by our trss . we estimate , based on existence of sufficient evidence , the ability to realize the remainder of any deferred tax asset our trss recognize . any adjustments to such estimates will be made in the period such determination is made . we plan to operate in a manner that will allow us to qualify for taxation as a reit . as a result of our expected reit qualification , we do not generally expect to pay u.s. federal corporate level taxes . however , many of the reit requirements are highly technical and complex . if we were to fail to meet the reit requirements , we would be subject to u.s. federal , state and local income taxes . the tax cuts and jobs act of 2017 , or tcja , significantly changed how the u.s. taxes corporations .
| ( 2 ) cost of funds does not include the accrual and settlement of interest associated with interest rate swaps and caps . in accordance with u.s. gaap , those costs are included in ( loss ) gain on interest rate swap , cap and swaption agreements in the consolidated statements of comprehensive ( loss ) income . for the three and twelve months ended december 31 , 2020 , our total average cost of funds on the assets assigned as collateral for borrowings shown in the table above , including interest spread expense associated with interest rate swaps and caps , was 0.5 % and 1.7 % , respectively , compared to 2.4 % and 2.5 % for the same periods in 2019 . ( 3 ) yields on agency derivatives not shown as interest income is included in gain ( loss ) on other derivative instruments in the consolidated statements of comprehensive ( loss ) income . ( 4 ) includes financing for both msr assets and related servicing advance obligations . yields on mortgage servicing rights and advances not shown as these assets do not earn interest . ( 5 ) net interest spread does not include the accrual and settlement of interest associated with interest rate swaps and caps . in accordance with u.s. gaap , those costs are included in gain ( loss ) on interest rate swap , cap and swaption agreements in the consolidated statements of comprehensive ( loss ) income . for the three and twelve months ended december 31 , 2020 , our total average net interest rate spread on the assets and liabilities shown in the table above , including interest spread expense associated with interest rate swaps and caps , was 1.5 % and 1.0 % , respectively , compared to 0.9 % and 1.1 % for the same periods in 2019. the decrease in yields on agency afs securities for the three and twelve months ended december 31 , 2020 , as compared to the same period in 2019 , was predominantly driven by sales of pools with higher yields .
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we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . we are monitoring the global outbreak and spread of the novel strain of coronavirus , or covid-19 , and have taken steps to identify and mitigate the adverse impacts on , and risks to , our business posed by its spread and actions taken by governmental and health authorities to address the covid-19 pandemic . although covid-19 has not yet had a material adverse impact on our operations and our clinical and preclinical programs , the spread of covid-19 has caused us to modify our business practices , including implementing a work from home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel , and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees , and other business partners in light of covid-19 . given the fluidity of the covid-19 pandemic however , we do not yet know the full extent of the potential impact of covid-19 on our business operations . we will continue to monitor the situation closely . components of our results of operations revenue to date , we have not generated any revenue from product sales and do not expect to do so in the near future . all of our revenue to date has been derived from our collaboration agreement with novartis and our license agreement with gsk . if our development efforts for our programs are successful and result in regulatory approval or additional license or collaboration agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties . we expect that our revenue for the next several years will be derived primarily from our collaboration agreement with novartis and our license agreement with gsk , as well as any additional collaborations or licenses that we may enter into in the future . collaboration agreement with novartis in january 2016 , we entered into the novartis agreement to develop next-generation cancer therapies . under the novartis agreement , as amended , we were responsible for performing research on antibodies that bind to cd73 and four other specified targets . we were responsible for all costs and expenses incurred by , or on behalf of , us in connection with the research . upon entering into the agreement , we received an upfront payment of $ 70.0 million from novartis and granted novartis a worldwide exclusive license to research , develop , manufacture and commercialize antibodies that target cd73 . in addition , we initially granted novartis the right to purchase exclusive option rights , each an option , to up to four specified targets , including certain research , development , manufacturing and commercialization rights . pursuant to the novartis agreement , novartis initially had the right to exercise up to three purchased options . in march 2018 , novartis notified us of its decision to not exercise its previously purchased option for srf231 , our cd47 product candidate . in march 2018 , we and novartis also mutually agreed to cease development of one of the undisclosed programs subject to the novartis agreement . in february 2019 , novartis notified us of its decision not to purchase its option related to il-27 . in january 2020 , novartis did not purchase and exercise its single remaining option under the novartis agreement and , as a result , the option purchase period expired . accordingly , there are no options remaining eligible for purchase and exercise by novartis , and our performance obligations under the novartis agreement have ended . we are currently entitled to potential milestones of $ 525.0 million , as well as tiered royalties on annual net sales of nzv930 by novartis ranging from high single-digit to mid-teens percentages . such amount of potential milestone payments assumes the successful clinical development and achievement of all sales milestones for nzv930 . 77 under asc 606 we accounted for ( i ) the license conveyed with respect to cd73 and ( ii ) our obligations to perform research on cd73 and other specified targets as a single performance obligation under the novartis agreement . we recognize revenue using the cost-to-cost method , which we believe best depicts the transfer of control to the customer . under the cost-to-cost method , the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation . under this method , revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion . through december 31 , 2020 , we had received an aggregate of $ 150.0 million from novartis in upfront payments , milestone payments , and option purchase payments . as of january 2020 , we no longer have any performance obligations under the novartis agreement . we removed all costs associated with the remaining performance obligation for the single remaining option from the cost-to-cost model in january 2020. this resulted in our recognizing the remaining deferred revenue of $ 38.6 million to collaboration revenue – related party in the first quarter of 2020. during the years ended december 31 , 2020 , 2019 , and 2018 , we recognized revenue of $ 38.6 million , $ 15.4 million and $ 59.4 million , respectively , related to the novartis agreement . license agreement with gsk in december 2020 , we entered into the gsk agreement , under which we granted gsk a worldwide exclusive , sublicensable license to develop , manufacture and commercialize antibodies that target the antibody srf813 , targeting cd112r , also known as pvrig , or the licensed antibodies . story_separator_special_tag gsk will be responsible for the development , manufacturing and commercialization of the licensed antibodies and a joint development committee will be formed to facilitate information sharing between us and gsk . under the terms of the gsk agreement , gsk is obligated to use commercially reasonable efforts to develop and commercialize the licensed antibodies . under the terms of the agreement , gsk made a one-time upfront payment of $ 85.0 million and is required to make additional payments to us for supply services and transition services estimated to be $ 4.3 million and $ 1.0 million , respectively . we are eligible to receive up to $ 90.0 million in clinical and $ 155.0 million in regulatory milestones . in addition , we may receive up to $ 485.0 million in sales milestone payments . we are also eligible to receive royalties on global net sales of any approved products based on the licensed antibodies , ranging in percentages from high single digits to mid-teens . under asc 606 we account for ( i ) the delivery of the worldwide exclusive , sublicensable license to develop , manufacture and commercialize the licensed antibodies ; ( ii ) supply of licensed antibodies until an investigational new drug application is accepted by a regulatory authority ; and ( iii ) transition services until an investigational new drug application is accepted by a regulatory authority as separate and distinct performance obligations . we determined the transaction price under asc 606 at the inception of the gsk agreement to be $ 90.3 million , consisting of the upfront payment of $ 85.0 million plus $ 4.3 million for supply of the licensed antibodies and $ 1.0 million for the transition services . we recognize revenue for the license performance obligation at a point in time , that is upon transfer of the license to gsk . as control of these license was transferred on the effective date of december 16 , 2020 and gsk could begin to use and benefit from the license , we recognized $ 85.0 million of license revenue during the year ended december 31 , 2020 under the gsk agreement . we will recognize the $ 4.3 million and $ 1.0 million allocated to the supply services and transition services over time . we transfer control of these services over time and gsk receives and consumes the benefit over time as we perform the services . for the year ended december 31 , 2020 , we recognized $ 2.6 million of license revenue related to the supply services , which represents the costs incurred associated with the portion of goods that were immediately transferred upon execution of the gsk agreement . the remainder of the consideration will be recognized as the manufacturing is performed . an immaterial amount of the transition services were performed in the year ended december 31 , 2020. through december 31 , 2020 , we have received $ 85.0 million from gsk in upfront payments . during the year ended december 31 , 2020 , we recognized revenue of $ 87.6 million related to the gsk agreement . operating expenses research and development expenses research and development expenses are expensed as incurred and consist of costs incurred for our research activities , including our discovery efforts , and the development of our programs . these expenses include : salaries , benefits and other related costs , including stock-based compensation , for personnel engaged in research and development functions ; 78 expenses incurred in connection with the preclinical development of our programs and clinical trials of our product candidates , including under agreements with third parties , such as consultants , contractors , and contract research organizations , or cros ; the cost of manufacturing drug products for use in our preclinical studies and clinical trials , including under agreements with third parties , such as consultants , contractors , and contract manufacturing organizations , or cmos ; laboratory supplies ; facilities , depreciation and other expenses , which include direct and allocated expenses for depreciation and amortization , rent and maintenance of facilities , insurance and supplies ; and third-party license fees . we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel , early research and consumable costs , which are deployed across multiple projects under development . these costs are included in unallocated research and development expenses in the table below . a portion of our research and development costs are external costs , which we do track on a program-by-program basis . the following table summarizes our research and development expenses by program : replace_table_token_4_th 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 anticipate that our research and development expenses will increase in the future as a result of increased clinical development costs as we advance our srf617 and srf388 clinical trials . in the year ended december 31 , 2020 , we recognized $ 1.2 million in severance expense as a result of the strategic restructuring in january 2020. at this time , we can not reasonably estimate or know the nature , timing , and estimated costs of the efforts that will be necessary to complete the development of any of our product candidates that we develop from our programs . we are also unable to predict when , if ever , net cash inflows will commence from sales of product candidates we develop .
| 81 research and development expenses replace_table_token_6_th research and development expenses were $ 41.0 million for the year ended december 31 , 2020 , compared to $ 52.1 million for the year ended december 31 , 2019. the decrease of $ 11.1 million was primarily due to decreases of $ 5.8 million in external costs for our srf231 program , $ 1.9 million in external costs for our srf388 program , $ 6.8 million in external costs for our srf617 program , $ 0.7 million in external costs for our other early-stage programs , and $ 1.2 million for research and discovery and unallocated costs , which were partially offset by an increase of $ 4.8 million in external costs for our srf388 program . the decrease in research and development expenses for our srf231 program was primarily due to the deprioritization of srf231 program , which we announced in december 2018 , and the conclusion of the phase 1 clinical trial , which we anticipate will occur in the first half of 2021. additionally , we received a refund of $ 0.7 million in the first quarter of 2020 relating to materials purchased in 2018. the decrease in research and development expenses for our srf388 program was primarily due to a decrease in contract manufacturing work and other ind enabling activities which primarily occurred in 2019. this was partially offset by the progression in the phase 1 clinical trial throughout 2020. the decrease in research and development expenses for our srf617 program was primarily due to a decrease in contract manufacturing work and other ind enabling activities which primarily occurred in 2019. this was partially offset by the progression in the phase 1 clinical trial throughout 2020. the decrease in research and discovery and unallocated expenses was primarily due to the reduction in headcount as well as decreased facility and lab costs as a result of the strategic restructuring announced in january 2020. the increase in research and development expenses for our srf813
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we expect to continue to incur significant expenses and operating losses for at least the next several years , particularly as we : pursue the clinical development of product candidates ; leverage our programs to advance product candidates into preclinical and clinical development ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; hire additional clinical , quality control , and scientific personnel ; expand our operational , financial , and management systems and increase personnel , including personnel to support our clinical development , manufacturing , and commercialization efforts , and our operations as a public company ; maintain , expand and protect our intellectual property portfolio ; establish a sales , marketing , medical affairs , and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with a commercial partner ; and acquire or in-license other product candidates and technologies . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . we may be unable to raise additional funds or enter into other agreements or arrangements , when needed , 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 or commercialization of one or more of our product candidates . because of the numerous risks and uncertainties associated with product 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 revenue from product sales , 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 or terminate our operations . we believe that our existing cash , cash equivalents and marketable securities , as of december 31 , 2019 will enable us to fund our operating expenses , debt service obligations and capital expenditure requirements into 2022 , excluding any future milestone payments from novartis . we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . components of our results of operations revenue to date , we have not generated any revenue from product sales and do not expect to do so in the near future . all of our revenue to date has been derived from the collaboration agreement . if our development efforts for our programs are successful and result in regulatory approval or additional license or collaboration agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties . we expect that our revenue for the next several years will be derived primarily from the collaboration agreement as well as any additional collaborations that we may enter into in the future . 77 collaboration agreement with novartis in january 2016 , we entered into the collaboration agreement to develop next-generation cancer therapies . under the collaboration agreement , as amended , we were responsible for performing research on antibodies that bind to cd73 and four other specified targets . we were responsible for all costs and expenses incurred by , or on behalf of , us in connection with the research . upon entering into the agreement , we received an upfront payment of $ 70.0 million from novartis and granted novartis a worldwide exclusive license to research , develop , manufacture and commercialize antibodies that target cd73 . in addition , we initially granted novartis the right to purchase exclusive option rights , each an option , to up to four specified targets , including certain research , development , manufacturing and commercialization rights . pursuant to the collaboration agreement , novartis initially had the right to exercise up to three purchased options . in march 2018 , novartis notified us of its decision to not exercise its previously purchased option for srf231 , our cd47 product candidate . in march 2018 , we and novartis also mutually agreed to cease development of one of the undisclosed programs subject to the collaboration agreement . in february 2019 , novartis notified us of its decision not to purchase its option related to il-27 . as of december 31 , 2019 , novartis had one option remaining eligible for purchase and potential exercise . in january 2020 , novartis did not purchase and exercise its single remaining option under the collaboration agreement and , as a result , the option purchase period expired . accordingly , there are no options remaining eligible for purchase and exercise by novartis , and our performance obligations under the collaboration arrangement have ended . we are currently entitled to potential milestones of $ 525.0 million , as well as tiered royalties on annual net sales of nzv930 by novartis ranging from high single-digit to mid-teens percentages . such amount of potential milestone payments assumes the successful clinical development and achievement of all sales milestones for nzv930 . under asc 606 we account for ( i ) the license conveyed with respect to cd73 and ( ii ) our obligations to perform research on cd73 and other specified targets as a single performance obligation under the collaboration agreement . we recognize revenue using the cost-to-cost method , which we believe best depicts the transfer of control to the customer . story_separator_special_tag under the cost-to-cost method , the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation . under this method , revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion . through december 31 , 2019 , we had received an aggregate of $ 150.0 million from novartis in upfront payments , milestone payments , and option purchase payments . during the year ended december 31 , 2019 , 2018 , and 2017 , we recognized revenue of $ 15.4 million , $ 59.4 million and $ 12.8 million , respectively , related to the collaboration agreement . as of january 2020 , we no longer have any performance obligations under the collaboration agreement . we will remove all costs associated with the remaining performance obligation for the single remaining option from the cost-to-cost model in the first quarter of 2020. this will result in our recognizing the remaining deferred revenue of $ 38.6 million to collaboration revenue – related party in the first quarter of 2020. operating expenses research and development expenses research and development expenses are expensed as incurred and consist of costs incurred for our research activities , including our discovery efforts , and the development of our programs . these expenses include : salaries , benefits and other related costs , including stock-based compensation , for personnel engaged in research and development functions ; expenses incurred in connection with the preclinical development of our programs and clinical trials of our product candidates , including under agreements with third parties , such as consultants , contractors , and contract research organizations , or cros ; the cost of manufacturing drug products for use in our preclinical studies and clinical trials , including under agreements with third parties , such as consultants , contractors , and contract manufacturing organizations , or cmos ; 78 laboratory supplies ; facilities , depreciation and other expenses , which include direct and allocated expenses for depreciation and amortization , rent and maintenance of facilities , insurance and supplies ; and third-party license fees . we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel , early research and consumable costs , which are deployed across multiple projects under development . these costs are included in unallocated research and development expenses in the table below . a portion of our research and development costs are external costs , which we do track on a program-by-program basis . the following table summarizes our research and development expenses by program : replace_table_token_4_th 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 anticipate that our research and development expenses will decrease in the future as a result of the strategic restructuring and the reduction in force announced in january 2020 , however , we still anticipate incurring increased clinical development costs as we advance our srf617 and srf388 clinical trials . at this time , we can not reasonably estimate or know the nature , timing , and estimated costs of the efforts that will be necessary to complete the development of any of our product candidates that we develop from our programs . we are also unable to predict when , if ever , net cash inflows will commence from sales of product candidates we develop . this is due to the numerous risks and uncertainties associated with developing product candidates , including the uncertainty of : successful completion of clinical trials and preclinical studies ; sufficiency of our financial and other resources to complete the necessary clinical trials and preclinical studies ; acceptance of inds for our planned clinical trials or future clinical trials ; successful enrollment and completion of clinical trials ; successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations ; receipt of regulatory and marketing approvals from applicable regulatory authorities ; receipt and maintenance of marketing approvals from applicable regulatory authorities ; establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing , if any of our product candidates are approved ; entry into collaborations to further the development of our product candidates ; obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates ; successfully launching commercial sales of our product candidates , if and when approved ; 79 acceptance of our product candidates ' benefits and uses , if and when approved , by patients , the medical community and third-party payors ; maintaining a continued acceptable safety profile of the product candidates following approval ; effectively competing with other therapies ; and obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors . a change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs , timing , and viability associated with the development of such program or product candidate . general and administrative expenses general and administrative expenses consist primarily of salaries and personnel-related costs , including stock-based compensation , for our personnel in executive , legal , finance and accounting , human resources , and other administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees paid for accounting , auditing , consulting and tax services ; insurance costs ; travel expenses ; and facility costs not otherwise included in research and development expenses .
| as such , the remaining deferred revenue will be recognized as collaboration revenue – related party in the first quarter of 2020. research and development expenses replace_table_token_6_th research and development expenses were $ 52.1 million for the year ended december 31 , 2019 , compared to $ 52.5 million for the year ended december 31 , 2018. the decrease of $ 0.4 million was primarily due to decreases of $ 13.6 million in external costs for our srf231 program , $ 1.0 million in external costs for our nzv930 program , and $ 2.4 million in external costs for our other early-stage programs , which were partially offset by increases of $ 3.3 million in external costs for our srf388 program , $ 8.5 million in external costs for our srf617 program , and $ 3.3 million for research and discovery and unallocated costs . the decrease in research and development expenses for our srf231 program was primarily due to a reduction in contract manufacturing work completed in 2019 compared to 2018 , as well as the deprioritization of srf231 , which we announced in december 2018. the decrease in research and development expenses for our nzv930 program was primarily due to initiation of the phase 1 clinical trial by novartis in june 2018. novartis has worldwide exclusive rights to this program , and as a result of the initiation of the phase 1 clinical by novartis , we are no longer incurring expenses for this program . the decrease in research and development expenses for our other early-stage programs was primarily a result of costs related to srf813 , which were not tracked as a separate program until 2019 , as well as our strategic focus on filing inds for srf617 and srf388 in the fourth quarter of 2019 . 81 the increase in research and development expenses for our srf388 program was primarily due to increased contract manufacturing work and additional costs incurred in advancing the program , which led
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in june 2019 , we announced the launch of itero element foundation intraoral scanner with restorative software . the itero element foundation extends align 's portfolio of intraoral scanners with powerful 3d visualization to better meet the needs of doctors , labs and patients . the itero element foundation is available in north america and will also be available in other select countries in 2020. we believe that over the longterm , clinical solutions and treatment tools will increase adoption of invisalign and increase sales of our intraoral scanners ; however , it is difficult to predict the rate of adoption which may vary by region and channel . the use of itero and other digital scanners for invisalign case submission in place of pvs impressions continues to grow and remains a positive catalyst for invisalign utilization . for the fourth quarter of 2019 , total invisalign cases submitted with a digital scanner in the americas increased to 79.5 % , up slightly from 78.8 % in the third quarter of 2019. international scans increased to 64.7 % , up from 62.6 % in the third quarter of 2019. we believe that over the longterm , technology innovation and added features and functionality of our itero scanners will increase adoption of invisalign and increase sales of our intraoral scanners ; however , it is difficult to predict the rate of adoption which may vary by region and channel . invisalign adoption . our goal is to establish invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals , also known as “ utilization rates. ” our annual utilization rates for the last three fiscal years are as follows : * invisalign utilization rates are calculated by the # of cases shipped divided by the # of doctors to whom cases were shipped . our international region includes emea and apac . latam is excluded from the above chart as it is immaterial . ◦ total utilization in 2019 increased to 15.9 cases per doctor compared to 15.7 cases in 2018 . ▪ north america : utilization for both our north american orthodontist and gp customers increased in 2019 to 65.0 and 9.5 cases per doctor compared to 56.7 cases and 9.1 cases per doctor in 2018 , respectively . the increase in utilization in 2019 reflects improvements in product and technology which continues to strengthen 31 our doctors ' clinical confidence such that they now utilize invisalign more often and on more complex cases , including their teenage patients . ▪ international : international doctor utilization remained relatively flat at 13.8 cases per doctor in 2019 compared to 13.9 cases in 2018. we expect our utilization rates to gradually improve as a result of advancements in product and technology , which continue to strengthen our doctors ' clinical confidence in the use of invisalign clear aligners . in addition , since the teenage and younger market makes up 75 % of the approximately 12 million total orthodontic case starts each year , and as we continue to drive adoption of teenage and younger patients through sales and marketing programs , we expect our utilization rates to improve . our utilization rates , however , may fluctuate from period to period due to a variety of factors , including seasonal trends in our business along with adoption rates of new products and features . number of new invisalign doctors trained . we continue to expand our invisalign customer base through the training of new doctors . in 2019 , we trained 22,270 new invisalign doctors of which 9,765 were trained in the americas region and 12,505 in the international region . international invisalign growth . we continue to focus our efforts towards increasing invisalign clear aligner adoption by dental professionals in the emea and apac markets . on a year-over-year basis , our international invisalign volume increased 34.0 % driven primarily by increased adoption as well as expansion of our customer base in both the emea and apac regions . however , beginning in the second quarter of 2019 , we experienced slower growth rates than prior periods in china primarily due to the us-china trade war and resulting economic uncertainty which caused headwind for consumer demand especially for consumption of luxury goods and considered purchases . we also believe there has been increased competitive activity from wires and bracket manufacturers and clear aligner suppliers . in addition , in the first quarter of 2020 , the outbreak of the novel coronavirus ( 2019 ncov ) in china has caused increased uncertainty and disruption to our employees , doctors ' practices , their patients and consumers . we expect the impact of the novel coronavirus and related efforts by the chinese government to contain its spread , including travel restrictions , extension of the lunar new year and discouraging non-essential medical and dental procedures to adversely impact sales and operations in china for a currently indeterminate period of time . notwithstanding these current issues in china , we continue to see growth from our international orthodontists and gp customers and are seeing more positive traction in the gp channel as we continue to segment our sales and marketing resources and programs specifically around each customer channel . in 2019 , we continued to expand in our existing markets through targeted investments in sales coverage and professional marketing and education programs , along with consumer marketing in select country markets . we expect international revenues to continue to grow at a faster rate than the americas for the foreseeable future due to our continued investment in international market expansion , the size of the market opportunities and our relatively low market penetration of these regions . our future growth is dependent upon the continued growth of invisalign adoption and international market penetration . increasing competition . starting in the second quarter of 2019 , we began experiencing slower adult case growth from north american orthodontists , reflecting a more competitive environment especially for the young adult demographic . story_separator_special_tag given increased awareness for direct to consumer clear aligners and heavy advertising spend from direct to consumer companies , case starts may be shifting away from traditional practices . we also believe that doctors are sampling alternative products and or taking advantage of wires and brackets bundles that essentially give clear aligners away for free or at low prices . in the third quarter of 2019 , we increased investment in consumer demand with a new advertising campaign for north america and expanding marketing programs such as our concierge service , which connects potential patients with invisalign doctors increasing conversion and loyalty . in addition , we launched new sales tools and professional marketing materials and we also expect to see increased productivity from the approximate 100 sales representatives we added in the first quarter of 2019. if , however , we are unable to compete effectively with existing products or respond effectively to any products developed by new or existing competitors , our business could be harmed . establish regional order acquisition , treatment planning and manufacturing operations . we expect to continue establishing and expanding additional order acquisition , treatment planning and manufacturing operations closer to our international customers in order to improve our operational efficiency and increase doctors ' confidence in invisalign clear aligners . in the fourth quarter of 2018 , we began fabricating our aligners in our manufacturing facility in ziyang , china , our first aligner fabrication facility outside of juarez , mexico . in the third quarter of 2019 , we opened our new order acquisition and treatment facility in wroclaw , poland and new treatment facility in yokohama , japan . corporate structure reorganization . in january 2020 , we reorganized our corporate structure and intercompany relationships to more closely align with the international nature of our business activities with the goal of achieving financial and operational efficiencies . as part of this corporate structure reorganization , our emea regional headquarters 32 was moved from amsterdam , the netherlands to rotkreuz , switzerland . as a result , we will continue to incur expenses in the near term and expect to realize the related benefits in subsequent years . the implementation of this reorganization plan has been disruptive to our business , and may not ultimately be more efficient or effective . moreover , our reorganization activities , including any related expenses and the impact from affected employees , could have a material adverse effect on our business , operating results , financial condition and effective tax rates . expenses . we expect expenses to increase in 2020 due in part to : ▪ investments in manufacturing capacity and facilities to enhance our regional capabilities ; ▪ investments in international expansion ; ▪ investments in expansion of number of direct sales force personnel ; ▪ increase in sales , marketing and customer support resources including our new advertising campaign ; and ▪ product and technology innovation to enhance product efficiency and operational productivity . we believe that these investments will position us to increase our revenues and continue to grow our market share , but will negatively impact results of operations , particularly in the near term . stock repurchases . during the year ended december 31 , 2019 , we repurchased $ 200.0 million of our common stock on the open market at an average price of $ 264.93 per share . we also entered into an accelerated stock repurchase agreement to repurchase $ 200.0 million of our common stock and received a total of 1.1 million shares for an average share price of $ 176.61 . as of december 31 , 2019 , we have $ 100.0 million available for repurchase under the $ 600.0 million repurchase program authorized by our board of directors in may 2018 ( refer to note 12 “ common stock repurchase programs ” of the notes to consolidated financial statements for details on our stock repurchase programs ) . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:30px ; font-size:10pt ; '' > selling , general and administrative expense includes personnel-related costs including payroll , commissions and stock-based compensation for our sales force , marketing and administration in addition to media and advertising expenses , clinical education , trade shows and industry events , product marketing , equipment and maintenance costs , legal and outside service costs , depreciation and amortization expense and allocations of corporate overhead expenses including facilities and information technology ( “ it ” ) . 35 selling , general and administrative expense increased in 2019 compared to 2018 primarily due to higher compensation related costs of $ 121.2 million mainly from increased headcount resulting in higher salaries expense , incentive bonuses , fringe benefits , and stock-based compensation partially due to investments in sales coverage and international expansion . we also incurred higher expenses from advertising and marketing costs of $ 40.1 million , legal and outside service costs of $ 31.7 million , equipment , software and maintenance costs of $ 18.1 million and depreciation and amortization costs of $ 12.4 million . research and development ( in millions ) : replace_table_token_6_th changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding . research and development expense includes the personnel-related costs including payroll and stock-based compensation and outside consulting expenses associated with the research and development of new products and enhancements to existing products and allocations of corporate overhead expenses including facilities and information technology . research and development expense increased in 2019 compared to 2018 primarily due to higher compensation costs mainly from increased headcount resulting in higher salaries expense , stock-based compensation , incentive bonuses and fringe benefits . impairments and other ( gains ) charges ( in millions ) : replace_table_token_7_th changes and percentages are based on actual values . certain tables may not sum or recalculate due to rounding .
| clear aligner - americas americas net revenues increased by $ 118.8 million in 2019 as compared to 2018 due to invisalign case volume growth across all channels and products which contributed to the net revenue growth by $ 100.2 million and higher average selling prices ( `` asp '' ) which increased net revenues by $ 18.7 million . higher asp was mainly the result of price increases across most products which increased net revenues by $ 35.1 million and $ 23.4 million increase in net revenues driven by a product mix shift towards comprehensive products and less sdc revenues , which carry a lower asp . we no longer manufacture aligners for sdc as our supply agreement with sdc expired by its terms on december 31 , 2019. these asp increases were partially offset by a reduction in net revenues of $ 23.1 million from higher promotional discounts and $ 17.6 million reduction in net revenues as a result of higher net revenue deferrals and unfavorable foreign exchange rates . clear aligner - international international net revenues increased by $ 197.2 million in 2019 as compared to 2018 primarily driven by case volume growth across all channels and products which increased net revenues by $ 232.5 million . this increase was partially offset by lower asp that reduced net revenues by $ 35.3 million . the asp decline was mainly the result of higher promotional discounts which reduced net revenues by $ 45.0 million , unfavorable foreign exchange rates lowered net revenues by $ 37.2 million , and a product mix shift towards non-comprehensive products reduced net revenues by $ 19.0 million . these asp decreases were partially offset by a $ 47.8 million improvement in net revenues related to price increases across most products along with a benefit from going direct in several additional countries , and lower net revenue deferrals and sales credits that increased net revenues by $ 18.1 million . clear aligner - non-case non-case net revenues , consisting of vivera retainers , training fees and other product revenues , increased by $ 18.3 million in 2019 compared to
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the liangzhou road project 's road construction started at the end of 2013. in 2014 , the original scope and budget on the liangzhou road reformation and expansion project was extended , because the local government included more area and resettlement residences into the project , which resulted in additional investments from the company . in return , the company is authorized by the local government to develop and manage the commercial and residential properties surrounding the liangzhou road project . as of september 30 , 2019 , the main liangzhou road construction is substantially completed , due to the complicated multiple level of government review process , the company expected to the government 's acceptance to be completed before the end of fiscal 2020. the company 's development cost incurred on liangzhou road project is treated as the company 's deposit on purchasing the related land use rights , as agreed by the local government . as of september 30 , 2019 , the actual costs incurred by the company were $ 146,958,903 ( september 30 , 2018 - $ 135,011,975 ) and the incremental cost related to residence resettlement approved by the local government . the liangzhou road related projects mainly consists oriental garden phase ii , liangzhou mansion and pearl commercial plaza surrounding the liangzhou road area . 27 oriental garden phase ii oriental garden phase ii project is planned to consist of 8 high-rise residential buildings and 6 commercial buildings with total planned gfa of 370,298 square meters . the project will also include a farmer 's market . liangzhou mansion liangzhou mansion project is planned to consist of 7 high-rise building and commercial shops on the first floor with total planned gfa of 160,000 square meters . pearl commercial plaza pearl commercial plaza is planned to consist one office building , one service apartment ( or hotel ) , classical architecture style of chinese traditional houses and shopping malls with total planned gfa of 124,191 square meters . the company plans to start these three real estate projects after the road construction passes local government 's inspection and approval . these related projects may take 2-3 years to fully complete . road construction other road construction projects mainly included a yang county east 2nd ring road construction project . the company was engaged by the yang county local government to construct the east 2nd ring road with a total length of 2.15 km . the local government is required to repay the company 's project investment costs within 3 years with interest at the interest rate based on the commercial borrowing rate with the similar term published by china construction bank ( september 30 , 2019 and 2018 - 4.75 % ) . the local government has approved a refund to the company by reducing local surcharges or taxes otherwise required in the real estate development . the road construction was substantially completed as of september 30 , 2019 and in process of government review and approval . in september 2012 , the company was approved by the hanzhong local government to construct four municipal roads with a total length of approximately 1,192 meters . the project was deferred and then restarted during the quarter ended march 31 , 2014. as of september 30 , 2019 , the local government was still in the process of assessing the budget for these projects . under development : estimated completion time of construction hanzhong city shijin project under planning stage hanzhong city hanfeng beiyuan east road to be delivered to the government in 2020 hanzhong city liangzhou road related projects the road construction was substantially completed in september 2018 , the other related projects will be completed in later years . hanzhong city beidajie project under planning stage yang county east 2 nd ring road to be completed in 2020 28 story_separator_special_tag representing a decrease of $ 1.6 million from last year . the decrease in costs of land use rights was due to less gfa sold during fiscal 2019. construction cost : we outsource the construction of all of our projects to third party contractors , whom we select through a competitive tender process . our construction contracts provide a fixed payment which covers substantially all labor , materials and equipment costs , subject to adjustments for some types of excess , such as design changes during construction or changes in government-suggested steel prices , which are paid over the construction period based on specified milestones . in addition , we purchase and supply a limited range of fittings and equipment , including elevators , window frames and door frames . our construction costs for the year ended september 30 , 2019 were approximately $ 27.6 million as compared to approximately $ 44.3 million for the year ended september 30 , 2018 , representing a decrease of $ 16.7 million . the decrease in construction cost was due to the decrease in units sold in fiscal 2019. the total cost of sales as a percentage of real estate sales before sales tax for the year ended september 30 , 2019 and 2018 was consistently around 75.7 % and 74.3 % , respectively . gross profits gross profit was approximately $ 9.3 million for the year ended september 30 , 2019 as compared to approximately $ 15.6 million for the year ended september 30 , 2018 , representing a decrease of approximately $ 6.3 million , which was mainly attributable to less gfa sold in oriental pearl garden , mingzhu garden ( nanyuan and beiyuan ) phase i and ii and yang county yangzhou palace project during fiscal 2019. we have only limited models available for customer selection in the mingzhu garden phase i and ii projects , oriental pearl garden project and yangzhou pearl garden project , therefore , the sales from these completed projects decreased from last year . story_separator_special_tag for fiscal 2019 , our average selling price ( “ asp ” ) for real estate projects ( excluding sales of parking spaces ) located in yang county was approximately $ 720 per square meter , significantly increased from the asp of $ 478 per square meter for fiscal 2018 , due to the fact that most of units sold in yangzhou pearl garden phase i and ii project were commercial units . the asp of our hanzhong real estate projects ( excluding sales of parking spaces ) was approximately $ 560 per square meter for fiscal 2019 , slightly decreased by 7.4 % as compared to the asp of $ 605 per square meter for fiscal 2018. the decreased average selling price reduced the gross margin . the overall gross profit as a percentage of real estate sales before sales tax slightly decreased to 23.3 % for the year ended september 30 , 2019 from 23.8 % for the year ended september 30 , 2018 , was mainly due to the fact that the average selling price for the mingzhu garden ( mingzhu nanyuan and beiyuan ) phase i and ii in hanzhong was lower in fiscal 2019 to promote the sales . replace_table_token_9_th 31 operating expenses total operating expenses decreased by 3.5 % or approximately $ 0.1 million to approximately $ 3.2 million for the year ended september 30 , 2019 from approximately $ 3.4 million for the year ended september 30 , 2018 , as a result of lower selling expense of approximately $ 0.3 million , but offset with an increase in general and administrative expense of $ 0.1 million . the company incurred more marketing expense in fiscal 2018 to promote the sales in yangzhou palace project , which resulted higher selling expense in last year . the $ 0.1 million increase in general and administrative expense was due to additional office and consulting expenses incurred in fiscal 2019. replace_table_token_10_th interest expense , net net interest expense was approximately $ 0.1 million for the year ended september 30 , 2019 , comparing to $ 0.5 million in last year , due to less loan balance in fiscal 2019. income taxes u.s. taxes china hgs is a florida corporation . however , all of our operations are conducted solely by our subsidiaries in the prc . no income is earned in the united states and we do not repatriate any earnings outside the prc . as a result , we did not generate any u.s. taxable income for the years ended september 30 , 2019 and 2018. for the year ended september 30 , 2019 , the current income tax provision was approximately $ 0.7 million , decreased from approximately $ 3.1 million in fiscal 2018 due to less income before tax . for the year ended september 30 , 2019 , the deferred tax provision was approximately $ 1.3 million , decreased from approximately $ 2.0 million in fiscal 2018 due to less revenue reported under real estate project under development . the overall income taxes provision in fiscal 2019 significantly reduced from fiscal 2018 as a result of less income before tax reported in fiscal 2019. recent u.s. federal tax legislation , commonly referred to as the tax cuts and jobs act ( the “ u.s . tax reform ” ) , was signed into law on december 22 , 2017. the u.s. tax reform significantly modified the u.s. internal revenue code by , among other things , reducing the statutory u.s. federal corporate income tax rate from 35 % to 21 % for taxable years beginning after december 31 , 2017 ; limiting and or eliminating many business deductions ; migrating the u.s. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries ; subject to certain limitations , generally eliminating u.s. corporate income tax on dividends from foreign subsidiaries ; and providing for new taxes on certain foreign earnings . taxpayers may elect to pay the one-time transition tax over eight years or in a single lump sum . the u.s. tax reform also includes provisions for a new tax on gilti effective for tax years of foreign corporations beginning after december 31 , 2017. the gilti provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations ( “ cfcs ” ) , subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability , subject to some limitations . for the year ended september 30 , 2018 , the company recognized a one-time transition toll tax of approximately $ 2.3 million that represented management 's estimate of the amount of u.s. corporate income tax based on the deemed repatriation to the united states of the company 's share of previously deferred earnings of certain non-u.s. subsidiaries and vie of the company mandated by the u.s. tax reform . the company 's estimate of the onetime transition toll tax is subject to the finalization of management 's analysis related to certain matters , such as developing interpretations of the provisions of the tax act and amounts related to the earnings and profits of certain foreign vies and the filing of our tax returns . u.s. treasury regulations , administrative interpretations or court decisions interpreting the tax act may require further adjustments and changes in our estimates . as of september 30 , 2019 , the company provided an additional $ 0.8 million provision due to delinquent u.s. tax return fillings . 32 prc taxes our company is governed by the enterprise income tax law of the people 's republic of china concerning private-run enterprises , which are generally subject to tax at a statutory rate of 25 % on income reported in the statutory financial statements after appropriate tax adjustments . for years ended september 30 , 2019 and 2018 , the company is subject to income tax rate of 25 % on taxable income .
| the average unit price under contract sales was $ 508 per square meters ( september 30 , 2018 - $ 504 ) . replace_table_token_7_th ( 1 ) percentage of completion progress is calculated by dividing total costs incurred by total estimated costs for the relevant buildings in each real estate building , estimated as of the date of our financial statements as of and for the year indicated . ( 2 ) qualified contract sales only include all contract sales with customer deposits balance as of september 30 , 2019 and 2018 equal or greater than 30 % of contract sales amount and related individual of buildings were sold over 20 % . ( 3 ) the actual gfa will be re-measured when the real estate project is completed , which could be slightly different from the estimated gfa at the beginning of the real estate projects . cost of sales the following table sets forth a breakdown of our cost of revenues for the years indicated . replace_table_token_8_th our cost of sales consists primarily of costs associated with land use rights and construction costs . cost of sales are capitalized and allocated to development projects using a specific identification method . costs are allocated to specific units within a project based on the ratio of the sales area of units to the estimated total sales area of the project or phase of the project times the total cost of the project or phase of the project . cost of sales was approximately $ 30.3 million for the year ended september 30 , 2019 compared to $ 48.6 million for the year ended september 30 , 2018. the $ 18.4 million decrease in cost of sales was mainly attributable to the decrease in total gfa sold for oriental pearl garden , mingzhu garden ( nanyuan and beiyuan ) phase i and ii and yang county yangzhou palace project during fiscal 2019 which led to decreased revenue and cost of sales during fiscal 2019 . 30 land use rights cost : the cost of land
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the partnership expects each of these mf properties to eventually be sold to a not-for-profit entity or in connection with a syndication of lihtcs under section 42 of the internal revenue code of 1986 , as amended ( the “ internal revenue code ” ) . the partnership expects to acquire mortgage revenue bonds issued to provide debt financing for these properties at the time the property ownership is restructured . the partnership expects to provide the mortgage revenue bonds to the new property owners as part of the restructuring . at december 31 , 2014 , the partnership 's wholly-owned subsidiaries held interests in three entities that own mf properties containing a total of 610 rental units . in addition , the partnership 's subsidiaries own six mf properties , arboretum , decordova , eagle village , weatherford , the 50/50 , and woodland park containing a total of 1,553 rental units . at december 31 , 2013 , the partnership 's wholly-owned subsidiaries held interests in three entities that own mf properties containing a total of 504 rental units . in addition , the partnership 's subsidiaries own five mf properties , arboretum , decordova , eagle village , weatherford , and woodland park containing a total of 1,078 rental units , plus the 50/50 student housing at the university of nebraska-lincoln mixed-use project in lincoln , nebraska that is currently under construction ( see note 8 to the company 's consolidated financial statements ) . the mf properties ' operating goal is similar to that of the properties underlying the partnership 's mortgage revenue bonds . 28 the mf properties segment reported revenue of approximately $ 14.3 million and $ 11.4 million and a loss from continuing operations of approximately $ 938,000 and $ 1.8 million for the years ended december 31 , 2014 and 2013 , respectively . the mf properties segment reported revenue of approximately $ 7.8 million and a loss from continuing operations of approximately $ 1.1 million for the year ended december 31 , 2012. the increase in revenue and a decrease in loss from continuing operations for the year ended december 31 , 2014 compared to the prior year can be attributed to the completion and lease up of the 50/50 in 2014. the increase in revenue and loss from continuing operations for the year ended december 31 , 2013 compared to the prior year can be attributed to the foreclosure of woodland park mortgage revenue bond during 2013 and the acquisition of the colonial ( f/k/a maples on 97th ) properties which was owned an entire year in 2013 ( see note 20 to the company 's consolidated financial statements ) . discontinued operations . as of december 31 , 2012 , the partnership 's wholly-owned subsidiaries held interests in three ohio properties containing 362 rental units and the greens property containing 168 rental units which are reported as discontinued operations ( see notes 2 and 10 to the company 's consolidated financial statements ) . the income from discontinued operations was $ 0 in 2014 , approximately $ 3.4 million in 2013 , and approximately $ 2.2 million in 2012. there were no discontinued operations reported during 2014. the partnership reported gains of approximately $ 3.2 million from the recognition of the sale of the ohio properties and greens property for the year ended december 31 , 2013. in 2012 approximately $ 1.4 million gain was realized from the sales of the commons at churchland and eagle ridge properties ( see note 20 to the company 's consolidated financial statements ) . tender option bond ( “ tob ” ) financing . in july 2011 , the company executed a master trust agreement with deutsche bank ag ( “ db ” ) which allows the company to execute multiple tender option bond financing facility ( “ tob trust ” ) structures upon the approval and agreement of terms by db . under each tob trust structure issued through the master trust agreement , the tob trustee issues senior floating-rate participation interests ( “ spears ” ) and residual participating interests ( “ lifers ” ) . these spears and lifers represent beneficial interests in the securitized asset held by the tob trustee . the company will purchase the lifers from each of these tob trusts which will grant them certain rights to the securitized assets . during 2014 , the company closed six new tob trusts . during 2013 , the company closed six new tob trusts . the tobs were issued under the terms of the company 's master trust agreement with db . at december 31 , 2014 , the company owed approximately $ 174.3 million under fifteen separate tob trusts and owed approximately $ 164.3 million under fifteen separate tob trusts at december 31 , 2013 ( see note 11 to the company 's consolidated financial statements ) , as follows : approximately $ 44.7 million and $ 49.0 million was owed under three tob trusts which are securitized by phc certificates ( “ phc tob trusts ” ) with outstanding principal balances of approximately $ 59.3 million and $ 65.3 million at december 31 , 2014 and 2013 , respectively ; approximately $ 12.0 million was owed under three tob trusts which securitized mortgage-backed securities ( “ mbs tob trusts ” ) with a par value of approximately $ 14.8 million at december 31 , 2014. the company owed approximately $ 33.9 million under six tob trusts which securitized mortgage-backed securities ( “ mbs tob trusts ” ) with a par value of approximately $ 42.8 million at december 31 , 2013 ; and the company also owes approximately $ 117.6 million under six tob trusts which securitized six mortgage revenue bonds with a par value of approximately $ 136.8 million at december 31 , 2014. the company also owed approximately $ 81.4 million under six tob trusts which securitized ten mortgage revenue bonds with a par value of approximately $ 121.2 million at december 31 , 2013. as of december 31 , 2014 and 2013 , the total cost story_separator_special_tag of borrowing for the phc certificates tob financing facilities was approximately 2.2 % and 2.3 % per annum , respectively , and the weighted average cost of borrowing on the tob financing facilities securitizing mortgage-backed securities was approximately 1.1 % and 1.3 % per annum , respectively . the company 's total cost of borrowing under the tob financing facilities collateralized by the mortgage revenue bonds was approximately 3.9 % and 2.7 % per annum as of december 31 , 2014 and 2013 , respectively . the company accounts for these tob transactions as secured financing arrangements . tax exempt bond securitization ( “ tebs ” ) financings . on july 10 , 2014 , the partnership and its newly created consolidated subsidiary , atax tebs ii , llc ( “ 2014 sponsor ” ) , entered into a number of agreements relating to a new long-term debt financing facility provided through the securitization of 13 mortgage revenue bonds . the gross proceeds from this m31 tebs financing was approximately $ 94.7 million . after the payment of transaction expenses , the partnership received net proceeds from the m31 tebs financing of approximately $ 91.6 million . the partnership applied approximately $ 72.4 million of these net proceeds to retire the short-term securitizations that previously existed on these bonds and approximately $ 6.3 million to a stabilization escrow . the approximate $ 6.3 million is reported as restricted cash on the december 31 , 2014 balance sheet . the company owes approximately $ 94.7 million at december 31 , 2014 ( see note 11 to the company 's consolidated financial statements ) . 29 on september 1 , 2010 , the partnership and its consolidated subsidiary atax tebs i , llc , entered into a number of agreements relating to a long-term debt financing facility provided through the securitization of 13 mortgage revenue bonds pursuant to freddie mac 's tebs program . the gross proceeds from this m24 tebs financing was approximately $ 95.8 million . after the payment of transaction expenses , the company received net proceeds from the m24 tebs financing of approximately $ 90.4 million . after the 2014 redemption of the lost creek mortgage revenue bond , the company securitized 12 mortgage revenue bonds and owes approximately $ 76.4 and $ 93.0 million at december 31 , 2014 and 2013 , respectively , ( see note 11 to the company 's consolidated financial statements ) . the m31 and m24 tebs financing essentially provides the company with a long-term variable-rate debt facility at interest rates reflecting prevailing short-term tax-exempt rates . as of december 31 , 2014 , the total cost of borrowing was 1.5 % per annum for the m31 tebs financing facility . as of december 31 , 2014 and 2013 , the total cost of borrowing was 2.0 % per annum for the m24 tebs financing facility ( see interest rate derivative discussion in item 7a ) . opportunities and challenges . the disruptions in domestic and international financial markets , and the resulting availability of debt financing has improved since the restrictions seen in 2008. the decline in construction and rehabilitation of affordable multifamily properties during the previous credit crisis , in our view , continues to create potential investment opportunities for the partnership in both mortgage revenue bonds as well as quality mf properties . our ability to restructure existing debt together with the ability to improve the operations of the mf properties through our affiliated property management company can position these mf properties for an eventual financing with mortgage revenue bonds meeting our investment criteria and that will be supported by a valuable and well-run multifamily residential property . we believe we can selectively acquire mf properties , restructure debt and improve operations in order to create value to our shareholders in the form of a strong mortgage revenue bond investment . on the other hand , economic weakness in real estate and municipal bond markets may limit our ability to access additional debt financing that the partnership uses to partially finance its investment portfolio or otherwise meet its liquidity requirements . the economic conditions including sluggish job growth and low home mortgage interest rates have had a negative effect on some of the residential properties which collateralize our mortgage revenue bond investments and our mf properties in the form of lower occupancy . in addition , the residential properties and mf properties which have not reached stabilization ( which is 90 % occupancy for 90 days and the achievement of 1.15 times debt service coverage ratio on amortizing debt service during the year ) will result in lower economic occupancy . the overall economic occupancy ( which is adjusted to reflect rental concessions , delinquent rents and non-revenue units such as model units and employee units ) of the stabilized residential properties that the partnership has financed with mortgage revenue bonds was approximately 91 % during 2014 and 90 % during 2013 . the economic occupancy of the stabilized mf properties has increased to approximately 86 % during 2014 as compared to 82 % during 2013 . based on the growth statistics in the market , we expect to see continued improvement in property operations and profitability . 30 discussion of the residential properties securing the partnership bond holdings and mf properties as of december 31 , 2014 the following discussion describes the operations and financial results of the individual residential properties financed by the mortgage revenue bonds held by the partnership and the mf properties in which it holds an ownership . the discussion also outlines the bond holdings of the partnership , discusses the significant terms of the bonds and identifies those ownership entities which are consolidated vies of the company . replace_table_token_7_th 31 replace_table_token_8_th ( 1 ) economic occupancy is presented for 2014 and 2013 , and is defined as the net rental income received divided by the maximum amount of rental income to be derived from each property .
| these bonds were issued by various state and local housing authorities in order to provide construction and or permanent financing of 32 residential properties containing a total of 5,409 rental units two bonds secured by two multifamily residential properties contained 650 rental units are reported as vies and are eliminated upon consolidation in 2013. the mortgage revenue bond segment reported revenue of approximately $ 27.9 million , interest expense of approximately $ 7.4 million and income from continuing operations of approximately $ 13.9 million for the year ended december 31 , 2014. the mortgage revenue bond segment reported revenue of approximately $ 27.8 million , interest expense of approximately $ 3.3 million and income from continuing operations of approximately $ 14.5 million for the year ended december 31 , 2013. the mortgage revenue bond investments segment reported revenue of approximately $ 12.2 million , interest expense of approximately $ 3.5 million , and income from continuing operations of approximately $ 4.1 million for the year ended december 31 , 2012 ( see note 20 to the company 's consolidated financial statements ) . the decrease in income from continuing operations between 2014 and 2013 is comprised of several factors : a net realized gain of approximately $ 2.8 million from the lost creek mortgage revenue bond redemption and an approximate $ 873,000 gain from the autumn pines mortgage revenue bond sale . a reduction related to a net realized gain of approximately $ 1.9 million from the redemption of the iona lakes mortgage revenue bond ( see note 5 to the company 's consolidated financial statements ) , which did not repeat in 2014 , a net increase in investment interest income related to acquisitions of new mortgage revenue bonds during 2014 , and increased interest expense due increased borrowings and the derivative mark to market adjustments . 27 the increase in income from continuing operations between 2013 and 2012 is comprised of several factors : approximately $ 6.0 million of mortgage revenue bond and taxable interest income and a guarantee fee of $ 250,000 realized from the recognition of the sale of crescent village , willow bend , and post woods , ( collectively , the “ ohio properties ” ) , a net realized gain of approximately $ 1.9 million from the redemption of the iona lakes mortgage revenue bond ( see note 5 to the company 's consolidated financial statements ) , with the remaining net increase from the acquisitions of new mortgage revenue bonds during 2013. other securities . during 2014 , 2013 , and 2012 , the company invested in other types of securities . in accordance with the terms
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its yields on these assets decrease from 3.62 % in 2010 to 3.21 % in 2011. the average balances of investment securities and federal funds sold increased 12.9 % in 2011 , mainly due to increases in customer deposits and proceeds from the company 's public offering combine with limited opportunities to grow loans . total interest expense amounted to $ 7.8 million for 2011 , a 28.7 % decrease from $ 11.0 million reported in 2010. the decrease in 2011 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements . the cost of interest-bearing liabilities decreased from 1.27 % in 2010 to 0.93 % in 2011. noninterest income total noninterest income in 2011 decreased by $ 671 thousand . some of this decrease is a result of an $ 876 thousand decrease in gains on sales of securities . during 2011 , farmers sold $ 51.0 million in securities to recognize market appreciation on existing holdings , pay off $ 11.9 million in fhlb advances in order to reduce 32 its cost of funds , and reinvested the remaining $ 39.1 million to further diversify the securities portfolio . bank owned life insurance income also decreased $ 399 thousand in 2011. this decrease is primarily due to the receipt of death benefit proceeds in excess of cash value in 2010 , which are included in income . these decreases in noninterest income were offset by increases in trust fee income of $ 455 thousand and investment commissions of $ 323 thousand , as management continues to focus on diversifying revenue sources to decrease the reliance on net interest income as the main driver of revenue . noninterest expenses noninterest expense for 2011 was $ 33.7 million , compared to $ 31.0 million for the same period in 2010 , representing an increase of $ 2.8 million , or 8.9 % . some of this increase is a result of a $ 1.2 million prepayment penalty related to the payoff of advances from the fhlb . the advances were paid off prior to maturity to decrease farmers ' cost of funds and improve regulatory risk based capital ratios . this strategy also allows the company to remove longer duration assets in order to improve the market value of the company 's capital in a rising rate environment . there was also a $ 677 thousand or 14.8 % increase in other operating expenses in 2011 compared to 2010 , mainly due to higher consulting and other real estate owned expenses . this increase was partially offset by the fdic insurance expense decrease in 2011 of $ 475 thousand or 36.4 % over 2010 , due to the change in the assessment base by the fdic . assessments are now based on asset size , as opposed to being based on deposit size as in prior years . salaries and employee benefits also increased $ 1.1 million , primarily resulting from a higher number of employees . the higher employee count is attributed primarily to the newly created north canton office as well as staff added to originate and sell residential real estate loans in the secondary market . income taxes income tax expense totaled $ 2.5 million for 2011 and 2010. the effective income tax rate was 21.6 % for 2011 and 22.1 % for 2010. liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's ability to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major domestic banks . at december 31 , 2012 , farmers had not borrowed against these lines of credit . management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its membership in the fhlb as a solid source of liquidity . as of december 31 , 2012 , the bank is eligible to borrow an additional $ 84.9 million from the fhlb under various fixed rate and variable rate credit facilities . advances outstanding from the fhlb at december 31 , 2012 amounted to $ 10.4 million . farmers ' primary investing activities are originating loans and purchasing securities . during 2012 , net cash used in investing activities amounted to $ 82.3 million , compared to $ 69.0 million in 2011. net increases in loans were $ 19.3 million in 2012 , compared to a $ 14.8 million net decrease in 2011. purchases of securities available for sale were $ 237.4 million in 2012 , compared to $ 171.5 million in 2011. proceeds from maturities and sales of securities available for sale were $ 175.7 million in 2012 , compared to $ 94.1 million in 2011 . 33 farmers ' primary financing activities are obtaining deposits , repurchase agreements and other borrowings . story_separator_special_tag net cash from financing activities amounted to $ 56.7 million for 2012 , compared to $ 70.1 million in 2011. some of this change is a result of proceeds from a common stock offering amounting to $ 13.8 million in 2011 compared to none in 2012. another factor contributing to the change was the repayment of federal home loan bank borrowings in 2011 amounting to $ 13.5 million in 2011 compared to $ 840 thousand in 2012. deposits increased $ 78.9 million in 2012 , compared to a $ 79.1 million in 2011. also , short-term borrowings decreased $ 18.2 million in 2012 , compared to a $ 7.5 million decrease in 2011. loan portfolio maturities and sensitivities of loans to interest rates the following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated . balances include unamortized loan origination fees and costs . replace_table_token_7_th the following schedule sets forth maturities based on remaining scheduled repayments of principal for commercial and commercial real estate loans listed above as of december 31 , 2012 : replace_table_token_8_th the amounts of commercial and commercial real estate loans as of december 31 , 2012 , based on remaining scheduled repayments of principal , are shown in the following table : replace_table_token_9_th total loans were $ 586.6 million at year-end 2012 , compared to $ 571.8 million at year-end 2011. this represents an increase of 2.59 % . the increase in loans has mainly occurred in the commercial loan portfolio . loans comprised 54.8 % of the bank 's average earning assets in 2012 , compared to 58.6 % in 2011. the product mix in the loan portfolio includes commercial loans comprising 16.6 % , residential real estate loans 26.6 % , commercial real estate loans 34.2 % and consumer loans 22.6 % at december 31 , 2012 compared with 13.1 % , 29.2 % , 34.6 % and 23.1 % , respectively , at december 31 , 2011. loans contributed 71.7 % of total taxable equivalent interest income in 2012 and 72.4 % in 2011. loan yield was 5.71 % in 2012 , 135 basis points greater than the average rate for total earning assets . management recognizes that while the loan portfolio holds some of the bank 's ' highest yielding assets , it is inherently the most risky portfolio . accordingly , management attempts to balance credit risk versus return with conservative credit standards . management has developed and maintains comprehensive underwriting guidelines and a loan review function that monitors credits during and after the approval process . to minimize risks associated with changes in the borrower 's future repayment capacity , the bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral . 34 consumer loans increased from $ 131.9 million on december 31 , 2011 to $ 132.6 million on december 31 , 2012 , representing a 0.6 % increase . management continues to target the automobile dealer network to purchase indirect installment loans . dealer paper was purchased using strict underwriting guidelines with an emphasis on quality . indirect loans comprise 90 % of the consumer loan portfolio . net charge-offs in the consumer loan portfolio increased to $ 374 thousand in 2012 , as compared to $ 276 thousand in 2011. residential real estate mortgage loans decreased 6.5 % to $ 156.2 million at december 31 , 2012 , compared to $ 167.0 million in 2011. most of the decrease is a result of the decision to sell residential real estate mortgage loans originated in 2012 on the secondary market . commercial real estate loans increased 1.3 % from $ 198.0 million in 2011 to $ 200.7 million in 2012. farmers originated both fixed rate and adjustable rate mortgages during 2012. fixed rate terms are generally limited to fifteen year terms while adjustable rate products are offered with maturities up to thirty years . commercial loans at december 31 , 2012 increased 29.7 % from year-end 2011 with outstanding balances of $ 97.1 million . the growth in the commercial loan portfolio was consistent with the improvements in the local economy . several new projects announced in the mahoning valley , along with decreased levels of unemployment has led small business owners to expand or make additional investments in their operations . the bank 's commercial loans are granted to customers within the immediate trade area of the bank . the mix is diverse , covering a wide range of borrowers , business types and local municipalities . the bank monitors and controls concentrations within a particular industry or segment of the economy . these loans are made for purposes such as equipment purchases , capital and leasehold improvements , the purchase of inventory , general working capital and small business lines of credit . summary of loan loss experience the following is an analysis of the allowance for loan losses for the periods indicated : replace_table_token_10_th 35 provisions charged to operations amounted to $ 725 thousand in 2012 , compared to $ 3.7 million in 2011 , a decrease of $ 2.9 million . this decrease is primarily due to fewer charge-offs , a lower level of total delinquencies , a lower level of nonaccrual and nonperforming loans and a significant decline in substandard rated credits from the year ago period , which are factors considered in management 's estimate of loan loss provisions and the adequacy of the allowance for loan losses .
