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we also intend to compliment the non-retail compounding distribution model , with retail units embedded inside existing grocery businesses and through an online ecommerce model . we believe the pharmacy industry , and especially compounding pharmacy , can easily be described as having multiple flavors . we believe the markets for both people and pets are both underserved : a. some sell basic otc medications and provide delivery only , and most users rely on insurance reimbursement for payment ; b. some are value added resellers , using otc recognized medications , then repackaging , or using combinations , to personalize the product for the client . while vet based is a cash business , the human side is largely insurance reliant ; c. some are like oem manufacturers , like a generic drug maker , starting with basic , non-productized materials , and creating both standard and fully customized novel formulations for specific maladies and needs . these are more often cash clients , and this approach is well accepted in the pet area , and becoming more accepted for people as alternatives to otc , and for cash buyers seeking lower cost ; d. we believe a mix of these can serve the need to drive costs down , and allow innovative approaches to improve patient results . the pet business is an area of focus . a recent research document , research from federal trade commission : pet medications , may 2015 , ( which can be found on our web site at : http : //truenaturepharma.com/links/ ) noted the following : a ) according to one estimate , in 2014 veterinarians accounted for 58 percent of sales of pet medications , with brick and mortar retailers accounting for 28 percent and internet/mail order retailers accounting for 13 percent ; b ) approximately 65 percent of u.s. household 's own pets , the most common being dogs and cats , which equates to 79.7 million homes c ) in 2014 , americans spent approximately $ 58 billion on their pets , including food , supplies , veterinary care , prescription and over the counter medication and other pet services and products . this figure represents tremendous growth since 2001 , when comparable expenditures totaled $ 28.5 billion ; d ) in 2013 , retail sales of prescription and non-prescription medications for dogs and cats was estimated at $ 7.6 billion . u.s. retail sales of companion animal pet medications are expected to grow to $ 10.2 billion by 2018 , reflecting a compound annual growth rate of circa 5 percent e ) u.s. manufacturer sales of companion animal pet medications have been estimated at $ 3.7 billion to $ 4 billion annually . 38 critical accounting policies we believe that the accounting policies described below are critical to understanding our business , results of operations and financial condition because they involve the use of more significant judgments and estimates in the preparation of our consolidated financial statements . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and any changes in the assumptions used in making the accounting estimates that are reasonably likely to occur could materially impact our consolidated financial statements . revenue recognition we recognize revenues when all of the following criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred ; ( 3 ) the selling price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . stock-based compensation we recognize compensation costs to employees under fasb asc topic 718 , compensation stock compensation ( asc 718 ) . under fasb asc 718 , companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services . share-based compensation cost for stock options is estimated at the grant date based on each option 's fair-value as calculated by the black-scholes-merton ( bsm ) option-pricing model . share-based compensation arrangements may include stock options , restricted share plans , performance based awards , share appreciation rights and employee share purchase plans . such compensation amounts , if any , are amortized over the respective vesting periods of the option grant . equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments , as required by fasb asc topic 505 , equity based payments to non-employees . in general , the measurement date is when either a ( a ) performance commitment , as defined , is reached or ( b ) the earlier of ( i ) the non-employee performance is complete or ( ii ) the instruments are vested . the measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the fasb asc . common stock purchase warrants the company accounts for common stock purchase warrants in accordance with fasb asc topic 815 , accounting for derivative instruments and hedging activities ( asc 815 ) . as is consistent with its handling of stock compensation and embedded derivative instruments , the company 's cost for stock warrants is estimated at the grant date based on each warrant 's fair-value as calculated by the black-scholes-merton ( bsm ) option-pricing model value method for valuing the impact of the expense associated with these warrants . story_separator_special_tag all warrants for the company have been canceled at this time . income taxes as part of the process of preparing our consolidated financial statements , we must estimate our actual current tax liabilities and assess temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the balance sheet . we must assess the likelihood that the deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is not likely , a valuation allowance must be established . to the extent we establish a valuation allowance or increase or decrease this allowance in a period , the impact will be included in income tax expense in the statement of operations . 39 impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and are no longer depreciated . the assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet , if material . business combinations we account for business combinations by recognizing the assets acquired , liabilities assumed , contractual contingencies , and contingent consideration at their fair values on the acquisition date . the purchase price allocation process requires management to make significant estimates and assumptions , especially with respect to intangible assets , estimated contingent consideration payments and pre-acquisition contingencies . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : ? future expected cash flows from product sales , support agreements , consulting contracts , other customer contracts , and acquired developed technologies and patents ? discount rates utilized in valuation estimates ? unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions , estimates or actual results . additionally , any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date , including changes from events after the acquisition date , such as changes in our estimates of relevant revenue or other targets , will be recognized in earnings in the period of the estimated fair value change . a change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated financial position , statements of operations or cash flows in the period of the change in the estimate . off-balance sheet arrangements since our inception , except for standard operating leases , we have not engaged in any off-balance sheet arrangements , including the use of structured finance , special purpose entities or variable interest entities . we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders . story_separator_special_tag received warrants to acquire 495 shares post-split of common stock for an exercise price of $ 20.20 per share , exercisable over five years . the former educational business allocated the face value of the series d debenture to the warrants and the debentures based on their relative fair values , and allocated to the warrants , which was recorded as a discount against the series d debenture , with an offsetting entry to additional paid-in capital . the discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations . as of december 31 , 2016 , the carrying value of the series d debenture was $ 11,333 and accrued interest expense of $ 2,941. deconsolidation of acquisition on april 29 , 2016 , subject to approval by the georgia board of pharmacy , the company entered into definitive documents to acquire p3 compounding of georgia , llc , ( p3 ) . p3 received georgia board of pharmacy approval for the transaction at the end of june 2016 and the transaction closed effective june 30 , 2016. we determined after 90 days of operation that its financial needs did not meet the company 's objectives , and it was unlikely to be able to contribute to the financial success of the company in the near term . on september 30 , 2016 , we entered into an agreement with the former owners to deconsolidate the operations . the fair value of the consideration paid pertaining to the deconsolidation of p3 was $ 1,618,200 . 340,000 shares of common stock with a fair value of $ 1,183,200 based on the closing price of the true nature 's common stock on april 29 , 2016. this note was cancelled as part of the transaction .
| there was a loss on the conversion of payables into common shares for continuing operations that resulted in expense of $ 206,329 for the twelve months ended december 31 , 2016 resulting from liabilities that were converted into shares . there was a net loss from continuing operations of $ 4,880,859 for the twelve months ended december 31 , 2016. in comparison to 2015 , the net loss from continuing operations was $ 65,652. there was no revenue for the two fiscal years . the increase in expenses were related to the aforementioned expenses . liquidity and capital resources we have financed our operations through the sale of equity securities and short term borrowings . as of december 31 , 2016 , we had a working capital deficit of $ 1,065,999. our working capital deficit is attributable to the fact that the company began implementing its business plan of acquiring pharmaceutical compounding businesses at the end of fiscal 2015. no planned revenue activity will be reported until fiscal 2017. net cash used in operating activities from continuing operations was $ 269,508 for 2016 which primarily reflects our business development efforts that pertaining to acquiring a series of businesses which specialize in compounding pharmacy activities , largely direct to consumers , doctors and veterinary professionals . net cash provided by financing activities for 2016 was approximately $ 241,323 which represents the cash that was received resulting from the sale of restricted common stock to accredited investors . on december 31 , 2015 , the company had current assets of $ 45,185 and total liabilities of $ 564,873. the working capital deficit of $ 519,688. this represents liabilities that were assumed by the company from the restructuring of the former education business . on december 31 , 2016 , the current assets for the company had decreased by 95 % to $ 1,875. liabilities at the end of december 31 , 2016 had increased by 89 % to $ 1,067,874. this represents an increase in the working capital deficit by 105 % . specific details related to our financing activities are as follows : on march 18 , 2016 , the company issued a