| the net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net interest spread in 2012 was 3.66 % , decreasing from 3.90 % in 2011. the net interest margin represents the overall profit margin net interest income as a percentage of total interest-earning assets . this performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds . for 2012 , the net interest margin , measured on a fully taxable equivalent basis , decreased to 3.76 % , compared to 4.01 % in 2011. the decrease in net interest margin is largely a result of the change in the mix of interest earning assets . loans , which yield more than securities , comprised a smaller level of interest-earning assets in the current year . for 2012 , loans were 54.8 % of average earning assets , compared to 58.6 % for 2011. total taxable equivalent interest income was $ 45.0 million for 2012 , which is $ 1.3 million less than the $ 46.3 million reported in 2011. average loans increased $ 3.1 million , or 0.55 % , in 2012 , and the yields decreased from 5.97 % in 2011 to 5.71 % in 2012. income from securities , federal funds and other decreased $ 54 thousand , or 0.42 % , in 2012 , farmers saw its yields on these assets decrease from 3.21 % in 2011 to 2.73 % in 2012. the average balance of investment securities and federal funds sold increased 17.1 % in 2012 , mainly due to increases in customer deposits outpacing opportunities to grow loans . total interest expense amounted to $ 6.2 million for 2012 , a 20.7 % decrease from $ 7.8 million reported in 2011. the decrease in 2012 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements . the cost of interest-bearing liabilities decreased from 0.93 % in 2011 to 0.70 % in 2012. management will continue to evaluate
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research and development expenses research and development expenses consist primarily of personnel-related costs , including salaries , benefits , and stock-based compensation expense for our engineers , designers , and other employees engaged in the research and development of our products . in addition , research and development expenses include facilities and other supporting overhead costs , including depreciation and amortization . research and development costs are expensed as incurred . sales and marketing expenses sales and marketing expenses consist primarily of personnel-related costs , including salaries , benefits , commissions , and stock-based compensation expense for our employees engaged in sales and sales support , business development , media , marketing , corporate partnerships , and customer service functions . sales and marketing expenses also include costs incurred for advertising , market research , tradeshows , branding , marketing , promotional expense , and public relations , as well as facilities and other supporting overhead costs , including depreciation and amortization . general and administrative expenses general and administrative expenses consist primarily of personnel-related costs , including salaries , benefits , and stock-based compensation expense for our finance , legal , information technology , human resources , and other administrative teams . general and administrative expenses also include facilities and supporting overhead costs , including depreciation and amortization , and external professional services . interest income interest income consists primarily of interest earned on our cash , cash equivalents , and marketable securities . interest expense interest expense consists primarily of interest expense associated with our senior convertible notes , or the convertible notes , and commitment fees and amortization of financing costs related to our revolving credit facility . in the prior period , interest expense also included interest on build-to-suit lease financing obligations . other income ( expense ) , net other income ( expense ) , net consists of realized gains and losses on sales of marketable securities , our portion of non-marketable investment income and losses , and foreign currency transaction gains and losses . other income ( expense ) , net also includes any gains or losses on divestitures of businesses . income tax benefit ( expense ) we are subject to income taxes in the united states and numerous foreign jurisdictions . these foreign jurisdictions have different statutory tax rates than the united states . additionally , certain of our foreign earnings may also be taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to domestic income , use of tax credits , changes in the valuation of our deferred tax assets and liabilities , and changes in tax laws . 45 adjusted ebitda we define adjusted ebitda as net income ( loss ) , excluding interest income ; interest expense ; other income ( expense ) , net ; income tax benefit ( expense ) ; depreciation and amortization ; stock-based compensation expense and related payroll tax expense ; and certain other non-cash or non-recurring items impacting net income ( loss ) from time to time . we consider the exclusion of certain non-cash and non-recurring expenses in calculating adjusted ebitda to provide a useful measure for period-to-period comparisons of our business and for investors and others to evaluate our operating results in the same manner as does our management . additionally , we believe that adjusted ebitda is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue-generating activities . see “ selected financial data — non-gaap financial measures ” for additional information and a reconciliation of net loss to adjusted ebitda . story_separator_special_tag million for the year ended december 31 , 2019 , compared to $ 2.5 million for the same period in 2018. our effective tax rate differs from the u.s. statutory tax rate primarily due to a valuation allowance on our deferred tax assets as it is more likely than not that some or all of our deferred tax assets will not be realized . for additional discussion , see note 11 to our consolidated financial statements included in “ financial statements and supplementary data ” in this annual report on form 10-k. net loss and adjusted ebitda replace_table_token_18_th 2019 compared to 2018 net loss for the year ended december 31 , 2019 was $ 1.0 billion , compared to $ 1.3 billion for the same period in 2018. adjusted ebitda loss for the year ended december 31 , 2019 was $ 202.2 million , compared to $ 575.6 million for the same period in 2018. the decrease in adjusted ebitda loss was driven by increased revenues , partially offset by increased cost of revenue and marketing expenses . additionally , the decrease in net loss was primarily a result of a gain of $ 39.9 million on the divestiture of placed , as well as decreased facilities costs , as the prior period included lease exit charges of $ 33.0 million . the decrease was partially offset by an increase in legal expense of $ 100.0 million for the preliminary settlement agreement of securities class actions that arose following our ipo and an increase in stock-based compensation expense of $ 147.8 million . 49 for a discussion of the limitations associated with using adjusted ebitda rather than gaap measures and a reconciliation of this measure to net loss , see “ selected financial data—non-gaap financial measures. ” unaudited quarterly results of operations data the following table sets forth the primary components of our unaudited quarterly consolidated statements of cash flows for each of the four quarters in the periods ended december 31 , 2019 and december 31 , 2018. these unaudited quarterly statements of cash flows have been prepared on the same basis as our audited consolidated financial statements included in “ financial statements and supplementary data ” in this annual report on form 10-k. in the opinion of management , the financial information reflects all normal recurring adjustments necessary for the fair statement of results of operations for these periods . story_separator_special_tag this information should be read in conjunction with our consolidated financial statements and the related notes included in “ financial statements and supplementary data ” in this annual report on form 10-k. the results of historical periods are not necessarily indicative of the results in any future period . replace_table_token_19_th the following table sets forth the major components of our unaudited quarterly consolidated statements of operations for each of the four quarters in the periods ended december 31 , 2019 and december 31 , 2018. these unaudited quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements included in “ financial statements and supplementary data ” in this annual report on form 10-k. in the opinion of management , the financial information reflects all normal recurring adjustments necessary for the fair statement of results of operations for these periods . this information should be read in conjunction with our consolidated financial statements and the related notes included in “ financial statements and supplementary data ” in this annual report on form 10-k. the results of historical periods are not necessarily indicative of the results in any future period . replace_table_token_20_th 50 ( 1 ) stock-based compensation expense included in the above line items : replace_table_token_21_th ( 2 ) depreciation and amortization expense included in the above line items : replace_table_token_22_th the following table presents a reconciliation of free cash flow to net cash used in operating activities , the most comparable gaap financial measure , for each of the periods presented : replace_table_token_23_th 51 the following table presents a reconciliation of adjusted ebitda to net loss , the most comparable gaap financial measure , for each of the periods presented : replace_table_token_24_th the following table sets forth the components of our unaudited quarterly consolidated statements of operations for each of the periods presented as a percentage of revenue : replace_table_token_25_th 52 liquidity and capital resources cash , cash equivalents , and marketable securities were $ 2.1 billion as of december 31 , 2019 , primarily consisting of cash on deposit with banks and highly liquid investments in u.s. government and agency securities , corporate debt securities , certificates of deposit , and commercial paper . our primary source of liquidity is cash generated through financing activities . our primary uses of cash include operating costs such as personnel-related costs and the infrastructure costs of the snapchat application , facility-related capital spending , and acquisitions and investments . there are no known material subsequent events that could have a material impact on our cash or liquidity . we may contemplate and engage in merger and acquisition activity that could materially impact our liquidity and capital resource position . in august 2019 , we issued the convertible notes with an aggregate principal amount of $ 1.265 billion . the net proceeds from the issuance of the convertible notes were $ 1.15 billion , net of debt issuance costs and cash used to pay the costs of the capped call transactions , or the capped call transactions . the convertible notes mature on august 1 , 2026 unless repurchased , redeemed , or converted in accordance with their terms prior to such date . the convertible notes were not convertible as of december 31 , 2019. in july 2016 , we entered into a five-year senior unsecured revolving credit facility , or the credit facility , with lenders some of which are affiliated with certain members of the underwriting syndicate for our convertible notes offering , that allows us to borrow up to $ 1.1 billion to fund working capital and general corporate-purpose expenditures . the loan bears interest at libo plus 0.75 % , as well as an annual commitment fee of 0.10 % on the daily undrawn balance of the facility . no origination fees were incurred at the closing of the credit facility . in december 2016 , the amount we are permitted to borrow under the credit facility was increased to $ 1.2 billion . in february 2018 , the amount we are permitted to borrow under the credit facility was increased to $ 1.25 billion . in august 2018 , we amended the credit facility to extend the term to august 2023 with respect to an aggregate of $ 1.05 billion of the $ 1.25 billion that we may borrow under the credit facility . in august 2019 , we amended the credit facility to revise the covenants that restrict the repurchase of equity securities and the incurrence of indebtedness to permit the capped call transactions and issuance of the convertible notes . as of december 31 , 2019 , no amounts were outstanding under the credit facility . as of december 31 , 2019 , we had $ 25.5 million in the form of outstanding standby letters of credit . we believe our existing cash balance is sufficient to fund our ongoing working capital , investing , and financing requirements for at least the next 12 months . our future capital requirements will depend on many factors including our growth rate , headcount , sales and marketing activities , research and development efforts , the introduction of new features , products , and acquisitions , and continued user engagement . we continually evaluate opportunities to issue or repurchase equity or debt securities , obtain , retire , or restructure credit facilities or financing arrangements , or declare dividends for strategic reasons or to further strengthen our financial position . as of december 31 , 2019 , approximately 3 % of our cash , cash equivalents , and marketable securities was held outside the united states . these amounts were primarily held in the united kingdom and are utilized to fund our foreign operations . cash held outside the united states may be repatriated , subject to certain limitations , and would be available to be used to fund our domestic operations . however , repatriation of funds may result in additional tax liabilities . we believe our existing cash balance in the united states is sufficient to fund our working capital needs .
| research and development expenses replace_table_token_11_th 47 2019 compared to 2018 research and development expenses for the year ended december 31 , 2019 increased $ 111.3 million compared to the same period in 2018. the increase was primarily driven by an increase in stock-based compensation expense of $ 124.1 million . the prior period included a $ 24.6 million stock-based compensation forfeiture benefit related to the 2018 reduction in force . sales and marketing expenses replace_table_token_12_th 2019 compared to 2018 sales and marketing expenses for the year ended december 31 , 2019 increased $ 57.8 million compared to the same period in 2018. the increase was primarily driven by increased marketing investments of $ 52.6 million . general and administrative expenses replace_table_token_13_th 2019 compared to 2018 general and administrative expenses for the year ended december 31 , 2019 increased $ 103.9 million compared to the same period in 2018. the increase was driven by an increase in legal expenses primarily due to the legal charges of $ 100.0 million for the preliminary settlement agreement of the securities class actions that arose following our ipo . additionally , the increase was driven by an increase in personnel expenses of $ 21.3 million , primarily due to an increase in stock-based compensation expense , and an increase in professional service and other corporate expenses . the increase was partially offset by a decrease in facilities costs , as the prior period included $ 33.0 million of lease exit charges . interest income replace_table_token_14_th 2019 compared to 2018 interest income for the year ended december 31 , 2019 increased $ 8.8 million compared to the same period in 2018. the increase was primarily a result of higher interest rates on u.s. government-backed securities and a higher overall invested cash balance as a result of the convertible notes offering . interest expense replace_table_token_15_th 48 2019 compared to 2018 interest expense for the year ended december 31 , 2019 increased $ 21.1 million , compared to the same period in 2018. the increase in interest expense in the current period relates to the convertible notes .
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in june , 2017 caelum entered a biopharmaceutical manufacturing agreement with patheon biologics , llc for process development and current good manufacturing practices ( “ cgmp ” ) production of cael-101 . the agreement will support phase 2/3 studies of cael-101 for the treatment of al amyloidosis during the third quarter of 2017 caelum completed a third party financing of convertible notes . in connection with this financing caelum raised $ 9.9 million and paid a 10 % financing fee of approximately $ 1.0 million to nsc , a subsidiary of national . in december 2017 caelum announced full phase 1a/1b clinical data demonstrating the ability of cael-101 , to bind to light-chain amyloid fibrils and achieve early and clinically efficacious organ responses in patients with relapsed and refractory amyloid light chain ( “ al ” ) amyloidosis . the data were presented by columbia university on december 10th in an oral session at the 59th american society of hematology annual meeting . cellvation , inc. in november 2017 , the fda granted cellvation 's ceva101 regenerative medicine advanced therapy ( “ rmat ” ) designation for the treatment of traumatic brain injury ( “ tbi ” ) . under terms of the rmat designation , the fda will help facilitate the program 's expedited development and review and will provide guidance on generating the evidence needed to support approval of ceva101 for tbi . the rmat designation makes a regenerative medicine advanced therapy product eligible for the same actions to expedite the development and review of a marketing application that are available to drugs that receive breakthrough therapy designation , including timely advice and interactive communications with fda , as well as proactive and collaborative involvement by senior fda managers and experienced review and regulatory health project management staff . a product designated as an rmat also may be eligible for other fda-expedited programs , such as priority review . the fda also may conduct a rolling review of products in its expedited programs , reviewing portions of a marketing application before the complete application is submitted . checkpoint therapeutics , inc. on june 26 , 2017 , checkpoint 's common stock commenced trading on the nasdaq capital market under the symbol “ ckpt ” . 39 in october 2017 , checkpoint dosed its first patient in a phase 1 clinical study evaluating the safety and tolerability of its anti-pd-l1 antibody , ck-301 , in checkpoint therapy-naïve patients with selected recurrent or metastatic cancers . the phase 1 ck-301 study is a first-in-human , phase 1 , open-label , multicenter study . the study will initially enroll patients in study sites across australia and new zealand . coronado so co. in october 2017 , coronado so co. transferred its proprietary interests and rights in its lead product candidate to a third party . cyprium therapeutics , inc. in march 2017 , cyprium and the eunice kennedy shriver national institute of child health and human development ( “ nichd ” ) , part of the national institutes of health , entered into a cooperative research and development agreement to advance the clinical development of phase 3 candidate cutx-101 ( copper histidinate injection ) for the treatment of menkes disease . cyprium and nichd also entered into a worldwide , exclusive license agreement to develop and commercialize aav-based atp7a gene therapy for use in combination with cutx-101 for the treatment of menkes disease and related copper transport disorders . escala therapeutics , inc. in july 2017 , escala discontinued its development of mannac and as such returned the license to nih and discontinued its funding of cooperative research and development of mannac . no expense was incurred in connection with the discontinuation of this development program . mustang bio , inc. city of hope licenses in february , 2017 , mustang entered into an exclusive license agreement ( the “ iv/icv agreement ” ) with city of hope ( “ coh ” ) to acquire intellectual property rights in patent applications related to the intraventricular and intracerebroventricular methods of delivering t cells that express cars . pursuant to the iv/icv agreement , in march 2017 , mustang paid coh an upfront fee of $ 0.1 million . an additional annual maintenance fee is also payable going forward . in march 2015 , mustang entered into an exclusive license agreement with coh to acquire intellectual property rights pertaining to car-t ( the “ original license ” ) . in february , 2017 , mustang and coh amended and restated the original license by entering into three separate exclusive license agreements , one relating to cd123 ( the “ cd123 license ” ) , one relating to il-13 ( the “ il-13 license ” ) and one relating to the spacer technology ( the “ spacer license ” ) . the total potential consideration payable to coh by mustang under the new license agreements , in equity or cash , did not , in the aggregate , change materially from the original license . in may , 2017 mustang entered into exclusive , worldwide licensing agreements coh for the use of three novel car t therapies in the development of cancer treatments . the car t therapies covered under the agreements include : human epidermal growth factor receptor 2 ( “ her2 ” ) car t technology ( “ her2 technology ” ) , which will initially be applied in the treatment of glioblastoma multiforme ; cs1-specific car t technology ( “ cs1 technology ” ) to be directed against multiple myeloma ; and prostate stem cell antigen ( “ psca ” ) car t technology ( “ psca technology ” ) to be used in the treatment of prostate cancer . all three technologies were developed in the laboratory of stephen j. forman , m.d. , director of coh 's t cell immunotherapy research laboratory . story_separator_special_tag license with university of california in march , 2017 , mustang entered into an exclusive license agreement with the regents of the university of california to acquire intellectual property rights in patent applications related to the engineered anti-prostate stem cell antigen antibodies for cancer targeting and detection . 40 appointment of dr. manuel litchman as ceo in april 2017 , mustang appointed manuel litchman , m.d. , as president and chief executive officer . dr. litchman also joined mustang 's board of directors . michael s. weiss , who oversaw mustang 's corporate operations on an interim basis , remains as chairman of the board of directors . fred hutchinson cancer research center license effective july , 2017 , mustang entered into an exclusive , worldwide licensing agreement with fred hutchinson cancer research center ( “ fred hutch ” ) , for the use of a car t therapy related to autologous t cells engineered to express a cd20-specific chimeric antigen receptor ( “ cd20 technology ” or “ cd20 ” ) . as part of the transaction , mustang also entered into an investigator-initiated clinical trial agreement to provide partial funding for a phase 1/2 clinical trial at fred hutch evaluating the safety and efficacy of the cd20 technology in patients with relapsed or refractory b-cell non-hodgkin lymphomas . the trial commenced during the fourth quarter of 2017. nasdaq global market listing on august 22 , 2017 , mustang commenced trading on the nasdaq global market under the symbol “ mbio ” . cell processing facility in october , 2017 , mustang entered into a lease agreement for a 27,043 sf facility in massachusetts for the production of personalized car t therapies . mustang expects the facility to be operational in 2018. license with harvard university in december 2017 , mustang entered into a license agreement with harvard university and a research collaboration agreement with beth israel deaconess medical center for the development of crispr/cas9-enhanced car t therapies for the treatment of cancer . capital raise in 2017 , mustang closed on gross proceeds of approximately $ 56.0 million , before expenses , in private placements of shares and warrants . in connection with its private placement they paid nsc , a subsidiary of national and a related party , $ 5.6 million in placement agent fees . tamid bio , inc. tamid bio , inc. ( “ tamid ” ) began operations in december 2017 and focuses on the development of adeno-associated virus ( “ aav ” ) gene therapies in orphan diseases with unmet medical needs . licenses with university of north carolina at chapel hill as part of its formation , tamid entered into three exclusive licensing agreements with the university of north carolina at chapel hill ( “ unc-chapel hill ” ) for three preclinical aav gene therapies . tamid 's lead program , tamid-001 , targets the ocular manifestations of mucopolysaccharidosis type i ( “ mps i ” ) , a rare and progressively debilitating disorder , caused by mutations in the idua gene , leading to the accumulation of glycosaminoglycans ( “ gags ” ) in multiple organs . tamid also in-licensed two earlier-stage assets , which will target dysferlinopathies and corneal transplant rejection . critical accounting policies and use of estimates see note 2 to the consolidated financial statements . story_separator_special_tag style= '' width : 33 % ; text-align : right '' > for the year ended december 31 , 2017 , $ 170.3 million of revenue was from nhld , $ 1.7 million of revenue was in connection with checkpoint 's collaborative agreements with tgtx , and $ 15.6 million of revenue related primarily to the sale of journey branded products . cost of goods sold increased by $ 2.9 million or 363 % due to the growth in branded sales by jmc of $ 11.9 million or 333 % due to increases in targadox of $ 12.1 million , luxamend $ 0.5 million and ceracade $ 0.2 million , offset by a decrease in dermasorb of $ 0.9 million from the year ended december 31 , 2016 to the year ended december 31 , 2017. research and development expenses increased $ 18.7 million , or 63 % , from the year ended december 31 , 2016 to the year ended december 31 , 2017. this increase was primarily due to a $ 12.3 million increase in our fortress companies research and development expenses , as a result of continued clinical development under their licenses , a $ 3.1 million increase in sponsored research , a net increase in employee costs of $ 2.5 million , a $ 0.4 million increase in consulting costs , and a $ 0.4 million increase in other r & d-related expenses . during the year ended december 31 , 2017 , we invested $ 4.2 million in new and existing research and development programs with various partners . consisting of the licensing by mustang of intellectual property related to car t from coh , the fred hutchinson cancer research center and harvard university for $ 1.9 million , mustang 's milestone payments to coh in conjunction with the development of il-13 of $ 0.5 million , mustang 's $ 0.5 million payment to the regents of the university of california to acquire intellectual property rights in patent applications related to the engineered anti-prostate stem cell antigen antibodies for cancer targeting and detection , checkpoint 's payments totaling $ 0.4 million for a milestone payment due upon the successful completion of toxicology studies under the terms of the license agreement with jubilant , caelum 's payments totaling $ 0.2 million for worldwide license rights to cael-101 , cyprium 's purchase of $ 0.1 million for a worldwide , exclusive license from the nih to develop and commercialize an aav based gene therapy , called aav-atp7a , for the treatment of menkes disease ; tamid 's purchase of $ 0.3 million for exclusive licenses from the university of north carolina at chapel hill for three preclinical aav gene therapies , and fortress ' milestone payment totaling $ 0.3 million under a license agreement
| for the years ended december 31 , 2017 , 2016 and 2015 , total research and development expenses were $ 48.3 million , $ 29.6 million and $ 18.4 million , respectively . direct external research and development costs with respect to fortress and each of our subsidiaries for the years ended december 31 , 2017 , 2016 and 2015 were : for fortress : $ 7.7 million , $ 2.0 million and $ 3.6 million ; avenue : $ 6.4 million , $ 0.9 million and $ 0.7 million ; cellvation : $ 0.3 million , $ 0.2 million and nil ; checkpoint : $ 16.1 million , $ 10.1 million and $ 4.9 million ; escala : $ 0.5 million , $ 0.9 million and $ 0.8 million ; helocyte : $ 4.8 million , $ 4.7 million and nil ; mustang : $ 7.7 million , $ 2.2 million and $ 1.5 million ; caelum $ 3.0 million , nil and nil ; cyprium $ 0.7 million , nil and nil ; aevitas $ 0.6 million , nil and nil ; coronado so $ 0.4 million , nil and nil . stock based compensation expense included in research and development expenses in 2017 , 2016 and 2015 was $ 4.0 million , $ 4.7 million and $ 5.8 million , respectively . for the years ended december 31 , 2017 , 2016 and 2015 , costs related to the acquisition of licenses were $ 4.2 million , $ 5.5 million and $ 11.4 million , respectively . general and administrative expenses general and administrative expenses consist principally of personnel related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development expenses and not included in expenses related to national . for the years ended december 31 , 2017 , 2016 and 2015 , general and administrative expenses were $ 50.9 million , $ 34.0 million and $ 21.6 million , respectively . stock based compensation expense included in general and administrative expenses in 2017 , 2016 and 2015 was $ 9.4 million , $ 7.4 million and $ 8.5 million , respectively . we anticipate general and administrative expenses
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these increases were driven primarily by the revenue mix of higher margin products and services . consolidated gross profit in fiscal 2012 was $ 3.05 billion , a decrease of $ 57.2 million , or 1.8 % , from the prior year and decreased 4.0 % on an adjusted basis in constant currency . gross profit margin of 11.9 % improved 16 basis points over the prior year . em gross profit margin was down 38 basis points year over year , with all three regions experiencing declines . the americas region was impacted by the transfer of the lower gross margin latin america commercial components business from ts americas to em americas at the beginning of fiscal 2012. in addition , the regional mix of business was slightly more skewed to the lower 21 margin regions in the current fiscal year as the higher gross margin emea region represented 28 % of the overall em revenue mix as compared with 32 % in the prior year . ts gross profit margin improved 73 basis points year over year . the year-over-year improvement was driven by the western regions , particularly emea . the americas region 's gross profit margin benefited from the transfer of the latin america business to em as mentioned previously . selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a expenses ” ) were $ 2.20 billion in fiscal 2013 , an increase of $ 111.5 million , or 5.3 % , from the prior year . this increase consisted of ( i ) an increase of approximately $ 184.4 million related to expenses from businesses acquired and ( ii ) the effects of inflation and other factors , which increased the company 's sg & a expenses by an estimated $ 61.0 million , partially offset by ( iii ) a decrease of approximately $ 100.0 million related to recent cost reduction actions , and ( iv ) a decrease of approximately $ 33.9 million related to the translation impact of changes in foreign currency exchange rates . metrics that management monitors with respect to its operating expenses are sg & a expenses as a percentage of sales and as a percentage of gross profit . in fiscal 2013 , sg & a expenses as a percentage of sales were 8.7 % and were 74.0 % as a percentage of gross profit as compared with 8.1 % and 68.6 % , respectively , in fiscal 2012 . sg & a expenses as a percentage of gross profit at em increased 541 basis points year over year , also due to the effects of recent acquisitions as the related cost savings have not yet been fully attained and due to declines in total gross profit dollars relative to operating expenses . sg & a expenses as a percentage of gross profit at ts increased 360 basis points year over year due primarily to the effects of the decrease in revenues as previously described and , to a lesser extent , the effects of recent acquisitions as certain cost synergies have not yet been attained , in particular in emea , and which are not expected to be fully achieved for several quarters while the integration work is in process . sg & a expenses were $ 2.09 billion in fiscal 2012 , essentially flat from the prior year , decreasing $ 7.8 million . the decrease in sg & a expenses was primarily a result of ( i ) approximately $ 51 million related to a decrease in expenses for the existing business due primarily to cost reduction actions taken and a decrease in variable expenses related to the revenue decline ; ( ii ) approximately $ 6 million related to a decrease due to the translation impact of changes in foreign currency exchange rates , partially offset by ( iii ) an increase of approximately $ 49.0 million related to expenses from businesses acquired . in fiscal 2012 , sg & a expenses as a percentage of sales were 8.1 % and were 68.6 % as a percentage of gross profit as compared with 7.9 % and 67.6 % , respectively , in fiscal 2011 . restructuring , integration and other charges fiscal 2013 during fiscal 2013 , the company continued to take certain actions to reduce costs in both operating groups in response to market conditions and incurred acquisition and integration costs associated with acquired businesses during the fiscal year . as a result , the company recorded restructuring , integration and other charges of $ 149.5 million . restructuring charges of $ 120.0 million consisted of $ 73.3 million for severance , $ 34.4 million for facility exit costs and fixed asset write-downs , and $ 12.3 million for other restructuring charges , including a $ 6.6 million loss related to the write-down of the net assets and goodwill related to the exit of a non-integrated business in the em americas region . integration costs were $ 35.7 million , of which $ 8.8 million related to the exit of two multi-employer pension plans associated with acquired entities in japan . acquisition related charges and adjustments were a credit of $ 3.2 million , consisting primarily of the reversal of an earn-out liability of $ 11.2 million for which payment is no longer expected to be incurred . the company recorded a credit of $ 3.1 million to adjust reserves related to prior year restructuring activity that were no longer required . the tax-effected impact of restructuring , integration , and other charges was $ 116.4 million and $ 0.83 per share on a diluted basis . severance charges recorded in fiscal 2013 related to the reduction of over 1,600 employees in sales and business support functions in connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately 1,100 in em , 400 in ts and 150 in business support functions . story_separator_special_tag facility exit costs for vacated facilities related to 32 facilities in the americas , 26 in emea and 11 in the asia region , and consisted of reserves for remaining lease liabilities for exited facilities and the write-down of the related fixed assets . integration costs incurred were related to the integration of acquired businesses and incremental costs incurred as part of the consolidation and closure of certain office and warehouse locations . integration costs included it consulting costs for system integration assistance , facility moving costs , legal fees , travel , meeting , marketing and communication costs that were incrementally incurred as a result of the integration activity . also , included in integration costs are incremental salary costs associated with the consolidation and closure activities , as well as costs associated with acquisition activity , primarily related to the acquired businesses ' personnel who were retained by avnet following the close of the acquisitions solely to assist in the integration of the acquired businesses ' it systems and administrative and logistics operations into those of avnet . these identified personnel have no other meaningful day-to-day operational responsibilities outside of the integration effort . acquisition transaction costs consisted 22 primarily of professional fees for due diligence work and other legal costs associated with the transaction , along with the gain from the reversal earn-out liability previously described . fiscal 2012 during fiscal 2012 , the company took certain actions to reduce costs in both operating groups in response to market conditions and incurred acquisition and integration costs associated with acquired businesses during the fiscal year . as a result , the company recorded restructuring , integration and other charges of $ 73.6 million . restructuring charges of $ 50.3 million consisted of $ 33.2 million for severance , $ 12.0 million for facility exit costs and fixed asset write-downs , and $ 5.1 million for other restructuring charges , primarily other lease obligations that have no ongoing benefit to the company . integration costs and acquisition transaction costs were $ 9.4 million and $ 10.6 million , respectively . the company recorded a credit of $ 3.3 million to adjust reserves related to prior year restructuring activity that were no longer required . in addition , the company recorded $ 6.7 million for ( i ) a legal claim associated with an acquired business and a potential royalty claim related to periods prior to acquisition by avnet and ( ii ) a legal claim associated with an indemnification of a prior divested business . the tax-effected impact of restructuring , integration and other charges was $ 53.0 million and $ 0.35 per share on a diluted basis severance charges recorded in fiscal 2012 related to the reduction of over 800 employees in sales , administrative and finance functions in connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately 480 in em and 320 in ts . facility exit costs for vacated facilities related to 12 facilities in the americas , 5 in emea and 13 in the asia region and consisted of reserves for remaining lease liabilities and the write-down of leasehold improvements and other fixed assets . fiscal 2011 during fiscal 2011 , the company recognized restructuring , integration and other charges of $ 77.2 million associated primarily with the integration of the acquired bell business . restructuring costs included $ 28.6 million for severance and $ 17.3 million for facility exit costs for lease liabilities , fixed asset write-downs and other related charges associated with vacated facilities and $ 1.8 million for other charges . integration costs were $ 25.1 million and acquisition transactions costs were $ 15.6 million . in addition , the company recorded a reversal of $ 11.3 million related to ( i ) the reversal of restructuring reserves established in prior years that were deemed no longer required , ( ii ) acquisition adjustments for which the purchase allocation period had closed and ( iii ) exit-related reserves originally established through goodwill in prior years that were deemed no longer required and were credited to the consolidated statement of operations rather than to goodwill because the associated goodwill was impaired in fiscal 2009. the tax-effected impact of restructuring , integration , and other charges was $ 56.2 million and $ 0.36 per share on a diluted basis severance charges recorded in fiscal 2011 related to personnel reductions of over 550 employees in administrative , finance and sales functions primarily in connection with the integration of the acquired bell business into the existing em americas , ts americas and ts emea regions and , to a lesser extent , other cost reduction actions in other regions . facility exit costs consisted of lease liabilities , fixed asset write-downs and other related charges associated with 50 vacated facilities : 23 in the americas , 25 in emea and two in the asia region . total amounts utilized during fiscal 2012 consisted of $ 12.1 million in cash payments and $ 3.2 million related to adjustments to reserves and foreign currency translation . operating income during fiscal 2013 , the company generated operating income of $ 626.0 million , representing a 29.2 % decline as compared with prior year operating income of $ 884.2 million . consolidated operating income margin was 2.5 % as compared with 3.4 % in the prior year . both periods included restructuring , integration and other charges as described in restructuring , integration and other charges , above . excluding these charges from both periods , operating income was $ 775.5 million , or 3.0 % of sales , in fiscal 2013 as compared with $ 957.8 million , or 3.7 % of sales , in the prior year . em operating income of $ 624.0 million decreased 17.0 % year over year and operating income margin decreased 90 basis points year over year to 4.1 % .
| the decline in em operating income margin was primarily due to lower profitability in the western regions due to lower gross profit margins , partially offset by the benefit of cost reduction actions taken . ts operating income margin decreased 27 basis points year over year to 2.7 % due primarily to recent acquisitions as the related cost synergies have not yet been attained , in particular in emea . three-year analysis of sales : by operating group and geography replace_table_token_8_th 18 sales items impacting year-over-year sales comparisons during the past three fiscal years , the company acquired several businesses impacting both operating groups , as presented in the following table . to facilitate easier and more meaningful year-over-year comparisons , the discussions that follow include sales on an organic basis as well as on a reported basis . replace_table_token_9_th 19 replace_table_token_10_th ( 1 ) represents the approximate annual revenue for the acquired businesses ' most recent fiscal year prior to acquisition by avnet and based upon average foreign currency exchange rates for those periods . sales on an organic basis also include the effects of a divestiture of a small business in ts asia in december 2012 and the exit of a small business in em americas in april 2013 that generated combined annual revenues of approximately $ 20 million . fiscal 2013 comparison to fiscal 2012 the table below provides the comparison of reported fiscal 2013 and 2012 sales for the company and its operating groups to organic sales ( as defined earlier in this md & a ) to allow readers to better assess and understand the company 's revenue performance by operating group . replace_table_token_11_th consolidated sales for fiscal 2013 were $ 25.46 billion , a decrease of 1.0 % , or $ 248.6 million , from the prior year consolidated sales of $ 25.71 billion . organic sales ( as defined earlier in this md & a ) decreased 5.3 % year over year and declined 4.2 %
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the company will replace its traditional functional infrastructure with a more product-focused infrastructure , supported by new customer-facing systems . deltax is intended to help the company to execute on its strategy to grow , delivering to the market place much faster and more efficently those products that customers value . as part of the $ 60 million deltax initiative , the xsell project will leverage the sap infrastructure deployed throughout our global operations . it will provide the global sales team with new customer relationship management capabilities , as well as more consistent , mobility-enabled sales processes and business tools . on june 13 , 2014 , the company 's board of directors authorized the company to purchase an additional 10 million of its common shares . the total number of shares that remained authorized for repurchase was 8.9 million shares at december 31 , 2014. on april 28 , 2014 , the company completed the acquisition of assets from schulz group ( schulz ) . based in new haven , connecticut , schulz provides electric motor and generator repairs , motor rewinds , custom controls and panels , systems integration , pump services , machine rebuilds , hydro services and diagnostics for a broad range of commercial and industrial applications . schulz had full-year 2013 sales of approximately $ 18 million and employed 125 associates . 19 results of operations 2014 compared to 2013 overview : replace_table_token_7_th on january 29 , 2015 , the company furnished a current report on form 8-k to the securities and exchange commission that included an earnings release issued that same day reporting results for the fourth quarter and full year of 2014 , which was furnished as exhibit 99.1 thereto ( the earning release ) . for the twelve months ended december 31 , 2014 , the earnings release reported : ( a ) income from continuing operations of $ 147.0 million , or $ 1.58 per diluted share ; ( b ) income from discontinued operations of $ 21.7 million , or $ 0.24 per diluted share ; ( c ) net income of $ 168.7 million ; and ( d ) net income attributable to the timken company of $ 166.2 million . between the issuance of the earnings release and the filing of this annual report on form 10-k , the company adjusted an entry in its provision for income taxes for the three and twelve months ended december 31 , 2014 , reducing the provision for income taxes and increasing net income by $ 4.6 million , or $ 0.05 per diluted share . the company reported net sales for 2014 of approximately $ 3.1 billion , compared to approximately $ 3.0 billion in 2013 , a 1.3 % increase . the increase in sales was primarily due to higher volume in the process industries segment , partially offset by decreased volume in the mobile industries segment . the lower volume in the mobile industries segment was primarily driven by planned program exits that concluded in 2013. in 2014 , diluted earnings per share from continuing operations was $ 1.61 , compared to $ 1.82 in 2013 . the company 's net income from continuing operations in 2014 , compared to 2013 , was lower due to higher impairment and restructuring charges , the impact of planned program exits that concluded at the end of 2013 , and pension settlement charges , partially offset by the impact of higher volume , lower manufacturing cost and the gain on the sale of real estate in sao paulo , brazil ( sao paulo ) . income from continuing operations also benefited from a lower effective tax rate . impairment and restructuring charges primarily related to goodwill impairment for two of the company 's aerospace reporting units within the mobile industries segment . discontinued operations related to company 's former steel business that was spun off on june 30 , 2014. income from discontinued operations was lower in 2014 compared to 2013 as a result of separation costs incurred as a result of the spinoff . 20 outlook : the company expects sales to increase approximately 1 % in 2015 compared to 2014 , primarily driven by higher demand in the light vehicle , wind energy , marine and industrial aftermarket sectors , offset in large part by the impact of currency-rate changes . the company 's earnings are expected to be lower in 2015 compared to 2014 , primarily due to non-cash charges related to the settlement of certain u.s. pension obligations , partially offset by lower impairment and restructuring charges and the impact of higher demand . on january 22 , 2015 , the company entered into an agreement pursuant to which the timken-latrobe-mpb-torrington retirement plan ( the plan ) purchased a group annuity contract from prudential insurance company of america ( prudential ) to pay future pension benefits for approximately 5,000 u.s. timken retirees . the company has transferred approximately $ 600 million of the company 's pension obligations and approximately $ 635 million of the pension assets to prudential . the company expects to incur pension settlement charges of approximately $ 220 million during the first quarter of 2015 in connection with this group annuity purchase . the company expects to generate cash from continuing operations of approximately $ 345 million in 2015 , an increase of approximately $ 65 million , or 23 % , compared to 2014 , as the company anticipates higher income from continuing operations , excluding non-cash impairment and pension settlement charges . pension contributions are expected to be approximately $ 15 million in 2015 , compared to $ 21.1 million in 2014. the company expects capital expenditures of approximately 4 % of sales in 2015 , compared to 4.2 % of sales in 2014 . story_separator_special_tag 21 the statements of income sales by segment : replace_table_token_8_th net sales for 2014 increased $ 40.8 million , or 1.3 % , compared to 2013 , primarily due to higher volume of approximately $ 150 million , driven by increases in the process industries ' wind energy and industrial aftermarket sectors and the mobile industries ' rail market sector , as well as the benefit of acquisitions of $ 25 million . these factors were partially offset by planned program exits in the mobile industries segment that concluded in 2013 of approximately $ 110 million and the impact of foreign currency of approximately $ 30 million . gross profit : replace_table_token_9_th gross profit increased in 2014 compared to 2013 , primarily due to lower manufacturing costs of approximately $ 30 million and the impact of higher sales volume and mix , including the impact of planned program exits , of approximately $ 10 million . these factors were partially offset by inventory valuation adjustments of approximately $ 20 million . selling , general and administrative expenses : replace_table_token_10_th the decrease in selling , general and administrative expenses of $ 4.1 million in 2014 compared to 2013 was primarily due to the benefit of cost reduction initiatives of approximately $ 25 million , partially offset by higher expense related to incentive compensation plans of approximately $ 15 million and the impact of acquisitions of approximately $ 5 million . 22 impairment and restructuring charges : replace_table_token_11_th impairment and restructuring charges of $ 113.4 million in 2014 were primarily due to goodwill and other intangible impairment charges of $ 96.2 million for two of the company 's aerospace reporting units within the mobile industries segment that were recorded in 2014. impairment and restructuring charges for 2013 were primarily due to severance and related benefit costs of approximately $ 6 million due to cost-reduction initiatives relating to reductions in headcount in the bearings and power transmission business and the recognition of severance and related benefits of approximately $ 3 million related to the closure of the manufacturing facility in st. thomas , ontario , canada ( st. thomas ) . refer to note 11 - impairment and restructuring charges in the notes to the consolidated financial statements for additional discussion . pension settlement charges : replace_table_token_12_th pension settlement charges recorded in 2014 were primarily the result of the settlement of approximately $ 110 million of the company 's pension obligations related to its defined benefit pension plan in the united states as a result of the lump sum distributions to new retirees and certain deferred vested plan participants in 2014. pension settlement charges in 2013 primarily related to the settlement of pension obligations for the company 's canadian defined pension plans as a result of the closure of the company 's manufacturing facility in st. thomas . interest income ( expense ) : replace_table_token_13_th interest expense for 2014 increased compared to 2013 primarily due to higher average debt and lower capitalized interest . interest income increased for 2014 compared to 2013 primarily due to interest income recognized on the deferred payments related to the sale of the company 's former manufacturing site in sao paulo . other income ( expense ) : replace_table_token_14_th during 2014 , the company recognized a gain of $ 22.6 million , compared to $ 5.4 million in 2013 , related to the sale of its former manufacturing site in sao paulo . refer to note 7 - property , plant and equipment for additional information on the gain . the company reported other expense , net in 2014 compared to other income , net in 2013 primarily due to higher charitable donations in 2014. the company also incurred higher foreign currency exchange losses in 2014 compared to 2013 . 23 income tax expense : replace_table_token_15_th the effective tax rate on pretax income for 2014 was favorable relative to the u.s. federal statutory rate primarily due to u.s. foreign tax credits , earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , the u.s. manufacturing deduction , the u.s. research tax credit and certain discrete tax benefits . these factors were partially offset by u.s. taxation of foreign income , losses at certain foreign subsidiaries where no tax benefit could be recorded , non-deductible intangible asset impairment charges recorded in the mobile industries segment and u.s. state and local taxes . the effective tax rate on pretax income for 2013 was unfavorable relative to the u.s. federal statutory rate primarily due to u.s. taxation of foreign income including cash repatriation , losses at certain foreign subsidiaries where no tax benefit could be recorded and u.s. state and local taxes . these factors were partially offset by earnings in certain foreign jurisdictions where the effective tax rate is less than 35 % , u.s. foreign tax credits , the u.s. manufacturing deduction and certain discrete u.s. tax benefits . the change in the effective tax rate in 2014 compared to 2013 was primarily due to lower u.s. taxation of foreign income , lower losses at certain foreign subsidiaries where no tax benefit could be recorded and lower u.s. state and local taxes , partially offset by lower u.s. foreign tax credits , lower u.s. manufacturing deduction , non-deductible intangible asset impairment charges recorded in the mobile industries segment and the net effect of other discrete items . discontinued operations : replace_table_token_16_th on june 30 , 2014 , the company completed the spinoff . the operating results , net of tax , included one-time transaction costs in connection with the separation of the two companies of $ 57.1 million and $ 13.0 million during 2014 and 2013 , respectively . these costs included consulting and professional fees associated with preparing for and executing the spinoff , as well as lease cancellation fees . for further discussion , please refer to note 2 - spinoff transaction in the notes to the consolidated financial statements .
| gross profit : replace_table_token_22_th gross profit decreased in 2013 compared to 2012 , primarily due to the impact of lower sales volume of approximately $ 130 million , higher manufacturing costs of approximately $ 40 million and the impact of planned program exits that concluded at the end of 2013 of approximately $ 35 million , partially offset by favorable pricing of approximately $ 30 million and the impact from prior-year acquisitions of approximately $ 15 million . 27 selling , general and administrative expenses : replace_table_token_23_th the decrease in selling , general and administrative expenses of $ 7.9 million in 2013 compared to 2012 was primarily due to lower expenses related to incentive compensation plans of approximately $ 30 million , partially offset by the full year impact of acquisitions of approximately $ 15 million . impairment and restructuring charges : replace_table_token_24_th impairment and restructuring charges of $ 8.7 million in 2013 were primarily due to severance and related benefit costs of approximately $ 6 million due to cost-reduction initiatives relating to reductions in headcount in the bearings and power transmission business . in addition , impairment and restructuring charges for 2013 included to the recognition of severance and related benefits of approximately $ 3 million related to the closure of the manufacturing facility in st. thomas . impairment and restructuring charges of $ 29.5 million in 2012 were primarily due to the recognition of severance and related benefits , including approximately $ 10.7 million of pension curtailment charges , as well as impairment charges related to the closure of the manufacturing facility in st. thomas and the recognition of environmental remediation costs at the former manufacturing facility in sao paulo . refer to note 11 - impairment and restructuring charges in the notes to the consolidated financial statements for additional discussion . interest income and ( expense ) : replace_table_token_25_th interest expense for 2013 decreased compared to 2012 primarily due to lower average debt and higher capitalized interest . interest income decreased for 2013 compared to 2012 primarily due to lower invested cash balances . other income ( expense ) : replace_table_token_26_th in 2013 , the company reported expenses in connection with cdsoa of $ 2.8 million . the company reported cdsoa receipts , net of expense , of $ 108.0 million in 2012. refer to
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any potential loss from a catastrophic change in the property condition while the loan is held for sale using warehouse facility financing is mitigated through property insurance equal to replacement cost . we are also protected contractually from an investor 's failure to purchase the loan . we have experienced an immaterial number of failed deliveries in our history and have incurred immaterial losses on such failed deliveries . we have risk-sharing obligations on substantially all loans we originate under the fannie mae dus program . when a fannie mae dus loan is subject to full risk-sharing , we absorb losses on the first 5 % of the unpaid principal balance of a loan at the time of loss settlement , and above 5 % we share a percentage of the loss with fannie mae , with our maximum loss capped at 20 % of the original unpaid principal balance of the loan ( subject to doubling or tripling if the loan does not meet specific underwriting criteria or if the loan defaults within 12 months of its sale to fannie mae ) . we may , however , request modified risk-sharing at the time of origination , which reduces our potential risk-sharing losses from the levels described above . we occasionally request modified risk-sharing based on the size of the loan . we may also request modified risk-sharing on large transactions if we do not believe that we are being fully compensated for the risks of the transactions or to manage overall risk levels . our current credit management policy is to cap each loan balance subject to full risk-sharing at $ 60 million . accordingly , we generally elect to use modified risk-sharing for loans of more than $ 60 million in order to limit our maximum loss exposure on any one loan to $ 12 million ( such exposure would occur in the event that the underlying collateral is determined to be completely without value at the time of loss ) . however , we may on occasion elect to originate a loan with full risk sharing even when the loan balance is greater than $ 60 million if we believe the loan characteristics support such an approach . our servicing fees for risk-sharing loans include compensation for the risk-sharing obligations and are larger than the servicing fees we receive from fannie mae for loans with no risk-sharing obligations . we receive a lower servicing fee for modified risk-sharing than for full risk-sharing . our interim program offers floating-rate , interest-only loans for terms of up to three years to experienced borrowers seeking to acquire or reposition multifamily properties that do not currently qualify for permanent financing . we underwrite all loans originated through the interim program . during the time that they are outstanding , we assume the full risk of loss on the loans . in addition , we service and asset-manage loans originated through the interim program , with the ultimate goal of providing permanent financing on the properties . these loans are classified as held for investment on our balance sheet during such time that they are outstanding . we have not experienced any delinquencies or charged off any loans originated under the interim program , which began operations in 2012. as of december 31 , 2016 , we had 12 loans held for investment under the interim program with an aggregate outstanding unpaid principal balance of $ 222.3 million . through the third quarter of 2016 , we offered cmbs executions through the cmbs program . we terminated the cmbs program in the fourth quarter of 2016. prior to 2016 , the cmbs program was managed through a partnership with another entity in which we owned less than 50 % . at the beginning of the first quarter of 2016 , the other partner exited the cmbs program , and we assumed full ownership of the cmbs program . we consolidated the operations of the cmbs program in our financial statements during 2016 and accounted for our investment in the partnership under the equity method of accounting prior to 2016. we underwrote all loans originated through the cmbs program and financed these loans using a combination of our own cash and , prior to 2016 , the cash contributed by the other partner , and warehouse financing facilities until they were sold to third-party securitization conduits . we did not retain any credit risk once the loans were sold but may be obligated to repurchase loans sold into a securitization if certain representations and warranties provided in connection with such loans are breached . neither we nor the partnership has ever been required to repurchase a loan . under certain limited circumstances , we may make preferred equity investments in entities controlled by certain of our borrowers that will assist those borrowers to acquire and reposition properties . the terms of such investments are negotiated with each investment . as of december 31 , 2016 , we have made commitments to fund such preferred equity investments in monthly installments totaling $ 42.8 million , $ 24.8 million of which has been funded . 29 during the second quarter of 2015 , in connection with the acquisition of 75 % of certain assets and assumption of certain liabilities of efg , we began providing multifamily investment sales brokerage services through a newly formed subsidiary , wdis . the initial focus of the investment sales brokerage services is the southeastern united states . we plan to expand these brokerage services nationally . we consolidate the activities of wdis and present the portion of wdis that we do not control as noncontrolling interests in the consolidated balance sheets and net income from noncontrolling interests in the consolidated statements of income . during the second quarter of 2016 , we purchased the rights to service a hud loan portfolio with an aggregate $ 3.6 billion unpaid principal balance from a third-party servicer for $ 43.1 million ( the “ servicing portfolio acquisition ” ) . story_separator_special_tag the acquisition of the servicing portfolio substantially increased our hud servicing portfolio and led to our being one of the largest servicers of hud commercial real estate loans as of december 31 , 2016. we expect the servicing portfolio acquisition to have the following benefits : reduce the average cost to service each loan as we leverage our existing servicing platform , provide new borrower relationships , provide opportunities for additional loan origination volume when these loans mature or prepay , and produce a stable stream of cash revenues over the 10.9-year estimated life of the portfolio . as of december 31 , 2016 , our servicing portfolio was $ 63.1 billion , up 26 % from december 31 , 2015 , making it the 8 th largest commercial/multifamily primary and master servicing portfolio in the nation according to the mortgage bankers ' association 's 2016 year-end survey ( the “ survey ” ) . our servicing portfolio includes $ 27.7 billion of loans serviced for fannie mae and $ 20.7 billion for freddie mac , making us the 3 rd largest primary and master servicer of fannie mae loans and the 6 th largest of freddie mac loans in the nation according to the survey . also included in our servicing portfolio is $ 9.2 billion of hud loans , the 3 rd largest hud primary and master servicing portfolio in the nation according to the survey . due to our own organic growth and the increased loan-origination capacity from acquisitions completed in prior years , our loan origination volume increased 3 % , from a total of $ 16.2 billion during 2015 to a total of $ 16.7 billion during 2016. fannie mae recently announced that we ranked as its 2 nd largest dus lender in 2016 , by loan deliveries , and freddie mac recently announced that we ranked as its 3 rd largest seller/servicer in 2016 , by loan deliveries . basis of presentation the accompanying consolidated financial statements include all of the accounts of the company and its wholly owned subsidiaries , and all intercompany transactions have been eliminated . critical accounting policies our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) , which require management to make estimates and assumptions that affect reported amounts . the estimates and assumptions are based on historical experience and other factors management believes to be reasonable . actual results may differ from those estimates and assumptions . we believe the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements . mortgage servicing rights ( “ msrs ” ) . msrs are recorded at fair value at loan sale or upon purchase . the fair value of msrs acquired through a stand-alone servicing portfolio purchase is equal to the purchase price paid . the fair value at loan sale is based on estimates of expected net cash flows associated with the servicing rights and takes into consideration an estimate of loan prepayment . the estimated net cash flows are discounted at a rate that reflects the credit and liquidity risk of the msr over the estimated life of the underlying loan . the discount rates used throughout the periods presented for all msrs recognized at loan sale were between 10-15 % and varied based on the loan type . the life of the 30 underlying loan is estimated giving consideration to the prepayment provisions in the loan . our model assumes full prepayment of the loan at or near the point where the prepayment provisions have expired . we record an individual msr asset ( or liability ) for each loan at loan sale . for purchased stand-alone servicing portfolios , we record and amortize a portfolio-level msr asset based on the estimated remaining life of the portfolio using the prepayment characteristics of the portfolio . we have had only one stand-alone servicing portfolio purchase , which occurred in the second quarter of 2016. the assumptions used to estimate the fair value of msrs at loan sale are based on internal models and are periodically compared to assumptions used by other market participants . due to the relatively few transactions in the multifamily msr market , we have experienced little volatility in the assumptions we use during the periods presented , including the most-significant assumption – the discount rate . additionally , we do not expect to see much volatility in the assumptions for the foreseeable future . management actively monitors the assumptions used and makes adjustments to those assumptions when market conditions change or other factors indicate such adjustments are warranted . we carry originated and purchased msrs at the lower of amortized cost or fair value and evaluate the carrying value for impairment quarterly . we test for impairment on the purchased stand-alone servicing portfolio separately from our other msrs . the msrs from both stand-alone portfolio purchases and from loans sales are tested for impairment at the portfolio level . we engage a third party to assist in determining an estimated fair value of our existing and outstanding msrs on at least a semi-annual basis . gains from mortgage banking activities income is recognized when we record a derivative asset upon the simultaneous commitments to originate a loan with a borrower and sell the loan to an investor . the commitment asset related to the loan origination is recognized at fair value , which reflects the fair value of the contractual loan origination related fees and sale premiums , net of any co-broker fees , and the estimated fair value of the expected net cash flows associated with the servicing of the loan , net of the estimated net future cash flows associated with any risk-sharing obligations ( the “ servicing component of the commitment asset ” ) . upon loan sale , we derecognize the servicing component of the commitment asset and recognize an msr .
| personnel expense increased due to higher commission costs from the increased gains from mortgage banking activities , increased bonus expense due to our improved financial results year over year , higher salaries expense due to a rise in headcount , and larger stock compensation expense . headcount increased due to acquisitions and hiring to support the growth of the company . amortization and depreciation expense increased as a result of a rise in the average msr balance from 2015 to 2016. revenues gains from mortgage banking activities 40 the following table provides additional information that helps explain changes in gains from mortgage banking activities over the past three years : replace_table_token_7_th replace_table_token_8_th ( 1 ) the fair value of the expected net cash flows associated with the servicing of the loan , net of any guaranty obligations retained . ( 2 ) origination fees as a percentage of loan origination volume . ( 3 ) msr income as a percentage of loan origination volume . gains from mortgage banking activities reflect the fair value of loan origination fees , the fair value of loan premiums , net of any co-broker fees , and the fair value of the expected net cash flows associated with the servicing of the loan , net of any guaranty obligations retained ( “ msr income ” ) . the increase was primarily the result of the mix of loan origination volume , as our two highest-margin products , fannie mae and hud , represented 47 % of our overall loan origination volume in 2016 compared to 35 % in 2015. the change in mix of loan origination volume led to the increases in the origination fee rate and the msr rate from 2015 to 2016 shown above , leading to increases in both origination fees and msr income . see the “ overview of business environment ” section above for a detailed discussion of the factors driving the change in the mix of loan origination volume . servicing fees the increase was primarily attributable to
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assuming no change in dealer inventories , this projection implies a 17 percent increase in retail activity of travel trailers and fifth-wheel rvs in 2011. consumer confidence and the availability of financing have historically been important factors in the overall growth in the rv industry , and although these factors improved in 2010 , there can be no assurance these factors will improve further in 2011 . 21 in the long-term , the company expects rv industry sales to be driven by positive demographics , and the continued popularity of the “ rv lifestyle ” . demand for rvs is strongest from the over 50 age group , which is the fastest growing segment of the u.s. population . u.s. census bureau projections released in december 2009 project that there will be 10 million more people over the age of 50 by 2015. further , the rvia has a generic advertising campaign promoting the rv lifestyle . the current campaign is targeted at both parents aged 30-49 with children at home , as well as couples aged 50-64 with no children at home . the popularity of traveling in rvs to nascar and other sporting events , more family-oriented vacations , and using rvs as second homes , also appear to motivate consumer demand for rvs . manufactured housing industry manufactured homes are built entirely in a factory on permanent steel undercarriages or chassis to which axles and wheels are attached . the homes are then transported to a manufactured housing dealer which sells and transports the home to the buyer 's home site . the manufactured home is installed pursuant to a federal building code administered by the u.s. department of housing and urban development ( “ hud ” ) . the federal standards regulate manufactured housing design and construction , strength and durability , transportability , fire resistance , energy efficiency and quality . the hud code also sets performance standards for the heating , plumbing , air conditioning , thermal and electrical systems . it is the only federally regulated national building code . on-site additions , such as garages , decks and porches , often add to the attractiveness of manufactured homes and must be built to local , state or regional building codes . a manufactured home may be sited on owned or leased land . the institute for building technology and safety ( “ ibts ” ) reported that for 2010 , industry-wide wholesale shipments of manufactured homes were 50,000 units , an increase of one percent compared to 2009. this increase was apparently partially due to a tax credit for first-time home buyers , which was available in the first half of 2010 , while industry-wide wholesale shipments of manufactured homes decreased 7 percent in the second half of 2010 , as compared to the same period of 2009 , after the tax credit expired . since 1998 , industry-wide wholesale shipments of manufactured homes have declined 87 percent . this decline was primarily the result of limited credit availability because of high credit standards applied to purchases of manufactured homes , high down payment requirements , and high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes . for the 20 years prior to the sub-prime boom in home financing , manufactured housing industry-wide wholesale shipments represented 20 percent or more of single-family housing starts . during the sub-prime years , 2003 to 2007 , when extremely low cost loans were available for financing site-built homes , many traditional buyers of manufactured homes were able to purchase site-built homes instead of manufactured homes , and manufactured housing 's share of the single-family market dropped precipitously , to well below 10 percent . since the sub-prime “ bubble ” burst in 2007 and 2008 , this market share has increased somewhat , to about 12 percent , despite that interest rates for manufactured home loans remain historically high relative to rates for site-built home loans . accordingly , the company believes the manufactured housing industry may begin to experience a modest recovery when the economy improves and home buyers begin to look for affordable housing . however , because of the current real estate and economic environment , including the availability of foreclosed site built homes at abnormally low prices , fluctuating consumer confidence , high interest rate spreads between conventional mortgages for site-built homes and loans for manufactured homes , and the current retail and wholesale credit markets , the company expects industry-wide wholesale shipments of manufactured homes to remain low until these conditions improve . 22 the company believes that long-term growth prospects for manufactured housing may be positive because of ( i ) the quality and affordability of the homes , ( ii ) favorable demographic trends , including an increasing number of retirees who , in the past , had represented a significant market for manufactured homes , ( iii ) pent-up demand by retirees who have been unable or unwilling to sell their primary residence and purchase a manufactured home , and ( iv ) the unavailability of sub-prime mortgages for site-built homes . results of operations effective with the first quarter of 2010 , amortization of intangibles , which was previously reported on a separate line , has been included as part of segment operating profit ( loss ) . the segment disclosures from 2009 and 2008 have been reclassified to conform to the current year presentation . net sales and operating profit ( loss ) were as follows for the years ended december 31 , ( in thousands ) : replace_table_token_5_th net sales and operating profit by segment , as a percent of the total , were as follows for the years ended december 31 , : replace_table_token_6_th operating profit margin by segment was as follows for the years ended december 31 , : replace_table_token_7_th during 2009 and 2008 , the company recorded “ extra ” expenses resulting primarily from plant closings and start-ups , staff reductions and relocations , increased bad debts and obsolete inventory and tooling . story_separator_special_tag these expenses were largely due to the unprecedented conditions in the rv and manufactured housing industries resulting from the severe economic downturn . in addition , the company recorded charges for goodwill impairment during 2009 and 2008 , and charges for executive retirement in 2008 . 23 the following tables reconcile cost of sales , selling , general and administrative expenses , goodwill impairment , executive retirement , operating ( loss ) profit , net ( loss ) income and net ( loss ) income per diluted share for the years ended december 31 , 2009 and 2008 to these same items before the “ extra ” expenses and charges for goodwill impairment and executive retirement . the company finds this information useful in analyzing and reviewing the results of operations . these tables are intended to provide investors with this useful information on the company 's results of operations before the “ extra ” expenses and charges for goodwill impairment and executive retirement to provide comparability between the years . replace_table_token_8_th the following tables reconcile rv segment and mh segment operating profit , goodwill impairment , other items , and operating ( loss ) profit for the years ended december 31 , 2009 and 2008 to these same items before the “ extra ” expenses and charges for goodwill impairment and executive retirement . the company finds this information useful in analyzing and reviewing the results of operations . these tables are intended to provide investors with this useful information on the company 's results of operations before the “ extra ” expenses and charges for goodwill impairment and executive retirement to provide comparability between the years ended december 31 , 2009 and 2008. replace_table_token_9_th year ended december 31 , 2010 compared to year ended december 31 , 2009 story_separator_special_tag border= '' 0 '' cellpadding= '' 0 '' cellspacing= '' 0 '' id= '' hangingindent '' style= '' font-size : 10pt ; font-family : times new roman ; font-size : 10pt ; font-family : times new roman '' width= '' 100 % '' > § on january 28 , 2011 , the company acquired the operating assets and business of home-style industries , and its affiliated companies . home-style manufactures a full line of upholstered furniture and mattresses primarily for towable rvs , in the northwest u.s. market . home-style 's sales for 2010 were $ 12 million , which going forward would increase the company 's content per travel trailer and fifth-wheel rv by $ 60 per unit . the purchase price was $ 7.3 million paid at closing from available cash . 25 rv segment net sales of the rv segment in 2010 increased 53 percent , or $ 165 million , compared to 2009. the company 's sales growth exceeded the 44 percent increase in industry-wide wholesale production of travel trailers and fifth-wheel rvs , largely due to the company 's market share gains and new product introductions . the company 's sales of components for motorhomes in 2010 increased 64 percent to $ 16 million , compared to 2009. this was less than the 91 percent increase in industry-wide wholesale production of motorhomes because of the loss of market share by the company 's motorhome customers . however , in the past year the company has been expanding its product line of components for motorhomes in order to increase market penetration . according to the rvia , industry-wide wholesale shipments for the years ended december 31 , were as follows : replace_table_token_10_th the trend in the company 's average product content per rv produced is an indicator of the company 's overall market share of components for new rvs . content per rv is also impacted by changes in selling prices for the company 's products . the company 's average product content per type of rv , calculated based upon the company 's net sales of components for the different types of rvs produced for the years ended december 31 , divided by the industry-wide wholesale shipments of the different types of rvs for the years ended december 31 , was : replace_table_token_11_th the company 's average product content per type of rv excludes sales of replacement parts to the aftermarket , and sales to other industries . in 2010 , the company refined the calculation of content per unit to better identify aftermarket sales , as well as sales to other industries . this refinement had no impact on total rv segment sales or trends of content per unit . prior periods have been reclassified to conform to this presentation . further , the company 's rv segment sales of replacement parts in the aftermarket for existing rvs were approximately $ 12 million for 2010 , an increase of 31 percent from 2009. the company is increasing its efforts to gain market share in sales of replacement parts in the aftermarket . operating profit of the rv segment was $ 44.4 million in 2010 , an improvement of $ 28.7 million compared to 2009 , largely due to the $ 165 million increase in net sales . the company incurred $ 5.3 million of “ extra ” expenses in 2009 related to plant closings and start-ups , staff reductions and relocations , increased bad debts , equipment write-downs , and obsolete inventory and tooling , largely due to the unprecedented conditions in the rv industry at that time . excluding these “ extra ” expenses in 2009 , the company 's rv segment operating profit increased $ 23.4 million from last year . this adjusted increase in rv segment operating profit was 14 percent of the increase in net sales , less than the company 's expected 20 percent incremental margin . 26 the operating margin of the rv segment in 2010 was negatively impacted by : · approximately $ 3 million of excess production costs incurred as a result of greater than anticipated increases in demand for certain products .
| ) per diluted share , largely due to the unprecedented conditions in the rv and manufactured housing industries resulting from the severe economic downturn . § raw material costs as a percent of net sales have been volatile between quarters for the past two years . after increasing as much as 50 percent during the first part of 2010 , raw material costs , in particular steel , aluminum and abs resin prices , began to level off in the latter part of the second quarter of 2010. during the third quarter of 2010 , steel prices generally remained constant , however the cost of aluminum and certain other raw materials increased . further , in november 2010 , our raw material costs , in particular steel , began to increase . such increases have continued through march 2011. while the company has historically been able to obtain sales price increases to offset the majority of raw material cost increases , there can be no assurance that these cost increases , as well as future cost increases , if any , can be partially or fully passed on to customers , or that the timing of such increases will match the raw material cost increases . also , to mitigate the impact of higher raw material costs , the company attempts to gain additional sales volume from customers . further , the company continues to explore improved product design , efficiency improvements , and alternative sources of raw materials and components , both domestic and imported . § during 2010 , the company completed the acquisition of three businesses , for aggregate cash consideration of $ 21.9 million paid at closing , and also acquired the exclusive rights to use a patent for $ 0.3 million . contingent earn-outs related to those acquisitions could be paid over approximately the next 6 years depending upon the level of sales generated from certain of the acquired products . these acquisitions included a series of new patent-pending rv products , including
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as described in more detail below , we recently entered into two line of credit agreements providing a revolving commitment of an aggregate of up to $ 1.4 million but have not drawn any amounts as of the date of this report . we have not had any revenue since our inception , and we do not currently have any revenue under contract or any immediate sales prospects . for the year ended december 31 , 2019 , we incurred a net loss from continuing operations of approximately $ 3.4 million and used approximately $ 2.8 million in net cash from operating activities . we expect our operating costs to be substantial as we incur costs related to the clinical trials for our product candidates and that we will operate at a loss for the foreseeable future . at december 31 , 2019 , we had cash and cash equivalents totaling $ 691,536. on september 20 , 2019 , we entered into two separate line of credit agreements ( “ loc agreements ” ) with dkbk enterprises , llc ( “ dkbk ” ) and current shareholder corlyst , llc ( “ corlyst ” ) , both related parties ( “ lenders ” ) , which provide a revolving commitment of up to $ 700,000 each ( $ 1.4 million total ) . under the loc agreements , all funds borrowed will bear an 8 % annual interest rate . the lenders have the right to convert all or any portion of the debt and interest into processa common shares . our chief executive officer ( ceo ) is also the ceo and managing member of both lenders . corlyst beneficially owns 996,376 shares of processa common stock , representing approximately 17.8 % of the company 's outstanding shares of voting capital stock . we have not drawn any amounts under these loc agreements as of february 28 , 2020. in connection with the loc agreements , we amended the existing pledge agreement with poc capital on september 30 , 2019 to reduce the committed funds from $ 1.8 million to $ 900,000 , which has now been paid in full as of december 31 , 2019. as part of the original pledge agreement , we issued 113,280 shares of common stock and 113,280 warrants to purchase shares of common stock to poc capital but held 56,639 shares and warrants to purchase 56,639 shares as collateral until certain payment milestones were met . poc capital forfeited the pledged collateral in the amended agreement . the forfeited shares and warrants have been returned to us . in december 2019 we closed our bridge financing and issued $ 805,000 of the 2019 senior notes to accredited investors . in order to preserve cash , we have also delayed some of our cash outflows , primarily through the deferred payment of salaries ( $ 122,175 , which has been accrued and included in accrued expenses at december 31 , 2019 ) until such time as we have raised sufficient funding . we believe that our existing cash and loc agreements will enable us to fund our operating expenses and capital expenditure requirements into q3 2020. with our existing resources , we expect to be able to complete our phase 2a trial . we have based these estimates on assumptions that may prove to be incorrect , and we could use our available capital resources sooner than we currently expect . we also expect to raise capital in an underwritten public offering during the first half of 2020. as a result , substantial doubt existed about our ability to continue as a going concern as of the date of the filing of this annual report on form 10-k for the year ended december 31 , 2019. the accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets , or the amounts and classification of liabilities that might be different should the company be unable to continue as a going concern based on the outcome of these uncertainties described above . 46 status of our phase 2a clinical trial in necrobiosis lipoidica our lead product , pcs499 , is an oral tablet that is a deuterated analog of one of the major metabolites of pentoxifylline ( trental ® ) . the advantage of pcs499 is that it potentially may work in many conditions because it has multiple pharmacological targets it affects that are important in the treatment of these conditions . based on its pharmacological activity , we have identified multiple unmet medical need conditions where the use of pcs499 may result in clinical efficacy . the lead indication currently under development for pcs499 is necrobiosis lipoidica ( nl ) . nl is a chronic , disfiguring condition affecting the skin and the tissue under the skin typically on the lower extremities with no currently approved fda treatments . nl presents more commonly in women than in men and ulceration can occur in approximately 30 % of nl patients . more severe complications can occur , such as deep tissue infections and osteonecrosis threatening life of the limb . approximately 74,000 - 185,000 people in the united states and more than 200,000 – 500,000 people outside the united states are affected by nl . the degeneration of tissue occurring at the nl lesion site is caused by a number of pathophysiological changes , which has made it extremely difficult to develop effective treatments for this condition . pcs499 may provide a solution since pcs499 and its metabolites affect a number of biological pathways , several of which contribute to the pathophysiology associated with nl . on june 22 , 2018 , the fda granted orphan-drug designation to pcs499 for the treatment of nl . on september 28 , 2018 , the fda cleared our ind for pcs499 in nl such that we could move forward with the phase 2 safety-dose tolerability trial . story_separator_special_tag we dosed our first nl patient in this phase 2a clinical trial on january 29 , 2019 and completed enrollment on august 23 , 2019. the main objective of the trial is to evaluate the safety and tolerability of pcs499 in patients with nl and to use the collected safety and efficacy data to design future clinical trials . based on toxicology studies and healthy human volunteer studies , processa and the fda agreed that a pcs499 dose of 1.8 grams/day would be the highest dose administered to nl patients in this phase 2 trial . as anticipated , the pcs499 dose of 1.8 grams/day , 50 % greater than the maximum tolerated dose of ptx , appears to be well tolerated with no serious adverse events reported . to date , nine of the patients dosed at 1.8 grams/day have reported only mild adverse events related to the treatment , which occurred mostly in the first month of treatment and were quickly resolved . as expected , gastrointestinal or cns adverse events were reported most often . in our evaluation of the efficacy , after nine months of treatment we have seen significant changes in the two patients with more severe nl , one patient having a single ulcer and the second having multiple ulcers . in both patients , all of these ulcers have completely closed . historically , less than 20 % of all the patients with nl naturally progress to complete healing . although the natural healing of the more severe nl patients with ulcers has not been evaluated independently , medical experts who treat nl patients believe that the natural progression of an open ulcerated wound to complete closure would be less than 5-10 % if followed for approximately 12 months after presentation . in those patients without ulcers in our clinical trial , we have only seen a slight change in the nl lesion . one patient after three months of treatment and after altering her hypertension medication had a transient prolonged qtc interval four days after adding a beta blocker to her hypertension regimen . her pcs499 regimen was decreased to 1.2 grams/day even though her qtc prolongation was only transient . we have a meeting scheduled with the fda in march 2020 to further discuss the development of pcs499 , including a future clinical trial . license agreement for pcs100 on august 29 , 2019 , we entered into an exclusive license agreement with akashi therapeutics , inc. ( “ akashi ” ) to develop and commercialize an anti-fibrotic , anti-inflammatory drug , pcs100 , which also promotes healthy muscle fiber regeneration . in previous clinical trials in duchenne muscular dystrophy ( dmd ) , pcs100 showed promising improvement in the muscle strength of non-ambulant pediatric patients . although the fda placed a clinical hold on the dmd trial after a serious adverse event in a pediatric patient , fda has removed the drug off clinical hold and defined how pcs100 can resume clinical trials in dmd . once we have obtained adequate funding , we plan to develop pcs100 in rare adult fibrotic related diseases such as focal segmental glomerulosclerosis , idiopathic pulmonary fibrosis or scleroderma . 47 the akashi agreement provides us with a worldwide license to research , develop , make and commercialize products comprising or containing pcs100 . as partial consideration for the license , we paid $ 10,000 to akashi upon full execution of the license agreement . this upfront payment was expensed as a research and development cost . as additional consideration , we will pay akashi development and regulatory milestone payments ( up to $ 3.0 million per milestone ) upon the achievement of certain milestones , which primarily consist of having a drug indication approved by a regulatory authority in the united states or another country . in addition , we must pay akashi one-time sales milestone payments based on the achievement during a calendar year of one or more thresholds for annual sales for products made and pay royalties based on annual licensing sales . we are also required to split any milestone payments we receive with akashi based on any sub-license agreement we may enter into . we are required to use commercially reasonable efforts , at our sole cost and expense , to research , develop and commercialize products in one or more countries , including meeting specific diligence milestones that consist of ( i ) requesting a meeting with the fda for a first indication within 18 months of the date of the agreement , ( ii ) submitting an ind for a drug indication on or before june 30 , 2022 and ( iii ) initiating a phase 1 or 2 trial for a drug indication on or before december 30 , 2022. either party may terminate the agreement in the event of a material breach of the license agreement that has not been cured following written notice and a 60-day opportunity to cure such breach ( which is shortened to 15 days for a payment breach ) . story_separator_special_tag uncertainties . once a drug candidate is identified , the further development of that drug candidate can be halted or abandoned at any time due to a number of factors . these factors include , but are not limited to , funding constraints , safety or a change in market demand . for each of our drug candidate programs , we periodically assess the scientific progress and merits of the programs to determine if continued research and development is economically viable . certain of our programs may be terminated due to the lack of scientific progress and lack of prospects for ultimate commercialization . we anticipate our research and development costs to increase in the future as we continue our phase 2a clinical trial activities for nl and initiate our research activities related to psc100 in 2020 .
| costs for the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_3_th during the year ended december 31 , 2019 , our research and development costs decreased by $ 764,744 to $ 2,320,573 from $ 3,085,317 for year ended december 31 , 2018. our research and development salaries and benefits increased by $ 91,552 for the year ended december 31 , 2019 when compared to the same period in 2018 related to an increase in stock-based compensation of $ 113,239 , which was offset by a decrease in salaries and related benefits of $ 21,687. the decrease in salaries and related benefits related to one of our research and development team members having a reduced level of involvement . we also recognized lower research and development expenses for preclinical , clinical trial and other costs of $ 1,029,977 during the year ended december 31 , 2019 when compared to the same period in 2018. during the year ended december 31 , 2019 , our focus was on enrolling patients in our trial , along with other trial costs , including providing doses of pcs499 to participants in our phase 2a clinical trial in nl . in contrast , during the same period in 2018 , we experienced significantly higher costs related to a phase 1 trial for pcs499 and costs related to having to establishing a new site to contract manufacture the tablets of pcs499 needed for our clinical trial since the original concert tablet manufacturing site could no longer be used . we incurred $ 554,935 in costs related to our phase 2a trial during the year ended december 31 , 2019 and expect to spend approximately an additional $ 487,000 through 2020 to complete our current trial . we believe , based on our estimates , the cost of our current phase 2a trial to be approximately $ 1.5 million . poc capital paid for $ 900,000 of the clinical trial costs , and we will cover the remaining $ 600,000 with funds received from the sale of our 2019 senior notes and our loc agreements , as necessary . during the year ended december 31 , 2018 , we made payments to our cro related to our phase 2a trial of approximately $ 239,000. we have accounted for these payments as either a prepaid expense or a research and development expense depending on whether the related
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at december 31 , 2018 , approximately 89 % of our total proved oil and natural gas reserves were attributable to our properties in the delaware basin . our proved oil reserves in the delaware basin increased 48 % to 114.8 million bbl at december 31 , 2018 , as compared to 77.5 million bbl at december 31 , 2017 . proved oil reserves comprised 57 % of our total proved reserves at december 31 , 2018 , as compared to 57 % at december 31 , 2017 . these reserves estimates were based on evaluations prepared by our engineering staff and have been audited for their reasonableness and conformance with sec guidelines by netherland , sewell & associates , inc. , independent reservoir engineers . standardized measure represents the present value of estimated future net cash flows from proved reserves , less estimated future development , production , plugging and abandonment costs and income tax expenses , discounted at 10 % per annum to reflect the timing of future cash flows . standardized measure is not an estimate of the fair market value of our properties . pv-10 is a non-gaap financial measure . for a reconciliation of pv-10 to standardized measure , see “ business — estimated proved reserves. ” midstream highlights we made significant progress in our midstream operations during 2018 , including , among other accomplishments , ( i ) the completion and successful startup of the expansion of the black river processing plant to a designed inlet capacity of 260 mmcf of natural gas per day , ( ii ) the completion of an ngl pipeline connection at the black river processing plant to the ngl pipeline owned by epic y-grade pipeline lp , ( iii ) the ongoing buildout of oil , natural gas and water pipeline systems in both the rustler breaks and wolf asset areas , ( iv ) the entrance into a strategic relationship with plains to gather and transport crude oil in the rustler breaks asset area , ( v ) placing into service crude oil gathering and transportation systems in the wolf and rustler breaks asset areas , ( vi ) entering into long-term agreements with significant producers in eddy county , new mexico relating to the gathering and disposal of one such producer 's salt water and the gathering and processing of another such producer 's natural gas production and ( vii ) the drilling and completion of additional commercial salt water disposal wells and the construction of associated commercial facilities in the rustler breaks asset area , significantly increasing san mateo 's salt water disposal capacity . 2019 capital expenditure budget we expect that development of our delaware basin assets will be the primary focus of our operations and capital expenditures in 2019 . we plan to operate six contracted drilling rigs drilling primarily oil and natural gas wells in the delaware basin throughout most of 2019 . our 2019 estimated capital expenditure budget consists of $ 640 to $ 680 million for drilling , completing and equipping wells ( “ d/c/e capital expenditures ” ) and $ 55 to $ 75 million for midstream capital expenditures , which primarily reflects our proportionate share of san mateo and san mateo ii 's estimated combined 2019 capital expenditures of $ 180 to $ 220 million and also accounts for portions of the $ 50 million capital carry that five point is expected to provide to us in conjunction with the formation of san mateo ii . substantially all of our 2019 estimated capital expenditures will be allocated to ( i ) the further delineation and development of our leasehold position , ( ii ) the continued construction of midstream assets and ( iii ) our participation in certain non-operated well opportunities in the delaware basin , with the exception of amounts incurred in 2019 to conclude our south texas drilling program and amounts allocated to limited operations in our south texas and haynesville shale positions to maintain and extend leases and to participate in certain non-operated well opportunities . our 2019 delaware basin drilling program is expected to focus on the continued development of the rustler breaks and wolf asset areas and the further delineation and development of the antelope ridge , jackson trust , ranger/arrowhead and twin lakes asset areas as well as the federal leasehold acreage in the western portion of the antelope ridge asset area acquired in the blm acquisition . as noted above , we were operating a seventh operated drilling rig at the beginning of 2019 to conduct the short-term drilling program in south texas , primarily in the eagle ford shale . when we concluded this short-term program in february 2019 , we released this drilling rig and did not move this rig to the delaware basin as we had previously anticipated . to further narrow any potential difference between our 2019 capital expenditures and operating cash flows , we may divest portions of our non-core assets , particularly in the haynesville shale and in our south texas position , as well as to consider monetizing other 64 assets , such as certain mineral , royalty and non-core midstream interests , as value-creating opportunities arise . in addition , we intend to continue evaluating the opportunistic acquisition of acreage and mineral interests , principally in the delaware basin , during 2019 . these monetizations , divestitures and expenditures are opportunity-specific , and purchase price multiples and per-acre prices can vary significantly based on the asset or prospect . as a result , it is difficult to estimate these 2019 monetizations , divestitures and capital expenditures with any degree of certainty ; therefore , we have not provided estimated proceeds related to monetizations or divestitures or estimated capital expenditures related to acreage and mineral acquisitions for 2019 . at december 31 , 2018 , we had $ 64.5 million in cash ( excluding restricted cash ) and $ 457.0 million in undrawn borrowing capacity under our credit agreement ( after giving effect to outstanding letters of credit ) . story_separator_special_tag as a result , we expect to fund our capital expenditures for 2019 through a combination of cash on hand , operating cash flows , performance incentives in connection with the formation of san mateo that were earned in the first quarter of 2019 , borrowings under our credit agreement ( assuming availability under our borrowing base ) and borrowings under the san mateo credit facility . in addition , in 2019 , we expect five point to provide a portion of the $ 50 million capital carry in connection with the formation of san mateo ii . we may also consider funding a portion of our 2019 capital expenditures through borrowings under additional credit arrangements , the sale or joint venture of midstream assets or oil and natural gas producing assets or leasehold interests , particularly in our non-core asset areas , the sale or joint venture of oil and natural gas mineral interests , as well as potential issuances of equity , debt or convertible securities , none of which may be available on satisfactory terms or at all . the aggregate amount of capital we expend may fluctuate materially based on market conditions , the actual costs to drill , complete and place on production operated or non-operated wells , our drilling results , the actual costs of our midstream activities , other opportunities that may become available to us and our ability to obtain capital . 65 revenues our revenues are derived primarily from the sale of oil , natural gas and ngl production . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in oil , natural gas or ngl prices . the following table summarizes our revenues and production data for the periods indicated . replace_table_token_21_th ( 1 ) we report our production volumes in two streams : oil and natural gas , including both dry and liquids-rich natural gas . revenues associated with ngls are included with our natural gas revenues . ( 2 ) estimated using a conversion ratio of one bbl of oil per six mcf of natural gas . year ended december 31 , 2018 as compared to year ended december 31 , 2017 oil and natural gas revenues . our oil and natural gas revenues increase d $ 272.0 million , or 51 % , to $ 800.7 million for the year ended december 31 , 2018 , as compared to $ 528.7 million for the year ended december 31 , 2017 . our oil revenues increase d $ 248.7 million , or 64 % , to $ 635.6 million for the year ended december 31 , 2018 , as compared to $ 386.9 million for the year ended december 31 , 2017 . the increase in oil revenues resulted from ( i ) the 42 % increase in our oil production to 11.1 million bbl of oil for the year ended december 31 , 2018 , or about 30,524 bbl of oil per day , as compared to 7.9 million bbl of oil , or about 21,510 bbl of oil per day , for the year ended december 31 , 2017 , and ( ii ) a higher weighted average oil price realized for the year ended december 31 , 2018 of $ 57.04 per bbl , as compared to $ 49.28 per bbl realized for the year ended december 31 , 2017 . this increase d oil production was primarily attributable to our ongoing delineation and development drilling activities in the delaware basin . our natural gas revenues increase d by $ 23.3 million , or 16 % , to $ 165.1 million for the year ended december 31 , 2018 , as compared to $ 141.8 million for the year ended december 31 , 2017 . the increase in natural gas revenues resulted from the 24 % increase in our natural gas production to 47.3 bcf for the year ended december 31 , 2018 , as compared to 38.2 bcf for the year ended december 31 , 2017 , but was partially offset by a slightly lower weighted average natural gas price realized for the year ended december 31 , 2018 of $ 3.49 per mcf , as compared to $ 3.72 per mcf realized for the year ended december 31 , 2017 . the increase in natural gas production was primarily attributable to our ongoing delineation and development drilling activities in the delaware basin . third-party midstream services revenues . our third-party midstream services revenues increased $ 11.7 million , or 115 % , to $ 21.9 million for the year ended december 31 , 2018 , as compared to $ 10.2 million for the year ended december 31 , 2017 . third-party midstream services revenues are only those revenues from midstream operations related to third parties , including working interest owners in our operated wells . this increase was primarily attributable to the significant increase in third-party salt water gathering and disposal revenues to approximately $ 10.5 million during the year ended december 31 , 2018 , as compared to approximately $ 2.1 million for the year ended december 31 , 2017 , resulting from an increase in salt water 66 gathering and disposal at our facilities in the rustler breaks and wolf asset areas in 2018 . the remaining increase in our third-party midstream services revenues was primarily attributable to an increase in natural gas gathering and processing revenues to approximately $ 10.7 million for the year ended december 31 , 2018 , as compared to $ 7.9 million for the year ended december 31 , 2017 , resulting from an increase in natural gas processing at the black river processing plant . an expansion of the black river processing plant from a designed capacity of 60 mmcf per day to 260 mmcf per day was completed and placed into service in early 2018. sales of purchased natural gas . our sales of purchased natural gas were $ 7.1 million for the year ended december 31 , 2018 .
| one of the eagle ford shale wells was completed and turned to sales during the fourth quarter of 2018 , and the remaining eight wells , including one well drilled in the austin chalk , are expected to be completed and turned to sales late in the first quarter or early in the second quarter of 2019. the vast majority of our 2018 capital expenditures was directed to ( i ) the delineation and development of our leasehold position in the delaware basin , ( ii ) the development of certain midstream assets to support our operations there , ( iii ) our participation in non-operated wells drilled and completed in the delaware basin and ( iv ) the acquisition of additional leasehold and mineral interests prospective for the wolfcamp , bone spring and other liquids-rich plays . our remaining capital expenditures were primarily directed to the beginning of our short-term drilling and completion program in south texas and to our participation in several non-operated wells drilled and completed in the eagle ford and haynesville shales throughout 2018. in september 2018 , we announced the blm acquisition , pursuant to which we acquired 8,400 gross and net leasehold acres in lea and eddy counties , new mexico for approximately $ 387 million , or a weighted average cost of approximately $ 46,000 per net acre . in addition to the blm acquisition , we also acquired 21,400 net leasehold and mineral acres in the delaware basin during 2018 , and as a result , at december 31 , 2018 , we held approximately 222,200 gross ( 132,000 net ) acres in southeast new mexico and west texas , primarily in the delaware basin , in lea and eddy counties , new mexico and loving county , texas . our average daily oil equivalent production for the year ended december 31 , 2018 was 52,128 boe per day , including 30,524 bbl of oil per day and 129.6 mmcf of natural gas per day , an increase of 34 % as compared to 38,936 boe per day , including 21,510 bbl of oil per day and 104.6 mmcf of natural gas per day , for the
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we expect to incur expenses in connection with the execution of our business transformation plan of approximately $ 150.0 million . these expenses are comprised of restructuring expenses of approximately $ 80.0 million and other expenses to implement the business transformation plan of $ 70.0 million . restructuring expenses associated with the business transformation plan included employee-related costs , which represent severance and other termination-related benefits , in fiscal 2015 . in future periods as we execute our business transformation plan , we also expect to incur contract termination expenses . of the $ 80.0 million of restructuring expenses we expect to incur in connection with the business transformation plan , $ 2.4 million was recognized as expense in fiscal 2015 with the remaining expense expected to be recognized through fiscal 2018. restructuring expenses were presented separately on the consolidated and combined statement of operations . restructuring expenses were recorded in the `` other '' segment , as these initiatives are predominantly centrally directed and are not included in internal measures of segment operating performance . 33 accruals for restructuring expenses were included within accrued expenses and other current liabilities on the consolidated balance sheet . the following table summarizes the cumulative fiscal 2015 activity for the restructuring related accruals : employee-related costs balance as of june 30 , 2014 $ — charges 2.4 cash payments — foreign exchange — balance as of june 30 , 2015 $ 2.4 in addition to the restructuring expenses discussed above , we expect to incur additional costs to implement the business transformation plan , including consulting , training , and other transition costs . we may also incur accelerated depreciation and or amortization expenses if the expected useful life of our assets is adjusted . while these costs are directly attributable to our business transformation plan , they were not included in restructuring expenses on our consolidated and combined statement of operations . of the $ 70.0 million of other business transformation expenses we expect to incur , $ 1.9 million was recognized as expense in fiscal 2015 with the remaining expense expected to be recognized through fiscal 2018. other business transformation expenses incurred in fiscal 2015 were comprised primarily of consulting expenses , were recorded in the other segment , and were included within selling , general and administrative expenses on our consolidated and combined statement of operations . sources of revenues and expenses revenues . we generally receive fee-based revenues by providing services to clients . in our arna and ari segments ( together , our “ automotive retail segments ” ) , we receive fees for software licenses , ongoing software support and maintenance of dealer management systems ( “ dmss ” ) , and other integrated solutions that are either hosted or installed on-site at the client 's location . we also receive revenues for installing on-site and hosted dms solutions and for training and consulting with clients , in addition to monthly fees related to hosting dms solutions in cases where clients outsource their information technology management activities to the company . in our arna segment , we also receive revenues on a fee per transaction processed basis , where we provide automotive retailers , primarily in the united states , solutions with third parties to process credit reports , vehicle registrations , and data updates . in our dm segment , revenues are primarily earned for advertising , search marketing , websites , and reputation management services delivered to automotive retailers and oems . we receive monthly recurring fees for services provided and we receive revenues for placement of automotive retail advertising . we also receive revenues for customization services and for training and consulting services . expenses . expenses generally relate to the cost of providing the services to clients in the three business segments . in the automotive retail segments , significant expenses include employee payroll and other labor related costs , the cost of hosting customer systems , third-party costs for transaction based solutions and licensed software utilized in our solution offerings , computer hardware , software , telecommunications , transportation and distribution costs , and other general overhead items . in the dm segment , significant expenses include third-party content for website and other internet-based offerings such as advertising placements , employee payroll and other labor-related costs , the cost of hosting customer websites , computer hardware , software , and other general overhead items . we also have some company-wide expenses attributable to management compensation and corporate overhead . potential material trends and uncertainties in our marketplace a number of material trends and or uncertainties in our marketplace could have either a positive or negative impact on our ability to conduct business , our results of operations , and or our financial condition . the following is a summary of trends or uncertainties that have the potential to effect our liquidity , capital resources , or results of operations : our revenues , operating earnings , and profitability have varied in the past as a result of these trends and uncertainties and are likely to continue to vary from quarter to quarter , which may lead to volatility in our stock price . these trends or uncertainties could occur in a variety of different areas of our business and the marketplace . changing market trends , including changes in the automotive marketplace , both in north america and internationally , could have a material impact on our business . from time to time , the economic trends of a region could have an impact on the volume of automobiles sold at retail within one or more of the geographic markets in which we operate . to some extent , our business is impacted by these trends , either directly through a shift in the number of transactions 34 processed by clients of our transactional business , or indirectly through changes in our clients ' spending habits based on their own changes in profitability . our presence in multiple markets internationally could pose challenges that would impact our business or results of operations . story_separator_special_tag we currently operate in over 100 countries and derive a significant amount of our overall revenue from markets outside of north america . the geographic breadth of our presence exposes us to potential economic , social , regulatory , and political shifts . our ability to bring new solutions to market , research and develop , or acquire the data and technology that enables those solutions is important to our continued success . during fiscal 2015 , 2014 , and 2013 , we incurred $ 170.1 million , $ 165.7 million , and $ 156.4 million , respectively , of expenses to research , develop , and deploy new and enhanced solutions for our clients . in addition , our strategy includes the selective pursuit of acquisitions that support or complement our existing technology and solution set . an inability to invest in the continued development of new solutions for the automotive marketplace , or an inability to acquire new technology or solutions due to a lack of liquidity or resources , could impair our strategic position . along with our development and acquisition expenditures , our success depends on our ability to maintain the security of our data and intellectual property , as well as our clients ' data . although we maintain a clear focus on data and system security , and we incur significant costs securing our infrastructure annually in support of that focus , we may experience interruptions of service or potential security issues that may be beyond our control . factors affecting comparability of financial results our separation from adp on april 9 , 2014 , the board of directors of adp approved the spin-off of the dealer services business of adp dealer services . on september 30 , 2014 , the spin-off became effective and adp distributed 100 % of the common stock of the company to the holders of record of adp 's common stock as of september 24 , 2014 ( the `` spin-off '' ) . historical adp cost allocations versus cdk as a stand-alone company our historical combined financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) . these financial statements include the combined financial condition and results of operations of the dealer services business of adp , which was the subject of the spin-off . the combined financial statements include allocated costs for facilities , functions , and services used by the company at shared adp sites and costs for certain functions and services performed by centralized adp organizations and directly charged to the company based on usage . specifically , these costs were allocated by adp to the company as follows : cost of certain systems , such as for procurement and expense management , which were supported by adp 's corporate information technology group , were allocated based on the approximate usage of information technology systems by the company in relation to adp 's total usage ; corporate human resources costs were allocated based on the estimated percentage of usage by the company , including benefits , recruiting , global learning and development , employee relocation services , and other human resources shared services ; travel department costs were allocated based on the estimated percentage of travel directly related to the company ; security department costs were allocated based on the estimated percentage of usage of security for the company in relation to adp 's total security usage ; real estate department costs were allocated based on the estimated percentage of square footage of facilities for the company that were managed by the adp corporate real estate department in relation to adp 's total managed facilities ; and all other allocations were based on an estimated percentage of support staff time related to the company in comparison to adp as a whole . 35 although we believe these allocation methods are reasonable , we also believe , for the reasons discussed below , that the historical allocation of adp 's expenses to the company may be significantly less than the actual costs we will incur as an independent public company . size and influence of adp . we generally benefited from the size of adp in negotiating many of our overhead costs and were able to leverage the adp business as a whole in obtaining favorable pricing . adp is a larger company than we are and , as such , is capable of negotiating large volume discounts . as a stand-alone company , we also seek discounts , but our discounts may be less favorable because of lower volumes . shared corporate overhead . as a division of adp , we were historically managed by the senior management of adp . moreover , adp performed all public company obligations , including : compensation of corporate headquarters management and of directors ; corporate finance functions including accounting , treasury , internal audit , investor relations , and tax ; annual meetings of stockholders ; board of directors and committee meetings ; exchange act annual , quarterly , and current report preparation and filing , including reports to stockholders ; sec and stock exchange corporate governance compliance ; stock exchange listing fees and transfer agent fees ; and directors and officers insurance . as an independent public company , these obligations are ours and we bear all of these expenses directly . the historical allocation of adp 's expenses to the company may be significantly less than the actual costs we will incur as an independent public company . in addition to public company expenses , other general overhead transactions were handled for us by adp , such as data center services , which , after the spin-off are still provided by adp , but will be transitioned to us by the end of the second year following the spin-off date based on the terms of agreements entered into with adp . new financing we entered into debt financing arrangements in connection with the spin-off .
| ( 6 ) restructuring expense recognized in connection with our business transformation plan in fiscal 2015 . other business transformation expenses are included within selling , general and administrative expenses and were incurred in connection with our business transformation plan in fiscal 2015 . 41 ( 7 ) loss recorded in other income , net associated with an indemnification liability to adp for pre spin-off tax refunds in accordance with the tax matters agreement . ( 8 ) income tax effect of pre-tax adjustments including separation costs , which were partially tax deductible in fiscal 2015 and were not tax deductible in fiscal 2014 , and the tax effect of the internet sales leads business . ( 9 ) adjustment recognized in the second quarter of fiscal 2015 to deferred taxes related to the bonus depreciation to which adp is entitled under the tax law and in accordance with the tax matters agreement to claim additional tax depreciation for assets associated with our business for tax periods prior to our separation from adp . ( 10 ) income tax benefit associated with a valuation allowance adjustment recognized during the third quarter of fiscal 2014 . ( 11 ) net income tax expense recognized as a result of the filing of pre spin-off tax returns , including a tax benefit for refunds related to the loss in ( 7 ) above . adjusted revenues . adjusted revenues for fiscal 2015 were $ 2,017.3 million , an increase of $ 111.7 million , or 6 % , as compared to $ 1,905.6 million in fiscal 2014 . the increase in adjusted revenues is primarily due to increased revenues in our reportable segments as further discussed below excluding the effect of revenues related to the internet sales leads business . adjusted revenues for fiscal 2015 increased by 8 % on a constant currency basis as shown in the table below . adjusted revenues were impacted by the same currencies discussed above in the discussion of revenues . replace_table_token_9_th adjusted earnings before income
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production of our bottled water product began in april 2013 , but , shortly thereafter , production was suspended indefinitely , due to issues with the production facility and the institution of a lawsuit against tianquan soda water by a contractor involved in the construction of the production facility . during the last quarter of fiscal 2017 , our management determined not to re-start bottling operations at the tianquan soda water production facility and our management has begun to take actions necessary for the sale of the tianquan soda water production facility . no prediction can be made regarding the timing of the sale of the plant or if any such sale will ever occur . story_separator_special_tag of approximately $ 4,400,000 related to the tax assessment made by the government and other costs directly associated with the settlement . no similar item was recorded during fiscal 2017. loss on disposal of securities available for sale . loss on disposal of securities available for sale decreased to $ 19,336 for fiscal 2017 from $ 30,404 for fiscal 2016. this decrease is attributable to a decrease in the loss associated with the liquidation of funds held in one of our investment accounts . other income . other income increased to $ 57,611during fiscal 2017 compared to $ 30,562 for fiscal 2016. other income increased due to increased sales of expired products . income tax expenses ( benefit ) . in december 2013 , the irs concluded its audit of our company tax returns for the years 2007 through 2010 and issued an examination report that proposed adjustments of approximately $ 12.3 million of additional tax liabilities for the years 2008 through 2010. as a result of this report , we increased our income tax liability to approximately $ 8.6 million during the quarter ended december 31 , 2013. even though we increased our income tax provision as a result of this irs report , we continued to challenge the irs 's findings . after reviewing further information provided by us subsequent to the issuance of its original report , the irs reversed its position on a major issue and issued a revised report which significantly reduced the amount of tax we owed . we then revised our provision for income taxes and reversed approximately $ 4.1 million of the original provision recorded previously . accordingly , income tax benefit of $ 4,079,612 was recorded for fiscal 2016 . 26 for fiscal 2017 , the internal revenue service has abated the company 's tax penalty for 2008 of $ 19,785 as part of a settlement agreement whereby the company has agreed to pay the 2009 penalty and interest . accordingly , income tax benefit of $ 15,927 was recorded . liquidity and capital resources the information set forth in the following table is derived from our consolidated statements of cash flows for fiscal 2017 and fiscal 2016 , and summarizes our sources and ( uses ) of cash . replace_table_token_3_th cash flows from operating activities . for fiscal 2017 , our operating activities used $ 5,006,500 in cash primarily due to our net loss of $ 9,453,672 adjusted by non-cash related expenses that included depreciation expense of $ 195,039 , losses realized from sales of securities available for sale of $ 19,336 , a provision for inventory obsolescence of $ 47,965 , impairment loss of $ 6,250,367 and a net decrease in working capital items of $ 2,065,535. for fiscal 2016 , our operating activities provided $ 10,669,460 in cash , due primarily to net income of $ 8,297,294 adjusted by non-cash related expenses that included depreciation expense of $ 177,442 , loss on disposal of fixed assets of $ 11,432 , losses realized from sales of securities available for sale of $ 30,404 , a provision for inventory obsolescence of $ 25,612 and a net increase in working capital items of $ 7,418,064 , which were offset by the settlement of previously accrued income tax , penalty and interest of $ 5,290,788. cash flows from investing activities . for fiscal 2017 , our investing activities provided $ 1,790,757 in cash . $ 1,000,000 of such amount was the return of an advance made to our president during the last quarter of fiscal 2016. the proceeds from the sales of corporate bonds provided cash of $ 797,650 for investing activities . for fiscal 2016 , our investing activities used $ 9,005,336 in cash , primarily due to a property transfer of $ 9,300,890 pursuant to a settlement agreement , which was partially offset by the proceeds from the sales of corporate bonds of $ 1,342,339. also , in february 2016 , we advanced $ 1,000,000 to our president for the prepayment of certain anticipated business development expenses related to activities planned by our company . the $ 1,000,0000 advance was returned to us during the first quarter of fiscal 2017 , when it was determined that none of the previously anticipated expenses were to be incurred . cash flows from financing activities . for fiscal 2017 , our financing activities provided $ 424,192 in cash . our repayment of $ 258,308 of a short-term loan for financing of our current year directors ' and officers ' liability insurance policy was offset by an increase in related-party payables by $ 682,500. for more information about the insurance policy , please see note 11 in the accompanying consolidated financial statements . for fiscal 2016 , our financing activities used $ 481,352 in cash , due to the repayment of a short-term loan for financing a directors ' and officers ' liability insurance policy . working capital ( deficiency ) . the information set forth in the following table is derived from our consolidated balance sheets at march 31 , 2017 and 2016 , and summarizes our working capital position . 27 replace_table_token_4_th historically , cash and cash equivalents and securities available for sale have been our primary sources of liquidity . story_separator_special_tag however , we believe our existing cash and cash equivalents will not be sufficient to meet our working capital requirements for the next 12-month period , unless we are able to sell our building located in taipei , taiwan , which was received as part of a settlement agreement . we recently began the efforts necessary to sell this property . our overall working capital position worsened from march 31 , 2016 , to march 31 , 2017 , from a working capital deficiency of $ 9,774,297 at march 31 , 2016 , to a working capital deficiency of $ 12,749,561 at march 31 , 2017. this worsening in our working capital deficiency was the result of a decrease in cash and cash equivalents . we can not assure you that we will be able to obtain further funds required for our continued working capital requirements . our ability to meet our financial obligations and commitments will depend primarily upon the continued financial support of our directors and shareholders , potential issuances of equity to new shareholders and our ability to re-establish and maintain profitable operations , of which there is no assurance . our auditor has issued a going concern opinion with respect to our consolidated financial statements for the years ended march 31 , 2017 and 2016. this means that there is substantial doubt that we can continue as an on-going business for the next twelve months . our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and or obtain the necessary financing to meet our obligations and repay or liabilities arising from normal business operations when they come due . to finance our operating costs over the next twelve months , we intend to use our current cash on hand , sell the c1 building in taiwan , if possible , or by obtaining financing in the form of equity , debt or a combination thereof . capital expenditures during fiscal 2017 and fiscal 2016 , we made no material capital expenditure . currently , we do not have any commitments for any material capital expenditures , nor do we have any commitments or arrangements from any person to provide our company with any additional capital . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are reasonably likely to have , a current or future effect on our financial condition . recent accounting pronouncements in july 2015 , fasb issued asu 2015-11 , “ simplifying the measurement of inventory ” . this asu applies to inventory that is measured using the first-in , first-out ( “ fifo ” ) or average cost method . under the updated guidance , an entity should measure inventory that is within scope at the lower of cost and net realizable value , which is the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal and transportation . subsequent measurement is unchanged for inventory that is measured using the last-in , first-out ( “ lifo ” ) or retail inventory method . this asu is effective for annual and interim periods beginning after december 15 , 2016 , and should be applied prospectively with early adoption permitted at the beginning of an interim and annual reporting period . the adoption of this guidance is not expected to have a material impact on our consolidated financial statements and related disclosures . in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) . under this guidance , lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases , with the exception of short-term leases . the lease liability represents the lessee 's obligation to make lease payments arising from a lease , and will be measured as the present value of the lease payments . the right-of-use asset represents the lessee 's right to use a specified asset for the lease term , and will be measured at the lease liability amount , adjusted for lease prepayment , lease incentives received and the lessee 's initial direct costs . the standard also requires a lessee to recognize a single lease cost allocated over the lease term , generally on a straight-line basis . the new guidance is effective for fiscal years beginning after december 15 , 2018. asu 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients . early adoption is permitted . we are currently evaluating the effects that the adoption of asu 2016-02 will have on our consolidated financial statements . 28 in march 2016 , fasb issued asu 2016-08 , “ revenue from contract with customers - principal versus agent considerations ( reporting revenue gross versus net ) ” . the core principle of this asu is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the intention of this asu is to improve the operability and understandability of the implementation guidance on principal versus agent considerations . this asu is effective for annual and interim periods beginning on or after december 15 , 2017 , and early adoption will be permitted , but not earlier than annual and interim periods beginning on or after december 15 , 2016 , for public entities . we are currently evaluating the potential impact of adopting this new standard on our consolidated financial statements and related disclosures . in may 2016 , fasb issued asu 2016-12 , “ revenue from contracts with customers ( topic 606 ) - narrow-scope improvements and practical expedients ” .