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estimates of reserves are forecasts based on engineering and geological analyses . different reserve engineers could reach different conclusions as to estimated quantities of natural gas or crude oil reserves based on the same information . our reserve estimates are prepared by independent consultants . the passage of time provides more qualitative information regarding reserve estimates , and revisions are made to prior estimates based on updated information . however , there can be no assurance that more significant revisions will not be necessary in the future . significant downward revisions could result in an impairment representing a non-cash charge to income . in addition to the impact on calculation of the ceiling test , estimates of proved reserves are also a major component of the calculation of depletion . while the quantities of proved reserves require substantial judgment , the associated prices of oil and natural gas reserves that are included in the discounted present value of our reserves are objectively determined . the ceiling test calculation requires use of the unweighted arithmetic average of the first day of the month price during the 12-month period ending on the balance sheet date and costs in effect as of the last day of the accounting period , which are generally held constant for the life of the properties . as a result , the present value is not necessarily an indication of the fair value of the reserves . oil and natural gas prices have historically been volatile , and the prevailing prices at any given time may not reflect our partnership 's or the industry 's forecast of future prices . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . for example , estimates of uncollected revenues and unpaid expenses from royalty properties and npis operated by non-affiliated entities are particularly subjective due to the inability to gain accurate and timely information . therefore , actual results could differ from those estimates . please see “ item 1. business—customers and pricing ” and “ item 2. properties—royalty properties ” for additional discussion . contractual obligations our office lease in dallas , texas comprises our contractual obligations . payments due by period contractual obligations total less than 1 year 1-3 years 3-5 years more than 5 years operating lease obligations $ 777,000 $ 318,000 $ 459,000 — — 24 story_separator_special_tag times , serif '' > general and administrative ( “ g & a ” ) costs increased 22 % from $ 4,196,000 in 2013 to $ 5,137,000 in 2014 , primarily due to additional costs related to administering the increased bakken trend and the fayetteville shale activity . g & a decreased 3 % to $ 4,967,000 in 2015 compared to 2014 primarily due to decreased consulting expenses partially offset by higher costs related to outsourcing of information technology services . other income of $ 712,000 during 2014 was related to a first quarter 2014 settlement of a dispute on leases in north dakota . net cash provided by operating activities was about the same at $ 56,398,000 during 2013 compared to $ 57,660,000 during 2014. during 2015 net cash provided by operating activities decreased 52 % to $ 27,692,000 due to significantly lower oil and natural gas prices , decreased net profits interest natural gas production and lower lease bonus income , partially offset by increased royalty properties natural gas production and increased oil production in both royalty properties and net profits interests . climate change climate change has become the subject of an important public policy debate . in response to climate change concerns , many foreign countries are adopting climate change legislation and regulations . although the united states congress has considered adopting climate change legislation , it has yet to enact such legislation and or regulations at the federal level . several states have adopted or are considering adopting climate change legislation , including greenhouse gas emissions limits and cap-and-trade programs . further , the environmental protection agency ( “ epa ” ) issued greenhouse gas monitoring and reporting regulations that went into effect january 1 , 2010. those regulations required that regulated facilities begin reporting greenhouse gas emissions beginning in september 2012 , and annually thereafter . the epa has also issued final regulations requiring petroleum and natural gas operators meeting a certain emission threshold to report their greenhouse gas emissions to the epa . in addition to the measuring and reporting requirements , the epa issued an `` endangerment finding '' under section 202 ( a ) of the clean air act , concluding greenhouse gas pollution threatens the public health and welfare of future generations . epa has issued final regulations requiring the owners and operators of certain large stationary sources to obtain greenhouse gas emissions permits . although these regulations were struck down by a 2014 decision of the united states supreme court in utility air regulatory group v. environmental protection agency , the court recognized epa 's authority to impose greenhouse gas emission limits on certain facilities that were already subject to permitting requirements based on emissions of conventional pollutants . epa has indicated that additional sources may be subject to greenhouse gas permitting requirements in the future , and that it will use data collected through the reporting rules to decide whether to promulgate future greenhouse gas emission limits . story_separator_special_tag the current state of development of many state and federal climate change regulatory initiatives makes it difficult to predict with certainty the future impact on us , including accurately estimating the related compliance costs that the operating partnership and oil and natural gas operators that develop our properties may incur . see item 1a . risk factors – “ environmental costs and liabilities and changing environmental regulation could affect our cash flow ” and “ the adoption of climate change legislation by congress or executive orders or regulations could result in increased operating costs and reduced demand for the oil and natural gas production from our properties. ” texas margin tax texas imposes a franchise tax ( commonly referred to as the texas margin tax ) at a rate of 0.95 % in 2015 and at a rate of 0.75 % in 2016 on gross revenues less certain deductions , as specifically set forth in the texas margin tax statute . the texas margin tax applies to corporations and limited liability companies , general and limited partnerships ( unless otherwise exempt ) , limited liability partnerships , trusts ( unless otherwise exempt ) , business trusts , business associations , professional associations , joint stock companies , holding companies , joint ventures and certain other business entities having limited liability protection . limited partnerships that receive at least 90 % of their gross income from designated passive sources , including royalties from mineral properties and other non-operated mineral interest income , and do not receive more than 10 % of their income from operating an active trade or business , are generally exempt from the texas margin tax as “ passive entities. ” we believe our partnership meets the requirements for being considered a “ passive entity ” for texas margin tax purposes and , therefore , it is exempt from the texas margin tax . if the partnership is exempt from texas margin tax as a passive entity , each unitholder that is considered a taxable entity under the texas margin tax would generally be required to include its portion of partnership revenues in its own texas margin tax computation . the texas administrative code provides such income is sourced according to the principal place of business of the partnership , which would be the state of texas . each unitholder is urged to consult an independent tax advisor regarding the requirements for filing state income , franchise and texas margin tax returns . 26 l iquidity and capital resources capital resources our primary sources of capital are our cash flow from the royalty properties and the npis . we are not directly liable for the payment of any exploration , development or production costs . we do not have any transactions , arrangements or other relationships that could materially affect our liquidity or the sustainability of capital resources . pursuant to the terms of our partnership agreement , we can not incur indebtedness , other than trade payables ( i ) in excess of $ 50,000 in the aggregate at any given time or ( ii ) which would constitute `` acquisition indebtedness '' ( as defined in section 514 of the internal revenue code of 1986 , as amended ) . our only cash requirements are the distributions of all our net cash flow to our unitholders , the payment of oil and natural gas production and property taxes not otherwise deducted from gross production revenues and general and administrative expenses incurred on our behalf and allocated in accordance with our partnership agreement . since the distributions to our unitholders are , by definition , determined after the payment of all expenses actually paid by us , the only cash requirements that may create liquidity concerns for us are the payments of expenses . since many of these expenses vary directly with oil and natural gas prices and sales volumes , such as production taxes , we anticipate that sufficient funds will be available at all times for payment of these expenses . of the expenses that do not vary with oil and natural gas prices and sales volumes , most are reimbursements to our general partner for allocable general and administrative costs including home office rent , salaries , and employee benefit plans . such reimbursements are generally limited to 5 % of an amount primarily based on annual distributions to our limited partners . historically , all such reimbursements have been substantially below the 5 % limit established by the partnership agreement . consequently , our business risks were essentially limited to distribution amount decreases . see “ item 1. business – credit facilities and financing plans. ” see “ item 1a . risk factors – risks related to our business – cash distributions are affected by production and other costs , some of which are outside of our control. ” see “ item 1a . risk factors – risks inherent in an investment in our common units – cost reimbursement due our general partner may be substantial and reduce our cash available to distribute to our unitholders . '' see `` notes to consolidated financial statements – note 3 – related party transactions . '' off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to unitholders . expenses and capital expenditures depending upon gas prices , the operating partnership plans to continue its efforts to increase production in oklahoma by techniques that may include fracture treating , deepening , recompleting , and drilling .