| shipping costs consist of freight charges from our u.s. warehouse and from our third-party manufacturers and vendors to our logistic facility in china . for fiscal 2017 , shipping costs decreased to $ 1,753 from $ 18,140 for fiscal 2016. this decline is attributable to the reduction in sales revenue from fiscal 2016 to fiscal 2017. gross profit . gross profit was $ 106,421 for fiscal 2017 compared to $ 203,357 for fiscal 2016. gross profit , as a percentage of total sales revenue , was 39 % for fiscal 2017 compared to 46 % for fiscal 2016. the decrease in gross profit and gross profit as a percentage of revenue was due to a reduction in gross sales for fiscal 2017. selling , general and administrative expenses . selling , general and administrative expenses decreased to $ 2,842,496 for fiscal 2017 compared to $ 5,883,322 for fiscal 2016. the reduction in selling , general and administrative expenses for fiscal 2017 was due primarily to the significant reduction in legal fees , as all but one of our ongoing legal proceedings came to final determinations . 25 impairment of land and building . at march 31 , 2017 , we had determined that the fair value of our c1 building in taipei , taiwan , had decreased significantly , due to weakness in the taiwanese real estate market . in accordance with such determination , an asset impairment loss of $ 5,615,398 was recorded for fiscal 2017. no similar item was recorded during fiscal 2016. impairment of water plant . at march 31 , 2017 , we had determined that the fair value of our water plant in heilongjiang province , china , had decreased significantly . in accordance with such determination , an asset impairment loss of $ 634,969 was recorded for fiscal 2017. no similar item was recorded during fiscal 2016. inventory obsolescence . inventory obsolescence increased to $ 47,965 for fiscal 2017 compared to $ 25,612 for fiscal 2016. during fiscal 2017 , the level of inventory obsolescence increased from fiscal 2016 , due a continued slowdown in sales of
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cost of sales . cost of sales for 2011 increased 40 percent to $ 5.09 billion from $ 3.64 billion in 2010. more than half of this increase reflects costs associated with sales of products from acquired operations for the first nine months of 2011. the remainder of the increase was driven principally by higher corn costs and , to a lesser extent , currency translation . currency translation caused cost of sales for 2011 to increase approximately 2 percent from 2010 , reflecting the impact of stronger foreign currencies . gross corn costs per ton for 2011 increased approximately 36 percent from 2010 , driven by higher market prices for corn . our gross profit margin for 2011 was 18 percent , compared to 17 percent in 2010 , reflecting the impact of the acquired national starch operations and improved product selling prices . 27 selling , general and administrative expenses . selling , general and administrative ( sg & a ) expenses for 2011 increased to $ 543 million from $ 370 million in 2010. this increase primarily reflects sg & a expenses of the acquired national starch operations . additionally , higher compensation-related costs and stronger foreign currencies also contributed to the increase in sg & a expenses . currency translation caused operating expenses for 2011 to increase approximately 1 percent from 2010 , reflecting the impact of stronger foreign currencies . sg & a expenses for 2011 represented 9 percent of net sales , up from 8 percent in 2010. without integration and acquisition costs , sg & a expenses , as a percentage of net sales , would have been 8 percent in both 2011 and 2010. other income-net . other income-net of $ 98 million for 2011 increased from other income-net of $ 10 million in 2010. this increase primarily reflects the $ 58 million nafta award received from the government of the united mexican states in the first quarter of 2011 and a $ 30 million gain associated with a fourth quarter 2011 postretirement benefit plan change . operating income . a summary of operating income is shown below : replace_table_token_3_th operating income for 2011 increased to $ 671 million from $ 339 million in 2010. operating income for 2011 includes the $ 58 million nafta award , a $ 30 million gain from a change in a postretirement plan , $ 31 million of costs pertaining to the integration of national starch and a $ 10 million restructuring charge to reduce the carrying value of certain equipment in connection with our north american manufacturing optimization plan . operating income for 2010 included acquisition-related costs of $ 35 million , impairment/restructuring charges of $ 25 million and the flow through of $ 27 million of costs associated with acquired national starch inventory that was marked up to fair value at the acquisition date in accordance with business combination accounting rules . without the nafta award , the gain from the change in the postretirement plan and the integration and restructuring costs in 2011 and the impairment , restructuring , inventory mark-up charge and acquisition-related costs in 2010 , operating income for 2011 would have increased 46 percent over the prior year , as earnings grew in each of our segments . this increase was driven by earnings contributed during the first nine months of 2011 from the acquired national starch operations and , to a lesser extent , organic earnings growth in each of our segments principally driven by improved product pricing . currency translation associated with stronger foreign currencies caused operating income to increase by approximately $ 4 million from 2010. north america operating income increased 30 percent to $ 322 million from $ 249 million in 2010. approximately one-fourth of this growth was attributable to income for the first nine months of 2011 from acquired operations . the remaining increase was primarily driven by higher product selling prices . currency translation associated with the stronger canadian dollar caused operating income to increase by approximately $ 3 million in north america . south america operating income increased 24 percent to $ 203 million from $ 163 million in 2010. higher product selling prices drove this earnings growth . asia pacific operating income almost tripled to $ 79 million from $ 28 million in 2010 , 28 driven by earnings from acquired operations . without the earnings from acquired operations , operating income in the segment , on a comparable basis , would have grown approximately 5 percent from a year ago . this increase primarily reflects higher product selling prices and favorable currency translation . stronger foreign currencies ( particularly the korean won ) caused operating income to increase by approximately $ 1 million in the asia pacific . emea operating income more than doubled to $ 84 million , from $ 37 million in 2010 , due in large part to earnings from acquired operations . without the earnings from acquired operations , operating income , on a comparable basis , would have grown approximately 29 percent from a year ago , primarily driven by higher product selling prices and organic volume growth . while energy infrastructure in pakistan remains problematic , we installed equipment to help mitigate this issue in 2012. financing costs-net . financing costs-net increased to $ 78 million in 2011 from $ 64 million in 2010. the year ago period included a $ 20 million charge for bridge loan financing fees related to the acquisition of national starch . without this charge in 2010 , financing costs for 2011 would have increased approximately 76 percent . this increase primarily reflects interest expense on our higher average borrowings due to the national starch acquisition . provision for income taxes . our effective tax rate was 28.7 percent in 2011 , as compared to 36.1 percent in 2010. our effective income tax rate for 2011 includes the benefit of the one-time recognition of tax free income related to the nafta award in pretax income , which lowered our effective income tax rate by 3.5 percent . story_separator_special_tag our 2010 effective income tax rate included the impacts of the national starch acquisition costs and the chilean charges for impaired assets and other related costs and an increase in the valuation allowance for chile . the 2011 impact of national starch acquisition costs , and changes to the chilean valuation allowance were not material . without the impact of the items described above , our effective tax rates for 2011 and 2010 would have been approximately 32 percent and 33 percent , respectively . see also note 8 of the notes to the consolidated financial statements . net income attributable to non-controlling interests . net income attributable to non-controlling interests was $ 7 million in 2011 , consistent with 2010. comprehensive income . we recorded comprehensive income of $ 193 million in 2011 , as compared with $ 287 million in 2010. the decrease primarily reflects unfavorable currency translation attributable to weaker foreign currencies and losses on cash flow hedges , which more than offset our net income growth . the unfavorable variances in the currency translation adjustment reflect a weakening in end of period foreign currencies relative to the us dollar in 2011 , as compared to a year ago when end of period foreign currencies had strengthened . 2010 compared to 2009 net income attributable to cpi . net income attributable to cpi for 2010 more than quadrupled to $ 169 million , or $ 2.20 per diluted common share , from 2009 net income of $ 41 million , or $ 0.54 per diluted common share . our results for 2010 include $ 14 million of after-tax charges for bridge loan and other financing costs ( $ 0.18 per diluted common share ) , after-tax acquisition-related costs of $ 26 million ( $ 0.34 per diluted common share ) , after-tax costs of $ 18 million ( $ 0.23 per diluted common share ) relating to the sale of national starch inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules , and after-tax restructuring charges of $ 22 million ( $ 0.29 per diluted common share ) for impaired assets and other costs primarily associated with the closing of our plant in chile . our 2009 results include an after-tax charge of $ 110 million ( $ 1.47 per diluted common share ) for impaired assets and restructuring costs . see also note 4 of the notes to the consolidated financial statements for additional information pertaining to the asset impairments and restructurings . without the bridge loan and other financing costs , and the impairment , restructuring and acquisition-related charges , net income for 2010 would have grown 65 percent over 2009 , while our diluted earnings per common share would have risen 61 percent . this net income growth primarily reflects an increase in operating income across all of our segments principally driven by organic sales volume growth , improved plant utilization rates , lower corn costs , stronger foreign currencies and the earnings from the acquired national starch operations . 29 net sales . net sales for 2010 increased to $ 4.37 billion from $ 3.67 billion in 2009 , as sales grew in each of our segments . a summary of net sales by reportable business segment is shown below : replace_table_token_4_th the increase in net sales reflects a 21 percent volume improvement and favorable currency translation of 4 percent due to stronger foreign currencies , which more than offset a price/product mix decline of 6 percent primarily reflecting the normal relationship between lower corn costs and a corresponding decline in selling prices . net sales from the acquired national starch operations totaled $ 351 million , representing approximately 10 percent of our 19 percent sales increase . additionally , we had strong organic volume growth across all of our segments and particularly in our international businesses . co-product sales of approximately $ 781 million for 2010 increased 16 percent from $ 673 million in 2009 , as improved volume and currency translation more than offset lower selling prices . co-product sales from acquired operations contributed approximately $ 22 million , or 3 percent , of the increase . sales in north america increased 8 percent driven by sales contributed by the acquired national starch operations . without the acquired operations , net sales in north america would have been flat as a 10 percent volume improvement and a 2 percent increase attributable to currency translation was offset by a price/product mix decline of 12 percent . volumes grew across the segment , led by strong organic growth in mexico where demand for sweeteners from the beverage industry was particularly strong . improved demand in canada and the us also contributed to the organic volume growth in north america . sales in south america increased 23 percent , as volume growth of 14 percent driven by strong demand from various industries and favorable currency translation of 10 percent more than offset a price/product mix decline of 1 percent . sales from acquired operations contributed 2 percent of the sales growth in the segment . asia pacific sales increased 86 percent , driven in part by sales contributed by acquired operations . without the acquired operations , asia pacific net sales would have increased 46 percent , reflecting volume growth of 31 percent , primarily driven by significantly higher demand for sweeteners in south korea , price/product mix improvement of 3 percent and a 12 percent benefit from currency translation associated with stronger asian currencies . emea sales increased 60 percent , driven in part by sales contributed by acquired operations . without the acquired operations , emea net sales would have increased 16 percent , reflecting price/product mix improvement of 16 percent and volume growth of 4 percent , both of which were driven by improved operations in pakistan , which more than offset a 4 percent decline from currency translation attributable to weaker foreign currencies . cost of sales .
| net income attributable to cpi for 2011 more than doubled to $ 416 million , or $ 5.32 per diluted common share , from 2010 net income of $ 169 million , or $ 2.20 per diluted common share . our results for 2011 include a $ 58 million nafta award ( $ 0.75 per diluted common share ) received from the government of the united mexican states ( see note 13 of the notes to the consolidated financial statements for additional information ) and an after-tax gain of $ 18 million ( $ 0.23 per diluted common share ) pertaining to a change in a postretirement plan ( see note 9 of the notes to the consolidated financial statements for additional information ) . additionally , our 2011 results include after-tax costs of $ 21 million ( $ 0.26 per diluted common share ) relating to the integration of national starch and after-tax restructuring charges of $ 7 million ( $ 0.08 per diluted common share ) associated with our manufacturing optimization plan in north america . our 2010 results include after-tax acquisition-related costs of $ 26 million ( $ 0.34 per diluted common share ) , after-tax restructuring charges of $ 22 million ( $ 0.29 per diluted common share ) for impaired assets and other costs primarily associated with the closing of our plant in chile , after-tax costs of $ 18 million ( $ 0.23 per diluted common share ) relating to the sale of national starch inventory that was adjusted to fair value at the acquisition date in accordance with business combination accounting rules and after-tax charges of $ 14 million for bridge loan and other financing costs ( $ 0.18 per diluted common share ) related to the acquisition of national starch . see also note 4 of the notes to the consolidated financial statements for additional information pertaining to the asset impairments and restructurings . without the integration costs , restructuring charges , the nafta award , and the gain from the postretirement plan change in 2011 and the impairment , restructuring , acquisition-related costs and bridge loan and other financing expenses in 2010 , net income for 2011 would have grown
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we plan on generating revenue by licensing our product to refrigerator manufacturing companies . we expect to negotiate our compensation based on a percentage of the price of every refrigerator sold with our technology . at this time , we have not developed our product or contacted any possible client or developer . the company has not yet implemented its business model and to date , has generated no revenues . cold cam has no plans to change its business activities or to combine with another business and is not aware of any circumstances or events that might cause this plan to change . plan of operation over the 12 month period , provided we have raised enough funds , we expect to start generating revenue after completing the steps described below . the expenses referenced herein , including the costs for the materials and equipment , were estimated based on the president 's personal expectations and it is not based in any market research or third party professional 's opinion . for this reason , there is no certainty that the amounts disclosed will be sufficient to accomplish the objectives listed herein . further , we do not know how our prototype will look or operate or what materials and equipment will be needed , as we have not yet hired or contacted any possible developer . however , the company 's president has a vision for the products end use , look and feel . the product , it is essentially 3 major components , a camera , a computer pad and some specific software application . there are many manufactures of various tablet style computers in both china and taiwan , these are readily available in small volume and at reasonable costs , as well the same goes for the camera . the company does intend to hire overseas application developer to write our application , we will support only the android operating system as it allows for the widest choice of compatible tablet technology . the company 's president has done further research on the possibility of using bluetooth technology to eliminate the requirements of wires between the tablet and the camera allowing for easier installation and the possible installation for existing fridges . 1. searching for and hiring a developer ( length 2 months ) : we plan on searching for a capable developer for our product . we intend to interview the prospected developers , negotiate payment according to our available funds and hire the most suitable one . the company 's president will be responsible for all the research , negotiations and hiring third party developer ( s ) . we plan to search of developers and meeting expenses . we plan on placing paid classified ads , on the internet and newspapers . 2. product development and testing ( length 9 months ) : after hiring a developer , we plan on purchasing the necessary materials and equipment according to the developer 's needs ( such as : tools , wires , touch screens and or tablets , cameras , etc ) . the company 's president will be responsible for all the shopping and purchasing . we intend to allocate the costs to pay the developer and for purchasing materials and equipment . we do not expect to rent space . we do not plan to manufacture products , such as the camera , connection wires or touch screens . we intend to develop specific software for our product needs . our goal is to assemble a functional prototype using existing components and technologies . for this reason , it is possible that it will be some costs related to intellectual property rights and or licensing costs from the equipment and parts used in our prototype for large manufacturing . we do not expect to have to pay for licensing or to intellectual property rights costs because we will not manufacture this product in large scale . having to pay for licensing and to intellectual property rights would be responsibility of the refrigerator manufacturing company to which we would license our products . 5 3. selling/licensing process ( length 1 month ) : once we have our prototype developed , our goal is to present it to refrigerator manufacturing companies . we intend to develop our website and produce printing material with professional photos . the initial contact would be made via mail , email and phone calls . the company 's president will be responsible for hiring professional photo shoots . he would also be in charge of the mailing , emailing and phone calls to prospected buyers . the website would be developed by a contracted company or individual , according to the president 's decision and based on the funds available . we expect to start generating revenue after the successful accomplishment of this step and the steps described above , considering that we can find and close a deal with a possible client . 4. office supplies and related costs ( length 12 months ) : funds to be used for office supplies , internet and telephone bills . we plan on reserving amounts to pay for office costs . story_separator_special_tag condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . critical accounting policies and estimates we prepare our financial statements in conformity with generally accepted accounting principles in the united states ( `` gaap '' ) , which requires management to make certain estimates and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared . on a regular basis , we review our accounting policies and how they are applied and disclosed in our financial statements . while we believe that the historical experience , current trends and other factors story_separator_special_tag we plan on generating revenue by licensing our product to refrigerator manufacturing companies . we expect to negotiate our compensation based on a percentage of the price of every refrigerator sold with our technology . at this time , we have not developed our product or contacted any possible client or developer . the company has not yet implemented its business model and to date , has generated no revenues . cold cam has no plans to change its business activities or to combine with another business and is not aware of any circumstances or events that might cause this plan to change . plan of operation over the 12 month period , provided we have raised enough funds , we expect to start generating revenue after completing the steps described below . the expenses referenced herein , including the costs for the materials and equipment , were estimated based on the president 's personal expectations and it is not based in any market research or third party professional 's opinion . for this reason , there is no certainty that the amounts disclosed will be sufficient to accomplish the objectives listed herein . further , we do not know how our prototype will look or operate or what materials and equipment will be needed , as we have not yet hired or contacted any possible developer . however , the company 's president has a vision for the products end use , look and feel . the product , it is essentially 3 major components , a camera , a computer pad and some specific software application . there are many manufactures of various tablet style computers in both china and taiwan , these are readily available in small volume and at reasonable costs , as well the same goes for the camera . the company does intend to hire overseas application developer to write our application , we will support only the android operating system as it allows for the widest choice of compatible tablet technology . the company 's president has done further research on the possibility of using bluetooth technology to eliminate the requirements of wires between the tablet and the camera allowing for easier installation and the possible installation for existing fridges . 1. searching for and hiring a developer ( length 2 months ) : we plan on searching for a capable developer for our product . we intend to interview the prospected developers , negotiate payment according to our available funds and hire the most suitable one . the company 's president will be responsible for all the research , negotiations and hiring third party developer ( s ) . we plan to search of developers and meeting expenses . we plan on placing paid classified ads , on the internet and newspapers . 2. product development and testing ( length 9 months ) : after hiring a developer , we plan on purchasing the necessary materials and equipment according to the developer 's needs ( such as : tools , wires , touch screens and or tablets , cameras , etc ) . the company 's president will be responsible for all the shopping and purchasing . we intend to allocate the costs to pay the developer and for purchasing materials and equipment . we do not expect to rent space . we do not plan to manufacture products , such as the camera , connection wires or touch screens . we intend to develop specific software for our product needs . our goal is to assemble a functional prototype using existing components and technologies . for this reason , it is possible that it will be some costs related to intellectual property rights and or licensing costs from the equipment and parts used in our prototype for large manufacturing . we do not expect to have to pay for licensing or to intellectual property rights costs because we will not manufacture this product in large scale . having to pay for licensing and to intellectual property rights would be responsibility of the refrigerator manufacturing company to which we would license our products . 5 3. selling/licensing process ( length 1 month ) : once we have our prototype developed , our goal is to present it to refrigerator manufacturing companies . we intend to develop our website and produce printing material with professional photos . the initial contact would be made via mail , email and phone calls . the company 's president will be responsible for hiring professional photo shoots . he would also be in charge of the mailing , emailing and phone calls to prospected buyers . the website would be developed by a contracted company or individual , according to the president 's decision and based on the funds available . we expect to start generating revenue after the successful accomplishment of this step and the steps described above , considering that we can find and close a deal with a possible client . 4. office supplies and related costs ( length 12 months ) : funds to be used for office supplies , internet and telephone bills . we plan on reserving amounts to pay for office costs . story_separator_special_tag condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . critical accounting policies and estimates we prepare our financial statements in conformity with generally accepted accounting principles in the united states ( `` gaap '' ) , which requires management to make certain estimates and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared . on a regular basis , we review our accounting policies and how they are applied and disclosed in our financial statements . while we believe that the historical experience , current trends and other factors
| cash flow from financing activities during the year ended october , 2014 , the company received $ 17,990 by way of a non-interest bearing , demand loan from an officer , compared to $ 4,120 proceeds received from the issuance of common shares to unaffiliated investors and $ 4,029 non-interest bearing demand loan received from an officer during the year ended october 31 , 2013. we had no material commitments for capital expenditures as at october 31 , 2014 , and 2013. we have no known demands or commitments , and we are not aware of any events or uncertainties as at october 31 , 2014 , that will result in or that is reasonably likely to materially increase or decrease our current liquidity . going concern our auditors ' report on our october 31 , 2014 , and 2013 financial statements expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business . since our officer and director may be unwilling or unable to loan or advance us additional capital , we believe that if we do not raise additional capital over the next 12 months , we may be required to suspend or cease the implementation of our business plans . see `` october 31 , 2014 audited financial statements – report of independent registered accounting firm . '' 8 if cold cam is unsuccessful in raising the additional proceeds through a private placement offering it will then have to seek additional funds through debt financing , which would be highly difficult for a new development stage company to secure . therefore , the company is highly dependent upon the success of the anticipated private placement offering and failure thereof would result in the company having to seek capital from other sources such as debt financing , which may be available . however , if such financing were available , because cold cam is a development stage company with no operations to date , it would likely have to pay additional costs associated with high risk loans and be subject to an above
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may occur in any given year , but are not consistent from year to year . the effective tax rate for fiscal 2015 was 29.3 % compared to 34.6 % for fiscal 2014 . the decrease in the rate for fiscal 2015 was primarily due to the 3.7 % impact of the gain associated with the remeasurement of our preexisting 39.5 % ownership interest in starbucks japan upon acquisition , which was almost entirely non-taxable , as well as the 1.5 % incremental tax benefit related to domestic manufacturing deductions claimed in fiscal 2015 on u.s. corporate income tax returns for fiscal years 2010 through 2015 . 25 segment information results of operations by segment ( in millions ) : americas replace_table_token_13_th revenues americas total net revenues for fiscal 2015 increased $ 1.3 billion , or 11 % , primarily due to increased revenues from company-operated stores ( contributing $ 1.1 billion ) and licensed stores ( contributing $ 260 million ) . the increase in company-operated store revenues was driven by a 7 % increase in comparable store sales ( approximately $ 745 million ) , as well as incremental revenues from 318 net new starbucks ® company-operated store openings over the past 12 months ( approximately $ 455 million ) . partially offsetting these increases was unfavorable foreign currency translation ( approximately $ 139 million ) , primarily driven by the strengthening of the u.s. dollar against the canadian dollar . the increase in licensed store revenues was primarily due to higher product sales to and royalty revenues from our licensees , resulting from increased la boulange food sales to our licensees beginning in the first quarter of fiscal 2015 , as well as the opening of 317 net new licensed stores over the past 12 months and improved comparable store sales . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 110 basis points , primarily driven by leverage on cost of sales ( approximately 60 basis points ) , lower commodity costs ( approximately 30 basis points ) , mainly dairy , and sales leverage on occupancy costs ( approximately 30 basis points ) . store operating expenses as a percentage of total net revenues increased 10 basis points . as a percentage of company-operated store revenues , store operating expenses increased 50 basis points , primarily driven by increased investments in store partners ( employees ) and digital platforms related to in-store initiatives ( approximately 130 basis points ) , partially offset by sales leverage ( approximately 100 basis points ) . other operating expenses as a percentage of total net revenues increased 10 basis points . excluding the impact of company-operated store revenues , other operating expenses were flat , primarily driven by sales leverage ( approximately 60 basis points ) , offset by the impairment of certain assets in the region ( approximately 60 basis points ) . depreciation and amortization expenses as a percentage of total revenues were flat , primarily driven by sales leverage ( approximately 10 basis points ) , offset by incremental costs from investments in our existing store portfolio ( approximately 10 basis points ) . the combination of these changes resulted in an overall increase in operating margin of 80 basis points over fiscal 2014 . 26 china/asia pacific replace_table_token_14_th discussion of our china/asia pacific segment results below reflects the impact of fully consolidating starbucks japan due to the ownership change from an equity method joint venture to a company-operated market since the acquisition date of october 31 , 2014. under the joint venture model , we recognized royalties and product sales within revenue and related product cost of sales as well as our proportionate share of starbucks japan 's net earnings , which we recognized within income from equity investees . this resulted in a lower gross margin and a very high operating margin . under the company-operated ownership model , starbucks japan 's operating results are reflected in most income statement lines of this segment and have an operating margin more in line with that of our other retail businesses . revenues china/asia pacific total net revenues for fiscal 2015 increased $ 1.3 billion , or 112 % , largely due to increased revenues from company-operated stores ( approximately $ 1.3 billion ) . the increase in company-operated store revenues was primarily driven by incremental revenues from the acquisition of starbucks japan ( approximately $ 1.1 billion ) . also contributing were incremental revenues from the opening of 247 net new company-operated stores over the past 12 months ( approximately $ 160 million ) and a 9 % increase in comparable store sales ( approximately $ 74 million ) . licensed store revenues decreased $ 6 million , primarily due to our ownership change in starbucks japan to mostly company-operated stores ( approximately $ 45 million ) . this decrease was partially offset by increased product sales to and royalty revenues from licensees ( approximately $ 27 million ) , resulting from the opening of 520 net new licensed store openings over the past 12 months , improved comparable store sales , and incremental revenues from the ownership changes in australia and malaysia ( approximately $ 17 million ) in the fourth quarter of fiscal 2014. operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 380 basis points , primarily due to the impact of our ownership change in starbucks japan ( approximately 230 basis points ) and the shift in our cost of sales mix resulting from growth of company-operated stores , which have a higher gross margin ( approximately 50 basis points ) . sales leverage ( approximately 40 basis points ) also contributed . store operating expenses as a percentage of total net revenues increased 590 basis points . story_separator_special_tag as a percentage of company-operated store revenues , store operating expenses increased 300 basis points , primarily driven by the impact of our ownership change in starbucks japan ( approximately 410 basis points ) , partially offset by the sale of our australia retail operations in the fourth quarter of fiscal 2014 ( approximately 70 basis points ) and sales leverage ( approximately 50 basis points ) . other operating expenses as a percentage of total net revenues decreased 160 basis points . excluding the impact of company-operated store revenues , other operating expenses increased 540 basis points , primarily due to the impact of our ownership change in starbucks japan ( approximately 350 basis points ) as well as increased salaries and benefits largely due to increased headcount to support growth in our china market ( approximately 150 basis points ) . 27 depreciation and amortization expenses as a percentage of total revenues increased 220 basis points , primarily due to the impact of our ownership change in starbucks japan ( approximately 210 basis points ) . general and administrative expenses as a percentage of total revenues decreased 20 basis points , primarily due to sales leverage ( approximately 40 basis points ) and the impact of the sale of our australia retail operations in the fourth quarter of fiscal 2014 ( approximately 20 basis points ) , which includes lapping professional fees associated with the sale . the impact of our ownership change in starbucks japan contributed unfavorably ( approximately 60 basis points ) . income from equity investees decreased $ 44 million , primarily due to the impact of our ownership change in starbucks japan and absence of income from our malaysia joint venture sold in the fourth quarter of fiscal 2014 , partially offset by improved performance from our china joint venture . as a percentage of total net revenues , income from equity investees declined 950 basis points , primarily due to the impact of our ownership change in starbucks japan ( approximately 870 basis points ) . the overall decrease in operating margin of 1,210 basis points over fiscal 2014 was primarily driven by the impact of our ownership change in starbucks japan ( approximately 1,410 basis points ) , partially offset by 200 basis points of margin expansion driven by the other items discussed above . emea replace_table_token_15_th revenues emea total net revenues for fiscal 2015 decreased $ 78 million , or 6 % . the decrease was primarily due to a decline in company-operated store revenues ( approximately $ 103 million ) , which was largely due to unfavorable foreign currency translation ( approximately $ 94 million ) . also contributing to the decrease in company-operated revenues was the shift to more licensed stores in the region , which includes net store closures as well as the absence of revenues from the conversion of certain stores in the u.k. from company-operated to licensed . this decline was partially offset by 4 % growth in comparable store sales . licensed store revenues increased $ 19 million , or 8 % , primarily due to higher product sales to and royalty revenues from our licensees ( approximately $ 45 million ) , resulting from the opening of 238 net new licensed stores over the past 12 months and improved comparable store sales , partially offset by unfavorable foreign currency translation ( approximately $ 22 million ) . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 210 basis points , primarily due to favorable foreign currency exchange ( approximately 130 basis points ) . we buy and sell products , primarily roasted coffee , in multiple currencies throughout the region depending on the functional currency of each market . differences in those rates generated favorable foreign currency exchange for fiscal 2015 resulting in a benefit in cost of sales . sales leverage ( approximately 40 basis points ) also contributed to the decrease . 28 store operating expenses as a percentage of total net revenues decreased 290 basis points . as a percentage of company-operated store revenues , store operating expenses decreased 220 basis points primarily due to gains on the sales of certain store assets in the region ( approximately 150 basis points ) as well as decreased expenses , largely salaries and benefits , driven by the shift to more licensed stores ( approximately 40 basis points ) . other operating expenses as a percentage of total net revenues increased 60 basis points . excluding the impact of company-operated store revenues , other operating expenses decreased 20 basis points , primarily driven by the gain on the sale of certain assets in the region ( approximately 40 basis points ) and improved collection results ( approximately 20 basis points ) . these decreases were partially offset by increased costs to grow our non-retail operations in the region ( approximately 50 basis points ) , largely driven by higher marketing costs . the combination of these changes resulted in an overall increase in operating margin of 460 basis points over fiscal 2014 . channel development replace_table_token_16_th revenues channel development total net revenues for fiscal 2015 increased $ 185 million , or 12 % , over the prior year , primarily driven by higher sales of premium single-serve products ( approximately $ 97 million ) and u.s. packaged coffee ( approximately $ 42 million ) , as well as an increase in foodservice sales ( approximately $ 35 million ) . operating expenses cost of sales as a percentage of total net revenues decreased 80 basis points , primarily due to leverage on cost of sales ( approximately 100 basis points ) . other operating expenses as a percentage of total net revenues increased 10 basis points , primarily driven by increased marketing ( approximately 60 basis points ) , largely due to new premium single-serve product launches . this increase was partially offset by lower professional fees ( approximately 30 basis points ) and sales leverage ( approximately 20 basis points ) .
| we returned $ 2.4 billion to our shareholders in fiscal 2015 through share repurchases and dividends compared to $ 1.6 billion in fiscal 2014. overview starbucks results for fiscal 2015 demonstrate the continued strength of our global business model and our ability to successfully make disciplined investments in our business and our partners ( employees ) . our net revenues grew 17 % over fiscal 2014 and all reportable segments drove an increase in consolidated operating income . consolidated operating margin expanded to 18.8 % from 18.7 % in fiscal 2014 , largely driven by sales leverage , partially offset by the 90 basis point impact of our ownership change in starbucks japan as well as increased salaries and benefits due to investments in our store partners ( employees ) in the americas segment . the ownership change in starbucks japan reflects the change in accounting from a joint venture to a consolidated market and includes the acquisition-related transaction and integration costs . the americas segment continued to perform well in fiscal 2015 , with revenues growing 11 % to $ 13.3 billion , primarily driven by comparable store sales growth of 7 % , comprised of a 4 % increase in average ticket and a 3 % increase in number of transactions , as well as incremental revenues from 612 net new store openings over the last 12 months . growth in our core beverages , paired with the success of our food offerings and beverage innovation , drove the increase in comparable store sales . americas operating margin grew 80 basis points to 24.2 % in fiscal 2015 , primarily driven by sales leverage , partially offset by increased salaries and benefits due to investments in our store partners ( employees ) and digital platforms related to in-store initiatives . looking forward , we expect to continue to drive revenue growth and moderate margin expansion through new stores and leveraging investments in both our store partners ( employees ) and our digital platforms , such as mobile order and pay . our
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% . this was driven by a slight decrease in point of sale margin and an increase in freight rates , both domestically and internationally . operating expenses . the consolidated operating expense ratio in fiscal 2012 was 22.8 % , or 30 basis points higher than fiscal 2011. on a comparable basis , after adjusting for the increase in the esop expense discussed above , the operating expense ratio would have been 22.1 % , or a decrease of nearly 40 basis points . the dental unit 's operating expense ratio increased 110 basis points as this unit absorbs the majority of the esop expense . in addition , this segment was investing in training of sales personnel and deploying a new order entry system . the ratio of the veterinary unit 's operating expenses as a percent of sales decreased 80 basis in the current year largely due to leverage of the higher sales levels . patterson medical 's operating expense ratio decreased 100 in fiscal 2012. the segment benefited from further integration of recent acquisitions and aggressive expense management . 40 operating income . operating income was $ 358.0 million in fiscal 2012 , compared to $ 376.0 million in fiscal 2011. adjusting for the esop expense impact , operating income would have increased year-over-year . interest expense . interest expense was $ 30.3 million in fiscal 2012 compared to $ 25.8 million in fiscal 2011. this increase is due to the issuance of $ 325 million of debt in the third quarter of the current year . the company made the decision to raise additional debt capital to take advantage of the favorable rate environment . other income , net . other income , net of other expenses , was $ 2.1 million in fiscal 2012 compared to $ 5.7 million in fiscal 2011. interest income totaled $ 4.9 million in fiscal 2012 , compared to $ 8.2 million in fiscal 2011. during fiscal 2011 the company carried higher average balances of finance contracts while we modified agreements with our funding sources in the period . income taxes . the effective income tax rate was 35.5 % in fiscal 2012 as compared to 36.7 % in fiscal 2011. the effective tax rate decreased in fiscal 2012 as compared to fiscal 2011 primarily due to an increase in the deductible dividends paid on shares held by our employee stock ownership plan and the release of reserves resulting from expiring statute of limitations . net income and earnings per share . net income decreased 6.0 % to $ 212.8 million in fiscal 2012 due primarily to the increase esop expense negatively impacting operating expense as discussed above . adjusting for the impact of the extra week on fiscal 2011 and the incremental esop expense in fiscal 2012 , net income would have increased approximately 3 % . earnings per diluted share and dilutive shares outstanding were $ 1.92 and 110.8 million , respectively , in fiscal 2012 and $ 1.89 and 119.1 million , respectively , in fiscal 2011. liquidity and capital resources patterson 's operating cash flow has been our principal source of liquidity in the last three fiscal years . during fiscal 2012 , we used our revolving credit facility periodically as a source of liquidity in addition to operating cash flow . operating activities generated cash of $ 299.2 million in fiscal 2013 , compared to $ 321.2 million in fiscal 2012 and $ 262.6 million in fiscal 2011. our operating activities are primarily driven by net income . capital expenditures were $ 22.0 , $ 29.7 and $ 36.9 million in fiscal years 2013 , 2012 and 2011 , respectively . significant expenditures in these years included the purchase and expansion of distribution facilities to accommodate multiple business units , the construction of a new facility for the patterson technology center and continuing investments in information systems . in fiscal 2012 , a project to build-out a purchased building in indiana that serves as a distribution facility used by all three business units was completed . this facility is replacing several smaller distribution facilities . in addition , the patterson technology center in illinois was completed in fiscal 2012. this 100,000 square foot state-of-the-art facility replaced a nearby-leased location and opened in the second quarter of fiscal 2012. we expect to invest approximately $ 33 million in capital expenditures during fiscal 2014 , our main investment is in information systems . we estimate that we will invest $ 55 million to $ 65 million over the next five years to transform our information systems . we estimate that approximately half of this amount with be capitalized over the project life . we are estimating that in incremental $ 10 million will be expensed in fiscal 2014. cash used for acquisitions and equity investments totaled $ 14.6 million in fiscal 2013 , $ 22.6 million in fiscal 2012 and $ 52.2 million in fiscal 2011. the majority of the cash used for acquisitions in fiscal 2013 related to the acquisitions of iowa dental supply and universal vaporizer support . the majority of the cash used for acquisitions in fiscal 2012 related to the acquisitions of american veterinary supply corporation and surgical synergies . 41 in fiscal 2013 , we retired $ 125 million of debt . in fiscal 2012 , we entered into a new debt agreement for $ 325 million ; see note 7 of the consolidated financial statements , long-term debt footnote for further information . there were neither issuances of , nor payments on , debt during fiscal 2011. total dividends paid in fiscal 2013 , fiscal 2012 and fiscal 2011 were $ 43.7 million , $ 54.7 million and $ 50.0 million , respectively . we expect to continue to pay a quarterly cash dividend for the foreseeable future . in addition , during fiscal 2013 , we repurchased approximately 5.0 million shares of common stock for approximately $ 180 million . in fiscal 2012 , we repurchased approximately 12.0 million shares of common stock for approximately $ 362 million . story_separator_special_tag in fiscal 2011 , we repurchased approximately 3.3 million shares of common stock for approximately $ 99 million . under a share repurchase plan authorized by the board of directors , as of march 19 , 2013 , patterson may repurchase up to 25 million shares of its common stock . this authorization remains in effect through march 19 , 2018. management expects funds generated from operations and existing cash to be sufficient to meet our working capital needs for the next fiscal year . we have $ 505 million in cash and cash equivalents of which $ 252 million is in foreign bank accounts . none of which is subject to any withdrawal restrictions . see note 11 , income taxes for further information regarding our intention to permanently reinvest these funds . we expect to continue to obtain liquidity from the sale of equipment finance contracts . patterson 's existing debt facilities are believed to be adequate as a supplement to internally generated cash flows to fund anticipated expansion plans and strategic initiatives , including acquisitions . in addition , we have a $ 300 million revolving credit facility which expires in fiscal 2017. patterson sells a significant portion of our finance contracts ( see below ) to a commercial paper funded conduit managed by a third party bank , and as a result , commercial paper is indirectly an important source of liquidity for patterson . patterson is allowed to participate in the conduit due to the quality of our finance contracts and our financial strength . cash flows could be impaired if our financial strength diminishes to a level that precluded us from taking part in this facility or other similar facilities . also , market conditions outside of our control could adversely affect the ability for us to sell the contracts . customer financing arrangements patterson is a party to two arrangements under which we have sold finance contracts received from our customers to outside financial institutions . these arrangements provide sources of liquidity for us that would have to be replaced should any of the current financial institutions be unable or unwilling to continue under them . in december 2010 , the receivables purchase agreement was amended to make the bank of tokyo-mitsubishi ufj , ltd. ( btmu ) the managing agent . as of april 27 , 2013 , the total capacity under this agreement is $ 500 million , which includes $ 300 million with btmu and the remainder with royal bank of canada ( rbc ) . in august 2011 , fifth third bank ( ftb ) replaced u.s. bank national association as the agent under the contract purchase agreement , which has a capacity of $ 75 million as of april 27 , 2013. our financing business is described in further detail in note 6 , customer financing. of the notes to the consolidated financial statements in item 8 of this form 10-k. note 6 , discusses the nature and business purpose of the arrangements and the activity under each arrangement during fiscal 2013 , including the amount of finance contracts sold and the holdback receivable owed to us . 42 contractual obligations a summary of patterson 's contractual obligations as of april 27 , 2013 follows ( in thousands ) : replace_table_token_10_th patterson is unable to determine its contractual obligations by year related to the provisions of asc topic 740 , income taxes , as the ultimate amount or timing of settlement of its reserves for income taxes can not be reasonably estimated . the total liability for unrecognized tax benefits including interest and penalties at april 27 , 2013 , is $ 21.6 million . for a more complete description of patterson 's contractual obligations , see notes 7 and 10 to the consolidated financial statements in item 8 of this form 10-k. outlook over the last ten years , we have been able to grow revenue and earnings through our strategy of emphasizing value-added , full-service capabilities , using technology to enhance customer service , continuing to improve operating efficiencies , and growing through internal expansion and acquisitions . while the weakness in the general economy that has existed during the last several years is expected to continue to affect our performance for at least the near term , patterson 's strategy will continue to focus on these key elements . with strong operating cash flow and available credit capacity , we are confident that we will be able to financially support our future growth . we believe that the strategic initiatives that we have implemented in the past several years , as well as those that will be implemented in fiscal 2013 and beyond , will strengthen our operational platform and contribute to future growth . given these factors , we consider ourselves well positioned to capitalize upon the growth opportunities in the dental , companion animal veterinary and the worldwide rehabilitation supply markets . asset management the following table summarizes patterson 's days sales outstanding ( dso ) and inventory turnover the past three fiscal years : replace_table_token_11_th ( 1 ) receivables as of april 27 , 2013 , april 28 , 2012 and april 30 , 2011 include approximately $ 9 million , $ 20 million and $ 19 million , respectively , of finance contracts received from customers related to certain financing promotions in fiscal 2013 , 2012 and 2011. patterson has sold contracts in fiscal 2013 and expects to sell the contracts held as of april 27 , 2013 to outside institutions under an existing agreement during fiscal 2014. if these finance contracts are excluded from the calculation of dso , the pro forma dso would be 42 , 43 and 46 as of april 27 , 2013 , april 28 , 2012 and april 30 , 2011 , respectively . ( 2 ) the inventory values used in this calculation are the lifo inventory values for all inventories except for manufactured inventories and foreign inventories , which are valued using fifo inventory methods .
| the negative impact from foreign currency translation rates was 0.6 % in fiscal 2013. we believe that continued uncertainty surrounding the u.s. health care system and the overall economy as well as continued austerity efforts in the united kingdom are adversely affecting this segment . gross margin . consolidated gross margin was 32.7 % in fiscal 2013 and 32.9 % in fiscal 2012. the dental segment 's gross margin decreased 30 basis points to 35.9 % in fiscal 2013. this decrease is mainly due to sales mix as equipment growth outpaced consumable growth during the year and as the segment effectuated the change in the cerec product line , which negatively impacted margins . gross margin of the veterinary segment increased 60 basis points to 18.9 % in fiscal 2013 due primarily to the change in the nutritional distribution arrangement , which carried a lower than average margin . the medical segment 's gross margin declined 30 basis points to 38.7 % , as a result of product mix . operating expenses . the consolidated operating expense ratio in fiscal 2013 was 23.0 % , or 20 basis points higher than fiscal 2012. the dental segment 's operating expense ratio increased 10 basis points . the medical segment 's operating expenses as a percent of sales were 80 basis points higher in the current fiscal year , due to the integration expense in the australian operations of the surgical synergies acquisition . the veterinary segment 's operating expense ratio increased 40 basis points , mainly due to the reduced revenue from the nutritional agreement change and the addition of service technicians during the period . operating income . operating income totaled $ 354.5 million , or 9.7 % of sales , compared to prior fiscal year operating income of $ 358.0 million , or 10.1 % of net sales for the reasons discussed above . interest expense . interest expense was $ 36.4 million in fiscal 2013 compared to $ 30.3 million in fiscal 2012. this increase is due to the issuance of $ 325 million of debt in the third quarter of the prior year offset slightly by the repayment of $ 125 million of debt that matured late in fiscal
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in september 2015 , we entered into a term loan agreement , or loan agreement , with crg partners iii l.p. and certain of its affiliated funds , collectively crg , under which we were able to borrow up to $ 50.0 million on or before march 29 , 2017 , subject to certain terms and conditions . we borrowed $ 30.0 million on september 22 , 2015 and an additional $ 10.0 million on june 15 , 2016 under the loan agreement . contingent on achievement of certain revenue milestones , among other conditions , we would have been eligible to borrow an additional $ 10.0 million , on or prior to march 29 , 2017 ; however , we did not achieve the level of revenues required to borrow the final $ 10.0 million . contemporaneously with the execution of the loan agreement , we entered into a securities purchase agreement with crg , pursuant to which crg purchased 8,705 shares of our common stock on september 22 , 2015 at a price of $ 559.64 per share , which represents the 10-day average of closing prices of our common stock ending on september 21 , 2015. pursuant to the securities purchase agreement , we filed a registration statement covering the resale of the shares sold to crg and must comply with certain affirmative covenants during the time that such registration statement remains in effect . we used the proceeds from the crg borrowing and securities purchase to retire our outstanding principal and accrued interest with pdl biopharma , or pdl , and to retire the principal and accrued interest underlying our outstanding promissory notes , or the notes . on february 3 , 2016 , we filed a universal shelf registration statement to offer up to $ 150.0 million of our securities and entered into an at-the-market program pursuant to a sales agreement with cowen and company , or cowen , through which we may , from time to time , issue and sell shares of common stock having an aggregate offering value of up to $ 50.0 million . the shelf registration statement also covers the resale of the shares sold to crg . the registration statement was declared effective by the sec on march 8 , 2016. during the year ended december 31 , 2016 , we sold 27,374 shares of common stock through the at-the-market program at an average price of $ 194.74 and raised net proceeds of $ 5.2 million , after payment of $ 0.2 million in commissions and fees to cowen . during the year ended december 31 , 2017 , we sold 189,684 shares of common stock through the at-the-market program at an average price of $ 17.68 and raised net proceeds of $ 3.2 million , after payment of $ 0.1 million in commissions and fees to cowen . due to 51 the sec 's baby shelf rules , which prohibit companies with a public float of less than $ 75 million from issuing securities under a shelf registration statement in excess of one-third of such company 's public float in a twelve-month period , at this time we are unable to issue more shares through our at-the-market program . in addition , in august 2016 we completed a follow-on public offering of 246,445 shares of our common stock for net proceeds of approximately $ 31.5 million after deducting underwriting discounts and commissions of approximately $ 2.4 million and other expenses of approximately $ 0.6 million . the 246,445 shares include the exercise in full by the underwriters of their option to purchase an additional 32,145 shares of our common stock . in april 2017 , we undertook an organizational realignment which included a reduction in force , that lowered our total headcount by approximately 33 % compared to december 31 , 2016. the organizational realignment was designed to focus our commercial efforts on driving catheter utilization in our strongest markets , around our most productive sales professionals . our field sales personnel headcount was reduced to 32 , down from 60 as of december 31 , 2016. this workforce reduction was designed to reduce operating expenses while continuing to support major product development and clinical initiatives . the strategic reduction in the field sales force was designed to maintain robust engagement with higher volume users of our lumivascular technology and position us to increase utilization of our catheters within our installed base of accounts in 2018 following the launch of our next generation products . in september 2017 , we effected a cost reduction plan , which also included a company-wide reduction in force , lowering our total headcount by an additional 24 employees . our field sales personnel headcount was further reduced to a total of 20 people . in addition , as part of the cost reduction plan , in october 2017 , we subleased a portion of the company 's facilities and consolidated our operations primarily into one building . on november 3 , 2017 , we entered into a purchase agreement with lincoln park capital fund , llc , or lincoln park , pursuant to which lincoln park is obligated to purchase , at our request , up to $ 15.0 million of our common stock over a 30-month period , subject to certain limitations set forth in the purchase agreement ( the lincoln park purchase agreement ) . as a fee for lincoln park 's commitment to purchase such shares , we issued 23,584 shares of common stock to lincoln park on november 3 , 2017. as obligated under a registration rights agreement entered into with lincoln park in connection with the lincoln park purchase agreement , we filed a registration statement on form s-1 on november 6 , 2017 for up to 248,750 of such shares , which registration statement was declared effective by the sec on november 17 , 2017. on february 14 , 2018 , we entered into amendment no . 2 to the term loan agreement ( the amendment no . 2 loan agreement ) with crg . story_separator_special_tag under its terms , the amendment no . 2 loan agreement , among other things : ( 1 ) extended the interest-only period through june 30 , 2021 ; ( 2 ) extended the period during which the company may elect to pay a portion of interest in payment-in-kind , or pik , interest payments through june 30 , 2021 so long as no default has occurred and is continuing ; ( 3 ) permitted the company to make its entire interest payments in pik interest payments for through december 31 , 2019 so long as no default has occurred and is continuing ; ( 4 ) extended the maturity date to june 30 , 2023 ; ( 5 ) reduced the minimum liquidity requirement to $ 3.5 million at all times ; ( 6 ) eliminated the minimum revenue covenant for 2018 and 2019 ; ( 7 ) reduced the minimum revenue covenant to $ 15 million for 2020 , $ 20 million for 2021 and $ 25 million for 2022 ; and ( 8 ) provided crg with board observer rights . in addition , on february 14 , 2018 , we entered into a series a preferred stock purchase agreement ( the series a purchase agreement ) with crg , pursuant to which it agreed to convert $ 38.0 million of the outstanding principal amount of its senior secured term loan ( plus the back-end fee and prepayment premium applicable thereto ) under the loan agreement into a newly authorized series a preferred stock . as discussed in the section of this report titled dividend policy , the holders of series a preferred stock are entitled to receive annual accruing dividends at a rate of 8 % , payable in additional shares of series a preferred stock or cash , at our option . the shares of series a preferred stock have no voting rights and rank senior to all other classes and series of the company 's equity in terms of repayment and certain other rights . the series a preferred stock and any of the company 's common stock issued upon conversion of the series a preferred stock is subject to a lockup agreement through february 14 , 2019. on february 16 , 2018 , we completed a public offering of 17,979 shares of series b preferred stock and warrants to purchase 17,979,000 shares of common stock . as a result , we received net proceeds of approximately $ 16.0 million after underwriting discounts , commissions , legal and accounting fees of approximately $ 1.9 million . each share of series b preferred stock is accompanied by one warrant that expires on the seventh anniversary of the date of issuance to 52 purchase up to 500 shares of common stock ( the series 1 warrants ) and one warrant that expires on the earlier of ( i ) the seventh anniversary of the date of issuance or ( ii ) the 60th calendar day following the receipt and announcement of fda clearance of our pantheris below-the-knee device ( or the same or similar product with a different name ) to purchase up to 500 shares of common stock ; provided , however , if at any time during such 60-day period the volume weighted average price for any trading day is less than the then effective exercise price , the termination date shall be extended to the seven year anniversary of the initial exercise date ( the series 2 warrants ) . in addition , pursuant to the series a purchase agreement , we issued to crg 41,800 shares of series a preferred stock at the closing of the series b offering . the series a preferred stock was issued in exchange for the conversion of $ 38.0 million of the outstanding principal amount of their senior secured term loan ( plus the back-end fee and prepayment premium applicable thereto ) , totaling approximately $ 41.8 million . the series a preferred stock is initially convertible into 20,900,000 shares of common stock subject to certain limitations contained in the series a purchase agreement . we are developing two next-generation versions of our pantheris atherectomy device , pantheris 3.0 and a lower profile pantheris ( pantheris 6f ) , that we believe represent significant improvements over our existing product . pantheris 3.0 includes new features and design improvements to the handle , shaft , balloon and nose cone that we believe will improve usability and reliability , while the pantheris 6f has a smaller diameter and longer length that we believe will optimize it for use in smaller vessels and below-the-knee applications . we filed a 510 ( k ) submission for pantheris 3.0 in december 2017 , and we plan to file a 510 ( k ) submission for pantheris 6f in mid-2018 . we received a ce mark for pantheris 3.0 in december 2017. components of our results of operations revenues all of our revenues are currently derived from sales of our lightbox console and sales of our various pad catheters , as well as related services in the united states and select international markets . we expect our revenues in the near term to be adversely affected by the product performance issues we have experienced with the current version of pantheris as well as our strategic decision to reduce the size of our sales force in april 2017 and september 2017. however , we expect our revenues to increase in 2018 as we introduce two next-generation versions of pantheris . no single customer accounted for more than 10 % of our revenues during the years ended december 31 , 2017 and 2016. revenues may fluctuate from quarter to quarter due to a variety of factors including capital equipment purchasing patterns that are typically increased towards the end of the calendar year and decreased in the first quarter .
| gross margin for the year ended december 31 , 2017 decreased to -31 % , compared to 25 % in the year ended december 31 , 2016. gross margin was negatively impacted primarily by an increase of $ 4.7 million in the charges for inventory excess and obsolescence and decrease in sales during the year ended december 31 , 2017 compared to the prior year period , partially offset by a decrease of $ 0.8 million in warranty expenses . research and development expenses . r & d expenses decreased $ 4.2 million , or 27 % , to $ 11.3 million during the year ended december 31 , 2017 , compared to $ 15.5 million during the year ended december 31 , 2016. this decrease was primarily due to a $ 3.5 million decrease in personnel-related expenses , a decrease of $ 0.2 million in product development materials and related costs , a decrease of $ 0.7 million in outside services and an increase of $ 0.2 million relating to the allocation of facilities expense . personnel-related expenses included stock-based compensation expense of $ 1.7 million compared to $ 2.7 million for the years ended december 31 , 2017 and 2016 , respectively . selling , general and administrative expenses . sg & a expenses decreased $ 14.8 million , or 37 % , to $ 25.1 million during the year ended december 31 , 2017 , compared to $ 39.9 million during the year ended december 31 , 2016. this decrease was primarily due to a $ 13.3 million decrease in personnel-related expenses and $ 2.1 million decrease in marketing costs , partially offset by an increase of $ 0.2 million in outside services and increase of $ 0.4 million relating to the allocation of facilities expense . personnel-related expenses decreased due to a decrease in headcount and stock-based compensation expense as a result of our organizational realignments in april and september 2017. personnel-related expenses included stock-based compensation expense of $ 2.9 million compared to $ 4.1 million for the years ended december 31 , 2017 and 2016 , respectively . 55 restructuring . in april , september and october 2017 , we undertook organizational realignment and cost reduction activities to conserve resources which included reductions in force
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see note 4 to the consolidated financial statements and the `` corporate risk profile credit risk '' section in management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) for more information on the allowance and the reserve for credit losses , respectively . fair value measurements fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgment may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . the fair value hierarchy defines level 1 and 2 valuations as those that are based on quoted prices for identical instruments traded in active markets and quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market . these unobservable assumptions reflect estimates of assumptions that we believe market participants would use in pricing the asset or liability . financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities , mortgage servicing rights , investments related to deferred compensation arrangements , and derivative assets and liabilities . as of december 31 , 2011 and 2010 , $ 3.5 billion or 25 % and $ 6.6 billion or 50 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third-party pricing service . these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . as of december 31 , 2011 and 2010 , level 3 financial assets recorded at fair value on a recurring basis were $ 9.2 million and $ 9.9 million , respectively , or less than 1 % of our total assets , and was comprised of mortgage servicing rights and derivative assets and liabilities . our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of 19 trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2011 and 2010 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) on a quarterly basis , management also reviews a sample of securities priced by the company 's third-party pricing service to review significant assumptions and valuation methodologies used . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 19 to the consolidated financial statements for more information on our fair value measurements . leased asset residual values lease financing receivables include a residual value component , which represents the estimated value of leased assets upon lease expiration . story_separator_special_tag our determination of residual value is derived from a variety of sources , including equipment valuation services , appraisals , and publicly available market data on recent sales transactions on similar equipment . the length of time until lease termination , the cyclical nature of equipment values , and the limited marketplace for re-sale of certain leased assets , are important variables considered in making this determination . we update our valuation analysis on an annual basis , or more frequently as warranted by events or circumstances . when we determine that the fair value is lower than the expected residual value at lease expiration , the difference is recognized as an asset impairment in the period in which the analysis is completed . mortgage servicing rights when mortgage loans are sold with servicing rights retained , a servicing asset is established and accounted for based on estimated fair values . an estimated fair value is used because there is no quoted or established market for mortgage servicing rights . the estimated fair value is determined using discounted cash flow modeling techniques , which requires us to make estimates and assumptions regarding the amount and timing of expected future cash flows , loan repayment rates , costs to service , and interest rates that reflect the risks involved . our estimates of the fair value of mortgage servicing rights are sensitive to changes in the underlying estimates and assumptions . had we assumed lower interest rates and higher loan repayment rates , the estimated fair value of our mortgage servicing rights may have been lower than recorded in our consolidated statements of condition . see note 5 to the consolidated financial statements for key assumptions used by management as well as a sensitivity analysis of changes in certain key assumptions . pension and postretirement benefit obligations our pension and postretirement benefit obligations and net periodic benefit cost are actuarially determined based on a number of key assumptions , including the discount rate , estimated future return on plan assets , and the health care cost trend rate . our determination of the pension and postretirement benefit obligations and net periodic benefit cost is a critical accounting estimate as it requires the use of estimates and judgment related to the amount and timing of expected future cash out-flows for benefit payments and cash in-flows for maturities and return on plan assets . changes in estimates and assumptions related to mortality rates and future health care costs could also have a material impact to our financial condition or results of operations . a discount rate is used to determine the present value of future benefit obligations and the net periodic benefit cost . the discount rate used to value the present value of future benefit obligations as of each year-end is the rate used to determine the net periodic benefit cost for the following year . 20 table 1 presents a sensitivity analysis of a 25 basis point change in discount rates to the pension and postretirement benefit net periodic benefit cost and benefit obligation : replace_table_token_5_th see note 14 to the consolidated financial statements for more information on our pension and postretirement benefit plans . income taxes we determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in nine federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted , through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2011 and 2010 , we carried a valuation allowance of $ 4.4 million and $ 7.4 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments . we are required to record a liability , referred to as an unrecognized tax benefit ( `` utb '' ) , for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50 % likelihood of being accepted by the taxing authority . as of december 31 , 2011 and 2010 , our liabilities for utbs were $ 13.6 million and $ 23.0 million , respectively . see note 16 to the consolidated financial statements for more information on income taxes . reclassifications certain prior period information in md & a has been reclassified to conform to the 2011 presentation . 21 overview we are a regional financial services company serving businesses , consumers , and governments in hawaii , guam , and other pacific islands . our main operating subsidiary , the bank , was founded in 1897 and is the largest independent financial institution in hawaii .