| npi properties ' gas sales volumes decreased 18 % from 4,111 mmcf during 2013 to 3,383 mmcf during 2014 and subsequently decreased 4 % to 3,248 mmcf in 2015 due to natural declines in the fayetteville shale and the sale of kansas working interests in 2014. weighted average oil sales prices attributable to the royalty properties decreased 16 % from $ 94.15/bbl in 2013 to $ 78.64/bbl in 2014 and subsequently decreased 46 % to $ 42.23/bbl in 2015. royalty properties ' weighted average gas sales prices increased 22 % from $ 3.44/mcf during 2013 to $ 4.21/mcf during 2014 and then decreased 45 % to $ 2.30/mcf during 2015. all fluctuations resulted from changing market conditions . weighted average npi properties ' gas sales prices increased 21 % from $ 4.15/mcf during 2013 to $ 5.02/mcf during 2014 and then decreased 50 % to $ 2.49/mcf in 2015. npi properties ' weighted average oil sales prices decreased 12 % from $ 91.85/bbl during 2013 to $ 80.83/bbl during 2014 and subsequently decreased 39 % to $ 49.46/bbl in 2015. all fluctuations resulted from changing market conditions . additionally , 2014 natural gas prices include a natural gas liquids payment accrual of $ 0.57/mcf related to 2014 production compared to $ 0.63/mcf in 2013. the natural gas liquids payments are based on an oklahoma guymon-hugoton field 1994 gas delivery and processing agreement that expired at the end of 2015. during 2015 there were no natural gas liquid payments as the gas processing facility incurred significant downtime resulting from plant repairs . our operating revenues decreased 1 % from $ 65,869,000 during 2013 to $ 65,170,000 in 2014 , and subsequently decreased 51 % to $ 31,863,000 in 2015. in 2014 increased natural gas prices and oil production were offset by lower lease bonus , decreased oil prices , and lower natural gas production . in 2015 , sharp declines in commodity prices , both oil and natural gas , resulted in the significant decrease in operating revenues versus the prior year . lease bonus income decreased from $ 2,319,000 in 2013 to $ 1,590,000 in 2014 , and then decreased to $ 53,000 in 2015. lease bonus income in 2015 versus 2014 decreased 97 % due to an industrywide reduction in leasing activity . in 2013 ,
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our operating expenses as a percentage of operating revenue , or “ operating ratio , ” improved to 92.9 % in 2011 from 93.2 % in 2010. operating expenses as a percentage of operating revenue , with both amounts net of fuel surcharge revenue , improved to 91.2 % for 2011 from 92.0 % for 2010. our net income increased to $ 24.3 million in 2011 from $ 19.7 million in 2010. the increased profitability in 2011 was primarily due to the increase in revenue per tractor per week in our truckload segment , along with an increase in our logistics segment operating income . our business requires substantial , ongoing capital investments , particularly for new tractors and trailers . at december 31 , 2011 , we had approximately $ 20.8 million of cash and cash equivalents , $ 320.4 million in stockholders ' equity and no long-term debt outstanding . in 2011 , net cash flows provided by operating activities were primarily used to repay $ 19.3 million of long-term debt , to purchase new revenue equipment , net of proceeds from dispositions , in the amount of $ 38.9 million , to partially construct two regional operating facilities in the amount of $ 7.4 million , and to increase cash and cash equivalents by $ 15.5 million . we estimate that capital expenditures , net of proceeds from dispositions , will be approximately $ 80 million in 2012. we paid quarterly cash dividends of $ 0.02 per share of common stock in 2011 totaling $ 1.8 million . we believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months . based upon anticipated cash flows , existing cash and cash equivalents balances , current borrowing availability and other sources of financing we expect to be available to us , we do not anticipate any significant liquidity constraints in the foreseeable future . we have been transforming our business strategy to a multifaceted set of transportation service solutions , primarily regional temperature-controlled operations along with intermodal and brokerage services , while developing a diverse customer base that gains value from and expands each of these operating units . we believe that we are well-positioned regardless of the economic environment with this transformation of our services combined with our competitive position , cost control emphasis , modern fleet and strong balance sheet . 18 this management 's discussion and analysis of financial condition and results of operations includes discussions of operating , truckload and logistics revenue , and operating expenses as a percentage of operating revenue , each net of fuel surcharge revenue , and net fuel expense ( fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors , outside drayage carriers and railroads ) . we provide these additional disclosures because management believes these measures provide a more consistent basis for comparing results of operations from period to period . these financial measures in this report have not been determined in accordance with u.s. generally accepted accounting principles ( gaap ) . pursuant to item 10 ( e ) of regulation s-k , we have included the amounts necessary to reconcile these non-gaap financial measures to the most directly comparable gaap financial measures , operating revenue , operating expenses divided by operating revenue , and fuel and fuel taxes . story_separator_special_tag margin-right : 0pt '' > gain on disposition of revenue equipment increased to $ 3.8 million in 2011 from $ 1.1 million in 2010 primarily due to an increase in the market value of used revenue equipment . future gains or losses on disposition of revenue equipment will be impacted by the market for used revenue equipment , which is beyond our control . as a result of the foregoing factors , our operating expenses as a percentage of operating revenue , or “ operating ratio , ” improved to 92.9 % in 2011 from 93.2 % in 2010. the operating ratio for our truckload segment was 92.3 % and 92.7 % in 2011 and 2010 , respectively . the operating ratio for our logistics segment was 94.8 % and 94.7 % in 2011 and 2010 , respectively . operating expenses as a percentage of operating revenue , with both amounts net of fuel surcharge revenue , improved to 91.2 % for 2011 from 92.0 % for 2010. our effective income tax rate decreased to 42.5 % for 2011 from 43.1 % for 2010. this decrease was primarily due to a decrease in the deferred income tax liability derived from changes in income apportionment for several states , which produced a lower effective state income tax rate , net of federal impact . as a result of the factors described above , net income increased to $ 24.3 million in 2011 from $ 19.7 million in 2010. net earnings increased to $ 1.10 per diluted share in 2011 from $ 0.90 per diluted share in 2010 . 23 comparison of year ended december 31 , 2010 to year ended december 31 , 2009 the following table sets forth for the years indicated our operating revenue , operating income and operating ratio by segment , along with the change for each component : replace_table_token_6_th ( 1 ) logistics revenue is net of $ 9.1 million and $ 10.2 million of inter-segment revenue in 2010 and 2009 , respectively , for loads transported by our tractors and arranged by mwl that have been eliminated in consolidation . ( 2 ) represents operating expenses as a percentage of operating revenue . truckload segment depreciation expense was $ 49.0 million and $ 50.2 million in 2010 and 2009 , respectively , and logistics segment depreciation expense was $ 2.9 million in each of the years . story_separator_special_tag our operating revenue increased $ 11.0 million , or 2.2 % , to $ 516.9 million in 2010 from $ 505.9 million in 2009. our operating revenue , net of fuel surcharges , decreased $ 9.1 million , or 2.0 % , to $ 441.0 million in 2010 from $ 450.1 million in 2009. the decrease in operating revenue , net of fuel surcharges , was due to a decrease in truckload revenue , net of fuel surcharges , partially offset by growth in logistics revenue . fuel surcharge revenue increased to $ 75.9 million in 2010 from $ 55.7 million in 2009 , caused by significantly higher fuel prices in 2010 . 24 truckload segment revenue decreased $ 4.0 million , or 1.0 % , to $ 392.8 million in 2010 from $ 396.8 million in 2009. truckload segment revenue , net of fuel surcharges , decreased 6.1 % primarily due to a decrease in our average fleet size of 253 tractors , or 10.7 % , partially offset by an increase in our average truckload revenue , net of fuel surcharges , per tractor per week of 5.2 % in 2010 from 2009. the changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations , which we have increased to 51.8 % of our truckload fleet as of december 31 , 2010 from 25.9 % as of december 31 , 2009. by focusing on shorter lengths of haul in certain defined areas , we are addressing customer trends toward regional distribution to lower their transportation expense , furthering our own objectives of reducing fuel consumption per load , and matching some of our drivers ' desires to stay closer to home . the concentration of a portion of our fleet in these markets is evident in a 13.9 % reduction from 2009 in average length of haul to 655 miles . the improvement in our overall cost structure and the increase in revenue per tractor per week primarily caused the increase in profitability from 2009. logistics segment revenue increased $ 15.1 million , or 13.8 % , to $ 124.2 million in 2010 from $ 109.1 million in 2009. logistics segment revenue , net of intermodal fuel surcharges , increased 11.7 % . the increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services , and in the logistics services provided by mwl . the increase in the operating ratio for our logistics segment in 2010 was primarily due to an increase in the payments to carriers for transportation services which we arranged as a percentage of our brokerage revenue due to carrier constraints . the following table sets forth for the years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations , and those items as a percentage of operating revenue : replace_table_token_7_th 25 the decrease in salaries , wages and benefits resulted primarily from a 6.6 % decrease in the total miles driven by company drivers coupled with a broader implementation of our per diem pay structure for our drivers from 2009 to 2010. purchased transportation expense increased $ 3.8 million in total , or 3.6 % , in 2010 from 2009. payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $ 12.7 million to $ 93.5 million in 2010 from $ 80.7 million in 2009. the portion of purchased transportation expense related to our independent contractors , including fuel surcharges , decreased $ 8.9 million in 2010 , primarily due to a decrease in the number of independent contractor-owned tractors in our fleet . net fuel expense ( fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors , outside drayage carriers and railroads ) decreased $ 4.2 million , or 8.0 % , to $ 47.9 million in 2010 from $ 52.1 million in 2009. fuel surcharges passed through to independent contractors , outside drayage carriers and railroads were $ 8.9 million in 2010 and $ 7.9 million in 2009. we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers ' fuel purchases with national fuel centers , focusing on shorter lengths of haul , installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers . the decrease in net fuel expense was primarily due to a 6.6 % decrease in the total miles driven by our company-owned fleet and to the cost control measures stated above , which were partially offset by a significant increase in the doe national average cost of fuel to $ 2.99 per gallon in 2010 from $ 2.47 per gallon in 2009. net fuel expense represented 13.1 % of truckload and intermodal revenue , net of fuel surcharges , in 2010 , compared with 13.6 % in 2009. the decrease in supplies and maintenance in 2010 primarily resulted from a decrease in outside vendor maintenance on our revenue equipment which we were able to achieve by increasing the capacity of our regional maintenance facilities . our maintenance practices were consistent with 2009. the $ 3.3 million decrease in insurance and claims in 2010 was primarily due to a decrease in the cost of our self-insured auto liability and workers ' compensation accident claims . gain on disposition of revenue equipment decreased to $ 1.1 million in 2010 from $ 1.6 million in 2009 as a result of a decrease in the market value for used revenue equipment , which was partially offset by an increase in the number of trailers sold .
| 20 truckload segment revenue increased $ 63.1 million , or 16.1 % , to $ 455.8 million in 2011 from $ 392.8 million in 2010. truckload segment revenue , net of fuel surcharges , increased 9.8 % primarily due to an increase in our average truckload revenue , net of fuel surcharges , per tractor per week of 6.5 % , along with an increase in our average fleet size of 65 tractors , or 3.1 % , in 2011 from 2010. the changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations , which we have increased to 64.7 % of our truckload fleet as of december 31 , 2011 from 51.8 % as of december 31 , 2010. by focusing on shorter lengths of haul in certain defined areas , we are addressing customer trends toward regional distribution to lower their transportation expense , furthering our own objectives of reducing fuel consumption per load , and matching some of our drivers ' desires to stay closer to home . the concentration of a portion of our fleet in these markets is evident in a 4.4 % reduction from 2010 in average length of haul to 626 miles . the improvement in revenue per tractor per week primarily caused the increase in profitability from 2010. logistics segment revenue increased $ 23.7 million , or 19.1 % , to $ 147.8 million in 2011 from $ 124.2 million in 2010. logistics segment revenue , net of intermodal fuel surcharges , increased 15.3 % . the increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services . the operating ratio for our logistics segment in 2011 was consistent with 2010. the following table sets forth for the years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations , and those items as a percentage of operating revenue : replace_table_token_5_th 21 salaries , wages and benefits consist of compensation for our employees , including both driver and non-driver employees , employees ' health insurance , 401 ( k ) plan contributions and other fringe benefits . these expenses vary depending upon the ratio of company
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we expect that our existing cash and cash equivalents and marketable securities as of december 31 , 2014 , together with the net proceeds of our follow-on offering completed in january 2015 , will enable us to fund our operating expenses and capital expenditure requirements for at least the next 18 months . see liquidity and capital resources. financial operations overview revenue we have not generated any revenue from product sales since our inception , and do not expect to generate any revenue from the sale of products in the near future . if our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for our product candidates , we may generate revenue from those product candidates . operating expenses the majority of our operating expenses since inception have consisted primarily of in-licensing costs of our product candidate beloranib , research and development activities , and general and administrative costs . 78 research and development expenses research and development expenses , which consist primarily of costs associated with our product research and development efforts , are expensed as incurred . research and development expenses consist primarily of : personnel costs , including salaries , related benefits and stock-based compensation for employees engaged in scientific research and development functions ; third-party contract costs relating to research , formulation , manufacturing , pre-clinical studies and clinical trial activities ; external costs of outside consultants ; payments made under our third-party licensing agreements ; laboratory consumables ; and allocated facility-related costs . we have been developing beloranib , zgn-839 , and our second-generation metap2 inhibitors , and typically use our employee , consultant and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , external consultant costs , payments made under our licensing agreements or other internal costs to specific development programs or product candidates unless the payments are specifically identifiable to a development program or product candidate . we record our research and development expenses net of any research and development tax incentives we are entitled to receive from government authorities . the following table summarizes our research and development expenses by program : replace_table_token_9_th research and development activities are central to our business . 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 expect that our research and development expenses will continue to increase in the foreseeable future as we pursue later stages of clinical development of our product candidates . we can not determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing as well as any additional clinical trials and other research and development activities ; future clinical trial results ; uncertainties in clinical trial enrollment rate or design ; significant and changing government regulation ; 79 the timing and receipt of any regulatory approvals ; and the fda 's or other regulatory authority 's influence on trial design . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , 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 personnel costs , consisting of salaries , related benefits and stock-based compensation , of our executive , finance , business and corporate development and other administrative functions . general and administrative expenses also include travel expenses , allocated facility-related costs not otherwise included in research and development expenses , insurance expenses , and professional fees for auditing , tax and legal services , including legal expenses to pursue patent protection of our intellectual property . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with operating as a public company . these public company related increases will likely include additional costs related to personnel ; legal , accounting and audit services ; directors ' and officers ' liability insurance premiums ; and investor relations . in addition , if we obtain marketing approval for beloranib , we will incur significant sales and marketing expenses . other income ( expense ) interest income . interest income consists of interest earned on our cash equivalents and marketable securities . our interest income has not been significant due to low interest earned on invested balances . we anticipate that our interest income will increase in the future due to increased invested balances from cash proceeds received from our ipo in june 2014 and the follow-on offering that we closed in january 2015. interest expense . interest expense consisted of interest expense on our outstanding convertible promissory notes at the stated interest rates and interest expense related to the amortization of deferred financing costs associated with our issuances of the convertible promissory notes . story_separator_special_tag as of december 31 , 2012 , all of our outstanding convertible promissory notes and accrued interest had been converted into shares of our redeemable convertible preferred stock . as a result , we no longer incur interest expense related to this debt . since march 2014 , we have recorded interest expense for outstanding borrowings under a credit facility that we entered into on march 31 , 2014 , consisting of the stated interest of 8.1 % per year due on outstanding borrowings , a final payment of 6 % of amounts drawn down that is being recorded as interest expense over the term through the maturity date using the effective-interest method , the amortization of deferred financing costs , the accretion of debt discount relating to the credit facility , and a fee which was due to the lender upon the completion of our ipo . foreign currency transaction gains ( losses ) , net . foreign currency transaction gains ( losses ) , net consists of the realized and unrealized gains and losses from foreign currency-denominated cash balances , vendor payables and tax-related receivables from the australian government . we currently do not engage in hedging activities related to our foreign currency-denominated receivables and payables ; as such , we can not predict the impact of future foreign currency transaction gains and losses on our operating results . see quantitative and qualitative disclosures about market risk. 80 income taxes since our inception in 2005 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year or our earned research and development tax credits , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2014 , we had federal and state net operating loss carryforwards of $ 17.0 million and $ 9.6 million , respectively . our federal net operating loss carryforwards begin to expire in 2026 and our state net operating carryforwards begin to expire in 2030. we also had federal and state research and development tax credit carryforwards of $ 7.7 million and $ 1.9 million , respectively , as of december 31 , 2014 , which begin to expire in 2026 and 2021 , respectively . 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 of america . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses , and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . see also note 2 of our consolidated financial statements included elsewhere in this annual report on form 10-k for information about these critical accounting policies as well as a description of our other significant accounting policies . jobs act on april 5 , 2012 , the jumpstart our business startups act , or the jobs act , was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for an emerging growth company. as an emerging growth company , we are electing not to take advantage of the extended transition period afforded by the jobs act for the implementation of new or revised accounting standards and , as a result , we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies . section 107 of the jobs act provides that our decision not to take advantage of the extended transition period is irrevocable . as an emerging growth company we are relying on other exemptions and reduced reporting requirements provided by the jobs act . as such , we have elected not to ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions apply for a period of five years following the completion of our ipo in june 2014 or until we no longer meet the requirements of being an emerging growth company , whichever is earlier . research and development expenses 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 personnel and outside vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers 81 invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advance payments .
| personnel costs increased due to 11 new employees in 2014 , which resulted in a $ 1.3 million increase in salaries , a $ 0.4 million increase in bonus , and a $ 0.3 million increase in stock compensation . consultant expenses increased due to additional activity with regard to fda meetings , initiation of clinical trials , and nonclinical activity . general and administrative expenses replace_table_token_14_th general and administrative expenses for the year ended december 31 , 2014 increased $ 3.9 million compared to the year ended december 31 , 2013. the increase was primarily due to increased personnel related costs of $ 1.9 million , increased travel and other related costs of $ 1.1 million and increased professional fees of $ 0.9 million period over period . of the increase in personnel related expenses the hiring of new employees increased $ 0.8 million , stock-based compensation increased $ 0.8 million related to the new employees and bonuses increased $ 0.3 million . the increase in travel and other related costs is the result of an increase in directors and officer 's insurance of $ 0.5 million due to becoming a public company , an increase of $ 0.4 million relating to commercial marketing projects as well as various other increases including information technology-related expenses to support our operating as a public company and increased office rent due to the office move in july 2014. the professional fees increase is primarily due to $ 0.5 million of consulting fees , $ 0.2 million of attorney fees , and $ 0.2 million increase in fees for being a public company . other income ( expense ) , net interest expense . interest expense for the year ended december 31 , 2014 was related to interest expense on our outstanding borrowings under the credit facility that we entered into on march 31 , 2014 , consisting of $ 0.9 million of the stated interest of 8.1 % per year due on outstanding borrowings ,