| the impact of these items was partially offset by a lower provision for credit losses ( the `` provision '' ) , provision for income taxes , and fdic insurance assessments in 2011 compared to 2010. the provision was $ 12.7 million in 2011 , a decrease of $ 42.6 million or 77 % compared to 2010. the lower provision in 2011 was consistent with lower levels of net charge-offs and a generally improving economy in hawaii . the provision for income taxes was $ 66.9 million in 2011 , a decrease of $ 9.3 million or 12 % compared to 2010. the lower provision for income taxes was primarily due to lower pre-tax income in 2011 compared to 2010. fdic insurance assessments were $ 9.3 million in 2011 , a decrease of 22 $ 3.2 million or 26 % compared to 2010. in 2010 , we also incurred $ 5.2 million in early termination costs related to the prepayment of $ 75.0 million in securities sold under agreements to repurchase . our results in 2011 were influenced by a generally improving economy in hawaii . however , we remained cautious about the slow pace of economic recovery both in hawaii and on the u.s. mainland . we also continued to monitor regulatory changes and the associated costs of compliance . as a result of the uncertainties in the economic recovery , we sought to maintain adequate reserves for credit losses and high levels of liquidity and capital during 2011. in particular : the allowance for loan and lease losses ( the `` allowance '' ) was $ 138.6 million as of december 31 , 2011 , a decrease of $ 8.8 million or 6 % from december 31 , 2010. the ratio of our allowance to total loans and leases outstanding decreased to 2.50 % as of december 31 , 2011 , compared to 2.76 % as of december 31 , 2010. absent significant deterioration in the economy and assuming continued improvement and or stability in credit quality , we may decrease the level of the allowance in future periods . total deposits were $ 10.6 billion as of december 31 , 2011 , an increase of $ 703.6 million or 7 % from december 31 , 2010. we believe that
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the health care market continues to change based on demographic shifts , new regulations , political forces and both payer and patient expectations . health plans and care providers are being called upon to 28 work together to close gaps in care and improve overall care quality , improve the health of populations and reduce costs . we continue to see a greater number of people enrolled in plans with underlying incentive-based care provider reimbursement models that reward high-quality , affordable care and foster collaboration . we work together with clinicians to leverage our data and analytics to provide the necessary information to close gaps in care and improve overall health outcomes for patients . we are increasingly rewarding care providers for delivering improvements in quality and cost-efficiency . as of december 31 , 2015 , we served more than 14 million people through some form of aligned contractual arrangement , including full-risk , shared-risk and bundled episode-of-care and performance incentive payment approaches . as of december 31 , 2015 , our contracts with value-based spending total nearly $ 46 billion annually , up from $ 13 billion in 2011. this trend is creating needs for health management services that can coordinate care around the primary care physician , including new primary care channels , and for investments in new clinical and administrative information and management systems , which we believe provide growth opportunities for our optum business platform . regulatory trends and uncertainties following is a summary of management 's view of the trends and uncertainties related to some of the key provisions of health reform legislation and other regulatory items . for additional information regarding health reform legislation and regulatory trends and uncertainties , see part i , item 1 “ business - government regulation ” and item 1a , “ risk factors. ” medicare advantage rates and minimum loss ratios . medicare advantage rates have been cut over the last several years , with additional funding reductions to be phased-in through 2017. the final 2016 medicare advantage rates were more stable than in recent years , with an expected average increase in industry funding of approximately 1.25 % . however , these rates still trail the typical industry forward medical cost trend of 3 % which creates continued pressure in the medicare advantage program . the impact of these cuts to our medicare advantage revenues is partially mitigated by reductions in provider reimbursements for those care providers with rates indexed to medicare advantage revenues or medicare fee-for-service reimbursement rates . these factors affected our plan benefit designs , market participation , growth prospects and earnings expectations for our medicare advantage plans for 2016. the ongoing reductions to medicare advantage funding place continued importance on effective medical management and ongoing improvements in administrative efficiency . there are a number of adjustments we have made to partially offset these rate reductions . these adjustments will impact the majority of the seniors we serve through medicare advantage . for example , we seek to intensify our medical and operating cost management , make changes to the size and composition of our care provider networks , adjust members ' benefits , implement or increase the member premiums that supplement the monthly payments we receive from the government and decide on a county-by-county basis where we will offer medicare advantage plans . in the longer term , we also may be able to mitigate some of the effects of reduced funding by increasing enrollment due , in part , to the increasing number of people eligible for medicare in coming years . as medicare advantage reimbursement changes , other products may become relatively more attractive to medicare beneficiaries and increase the demand for other senior health benefits products such as our market-leading medicare supplement and stand-alone medicare part d insurance offerings . our medicare advantage rates are currently enhanced by cms quality bonuses in certain counties based on our local plans ' star ratings . the level of star ratings from cms , based upon specified clinical and operational performance standards , will impact future quality bonuses . in addition , star ratings affect the amount of savings a plan can use to offer supplemental benefits , which ultimately may affect the plan 's membership and revenue . beginning in 2015 , quality bonus payments were paid only to plans rated 4 stars and higher . we expect that approximately 56 % of our medicare advantage members will be in plans rated four stars or higher for payment year 2016 compared with approximately 39 % of members in plans rated four stars or higher for payment year 2015. we further expect that at least 63 % of our medicare advantage members will be in plans rated four stars or higher for payment year 2017. we continue to dedicate substantial resources to advance our quality scores and star ratings to strengthen our local market programs and further improve our performance . health insurance industry tax and premium stabilization programs . the industry-wide amount of the health insurance industry tax was $ 11.3 billion in 2015 and will remain at that level in 2016. a provision in the 2016 federal budget imposes a one year moratorium for 2017 , on the collection of the health insurance industry tax . the health insurance industry tax will again be imposed for 2018 and beyond . in 2016 , we expect that our share of the health insurance industry tax will increase to $ 1.9 billion from $ 1.8 billion in 2015 due to growth in our business . the reinsurance program is a temporary program that will be funded on a per capita basis from all commercial lines of business , including insured and self-funded arrangements . story_separator_special_tag the total three year amount of $ 25 billion for the reinsurance 29 program is allocated as follows : $ 20 billion ( 2014 - $ 10 billion , 2015 - $ 6 billion , 2016 - $ 4 billion ) subject to increases based on state decisions , to fund the reinsurance pool and $ 5 billion ( 2014 and 2015 - $ 2 billion , 2016 - $ 1 billion ) to fund the u.s. treasury . the actual 2014 reinsurance program contributions totaled approximately $ 9.7 billion , which was $ 2.3 billion short of the expected amount ; all was used to fund the reinsurance program . while funding for the reinsurance program will come from all commercial lines of business , only market reform compliant individual businesses will be eligible for reinsurance recoveries . we have not recorded any receivables under the temporary risk corridor program for 2014 or 2015 due to uncertainty over the level of government funding for this program and the ultimate collectability of these funds . for detail on the health insurance industry tax and premium stabilization programs , see note 2 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements. ” individual public exchanges . after a measured approach to the individual public exchange market in 2014 in which we participated in only four states , we expanded significantly in 2015 to participate in 23 states . in 2016 , we are expanding our individual public exchange offerings by 11 states to a total of 34 states . recent data , however , has caused us to reconsider our long-term position in the individual public exchange market . we have seen lower consumer participation than we and others expected , lower government expectations for future consumer participation , declining performance in and accelerating failures of government-sponsored cooperatives and worsening of our own claims experience . we have recorded a premium deficiency reserve for a portion of our estimated 2016 losses in our 2015 results for in-force contracts as of january 1 , 2016. we are not pursuing membership growth and have taken a comprehensive set of actions ( e.g. , increased prices and eliminated marketing and commissions ) to contain membership growth . by mid-2016 we will determine to what extent , if any , we will continue to offer products in the individual public exchange market in 2017 . 30 story_separator_special_tag 2014 results of operations compared to 2013 results consolidated financial results revenues the increases in revenues during the year ended december 31 , 2014 were primarily driven by growth in the number of individuals served in our public and senior markets businesses and growth across all of optum 's businesses . medical costs and medical care ratio medical costs during the year ended december 31 , 2014 increased due to risk-based membership growth in our public and senior markets businesses . to the extent possible , we included the reform fees and related tax impacts in our pricing ; since the aca fees are included in operating costs , this decreased our medical care ratio in 2014. this decrease from aca fees was partially offset by the impact of lower levels of favorable medical cost reserve development . operating cost ratio the increase in our operating cost ratio during the year ended december 31 , 2014 was due to the introduction of aca fees and services business growth and acquisitions , partially offset by productivity and operating performance gains . income tax rate the increase in our income tax rate resulted primarily from the nondeductible health insurance industry tax . reportable segments unitedhealthcare unitedhealthcare 's revenue growth during the year ended december 31 , 2014 was due to growth in the number of individuals served in our public and senior markets businesses ; revenues to recover aca fees , which resulted in $ 1.5 billion of additional annual premiums in 2014 ; and commercial price increases reflecting underlying medical cost trends . these increases were partially offset by decreased commercial risk-based enrollment and a reduced level of medicare advantage funding . unitedhealthcare 's operating earnings for the year ended december 31 , 2014 were pressured year-over-year by aca fees , medicare advantage funding reductions , increased spending on specialty medications to treat hepatitis c and reduced levels of favorable medical cost reserve development . partially offsetting these factors were growth in our public and senior markets businesses , reduced levels of per-member inpatient hospital utilization and revenue true-ups . optum total revenues increased for the year ended december 31 , 2014 primarily due to pharmacy growth at optumrx and growth at optumhealth . the increases in optum 's earnings from operations and operating margins for the year ended december 31 , 2014 were driven by revenue growth and increased productivity , partially offset by investments at optumhealth and optuminsight . 34 the results by segment were as follows : optumhealth revenue increased at optumhealth during 2014 primarily due to acquisitions and growth in care delivery and subacute care services . earnings from operations and operating margins for the year ended december 31 , 2014 increased primarily due to revenue growth and cost efficiencies , offset in part by investments to develop future growth opportunities . optuminsight revenue , earnings from operations and operating margins at optuminsight for the year ended december 31 , 2014 increased primarily due to the growth and expansion in revenue management services and government exchange services , partially offset by a reduction in hospital compliance services and investments for future growth . optumrx increased optumrx revenue for the year ended december 31 , 2014 was due to growth in people served in unitedhealthcare 's public and senior markets , the insourcing of unitedhealthcare 's commercial pharmacy benefit programs , growth from external clients and an increase in specialty pharmaceutical revenues .
| 2015 results of operations compared to 2014 results our results of operations during the year ended december 31 , 2015 were affected by our acquisition of catamaran on july 23 , 2015. consolidated financial results revenues the increase in revenues was primarily driven by the effect of the catamaran acquisition and organic growth in the number of individuals served across our benefits businesses and across all of optum 's businesses . medical costs medical costs increased primarily due to risk-based membership growth in our benefits businesses . medical costs also included losses on individual exchange-compliant products related to 2015 , and the establishment of premium deficiency reserves related to the 2016 policy year for anticipated future losses for in-force individual exchange-compliant contracts and a new state medicaid contract . operating cost ratio the decrease in our operating cost ratio was due to the inclusion of catamaran and growth in government benefits programs , both of which have lower operating cost ratios and company wide productivity gains . reportable segments see note 14 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements ” for more information on our segments . the following table presents a summary of the reportable segment financial information : replace_table_token_5_th 32 unitedhealthcare the following table summarizes unitedhealthcare revenues by business : replace_table_token_6_th the following table summarizes the number of individuals served by our unitedhealthcare businesses , by major market segment and funding arrangement : replace_table_token_7_th the increase in commercial risk-based enrollment was the result of strong participation in unitedhealthcare 's individual public exchange products and favorable annual renewal activity and new business wins in the employer group segment . medicare advantage participation increased year-over-year primarily due to growth in people served through employer-sponsored group medicare advantage plans . medicaid growth was driven by the combination of health reform related medicaid expansion , states launching new programs to complement established programs and growth in established programs , partially offset by a decrease of 175,000 people in one market where an additional
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refer to note 3 to the notes to consolidated financial statements for additional information related to our acquisitions . segment realignment on january 1 , 2018 , we realigned the composition of our two reportable segments . certain enterprise business intelligence offerings in our data and analytics segment were moved to our software solutions segment . this change aligns with our go-to-market strategy and with the internal management of our business operations , including the allocation of resources and assessment of performance . prior period results have been reclassified to conform to the current segment presentation . our corporate structure prior to the distribution , bkfs conducted its business through black knight financial services , llc ( `` bkfs llc '' ) and its subsidiaries . we had a sole managing member interest in bkfs llc , which granted us the exclusive authority to manage , control and operate the business and affairs of bkfs llc and its subsidiaries , pursuant to the terms of its second amended and restated limited liability company agreement ( `` llc agreement '' ) . under the terms of the llc agreement , we are authorized to manage the business of bkfs llc , including enter into contracts , manage bank accounts , hire employees and agents , incur and pay debts and expenses , merge or consolidate with other entities and pay taxes . we consolidated bkfs llc in our consolidated financial statements and reported noncontrolling interests related to the membership interests ( `` units '' ) in bkfs llc held by black knight holdings , inc. ( `` bkhi '' ) and certain affiliates of thl ( `` thl affiliates '' ) . our shareholders indirectly controlled bkfs llc through our managing member interest . fnf , through bkhi , and certain thl affiliates held units and a number of shares of bkfs class b common stock equal to the number of units held by each such owner . prior to the distribution , our corporate structure , as described above , was commonly referred to as an `` up-c '' structure , which is often used by partnerships and limited liability companies when they undertake an initial public offering . our up-c structure allowed the owners of bkfs llc to realize tax benefits associated with ownership interests in an entity that was treated as a partnership , or `` passthrough '' entity , for income tax purposes . these benefits included limiting entity level corporate taxes . because units were exchangeable for cash from bkfs llc or , at our option , shares of bkfs class a common stock , the up-c structure also provided the owners of bkfs llc potential liquidity that holders of privately held limited liability companies are not typically afforded . the owners of bkfs llc also had voting rights in black knight equal to those of holders of bkfs class a common stock through their ownership of shares of bkfs class b common stock . bkfs also held units and received the same benefits as the other holders of units on account of its ownership in an entity treated as a partnership , or passthrough entity , for income tax purposes . meanwhile , holders of bkfs class a common stock had economic and voting rights similar to those of holders of common stock of non-up-c structured public companies . generally , we received a pro-rata share of any distributions made by bkfs llc to its members , which included us , bkhi and certain thl affiliates . however , pursuant to the llc agreement , bkfs llc was required to make tax distributions to help each of the holders of the units pay taxes according to such holder 's allocable share of taxable income rather than on a pro-rata basis . additionally , tax distributions were required to be made based upon an assumed tax rate . funds used by bkfs llc to satisfy its tax distribution obligations were not available for reinvestment in our business . bkfs was a holding company and its sole asset was its interest in bkfs llc . bkfs , through its sole managing member interest , had 100 % of the voting power in bkfs llc and , through its ownership of units , had 44.5 % of the economic interests in bkfs llc immediately following our initial public offering . investors in bkfs held an indirect interest in bkfs llc through us . subsequent to the distribution and related transactions , bkfs llc is an indirect wholly-owned subsidiary of bki , and we no longer have any noncontrolling interests in bkfs llc . in addition , the up-c structure is no longer in place . business trends and conditions general the u.s. mortgage market is large , and the loan lifecycle is complex and consists of several stages . the mortgage loan lifecycle includes origination , servicing and default . mortgages are originated to finance home purchases or refinance existing mortgages . once a mortgage is originated , it is serviced on a periodic basis by mortgage servicers , which may not be the lenders that originated 29 the mortgage . furthermore , if a mortgage experiences default , it triggers a set of multifaceted processes with an assortment of potential outcomes depending on a mix of variables . underlying the three major components of the mortgage loan lifecycle are the software , data and analytics support behind each process , which has become increasingly critical to industry participants due to the complexity of regulatory requirements . as the industry has grown in complexity , participants have responded by outsourcing to large scale specialty providers , automating manual processes and seeking end-to-end solutions that support the processes required to manage the entire mortgage loan lifecycle . market trends market trends that have spurred lenders and servicers to seek software solutions are as follows : growing role of technology in the u.s. mortgage industry . banks and other lenders and servicers have become increasingly focused on automation and workflow management to operate more efficiently and meet their regulatory requirements . story_separator_special_tag we believe technology providers must be able to support the complexity of the market , display extensive industry knowledge and possess the financial resources to make the necessary investments in technology to support lenders . this includes an enhanced digital experience along with the application of artificial intelligence , robotic process automation and adaptive learning . lenders increasingly focused on core operations . as a result of regulatory scrutiny and the higher cost of doing business , we believe lenders have become more focused on their core operations and customers . we believe lenders are increasingly shifting from in-house solutions to third-party solutions that provide a more comprehensive and efficient solution . lenders require these providers to deliver best-in-class solutions and deep domain expertise and to assist them in maintaining regulatory compliance . increased demand for enhanced transparency and analytic insight . as u.s. mortgage market participants work to minimize the risk in lending , servicing and capital markets , they rely on the integration of data and analytics with solutions that enhance the decision-making process . these industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals . regulatory oversight . most u.s. mortgage market participants are subject to a high level of regulatory oversight and regulatory requirements as federal and state governments have enacted various new laws , rules and regulations . one example of such legislation is the dodd-frank wall street reform and consumer protection act ( `` dodd-frank act '' ) , which contained broad changes for many sectors of the financial services and lending industries and established the consumer financial protection bureau ( `` cfpb '' ) , the federal regulatory agency responsible for regulating consumer financial protection within the united states . it is our experience that mortgage lenders have become more focused on minimizing the risk of non-compliance with regulatory requirements and are looking toward solutions that assist them in complying with their regulatory requirements . in addition , recent high-profile data security incidents have resulted in an increased focus on data security by our clients and our clients ' regulators . we expect the industry focus on privacy and data security to continue to increase . mortgage market the largest component of our business , servicing software , primarily generates revenues based on the number of active loans outstanding on our system , which has been very stable and growing . our servicing software business has some exposure to defaulted loan volumes ; however , outside of the most recent financial crisis , the number of loans that fall into seriously delinquent status has been quite stable . for our origination software solutions , our loan origination system revenues are based on closed loan volumes subject to minimum base software fees that are contractually obligated . these arrangements limit our exposure to origination volumes in our origination software business . our lending solutions business is exposed to fluctuations in origination volumes , primarily related to refinance volumes due to the nature of the services provided . finally , our data and analytics business is predominantly based on longer-term strategic data licenses , other data licenses and subscription-based revenues . our data and analytics business has some exposure to origination volumes where we provide data related to title insurance and other settlement service-related activities . 30 regulatory requirements there continues to be a high level of legislative and regulatory focus on consumer protection practices . as a result , federal and state governments have enacted various new laws , rules and regulations . one example of such legislation is the dodd-frank act , which contained broad changes for many sectors of the financial services and lending industries and established the cfpb , the federal regulatory agency responsible for regulating consumer financial protection within the u.s. this has led banks and other lenders to seek software solutions that assist them in satisfying their regulatory compliance obligations in the face of a changing regulatory environment . we have developed solutions that target this need , which has resulted in additional revenues . the cfpb has issued guidance that applies to `` supervised service providers , '' which the cfpb has defined to include service providers , like us , to cfpb-supervised banks and non-banks . in addition , the dodd-frank act contains the mortgage reform and anti-predatory lending act that imposes additional requirements on lenders and servicers of residential mortgage loans . future legislative or regulatory changes are difficult to predict and new laws or regulations that may be implemented by the cfpb or other regulatory bodies may require us to change our business practices or incur increased costs to comply . critical accounting estimates our discussion and analysis of our financial condition and results of operations is based upon audited consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of these financial statements requires management to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . on an ongoing basis , we evaluate our estimates including those related to revenue recognition , goodwill and other intangible assets and computer software . these judgments are based on our historical experience , terms of our existing contracts , our evaluation of trends in the industry , information provided by our clients and information available from outside sources as appropriate . our actual results may differ from those estimates . see note 2 to the notes to consolidated financial statements for additional description of the significant accounting policies that have been followed in preparing our consolidated financial statements .
| data and analytics revenues were $ 154.5 million in 2018 compared to $ 151.6 million in 2017 , an increase of $ 2.9 million , or 2 % . the increase was primarily driven by growth in our property data and multiple listing service businesses , partially offset by upfront revenues from long-term strategic license deals in 2017. operating expenses consolidated operating expenses were $ 625.4 million in 2018 compared to $ 569.5 million in 2017 , an increase of $ 55.9 million , or 10 % . the changes in operating expenses are discussed further at the segment level below . the following table sets forth operating expenses by segment for the periods presented ( in millions ) : replace_table_token_14_th software solutions operating expenses were $ 394.8 million in 2018 compared to $ 388.0 million in 2017 , an increase of $ 6.8 million , or 2 % . the increase was primarily due to higher personnel costs , hardware and software maintenance costs in support of business growth and the effect of the heavywater and ernst acquisitions , partially offset by increased capitalization of software development costs . data and analytics operating expenses were $ 115.0 million in 2018 compared to $ 113.2 million in 2017 , an increase of $ 1.8 million , or 2 % . the increase was primarily driven by data acquisition costs . corporate and other operating expenses were $ 115.6 million in 2018 compared to $ 68.3 million in 2017 , an increase of $ 47.3 million , or 69 % . the increase was primarily driven by a $ 32.0 million increase in equity-based compensation of which $ 6.9 million of the increase related to accelerated expense , $ 8.9 million of higher incentive bonus expense and incremental costs following the distribution . depreciation and amortization consolidated depreciation and amortization was $ 217.0 million in 2018 compared to $ 206.5 million in 2017 , an increase of $ 10.5 million , or 5 % . the changes in depreciation and amortization are discussed further at the segment level below . 38 the following
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the payroll and payroll related costs increase in fiscal 2011 , as compared to fiscal 2010 , primarily resulted from the additional sales associate headcount , as well as increased sales commissions , the reinstatement of our matching contribution under our 401 ( k ) savings plan , and increased other fringe benefit costs . medical costs of our self-insured group health plan increased in fiscal years 2012 and 2011 as compared to the prior year periods as a result of the increased number of medical claims filed by participants . in fiscal 2012 as compared to fiscal 2011 , the average cost per claim also increased . our income from operations as a percentage of net sales increased to 17.5 % for fiscal 2012 from 17.3 % for fiscal 2011 as a result of benefits realized from increases in productivity investments and leveraging existing infrastructure , partially offset by the decline in our gross profit margin . our income from operations as a percentage of net sales increased to 17.3 % in fiscal 2011 as compared to 14.3 % in fiscal 2010 , as a result of increases in gross profit margin , benefits realized from productivity investments , and leveraging existing infrastructure , which were partially offset by an increase in operating expenses . we expect operating costs to continue to increase throughout fiscal 2013 as compared to fiscal 2012 due to increased sales volumes , compensation expenses , and fringe benefit costs , in addition to costs associated with executing on our vending and other investment programs . we also expect to incur operating costs associated with the establishment of our new co-located headquarters in davidson , north carolina . in connection with the new co-location , we have estimated associate relocation costs ranging between $ 7.0 million to $ 10.0 million , depending upon the number of associates who choose to relocate , to be incurred primarily in fiscal years 2013 and 2014. we will continue to opportunistically seek additional growth investments that will help position us for future expansion . we believe that cash flows from operations , available cash and funds available under our revolving credit facility will be adequate to support our operations and growth plans for the next twelve months . during fiscal 2012 , we decreased direct mail advertising levels compared to fiscal 2011 levels . the number of active customers ( defined as those that have made at least one purchase in the last 12 months ) at september 1 , 2012 was approximately 325,000 , which remained relatively consistent with fiscal 2011 and fiscal 2010 levels . in fiscal 2012 , we continued our practice of reducing direct marketing activities with customers who did not generate a positive return on investment . the ism index , which measures the economic activity of the united states manufacturing sector , is important to our planning because it historically has been an indicator of our manufacturing customers ' activity . a substantial portion of our revenues came from sales in the manufacturing sector during fiscal years 2012 and 2011 , including some national account customers . an ism reading below 50.0 % generally indicates that the manufacturing sector is contracting . conversely , an ism reading above 50.0 % generally indicates that the manufacturing sector is expanding . the ism index was 51.5 % for the month of september 2012 and 23 averaged 52.0 % during our fiscal year 2012. details released with the most recent index indicate that economic activity in the manufacturing sector related to new orders , employment , and inventory , are growing whereas production is contracting . there remains uncertainty relating to the current economic environment as the recent measurement trend indicates that the manufacturing sector is contracting . the ism was trending above 50.0 % during the first nine months of our fiscal year 2012 and dropped below 50 % in june 2012 for the first time since july 2009 and remained slightly below 50.0 % during our fourth quarter of fiscal 2012. this recent declining trend has contributed to heightened caution about future growth rates of the u.s. manufacturing economy . there are increasing concerns relating to macroeconomic factors and the potential impact of the european debt crisis on the u.s. also , current high unemployment rates , uncertainty relating to the upcoming presidential election , and the instability in the housing market may influence our customers to become more cautious in their purchases of msc 's products . in addition , growth in sales to governmental agencies continues to be constrained by the government spending environment . sales to our government accounts represented approximately 9 % of our total sales for the fiscal year ended september 1 , 2012. we are continuing to take advantage of our strong balance sheet , which enables us to maintain or extend credit to our credit worthy customers and maintain optimal inventory and service levels to meet customer demands during these challenging economic conditions , while many of our smaller competitors in our fragmented industry continue to have difficulties in offering competitive service levels . we also believe that customers will continue to seek cost reductions and shorter cycle times from their suppliers . our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customers ' needs . we will seek to continue to drive cost reduction throughout our business through cost saving strategies and increased leverage from our existing infrastructure , and continue to provide additional procurement cost savings solutions to our customers through technology such as our cmi , vmi , and vending programs . story_separator_special_tag temporary impact of lower gross profit margins from acquired businesses and our vending programs . we expect gross margins to increase in the first quarter of fiscal 2013 from fiscal year 2012 levels as a result of a price increase in the later part of fiscal 2012 in conjunction with the release of our 2012 catalogs . however , price increases are constrained as we continue to experience aggressive pricing pressure from our competition . story_separator_special_tag gross profit margin increased in fiscal 2011 primarily as a result of the increase in pricing as well as increased vendor rebates , due to increased inventory purchases to support higher sales volumes . we incorporated a price increase on the first day of fiscal 2011 in conjunction with the release of our 2011 catalogs . in addition , we took an additional mid-year price adjustment , which was partially attributable to commodities inflation , which had begun to impact market pricing . in addition , customer mix has positively impacted gross profit margin in fiscal 2011 as compared to fiscal 2010 , as our business other than our large account customers , which we refer to as our remaining business , comprised a larger portion of our sales growth and our remaining business typically generates higher gross profit margins . 26 operating expenses replace_table_token_13_th the decrease in operating expenses as a percentage of net sales for fiscal years 2012 and 2011 as compared to their respective prior years was primarily a result of productivity gains and the allocation of fixed expenses over a larger revenue base . the increase in operating expenses in dollars for fiscal 2012 , as compared to fiscal 2011 , was primarily a result of increases in payroll and payroll related costs , freight , other costs associated with our investment programs which included costs associated with our infrastructure investments , acquisition-related operating expenses , as well as additional costs associated with the extra week in fiscal 2012. in addition , we incurred operating expenses of approximately $ 1.2 million in fiscal 2012 related to the establishment of our new co-located headquarters in davidson , north carolina . the increase in operating expenses in dollars for fiscal 2011 , as compared to fiscal 2010 , was primarily a result of increases in payroll and payroll related costs , freight , and acquisition-related operating expenses . this was partially offset by a decrease in advertising expenses , resulting from reduced numbers of catalogs and brochures produced and mailed as we continue to refine our targeting as well as a shift of more of our business to electronic channels in fiscal 2011. payroll and payroll related costs represented approximately 54.8 % , 55.2 % , and 55.9 % of total operating expenses in fiscal 2012 , fiscal 2011 , and fiscal 2010 , respectively . included in these costs are salary , incentive compensation , fringe benefits , and sales commission . these costs increased in fiscal 2012 as compared to fiscal 2011 as a result of increased fringe benefit costs and an increase in our staffing levels primarily related to sales associates , other program development and volume related positions to support our growth initiatives as well as significant investments in vending programs . these costs increased in fiscal 2011 as compared to fiscal 2010 as a result of increased sales commissions , an increase in fringe benefit costs , which includes the reinstatement of our matching contribution under our 401 ( k ) savings plan for all eligible associates , and an increase in our field sales associate staffing levels to support our growth initiatives . we experienced an increase in the medical costs of our self-insured group health plan in fiscal 2012 as compared to fiscal 2011. this is a result of both an increase in the average cost per claim and an increase in the number of medical claims filed by participants . the average cost per claim increased by 6.8 % in fiscal 2012 as compared to fiscal 2011. higher inpatient hospital costs were the largest contributor to these cost increases . in addition , the number of medical claims filed increased 9.4 % in fiscal 2012 as compared to fiscal 2011 , which is driven by increased associate participation in the plan . the average cost per claim remained approximately the same in fiscal 2011 as compared to fiscal 2010. the number of medical claims filed increased 6.5 % in fiscal 2011 as compared to fiscal 2010. while it is uncertain as to whether the medical costs will continue to increase in fiscal 2013 , medical cost inflation continues to rise as does the size of our insured population . freight costs represented approximately 15.4 % , 15.6 % , and 15.4 % of total operating expenses in fiscal 2012 , fiscal 2011 , and fiscal 2010 , respectively . these costs increased primarily as a result of increased sales volume . 27 income from operations replace_table_token_14_th income from operations for fiscal 2012 was $ 412.2 million , an increase of $ 62.5 million , or 17.9 % as compared to fiscal 2011 , and as a percentage of net sales , increased to 17.5 % in fiscal 2012 from 17.3 % in fiscal 2011. the dollar increase in income from operations for fiscal 2012 was primarily attributable to the increase in net sales and gross profit , offset in part by the increase in operating expenses as described above . for fiscal 2012 compared to fiscal 2011 , income from operations as a percentage of net sales increased due to the distribution of expenses over a larger revenue base , partially offset by the decrease in the gross margin percentage . income from operations for fiscal 2011 was $ 349.8 million , an increase of $ 107.9 million , or 44.6 % compared to fiscal 2010 , and as a percentage of net sales , increased to 17.3 % in fiscal 2011 from 14.3 % in fiscal 2010. the dollar increase in income from operations for fiscal 2011 was primarily attributable to the increase in net sales and gross profit , offset in part by the increase in operating expenses as described above . for fiscal 2011 compared to fiscal 2010 , income from operations as a percentage of net sales increased due to productivity gains , the distribution of expenses over a larger revenue base , in addition to the increase in the gross margin percentage .
| of the above $ 330 million increase in net sales , our large account customer business increased by approximately $ 80 million and there was an increase in our remaining business of approximately $ 250 million . 24 the table below shows the pattern to the change in our fiscal quarterly and annual average daily sales from the same periods in the prior fiscal year : average daily sales percentage change total company replace_table_token_9_th ( 1 ) the fourth quarter of fiscal 2012 contained fourteen weeks . the trends noted above can be explained by our sales by customer type . approximately 75 % of our business is with manufacturing customers and our non-manufacturing customers represent approximately 25 % of our business . the tables below show the pattern to the change in our fiscal quarterly and annual average daily sales by customer type from the same periods in the prior fiscal year : average daily sales percentage change manufacturing customers replace_table_token_10_th ( 1 ) the fourth quarter of fiscal 2012 contained fourteen weeks . average daily sales percentage change non-manufacturing customers replace_table_token_11_th ( 1 ) the fourth quarter of fiscal 2012 contained fourteen weeks . during the fiscal years ended september 1 , 2012 and august 27 , 2011 , our revenue growth was primarily a function of both a growing manufacturing economy , which positively impacted our sales to manufacturing customers , and gains in market share , which positively impacted our sales to both manufacturing and non-manufacturing customers . however , as indicated by the recent ism measurements and our fiscal fourth quarter sales growth rates , the manufacturing sector is growing at a slower rate . we believe our market share improvements are evidenced by many data points , including measuring sales by end market against peers where data is available , data showing that msc 's growth is well in excess of market indices and competitors , an increase in the number of customers served , and extensive supplier feedback on point
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due to the impacts of the covid-19 pandemic , one of our contract manufacturers implemented a reduced work schedule and additional precautions which resulted in delays relating to the manufacture of xhance in second quarter 2020 but did not result in an interruption to commercial or clinical supply . as of december 31 , 2020 , all of our manufacturers were manufacturing xhance finished goods on time . additionally , we believe we are maintaining appropriate levels of finished product inventories in the event of future supply 77 disruption ; however , the duration and magnitude of a future negative impact from the covid-19 pandemic could constrain our supply of xhance . previous guidance related to the expected timing of results from our two ongoing chronic sinusitis clinical trials indicated that top-line results from both trials would be available in the second half of 2021. pauses in patient enrollment due to factors related to the covid-19 pandemic have had , and may continue to have , varying effects in different geographies and over time have led to a change in our projected timeline for initial data availability and may lead to additional changes in the future . we now expect top-line from at least one of our ongoing chronic sinusitis trials by the end of 2021 and for the other trial in the first half of 2022. for those subjects currently participating in these studies , procedures to facilitate ongoing treatment and capture of data during periods of in-person care restrictions have been put in place . in light of the uncertainties created by the covid-19 pandemic , in may 2020 we announced actions to reduce 2020 operating expenses while preserving our ability to drive xhance growth and successfully complete our ongoing chronic sinusitis trials . these expense reductions included a reprioritization of project spending , a reduction in payroll costs , and lower near-term clinical trial expenses as the result of temporarily paused patient enrollment at research sites in response to the acute covid-19 environment . the full impact of the covid-19 pandemic on our business is still unknown . it is likely to continue to have adverse impacts on xhance prescription growth and net revenues as a result of fewer patients visiting physician offices , restrictions imposed by some physician offices relating to territory managers ' visits , increased unemployment adversely affecting demand and payor mix , and the availability and cost of capital for us to fund our business operations and service our debt . we will continue to assess the evolving impact of the covid-19 pandemic and will make adjustments to our operations as necessary . additional business updates we track and report metrics that we believe are an important part of assessing our progress in key strategic areas including : xhance prescriptions and market share . based on third-party prescription data as well as data from ppn partners , the total estimated number of xhance prescriptions in the fourth quarter of 2020 was 73,900 , which represents 36 % growth for prescriptions when compared to estimated fourth quarter 2019 prescriptions of 54,300. the ins prescription market decreased approximately 13 % from fourth quarter 2019 to fourth quarter 2020 based on third-party prescription data . in addition , the total estimated number of xhance prescriptions was 56,100 in the first quarter of 2020 , 62,500 in the second quarter of 2020 , and 69,000 in the third quarter of 2020. a seasonal effect has historically been observed in the ins prescription market in which market volume generally peaks near the middle of the second quarter and declines into the early part of the third quarter of each calendar year . as a result of the covid-19 pandemic , ins prescription market volumes did not experience the expected peak in the second quarter of 2020. based on third-party prescription data , ins market prescriptions increased 8 % from the fourth quarter of 2019 to the first quarter of 2020 , decreased 16 % from the first quarter of 2020 to the second quarter of 2020 , decreased 6 % from the second quarter of 2020 to the third quarter of 2020 , and increased 2 % from the third quarter of 2020 to the fourth quarter of 2020. in addition , based on third-party prescription data , ins market prescriptions were flat from full year 2018 to full year 2019 , and decreased 7 % from full year 2019 to full year 2020. although the underlying disease that we are treating is chronic and causes symptoms year-round , we believe the variation in patient flow through the offices of relevant physician specialists , and seasonality in disease flare-ups , has an impact on the number of patients that present themselves and who are therefore available to receive a new prescription for xhance . demand has historically been , and we expect will continue to be , impacted by the ins market seasonality and the seasonal variation in patient visits with their doctor resulting in reduced xhance prescription demand in the third quarter . additionally , as we experienced in 2020 , we expect that the first quarter prescription demand and average net revenue per prescription for xhance will be adversely impacted in 2021 and future years by the annual resetting of patient healthcare insurance plan deductibles and changes in individual patients ' healthcare insurance coverage , both of which often occur in january . we track the market share of xhance within our current target audience . for this purpose , we calculate market share as the proportion of xhance prescriptions to the number of prescriptions written for other 78 ins within our current target audience of approximately 18,000 physicians . our target physician audience includes all ent and allergy specialist physicians who , based on third-party data , write intranasal steroid spray prescriptions . in addition , our current target audience includes specialty-like primary care physicians called on by our territory managers or kaléo sales representatives . story_separator_special_tag prior to the fourth quarter 2020 initiation of xhance co-promotion by kaléo , our target audience included approximately 10,000 physicians called on by optinose sales territory managers . we believe market share , in addition to xhance prescription volume , provides important information regarding xhance utilization because market share normalizes xhance prescriptions for market effects including the ins market seasonality , seasonal variation in patient visits with their doctor , annual deductible resets and annual changes in individual patient 's healthcare insurance coverage referenced above . based on third-party prescription data as well as data from ppn partners , we estimate xhance had a market share in our current target audience of 18,000 physicians of 3.4 % in the fourth quarter of 2019 , 3.4 % in the first quarter of 2020 , 4.4 % in the second quarter of 2020 , 4.9 % in the third quarter of 2020 , and 5.1 % in the fourth quarter of 2020. note that most of the ins prescriptions written within our target physician audience are for chronic sinusitis , allergic rhinitis and other conditions outside of our nasal polyp indication . our target physician audience is subject to revision each quarter to account for changes such as revised sales target prioritization , and physician retirements . changes to the target physician audience can contribute some of the quarter over quarter change in market share . xhance new prescriptions and refill prescriptions . the underlying disease that we are treating is chronic and , as a result , many patients may fill multiple prescriptions per year . we monitor new prescriptions as they create the potential for future refill prescriptions . based on third-party prescription data as well as data from ppn partners , the total estimated number of xhance new prescriptions in the fourth quarter of 2020 was 24,600 , which represents 16 % growth for new prescriptions when compared to estimated fourth quarter 2019 new prescriptions of 21,200. in addition , the total estimated number of xhance new prescriptions was 22,300 in first quarter 2020 , 18,700 in second quarter 2020 , and 23,000 in third quarter 2020. based on third-party prescription data , the ins market for new prescriptions decreased 21 % from the fourth quarter of 2019 to the fourth quarter of 2020 and increased 5 % from the third quarter of 2020 to the fourth quarter of 2020. in addition , based on third-party prescription data , the ins market for new prescriptions increased 13 % from the fourth quarter of 2019 to the first quarter of 2020 , decreased 30 % from the first quarter of 2020 to the second quarter of 2020 , decreased 5 % from the second quarter of 2020 to the third quarter of 2020 , and increased 5 % from the third quarter of 2020 to the fourth quarter of 2020. in addition , based on third-party prescription data , the ins market for new prescriptions increased 1 % from full year 2018 to full year 2019 , and decreased 13 % from full year 2019 to full year 2020 we track refill prescriptions and provide patient assistance to support refill programs that are administered by our ppn partners . based on third-party prescription data as well as data from ppn partners , the total estimated number of xhance refill prescriptions in the fourth quarter of 2020 was 49,300 , which represents 49 % growth for refill prescriptions when compared to estimated fourth quarter 2019 refill prescriptions of 33,000. in addition , the total estimated number of xhance refill prescriptions was 33,700 in first quarter 2020 , 43,800 in second quarter 2020 , and 46,100 in third quarter 2020. prescribing breadth and depth . we track the number of physicians who prescribe xhance in a time period to evaluate the breadth of prescribing . based on third-party prescription data as well as data from ppn partners , the total estimated number of physicians who had at least one patient fill a prescription for xhance in the fourth quarter of 2020 was 6,708 , which represents 14 % growth when compared to the estimated 5,859 physicians who had at least one patient fill a prescription for xhance in the fourth quarter of 2019. in addition , the total estimated number of physicians who had at least one patient fill a prescription for xhance was 6,345 in the first quarter of 2020 , 6,209 in the second quarter of 2020 , and 6,443 in the third quarter of 2020. we also track the number of prescriptions filled by a prescribing physician 's patients in a time period to evaluate depth of prescribing . based on third-party prescription data as well as data from ppn partners , the total estimated number of physicians who had more than 15 xhance prescriptions filled by their patients in the fourth quarter of 2020 was 1,275 , which represents 54 % growth when compared to the estimated 828 physicians who had more than 15 xhance prescriptions filled by their patients in the fourth quarter of 2019. in addition , the total estimated number of physicians who had more than 15 xhance prescriptions filled by their patients was 895 in the first quarter of 2020 , 1,028 in the second quarter of 2020 , and 1,153 in the third quarter of 2020 . 79 xhance net product revenues per prescription . we calculate average net product revenues per prescription , one metric that we use to gauge the profitability of xhance , by dividing net product revenues for the quarter by the estimated number of xhance prescriptions dispensed during the quarter . xhance net product revenues per prescription were $ 204 in the fourth quarter of 2019 , $ 126 in the first quarter of 2020 , $ 164 in the second quarter of 2020 , $ 224 in the third quarter of 2020 , and $ 211 in the fourth quarter of 2020. xhance development update in addition to xhance 's existing indication for the treatment of nasal polyps , in order to broaden our u.s.
| selling , general and administrative expense selling , general and administrative expenses were $ 105.4 million and $ 104.2 million for the years ended december 31 , 2020 and 2019 , respectively . the $ 1.2 million increase was due primarily to : a $ 5.1 million increase in service fees paid to our ppn partners , as a result of a greater number of xhance prescriptions dispensed by our ppn partners ; ▪ a $ 1.9 million increase in personnel expenses , including stock compensation , due to increases in headcount ; ▪ a $ 0.8 million increase in insurance and infrastructure expenses ; ▪ a $ 0.7 million increase in bad debt expense ; and ▪ a $ 0.4 million increase in market access expenses . this increase was offset by : ▪ a $ 5.1 million decrease related to delayed expenses and or expenses not incurred as a result of the impact of covid-19 on business operations , including marketing and selling efforts , including travel ; ▪ a $ 1.7 million decrease in direct-to-consumer marketing expenses ; and ▪ a $ 0.9 million decrease in patent , legal , consulting and professional fees . interest ( income ) expense , net interest expense , net , was $ 12.6 million and $ 7.3 million for the years ended december 31 , 2020 and 2019 , respectively . the increase in interest expense , net , for the year ended december 31 , 2020 , was due to the increased principal balance of the pharmakon senior secured notes offset by interest income of $ 0.4 million . interest income decreased by $ 1.9 million as compared to the year ended december 31 , 2019 as a result of lower interest rates and lower average cash balances . other ( income ) expense , net other ( income ) expense , net , was $ ( 16,000 ) and $ 7.2 million for the years ended december 31 , 2020 and 2019 , respectively . other expense , net , for the year ended
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the term loan is being repaid in 19 quarterly installments of $ 893,000 which commenced in december 2008 , and a final payment of $ 8,033,000 due in august 2013. the revolving line of credit expires in august 2012 and any outstanding borrowings are to be repaid or refinanced on or before that time . the company expects that cash on hand and cash generated from operations will be adequate to meet its short-term liquidity requirements . as of june 30 , 2011 , the company 's unused sources of funds consisted principally of $ 3,077,000 in cash and $ 2,500,000 available under its revolving line of credit . on august 18 , 2008 , the company and its banks amended and restated the existing $ 25,000,000 revolving credit agreement . the amended facility was $ 50,000,000 and provides for a $ 25,000,000 revolving credit line as well as a $ 25,000,000 term portion of which the entire $ 25,000,000 was utilized to finance the asset purchase agreement as described in note 5 of the accompanying consolidated financial statements . the amended revolving credit agreement and term loan was amended in june 2009 to $ 11,100,000 and was secured by the accounts receivable , a portion of inventory , the company 's headquarters building in amityville , new york , certain other assets of napco security technologies , inc. and the common stock of three of the company 's subsidiaries . on october 28 , 2010 , the company entered into a second amended and restated credit agreement dated as of october 28 , 2010 among the company , as the borrower , capital one , n.a. , as a lender and hsbc bank usa , national association as lender , administrative agent and collateral agent ( the “ second amended agreement ” ) . the second amended agreement amended and restated the previous term loan and revolving credit facility and provides for a term loan of $ 16,070,000 and a revolving credit facility of $ 11,100,000. prior to closing on october 28 , 2010 , $ 11,100,000 was outstanding under the existing revolving credit facility and $ 17,856,000 was outstanding under the existing term loan . the second amended agreement provides for the same expiration dates and repayment schedule as stated above except for an accelerated payment of $ 1,786,000 , which was paid at closing and represents the payments previously scheduled for december 31 , 2010 and march 31 , 2011 under the term loan . in addition , the company repaid $ 1,000,000 of the revolving credit facility at closing . the post-closing balance of the term loan on october 28 , 2010 was $ 16,070,000 and the balance outstanding under the revolving credit facility was $ 10,100,000. the second amended agreement also provides for a libor interest rate option of libor plus 4.5 % in addition to the existing prime option of prime plus 4.0 % and financial covenants that better reflect the company 's current financial condition . in addition , the second amended agreement contains waivers for non-compliance with certain covenants in the previous facilities . the company 's obligations under the second amended agreement continue to be secured by the company 's headquarters in amityville , new york , certain other assets and the common stock of the company 's wholly-owned subsidiaries . 12 the agreements contain various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the restated agreement . management believes that current working capital and cash flows from operations as well as the anticipated renewal of its credit facilities described above will be sufficient to fund the company 's operations through at least the first quarter of fiscal 2013. the company takes into consideration a number of factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , 2011 , the company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business . on april 26 , 1993 , the company 's foreign subsidiary entered into a 99-year land lease of approximately 4 acres of land in the dominican republic , at an annual cost of approximately $ 288,000. on august 18 , 2008 , the company , pursuant to an asset purchase agreement with marks , acquired substantially all of the assets and business for $ 25 million , the repayment of $ 1 million of bank debt and the assumption of current liabilities . the marks business involves the manufacturing and distribution of door-locking devices . the company funded the acquisition with a term loan from its lenders as described above . the acquisition described above has been accounted for as a purchase and was valued based on management 's estimate of the fair value of the assets acquired and liabilities assumed . the estimates of fair value were subject to adjustment for a period of up to one year from the date of acquisition , and such adjustments were not material . costs in excess of identifiable net assets acquired were allocated to goodwill in the first quarter of fiscal 2009. this goodwill was written off in the quarter ended march 31 , 2010. in addition , the intangible asset relating to the marks trade name was deemed partially impaired as of june 30 , 2011. accordingly , the company recorded an impairment charge of $ 400,000 in the quarter ended june 30 , 2011. working capital . working capital increased by $ 25,683,000 to $ 29,185,000 at june 30 , 2011 from $ 3,502,000 at june 30 , 2010. the increase in working capital was primarily the result of the classification of the company 's outstanding debt under its term loan as a current liability at june 30 , 2010 , which has been subsequently classified as non-current pursuant story_separator_special_tag the term loan is being repaid in 19 quarterly installments of $ 893,000 which commenced in december 2008 , and a final payment of $ 8,033,000 due in august 2013. the revolving line of credit expires in august 2012 and any outstanding borrowings are to be repaid or refinanced on or before that time . the company expects that cash on hand and cash generated from operations will be adequate to meet its short-term liquidity requirements . as of june 30 , 2011 , the company 's unused sources of funds consisted principally of $ 3,077,000 in cash and $ 2,500,000 available under its revolving line of credit . on august 18 , 2008 , the company and its banks amended and restated the existing $ 25,000,000 revolving credit agreement . the amended facility was $ 50,000,000 and provides for a $ 25,000,000 revolving credit line as well as a $ 25,000,000 term portion of which the entire $ 25,000,000 was utilized to finance the asset purchase agreement as described in note 5 of the accompanying consolidated financial statements . the amended revolving credit agreement and term loan was amended in june 2009 to $ 11,100,000 and was secured by the accounts receivable , a portion of inventory , the company 's headquarters building in amityville , new york , certain other assets of napco security technologies , inc. and the common stock of three of the company 's subsidiaries . on october 28 , 2010 , the company entered into a second amended and restated credit agreement dated as of october 28 , 2010 among the company , as the borrower , capital one , n.a. , as a lender and hsbc bank usa , national association as lender , administrative agent and collateral agent ( the “ second amended agreement ” ) . the second amended agreement amended and restated the previous term loan and revolving credit facility and provides for a term loan of $ 16,070,000 and a revolving credit facility of $ 11,100,000. prior to closing on october 28 , 2010 , $ 11,100,000 was outstanding under the existing revolving credit facility and $ 17,856,000 was outstanding under the existing term loan . the second amended agreement provides for the same expiration dates and repayment schedule as stated above except for an accelerated payment of $ 1,786,000 , which was paid at closing and represents the payments previously scheduled for december 31 , 2010 and march 31 , 2011 under the term loan . in addition , the company repaid $ 1,000,000 of the revolving credit facility at closing . the post-closing balance of the term loan on october 28 , 2010 was $ 16,070,000 and the balance outstanding under the revolving credit facility was $ 10,100,000. the second amended agreement also provides for a libor interest rate option of libor plus 4.5 % in addition to the existing prime option of prime plus 4.0 % and financial covenants that better reflect the company 's current financial condition . in addition , the second amended agreement contains waivers for non-compliance with certain covenants in the previous facilities . the company 's obligations under the second amended agreement continue to be secured by the company 's headquarters in amityville , new york , certain other assets and the common stock of the company 's wholly-owned subsidiaries . 12 the agreements contain various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the restated agreement . management believes that current working capital and cash flows from operations as well as the anticipated renewal of its credit facilities described above will be sufficient to fund the company 's operations through at least the first quarter of fiscal 2013. the company takes into consideration a number of factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , 2011 , the company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business . on april 26 , 1993 , the company 's foreign subsidiary entered into a 99-year land lease of approximately 4 acres of land in the dominican republic , at an annual cost of approximately $ 288,000. on august 18 , 2008 , the company , pursuant to an asset purchase agreement with marks , acquired substantially all of the assets and business for $ 25 million , the repayment of $ 1 million of bank debt and the assumption of current liabilities . the marks business involves the manufacturing and distribution of door-locking devices . the company funded the acquisition with a term loan from its lenders as described above . the acquisition described above has been accounted for as a purchase and was valued based on management 's estimate of the fair value of the assets acquired and liabilities assumed . the estimates of fair value were subject to adjustment for a period of up to one year from the date of acquisition , and such adjustments were not material . costs in excess of identifiable net assets acquired were allocated to goodwill in the first quarter of fiscal 2009. this goodwill was written off in the quarter ended march 31 , 2010. in addition , the intangible asset relating to the marks trade name was deemed partially impaired as of june 30 , 2011. accordingly , the company recorded an impairment charge of $ 400,000 in the quarter ended june 30 , 2011. working capital . working capital increased by $ 25,683,000 to $ 29,185,000 at june 30 , 2011 from $ 3,502,000 at june 30 , 2010. the increase in working capital was primarily the result of the classification of the company 's outstanding debt under its term loan as a current liability at june 30 , 2010 , which has been subsequently classified as non-current pursuant
| the decrease in interest expense is primarily the result of the decrease in interest rates charged by the company 's primary banks as well as the company 's reduction of its outstanding borrowings under its revolving line of credit and its term loan . other expenses increased $ 39,000 to $ 46,000 in fiscal 2011 as compared to $ 7,000 in fiscal 2010. the company 's benefit for income taxes for fiscal 2011decreased by $ 770,000 to a benefit of $ 314,000 as compared to a benefit of $ 1,084,000 for the same period a year ago . the decrease in the benefit for income taxes from fiscal 2010 to fiscal 2011 resulted primarily from the increase in net income as partially offset by r & d tax credits recognized in fiscal 2011. net income for fiscal 2011 increased by $ 7,621,000 to $ 1,121,000 as compared to $ ( 6,500,000 ) in fiscal 2010. this resulted primarily from the items discussed above . forward-looking information this annual report on form 10-k and the information incorporated by reference may include `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 and section 21e of the exchange act of 1934. the company intends the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements . all statements regarding the company 's expected financial position and operating results , its business strategy , its financing plans and the outcome of any contingencies are forward-looking statements . the forward-looking statements are based on current estimates and projections about our industry and our business . words such as `` anticipates , '' `` expects , '' `` intends , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' or variations of such words and similar expressions are intended to identify such forward-looking statements . the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements . for example , the company is highly dependent on its chief executive officer for strategic planning . if he is unable
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we believe our vertical integration strategy becomes increasingly more valuable as our customers transition to 800 gigabits per second ( “ gb/s ” ) per wavelength transmission speeds and beyond , as the combination of our optical integration , dsp , and tightly integrated packaging enables a leading optical performance at higher optical speeds . over time , we plan to integrate our optical engine technology into a broader set of transport platforms in order to enhance customer value and lower production costs . over the past several years , we expanded our portfolio of solutions , evolving from our initial focus on the long-haul and subsea optical transport markets to offering a more complete suite of packet-optical networking solutions that address multiple markets within the end-to-end transport infrastructure . we achieved this expansion both by developing products internally and through acquisitions of transmode ab in 2015 and coriant in 2018. in particular , our acquisition of coriant enhanced our ability to serve a global customer base and also enabled us to expand the breadth of customer applications we can address , including metro aggregation and switching , disaggregated routing , and software-enabled multi-layer network management and control . our high-speed optical transport platforms are differentiated by the infinite capacity engine ( ice ) , our optical engine technology . ice enables different subsystems that can be customized for a variety of network applications in different transport markets , including metro , dci , long-haul and subsea . our latest generation of available optical engine technology delivers multi-terabit opto-electronic subsystems powered by our fourth-generation pic and latest generation flexcoherent dsp ( the combination of which we market as “ ice4 ” ) . as part of the acquisition , we expanded our high-speed optical transport portfolio with 600 gb/s transmission capabilities powered by our cloudwave t technology , which enabled us to expand the high-speed transmission applications we can address . our products are designed to be managed by a suite of software solutions that enable end-to-end common network management , multi-layer service orchestration , and automated operations . we also provide software-enabled programmability that offers differentiated capabilities such as instant bandwidth . combined with our differentiated hardware solutions , instant bandwidth enables our customers to purchase and activate bandwidth as needed through our unique software licensing feature set . this , in turn , allows our customers to accomplish two key objectives : ( 1 ) limit their initial network startup costs and investments ; and ( 2 ) instantly activate new bandwidth as their customers ' and their own network needs evolve . we believe our end-to-end portfolio of solutions benefits our customers by providing a unique combination of highly scalable capacity and features that address various applications and ultimately simplify and automate packet-optical network operations . impact of covid-19 pandemic covid-19 was declared a global pandemic in march 2020. we have been and will continue monitoring and adjusting our operations , as appropriate , in response to the covid-19 pandemic . employees we have taken a number of precautionary steps to safeguard our business and our employees from the effects of the outbreak of covid-19 , including temporarily closing or substantially limiting the presence of personnel in our offices in several impacted locations , implementing travel restrictions and withdrawing from various industry events . since a large percentage of our workforce is accustomed to online work environments and online collaboration tools , we are able to remain productive and in contact with one another and our customers and vendors . for those employees who may need to be in offices , laboratory and manufacturing environments , or at business partner sites to perform their roles , we are taking appropriate measures to protect their health and safety and create and maintain a safe working environment . however , sustained restrictions on 47 the ability of our engineers to work in our offices as a result of restrictions imposed by governments , or us , has made and could continue to make it more difficult for them to collaborate as effectively as desired in the development of new products , which can affect development schedules . business operations in addition , we have implemented certain business continuity plans in response to the covid-19 pandemic in order to minimize any business disruption and to protect our supply chain , customer fulfillment sites and support operations . although we believe these actions have mitigated the impact of the covid-19 pandemic on our business , we have experienced some disruption and delays in our supply chain and manufacturing operations , logistics , and customer support operations , including shipping delays , higher transport costs , and certain limitations on our ability to access customer fulfillment and service sites . we are dependent on sole source and limited source suppliers for several key components , and we have experienced capacity issues , longer lead times and increased costs with certain of these component suppliers , impacting our operational processes and results of operations . we have also seen disruptions in customer demand , including due to delays in the customer certification process resulting from customer facility closures or access restrictions . during fiscal 2020 , some of these disruptions negatively impacted our revenue and our results of operations . the impact of the covid-19 pandemic on our business and results of operations in fiscal 2021 remains uncertain and is dependent in part on future infection rates , the emergence of new strains of the virus , the effectiveness and availability of vaccinations , and broader global macroeconomic developments . we continue to monitor the covid-19 pandemic and actively assess potential implications to our business , supply chain and customer demand . story_separator_special_tag if the covid-19 pandemic or its adverse effects become more severe or prevalent or are prolonged in the locations where we , our customers , suppliers or contract manufacturers conduct business , or we experience more pronounced disruptions in our operations , or in economic activity and demand generally , our business and results of operations in future periods could be materially adversely affected . liquidity and capital resources we have implemented measures to preserve cash and enhance liquidity , including suspending salary increases and bonuses , reducing salaries paid to a portion of our workforce , instituting a broad-based hiring freeze , significantly reducing business travel , reducing capital expenditures , and delaying or eliminating discretionary spending . we are also focused on managing our working capital needs , maintaining as much flexibility as possible around timing of taking and paying for inventory and manufacturing our products while managing potential changes or delays in installations . while we believe we have enough cash to operate our business for the next 12 months , if the impact of the covid-19 pandemic to our business and financial position is more extensive than expected , we may need additional capital to enhance liquidity and working capital . we have historically been successful in our ability to secure other sources of financing , such as accessing capital markets , and implementing other cost reduction initiatives such as restructuring , delaying or eliminating discretionary spending to satisfy our liquidity needs . however , our access to these sources of capital could be materially and adversely impacted and we may not be able to receive terms as favorable as we have historically received . capital markets have been volatile and there is no assurance that we would have access to capital markets at a reasonable cost , or at all , at times when capital is needed . in addition , some of our existing debt has restrictive covenants that may limit our ability to raise new debt , which would limit our ability to access liquidity by those means without obtaining the consent of our lenders . on august 12 , 2020 , we entered into the sales agreement with jefferies under which we issued and sold through jefferies , acting as agent and or principal , shares of our common stock having an aggregate offering price of $ 96.3 million , to raise funds for general corporate purposes , including working capital and capital expenditures . during the year ended december 26 , 2020 , we sold 12,000,000 shares of common stock under the sales agreement , for net proceeds of approximately $ 93.4 million , after paying jefferies a sales commission of approximately $ 2.9 million related to services provided as the sales agent with respect to the sales of those shares . 48 financial and business highlights total revenue was $ 1,355.6 million in 2020 as compared to $ 1,298.9 million in 2019 , a 4 % increase . the year over year increase in revenue was driven by revenue growth from service providers in apac and from key customers in the united states . this growth was partially offset by lower revenue from our cable vertical and a large european service provider which had strong revenue related to new deployments in the second half of 2019. in 2021 , we anticipate benefiting from a diversified customer base and see several prospective opportunities to grow revenue by driving adoption of new and existing solutions . our results will depend on overall market conditions and , as is typical , quarter-over-quarter revenue could be volatile , affected by the ongoing pandemic and more generally , customer buying patterns , supply chain disruptions and the timing of customer network deployments . gross margin increased to 30.2 % in 2020 from 25 % in 2019. the year over year increase in gross margin was primarily driven by lower integration and restructuring costs , which were higher in 2019 following the coriant acquisition in 2018 , and successful cost reductions stemming from enhanced manufacturing efficiencies as we benefited from site and systems consolidations that were completed during 2019. in 2020 , we continued to lower our fixed cost structure and practiced pricing discipline , particularly on products acquired in the acquisition . in 2021 , we intend to continue to improve our fixed cost structure and practice pricing discipline . additionally , with our ice6 platform we intend to expand our vertical integration capabilities across more of our product portfolio , which we expect will lower our cost structure and drive continued margin improvement over time . operating expenses declined to $ 564.0 million in 2020 from $ 676.2 million in 2019 , a 17 % decrease . this decrease was attributable to lower headcount costs , lower costs on travel related to the covid-19 pandemic , and lower integration and restructuring costs , which were higher in 2019 following the coriant acquisition . in 2021 , we intend to continue to balance prudent cost management with investments in technology innovation and other activities that will drive our future growth . one customer accounted for approximately 11 % and 13 % of our revenue in 2020 and 2019 , respectively . no other customers accounted for over 10 % of our revenue in 2020 or 2019. we primarily sell our products through our direct sales force , with the remainder sold indirectly through channel partners . we derived 77 % and 79 % of our revenue from direct sales to customers in 2020 and 2019 , respectively . in the future , we expect to continue generating a majority of our revenue from direct sales . we are headquartered in san jose , california , with employees located throughout north america , latam , emea and apac . 49 story_separator_special_tag integration strategy of lowering our cost structure by reducing headcount and transitioning costs to lower cost regions and variable cost models .