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we identified our policies for the allowance for loan losses , security valuations and impairments , goodwill and other intangible assets , and income taxes to be critical because management has to make subjective and or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . management has reviewed the application of these policies with the audit committee of valley 's board of directors . the judgments used by management in applying the critical accounting policies discussed below may be affected by significant changes in the economic environment , which may result in changes to future financial results . specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in material changes in the allowance for loan losses in future periods , and the inability to collect on outstanding loans could result in increased loan losses . in addition , the valuation of certain securities ( including debt security valuations based on the expected future cash flows of their underlying collateral ) in our investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in depressed market prices thus leading to further impairment losses . allowance for loan losses . the allowance for credit losses includes the allowance for loan losses and the reserve for unfunded commercial letters of credit and represents management 's estimate of credit losses inherent in the loan portfolio at the balance sheet date . the determination of the appropriate level of the allowance is based on periodic evaluations of the loan portfolios . there are numerous components that enter into the evaluation of the allowance for loan losses , which includes a quantitative analysis , as well as a qualitative review of its results . the qualitative review is subjective and requires a significant amount of judgment . various banking regulators , as an integral part of their examination process , also review the allowance for loan losses . such regulators may require , based on their judgments about information available to them at the time of their examination , that certain loan balances be charged off or require that adjustments be made to the allowance for loan losses when their credit evaluations differ from those of management . additionally , our allowance for credit losses methodology includes loan portfolio evaluations at the portfolio segment level , which consist of the commercial and industrial , commercial real estate , construction , residential mortgage , home equity , automobile and other consumer loan portfolios . allowance for loan losses on non-covered loans the allowance for losses on non-covered loans relates only to loans , which are not subject to the loss-sharing agreements with the fdic . the allowance for losses on non-covered loans consists of the following : specific reserves for individually impaired loans ; reserves for adversely classified loans , and higher risk rated loans that are not impaired loans ; reserves for other loans that are not impaired ; and , if applicable , reserves for impairment of purchased credit-impaired ( pci ) loans subsequent to their acquisition date . 32 our reserves on classified and non-classified loans also include reserves based on general economic conditions and other qualitative risk factors both internal and external to valley , including changes in loan portfolio volume , the composition and concentrations of credit , new market initiatives , and the impact of competition on loan structuring and pricing . valley has no allowance reserves established at december 31 , 2014 related to the non-covered pci loans ; however , the information below regarding our policies to determine the allowance for covered loans is identical to the procedures performed by valley to determine the carrying amounts and reserves for impairment of non-covered pci loans subsequent to their acquisition date . allowance for loan losses on covered loans during 2010 and 2014 , we acquired loans in two fdic-assisted transactions and three prior fdic-assisted transactions in connection with the 1st united acquisition , respectively , that are covered by loss-sharing agreements with the fdic whereby we will be reimbursed for a substantial portion of any future losses . like the non-covered pci loans acquired and purchased during the first quarter of 2012 and fourth quarter of 2014 , we evaluated the acquired covered loans and elected to account for them in accordance with accounting standards codification ( asc ) subtopic 310-30 , “ loans and debt securities acquired with deteriorated credit quality , ” since all of these loans were acquired at a discount attributable , at least in part , to credit quality . the covered loans are initially recorded at their estimated fair values segregated into pools of loans sharing common risk characteristics , exclusive of the loss-sharing agreements with the fdic . the fair values include estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . the covered loans are subject to our internal credit review . if and when unexpected credit deterioration occurs at the loan pool level subsequent to the acquisition date , a provision for credit losses for covered loans will be charged to earnings for the full amount of the decline in expected cash flows for the pool , without regard to the fdic loss-sharing agreements . under the accounting guidance of asc subtopic 310-30 , for acquired credit impaired loans , the allowance for loan losses on covered loans is measured at each financial reporting date based on future expected cash flows . this assessment and measurement is performed at the pool level and not at the individual loan level . accordingly , decreases in expected cash flows resulting from further credit deterioration on a pool of acquired covered loan pools as of such measurement date compared to those originally estimated are recognized by recording a provision and allowance for credit losses on covered loans . story_separator_special_tag subsequent increases in the expected cash flows of the loans in that pool would first reduce any allowance for loan losses on covered loans ; and any excess will be accreted for prospectively as a yield adjustment . the portion of the additional estimated losses on covered loans that is reimbursable from the fdic under the loss-sharing agreements is recorded in non-interest income and increases the fdic loss-share receivable asset . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this md & a . changes in our allowance for loan losses valley considers it difficult to quantify the impact of changes in forecast on its allowance for loan losses . however , management believes the following discussion may enable investors to better understand the variables that drive the allowance for loan losses , which amounted to $ 102.4 million at december 31 , 2014. for impaired credits , if the present value of expected cash flows were 10 percent higher or lower , the allowance would have decreased $ 4.5 million or increased $ 5.2 million , respectively , at december 31 , 2014. if the fair value of the collateral ( for collateral dependent loans ) was 10 percent higher or lower , the allowance would have decreased $ 250 thousand or increased $ 1.7 million , respectively , at december 31 , 2014. if classified loan balances were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 1.2 million , respectively , at december 31 , 2014. the credit rating assigned to each non-classified credit is an important variable in determining the allowance . if each non-classified credit were rated one grade worse , the allowance would have increased by approximately $ 4.6 million , while if each non-classified credit were rated one grade better there would be no change in the level of the allowance as of december 31 , 2014. additionally , if the historical loss factors used to calculate the allowance for non-classified loans were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 7.4 million , respectively , at december 31 , 2014. moreover , if the expected loss rate applied to classified loans were to increase or decrease by 10 percent , the allowance would have been $ 6.2 million higher or lower , respectively , at december 31 , 2014 . 33 a key variable in determining the allowance is management 's judgment in determining the size of the allowances attributable to general economic conditions and other qualitative risk factors . at december 31 , 2014 , such allowances were 5.4 percent of the total allowance . if such allowances were 10 percent higher or lower , the total allowance would have increased or decreased by $ 557 thousand , respectively , at december 31 , 2014. security valuations and impairments . management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of quoted prices and liquid markets , valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable ( level 3 ) . valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations . see note 3 to the consolidated financial statements for more details on our security valuation techniques . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary . the analysis of other-than-temporary impairment requires the use of various assumptions , including , but not limited to , the length of time an investment 's book value is greater than fair value , the severity of the investment 's decline , any credit deterioration of the investment , whether management intends to sell the security , and whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be other-than-temporarily impaired are written down by the impairment related to the estimated credit loss and the non-credit related impairment is recognized in other comprehensive income or loss . other-than-temporarily impaired equity securities are written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation . see the “ investment securities ” section of this md & a and note 4 to the consolidated financial statements for additional analysis and discussion of our other-than-temporary impairment charges . goodwill and other intangible assets . we record all assets , liabilities , and non-controlling interests in the acquiree in purchase acquisitions , including goodwill and other intangible assets , at fair value as of the acquisition date , and expense all acquisition related costs as incurred as required by asc topic 805 , “ business combinations. ” goodwill totaling $ 575.9 million at december 31 , 2014 is not amortized but is subject to annual tests for impairment or more often , if events or circumstances indicate it may be impaired .
| the transaction generated approximately $ 147.7 million in goodwill and $ 11.5 million 35 in core deposit intangible assets subject to amortization . see item 1 of this annual report for more details regarding our past merger activity , as well as note 2 to the consolidated financial statements . annual results . net income totaled $ 116.2 million , or $ 0.56 per diluted common share , for the year ended december 31 , 2014 compared to $ 132.0 million in 2013 , or $ 0.66 per diluted common share . the decrease in net income was largely due to : ( i ) a $ 51.0 million , or 39.7 percent , decline in total non-interest income mainly due to declines of $ 32.0 million and $ 12.4 million in net gains on sales of loans and net gains on securities transactions , respectively , as well as a $ 13.9 million increase in the reduction to our non-interest income due to changes in the fdic loss-share receivable , partially offset by a $ 7.1 million increase in net gains on sales of assets ( which included a $ 17.8 million gain on the sale of a manhattan branch location during the fourth quarter of 2014 ) and ( ii ) a $ 21.9 million , or 5.7 percent , increase in total non-interest expense mostly caused by a $ 10.1 million loss on extinguishment of debt resulting from the prepayment of $ 275 million in higher cost long-term borrowing in late december 2014 , a $ 9.8 million increase in amortization of tax credit investments and $ 2.6 million in 1st united merger related expenses , partially offset by ( iii ) a $ 27.0 million , or 6.0 percent , increase in our net interest income largely caused by a $ 893.7 million increase in average loans and a 17 basis point decline in the cost of long-term borrowings mostly driven by the early redemption of $ 146.8 million of 7.75 percent junior subordinated debentures during the second half of 2013 , ( iv ) a $ 14.2 million ,