| in line with typical seasonality in our industry , we expect our total revenue will be lower in the first quarter of 2021 as compared to the fourth quarter of 2020 , as our customers take time to determine and operationalize their 2021 budgets . revenue by geographic region is based on the shipping address of the customer . the following table summarizes our revenue by geography and sales channel for the periods presented ( in thousands , except percentages ) : replace_table_token_4_th replace_table_token_5_th 51 2020 compared to 2019. domestic revenue increased by $ 2.3 million in 2020 compared to 2019 , primarily due to strong growth from icp customers . in 2020 , the growth from our icp vertical was nearly offset by moderate declines from certain cable and tier 1 customers . international revenue increased by $ 54.4 million , or 8 % , in 2020 compared to 2019. in this period , revenue in apac increased strongly due to certain large new deployments . we also enjoyed growth in other americas and in emea in 2020. indirect revenue increased $ 49.3 million , or 19 % primarily due to our growth in international revenue , where in certain regions we typically sell through channel partners as opposed to selling directly to customers . 2019 compared to 2018. domestic revenue increased by $ 151.3 million , or 32 % , in 2019 compared to 2018 , primarily attributable to the inclusion of coriant 's revenue for all of 2019 as compared to only the fourth quarter of 2018. in 2019 we saw a significant increase in spending from our icp and tier 1 verticals . growth was partially offset by lower spending from cable operators in 2019 , compared to a very strong 2018. international revenue increased by $ 204.2 million , or 44 % , in 2019 compared to 2018 , primarily attributable to the inclusion of coriant 's revenue for all of 2019 as compared to only the fourth quarter of 2018. additionally , we also benefited from increased ice4 sales to a key customer in europe . indirect revenue increased $ 161.9 million , or 155 % due to the acquisition , as coriant 's business
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woodbridge acquisition of bluegreen ; settlement of merger litigation on april 2 , 2013 , bluegreen merged with a wholly-owned subsidiary of woodbridge in a cash merger transaction ( sometimes hereinafter referred to as the “ bluegreen merger ” or the “ bluegreen cash merger ” ) . pursuant to the terms of the merger agreement , bluegreen 's shareholders ( other than woodbridge ) received consideration of $ 10.00 in cash for each share of bluegreen 's common stock that they held at the effective time of the merger , including unvested restricted securities . the aggregate merger consideration was approximately $ 149.2 million . as a result of the merger , bluegreen , which was the surviving corporation of the merger , became a wholly-owned subsidiary of woodbridge . prior to the merger , the company indirectly through woodbridge owned approximately 54 % of bluegreen 's outstanding common stock . woodbridge was a wholly-owned subsidiary of bfc prior to bbx capital 's investment in woodbridge . in connection with the financing of the merger , bfc and woodbridge entered into a purchase agreement with bbx capital on april 2 , 2013 ( the “ purchase agreement ” ) . pursuant to the terms of the purchase agreement , bbx capital invested $ 71.75 million in woodbridge contemporaneously with the closing of the merger in exchange for a 46 % equity interest in woodbridge . bfc continues to hold the remaining 54 % of woodbridge 's outstanding equity interests . bbx capital 's investment in woodbridge consisted of $ 60 million in cash , which was utilized to pay a portion of the aggregate merger consideration , and a promissory note in woodbridge 's favor in the principal amount of $ 11.75 million . several class action lawsuits were brought against bluegreen , the directors of bluegreen , bfc , woodbridge , certain directors and officers of bfc and others , which challenged the terms of the merger . the plaintiffs , former bluegreen shareholders , in the lawsuit sought the “ fair value ” of the shares of bluegreen 's common stock on behalf of bluegreen 's minority shareholders . on june 5 , 2015 , the parties in the action agreed to the settlement of the litigation . pursuant to the settlement , woodbridge paid $ 36.5 million , which amounts to approximately $ 2.50 per share , into a “ settlement fund ” for the benefit of former shareholders of bluegreen whose shares were acquired in connection with the merger ( the “ class ” ) . woodbridge used the proceeds from bbx capital 's repayment of its $ 11.75 million promissory note to woodbridge and additional capital contributions from bfc and bbx capital of $ 13.4 million and $ 11.4 million , respectively , based on their respective 54 % and 46 % ownership interests in woodbridge to fund the settlement fund . all litigation arising from or relating to the merger was dismissed with prejudice , together with a full release of bfc , bluegreen , woodbridge , bbx capital and others . bfc , bluegreen , woodbridge , bbx capital and all of the defendants denied and continue to deny that any of them violated any laws or breached any duties to the plaintiffs or bluegreen 's former shareholders . 57 bluegreen the company 's consolidated financial statements include the results of operations of bluegreen . bfc owns a direct 54 % equity investment in woodbridge , bluegreen 's parent company . bbx capital , which is 81 % owned by bfc , owns the remaining 46 % equity interest in woodbridge . bluegreen comprises one of the two reportable segments of bfc . executive overview bluegreen corporation ( “ bluegreen ” or “ bluegreen vacations ” ) is a sales , marketing , and management company focused on the vacation ownership industry . bluegreen vacations markets , sells and manages vacation ownership interests in resorts , which are generally located in popular , high-volume , “ drive-to ” vacation destinations . the resorts in which bluegreen vacations markets , sells or manages vois were either developed or acquired by bluegreen , or were developed and are owned by third parties . bluegreen vacations earns fees for providing sales and marketing services to these third party developers . bluegreen vacations also earns fees by providing management services to the bluegreen vacation club and property owners ' associations , mortgage servicing , voi title services , reservation services , and construction design and development services . in addition , bluegreen vacations provides financing to fico ® score-qualified individual purchasers of vois , which generates significant interest income . in addition to bluegreen 's traditional vacation ownership operations , bluegreen has in recent years pursued a business strategy , referred to herein as the “ capital-light ” business strategy , involving activities that typically do not require the significant costs and capital investments generally incurred in connection with the acquisition and development of vois under bluegreen 's traditional vacation ownership business . bluegreen believes its capital-light business strategy enables it to leverage its expertise and existing infrastructure in resort management , sales and marketing , mortgage servicing , title services , and construction management to generate recurring revenues from third parties . bluegreen 's goal is for its capital-light business activities to become an increasing portion of its business over time ; however , these efforts may not be successful . as of december 31 , 2015 , bluegreen 's capital-light business activities consisted of the following : fee-based sales and marketing arrangements ; just-in-time inventory acquisition arrangements ; secondary market arrangements ; and other fee-based services . each of these categories is described below . fee-based sales and marketing arrangements in 2009 , bluegreen began offering sales and marketing services to third-party developers for a fee . under these arrangements , bluegreen sells third-party vois as bluegreen vacation club interests through its distribution network of sales offices , typically on a non-committed basis . story_separator_special_tag bluegreen seeks to structure its fee for these services to cover its selling and marketing costs , plus an operating profit . because the completed voi was built by a third-party , bluegreen is not at risk for the development financing of these projects and bluegreen has little to no capital requirements . notes receivable originated in connection with bluegreen 's sale of third party vois under commission-based arrangements are held by the third party developer , and in certain cases are serviced by bluegreen for a fee . bluegreen refers to sales made on behalf of third-party developers as “ fbs sales ” . just-in-time arrangements in 2013 , bluegreen began entering into agreements with third-party developers that allow bluegreen to buy voi inventory from time to time in close proximity to the timing of when bluegreen intends to sell such vois . bluegreen strives to enter into such arrangements on a non-committed basis , although bluegreen may engage in committed arrangements under certain circumstances . because the completed voi was built by a third-party , bluegreen is not at risk for the development financing of these projects . unlike fbs sales , receivables originated in connection with sales of just-in-time inventory are held by bluegreen . bluegreen refers to sales of inventory acquired through these arrangements as “ just-in-time sales ” . secondary market arrangements in 2012 , bluegreen began a program to acquire voi inventory from poas and other third parties on a non-committed basis , in close proximity to the timing of when bluegreen intends to sell such vois . such vois are typically obtained by the poas through foreclosure in connection with maintenance fee defaults , and are generally acquired by bluegreen at a significant discount . bluegreen refers to sales of inventory acquired through these arrangements as “ secondary market sales ” . 58 other fee-based services bluegreen also earns fees for providing management services to the bluegreen vacation club and to certain poas . in connection with the management services provided to the bluegreen vacation club , bluegreen manages the club reservation system and provides owner services as well as billing and collection services . in connection with bluegreen 's management of poas , bluegreen provides day-to-day management services , including oversight of housekeeping services , maintenance , and certain accounting and administrative services . as of december 31 , 2015 , bluegreen provided management services to 46 timeshare resort properties and hotels . other fee-based services also include the processing of sales of vois through bluegreen 's wholly-owned title company subsidiary , which earns title fees in connection with the closing of the voi transactions . bluegreen also generates fee-based income by providing construction , design and management services , and mortgage servicing . during the year ended december 31 , 2015 : · bluegreen generated “ free cash flow ” ( cash flow from operating activities less capital expenditures ) of $ 72.1 million compared to $ 129.5 million during 2014. capital expenditures incurred during 2015 relating to the construction of voi inventory at bluegreen/big cedar vacations ' resorts was the primary reason for this decrease . · bluegreen earned net income of $ 82.0 million compared to $ 69.0 million for 2014 . · system-wide sales of vois , which include sales of traditional inventory , secondary market sales , fbs sales , and just-in-time sales , were $ 552.7 million compared to $ 523.8 million during 2014 . · bluegreen sold $ 251.4 million of third-party inventory under fbs sales arrangements and earned sales and marketing commissions of $ 173.7 million in connection with those sales . during 2014 , bluegreen sold $ 221.3 million of third-party inventory under fbs sales arrangements and earned sales and marketing commissions of $ 144.2 million in connection with those sales . in addition , bluegreen sold $ 27.6 million of inventory under just-in-time sales arrangements , gross of equity trade allowances compared to $ 56.8 million during 2014. including bluegreen resort management , title services , construction management and other fee-based operations , and based on an allocation of bluegreen 's selling , marketing and field general and administrative expenses , bluegreen generated $ 77.3 million in pre-tax profits by providing fee-based services compared to $ 71.1 million during 2014 . · bluegreen sold $ 138.5 million of inventory under secondary market arrangements , gross of equity trade allowances compared to $ 88.3 million during 2014. during the year ended december 31 , 2015 and 2014 , 46 % and 50 % , respectively , of bluegreen 's voi sales were realized in cash within approximately 30 days from the contract date . see “ liquidity and capital resources ” below for additional information . bluegreen-woodbridge cash merger on april 2 , 2013 , woodbridge acquired all of the shares of bluegreen 's common stock not previously owned by woodbridge in a cash merger transaction . as a result , bluegreen became a wholly-owned subsidiary of woodbridge . woodbridge is currently owned 54 % by bfc and 46 % by bbx capital corporation . in connection with the merger , bluegreen issued $ 75 million of senior secured notes on march 26 , 2013 in a private transaction the proceeds of which were used to fund a portion of the merger consideration . seasonalit y bluegreen has historically experienced and expects to continue to experience seasonal fluctuations in its revenues and results of operations . this seasonality has resulted , and may continue to result , in fluctuations in bluegreen 's quarterly operating results . although bluegreen typically sees more potential customers at its sales offices during the quarters ending in june and september , ultimate recognition of the resulting sales during these periods may be delayed due to down payment requirements for recognition of real estate sales under gaap or due to the timing of development and the required use of the percentage-of-completion method of accounting . voi notes receivable and allowance for credit losses bluegreen offers financing to buyers of vois and accordingly , bluegreen is subject to the risk of defaults by these customers .
| during the year ended december 31 , 2015 charge-offs were $ 1.0 million compared to $ 7.2 million during the same 2014 period . the lower asset impairments for the year ended december 31 , 2015 compared to the same 2014 period resulted primarily from $ 8.6 million of impairments on two student housing rental facilities in tallahassee , florida during the year ended december 31 , 2014 compared to $ 1.8 million additional impairment on one of the student housing rental facilities in tallahassee , florida during the year ended december 31 , 2015. the $ 10.3 million decline in the equity in earnings of woodbridge resulted primarily from woodbridge 's $ 36.5 million settlement of litigation brought by bluegreen 's former shareholders related to woodbridge 's april 2013 acquisition of bluegreen as described in further detail under “ liquidity and capital resources ” . as bbx has a 46 % ownership interest in woodbridge , the $ 36.5 million settlement reduced bbx 's equity in earnings of woodbridge by $ 16.8 million for the year ended december 31 , 2015. the reduction in bbx 's equity in earnings of woodbridge as a consequence of the litigation settlement was partially offset by improved earnings at bluegreen . bluegreen 's net income attributable to shareholder was $ 68.0 million for the year ended december 31 , 2015 compared to $ 54.5 million during the comparable 2014 period . the decline in bbx reportable segment income for the year ended december 31 , 2014 compared to the same 2013 period resulted primarily from $ 36.7 million of lower recoveries from loan losses and a $ 18.9 million decline in interest income recoveries associated with the repayment of non-accrual loans . the above declines in bbx reportable segment income were partially offset by $ 11.8 million of higher equity earnings from bbx capital 's investment in woodbridge and lower interest expense associated with bb & t 's preferred interest in far . recoveries from loan losses and interest
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we continued to experience high recurring revenue renewal rates and witnessed a steady pick up in demand for our cloud-based solutions during this fiscal year . notwithstanding our strong recurring renewal rates and the recovery in the business environment during the second half of 2020 , our ability to predict how the pandemic will impact our results in future periods is limited . in light of the adverse impact of covid-19 on global economic conditions and our revenue , along with the uncertainty associated with the extent and timing of a potential recovery , during the first half of the year ended january 31 , 2021 , we implemented certain cost-reduction actions of varying durations . such actions included , but were not limited to , reducing our discretionary spending , decreasing capital expenditures , reconsidering the optimal uses of our cash and other capital resources , including with respect to our stock repurchases , and reducing workforce-related costs . based on the improved business environment and our financial performance during the second half of the year , we have in many cases resumed investments and other spending ; however , these actions may need to be reassessed depending on how the facts and circumstances surrounding the pandemic evolve and we continue to evaluate and may decide to implement further cost control strategies to help us mitigate the impact of the pandemic , if required . any such actions may have an adverse impact on us , particularly if they remain in place for an extended period . the ultimate impact of the covid-19 pandemic and the effects of the operational alterations we have made in response on our business , financial condition , liquidity , and financial results can not be predicted at this time . on march 27 , 2020 , the coronavirus aid , relief and economic security ( cares ) act was enacted and signed into u.s. law to provide economic relief to individuals and businesses facing economic hardship as a result of the covid-19 pandemic . the cares act did not have a material impact on our consolidated financial condition or results of operations as of and for the year ended january 31 , 2021. however , we have deferred the timing of employer payroll taxes and accelerated the refund of amt credits as permitted by the cares act . our business verint helps brands provide boundless customer engagement . for more than two decades , the world 's most iconic brands – including more than 85 of the fortune 100 companies – have trusted verint to provide the technology and domain expertise they require to effectively build enduring customer relationships . brands today are challenged by new workforce dynamics , ever-expanding customer engagement channels and exponentially more consumer interactions – often while facing limited budgets and resources . as a result , brands are finding it more challenging to deliver the desired customer experience . this creates an engagement capacity gap , which is widening as the digital transformation continues . organizations are increasingly seeking technology to close this gap , solutions that are based on ai and analytics to automate workflows across enterprise silos to optimize the workforce expense and to drive an elevated consumer experience . verint is uniquely positioned to help organizations close the capacity gap with our differentiated verint cloud platform . for all historical periods included in this annual report on form 10-k , we reported our business in two operating segments : customer engagement and cyber intelligence . for each of the years ended january 31 , 2021 , 2020 , and 2019 , our customer engagement segment represented approximately 65 % of our total revenue , while for each of those same years , our cyber intelligence segment represented approximately 35 % of our total revenue . key trends and factors that may impact our performance 32 in addition to the impact of the covid-19 pandemic discussed above , we see the following business trends and factors which may impact our performance : digital transformation is accelerating . long gone are the days when customer journeys were limited to phone calls into a contact center . today , customer journeys take place across many touchpoints in the enterprise and across many communication and collaboration platforms , with digital leading the way . customer touchpoints take place in contact centers , in back-office and branch operations , in ecommerce , in digital marketing , in self-service , and in customer experience departments . the breadth of customer touchpoints , the rapid growth in digital interactions , and the emergence of the new workforce – with humans and bots working together – are creating demand for new solutions . the engagement capacity gap is widening . brands are seeking to differentiate themselves by providing consumers with a strong brand experience . but they can not afford to do so by hiring more people . with the exponential growth in digital journeys and more demanding consumer expectations , organizations require more resources , but hiring more knowledge workers and further increasing workforce expenses is often not a sustainable solution . this creates an engagement capacity gap , and as the digital transformation accelerates , the gap is widening . brands are looking for new technology and solutions to help close the engagement capacity gap . the market is shifting rapidly to cloud-based , ai-driven solutions . to effectively address the engagement capacity gap , brands are seeking open , cloud-based solutions to break down silos and facilitate the sharing of data across enterprise functions . brand are also seeking to leverage ai and other advanced data analytic tools to reduce manual work , increase workforce efficiency , and manage the new workforce of humans and bots . cyber intelligence solutions business ( cognyte business ) as noted above , on february 1 , 2021 , we completed the spin-off of our former cyber intelligence solutions business ( also known as the cognyte business ) into an independent , publicly traded company called cognyte software ltd. ( “ cognyte ” ) . story_separator_special_tag cognyte is a global leader in security analytics software that empowers governments and enterprises with actionable intelligence® for a safer world . cognyte 's open software fuses , analyzes and visualizes disparate data sets at scale to help security organizations find the needles in the haystacks . over 1,000 government and enterprise customers in more than 100 countries rely on cognyte 's solutions to accelerate security investigations and connect the dots to successfully identify , neutralize , and prevent national security , personal safety , business continuity and cyber threats . cognyte 's government customers consist of governments around the world , including national , regional , and local government agencies . cognyte 's enterprise customers consist of commercial customers and physical security customers . see item 1 , “ business ” , of this report for more information on key trends that we believe are driving demand for our solutions and “ risk factors ” under item 1a of this report for a more complete description of risks that may impact future revenue and profitability . as discussed above , the current covid-19 pandemic is also a material factor that may negatively impact us and demand for our solutions . critical accounting policies and estimates an appreciation of our critical accounting policies is necessary to understand our financial results . the accounting policies outlined below are considered to be critical because they can materially affect our operating results and financial condition , as these policies may require us to make difficult and subjective judgments regarding uncertainties . the accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables , many of which are beyond our control , and there can be no assurance that our estimates are accurate . revenue recognition we derive and report our revenue in two categories : ( a ) product revenue , including licensing of software products , unbundled saas and the sale of hardware products ( which include software that works together with the hardware to deliver the product 's essential functionality ) , and ( b ) service and support revenue , including revenue from cloud deployments , bundled saas , hosting services , optional managed services , installation services , initial and renewal support , project management , product warranties , and business advisory consulting and training services . we account for a contract with a customer when it has written approval , the contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . we recognize revenue when control of the promised goods or services is 33 transferred to our customers , in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . products sold by us are delivered electronically , shipped from our facilities , or drop-shipped directly from the vendor . we generate all of our revenue from contracts with customers . we generally invoice a customer upon delivery , or in accordance with specific contractual provisions . payments are due as per contract terms and do not contain a significant financing component . we account for revenue in accordance with accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) . our revenue recognition policies require us to make significant judgments and estimates . in applying our revenue recognition policy , we must determine which portions of our revenue are recognized at a point in time ( generally product revenue ) and which portions must be deferred and recognized over time ( generally services and support revenue ) . we analyze various factors including , but not limited to , the selling price of undelivered services when sold on a stand-alone basis , our pricing policies , the creditworthiness of our customers , and contractual terms and conditions in helping us to make such judgments about revenue recognition . changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period . our contracts with customers often include promises to transfer multiple products and services to a customer . in contracts with multiple performance obligations , we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception . performance obligations that are not distinct at contract inception are combined . implementation , support , and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software . for bundled saas arrangements , we determine whether the services performed during the initial phases of an arrangement , such as setup activities , are distinct . in most cases , we consider our bundled saas arrangements to represent a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer ( i.e. , distinct days of service ) . we record deferred revenue attributable to certain process transition , setup activities where such activities do not represent separate performance obligations . the transaction price is generally in the form of a fixed fee at contract inception , and excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by us from a customer . we allocate the transaction price to each distinct performance obligation based on the estimated standalone selling price ( “ ssp ” ) for each performance obligation . judgment is required to determine the ssp for each distinct performance obligation . in instances where ssp is not directly observable , such as when we do not sell the product or service separately , we estimate the ssp of each performance obligation based on either a cost-plus-margin approach or an adjusted market assessment approach .
| operating income was $ 108.7 million in the year ended january 31 , 2021 compared to $ 87.9 million in the year ended january 31 , 2020. this increase in operating income was primarily due to a $ 18.2 million increase in gross profit , primarily reflecting increased gross profit in our cyber intelligence segment and a decrease in amortization of acquired technology intangible assets , and a $ 2.6 million decrease in operating expenses . the decrease in operating expenses consisted of a $ 10.6 million decrease in selling , general and administrative expenses and a $ 0.5 million decrease in amortization of other acquired intangible assets , partially offset by a $ 8.5 million increase in net research and development expenses . further details of changes in operating income are provided below . net loss attributable to verint systems inc. common shares was $ 14.9 million and net loss per common share was $ 0.23 in the year ended january 31 , 2021 , compared to net income attributable to verint systems inc. common shares of $ 28.7 million and diluted net income per common share of $ 0.43 in the year ended january 31 , 2020. the decrease in net income attributable to verint systems inc. per common share and diluted net income per common share in the year ended january 31 , 2021 was primarily due to a $ 57.9 million increase in total other expense , net primarily due to the change in fair value of the future tranche right issued in connection with our preferred stock , a $ 7.7 million increase in dividends on preferred stock , and a $ 0.2 million increase in net income attributable to our noncontrolling interests , partially offset by a $ 20.8 million increase in operating income , as described above , and a $ 1.3 million decrease in our provision for income taxes . further details of these changes are provided below . a portion of our business is conducted in currencies other than the u.s. dollar , and therefore
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accounting for acquisitions of real estate the acquisition of property for investment purposes is typically accounted for as an asset acquisition . we allocate the purchase price to land , building and identified intangible assets and liabilities , based in each case on their relative estimated fair values and without giving rise to goodwill . intangible assets and liabilities represent the value of in-place leases and above- or below-market leases . in making estimates of fair values , we may use a number of sources , including data provided by independent third parties , as well as information obtained by the company as a result our due diligence , including expected future cash flows of the property and various characteristics of the markets where the property is located . depreciation our real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of the properties , which generally ranges from 30 to 40 years for buildings and 10 to 20 years for improvements . impairments we review our real estate investments periodically for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . events or circumstances that may occur include , but are not limited to , significant changes in real estate market conditions or our ability to re-lease or sell properties that are vacant or become vacant . management determines whether an impairment in value has occurred by comparing the estimated future cash flows ( undiscounted and without interest charges ) , including the residual value of the real estate , with the carrying cost of the individual asset . an asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value . story_separator_special_tag margin-top : 6pt ; margin-bottom : 12pt '' > comparison of year ended december 31 , 2014 to year ended december 31 , 2013 minimum rental income increased $ 8,508,000 , or 21 % , to $ 49,403,000 in 2014 , compared to $ 40,895,000 in 2013. approximately $ 6,809,000 of the increase is due to the acquisition of 77 properties in 2014 and the full year impact of 18 properties acquired in 2013. approximately $ 2,158,000 of the increase is attributable to five development projects completed in 2014 and the full year impact of six development projects completed in 2013. these increases were partially offset by approximately $ 341,000 due to a reduction in minimum rental income from properties sold during 2014 that were owned for all of 2013 , and approximately $ 101,000 due to other minimum rental income adjustments . percentage rents increased to $ 160,000 in 2014 from $ 36,000 in 2013. the primary driver of the increase is properties acquired in 2013 for which we received percentage rent in 2014. operating cost reimbursements increased $ 1,257,000 , or 49 % , to $ 3,825,000 in 2014 , compared to $ 2,567,000 in 2013. operating cost reimbursements increased due to higher levels of recoverable property operating expenses as a result of our 2014 and 2013 acquisition and development activity . our portfolio recovery rate increased to 86.1 % in 2014 compared to 79.5 % in 2013. other income increased to $ 171,000 in 2014 from $ 19,000 in 2013. the primary driver of the increase was non-recurring fee income earned in 2014. real estate taxes increased $ 730,000 , or 36 % , to $ 2,766,000 in 2014 , compared to $ 2,035,000 in 2013. the increase was due to the ownership of additional properties in 2014 compared to 2013 for which we remit real estate taxes and are subsequently reimbursed by tenants . property operating expenses increased $ 486,000 , or 41 % , to $ 1,679,000 in 2014 , compared to $ 1,193,000 in 2013. the increase was primarily due to the ownership of additional properties in 2014 compared to 2013 which contributed to higher property maintenance , utilities and insurance expenses . our tenants subsequently reimbursed us for the majority of these expenses . land lease payments increased $ 44,000 , or 10 % , to $ 472,000 in 2014 , compared to $ 428,000 for 2013. the increase was the result a property acquired in 2014 that is subject to a land lease . general and administrative expenses increased $ 677,000 , to $ 6,629,000 in 2014 , compared to $ 5,952,000 in 2013. the increase was primarily due to an increase in the number of employees resulting in an increased employee cost of $ 582,000 and a net increase in other expenses of $ 66,000. general and administrative expenses as a percentage of total revenue decreased to 12.4 % for 2014 from 13.7 % in 2013. depreciation and amortization increased $ 2,614,000 , or 31 % , to $ 11,103,000 in 2014 , compared to $ 8,489,000 in 2013. the increase was primarily the result of the acquisition of 77 properties in 2014 and 18 properties in 2013. we recognized impairment charges of $ 3,020,000 in 2014 , including ( i ) $ 220,000 as a result of writing down the carrying value of petoskey town center , which was under contract for sale , but not classified as held for sale at september 30 , 2014 due to contingencies associated with the contract and ( ii ) $ 2,800,000 as a result of writing down the carrying value of chippewa commons due to an anchor tenant declining to exercise an extension option which would create a vacancy and diminished cash flows and resulted in a fair value that was less than the net book value of the asset . we recognized an impairment charge of $ 450,000 in 2013 as a result of writing down the carrying value of ironwood commons , which was under contract for sale , but not classified as held for sale at september 30 , 2013 due to contingencies associated with the contract . story_separator_special_tag this amount is reflected in discontinued operations in 2013. interest expense increased $ 2,112,000 , or 33 % , to $ 8,587,000 in 2014 , from $ 6,475,000 in 2013. the increase in interest expense was a result of higher levels of borrowings to finance the acquisition and development of additional properties in 2014 and 2013 , including a $ 65,000,000 unsecured term loan entered into in july of 2014 and a $ 35,000,000 unsecured term loan entered into in september of 2013 . 26 we recognized a net loss on sales of assets of $ 528,000 in 2014 which was attributable primarily to a $ 234,000 loss on the sale of chippewa commons in december 2014 and a $ 276,000 loss on the sale of a property in east lansing , michigan in august 2014 ( the property was subject to a purchase option exercised by the lessee ) . we also recognized a gain of $ 123,000 on the sale of the ironwood commons in january 2014. this gain was reflected in discontinued operations in 2014. in 2013 , we recognized a gain of $ 946,000 on the sale of a walgreens in ypsilanti , michigan . this gain was reflected in discontinued operations in 2013. income from discontinued operations was $ 15,000 in 2014 compared to $ 298,000 in 2013. income from discontinued operations in 2014 was attributable to ironwood commons which was classified as held for sale at december 31 , 2013 and subsequently sold in january 2014. income from discontinued operations in 2013 was attributable to ironwood commons , inclusive of the $ 450,000 impairment charge described above , and a walgreens in ypsilanti , michigan that was sold in january 2013. our net income decreased $ 1,277,000 , or 6 % , to $ 18,913,000 in 2014 , from $ 20,190,000 in 2013 as a result of the foregoing factors . liquidity and capital resources our principal demands for funds include payment of operating expenses , payment of principal and interest on our outstanding indebtedness , distributions to our stockholders and future property acquisitions and development . we expect to meet our short term liquidity requirements through cash provided from operations and borrowings under our credit facility . as of december 31 , 2015 , $ 18.0 million was outstanding on our credit facility and $ 132.0 million was available for future borrowings , subject to our compliance with covenants . we anticipate funding our long term capital needs through cash provided from operations , borrowings under our credit facility , the issuance of debt and the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . we continually evaluate alternative financing and believe that we can obtain financing on reasonable terms . however , there can be no assurance that additional financing or capital will be available , or that the terms will be acceptable or advantageous to us . capitalization as of december 31 , 2015 , our total market capitalization was approximately $ 1.0 billion . market capitalization consisted of $ 713.3 million of common equity ( based on the december 31 , 2015 closing price of our common stock on the nyse of $ 33.99 per share and assuming the conversion of op units ) and $ 319.6 million of total debt including ( i ) $ 101.6 million of mortgage notes payable ; ( ii ) $ 100.0 million of unsecured term loans ; ( iii ) $ 100.0 million of senior unsecured notes ; and ( iv ) $ 18.0 million of borrowings under our credit facility . our ratio of total debt to total market capitalization was 30.9 % at december 31 , 2015. at december 31 , 2015 , the non-controlling interest in our operating partnership consisted of a 1.7 % ownership interest in the operating partnership held by third parties . the op units may , under certain circumstances , be exchanged for our shares of common stock on a one-for-one basis . we , as sole general partner of the operating partnership , have the option to settle exchanged op units held by others for cash based on the current trading price of our shares . assuming the exchange of all op units , there would have been 20,984,920 shares of common stock outstanding at december 31 , 2015. debt revolving credit and term loan facility the company has in place a $ 250.0 million senior unsecured revolving credit and term loan facility ( the “ revolving credit and term loan facility ” ) consisting of ( i ) a $ 150.0 million revolving credit facility ; ( ii ) a $ 65.0 million unsecured term loan facility due 2021 ( the “ 2021 term loan ” ) ; and ( iii ) a $ 35.0 million unsecured term loan facility due 2020 ( the “ 2020 term loan ” ) . the credit facility is due july 21 , 2018 , with an additional one-year extension at the company 's option , subject to customary conditions . borrowings under the credit facility are priced at libor plus 135 to 200 basis points , depending on the company 's leverage . as of december 31 , 2015 , $ 18.0 million was outstanding under the credit facility bearing a weighted average interest rate of approximately 1.7 % and $ 132.0 million was available for borrowing . 27 the 2021 term loan matures on july 21 , 2021. borrowings under the 2021 term loan are priced at libor plus 165 to 225 basis points , depending on the company 's leverage , and the company entered into interest rate swap agreements to fix libor at 2.09 % until maturity . as of december 31 , 2015 , $ 65.0 million was outstanding under the 2021 term loan bearing an effective interest rate of 3.74 % .
| 24 other income increased to $ 230,000 in 2015 from $ 171,000 in 2014. the primary driver of the increase is non-recurring fee income earned in 2015. real estate taxes increased $ 1,239,000 , or 45 % , to $ 4,005,000 in 2015 , compared to $ 2,766,000 in 2014. the increase is due to the ownership of additional properties in 2015 compared to 2014 for which we remit real estate taxes and are subsequently reimbursed by tenants . property operating expenses increased $ 89,000 , or 5 % , to $ 1,768,000 in 2015 , compared to $ 1,679,000 in 2014. the increase is primarily due to the ownership of additional properties in 2015 compared to 2014 which contributed to higher property maintenance , utilities and insurance expenses . our tenants subsequently reimbursed us for the majority of these expenses . land lease payments increased $ 134,000 , or 28 % , to $ 606,000 in 2015 , compared to $ 472,000 for 2014. the increase is the result of additional properties acquired in 2015 compared to 2014 that are subject to a land leases . general and administrative expenses increased $ 359,000 , to $ 6,988,000 in 2015 , compared to $ 6,629,000 in 2014. the increase is primarily due to an increase in the number of employees resulting in an increased employee cost of $ 214,000 and a net increase in other expenses of $ 145,000. general and administrative expenses as a percentage of total revenue decreased to 10.0 % for 2015 from 12.4 % in 2014. depreciation and amortization increased $ 5,383,000 , or 48 % , to $ 16,486,000 in 2015 , compared to $ 11,103,000 in 2013. the increase was primarily the result of the acquisition of 73 properties in 2015 and 77 properties in 2014. we had no impairment charges in 2015. we recognized impairment charges of $ 3,020,000 in 2014 , including ( i ) $ 220,000 as a result of writing down the carrying value of petoskey town center , which was under contract for sale , but not classified as held for sale at december 31 , 2014 due to contingencies associated with the contract and ( ii ) $ 2,800,000 as a result of writing down the carrying value of chippewa commons due to an anchor tenant declining to
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ler 's business is directly impacted by the effects of competition in the marketplace , the impacts of new pipeline infrastructure and surplus natural gas supplies on natural gas commodity prices . management expects that ler 's net economic earnings ( a non-gaap measure , as discussed below ) will continue to be negatively impacted by the expiration of favorable long-term natural gas supply contracts with the last such contract expiring on september 30 , 2013. in addition to its operating cash flows , ler relies on laclede group 's parental guarantees to secure its purchase and sales obligations of natural gas . ler also has access to laclede group 's liquidity resources . a large portion of ler 's receivables are from customers in the energy industry . ler also enters into netting arrangements with many of its energy counterparties to reduce overall credit and collateral exposure . although ler 's uncollectible amounts are closely monitored and have not been significant , increases in uncollectible amounts from customers are possible and could adversely affect ler 's liquidity and results . ler carefully monitors the creditworthiness of counterparties to its transactions . ler performs in-house credit reviews of potential customers and may require credit assurances such as prepayments , letters of credit , or parental guarantees when appropriate . credit limits for customers are established and monitored . as a result of new pipeline infrastructure , and an abundance of natural gas supply , regional price differences have narrowed resulting in reduced price volatility . this reduction in regional price differentials presents an opportunity for ler in its transportation capacity to enter into subsequent offsetting purchase or sale transactions at the same location . these arrangements allow ler to satisfy its commitments without incurring fuel costs to transport natural gas to a different location . thus , ler can not be certain that all of its wholesale purchase and sale transactions will settle physically . as such , certain transactions entered into in fiscal year 2013 are designated as trading activities for financial reporting purposes , due to their settlement characteristics , rather than elected for normal purchases or normal sales designations under generally accepted accounting principles ( gaap ) . results of operations from trading activities are reported on a net basis in gas marketing operating revenues , which may cause reductions in and or volatility in the company 's operating revenues , but has no effect on operating income or net income . 27 in the course of its business , ler enters into commitments associated with the purchase or sale of natural gas . in accordance with gaap , some of ler 's purchase and sale transactions are not recognized in earnings until the natural gas is physically delivered , while other energy-related transactions , including those designated as trading activities , are required to be accounted for as derivatives , with the changes in their fair value ( representing unrealized gains or losses ) recorded in earnings in periods prior to settlement . because related transactions of a purchase and sale strategy may be accounted for differently , there may be timing differences in the recognition of earnings under gaap and economic earnings realized upon settlement . the company reports both gaap and net economic earnings ( non-gaap ) , as discussed below . earnings the laclede group reports net income and earnings per share determined in accordance with gaap . management also uses the non-gaap measures of net economic earnings and net economic earnings per share when internally evaluating results of operations . these non-gaap measures exclude from net income the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions as well as acquisition , divestiture , and restructuring activities . these adjustments include timing differences where the accounting treatment differs from the economic substance of the underlying transaction , including the following : net unrealized gains and losses on energy-related derivatives that are required by gaap fair value accounting associated with current changes in the fair value of financial and physical transactions prior to their completion and settlement . these unrealized gains and losses result primarily from two sources : 1 ) changes in the fair values of physical and or financial derivatives prior to the period of settlement ; and , 2 ) ineffective portions of accounting hedges , required to be recorded in earnings prior to settlement , due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments ; lower of cost or market adjustments to the carrying value of commodity inventories resulting when the market price of the commodity falls below its original cost , to the extent that those commodities are economically hedged ; and , realized gains and losses resulting from the settlement of economic hedges prior to the sale of the physical commodity . acquisition , divestiture , and restructuring activities , when evaluating on-going performance these adjustments eliminate the impact of timing differences and the impact of current changes in the fair value of financial and physical transactions prior to their completion and settlement . unrealized gains or losses are recorded in each period until being replaced with the actual gains or losses realized when the associated physical transaction ( s ) occur . while management uses these non-gaap measures to evaluate both the utility and ler , the net effect of adjustments on the utility 's earnings is minimal because gains or losses on its natural gas derivative instruments are deferred pursuant to its pga clause , as authorized by the mopsc . management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement and other timing differences associated with related purchase and sale transactions provides a useful representation of the economic effects of only the actual settled transactions and their effects on results of operations . story_separator_special_tag when calculating net economic earnings per share , management excludes from the weighted average number of shares the impact of the may 2013 equity issuance , completed relating to the mge acquisition . management believes that this presentation provides a useful representation of operating performance by facilitating comparisons of year-over-year results . these internal non-gaap operating metrics should not be considered as an alternative to , or more meaningful than , gaap measures such as net income . reconciliations of net economic earnings and net economic earnings per share to the company 's most directly comparable gaap measures are provided below . 28 overview – net income ( loss ) replace_table_token_8_th * amounts presented net of income taxes . income taxes are calculated by applying federal , state , and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items . for the fiscal years ended 2013 , 2012 , and 2011 the net income tax effect included in the reconciling items above was $ 7.5 million , $ 0.0 million , and $ 0.9 million , respectively . * * net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings ( losses ) in the gaap diluted earnings per share calculation . also , net economic earnings per share exclude the impact of the may 2013 equity offering to fund the pending acquisition of mge . the weighted-average diluted shares used in the net economic earnings per share calculation for the fiscal year ended september 30 , 2013 was 22.5 million compared to 26.0 million in the gaap eps calculation . 2013 vs. 2012 consolidated laclede group 's net income was $ 52.8 million in fiscal year 2013 , including net income of $ 1.8 million related to mge , compared with $ 62.6 million in fiscal year 2012 . basic and diluted earnings per share were $ 2.03 and $ 2.02 respectively for fiscal year 2013 compared with basic and diluted earnings per share of $ 2.80 and $ 2.79 respectively for fiscal year 2012. net economic earnings were $ 65.0 million in fiscal year 2013 , compared with $ 62.6 million in fiscal year 2012 . net economic earnings per share were $ 2.87 in fiscal year 2013 , compared with $ 2.79 for fiscal year 2012. earnings decreased in fiscal year 2013 compared to fiscal year 2012 primarily due to acquisition costs incurred during the period recorded in other partially offset by higher income reported by gas utility . additionally , earnings were impacted by decreased income from the gas marketing segment . the increase is primarily attributed to acquisition related items that are excluded from net economic earnings . 29 gas utility gas utility net income and net economic earnings increased by $ 8.1 million and $ 8.6 million , respectively , in 2013 , compared with 2012. of the $ 8.1 million increase in net income , $ 1.8 million is attributed to the acquisition of mge . the remaining increase was primarily due to ( on a pre-tax basis ) higher operating margin ( a non-gaap measure , as discussed below ) of $ 18.9 million . these benefits were partially offset by higher depreciation and amortization expenses totaling $ 5.0 million , higher operation and maintenance expenses totaling $ 4.0 million , and higher interest expense totaling $ 1.0 million . gas marketing gas marketing reported gaap earnings totaling $ 7.6 million , a decrease of $ 4.7 million compared with the same period last year . net economic earnings for fiscal year 2013 decreased $ 3.4 million from fiscal year 2012. the decreases in net income and net economic earnings was primarily attributable to decreases in operating margin , as discussed below . on a gaap basis , ler 's results were further impacted by the effect of higher net unrealized losses from certain of ler 's energy-related derivative contracts and the impact of lower of cost or market inventory adjustments . other other net income and other net economic earnings decreased $ 13.2 million and $ 2.8 million , respectively , compared with the same period last year . the decrease in net income is primarily due to incremental expenses in fiscal year 2013 as compared to fiscal year 2012 attributable to the acquisition of mge and pending acquisition of neg from sug totaling $ 10.5 million , net of tax , and other minor variations . operating revenues and operating expenses in addition to operating revenues and operating expenses , management also uses the non-gaap measure of operating margin when evaluating result of operations , as shown in the table below . the utility passes on ( subject to prudence review by the mopsc ) increases and decreases in the wholesale cost of natural gas in accordance with its pga clause to their customers . the volatility of the wholesale natural gas market results in fluctuations from period to period in the recorded levels of , among other items , revenues and natural gas cost expense . nevertheless , increases and decreases in the cost of gas associated with system gas sales volumes have no direct effect on operating income . reconciliations of operating margin to the most directly comparable gaap measure are shown below . 30 replace_table_token_9_th consolidated laclede group reported operating revenues of $ 1,017.0 million for the fiscal year ended september 30 , 2013 compared with $ 1,125.5 million for the same period last year . laclede group 's operating margin increased $ 26.2 million for the twelve months ended september 30 , 2013 , compared to the same period last year primarily due , to higher gas utility operating margin , partially offset by lower operating margin reported by gas marketing as discussed below . remaining operating expenses were $ 274.0 million for the twelve months end september 30 , 2013 , compared with $ 233.7 million last year .
| on february 11 , 2013 , the company entered into an agreement with algonquin power & utilities corp. ( apuc ) that will allow an apuc subsidiary , through its acquisition of the stock of plaza massachusetts , to acquire the company 's rights to purchase the assets of neg , subject to certain approvals and conditions . in order to close the neg transaction , approval by the massachusetts department of public utilities ( mdpu ) of the acquisition of the assets of neg by the apuc subsidiary must be received . on july 2 , 2013 , the utility and other parties to the case filed a unanimous stipulation and agreement with the mopsc that authorized the utility to complete the acquisition of mge , subject to certain conditions , including restrictions relative to the timing of filing for general rate increases and reporting requirements . this unanimous stipulation and agreement was approved by the mopsc on july 17 , 2013. effective september 1 , 2013 , the utility closed on the purchase of mge assets and liabilities . the sale of neg to apuc is still pending before the mdpu . the acquisition agreement contains certain termination rights for both the company and sug , including , among others , the right to terminate if the transaction is not completed by october 14 , 2013 ( subject to up to four 30-day extensions under certain circumstances related to obtaining required regulatory approvals ) . the company and sug agreed to extend the neg purchase agreement until december 14 , 2013 to enable the mdpu to complete its review process . nonetheless , there can be no assurance that apuc will be able to satisfy all of the required conditions on or before the end of the extension periods . the company 's agreement to acquire neg remains in effect if apuc can not satisfy the conditions for closing before the expiration of the extension periods . laclede energy resources , inc. ( ler ) is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the gas marketing segment . ler markets natural gas to both on-system utility transportation customers and customers outside of the utility 's traditional service territory , including large retail and wholesale customers . ler 's operations and customer base are more subject
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nursing revenue summary below is a summary of the nursing active degree-seeking student body as a percentage of the total active degree-seeking student body over the past seven fiscal quarters , as well as the nursing degree-seeking revenue as a percentage of total revenues . replace_table_token_3_th monthly payment programs overview since the march 2014 monthly payment plan announcement , 65 % of courses are now paid through monthly payment methods ( based on courses started over the last 90 days ) . aspen offers two monthly payment programs , a monthly payment plan in which students make payments every month over a fixed period ( 36 , 39 or 72 months depending on the degree program ) , and a monthly installment plan in which students pay three monthly installments ( day 1 , day 31 and day 61 after the start of each course ) . as of april 30 , 2017 , aspen had 2,801 active students paying through a monthly payment plan , and 259 students paying through a monthly installment plan , for a total of 3,060 active students paying tuition through a monthly payment method . additionally , aspen is currently on pace to add approximately 160 active students/month net to its monthly payment programs through fiscal year 2018. the total contractual value of monthly payment plan students now exceeds $ 26.5 million which currently delivers monthly recurring tuition cash payments of approximately $ 780,000 . 42 finally , as a consequence of monthly payment programs becoming the payment method of choice among the majority of aspen 's degree-seeking student body , our hea , title iv program revenue dropped from 25 % of total cash receipts in fiscal year 2016 to approximately 21 % for fiscal year 2017. marketing efficiency analysis aspen has developed a marketing efficiency ratio to continually monitor the performance of its business model . revenue per enrollment ( rpe ) marketing efficiency ratio = cost per enrollment ( cpe ) cost per enrollment ( cpe ) the cost per enrollment measures the marketing investment spent in a given quarter , divided by the number of new student enrollments achieved in that given quarter , in order to obtain an average cpe for the quarter measured . revenue per enrollment ( rpe ) the revenue per enrollment takes each quarterly cohort of new degree-seeking student enrollments , and measures the amount of earned revenue including tuition and fees to determine the average rpe for the cohort measured . for the later periods of a cohort , in particular students four years or older , we have used reasonable projections based off of historical results to determine the amount of revenue we will earn in later periods of the cohort . we created the reporting to track the cpe and rpe starting in 2012 and can accurately predict the cpe and rpe for each new student cohort . our current cpe/rpe marketing efficiency ratio is reflected in the below table . quarterly new student cohort actuals data : replace_table_token_4_th the average rpe is approximately $ 7,000. of the $ 7,000 , $ 6,400 of the rpe is earned through tuition , with the remaining $ 600 on average earned through miscellaneous fees ( includes annual technology fee , withdrawal fees , graduation fees , proctored exams , course specific fees , etc . ) aspen is projecting to average a marketing efficiency ratio of 8.6x , in other words a 8.6x return on our marketing investment . third-party companies in the higher education industry that manage the enrollment and marketing functions on behalf of universities ( also referred to as managed services companies ) reportedly average 3-4x return on their marketing investments , meaning that aspen 's business model is currently performing at more than double the efficiency level of that sector . 43 accounts receivables and monthly payment plan since the inception of the monthly payment plan in the spring of 2014 , the accounts receivable balance , both short-term and long-term , has grown from a net number of $ 649,890 at april 30 , 2014 to a net number of $ 5,092,404 at april 30 , 2017. this growth could be portrayed as the engine of the monthly payment plan . the attractive aspect of being able to pay for a degree over a fixed period of time has fueled the growth of this plan and , as a result , the increase of the accounts receivable balance . each student 's receivable account is different depending on how many classes a student takes each period . if a student takes two classes each eight week period while paying $ 250 , $ 325 or $ 375 a month , that student 's account receivable balance will rise accordingly . the converse is true also . a student who takes courses at a slower pace , even taking time off between 8-week terms , could have a balance due to them . it is much more likely however that a student participating in the monthly payment plan will have an accounts receivable balance , as the majority of students complete their degree program of study prior to the completion of the fixed monthly payment plan . the common thread is the actual monthly payment , which is a private loan commitment with no interest that each student commits to pay over a fixed number of months . if a student stops paying , that person can no longer register for a class . if a student decides to withdraw from the university , their account will be settled , either through collection of their balance or disbursement of the amount owed them . story_separator_special_tag at april 30 , 2017 , there were 2,801 monthly payment plan students , which represented 60 % of aspen 's active student body at april 30 , 2017. relationship between accounts receivable and revenue the gross accounts receivable balance for any period is the net effect of the following three factors : 1. revenue ; 2. cash receipts , and ; 3. the net change in deferred revenue . all three factors equally determine the gross accounts receivable . if one quarter experiences particularly high cash receipts , the gross accounts receivable will go down . the same effect if cash receipts are lower or if there are significant changes in either of the other factors . simply looking at the change in revenue does not translate into an equally similar change in gross accounts receivable . the relative change in cash and the deferral must also be considered . for net accounts receivable , the changes in the reserve must also be considered . any additional reserve or write-offs will influence the balance . as it is a straight mathematical formula for both gross accounts receivable and net accounts receivable , and most of the information is public , one can reasonably calculate the two non-public pieces of information , namely the cash receipts in gross accounts receivable and the write-offs in net accounts receivable . for revenue , the quarterly change is primarily billings and the net impact of deferred revenue . the deferral from the prior quarter or year is added to the billings and the deferral at the end of the period is subtracted from the amount billed . the total deferred revenue at the end of every period is reflected in the liability section of the balance sheet . deferred revenue can vary for many reasons , but seasonality and the timing of the class starts in relation to the end of the quarter will cause changes in the balance . as mentioned in the accounts receivable section , the change in revenue can not be compared to the change in accounts receivable . revenue does not have the impact of cash received whereas accounts receivable does . depending on the month and the amount of cash received , it is likely that revenue or accounts receivable will increase at a rate different from the other . the impact of cash is easy to substantiate as it agrees to deposits in our bank accounts . at april 30 , 2017 , the allowance for doubtful accounts was $ 328,864 which represents 6.4 % of the gross accounts receivable balance , both short-term and long-term . it should be noted that this percentage matches the latest aspen university default rate released by the department of education . the reserve was first decreased during the quarter ended april 30 , 2017 , while settling the program review . many related students ' accounts were written off against the reserve and management then increased the reserve by $ 70,000 at april 30 , 2017 . 44 the introduction of long-term accounts receivables when a student signs up for the monthly payment plan , there is a contractual amount that the company can expect to earn over the life of the student 's program . this contractual amount can not be recorded as the student does have the option to stop attending . as a student takes a class , revenue is earned over that eight week class . some students accelerate their program , taking two classes every eight week period , and as we discussed , that increases the student 's accounts receivable balance . if any portion of that balance will be paid in a period greater than 12 months , that portion is reflected as long-term accounts receivable . at april 30 , 2017 and 2016 , those balances are $ 657,542 and $ 127,099 , respectively . here is a graphic of both short-term and long-term receivables , as well as contractual value : a b c classes taken less monthly payments received payments for classes taken that are greater than 12 months expected classes to be taken over balance of program . short-term accounts receivable long-term accounts receivable not recorded in financial statements the sum of a , b and c will equal the total cost of the program . seasonality briefing as aspen university continues to scale its student body , seasonality has become more pronounced . last fiscal year ( fy'2016 ) , the company explained that its first fiscal quarter ( may july ) is the seasonal low point because it falls during the summer months and therefore students tend to take less courses during that quarter relative to the other three fiscal quarters . conversely , the second fiscal quarter ( august october ) is the seasonal high point given students ' ingrained start of the school year ' mentality . in reviewing revenues for fiscal year 2017 , note that in the first quarter revenues rose sequentially less than $ 100,000 , while revenues increased sequentially at least $ 250,000 each of the remaining three quarters , with the second quarter rising over $ 700,000. the company expects this trend to continue as the business scales , and in fact become more pronounced this fiscal year and in future fiscal years . specifically , the company expects revenues to be flat or slightly down from q4'2017 to q1'2018 this fiscal year and in future fiscal years . the opposite effect is forecasted to occur in q2'2018 as revenues are projected to rise into the $ 5 million range . story_separator_special_tag letter related to the 2013 program review . the frpd includes a summary of the non-compliance areas and calculations of amounts due for the 126 students that they reviewed . we had 45 days to review the calculations and elected to not appeal the amount .