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beginning in late february 2020 , this outbreak has had multiple impacts on our business , including , but not limited to , the temporary closure of our customers ' stores and closures of our own stores in north america , a mandate to require our employees who work in our headquarters to work remotely and temporary disruption of our global supply chain . these impacts are expected to result in lower sales , lower liquidity and higher leverage than previously anticipated for fiscal 2021 . we have taken temporary precautionary measures intended to help minimize the risk of coronavirus to our employees , including temporarily requiring employees to work remotely . temporarily requiring employees to work remotely may disrupt our operations or increase the risk of a cybersecurity incident . some of our retail partners have closed their stores in north america , including our largest customer , macy 's . some of our customers , such as costco and sam 's club , remain open for business . our retail partners that have closed stores have asked to extend their payment terms with us . we are in the process of negotiating resolutions with our retail partners that are equitable and fiscally responsible for each of us . there is significant uncertainty around the breadth and duration of store closures and other business disruptions related to the coronavirus outbreak , as well as its impact on the u.s. and global economies and on consumer willingness to visit stores once they re-open . the extent to which coronavirus impacts our results will depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge concerning the severity of the coronavirus outbreak and the actions taken to contain it or treat its impact . in response to these challenges , we have taken measures to contain costs that include , but are not limited to , salary reductions and deferral of capital projects . we are also reviewing our inventory needs and working with suppliers to curtail , or cancel , production of product which we believe will not be able to be sold in season . we have also been working with our suppliers , landlords and licensors to negotiate extended payment terms in order to preserve capital . we believe that we have sufficient cash and available capacity under our revolving credit facilities to meet our liquidity needs . as of march 26 , 2020 , we had cash of approximately $ 646 million and the capacity under our revolving credit facility was approximately $ 130 million . our cash balance includes draw downs in march 2020 of $ 500.0 million under our revolving credit facility . industry trends significant trends that affect the apparel industry include retail chains closing unprofitable stores , an increased focus by retail chains and others on expanding e-commerce sales and providing convenience-driven fulfillment options , the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them . in addition , consumer shopping preferences have continued to shift from physical stores to online shopping and retail traffic remains under pressure . all of these factors have led to a more promotional retail environment that includes aggressive markdowns in an attempt to offset declines caused by a reduction in physical store traffic . 43 we sell our products over the web through retail partners such as macys.com and nordstrom.com , each of which has a substantial online business . as e-commerce sales of apparel continue to increase , we are developing additional digital marketing initiatives on our web sites and through social media . we are investing in digital personnel , marketing , logistics , planning and distribution to help us expand our online opportunities going forward . our e-commerce business consists of our own web platforms at www.dkny.com , www.donnakaran.com , www.wilsonsleather.com , www.ghbass.com , www.vilebrequin.com and www.andrewmarc.com . we also sell karl lagerfeld paris products on our website , www.karllagerfeldparis.com . in addition , we sell to pure play online retail partners such as amazon and fanatics . a number of retailers are experiencing financial difficulties , which in some cases have resulted in bankruptcies , liquidations and or store closings , such as the announced store closing plans for macy 's , lord & taylor and jcpenney and the bankruptcy of bon-ton . the financial difficulties of a retail customer of ours could result in reduced business with that customer . we may also assume higher credit risk relating to receivables of a retail customer experiencing financial difficulty that could result in higher reserves for doubtful accounts or increased write-offs of accounts receivable . we attempt to mitigate credit risk from our customers by closely monitoring accounts receivable balances and shipping levels , as well as the ongoing financial performance and credit standing of customers . retailers are seeking to differentiate their offerings by devoting more resources to the development of exclusive products , whether by focusing on their own private label products or on products produced exclusively for a retailer by a national brand manufacturer . exclusive brands are only made available to a specific retailer , and thus customers loyal to their brands can only find them in the stores of that retailer . we have attempted to respond to trends in our industry by continuing to focus on selling products with recognized brand equity , by attention to design , quality and value and by improving our sourcing capabilities . we have also responded with the strategic acquisitions made by us and new license agreements entered into by us that added to our portfolio of licensed and proprietary brands and helped diversify our business by adding new product lines and expanding distribution channels . story_separator_special_tag we believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners . tariffs the apparel and accessories industry has been impacted by tariffs implemented by the united states government on goods imported from china . tariffs on handbags and leather outerwear imported from china were effective beginning in september 2018 , and were initially in the amount of 10 % of the merchandise cost to us . the level of tariffs on these product categories was increased to 25 % beginning may 10 , 2019 . 44 on august 1 , 2019 , the united states government announced new 10 % tariffs that cover the remaining estimated $ 300 billion of inbound trade from china , including most of our apparel products . on august 23 , 2019 , the united states government announced that the new tariffs to go into effect would increase from 10 % to 15 % . the new 15 % tariffs went into effect on september 1 , 2019 , although the additional tariffs on certain categories of products were delayed until december 15 , 2019. the announcement follows an earlier proposal by the united states government that would have imposed 25 % tariffs on the balance of inbound trade from china , but that were suspended pending trade negotiations with china . in january 2020 , the u.s. and china signed their phase one deal that rolled back certain tariffs and postponed certain tariffs that had been scheduled to go into effect on december 15 , 2020 . it is difficult to accurately estimate the impact on our business from these tariff actions or similar actions or when additional tariffs may become effective . for fiscal 2019 , approximately 61 % of the products that we sold were manufactured in china . for fiscal 2020 , we estimate that approximately 50 % of the products that we sold were manufactured in china . notwithstanding the phase one deal , the united states government continues to negotiate with china with respect to a trade deal , which could lead to the removal or postponement of additional tariffs . if the u.s. and china are not able to resolve their differences , additional tariffs may be put in place and additional products may become subject to tariffs . tariffs on additional products imported by us from china would increase our costs , could require us to increase prices to our customers and would cause us to seek price concessions from our vendors . if we are unable to increase prices to offset an increase in tariffs , this would result in our realizing lower gross margins on the products sold by us and will negatively impact our operating results . we have engaged in a number of efforts to mitigate the effect on our results of operations of increases in tariffs on products imported by us from china , including accelerating the receipt of inventory , diversifying our sourcing network by arranging to move production out of china , negotiating with our vendors in china to receive vendor support to lessen the impact of increased tariffs on our cost of goods sold , and discussing with our customers the implementation of price increases that we believe our products can absorb because of the strength of our portfolio of brands . use of estimates and critical accounting policies the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period . significant accounting policies employed by us , including the use of estimates , are presented in the notes to our consolidated financial statements . critical accounting policies are those that are most important to the portrayal of our financial condition and our results of operations , and require management 's most difficult , subjective and complex judgments , as a result of the need to make estimates about the effect of matters that are inherently uncertain . our most critical accounting estimates , discussed below , pertain to revenue recognition , accounts receivable , inventories , income taxes , goodwill and intangible assets , impairment of long-lived assets and equity awards . in determining these estimates , management must use amounts that are based upon its informed judgments and best estimates . we continually evaluate our estimates , including those related to customer allowances and discounts , product returns , bad debts and inventories , and carrying values of intangible assets . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . 45 revenue recognition on february 1 , 2018 , we adopted financial accounting standards board ( “ fasb ” ) accounting standard codification ( “ asc ” ) topic 606 – revenue from contracts with customers ( “ asc 606 ” ) using the modified retrospective method as of january 31 , 2018. under asc 606 , wholesale revenue is recognized when control transfers to the customer . we consider control to have been transferred when we have transferred physical possession of the product , we have a right to payment for the product , the customer has legal title to the product and the customer has the significant risks and rewards of the product . wholesale revenues are adjusted by variable considerations arising from implicit or explicit obligations .
| net sales from our dkny retail stores decreased by $ 5.9 million . same store sales decreased by 14.4 % at g.h . bass , 14.3 % at wilsons leather and 0.4 % at dkny retail stores . net sales of our retail operations segment were negatively affected by the decrease in the number of stores operated by us from 308 at january 31 , 2019 to 282 at january 31 , 2020 . gross profit was $ 1.12 billion , or 35.4 % of net sales , for fiscal 2020 and $ 1.11 billion , or 36.0 % of net sales , last year . retail sales generally have a higher gross profit percentage than wholesale sales . accordingly , there is a negative impact on the gross profit percentage of our business as a whole as retail sales constitute a reduced percentage of our total sales . the gross profit percentage in our wholesale operations segment was 32.7 % for the year ended january 31 , 2020 as compared to 32.4 % for the year ended january 31 , 2019. the gross profit percentage in our retail operations segment was 46.7 % for the year ended january 31 , 2020 compared to 47.7 % for the same period last year . selling , general and administrative expenses decreased to $ 832.2 million in fiscal 2020 from $ 834.8 million in fiscal 2019. the decrease in expenses was due to decreased facility expenses of $ 12.4 million , primarily as a result of store closures . personnel expenses decreased primarily as a result of a decrease in salary expenses of $ 4.1 million resulting from store closures , as well as an aggregate $ 6.1 million decrease in bonus and stock compensation expense . the decrease was offset , in part , by increases of $ 13.1 million for third-party warehouse expenses and $ 7.4 million of advertising expenses . 50 depreciation and amortization increased to $ 38.7 million in fiscal
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2 includes fountain syrups manufactured by the company , including consolidated bottling operations , and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . 3 includes net operating revenues related to our acquisition of cce 's former north america business for the full year in 2012 and 2011. in 2010 , the percentage includes net operating revenues from the date of the cce acquisition on october 2 , 2010. the following table sets forth the percentage of total worldwide unit case volume related to concentrate operations and finished product operations : replace_table_token_6_th 1 includes unit case volume related to concentrates sold by the company to authorized bottling partners for the manufacture of fountain syrups . the bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers . 2 includes unit case volume related to fountain syrups manufactured by the company , including consolidated bottling operations , and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . 3 includes unit case volume related to our acquisition of cce 's former north america business for the full year in 2012 and 2011. in 2010 , the percentage includes unit case volume from the date of the cce acquisition on october 2 , 2010. acquisition of cce 's former north america business and related transactions pursuant to the terms of the business separation and merger agreement entered into on february 25 , 2010 , as amended ( the `` merger agreement '' ) , on october 2 , 2010 ( the `` acquisition date '' ) , we acquired cce 's former north america business , consisting of cce 's production , sales and distribution operations in the united states , canada , the british virgin islands , the united states virgin islands and the cayman islands , and a substantial majority of cce 's corporate segment . we believe this acquisition will result in an evolved franchise system that will enable us to better serve the unique needs of the north american market . the creation of a unified operating system will strategically position us to better market and distribute our nonalcoholic beverage brands in north america . under the terms of the merger agreement , the company acquired the 67 percent of cce 's former north america business that was not already owned by the company for consideration that included : ( 1 ) the company 's 33 percent indirect ownership interest in cce 's european operations ; ( 2 ) cash consideration ; and ( 3 ) replacement awards issued to certain current and former employees of cce 's corporate operations and former north america business . at closing , cce shareowners other than the company exchanged their cce common stock for common stock in a new entity , which was renamed coca-cola enterprises , inc. ( which is referred to herein as `` new cce '' ) and which continues to hold the european operations held by cce prior to the acquisition . at closing , new cce became 100 percent owned by shareowners that held shares of common stock of cce immediately prior to the closing , other than the company . as a result of this transaction , the company does not own any interest in new cce . as of october 1 , 2010 , our company owned 33 percent of the outstanding common stock of cce . based on the closing price of cce 's common stock on the last day of trading prior to the acquisition date , the fair value of our investment in cce was $ 5,373 million , which reflected the fair value of our ownership in both cce 's european operations and its former north america business . we remeasured our equity interest in cce to fair value upon the close of the transaction . as a result , we recognized a gain of $ 4,978 million , which was classified in the line item other income ( loss ) — net in our consolidated statement of income . the gain included a $ 137 million reclassification adjustment related to foreign currency translation gains recognized upon the disposal of our indirect investment in cce 's european operations . the company relinquished its indirect ownership interest in cce 's european operations to new cce as part of the consideration to acquire the 67 percent of cce 's former north america business that was not already owned by the company . 