| gross profit rose to 61 % of revenues or $ 8,679,248 for the 2017 period from 51 % of revenues or $ 4,316,408 for the 2016 period . costs and expenses general and administrative general and administrative costs for the 2017 period were $ 9,087,740 compared to $ 6,403,708 during the 2016 period , an increase of $ 2,684,032 or 42 % . during the latter part of the 2017 period , there were increased costs associated with the announcement of a definitive agreement to acquire united states university and other corporate initiatives . this accounted for approximately $ 440,000 of the increase . in addition , this increase also reflects higher salary and rental costs related to significant expansion of our call center staff as well as several supporting academic and operational positions . program review on february 8 , 2017 , the doe issued a final program review determination ( fprd ) letter related to the 2013 program review . the frpd includes a summary of the non-compliance areas and calculations of amounts due for the 126 students that they reviewed . we had 45 days to review the calculations and elected to not appeal the amount . in accordance with asc 450-20 , we recorded a minimum liability of $ 80,000 at january 31 , 2017 and recorded the final amount of $ 298,090 at april 30 , 2017. however , a portion of that amount removed accounts receivable balances that were previously reserved . depreciation and amortization depreciation and amortization costs for the 2017 period decreased to $ 556,730 from $ 598,303 for the 2016 period , a decrease of $ 41,473 or 7 % . other income ( expense ) other income for the 2017 period increased to $ 14,336 from $ 9,985 in the 2016 period , an increase of $ 4,351 or 44 % . interest expense increased from $ 121,320 to $ 337,510 , an increase of $ 216,190 or 178 % . this increase reflects the additional interest paid for the third-party line of credit and the $ 112,500 write-off of the original interest discount associated with the line of
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to a limited extent , the company also competes with other providers of financial services , such as money market mutual funds , brokerage firms , consumer finance companies and insurance companies . competition is based on a number of factors , including prices , interest rates , services , availability of products and geographic location . at the beginning of 2012 , our business strategy included efforts to reduce our total assets and liabilities due to a continued depressed economy as well as capital limitations at the time . these efforts resulted in declines of approximately $ 72 million in total assets and approximately $ 60 million in total liabilities in 2012. with the sale of a branch in the first quarter of 2013 , we expect to further reduce our total assets and liabilities by approximately $ 22 million . this strategy helped strengthen our regulatory capital ratios in 2012. while we do not anticipate significant growth in 2013 , we will not continue our efforts to reduce total assets and liabilities . in light of the asset growth restriction in the consent order and the company 's current weakened financial position , the company does not anticipate undertaking growth via acquisition or de novo branching during the foreseeable future . results of operations the following presents management 's discussion and analysis of the financial condition of the company at december 31 , 2012 and 2011 , and results of operations for the company for the years ended december 31 , 2012 , 2011 and 2010. this discussion should be read in conjunction with the company 's audited financial statements and the notes thereto appearing elsewhere in this annual report . 35 income statement analysis story_separator_special_tag arial ; font-size : 9pt '' > our interest spread ( average yield on interest-earning assets less average rate in interest-bearing liabilities ) was reduced by .34 % ( 34 basis points ) in 2012 , by .43 % ( 43 basis points ) in 2011 , and by .22 % ( 22 basis points ) in 2010 as a result of lost interest on nonaccrual loans . average interest-earning assets and average interest-bearing liabilities decreased by 14.5 % and 12.7 % , respectively , due to our business strategy to reduce our total assets and liabilities discussed previously . the following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated , showing the average distribution of assets , liabilities , shareholders ' equity and related income , expense and corresponding weighted-average yields and rates . the average balances used in these tables and other statistical data were calculated using daily average balances . we have no tax exempt assets for the periods presented . replace_table_token_5_th 38 interest income and interest expense are affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities . the following table analyzes changes in net interest income attributable to changes in the volume of interest-sensitive assets and liabilities compared to changes in interest rates . nonaccrual loans are included in average loans outstanding . the changes in interest due to both rate and volume have been allocated to changes due to volume and changes due to rate in proportion to the relationship of the absolute dollar amounts of the changes in each . rate/volume analysis ( in thousands ) 2012 vs. 2011 2011 vs. 2010 increase ( decrease ) increase ( decrease ) due to changes in due to changes in volume rate total volume rate total interest income loans $ ( 2,883 ) $ ( 759 ) $ ( 3,642 ) $ ( 1,555 ) $ ( 904 ) $ ( 2,459 ) investment securities ( 504 ) ( 104 ) ( 608 ) 365 ( 143 ) 222 fed funds sold and other ( 37 ) 6 ( 31 ) 38 ( 2 ) 36 total interest income ( 3,424 ) ( 857 ) ( 4,281 ) ( 1,152 ) ( 1,049 ) ( 2,201 ) interest expense deposits interest checking 43 ( 124 ) ( 81 ) 32 ( 138 ) ( 106 ) money market accounts ( 108 ) ( 204 ) ( 312 ) ( 117 ) ( 381 ) ( 498 ) savings accounts 8 ( 5 ) 3 13 ( 8 ) 5 certificates of deposit ( 934 ) ( 909 ) ( 1,843 ) ( 109 ) ( 1,224 ) ( 1,333 ) total deposits ( 991 ) ( 1,242 ) ( 2,233 ) ( 181 ) ( 1,751 ) ( 1,932 ) borrowings long-term debt - 51 51 - 7 7 fhlb advances ( 111 ) ( 48 ) ( 159 ) ( 833 ) 779 ( 54 ) other borrowings ( 8 ) - ( 8 ) ( 560 ) - ( 560 ) total interest expense ( 1,110 ) ( 1,239 ) ( 2,349 ) ( 1,574 ) ( 964 ) ( 2,539 ) net interest income $ ( 2,313 ) $ 381 $ ( 1,932 ) $ 423 $ ( 85 ) $ 338 note : the combined effect on interest due to changes in both volume and rate , which can not be separately identified , has been allocated proportionately to the change due to volume a nd the change due to rate . provision for loan losses the amount of the loan loss provision is determined by an evaluation of the level of loans outstanding , the level of non-performing loans , historical loan loss experience , delinquency trends , underlying collateral values , the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions . the level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , present economic , and political and regulatory conditions . story_separator_special_tag portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the company 's control , including the performance of the company 's loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . 39 profitability has been negatively impacted by historic provisions for loan losses the last three years . the provision for loan losses decreased to $ 9,095,000 in 2012 from $ 18,764,000 in 2011 , but was higher than the $ 4,842,000 recorded in 2010. although the provision for loan losses declined significantly in 2012 from that in 2011 , it was still very high by historical standards reflecting the continued depressed economic conditions . however , we did experience some improvement in asset quality in 2012. the significant increase in the provision for loan losses in 2011 compared to 2010 reflected management 's determination that continuing depressed market conditions in 2011 as well as some financial difficulties experienced by some of our more significant borrowers warranted the addition of a significant provision for loan losses . although we believe that the allowance for loan losses of $ 10,808,000 at december 31 , 2012 , which represents 3.04 % of loans outstanding , is adequate to absorb potential losses in the company 's loan portfolio at that date , we can make no assurance that significant provisions for loan losses will not be necessary in the future . noninterest income noninterest income includes service charges and fees on deposit accounts , fee income related to loan origination , and gains and losses on sale of mortgage loans and securities held for sale . over the last three years the most significant noninterest income item has been gain on loan sales generated by village bank mortgage , representing 63 % in 2010 , 60 % in 2011 and 64 % in 2012 of total noninterest income . noninterest income amounted to $ 10,991,000 in 2010 , $ 10,844,000 in 2011 and $ 13,339,000 in 2012. the increase in noninterest income in 2012 of $ 2,495,000 is primarily attributable to an increase in gain on sale of loans of $ 2,039,000 , the increased gain on sale of loans resulted from an increase in loan production by our mortgage company , from $ 238 million in 2011 to $ 304 million in 2012. the decrease in noninterest income in 2011 of $ 147,000 is primarily attributable to a decrease in gain on sale of loans of $ 481,000. the decreased gain on sale of loans resulted from a decrease in loan production by our mortgage company from $ 285 million in 2010 to $ 238 million in 2011. noninterest expense noninterest expense includes all expenses of the company with the exception of interest expense on deposits and borrowings , provision for loan losses and income taxes . some of the primary components of noninterest expense are salaries and benefits , occupancy and equipment costs and expenses related to foreclosed real estate . over the last three years , the most significant noninterest expense item has been salaries and benefits , representing 53 % , 53 % and 47 % of noninterest expense in 2010 , 2011 and 2012 , respectively . noninterest expense increased from $ 23,303,000 in 2010 , to $ 23,961,000 in 2011 and to $ 28,291,000 in 2012. the increase in noninterest expense of $ 4,330,000 in 2012 resulted primarily from increases in other real estate owned expenses of $ 3,287,000 as well as salaries and benefits of $ 662,000. the increase in noninterest expense of $ 658,000 in 2011 resulted primarily from increases in salaries and benefits of $ 288,000 , audit and accounting expense of $ 206,000 and occupancy expense of $ 181,000. income taxes certain items of income and expense are reported in different periods for financial reporting and tax return purposes . the tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit . deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate applicable income tax expense on the 2012 loss amounted to $ 4,055,000 , compared to a tax benefit on the 2011 loss of $ 426,000 , resulting in an effective tax rate of 3.49 % , and an income tax expense $ 712,000 or 33.2 % in 2010. the income tax expense in 2012 is primarily a result of the increase in the valuation allowance related to the deferred tax asset . 40 the net deferred tax asset is included in other assets on the balance sheet . accounting standards codification topic 740 , income taxes , requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “ more likely than not ” standard . management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact future operating results . in making such judgments , significant weight is given to evidence that can be objectively verified . the deferred tax assets are analyzed quarterly for changes affecting realization . management determined that as of december 31 , 2012 , the objective negative evidence represented by the company 's recent losses outweighed the more subjective positive evidence and , as a result , recognized a valuation allowance on its net deferred tax asset of approximately $ 10,158,000 representing 100 % of the net deferred tax asset at that date .
| interest income decreased by approximately $ 4,281,000 as a result of a decrease in loans of $ 72,961,000 , from $ 427,871,000 at december 31 , 2011 to $ 354,910,000 at december 31 , 2012. interest expense decreased by approximately $ 2,349,000 as a result of a decline in deposits of $ 49,200,000 , from $ 485,521,000 at december 31 , 2011 to $ 436,323,000 at december 31 , 2012. these declines resulted in a decline of $ 1,932,000 in net interest income which is a result of a balance sheet reduction plan adopted by the company in 2012 that focused on the reduction of nonperforming assets and higher risk-weighted assets . this decline was partially offset by the increase in the mortgage company 's profitability in 2012. the $ 628,000 decrease in net income as adjusted in 2011 was primarily attributable to a decline in the profitability of our mortgage company of $ 514,000 as its mortgage loan production declined by $ 47 million in 2011. net interest income net interest income , which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities , is the company 's primary source of earnings . net interest income can be affected by changes in market interest rates as well as the level and composition of assets , liabilities and shareholders ' equity . 36 net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net yield on interest-earning assets ( “ net interest margin ” ) is calculated by dividing tax equivalent net interest income by average interest-earning assets . generally , the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources , principally noninterest-bearing deposits and shareholders ' equity . net interest income decreased to $ 17,702,000 in 2012 from $ 19,635,000 in 2011 and $ 19,296,000 in 2010. yields on average interest-earning assets declined from 5.11 % in 2011 to 5.06 % in 2012 resulting in a decline in interest income of $ 857,000 , and the amount of average interest-earning assets declined by $ 79,473,000 resulting in a decline in interest income of $ 3,424,000. this decline in yields on average interest-earning assets is a result of a strategic shift by management in the makeup of our average interest-earning assets , from loans to investment
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in addition , the size and condensed schedule of these product launches increases pressure on our supply chain and order processing systems . if we are unable to accurately forecast sales levels in each market for product launches or ongoing product sales , obtain sufficient ingredients or produce a sufficient supply to meet demand , we may incur higher expedited shipping costs and we may temporarily run out of stock of certain products , which could negatively impact the enthusiasm of our sales force and consumers . conversely , if demand does not meet our expectations for a product launch or ongoing product sales or if we change our planned launch strategies or initiatives , we could incur inventory write-downs . for example , in 2014 and 2015 , we incurred inventory write-downs of $ 50.0 million and $ 37.9 million , respectively , which primarily resulted from reduced sales expectations primarily in our greater china region . any additional write-down of inventory in any of our markets would negatively impact our gross margins . although our previous limited-time offers have not materially affected our product return rate , these events may increase our product return rate in the future . if we fail to effectively forecast or manage our supply chain and information systems in the product launch process or for ongoing product sales , our reputation and profitability could be negatively impacted . -48- income statement presentation we report revenue in five geographic regions and we translate revenue from each market 's local currency into u.s. dollars using weighted-average exchange rates . the following table sets forth revenue information by region for the periods indicated . this table should be reviewed in connection with the information presented under `` results of operations , '' which describes selling expenses and other costs associated with generating the aggregate revenue presented . revenue by region replace_table_token_8_th cost of sales primarily consists of : cost of products purchased from third-party vendors ; costs of self-manufactured products ; cost of adjustments to inventory carrying value ; freight cost of shipping products to our sales force and import duties for the products ; and royalties and related expenses for licensed technologies . we source the majority of our products from third-party vendors . under direct selling regulations in mainland china , we are required to manufacture the products we distribute through independent direct sellers in mainland china . cost of sales and gross profit , on a consolidated basis , may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party vendors . in addition , because we purchase a significant amount of our goods in u.s. dollars and recognize revenue in local currencies , our gross margin is subject to exchange rate risks . because our gross margins vary from product to product and due to higher pricing in some markets , changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis . selling expenses are our most significant expense and are classified as operating expenses . selling expenses include sales commissions paid to our sales force , special incentives , costs for incentive trips and other rewards , as well as wages , benefits , bonuses and other labor and unemployment expenses we pay to our sales force in mainland china . selling expenses do not include amounts we pay to our sales force based on their personal purchases ; rather , such amounts are reflected as reductions to revenue . our global sales compensation plan , which we employ in all our markets except mainland china , is an important factor in our ability to attract and retain our sales leaders . under our global sales compensation plan , sales leaders can earn `` multi-level '' compensation , where they earn commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained . we do not pay commissions on sales materials . small fluctuations occur in the amount of commissions paid as the customers and sales leaders change from month to month . however , with approximately 988,000 customers and 61,627 sales leaders , the fluctuation in the overall payout is relatively small . selling expenses as a percentage of revenue typically increase in connection with a limited-time offer due to growth in the number of sales leaders qualifying for increased sales compensation and promotional incentives . from time to time , we make modifications and enhancements to our global sales compensation plan in an effort to help motivate our sales force and develop leadership characteristics , which can have an impact on selling expenses . -49- outside of mainland china , distributors also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up . we do not account for , nor pay , additional commissions on these mark-ups received by distributors . in many markets , we also allow individuals who are not part of our sales force , whom we refer to as `` preferred customers , '' to buy products directly from us at a discount . we pay commissions on preferred customer purchases to the referring member of our sales force . general and administrative expenses include : wages and benefits ; rents and utilities ; depreciation and amortization ; promotion and advertising ; professional fees ; travel ; research and development ; and other operating expenses . labor expenses are the most significant portion of our general and administrative expenses . promotion and advertising expenses include costs of sales force conventions held in various markets worldwide , which we expense in the period in which they are incurred . because our various sales force conventions are not held during each fiscal year , or in the same period each year , their impact on our general and administrative expenses may vary from year to year and from quarter to quarter . story_separator_special_tag for example , we held our global convention in october 2015 and will have another global convention in the fall of 2017 as we currently plan to hold a global convention every other year . in addition , we hold regional conventions and conventions in our major markets at different times during the year . these conventions have significant expenses associated with them . because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods , year-over-year comparisons have been impacted accordingly . provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate . for example , statutory tax rates in 2016 were approximately 16.5 % in hong kong , 17.0 % in taiwan , 22.7 % in south korea , 37.3 % in japan and 25.0 % in mainland china . we are subject to taxation in the united states at the statutory corporate federal tax rate of 35 % , and we pay taxes in multiple states within the united states at various tax rates . our overall effective tax rate was 32.8 % for the year ended december 31 , 2016 . -50- critical accounting policies the following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto . management considers our critical accounting policies to be the recognition of revenue , accounting for income taxes and accounting for intangible assets . in each of these areas , management makes estimates based on historical results , current trends and future projections . revenue . we recognize revenue when products are shipped , which is when title and risk of loss pass to the purchaser of the products . with some exceptions based on local regulations , we offer a return policy that allows our sales force to return unopened and unused product for up to 12 months subject to a 10 % restocking fee . reported revenue is net of returns , which have historically been less than 5 % of annual revenue . a reserve for product returns is accrued based on historical experience . we classify selling discounts as a reduction of revenue . through our product subscription and loyalty programs , which vary from market to market , participants who commit to purchase on a monthly basis receive a discount from suggested retail or wholesale prices , as applicable . we apply this discount at the time of each purchase and not through a larger discount on the initial purchase . participants may cancel their commitment at any time , however some markets charge a one-time early cancellation fee . all purchases under these programs are subject to our standard product payment and return policies . in accordance with asc 605-50 , we classify selling discounts and rebates , as a reduction of revenue at the time the sale is recorded . income taxes . we account for income taxes in accordance with the income taxes topic of the financial accounting standards codification . this topic establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . we take an asset and liability approach for financial accounting and reporting of income taxes . we pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions , which can be significantly impacted by terms of intercompany transactions between nu skin affiliates around the world . deferred tax assets and liabilities are created in this process . as of december 31 , 2016 , we had net deferred tax assets of $ 35.1 million . we net these deferred tax assets and deferred tax liabilities by jurisdiction . valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized . these net deferred tax assets assume sufficient future earnings will exist for their realization , and are calculated using anticipated tax rates . in certain foreign jurisdictions , valuation allowances have been recorded against the deferred tax assets specifically related to use of net operating losses . when we determine that there is sufficient taxable income to utilize the net operating losses , the valuation allowances will be released . in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made . we evaluate our indefinite reinvestment assertions with respect to foreign earnings for each period . other than earnings we intend to reinvest indefinitely , we accrue for the u.s. federal and state income taxes applicable to the earnings . for all foreign earnings , we accrue the applicable foreign income taxes . we intend to utilize the offshore earnings to fund foreign investments , specifically capital expenditures . undistributed earnings that we have indefinitely reinvested aggregate to $ 70.0 million and $ 70.0 million as of december 31 , 2016 and 2015 , respectively . if this amount were repatriated to the united states , the amount of incremental taxes would be approximately $ 7.6 million . -51- the company files income tax returns in the u.s. federal jurisdiction , and in various state and foreign jurisdictions . the company is no longer subject to tax examinations from the irs for all years for which tax returns have been filed before 2011. with a few exceptions , we are no longer subject to state and local income tax examination by tax authorities for the years before 2011. in 2009 , we entered into a voluntary program with the irs called compliance assurance process ( `` cap '' ) . the objective of cap is to contemporaneously work with the irs to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return .
| the following table sets forth revenue for the greater china region and its principal markets ( u.s. dollars in millions ) : replace_table_token_10_th foreign currency fluctuations negatively impacted revenue in the greater china region by 5 % in 2016 compared to 2015. sales leaders and customers in the region decreased 2 % and increased 11 % , respectively , in the fourth quarter of 2016 compared to the prior-year period . the year-over-year revenue increase in the region reflects approximately $ 79 million in revenue generated by a limited-time offer of ageloc me during the second and third quarters of 2016. the results of this limited-time offer were strong , particularly in mainland china , where revenue grew 8 % , or 14 % on a local-currency basis , in 2016. there were no significant limited-time offers in the region during 2015 , but revenue in 2015 was positively impacted by small previews of ageloc me to key sales leaders in the region and of ageloc youth in hong kong . sales leaders and customers in mainland china increased 5 % and 23 % , respectively , compared to the fourth quarter of 2015 , primarily driven by the limited-time offer of ageloc me . sales leaders and customers in taiwan were down 16 % and 8 % , respectively , and sales leaders and customers in hong kong were down 36 % and 13 % , respectively . these decreases in taiwan and hong kong reflect continued softness that we have seen for the last several quarters in these markets . we also believe that recent allegations and media scrutiny regarding the alleged improper importation and sale of ageloc body spa devices in taiwan in 2011 and 2012 may have negatively impacted our sales force and reputation in that market and may continue to do so . for more information , see item 1a . risk factors— '' if our ageloc spa systems or pharmanex biophotonic scanner are determined to be medical devices in a particular geographic market or if our sales force
| 10,870 |
nprc seeks to identify properties that have historically significant occupancy rates and recurring cash flow generation . nprc generally co-invests with established and experienced property management teams that manage such properties after acquisition . additionally , nprc purchases loans originated by certain consumer loan facilitators . it purchases each loan in its entirety ( i.e. , a “ whole loan ” ) . the borrowers are consumers , and the loans are typically serviced by the facilitators of the loans . this investment strategy has comprised approximately 10 % -20 % of our business . purchasing controlling equity positions and lending to aircraft leasing companies - we invest in debt as well as equity in companies with aircraft assets subject to commercial leases to airlines across the globe . we believe that these investments can present attractive return opportunities due to cash flow consistency from long-term leases coupled with hard asset residual value . we believe that these investment companies seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across a variety of aircraft types and vintages . this strategy historically has comprised less than 5 % of our portfolio . investing in structured credit - we make investments in clos , often taking a significant position in the subordinated interests ( equity ) and debt of the clos . the underlying portfolio of each clo investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate , mortgages , or consumer-based credit assets . the clos in which we invest are managed by established collateral management teams with many years of experience in the industry . this strategy has comprised approximately 10 % -20 % of our portfolio . investing in syndicated debt - on a primary or secondary basis , we purchase primarily senior and secured loans and high yield bonds that have been sold to a club or syndicate of buyers . these investments are often purchased with a long term , buy-and-hold outlook , and we often look to provide significant input to the transaction by providing anchoring orders . this strategy has comprised approximately 5 % -10 % of our portfolio . investing in consumer and small business loans and asset-backed securitizations - we purchase loans originated by certain consumer and small-and-medium-sized business ( “ sme ” ) loan facilitators . we generally purchase each loan in its entirety ( i.e. , a “ whole loan ” ) and we invest in asset-backed securitizations collateralized by consumer or small business loans . the borrowers are consumers and smes and the loans are typically serviced by the facilitators of the loans . this investment strategy has comprised up to approximately 1 % of our portfolio . we invest primarily in first and second lien secured loans and unsecured debt , which in some cases includes an equity component . first and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company . these loans also have the benefit of security interests on the assets of the portfolio company , which may rank ahead of or be junior to other security interests . our investments in clos are subordinated to senior loans and are generally unsecured . we invest in debt and equity positions of clos which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches . our clo investments are derived from portfolios of corporate debt securities which are generally risk rated from bb to b . 66 we hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes . these holding companies serve various business purposes including concentration of management teams , optimization of third party borrowing costs , improvement of supplier , customer , and insurance terms , and enhancement of co-investments by the management teams . in these cases , our investment , which is generally equity in the holding company , the holding company 's equity investment in the operating company and any debt from us directly to the operating company structure represents our total exposure for the investment . as of june 30 , 2018 , as shown in our consolidated schedule of investments , the cost basis and fair value of our investments in controlled companies was $ 2,300,526 and $ 2,404,326 , respectively . this structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this annual report . we consolidate all wholly-owned and substantially wholly-owned holding companies formed by us for the purpose of holding our controlled investments in operating companies . there is no significant effect of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies . investment company accounting prohibits the consolidation of any operating companies . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > june 30 , 2018 , approximately $ 5,727,279 , or 168.1 % , of our net assets are invested in 135 long-term portfolio investments and clos . during the year ended june 30 , 2018 , we originated $ 1,730,657 of new investments , primarily composed of $ 1,457,615 of debt and equity financing to non-controlled portfolio investments , $ 218,695 of debt and equity financing to controlled investments , and $ 54,347 of subordinated notes in clos . our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans , though we also continue to close select junior debt and equity investments . our annualized current yield was 13.0 % and 12.2 % as of june 30 , 2018 and june 30 , 2017 , respectively , across all performing interest bearing investments , excluding equity investments and non-accrual loans . story_separator_special_tag our annualized current yield was 10.5 % and 10.4 % as of june 30 , 2018 and june 30 , 2017 , respectively , across all investments . monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation . in many of our portfolio companies we hold equity positions , ranging from minority interests to majority stakes , which we expect over time to contribute to our investment returns . some of these equity positions include features such as contractual minimum internal rates of returns , preferred distributions , flip structures and other features expected to generate additional investment returns , as well as contractual protections and preferences over junior equity , in addition to the yield and security offered by our cash flow and collateral debt protections . we are a non-diversified company within the meaning of the 1940 act . as required by the 1940 act , we classify our investments by level of control . as defined in the 1940 act , “ control investments ” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company . control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less , a beneficial ownership of 25 % or more of the voting securities of an investee company . under the 1940 act , “ affiliate investments ” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less , beneficial ownership of 5 % or more of the outstanding voting securities of another person . “ non-control/non-affiliate investments ” are those that are neither control investments nor affiliate investments . as of june 30 , 2018 , we own controlling interests in the following portfolio companies : ccpi inc. ( “ ccpi ” ) ; cp energy services inc. ( “ cp energy ” ) ; credit central loan company , llc ( “ credit central ” ) ; echelon transportation , llc ( f/k/a echelon aviation , llc , “ echelon ” ) ; first tower finance company llc ( “ first tower finance ” ) ; freedom marine solutions , llc ( “ freedom marine ” ) ; interdent , inc. ( “ interdent ” ) , mity , inc. ( “ mity ” ) ; nprc ; nationwide loan company llc ( f/k/a nationwide acceptance llc ) ( “ nationwide ” ) ; nmmb , inc. ( “ nmmb ” ) ; pacific world corporation ( “ pacific world ” ) ; r-v industries , inc. ( “ r-v ” ) ; sb forging company ii , inc. ( f/k/a gulf coast machine & supply company ) ( “ gulfco ” ) ; uses corp. ( “ uses ” ) ; valley electric company , inc. ( “ valley electric ” ) ; and wolf energy , llc ( “ wolf energy ” ) . we also own affiliated interests in edmentum ultimate holdings , llc ( “ edmentum ” ) ; nixon , inc. ( “ nixon ” ) and targus international , llc ( “ targus ” ) . the following shows the composition of our investment portfolio by level of control as of june 30 , 2018 and june 30 , 2017 : replace_table_token_7_th 68 the following shows the composition of our investment portfolio by type of investment as of june 30 , 2018 and june 30 , 2017 : replace_table_token_8_th ( 1 ) participating interest includes our participating equity investments , such as net profits interests , net operating income interests , net revenue interests , and overriding royalty interests . the following shows our investments in interest bearing securities by type of investment as of june 30 , 2018 and june 30 , 2017 : replace_table_token_9_th the following shows the composition of our investment portfolio by geographic location as of june 30 , 2018 and june 30 , 2017 : replace_table_token_10_th 69 the following shows the composition of our investment portfolio by industry as of june 30 , 2018 and june 30 , 2017 : replace_table_token_11_th 70 ( 1 ) industry includes exposure to the energy markets through our investments in harley marine services , inc. including this investment , our overall fair value exposure to the broader energy industry , including energy equipment and services as noted above as of june 30 , 2017 is $ 140,460 . we do not hold an investment in harley marine services , inc. as of june 30 , 2018 . ( 2 ) our clo investments do not have industry concentrations and as such have been separated in the table above . portfolio investment activity during the year ended june 30 , 2018 , we acquired $ 820,137 of new investments , completed follow-on investments in existing portfolio companies totaling approximately $ 881,807 , funded $ 19,309 of revolver advances , and recorded pik interest of $ 9,404 , resulting in gross investment originations of $ 1,730,657 . the more significant of these transactions are briefly described below . during the period from july 19 , 2017 through september 11 , 2017 , we made a $ 16,000 follow-on first lien senior debt investment in rgis services , llc .
| the additional 2022 notes were a further issuance of , and are fully fungible and rank equally in right of payment with , the original 2022 notes and bear interest at a rate of 4.95 % per year , payable semi-annually on january 15 and july 15 each year , beginning july 15 , 2018. total proceeds from the issuance of the additional 2022 notes , net of underwriting discounts and offering costs , were $ 100,749. following the issuance of the additional 2022 notes , the outstanding aggregate principal amount of the 2022 notes is now $ 328,500. in may 2018 , we repurchased $ 98,353 aggregate principal amount of the 2019 notes at a price of 102.0 , including commissions . as a result of these transactions , we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the 2019 notes , net of the proportionate amount of unamortized debt issuance costs . the net loss on extinguishment of debt we recorded in the three months ending june 30 , 2018 was $ 2,383. on june 20 , 2018 , we issued an additional $ 70,000 aggregate principal amount of unsecured notes that mature on march 15 , 2023 ( the “ additional 2023 notes ” , and together with the original 2023 notes , the “ 2023 notes ” ) . the additional 2023 notes were a further issuance of , and are fully fungible and rank equally in right of payment with , the original 2023 notes and bear interest at a rate of 5.875 % per year , payable semi-annually on march 15 and september 15 of each year , beginning september 15 , 2018. total proceeds from the issuance of the additional 2023 notes , net of underwriting discounts , were $ 69,403. following the issuance of the additional 2023 notes , the outstanding aggregate principal amount of our 5.875 % senior notes due 2023 is $ 320,000. on june 7 , 2018 , we commenced a tender offer to purchase for cash any and all of the $ 300,000 aggregate principal amount outstanding of the
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while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . this revision to such calculations had no significant impact on our affo and adjusted ebitda as reported in prior periods . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . 35 the following table presents a reconciliation of net income ( loss ) to ffo , affo and adjusted ebitda : replace_table_token_11_th liquidity and capital resources property rental revenue is our primary source of cash from operations and is dependent on the tenant 's ability to pay rent . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of distributions on its class a shares , and its principal source of funding for these distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to us . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 360.5 million in cash and cash equivalents held by the operating partnership as of december 31 , 2016 , expected cash flows from operations , and $ 600.0 million of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2016. story_separator_special_tag the operating partnership was required to have a senior secured net debt to adjusted total assets ratio of not more than 0.40 to 1.00 , a total net debt to adjusted total assets ratio of not more than 0.65 to 1.00 , and an interest coverage ratio of not less than 2.00 to 1.00. the operating partnership was in compliance with its credit agreement covenants at december 31 , 2016. the indentures governing the senior notes contain certain customary affirmative and negative covenants and events of default . capital expenditures we may agree , at mgm 's request , to fund the cost of certain capital improvements at arm's-length terms and conditions , which may include an agreed upon increase in rent under the master lease . otherwise , except as described below in connection with a deconsolidation event , capital expenditures for the properties leased under the master lease are the responsibility of the tenant . the master lease requires the tenant to spend an aggregate amount of at least 1 % of actual adjusted net revenues from the properties per calendar year on capital expenditures . although the tenant is responsible for all capital expenditures during the term of the master lease , if , in the future , a deconsolidation event occurs , we will be required to pay the tenant , should the tenant so elect , for all non-normal tenant improvements , and subject to an initial cap of $ 100 million in the first year of the master lease increasing on a cumulative basis by $ 75 million on the first day of each lease year thereafter . examples of non-normal tenant improvements include the costs of structural elements at the properties , including capital improvements that expand the footprint or square footage of any of the properties or extend the useful life of the properties . in addition , equipment that would be a necessary improvement at any of the properties , including elevators , air conditioning systems , or electrical wiring that are integral to such property would qualify as a non-normal tenant improvement . non-normal tenant improvements were $ 72.4 million as of december 31 , 2016 . except as described in the two preceding paragraphs , the tenant is required to pay for all maintenance expenditures and capital improvements . the landlord is entitled to receive additional rent based on the 10-year treasury yield plus 600 basis points multiplied 37 by the value of the new capital improvements the landlord is required to pay for in connection with a deconsolidation event , and such capital improvements will be subject to the terms of the master lease . inflation the master lease provides for certain increases in rent as a result of the fixed annual rent escalator or changes in the variable percentage rent as further described above under “ —master lease. ” we expect that inflation will cause the variable percentage rent provisions to result in rent increases over time . however , we could be negatively affected if increases in rent are not sufficient to cover increases in our operating expenses due to inflation . in addition , inflation and increased cost may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue due to inflation . off-balance sheet arrangements as of december 31 , 2016 and as of story_separator_special_tag while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . this revision to such calculations had no significant impact on our affo and adjusted ebitda as reported in prior periods . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . 35 the following table presents a reconciliation of net income ( loss ) to ffo , affo and adjusted ebitda : replace_table_token_11_th liquidity and capital resources property rental revenue is our primary source of cash from operations and is dependent on the tenant 's ability to pay rent . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of distributions on its class a shares , and its principal source of funding for these distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to us . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 360.5 million in cash and cash equivalents held by the operating partnership as of december 31 , 2016 , expected cash flows from operations , and $ 600.0 million of borrowing capacity under the operating partnership 's revolving credit facility as of december 31 , 2016. story_separator_special_tag the operating partnership was required to have a senior secured net debt to adjusted total assets ratio of not more than 0.40 to 1.00 , a total net debt to adjusted total assets ratio of not more than 0.65 to 1.00 , and an interest coverage ratio of not less than 2.00 to 1.00. the operating partnership was in compliance with its credit agreement covenants at december 31 , 2016. the indentures governing the senior notes contain certain customary affirmative and negative covenants and events of default . capital expenditures we may agree , at mgm 's request , to fund the cost of certain capital improvements at arm's-length terms and conditions , which may include an agreed upon increase in rent under the master lease . otherwise , except as described below in connection with a deconsolidation event , capital expenditures for the properties leased under the master lease are the responsibility of the tenant . the master lease requires the tenant to spend an aggregate amount of at least 1 % of actual adjusted net revenues from the properties per calendar year on capital expenditures . although the tenant is responsible for all capital expenditures during the term of the master lease , if , in the future , a deconsolidation event occurs , we will be required to pay the tenant , should the tenant so elect , for all non-normal tenant improvements , and subject to an initial cap of $ 100 million in the first year of the master lease increasing on a cumulative basis by $ 75 million on the first day of each lease year thereafter . examples of non-normal tenant improvements include the costs of structural elements at the properties , including capital improvements that expand the footprint or square footage of any of the properties or extend the useful life of the properties . in addition , equipment that would be a necessary improvement at any of the properties , including elevators , air conditioning systems , or electrical wiring that are integral to such property would qualify as a non-normal tenant improvement . non-normal tenant improvements were $ 72.4 million as of december 31 , 2016 . except as described in the two preceding paragraphs , the tenant is required to pay for all maintenance expenditures and capital improvements . the landlord is entitled to receive additional rent based on the 10-year treasury yield plus 600 basis points multiplied 37 by the value of the new capital improvements the landlord is required to pay for in connection with a deconsolidation event , and such capital improvements will be subject to the terms of the master lease . inflation the master lease provides for certain increases in rent as a result of the fixed annual rent escalator or changes in the variable percentage rent as further described above under “ —master lease. ” we expect that inflation will cause the variable percentage rent provisions to result in rent increases over time . however , we could be negatively affected if increases in rent are not sufficient to cover increases in our operating expenses due to inflation . in addition , inflation and increased cost may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue due to inflation . off-balance sheet arrangements as of december 31 , 2016 and as of
| 36 dividends and distributions on june 16 , 2016 , the operating partnership announced a cash distribution to holders of operating partnership units of $ 0.2632 per unit ( which amount was based on a distribution of $ 0.3575 per operating partnership unit for a full quarter ) . mgp 's board of directors concurrently declared a pro rata cash dividend for the quarter ended june 30 , 2016 , of $ 0.2632 per class a share ( which amount was based on a dividend of $ 0.3575 per class a share for a full quarter ) payable to shareholders of record as of june 30 , 2016. the distribution and dividend were paid on july 15 , 2016. on september 15 , 2016 , the operating partnership announced a distribution to holders of operating partnership units of $ 0.3875 per unit . mgp 's board of directors concurrently declared a cash dividend for the quarter ended september 30 , 2016 of $ 0.3875 per class a share payable to shareholders of record as of september 30 , 2016. the distribution and dividend were paid on october 14 , 2016. on december 15 , 2016 , the operating partnership announced a distribution to holders of operating partnership units of $ 0.3875 per unit . mgp 's board of directors concurrently declared a quarterly dividend of $ 0.3875 per class a share ( which amount was based on a dividend of $ 1.55 per class a share for a full year ) . the distribution and dividend were paid on january 16 , 2017 to holders of record on december 30 , 2016. in the future , mgp expects to pay quarterly dividends in cash of approximately $ 22.3 million equal to $ 0.3875 per share ( or $ 89.1 million on an annualized basis equal to $ 1.55 per share ) to its class a shareholders , which amount may be changed in the future at the discretion of mgp 's board of directors . principal debt
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the lion 's share of wbi and vai business extends beyond our traditional markets , and neither depends upon federal budget actions . the vai acquisition enhances our range of service offerings , broadens our client base , and decreases our reliance on federal government procurement and budgeting decisions . the addition of these aviation mro and supply chain management competencies is in furtherance of our long range strategic growth efforts that focus on extending our vehicle , ship , and aircraft sustainment and logistics services to new markets . we are committed to providing value to our clients and optimizing their investment in existing physical assets by assisting them in extending service life and enhancing performance as an attractive alternative to costly replacement . with this aviation acquisition , we expect to become less reliant on dod with respect to sustaining and growing our revenues . managed inventory services centered on vehicle fleet sustainment will continue to be a key service offering of our supply chain management group . wbi 's usps mip provides ongoing mission critical supply chain support to the usps , which provides us with a steady revenue and earnings source . this program does not rely on appropriated government spending , as it is primarily self-funded through revenues generated by usps business operations . the usps is challenged by an aging fleet and constrained vehicle procurement resources . we have been successful in competitively winning work for modifying the existing fleet to address the sharp increase in demand for package delivery . wbi is our largest revenue source and we experienced growth in this program in 2014. additionally , wbi 's managed inventory competency is being successfully marketed to commercial clients operating large vehicle fleets . wbi 's successful operating performance has increased the likelihood that certain financial performance thresholds in our acquisition agreement will be met requiring us to make certain post-closing earn-out payments to wbi 's sellers . accordingly , we recorded charges related to this earn-out obligation that offset increases in our supply chain management group operating income by approximately $ 3.1 million in 2014. success in wbi 's offerings to both traditional and commercial markets has encouraged us to focus our strategic direction on this part of our business and direct financial and management resources toward such efforts . 19 decreases in government spending for certain programs and services and increased competition for fewer opportunities has led to declines in our dod and other federal civilian agency revenues . as revenues in our legacy markets have declined , we have responded by taking active measures to adjust our cost structure and operating model to better meet the needs of these markets . we have eliminated certain management positions , consolidated our operations into a fewer number of facilities , and reduced other costs that have supported these activities . going forward , we will consolidate our international and federal groups into a single operating group and report their results as a combined reporting segment beginning in 2015. we expect the cost reductions and consolidation made in the third and fourth quarters of 2014 to provide an estimated annual savings of approximately $ 4 million . we will continue cost balancing efforts to remain competitive and profitable as we go forward . despite these challenges to our revenue base , we have key programs in our legacy markets that continue to provide a substantial portion of our business . these programs include our u.s. navy fms program , and our military vehicle and equipment refurbishment work . our u.s. navy fms program is our second largest source of revenue . this program does not rely on appropriated government spending as it is largely funded by foreign government clients . historically , supporting the u.s. navy in reactivating , transferring and providing follow on technical support to receiving navies constituted the majority of our fms business . fms program revenues for the past few years have been impeded by protracted delays in passing legislation required for the transfer of naval vessels to allied navies . in december 2014 , legislation was passed allowing the transfer of certain vessels to selected foreign nations , which is expected to provide us with future fms program revenue increases . the revenues associated with these transfers will take time to ramp up , and we expect to begin realizing these revenues in late 2015 and in 2016. our current contract supporting this work gives us potential contract coverage of up to $ 1.5 billion over a five-year period that began in january 2012. this contract coverage , combined with the eligibility , upon approval , of u.s. navy ships for transfer to foreign government clients , presents us with additional revenue opportunities pending future passage of naval vessel transfer act legislation . without the benefit of revenues from vessel transfers in recent years , follow on technical support work has generated the majority of revenues under our fms program . these services are provided to several foreign client countries , the largest of which is the egyptian navy . due to significant domestic and political unrest in egypt , we have been unable to maintain a consistent level of staffing in that country , and accordingly , our revenues associated with follow on technical support services provided to the egyptian navy have fluctuated in recent years . our egyptian navy support services generated approximately $ 33 million of revenue for 2014 and approximately $ 48 million of revenue for 2013. we believe that our long term relationship with the egyptian navy remains strong , and as a result , we anticipate benefiting if the political situation in egypt stabilizes and u.s. and egyptian relations improve . we can not , however , predict how the egyptian political situation will unfold or the long range affect it will have on our egyptian navy support program . our vehicle and equipment refurbishment work for the u.s. army reserve has been our third largest source of revenue . story_separator_special_tag the u.s. army reserve has been adversely affected by dod and department of the army budget reductions , and we have experienced changes to contractual coverage that have adversely affected the flow of work on this program in recent years . this has resulted in a reduction in revenues and lower profit margins on this program compared to previous years . this program generated approximately $ 48 million of revenue for 2014 , a decline from approximately $ 60 million of revenue for 2013. contractual coverage on a portion of the work on our current task orders expired in august 2014 , and revenue will be lower going forward . revenue for this program was approximately $ 8 million for the fourth quarter of 2014. contractual coverage on our current task orders has been extended for varying periods of time at lower levels , and it remains uncertain how much of this work will be re-competed , continued or extended . our work as the prime contractor for the u.s. department of treasury executive office for asset forfeiture general property program ended in 2014 , and substantially all of our work on this program was completed as of march 2014. this program generated approximately $ 9 million of revenue for 2014 and approximately $ 36 million of revenue for 2013 . 20 bookings and funded backlog revenues for federal government contract work performed by our international , federal , and it , energy and management groups depend on contract funding ( `` bookings '' ) , and bookings generally occur when contract funding documentation is received . funded contract backlog is an indicator of potential future revenue for these groups . while bookings and funded contract backlog generally result in revenue , occasionally we will have funded contract backlog that expires or is de-obligated upon contract completion and does not generate revenue . our supply chain management group revenues are affected by maintenance schedules and the rate and timing of parts failure on customer vehicles . bookings for this group occur at the time of sale . accordingly , this group does not generally have funded contract backlog and it is not an indicator of potential future revenues . a summary of our bookings and revenues for our international , federal , and it , energy and management groups for the years ended december 31 , 2014 , 2013 and 2012 , and funded contract backlog for these groups as of december 31 , 2014 , 2013 and 2012 is as follows ( in millions ) . replace_table_token_7_th the addition of our acquired aviation businesses and growth of our supply chain management group revenues is expected to cause our federal government contract revenues to become a smaller proportion of our aggregate revenues in the future . accordingly , bookings and backlog may become less indicative of future revenues . recently issued accounting pronouncements in may 2014 , the financial accounting standards board ( `` fasb '' ) issued accounting standards update ( `` asu '' ) no . 2014-09 , revenue from contracts with customers , which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance , including industry-specific guidance . the asu is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the asu also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract . the asu will become effective for us on january 1 , 2017. we currently are assessing the impact that this standard will have on our consolidated financial statements . critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe the following critical accounting policies affect the more significant accounts , particularly those that involve judgments , estimates and assumptions used in the preparation of our consolidated financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the fee is fixed or determinable , and collectability is probable . substantially all of our supply chain management group revenues result from the sale of vehicle parts to clients . we recognize revenue from the sale of vehicle parts when the customer takes ownership of the parts . 21 substantially all of our international , federal , and it , energy and management consulting work is performed for our customers on a contract basis . the three primary types of contracts used are time and materials , cost-type , and fixed-price . revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts . revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and the contract terms . revenues on fixed-price service contracts are recorded as work is performed , typically ratably over the service period . revenues on fixed-price contracts that require delivery of specific items are recorded based on a price per unit as units are delivered . we classify our supply chain management group revenues as fixed-price revenue . revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned . our fms program contract is a cost plus award fee contract . this contract has terms that specify award fee payments that are determined by performance and level of contract activity . award fees are made during the year through a contract modification authorizing the award fee that is issued subsequent to the period in which the work is performed .
| our contract costs decreased by approximately $ 41 million or 10 % in 2014 as compared to 2013. the decrease resulted from a decrease in our international group of approximately $ 37 million , a decrease in our it , energy , and management consulting group of approximately $ 11 million , a decrease in our federal group of approximately $ 8 million , and an increase in our supply chain management group of approximately $ 15 million . our contract costs decreased by approximately $ 66 million or 14 % in 2013 as compared to 2012. the decrease resulted from a decrease in our federal group of approximately $ 39 million , a decrease in our international group of approximately $ 21 million , a decrease in our it , energy , and management consulting group of approximately $ 17 million , and an increase in our supply chain management group of approximately $ 9 million . selling , general and administrative expenses consist primarily of costs and expenses that are not chargeable or reimbursable on our operating unit contracts . these costs increased by approximately $ 900 thousand for 2014 as compared to the prior year due to legal , consulting , professional services fees and other costs associated with strategic planning efforts , including costs related to the acquisition of our aviation businesses , which was completed in january 2015 , of approximately $ 1.1 million . our operating income decreased by approximately $ 7.2 million or 16 % in 2014 as compared to 2013. the decrease resulted primarily from a decrease of approximately $ 3.3 million in our international group , a decrease of approximately $ 2.7 million in our federal group , and a decrease of approximately $ 2.4 million in our it , energy and management consulting group . these decreases were partially offset by an increase in operating income in our supply chain management group of approximately $ 2.4 million . our operating income decreased by approximately $ 7 million or 14 % in 2013 as compared to 2012. the decrease resulted primarily from a decrease in operating income of approximately $ 8 million in our federal group and a decrease in operating income in our it , energy and management consulting group of approximately $ 2.8 million . these decreases were partially offset by an increase
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for commercial real estate and commercial loans , an extensive review of financial performance , payment history and collateral values is conducted on a quarterly basis . as part of the evaluation of the adequacy of the allowance for loan losses , each quarter management prepares an analysis that categorizes the entire loan portfolio by certain risk characteristics such as loan type ( residential mortgage , commercial mortgage , construction , commercial , etc . ) and loan risk rating . when assigning a risk rating to a loan , management utilizes a nine point internal risk rating system . loans deemed to be “ acceptable quality ” are rated 1 through 4 , with a rating of 1 established for loans with minimal risk . loans deemed to be of “ questionable quality ” are rated 5 ( watch ) or 6 ( special mention ) . loans with adverse classifications ( substandard , doubtful or loss ) are rated 7 , 8 or 9 , respectively . commercial mortgage , commercial and construction loans are rated individually and each lending officer is responsible for risk rating loans in their portfolio . these risk ratings are then reviewed by the department manager and or the chief lending officer and the credit administration department . the risk ratings are also confirmed through periodic loan review examinations , which are currently performed by an independent third party and periodically , by the credit committee in the credit renewal or approval . in addition , the bank requires an annual review be performed for commercial and commercial real estate loans above certain dollar thresholds , depending on loan type , to help determine the appropriate risk ratings . management assigns general valuation allowance ( “ gva ” ) percentages to each risk rating category for use in allocating the allowance for loan losses , giving consideration to historical loss experience by loan type and other qualitative or environmental factors such as trends and levels of delinquencies , impaired loans , charge-offs , recoveries , loan volume , as well as the national and local economic trends and conditions . the appropriateness of these percentages is evaluated by management at least annually and monitored on a quarterly basis , with changes made when they are required . in the second quarter of 2014 , management completed its most recent evaluation of the gva percentages . as a result of that evaluation , certain gva percentages applied to residential mortgage , commercial , multi-family and commercial mortgage loans were reduced to reflect the decrease in the historical 43 loss experience and improvements in qualitative factors . in addition , gva percentages for marine loans were increased due to historical loss experience . during the fourth quarter of 2014 , management made certain changes and enhancements to its process and controls over measuring the gva portion of the allowance for loan losses . in connection with its periodic risk assessment and monitoring process , the company re-evaluated a number of assumptions supporting the methodology including the look-back period used to evaluate the historical loss factors for its portfolios , as well as performing a study of its loss emergence period ( `` lep '' ) data . as a result of this review , management updated a number of assumptions , including lengthening its lep given continued improvements in market conditions . given these changes to the quantitative methodology , management reassessed its qualitative and environmental factors to align with the revised model assumptions . the result of these changes was to allocate a greater portion of the allowance to the quantitative component of the gva and less to the qualitative component . the changes had no impact on the overall allowance . management believes the primary risks inherent in the portfolio are a decline in the economy , generally , a decline in real estate market values , rising unemployment or a protracted period of unemployment at current elevated levels , increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement . any one or a combination of these events may adversely affect borrowers ' ability to repay their loans , resulting in increased delinquencies , loan losses and future levels of provisions . accordingly , the company has provided for loan losses at the current level to address the current risk in its loan portfolio . management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level given current economic conditions , interest rates and the composition of the portfolio . although management believes that the company has established and maintained the allowance for loan losses at appropriate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . management evaluates its estimates and assumptions on an ongoing basis giving consideration to historical experience and other factors , including the current economic environment , which management believes to be reasonable under the circumstances . such estimates and assumptions are adjusted when facts and circumstances dictate . illiquid credit markets , volatile securities markets , and declines in the housing and commercial real estate markets and the economy generally have combined to increase the uncertainty inherent in such estimates and assumptions . as future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods . in addition , various regulatory agencies periodically review the adequacy of the company 's allowance for loan losses as an integral part of their examination process . such agencies may require the company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination . story_separator_special_tag although management uses the best information available , the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change . additional critical accounting policies relate to judgments about other asset impairments , including goodwill , investment securities and deferred tax assets . goodwill is evaluated for impairment on an annual basis , or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates . the company qualitatively determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing step 1 of the goodwill impairment test . if an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , the entity would be required to perform step 1 of the assessment and then , if needed , step 2 to determine whether goodwill is impaired . however , if it is more likely than not that the fair value of the reporting unit is more than its carrying amount , the entity does not need to apply the two-step impairment test . for this analysis , the reporting unit is defined as the bank , which includes all core and retail banking operations of the company but excludes the assets , liabilities , equity , earnings and operations held exclusively at the company level . the guidance provides certain factors an entity should consider in its qualitative assessment in determining whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount . the factors include : macroeconomic conditions , such as deterioration in economic condition and limited access to capital . industry and market considerations , such as increased competition , regulatory developments and decline in market-dependent multiples . cost factors , such as increased labor costs , cost of materials and other operating costs . overall financial performance , such as declining cash flows and decline in revenue or earnings . other relevant entity-specific events , such as changes in management , strategy or customers , litigation and contemplation of bankruptcy . 44 reporting unit events , such as selling or disposing a portion of a reporting unit and a change in composition of assets . the company completed its annual goodwill impairment test as of september 30 , 2014. based upon its qualitative assessment of goodwill , the company concluded it is more likely than not that the fair value of the reporting unit exceeds its carrying amount , goodwill was not impaired and no further quantitative analysis ( step 1 ) was warranted . the company may , based upon its qualitative assessment , or at its option , perform the two-step process to evaluate the potential impairment of goodwill . if , based upon step 1 , the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired . however , if the carrying amount of the reporting unit exceeds its fair value , an additional test must be performed . the second step test compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . an impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . the company 's available for sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . estimated fair values are based on market quotations or matrix pricing as discussed in note 5 to the audited consolidated financial statements . securities which the company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost . the company conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary . in this evaluation , if such a decline were deemed other-than-temporary , the company would measure the total credit-related component of the unrealized loss , and recognize that portion of the loss as a charge to current period earnings . the remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income . the fair value of the securities portfolio is significantly affected by changes in interest rates . in general , as interest rates rise , the fair value of fixed-rate securities decreases and as interest rates fall , the fair value of fixed-rate securities increases . turmoil in the credit markets resulted in a lack of liquidity in certain sectors of the mortgage-backed securities market . increases in delinquencies and foreclosures have resulted in limited trading activity and significant price declines , regardless of favorable movements in interest rates . the company determines if it has the intent to sell these securities or if it is more likely than not that the company would be required to sell the securities before the anticipated recovery . if either exists , the decline in value is considered other-than-temporary . in this evaluation , no other-than-temporary securities impairment loss was incurred in 2014 and 2012 , while in 2013 , the company recognized an other-than-temporary securities impairment loss of $ 434,000. the determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities , utilization against carryback years and estimates of future taxable income . such estimates are subject to management 's judgment . a valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items . at december 31 , 2014 , the company maintained a valuation allowance of $ 242,000 , related to unused capital loss carryforwards .