31 although the cce transaction was structured to be primarily cashless , under the terms of the merger agreement , we agreed to assume $ 8.9 billion of cce debt . in the event the actual cce debt on the acquisition date was less than the agreed amount , we agreed to make a cash payment to new cce for the difference . as of the acquisition date , the debt assumed by the company was $ 7.9 billion . the total cash consideration paid to new cce as part of the transaction was $ 1.4 billion , which included $ 1.0 billion related to the debt shortfall . in contemplation of the closing of our acquisition of cce 's former north america business , we reached an agreement with dps to distribute certain dps brands in territories where dps brands had been distributed by cce prior to the cce transaction . under the terms of our agreement with dps , concurrently with the closing of the cce transaction , we entered into license agreements with dps to distribute dr pepper trademark brands in the united states , canada dry in the northeastern united states , and canada dry and c ' plus in canada , and we made a net one-time cash payment of $ 715 million to dps . under the license agreements , the company agreed to meet certain performance obligations to distribute dps products in retail and foodservice accounts and vending machines . story_separator_special_tag the license agreements have initial terms of 20 years , with automatic 20-year renewal periods unless otherwise terminated under the terms of the agreements . the license agreements replaced agreements between dps and cce existing immediately prior to the completion of the cce transaction . in addition , we entered into an agreement with dps to include dr pepper and diet dr pepper in our coca-cola freestyle fountain dispensers in certain outlets throughout the united states . the coca-cola freestyle agreement has a term of 20 years . on october 2 , 2010 , we sold all of our ownership interests in our norwegian and swedish bottling operations to new cce for $ 0.9 billion in cash . in addition , in connection with the acquisition of cce 's former north america business , we granted to new cce the right to negotiate the acquisition of our majority interest in our german bottler at any time from 18 to 39 months after february 25 , 2010 , at the then current fair value and subject to terms and conditions as mutually agreed . the nonalcoholic beverage segment of the commercial beverage industry we operate in the highly competitive nonalcoholic beverage segment of the commercial beverage industry . we face strong competition from numerous other general and specialty beverage companies . we , along with other beverage companies , are affected by a number of factors , including , but not limited to , cost to manufacture and distribute products , consumer spending , economic conditions , availability and quality of water , consumer preferences , inflation , political climate , local and national laws and regulations , foreign currency exchange fluctuations , fuel prices and weather patterns . our objective our objective is to use our formidable assets — our brands , financial strength , unrivaled distribution system , global reach , and the talent and strong commitment of our management and associates — to achieve long-term sustainable growth . our vision for sustainable growth includes the following : people : being a great place to work where people are inspired to be the best they can be . portfolio : bringing to the world a portfolio of beverage brands that anticipates and satisfies people 's desires and needs . partners : nurturing a winning network of partners and building mutual loyalty . planet : being a responsible global citizen that makes a difference . profit : maximizing return to shareowners while being mindful of our overall responsibilities . productivity : managing our people , time and money for greatest effectiveness . strategic priorities we have four strategic priorities designed to create long-term sustainable growth for our company and the coca-cola system and value for our shareowners . these strategic priorities are driving global beverage leadership ; accelerating innovation ; leveraging our balanced geographic portfolio ; and leading the coca-cola system for growth . to enable the entire coca-cola system so that we can deliver on these strategic priorities , we must further enhance our core capabilities of consumer marketing ; commercial leadership ; franchise leadership ; and bottling and distribution operations . 32 core capabilities consumer marketing marketing investments are designed to enhance consumer awareness of , and increase consumer preference for , our brands . this produces long-term growth in unit case volume , per capita consumption and our share of worldwide nonalcoholic beverage sales . through our relationships with our bottling partners and those who sell our products in the marketplace , we create and implement integrated marketing programs , both globally and locally , that are designed to heighten consumer awareness of and product appeal for our brands . in developing a strategy for a company brand , we conduct product and packaging research , establish brand positioning , develop precise consumer communications and solicit consumer feedback . our integrated marketing activities include , but are not limited to , advertising , point-of-sale merchandising and sales promotions . we have disciplined marketing strategies that focus on driving volume in emerging markets , increasing our brand value in developing markets and growing profit in our developed markets . in emerging markets , we are investing in infrastructure programs that drive volume through increased access to consumers . in developing markets , where consumer access has largely been established , our focus is on differentiating our brands . in our developed markets , we continue to invest in brands and infrastructure programs , but at a slower rate than revenue growth . we are focused on affordability and ensuring we are communicating the appropriate message based on the current economic environment . commercial leadership the coca-cola system has millions of customers around the world who sell or serve our products directly to consumers . we focus on enhancing value for our customers and providing solutions to grow their beverage businesses . our approach includes understanding each customer 's business and needs — whether that customer is a sophisticated retailer in a developed market or a kiosk owner in an emerging market . we focus on ensuring that our customers have the right product and package offerings and the right promotional tools to deliver enhanced value to themselves and the company . we are constantly looking to build new beverage consumption occasions in our customers ' outlets through unique and innovative consumer experiences , product availability and delivery systems , and beverage merchandising and displays . we participate in joint brand-building initiatives with our customers in order to drive customer preference for our brands . through our commercial leadership initiatives , we embed ourselves further into our retail customers ' businesses while developing strategies for better execution at the point of sale . franchise leadership we must continue to improve our franchise leadership capabilities to give our company and our bottling partners the ability to grow together through shared values , aligned incentives and a sense of urgency and flexibility that supports consumers ' always changing needs and tastes . the financial health and success of our bottling partners are critical components of the company 's success .
| our bottling investments operating segment and our other finished product operations , including the finished product operations in our north america operating segment , typically generate net operating revenues by selling sparkling beverages and a variety of still beverages , such as juices and juice drinks , energy and sports drinks , ready-to-drink teas and coffees , and certain water products , to retailers or to distributors , wholesalers and bottling partners who distribute them to retailers . in addition , in the united states , we manufacture fountain syrups and sell them to fountain retailers such as restaurants and convenience stores who use the fountain syrups to produce beverages for immediate consumption , or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . for these consolidated finished product operations , we recognize the associated concentrate sales volume at the time the unit case or unit case equivalent is sold to the customer . our concentrate operations typically generate net operating revenues by selling concentrates and syrups to authorized bottling and canning operations . for these concentrate operations , we recognize concentrate revenue and concentrate sales volume when we sell concentrate to the authorized unconsolidated bottling and canning operations , and we typically report unit case volume when finished products manufactured from the concentrates and syrups are sold to the customer . when we analyze our net operating revenues we generally consider the following four factors : ( 1 ) volume growth ( unit case volume or concentrate sales volume , as appropriate ) , ( 2 ) structural changes , ( 3 ) changes in price , product and geographic mix and ( 4 ) foreign currency fluctuations . refer to the heading `` net operating revenues '' below . `` structural changes '' generally refers to acquisitions or dispositions of bottling , distribution or canning operations and consolidation or deconsolidation of bottling and distribution entities for accounting purposes . typically , structural changes do not impact the company 's unit case volume on a consolidated basis or at the geographic operating segment level . we recognize unit case volume for all sales of company beverage products regardless of our ownership interest in the bottling partner , if any . however , the unit case volume reported by our bottling investments operating segment is generally