| million , or 3.6 % , to $ 252.8 million for 2013 , compared to $ 262.3 million for 2012. the decrease in interest income was attributable to a decrease in the yield on average earning assets , partially offset by an increase in average earning asset balances . the yield on interest-earning assets decreased 21 basis points to 3.87 % for 2013 , from 4.08 % for 2012 , with reductions in yields experienced in nearly all earning asset classes . average interest-earning assets increased $ 93.5 million , or 1.5 % , to $ 6.53 billion for 2013 , compared to $ 6.43 billion for 2012. the average outstanding loan balances increased $ 263.8 million , or 5.7 % , to $ 4.92 billion for 2013 from $ 4.66 billion for 2012 , the average balance of securities available for sale decreased $ 160.1 million , or 11.9 % , to $ 1.19 billion for 2013 , compared to $ 1.35 billion for 2012 , and the average balance of investment securities held to maturity increased $ 1.7 million , or 0.5 % , to $ 353.6 million for 2013 , compared to $ 352.0 million for 2012. these increases were partially offset by a decrease in average interest-earning deposits , federal funds sold and short-term investment balances of $ 16.8 million , to $ 16.8 million for 2013 , from $ 33.6 million for 2012. interest expense decreased $ 8.2 million , or 18.2 % , to $ 36.8 million for 2013 , from $ 44.9 million for 2012. the decrease in interest expense was attributable to lower short-term interest rates coupled with a shift in the funding composition to lower-costing core deposits from certificates of deposit and a reduction in the average cost of borrowings . this was partially offset by an increase in average borrowings , which replaced average deposit outflow and funded a portion of the growth in average interest-earning assets . the average rate paid on
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we are obligated to conduct and solely fund research and development costs of the phase 1 clinical trials for epz-5676 and through the effectiveness of the first investigational new drug application for an hmt inhibitor directed to each available target selected by celgene , after which celgene and we will equally co-fund global development and each party will solely fund territory-specific development costs for its territory . collaboration revenue through december 31 , 2014 , in addition to amounts allocated to celgene 's purchase of shares of our series c preferred stock , we recorded a total of $ 98.8 million in cash and accounts receivable under the celgene agreement , including a $ 3.0 million implied premium on celgene 's purchase of our series c preferred stock . of this amount , we recognized $ 9.6 million , $ 37.8 million and $ 23.9 million of collaboration revenue in the consolidated statements of operations and comprehensive loss during the 77 years ended december 31 , 2014 , 2013 and 2012 , respectively , and $ 3.9 million and $ 1.9 million of global development co-funding as a reduction to research and development expense during the years ended december 31 , 2014 and 2013 , respectively . as of december 31 , 2014 , we had deferred revenue of $ 21.7 million related to this agreement . gsk in january 2011 , we entered into a collaboration and license agreement with gsk to discover , develop and commercialize novel small molecule hmt inhibitors directed to available targets from our product platform . under the terms of the agreement , we granted gsk exclusive worldwide license rights to hmt inhibitors directed to three targets . in march 2014 , we and gsk amended certain terms of this agreement for the third target , revising the license terms with respect to candidate compounds and amending the corresponding financial terms , including reallocating milestone payments and increasing royalty rates as to the third target . additionally , as part of the research collaboration provided for in the agreement , we agreed to provide research and development services related to the licensed targets pursuant to agreed upon research plans during a research term that ended january 8 , 2015 , or earlier if selection of a development candidate occurred . agreement structure under the agreement , we recorded a $ 20.0 million upfront payment , a $ 3.0 million payment upon the execution of the march 2014 agreement amendment , $ 6.0 million of fixed research funding , $ 15.0 million of preclinical research and development milestone payments and $ 9.0 million for research and development services through december 31 , 2014. we are eligible to receive up to $ 18.0 million in additional preclinical research and development milestone payments , up to $ 109.0 million in clinical development milestone payments , up to $ 275.0 million in regulatory milestone payments and up to $ 218.0 million in sales-based milestone payments . in addition , gsk is required to pay us royalties at percentages from the mid-single digits to the low double-digits , on a licensed product-by-licensed product basis , on worldwide net product sales , subject to reductions in specified circumstances . due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with pharmaceutical development , we may not receive any additional milestone payments or royalty payments from gsk . the next potential milestone payment that we might be entitled to receive under this agreement is a preclinical research and development milestone . however , due to the varying stages of development of each licensed target , we are not able to determine the next milestone that might be achieved , if any . for each selected target in the collaboration , we were primarily responsible for research until the earlier of selection of a development candidate for the target or january 8 , 2015 , and gsk is solely responsible for subsequent development and commercialization . gsk provided a fixed amount of research funding during the second and third years of the research term and was obligated to provide research funding equal to 100.0 % of research and development costs , subject to specified limitations , for research activities we conducted in the fourth year of the research term . collaboration revenue through december 31 , 2014 , we recorded a total of $ 53.0 million in cash and accounts receivable under the gsk agreement . during the years ended december 31 , 2014 , 2013 and 2012 , we recognized $ 25.5 million , $ 16.4 million and $ 9.7 million of collaboration revenue , respectively , under this agreement . as of december 31 , 2014 , we had deferred revenue of $ 1.4 million related to this agreement . eisai in march 2015 , we entered into an amended and restated collaboration and license agreement with eisai , under which we reacquired worldwide rights , excluding japan , to our ezh2 program , including epz-6438 . 78 under the amended and restated collaboration and license agreement , we will be responsible for global development , manufacturing and commercialization outside of japan of epz-6438 and any other ezh2 product candidates , with eisai retaining development and commercialization rights in japan , as well as a right to elect to manufacture epz-6438 and any other ezh2 product candidates in japan . under the original collaboration and license agreement , we had granted eisai an exclusive worldwide license to our small molecule hmt inhibitors directed to ezh2 , including epz-6438 , while retaining an opt-in right to co-develop , co-commercialize and share profits with eisai as to licensed products in the united states . story_separator_special_tag agreement structure under the terms of the original agreement , we recorded a $ 3.0 million upfront payment , $ 7.0 million in preclinical research and development milestone payments , a $ 6.0 million clinical development milestone and $ 22.7 million for research and development services through december 31 , 2014 , for total consideration received from eisai of $ 38.7 million . we were also eligible to earn up to a total of $ 195.0 million in clinical development , regulatory and sales-based milestone payments and to receive royalties on product sales . upon the execution of the amended and restated collaboration agreement , we agreed to pay eisai a $ 40.0 million upfront payment . we also agreed to pay eisai up to $ 20.0 million in clinical development milestone payments , up to $ 50.0 million in regulatory milestone payments and royalties at a percentage in the mid-teens on worldwide net sales of any ezh2 product , excluding net sales in japan . we are eligible to receive from eisai royalties at a percentage in the mid-teens on net sales of any ezh2 product in japan . under the original agreement , eisai was solely responsible for funding all research , development and commercialization costs for licensed compounds . under the amended agreement , we will be solely responsible for funding global development , manufacturing and commercialization costs for ezh2 compounds outside of japan , and eisai will be solely responsible for funding japan-specific development and commercialization costs for ezh2 compounds . in connection with the amendment and restatement of our collaboration and license agreement with eisai , we and eisai have agreed upon a transition to us of ongoing development and manufacturing activities being conducted by or on behalf of eisai . collaboration revenue through december 31 , 2014 , under the terms of the original agreement , we had recorded a total of $ 38.7 million in cash and accounts receivable under this agreement . during the years ended december 31 , 2014 , 2013 and 2012 , we recognized $ 6.3 million , $ 14.3 million and $ 11.5 million of collaboration revenue , respectively , under this agreement . as of december 31 , 2014 , we had no remaining deferred revenue related to this agreement . results of operations for the years ended december 31 , 2014 , 2013 and 2012 collaboration revenue the following is a comparison of collaboration revenue for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_4_th our revenue consists of collaboration revenue , including amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future , research and development services revenue earned and milestone payments earned under collaboration and license agreements with our collaboration partners . 79 during the year ended december 31 , 2014 , collaboration revenue consisted of $ 22.7 million recognized from deferred revenue related to upfront payments for licenses , $ 3.0 million in milestone revenue and $ 15.7 million in research and development funding . this revenue compares to $ 24.3 million recognized from deferred revenue related to upfront payments for licenses , $ 35.0 million in milestone revenue and $ 9.2 million in research and development funding for the year ended december 31 , 2013 and to $ 30.2 million recognized from deferred revenue related to upfront payments for licenses , $ 8.0 million in milestone revenue and $ 7.0 million in research and development funding recognized in the year ended december 31 , 2012 , collectively representing a $ 27.1 million , or 40 % , decrease in collaboration revenue in 2014 compared to 2013 and a $ 23.3 million , or 51 % , increase in collaboration revenue in 2013 compared to 2012. collaboration revenue recognized from deferred revenue related to upfront payments for licenses in the year ended december 31 , 2014 comprised $ 9.6 million under our celgene agreement , $ 1.6 million under our eisai agreement and $ 11.5 million under our gsk agreement as compared to $ 12.8 million under our celgene agreement , $ 1.6 million under our eisai agreement and $ 9.9 million under our gsk agreement in 2013 and $ 23.9 million under our celgene agreement , $ 1.6 million under our eisai agreement and $ 4.6 million under our gsk agreement in 2012. milestone revenue in the year ended december 31 , 2014 represents $ 3.0 million in preclinical research and development milestones achieved under our gsk agreement as compared to a $ 25.0 million clinical development milestone achieved under our celgene agreement , a $ 6.0 million clinical development milestone achieved under our eisai agreement and a $ 4.0 million preclinical research and development milestone achieved under our gsk agreement in 2013 and a $ 4.0 million preclinical research and development milestone achieved under our eisai agreement and $ 4.0 million in preclinical research and development milestones achieved under our gsk agreement in 2012. collaboration revenue recognized for research and development services in the year ended december 31 , 2014 comprised $ 4.7 million under our eisai agreement and $ 11.0 million under our gsk agreement as compared to $ 6.7 million under our eisai agreement and $ 2.5 million under our gsk agreement in 2013 and $ 5.9 million under our eisai agreement and $ 1.1 million under our gsk agreement in 2012. 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 .
| phase 2 portion of our phase 1/2 clinical trial of epz-6438 in adult non-hodgkin b-cell lymphoma patients in which patients will be prospectively stratified based on cell of origin and ezh2 mutational status into one of five arms ; initiate a phase 2 clinical trial of epz-6438 in adult patients with ini1-deficient tumors such as synovial sarcoma ; initiate a phase 1 clinical trial of epz-6438 in pediatric patients with ini1-deficient tumors such as malignant rhabdoid tumors ; complete enrollment in an ongoing 20 patient expansion cohort in our ongoing phase 1 clinical trial of epz-5676 in adult mll-r patients at 54 mg/m 2 /day ; and complete enrollment in the ongoing phase 1 clinical trial of epz-5676 in mll-r pediatric patients . 75 in addition to our clinical programs , we also have a pipeline of hmt inhibitors in preclinical development that target our other prioritized hmts in the hmtome . these programs are directed to genetically defined cancers , including both hematological and solid tumors , and include the preclinical development of three specified hmt inhibitors which we have licensed to gsk . we also have active drug discovery programs for other hmts that we have prioritized . in march 2015 , we entered into an amended and restated collaboration and license agreement with eisai under which we reacquired worldwide rights , excluding japan , to our ezh2 program , including epz-6438 . under the original collaboration and license agreement , we had granted eisai an exclusive worldwide license to our ezh2 program , including epz-6438 , while retaining an opt-in right to co-develop , co-commercialize and share profits with eisai as to licensed products in the united states . under the amended and restated collaboration and license agreement , we will be responsible for global development , manufacturing and commercialization outside of japan of epz-6438 and any other ezh2 product candidates , with eisai retaining development and commercialization rights in japan ,
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our financial results and competitive position are affected by fluctuations in the exchange rate between the us dollar and non-us dollars , primarily the canadian dollar . see also quantitative and qualitative disclosures about market risk foreign exchange. seasonality . historically , with some exceptions , we generate the highest quarterly revenues during the fourth quarter in each year . the fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur . story_separator_special_tag 0pt ; margin-bottom : 0pt '' > the company completed several key acquisitions in 2011. these acquisitions included the acquisition of a 70 % interest in concentric partners , llc ( concentric ) , a 65 % interest in laird + partners , new york llc ( laird ) , a 100 % interest in rj palmer partners llc ( rj palmer ) , a 75 % interest in trade x partners llc ( trade x ) and a 60 % interest in anomaly partners , llc ( anomaly ) . the total aggregate purchase price for these 2011 transactions was $ 76.8 million , which included closing cash payments equal to $ 40 million plus additional estimated contingent purchase payments in future years of approximately $ 36.8 million . see note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions . on april 19 , 2011 , the company and its wholly-owned subsidiaries , as guarantors , issued and sold an additional $ 55 million aggregate principal amount of 11 % notes due 2016. the additional notes were issued under the indenture governing the 11 % notes and treated as a single series with the original 11 % notes . the additional notes were sold in a private placement in reliance on exceptions from registration under the securities act of 1933 , as amended . the company received net proceeds before expenses of $ 59.6 million , 22 which included an original issue premium of $ 6.1 million , and underwriter fees of $ 1.5 million . the company used the net proceeds of the offering to repay the outstanding balance under the company 's wf credit agreement described elsewhere herein , and for general corporate purposes . results of operations for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_5_th 23 replace_table_token_6_th 24 replace_table_token_7_th 25 year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue was $ 1.15 billion for the year ended 2013 , representing an increase of $ 85.6 million , or 8.1 % , compared to revenue of $ 1.06 billion for the year ended 2012. this increase relates primarily to an increase in organic revenue of $ 88.5 million and acquisition growth of $ 2.6 million . a strengthening of the us dollar , primarily versus the canadian dollar during the year ended december 31 , 2013 , resulted in a decrease of $ 5.4 million . operating loss for the year ended 2013 was $ 32.0 million , compared to a loss of $ 15.9 million in 2012. operating profit increased by $ 61.2 million in the strategic marketing services segment and by $ 10.6 million in the performance marketing services segment . corporate operating expenses increased by $ 87.9 million in 2013. loss from continuing operations was a loss of $ 131.0 million in 2013 , compared to a loss of $ 71.9 million in 2012. this increase in loss of $ 59.1 million was primarily attributable to a decrease in operating profits of $ 16.1 million ( primarily due to an increase in stock based compensation of $ 68.2 million ) , and an increase in net interest expense equal to $ 54.4 million , offset by a decrease in tax expense of $ 13.8 million . the increase in net interest expense was primarily due to the company 's redemption of its 11 % notes in march 2013 and related premium , fees and expenses of $ 55.6 million . these amounts were also impacted by an increase in foreign exchange losses of $ 4.6 million in 2013 and an increase in other income , net of $ 2.4 million . marketing communications group revenues attributable to the marketing communications group , which consists of two reportable segments strategic marketing services and performance marketing services , were $ 1.15 billion in the aggregate in 2013 , compared to $ 1.06 million in 2012 , representing a year-over-year increase of 8.1 % . the components of the revenue for 2013 are shown in the following table : replace_table_token_8_th the geographic mix in revenues was relatively consistent between 2013 and 2012 and is demonstrated in the following table : replace_table_token_9_th the operating profit of the marketing communications group increased by $ 71.9 million to $ 96.1 million from $ 24.3 million . operating margins increased by 6.1 % and were 8.4 % for 2013 , compared to 2.3 % for 2012. the increase in operating profit and operating margin was primarily due to increases in revenue and decreases in direct costs , office and general expenses , and depreciation and amortization . total staff costs were consistent at approximately 59 % . direct costs ( excluding staff costs ) decreased as a percentage of revenues from 16.8 % in 2012 , to 13.4 % in 2013. direct costs decreased as there were fewer pass-through costs incurred on the clients ' behalf during 2013 where the company was acting as principal versus agent for certain client contracts . office and general expenses decreased as a percentage of revenue from 24.5 % in 2012 , to 22.6 % in 2013. this decrease was primarily due to a reduction of $ 17.1 million in expense relating to estimated deferred acquisition consideration and the increase in revenue on relatively fixed costs . depreciation and amortization as a percentage of revenue decreased from 4.2 % in 2012 to 3.3 % in 2013 . story_separator_special_tag 26 marketing communications businesses strategic marketing services revenues attributable to strategic marketing services in 2013 were $ 805.4 million , compared to $ 719.4 million in 2012. the year-over-year increase of $ 86.1 million , or 12.0 % , was attributable primarily to organic growth of $ 91.4 million or 12.7 % ; these increases were offset by a foreign exchange translation decrease due to the strengthening of the us dollar compared to the canadian dollar . this organic revenue growth was driven by net new business wins . the operating profit of strategic marketing services increased by $ 61.2 million from $ 24.1 million in 2012 to $ 85.3 million in 2013. operating margins increased from 3.4 % in 2012 to 10.6 % in 2013. the increase in operating profits and operating margins were primarily due to increases in revenues and decreases in direct costs , office and general costs and depreciation and amortization . total staff costs were relatively consistent at 60 % . direct costs ( excluding staff labor ) decreased as a percentage of revenue from 13.2 % 2012 to 8.8 % in 2013. direct costs decreased as there were fewer pass-through costs incurred on the clients ' behalf during 2013 where the company was acting as principal versus agent for certain client contracts . office and general expenses decreased as a percentage of revenue from 26.3 % in 2012 to 23.1 % in 2013. the decrease was due to a reduction of $ 11.8 million in expense relating to estimated deferred acquisition consideration and the increased revenue on relatively fixed costs . depreciation and amortization as a percentage of revenue decreased from 3.8 % in 2012 to 2.9 % in 2013. performance marketing services performance marketing services generated revenues of $ 343.4 million for 2013 , a decrease of $ 0.5 million , or 0.1 % , compared to revenues of $ 343.9 million in 2012. the year-over-year decrease was attributable primarily to an organic decline of $ 2.9 million offset by an increase in acquisition growth of $ 5.8 million , and a foreign translation decrease of $ 3.3 million . this organic revenue decline was driven by net new business wins offset by larger reductions of client spending amounts . the operating profit of performance marketing services increased by $ 10.6 million , from $ 0.2 million in 2012 to $ 10.8 million in 2013. operating margins increased from 0.1 % in 2012 to 3.1 % in 2013. the increase in operating profits and operating margins were primarily due to decreases in staff costs , direct costs ( excluding staff labor ) and depreciation and amortization . total staff costs decreased from 58.3 % in 2012 to 57.4 % in 2013. direct costs decreased from 24.2 % in 2012 to 23.9 % in 2013 due to decreased pass-through costs incurred on the clients ' behalf during 2013 where the agency was acting as principal versus agent for certain client contracts . office and general costs increased from 20.9 % in 2012 to 21.5 % in 2013 on relatively flat revenue . depreciation and amortization decreased from 5.0 % in 2012 to 4.2 % in 2013. corporate operating costs related to the company 's corporate operations increased by $ 87.9 million to $ 128.1 million in 2013 , compared to $ 40.2 million in 2012. this increase was primarily related to increased compensation and related costs of $ 89.0 million . the increase in compensation and related costs is due to the company 's settlement of its sar 's in cash resulting in a stock based compensation charge of $ 78.0 million and a one-time bonus payment of $ 9.6 million to our ceo for the company 's stock price achieving specified targets . increases in benefits and severance costs accounted for the remaining increase . additional advertising and promotion costs , occupancy , travel and entertainment , professional fees , and other administrative costs were offset by the repayment in full of a previously fully reserved loan by the company 's ceo of $ 5.3 million . other income , net other income , net , increased by $ 2.4 million from income of $ 0.1 million in 2012 to income of $ 2.5 million in 2013. the increase was primarily related to a distribution received in excess of the assets carrying value of $ 3.1 million . 27 foreign exchange the foreign exchange loss was $ 5.5 million for 2013 , compared to a loss of $ 1.0 million recorded in 2012. this unrealized loss was due primarily to the fluctuation in the us dollar during 2013 and 2012 compared to the canadian dollar relating to the company 's us dollar denominated intercompany balances with its canadian subsidiaries . interest expense and finance charges , net interest expense and finance charges , net for 2013 was $ 100.6 million , an increase of $ 54.4 million over the $ 46.2 million of interest expense and finance charges , net incurred during 2012. this increase was due to the loss paid on the redemption of the company 's 11 % notes of $ 55.6 million , offset in part by lower borrowing costs related to the 6.75 % notes issued to replace those notes . income tax expense income tax expense in 2012 was $ 9.6 million compared to a benefit of $ 4.3 million for 2013. the company 's effective rate was substantially lower than the statutory rate in 2013 , primarily due to nondeductible stock-based compensation , an increase in the valuation allowance , offset in part by noncontrolling interest charges . the company 's effective tax rate was substantially higher than the statutory rate in 2012 due to non-deductible stock-based compensation and an increase in the company 's valuation allowance , offset in part by noncontrolling interest charges . the company 's us operating units are generally structured as limited liability companies , which are treated as partnerships for tax purposes .
| interest expense was lower in 2013 by $ 0.3 million , income tax expense was also higher by $ 0.3 million and equity in earnings of affiliates was $ 0.1 million in 2013 , compared to $ 0.2 million in 2012. interest expense decreased due to the company 's refinancing of its outstanding indebtedness , in which the company issued 6.75 % notes and redeemed all of its outstanding 11 % notes . 21 summary of key transactions year ended december 31 , 2013 on march 20 , 3013 , the company issued and sold $ 550 million aggregate principal amount 6.75 % notes . the company received net proceeds from the offering of the 6.75 % notes equal to approximately $ 537.6 million . the company used the net proceeds to redeem all of the existing 11 % senior notes due 2016 , together with accrued interest , related premiums , fees and expenses and recorded a charge for loss on redemption of notes of $ 55.6 million , including write offs of unamortized original issue premium and debt issuance costs . remaining proceeds were used for general corporate purposes . in addition , the company entered into an amended and restated $ 225 million senior secured revolving credit agreement due 2018. on november 15 , 2013 , the company issued an additional $ 110 million aggregate principal amount of its 6.75 % notes . the additional notes were issued under the indenture governing the 6.75 % notes and treated as a single series with the original 6.75 % notes . the additional notes were sold in a private placement in reliance on exceptions from registration under the securities act of 1933 , as amended . the company received net proceeds before expenses of $ 111.9 million , which included an original issue premium of $ 4.1 million , and underwriter fees of $ 2.2 million . the company used the net proceeds of the offering for general corporate purposes . year ended december 31 , 2012 the company completed several key acquisitions and transactions in 2012. these acquisitions included the acquisition of doner partners llc ( doner ) . the company acquired a 30 % voting interest and a
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however , for those items for which market-based prices do not exist and an independent pricing service is not readily available , management utilizes significant estimates and assumptions to value such items . examples of these items include goodwill and other intangible assets , acquired loans and deposits , foreclosed and other repossessed assets , impaired loans , stock-based compensation and certain other financial investments . the use of different assumptions could produce significantly different results , which could have material positive or negative effects on the company 's results of operations . note 19 of the accompanying notes to consolidated financial statements describes the methodologies used to determine the fair value of investment securities , impaired loans , loans held for sale and foreclosed real estate . there were no changes in the valuation techniques and related inputs used during the year ended december 31 , 2019 . 44 results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 net income . net income attributable to the company was $ 10.3 million ( $ 3.09 per share diluted ; weighted average common shares outstanding of 3,344,072 , as adjusted ) for the year ended december 31 , 2019 compared to $ 9.3 million ( $ 2.77 per share diluted ; weighted average common shares outstanding of 3,335,394 , as adjusted ) for the year ended december 31 , 2018. net interest income . net interest income increased $ 2.8 million , or 10.3 % , from $ 27.3 million for 2018 to $ 30.1 million for 2019 primarily due to increases in the average balance of interest-earning assets and the interest rate spread , the difference between the average tax-equivalent yield on interest-earning assets and the average cost of interest-bearing liabilities . total interest income increased $ 3.2 million for 2019 as compared to 2018. this increase was primarily a result of increases in the tax-equivalent yield on interest-earning assets from 4.01 % for 2018 to 4.28 % for 2019 and in the average balance of interest-earning assets from $ 730.5 million for 2018 to $ 760.8 million for 2019. the increase in the average balance of interest-earning assets in 2019 was primarily attributable to continued growth in loans and partially offset by continued declining balances in investment securities . interest on loans increased $ 2.9 million as a result of the average balance of loans increasing from $ 423.6 million for 2018 to $ 465.4 million for 2019 and the average tax-equivalent yield on loans increasing from 5.39 % for 2018 to 5.54 % for 2019. interest and dividends on investment securities ( including fhlb stock ) increased $ 144,000 for 2019 compared to 2018 due to an increase in the tax equivalent yield on investment securities from 2.13 % in 2018 to 2.29 % in 2019 , partially offset by a decrease in the average balance of investment securities from $ 267.4 million for 2018 to $ 258.0 million for 2019. other interest income increased $ 96,000 for 2019 as compared to 2018 primarily due to the tax equivalent yield of federal funds sold and interest-bearing deposits with banks increasing from 1.92 % to 2.29 % when comparing the two periods . total interest expense increased $ 349,000 , from $ 1.6 million for 2018 to $ 2.0 million for 2019 , due to increases in the average balance of interest-bearing liabilities from $ 552.2 million for 2018 to $ 567.6 million for 2019 and in the average cost of interest-bearing liabilities from 0.29 % for 2018 to 0.35 % for 2019. included in the interest-bearing liabilities were borrowed funds with an average balance of $ 1.2 million for 2018 and an average cost of 1.78 % . there were no borrowed funds during 2019. for further information , see “ average balances and yields ” below . the changes in interest income and interest expense resulting from changes in volume and changes in rates for 2019 and 2018 are shown in the schedule captioned “ rate/volume analysis ” included herein . provision for loan losses . the provision for loan losses was $ 1.4 million for 2019 compared to $ 1.2 million for 2018. the consistent application of management 's allowance methodology resulted in an increase in the provision for loan losses for 2019 , primarily due to the loan portfolio growth during the year . total outstanding loans increased by $ 33.2 million during 2019 as compared to an increase of $ 25.0 million during 2018. net charge-offs decreased from $ 737,000 for 2018 to $ 429,000 for 2019 , and nonperforming loans decreased from $ 3.1 million at december 31 , 2018 to $ 1.8 million at december 31 , 2019. the provisions were recorded to bring the allowance to the level determined in applying the allowance methodology after reduction for net charge-offs during the year . provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered reasonable by management to provide for probable known and inherent loan losses based on management 's evaluation of the collectability of the loan portfolio , including the nature of the portfolio , credit concentrations , trends in historical loss experience , specified impaired loans and economic conditions . although management uses the best information available , future adjustments to the allowance may be necessary due to changes in economic , operating , regulatory and other conditions that may be beyond the bank 's control . while the bank maintains the allowance for loan losses at a level that it considers adequate to provide for estimated losses , there can be no assurance that further additions will not be made to the allowance for loan losses and that actual losses will not exceed the estimated amounts . 45 noninterest income . story_separator_special_tag noninterest income increased $ 758,000 to $ 6.9 million for 2019 due to increases in atm and debit card fees and unrealized gains on equity securities of $ 248,000 and $ 239,000 , respectively . there was also a loss on a tax credit investment of $ 270,000 recorded in 2018. those changes were partially offset by an $ 89,000 decrease in service charges on customer accounts during 2019. noninterest expense . noninterest expense increased $ 1.7 million , to $ 23.3 million for 2019 primarily due to increases in compensation and benefits expense of $ 1.4 million and data processing expense of $ 458,000 when comparing the two periods . compensation and benefits expense increased primarily due to normal salaries and benefits increases and an increase in stock compensation expense . a significant factor in the increase in data processing expense during 2019 was the rollout of the bank 's new digital platform in the fourth quarter of 2019 and the associated costs , including termination fees from the previous platform provider . income tax expense . tax expense increased $ 593,000 for 2019 to $ 2.0 million primarily due to an increase in taxable income and a reduction in benefits from a tax credit entity . as a result , the effective tax rate increased from 13.1 % for 2018 to 16.1 % for 2019. see note 12 of the accompanying notes to consolidated financial statements for additional details on the company 's income tax expense . results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 net income . net income attributable to the company was $ 9.3 million ( $ 2.77 per share diluted ; weighted average common shares outstanding of 3,335,394 , as adjusted ) for the year ended december 31 , 2018 compared to $ 7.4 million ( $ 2.23 per share diluted ; weighted average common shares outstanding of 3,329,563 , as adjusted ) for the year ended december 31 , 2017. net interest income . net interest income increased $ 2.2 million , or 9.0 % , from $ 25.0 million for 2017 to $ 27.3 million for 2018 primarily due to increases in the average balance of interest-earning assets and the interest rate spread , the difference between the average tax-equivalent yield on interest-earning assets and the average cost of interest-bearing liabilities . total interest income increased $ 2.5 million for 2018 as compared to 2017. this increase was primarily a result of increases in the tax-equivalent yield on interest-earning assets from 3.84 % for 2017 to 4.01 % for 2018 and in the average balance of interest-earning assets from $ 708.4 million for 2017 to $ 730.5 million for 2018. the increase in the average balance of interest-earning assets in 2018 was primarily attributable to growth in loans and partially offset by declining balances in investment securities . interest on loans increased $ 2.1 million as a result of the average balance of loans increasing from $ 399.8 million for 2017 to $ 423.6 million for 2018 and the average tax-equivalent yield on loans increasing from 5.19 % for 2017 to 5.39 % for 2018. interest and dividends on investment securities ( including fhlb stock ) decreased $ 42,000 for 2018 compared to 2017 due to a decrease in the average balance of investment securities from $ 275.8 million for 2017 to $ 267.4 million for 2018. the tax equivalent yield on investment securities decreased from 2.21 % for 2017 to 2.13 % for 2018 primarily due to the effect of the tax cuts and jobs act ( “ tcja ” ) signed into law on december 22 , 2017 which resulted in a decrease in the tax-effective yield on tax-exempt securities . other interest income increased $ 388,000 for 2018 as compared to 2017 primarily due to the tax equivalent yield of federal funds sold and interest-bearing deposits with banks increasing from 1.13 % to 1.92 % when comparing the two periods as a result of increases in short-term market interest rates . total interest expense increased $ 219,000 , from $ 1.4 million for 2017 to $ 1.6 million for 2018 , due to increases in the average balance of interest-bearing liabilities from $ 541.5 million for 2017 to $ 552.2 million for 2018 and in the average cost of interest-bearing liabilities from 0.26 % for 2017 to 0.29 % for 2018. included in the interest-bearing liabilities were borrowed funds with an average balance of $ 1.2 million for both 2018 and 2017 and an average cost 1.78 % and 1.52 % , respectively , for 2018 and 2017. for further information , see “ average balances and yields ” below . the changes in interest income and interest expense resulting from changes in volume and changes in rates for 2018 and 2017 are shown in the schedule captioned “ rate/volume analysis ” included herein . 46 provision for loan losses . the provision for loan losses was $ 1.2 million for 2018 compared to $ 915,000 for 2017. the consistent application of management 's allowance methodology resulted in an increase in the provision for loan losses for 2018 , primarily due to the loan portfolio growth during the year and increased net charge-offs . total outstanding loans increased by $ 25.0 million during 2018 as compared to an increase of $ 28.5 million during 2017. net charge-offs increased from $ 667,000 for 2017 to $ 737,000 for 2018 when comparing the two periods , and nonperforming loans increased from $ 2.8 million at december 31 , 2017 to $ 3.1 million at december 31 , 2018. the provisions were recorded to bring the allowance to the level determined in applying the allowance methodology after reduction for net charge-offs during the year .
| · asset quality – net loan charge-offs decreased from $ 667,000 for 2017 and $ 737,000 for 2018 to $ 429,000 for 2019 , and the ratio of net charge-offs to average loans outstanding decreased from 0.17 % for both 2017 and 2018 to 0.09 % for 2019. in addition , total nonperforming assets ( consisting of nonperforming loans and foreclosed real estate ) decreased from $ 6.2 million , or 0.78 % of total assets , at december 31 , 2018 to $ 1.9 million , or 0.24 % of total assets , at december 31 , 2019. the allowance for loan losses was 1.08 % of total outstanding loans and 284.6 % of nonperforming loans at december 31 , 2019 compared to 0.93 % of total outstanding loans and 133.0 % of nonperforming loans at december 31 , 2018 . · shareholder return – total shareholder return , including the increase in the company 's stock price from $ 42.48 at december 31 , 2018 to $ 73.00 at december 31 , 2019 and dividends of $ 0.95 per share , was 74.1 % for 2019 compared to 18.1 % for 2018 and 16.0 % for 2017. management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company and the bank . the information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes to consolidated financial statements included in this report . 42 operating strategy the company is the parent company of an independent community-oriented financial institution that delivers quality customer service and offers a wide range of deposit , loan and investment products to its customers . the commitment to customer needs , the focus on providing consistent customer service , and community service and support are the keys to the bank 's past and future success . the company has no other material income other than that generated by the bank and its subsidiaries . the bank 's primary business strategy is attracting deposits from the general public and using those funds to
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30 in addition to investing in our fleet , we have also increased our technology investments in an effort to enhance interactions with our customers and allow us to deliver more personalized service , further enhancing the customer experience and strengthening our brand and competitive position . during 2018 , we delivered several capabilities that enable our front-line employees to personalize their interactions with our customers , added self-service features on both the mobile app and delta.com and launched the first facial recognition biometric terminal for international travelers at the atlanta airport . ancillary businesses and refinery . ancillary businesses and refinery includes expenses associated with aircraft maintenance and staffing services we provide to third parties , our vacation wholesale operations , our private jet operations and refinery sales to third parties . expenses related to refinery sales to third parties , which are at or near cost , increased $ 46 million compared to the prior year , primarily resulting from higher sales volume . the remainder of the increase in ancillary businesses and refinery primarily resulted from growth in our aircraft maintenance business . in december 2018 , we sold our staffing services business , dgs , to a subsidiary of argenbright holdings , llc . therefore , in 2019 , this business will no longer be reflected within ancillary businesses and refinery . during 2018 and 2017 , dgs incurred expenses of approximately $ 200 million per year related to services performed for third parties . in addition , during 2018 and 2017 , dgs incurred expenses of approximately $ 350 million related to internal delta services that were primarily recorded in salaries and related costs . after the sale of dgs to a third party , delta will record these expenses and our portion of the new entity 's financial results under the equity method of accounting , in contracted services . profit sharing . profit sharing expense increased $ 236 million to $ 1.3 billion , marking the fifth consecutive year that delta employees will receive over $ 1 billion in recognition of their contributions to the company 's performance . the increase in profit sharing is related to the alignment of our profit sharing programs under a single formula , which was implemented october 1 , 2017. under this formula , our profit sharing program pays 10 % to all eligible employees for the first $ 2.5 billion of annual profit ( as defined by the terms of the program ) and 20 % of annual profit above $ 2.5 billion . prior to october 1 , 2017 , the profit sharing program for merit , ground and flight attendant employees paid 10 % of annual profit and , if we exceeded our prior-year results , the program paid 20 % of the year-over-year increase in profit to eligible employees . 31 results of operations - 2017 compared to 2016 operating revenue replace_table_token_14_th ( 1 ) for additional information on adjusting for third-party refinery sales , see `` supplemental information '' below . passenger revenue ticket and loyalty travel awards revenue ticket , including both main cabin and business cabin and premium products , and loyalty travel awards revenue increased $ 933 million and $ 169 million , respectively , compared to the year ended december 31 , 2016 , consistent with the discussion of passenger revenue by geographic region , below . business cabin and premium products ticket revenue includes revenues from fare products other than main cabin , including delta one , delta premium select , first class and comfort+ . the growth in this ticket revenue primarily results from the continued expansion of our branded fare products and strength in business demand . passenger revenue by geographic region replace_table_token_15_th passenger revenue increased $ 1.1 billion over the prior year . prasm increased 2.2 % and passenger mile yield increased 1.0 % on 1.0 % higher capacity . load factor was 1 point higher than the prior year at 85.6 % . unit revenues of the domestic region increased 1.6 % , resulting from our commercial initiatives , including branded fares , and an improving revenue environment . we continued to differentiate our product offerings and enable customer choice through segmentation , including offering basic economy throughout our domestic network . our domestic operations closed 2017 with three consecutive quarters of year-over-year unit revenue growth , with robust demand for both business and leisure . we saw improvements in business markets with 81 of the top 100 business markets producing positive yields during the december 2017 quarter , up from 50 % earlier in the year . 32 passenger revenues related to our international regions increased 0.5 % year-over-year primarily due to strength in the atlantic and latin america regions , partially offset by revenue declines in the pacific . during 2017 , we continued to expand our branded fare products offered throughout the international regions . the atlantic region closed 2017 with three consecutive quarters of year-over-year unit revenue growth on strong business class bookings . we continued to leverage our alliance partners ' hub positions in europe 's leading business markets of amsterdam , london and paris to increase the volume of u.s. point-of-sale traffic . the u.k. was particularly robust , with unit revenue growth throughout 2017 , including double-digit growth in the second half of 2017. during the year , we expanded our basic economy product to mitigate the impact of ultra-low cost carrier capacity increases . unit revenues increased in latin america principally resulting from unit revenue improvement in brazil , related to both improved traffic and higher fares . this improvement was driven by the strengthening of the brazilian economy and additional connectivity for our customers provided by our relationship with gol . increased leisure traffic to mexico and the caribbean , and the incremental value provided by our alliance with aeroméxico also contributed to the latin america unit revenue improvement . although unit revenue improved in the caribbean , hurricane damage in several markets during 2017 resulted in temporary service adjustments . story_separator_special_tag finally , we continued to differentiate our product offerings , including expanding basic economy and selling comfort+ as a separate fare product in latin america . unit revenue declines in the pacific primarily resulted from industry capacity growth in the region . we continued to optimize the pacific region with a 7.7 % reduction in capacity during 2017 , focused on refining the network to generate incremental value from our chinese and korean alliances and differentiating our product offerings , including expanding basic economy and selling comfort+ as a separate fare product . during 2017 , we reached an agreement to create a transpacific joint venture with korean air , offering an enhanced and expanded network , industry-leading products and service , and a seamless customer experience between the u.s. and asia . we also retired our last b-747-400 and introduced our new a350-900 with delta one suites and the delta premium select cabin on routes from detroit to tokyo-narita and seoul-incheon , resulting in improvements in both profitability and customer feedback . these efforts began to show results as the pacific returned to positive prasm growth during the december 2017 quarter for the first time in more than four years . other revenue replace_table_token_16_th ancillary businesses and refinery . ancillary businesses and refinery includes aircraft maintenance and staffing services provided to third parties , our vacation wholesale operations , our private jet operations and refinery sales to third parties . the increase in ancillary businesses and refinery primarily resulted from $ 268 million of additional refinery sales to third parties . loyalty program . loyalty program revenues relate to brand usage by third parties and other performance obligations embedded in mileage credits sold , including redemption of mileage credits for non-travel awards . loyalty program revenues increased compared to 2016 related to growth in our co-brand credit card relationship with american express . miscellaneous . miscellaneous revenue is primarily composed of lounge access and codeshare revenues . 33 operating expense replace_table_token_17_th salaries and related costs . the increase in salaries and related costs is primarily due to pay rate increases for eligible employees . aircraft fuel and related taxes . fuel expense increased $ 771 million compared to the prior year due to a 22 % increase in the market price per gallon of fuel , partially offset by reduced fuel hedge losses compared to the prior year and profits generated within our refinery segment . the table below shows the impact of hedging and the refinery on fuel expense and average price per gallon , adjusted ( non-gaap financial measures ) : replace_table_token_18_th ( 1 ) market price for jet fuel at airport locations , including related taxes and transportation costs . ( 2 ) includes the impact of pricing arrangements between the airline and refinery segments with respect to the refinery 's inventory price risk . for additional information regarding the refinery segment , see `` refinery segment '' below . ( 3 ) mtm adjustments and settlements include the effects of the derivative transactions discussed in note 5 of the notes to the consolidated financial statements . for additional information and the reason for adjusting fuel expense , see `` supplemental information '' below . depreciation and amortization . the increase in depreciation expense primarily results from new aircraft deliveries , including b-737-900er , a321-200 , a330-300 and a350-900 aircraft , fleet modifications and accelerated depreciation due to the planned retirement of our md-88 fleet and two b-767-300er aircraft . contracted services . the increase in contracted services expense predominantly relates to additional contract labor expenses associated with investments in our technology infrastructure and other activities to improve the customer experience . 34 aircraft maintenance materials and outside repairs . aircraft maintenance materials and outside repairs consist of costs associated with the maintenance of aircraft used in our operations . the increase in aircraft maintenance materials and outside repairs expense primarily relates to an increase in maintenance activity in order to enhance service reliability of certain aircraft . ancillary businesses and refinery . ancillary businesses and refinery includes expenses associated with aircraft maintenance and staffing services we provide to third parties , our vacation wholesale operations , our private jet operations and refinery sales to third parties . expenses related to refinery sales to third parties , which are at or near cost , increased $ 268 million compared to the prior year , primarily resulting from higher sales volume . passenger service . passenger service expense includes the costs of onboard food and beverage , cleaning and supplies . the increase in passenger service expense predominantly relates to costs associated with enhancements to our onboard product offering and higher traffic . aircraft rent . the increase in aircraft rent primarily results from new leased aircraft deliveries since 2016 , including b-737-900er and a321-200 aircraft . 35 non-operating results replace_table_token_19_th interest expense . at december 31 , 2017 , the principal amount of debt and finance leases was $ 8.9 billion . during 2018 , we issued $ 1.6 billion of unsecured notes , $ 1.4 billion of nytdc special facilities revenue bonds and $ 621 million of aircraft secured loans . as a result of the debt issuances , partially offset by principal payments , the amount of debt and finance leases was $ 9.7 billion at december 31 , 2018 . despite the increase in debt during the current year , interest expense decreased $ 85 million compared to the prior year due to recent refinancing transactions at lower interest rates resulting from our improvement to an investment grade credit rating in recent years and the favorable interest rate environment . unrealized gain/ ( loss ) on investments . unrealized gain/ ( loss ) on investments reflects the unrealized gains and losses on our equity investments in gol , china eastern , air france-klm and alclear holdings llc , the parent company of clear .
| operating expense increased $ 4.0 billion , or 11.4 % , primarily due to $ 2.3 billion higher fuel expense and higher wages and profit sharing for employees . the increase in fuel expense primarily resulted from a 31 % increase in the market price per gallon of fuel and our 3.6 % capacity growth compared to 2017 , which was partially offset by improved fuel efficiency driven by our investment in new aircraft . salaries and profit sharing were higher due to pay rate increases for eligible employees implemented during 2017 and 2018 , along with an adjustment to our profit sharing plan in 2018. our operating cost per available seat mile ( `` casm '' ) increased 7.5 % to 14.87 cents compared to 2017 , primarily due to higher fuel expense and salaries and related costs . non-fuel unit costs ( `` casm-ex , a non-gaap financial measure ) increased 1.4 % to 10.31 cents due to the pay rate increases discussed above . non-operating expense . total non-operating expense was $ 113 million during 2018 compared to $ 466 million in 2017 , primarily due to an increase in the pension benefit compared to the prior year , gains from investment-related transactions and lower interest expense . expanding our global network in 2018 , international revenues grew 6.7 % on a 0.9 % increase in capacity . we made significant progress in expanding our global reach , implementing a transpacific joint venture with korean air lines , entering into a joint venture agreement with westjet with respect to trans-border routes between the u.s. and canada and reaching an agreement with air france-klm and virgin atlantic to combine our separate transatlantic joint ventures into a single three-party transatlantic joint venture . the westjet and three-party transatlantic joint venture agreements remain subject to receipt of required regulatory approvals . investing for the future our $ 7.0 billion cash flows from operations funded $ 5.2 billion in capital expenditures for the business . as part of our multi-year refleeting initiative , we took delivery of 68 new aircraft , including a321-200s , b-737-900ers , a350-900s , a220-100s and crj-900s . these deliveries allowed for the retirement
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some of our engagements contain performance-based arrangements in which we earn a success fee when and if certain predefined outcomes occur . this type of success fee may supplement a time-and-expense or fixed-fee arrangement . success fee revenues may cause variations in our revenues and operating results due to the timing of achieving the performance-based criteria . in our technology segment , certain clients are also billed based on the amount of data stored on our electronic systems , the volume of information processed and the number of users licensing our ringtail ® software products for use or installation within their own environments . we license these products directly to end users as well as indirectly through our channel partner relationships . unit-based revenue is defined as revenue billed on a per-item , per-page , or some other unit-based method and includes revenue from data processing and hosting , software usage and software licensing . unit-based revenue includes revenue associated with our proprietary software that is made available to customers , either via a web browser ( on-demand ) or installed at our customer or partner locations ( on-premise ) . on-demand revenue is charged on a unit or monthly basis and includes , but is not limited to , processing and review related functions . on-premise revenue is comprised of up-front license fees , with recurring support and maintenance . seasonal factors , such as the timing of our employees ' and clients ' vacations and holidays , impact the timing of our revenues . our financial results are primarily driven by : the number , size and type of engagements we secure ; the rate per hour or fixed charges we charge our clients for services ; the utilization rates of the revenue-generating professionals we employ ; the number of revenue-generating professionals ; fees from clients on a retained basis or other ; licensing of our software products and other technology services ; the types of assignments we are working on at different times ; the length of the billing and collection cycles , and the geographic locations of our clients or locations in which services are rendered . 46 non-gaap measures in the accompanying analysis of financial information , we sometimes use information derived from consolidated and segment financial information that is not presented in our financial statements and prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . certain of these measures are considered non-gaap financial measures under the sec rules . specifically , we have referred to : segment operating income total segment operating income adjusted ebitda adjusted segment ebitda total adjusted segment ebitda adjusted net income adjusted earnings per diluted share we define segment operating income as a segment 's share of consolidated operating income . we define total segment operating income as the total of segment operating income for all segments , which excludes unallocated corporate expenses . we use segment operating income for the purpose of calculating adjusted segment ebitda . we define adjusted ebitda as consolidated net income ( loss ) before income tax provision , other non-operating income ( expense ) , depreciation , amortization of intangible assets , special charges , loss on early extinguishment of debt and goodwill impairment charges . we define adjusted segment ebitda as a segment 's share of consolidated operating income before depreciation , amortization of intangible assets , special charges and goodwill impairment charges . we define total adjusted segment ebitda as the total of adjusted segment ebitda for all segments , which excludes unallocated corporate expenses . we use adjusted segment ebitda to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment 's ability to generate cash . we also believe that these measures , when considered together with our gaap financial results , provide management and investors with a more complete understanding of our operating results , including underlying trends , by excluding the effects of special charges and goodwill impairment charges . in addition , ebitda is a common alternative measure of operating performance used by many of our competitors . it is used by investors , financial analysts , rating agencies and others to value and compare the financial performance of companies in our industry . therefore , we also believe that these measures , considered along with corresponding gaap measures , provide management and investors with additional information for comparison of our operating results to the operating results of other companies . we define adjusted net income and adjusted earnings per diluted share as net income ( loss ) and earnings per diluted share , respectively , excluding the impact of special charges , goodwill impairment charges and losses on early extinguishment of debt . we use adjusted net income for the purpose of calculating adjusted earnings per diluted share . management uses adjusted earnings per diluted share to assess total company operating performance on a consistent basis . we believe that this measure , when considered together with our gaap financial results , provides management and investors with a more complete understanding of our business operating results , including underlying trends , by excluding the effects of special charges , goodwill impairment charges and losses on early extinguishment of debt . non-gaap financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies . non-gaap financial measures should be considered in addition to , but not as a substitute for or superior to , the information contained in our consolidated statements of comprehensive income ( loss ) . reconciliations of gaap to non-gaap financial measures are included elsewhere in this filing . 47 we define acquisition growth as the results of operations of acquired companies in the first twelve months following the effective date of an acquisition . our definition of organic growth is the change in the results of operations excluding the impact of all such acquisitions . story_separator_special_tag full year 2013 executive highlights leadership succession on december 16 , 2013 the company announced its board of directors had elected steve gunby as the next president and chief executive officer ( ceo ) of the company . mr. gunby was elected to the positions of president and ceo of the company and appointed as a director of the company effective january 20 , 2014 , succeeding jack b. dunn iv , who left his positions as president and ceo and director after 21 years of service with the company . the selection of mr. gunby culminates the board 's ceo succession process . the board believes mr. gunby 's extensive consulting industry experience , his understanding of the opportunities and challenges of a global consulting brand and his success in leading growth and profitability initiatives represent a strong combination of capability and track record from which to lead the company . on december 13 , 2013 , the board accepted mr. shaughnessy 's resignation as a director , which was effective upon his retirement as executive chairman of the board of the company following the board 's december 17 , 2013 meeting . the board appointed gerard e. holthaus , previously the presiding director , to become non-executive chairman of the board effective december 17 , 2013. financial highlights replace_table_token_6_th ( 1 ) excluded from non-gaap measures . revenues revenues for the year ended december 31 , 2013 increased $ 75.6 million , or 4.8 % , to $ 1,652.4 million , compared to $ 1,576.9 million in the prior year period . acquisitions contributed $ 48.2 million , and represented 3.1 % of the year-over-year growth . revenues grew organically primarily due to strength in the company 's economic consulting segment 's antitrust litigation and financial economics practices in the north america and emea regions . the forensic and litigation consulting segment also contributed to organic growth , primarily from demand for the company 's health solutions services . additionally , the technology segment experienced increased demand for its services offering . these revenue increases were partially offset by continued weak restructuring and bankruptcy and capital markets activity , which adversely impacted the company 's corporate finance/restructuring and strategic communications segments , respectively . 48 special charges special charges for the years ended december 31 , 2013 and 2012 were $ 38.4 million and $ 29.6 million , respectively . the non-cash portions of the special charges for the years ended december 31 , 2013 and 2012 were $ 14.1 million and $ 5.0 million , respectively . the 2013 special charges reflect certain executive leadership transition costs and costs related to actions we took to realign our workforce to address current business demands impacting our corporate finance/restructuring and forensic and litigation consulting segments , and to reduce certain corporate overhead within our emea region . the 2013 special charges consisted of : $ 23.7 million of contractual post-employment severance and transition services , equity award and retention bonus expense acceleration primarily related to the transition of the company 's executive chairman and the company 's president and chief executive officer . in addition , we incurred $ 3.9 million of accelerated expense related to future payments required to be made under a contractual transition service agreement with a corporate finance/restructuring segment senior client facing professional . $ 10.9 million of these charges are non-cash ; $ 10.2 million of severance costs and other contractual employee related costs , including loan forgiveness and accelerated recognition of compensation cost of share-based awards , associated with the reduction in workforce of 45 employee . $ 3.2 million of these charges are non-cash ; and $ 0.6 million of costs to consolidate leased office space within one office location to adjust prior year special charges for changes to sublease terms and employee termination costs . goodwill impairment charge in the third quarter of 2013 , in addition to reduced levels of m & a activity , our strategic communications segment experienced pricing pressure for certain discretionary communications services , including initial public offering support services where there is volume but also increasing competition . these factors compressed segment margins and contributed to a change in the company 's near-term outlook for this segment . this was considered an interim impairment indicator for the strategic communications segment at the strategic communications reporting unit level . as a result , we performed an interim impairment analysis with respect to the carrying value of goodwill in our strategic communications reporting unit in connection with the preparation of our financial statements for the quarter ended september 30 , 2013. based on this assessment , the company concluded the implied fair value of the strategic communications reporting unit was below its carrying value resulting in an $ 83.8 million goodwill impairment charge in the third quarter . the impairment charge was non-cash in nature and did not affect the company 's current liquidity , nor did it impact the debt covenants under the company 's existing credit facility and the indentures for the 2020 and 2022 notes . adjusted ebitda adjusted ebitda for the year ended december 31 , 2013 increased $ 8.1 million , or 3.2 % to $ 259.1 million , or 15.7 % of revenues , compared to $ 251.0 million or 15.9 % of revenues , in the prior year period . adjusted ebitda included gains in 2013 of $ 13.6 million related to expectations that the company would pay reduced amounts of contingent consideration for several of its acquisitions in the asia pacific region . similarly , the company recorded a gain of $ 5.2 million in 2012. excluding these amounts , the adjusted ebitda was stable at $ 245.5 million in 2013 vs $ 245.8 million in 2012 as revenue increases in the company 's economics consulting , forensic and litigation consulting and technology segments as described above , were offset by under-utilization in the company 's bankruptcy and restructuring practices in its corporate finance/restructuring segment and lower demand from weak capital markets in the company 's strategic communications segment .
| ( 2 ) gross profit as a percent of revenues . ( 3 ) 2013 , 2012 and 2011 utilization and average bill rate calculations for our corporate finance/restructuring , forensic and litigation consulting and economic consulting segments were updated to reflect the realignment of certain practices as well as information related to non-u.s. operations that was not previously available . year ended december 31 , 2013 compared to december 31 , 2012 revenues decreased $ 12.2 million , or 3.1 % , to $ 382.5 million for the year ended december 31 , 2013 compared to $ 394.7 million for the same prior year period . acquisition-related revenues from kmq , taylor woodings and salter were $ 39.0 million , or 9.9 % growth as compared to the same prior year period . revenues decreased organically $ 51.2 million , or 13.0 % , primarily due to lower demand in our north america bankruptcy and restructuring and asia pacific restructuring practices and lower success fees . 63 gross profit decreased $ 18.3 million , or 11.8 % , to $ 137.4 million for the year ended december 31 , 2013 compared to $ 155.7 million for the same prior year period . gross profit margin decreased 3.6 percentage points to 35.9 % for the year ended december 31 , 2013 compared to 39.5 % for the same prior year period . the decrease in gross profit margin was due to lower utilization in our north america region and asia pacific region restructuring practices , lower success fees , and an organic investment in emea , partially offset by favorable margins from our acquired practices . sg & a expense increased $ 10.9 million , or 17.9 % , to $ 72.0 million for the year ended december 31 , 2013 compared to $ 61.0 million for the same prior year period . sg & a expense was 18.8 % of revenues for the year ended december 31 , 2013 , compared to 15.5 % for the same prior year period . the increase
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