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the following information has been adjusted to reflect the restatement of our financial results , which is more fully described in note 3 , restatement of consolidated financial statements in the notes to the consolidated financial statements of this form 10-k. the impact of the restatement on our net loss was a decrease in the loss of $ 3.0 million in 2005 and an increase in the net loss of $ 2.2 million in 2004. the adjustments did not affect our previously reported revenue , cash , cash equivalents or marketable securities balances in any of the restated periods . the adjustments relate exclusively to stock option practices that predate the merger between us and predix . we believe that our current procedures , controls and accounting practices ensure that the granting and exercising of options are executed in accordance with our stock option plan requirements and accounted for in accordance with generally accepted accounting principles . previously filed annual reports on form 10-k , form 10-k/a and quarterly reports on form 10-q affected by the restatement have not been amended and should not be relied on . findings of the stock option review on december 8 , 2006 , our board of directors formed a special committee of the board comprised solely of independent directors who had not served on our board prior to the merger with predix in august 2006. the purpose of the special committee was to investigate matters relating to our stock option grants . the 52 special committee has completed its investigation , having investigated both matters relating to the exercise of stock options by our former executive officers and other employees as well as our historical stock option granting practices . during its investigation , the special committee retained outside legal counsel to assist it in its investigation . in turn , legal counsel retained forensic accounting consultants to assist it and the special committee with accounting matters in connection with the investigation . the investigation conducted by the special committee consisted , in part , of the review of voluminous hard copy and electronic files obtained from us as well as from other sources ( totaling approximately 2 million documents ) . in addition , interviews of twenty-four of our current and former officers , directors , and employees and other persons ( totaling 32 separate interviews ) were conducted in the course of the investigation . from our initial public offering through march 2005 , our option grant processes and procedures were not consistently followed . option grants during this period were either approved by the then chief executive officer or compensation committee of the board of directors . all of the stock option grants requiring adjustment were granted during the years 1997 through 2005 which pre-dates our merger with predix . our current chief executive officer and chief financial officer joined epix in connection with the merger with predix . none of the members of our current senior management participated in the approval , modification , retrospective price selection or re-pricing of any stock option grants requiring adjustment . stock option grants approval process prior to merger with predix during the period from our initial public offering through march 2005 , pursuant to authority delegated to him by the compensation committee , the then chief executive officer ( who had that position from december 1994 until he left the company in september 2005 ) approved stock option grants below a certain number of shares to employees who were not executive officers or members of our board of directors . stock option grants to executive officers and to employees receiving option awards over certain thresholds required approval by the compensation committee . stock option grants to outside directors were granted at fixed times each year in accordance with a stock option plan relating to stock option awards to independent directors . evidence collected by the special committee indicates that the grant date associated with many of these stock options granted prior to our merger with predix in 2006 had been selected by certain employees , including certain members of our former senior management , retrospectively after the date indicated on the documents approving these options . as a result of the evidence collected by the special committee , we concluded that the grant dates associated with these grants differed from the measurement date for these grants for financial accounting purposes under generally accepted accounting principles , as set forth in apb 25 or in certain grants , resulted in re-pricing of the stock options requiring us to account for these option grants as variable awards . variable awards require revaluation of the option awards to their then intrinsic value at each reporting period until the option has been exercised or canceled . in addition , in part as a result of such evidence of retrospective selection of grant dates with respect to certain grants , we also determined that adjustment of the measurement date for accounting purposes was appropriate for certain other grants for which we lacked information confirming that the grants had been approved on the date reflected in the documents approving each such grant . all of our current executive officers , with the exception of dr. andrew c.g . uprichard , joined epix in connection with the august 16 , 2006 merger with predix . dr. uprichard joined epix in 2004. in march 2005 , dr. uprichard was granted 35,000 stock options which were approved by the compensation committee . subsequent to their approval , certain members of our former senior management re-priced these options and all other options granted by the compensation committee on that same date . dr. uprichard was never part of the stock option approval process . there were no other stock options granted to current executive officers that required a change in measurement date or resulted in the company recording compensation expense . since the merger with predix , we have revised our stock option grant processes and procedures . story_separator_special_tag as a result , we have adopted a formal , written policy for stock option awards . we believe that since our merger 53 with predix , our current equity granting processes and practices have been consistently adhered to , and are accounted for in accordance with generally accepted accounting principles . our current stock option grant policy mandates the following : 1 ) stock option grants made in connection with our annual performance review will occur on the same fixed date or dates each year , such date or dates to be set by the board of directors to occur promptly after an announcement of our annual financial results 2 ) stock options to executive officers and individual option awards of 25,000 options or greater must be approved by the compensation committee and 3 ) all option grants that are not awarded in connection with our annual performance review , such as new hire and promotion grants , must be priced and granted on the last trading day of the month in which they were approved . stock option grants requiring approval by the compensation committee can not be approved via unanimous written consent , but may be approved only at an official meeting of the compensation committee at which minutes are recorded . all three members of our compensation committee are independent directors . our chief executive officer has the authority to approve stock option awards in certain circumstances if the individual grant is for less than 25,000 options and is not to an executive officer . adjustments to measurement dates arising from evidence of retrospective selection of grant dates during the course of the special committee 's stock option review , we identified approximately 1.4 million stock options with grant dates that failed to meet the measurement date criteria of apb 25 due to the retrospective selection of grant dates . the measurement date for these twelve option grants covering approximately 1.4 million shares was adjusted in compliance with apb 25 as a result of evidence indicating that the grant date had been selected retrospectively , after the date reflected in the documents approving these grants . of these grants , options to purchase approximately 0.5 million shares were granted to former executive officers and options to purchase approximately 0.9 million shares were granted to other employees . adjustments to the apb 25 measurement dates for these grants resulted in the recording of additional stock-based compensation of $ 3.7 million . none of the approximately 1.4 million stock options requiring measurement date adjustments due to the retrospective selection of the grant date were made to any of our current executive officers . each grant in question was evaluated individually based on its particular facts and circumstances in each case , in light of the electronic and hard copy documentation and other evidence ( including information obtained from interviews of current and former employees , officers , directors , among others ) available to the special committee . that documentation and information considered in connection with the measurement date adjustments that we have made included , but was not limited to : minutes of compensation committee meetings ; unanimous written consents signed by compensation committee members , and evidence relating to the date such consents were circulated for signature and or signed ; information found in personnel files maintained for optionees ; electronic mail messages and other electronic files maintained in our computer system and in backup media ; documentation prepared in connection with our annual performance reviews of employees as part of the process of determining the allocation of stock option grants to individual employees ; information as to the date of hire of the optionee , including ( if the grant was a new hire grant ) the date of any employment agreement or offer letter : correspondence and other documentation supporting the option grant ( including , without limitation , memoranda , sec form 4 filings ) ; information concerning the date or dates on which the stock option was entered into our stock option tracking system , equity edge ; and information obtained during interviews conducted by the special committee of numerous individuals , including former officers , directors , employees , and outside professionals . 54 based on the relevant facts and circumstances , electronic and other documentation , and other available information relevant to each grant , we applied the appropriate accounting standards to determine the proper measurement date for each grant at issue . if the measurement date was not the originally assigned grant date , accounting adjustments were made as required , resulting in stock-based compensation expense and related tax effects . re-priced stock options evidence collected by the special committee also indicated that during the period june 1999 through march 2005 , certain employees , including certain former members of our senior management , participated in the re-pricing , as defined by financial accounting standards , of certain stock option grants subsequent to their approval by the compensation committee . approximately 0.9 million stock options were considered to be re-priced and resulted in the recording of compensation expense during the years 1999 through 2005 totaling approximately $ 2.5 million . these options were considered to be re-priced , as defined by financial accounting standards , as the prices at which these options were granted were selected by certain employees , including former members of our senior management after the award had been approved by the compensation committee and at prices different than original price on the date the option had been approved . the accounting for stock awards that are re-priced requires the option to be accounted for as a variable award and requires revaluation of the option to its intrinsic value at the end of each reporting period . of these approximately 0.9 million re-priced options , options to purchase approximately 0.8 million shares were granted to former executive officers , and options to purchase approximately 0.1 million shares were granted to other employees .
| we also have one imaging agent , ep-2104r , in clinical development . we completed a phase 2a clinical trial of ep-2104r in the second quarter of 2006. we do not intend to continue development of ep-2104r and are actively pursuing a partner to continue further development . future costs expected to be incurred for vasovist are currently limited to legal and consulting costs related to the on-going fda appeal . future costs expected to be incurred for ep-2104 are limited to consulting costs related to our partnering efforts . in connection with our acquisition of predix , we incurred a charge of $ 123.5 million for in-process research and development the in-process research and development charge represents the fair value of purchased in-process technology of predix for research projects that , as of the closing date of the merger , had not reached technological feasibility and have no alternative future use . this is a non-recurring charge . the in-process research and development primarily represents the estimated fair value of the following drug candidates : prx-00023 ( $ 70.9 million ) that , as of the date of the merger , was in phase 3 clinical trials for the treatment of generalized anxiety disorder ; prx-03140 ( $ 23.5 million ) that , as of the date of the merger had completed phase 1 clinical trials for the treatment of alzheimer 's disease ; prx-08066 ( $ 20.2 million ) that , as of the date of the merger , had entered phase 2 clinical trials for the treatment of pulmonary hypertension in association with copd ; and prx-07034 ( $ 8.9 million ) that , as of the date of the merger , had entered phase 1 clinical trials for the treatment of obesity . in september 2006 we completed a pivotal phase 3 clinical trial for the treatment of generalized anxiety disorder with prx-00023 . results from this trial demonstrated that prx-00023 did not achieve a statistically significant improvement over placebo for the
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recent developments acquisition of ca , inc. on november 5 , 2018 , or the ca merger date , we acquired ca , inc. , or ca , for approximately $ 18.8 billion in aggregate cash purchase consideration , in exchange for all shares of ca common stock issued and outstanding immediately prior to the closing and assumed $ 2.25 billion of outstanding unsecured bonds , or the ca merger . in addition , we assumed all unvested ca stock options , outstanding restricted stock awards , restricted stock units , or rsus , and performance stock units held by continuing employees . all vested in-the-money ca stock options and director stock units were cashed out upon the completion of the ca merger . we financed the ca merger with $ 18 billion from borrowings under a term a facility entered into on the ca merger date , as well as cash on hand of the combined companies . see note 16 . “ subsequent events ” included in part ii , item 8. of this annual report on form 10-k for further detail . we expect our reporting segments to change beginning in the first quarter of fiscal year 2019 , as a result of the ca merger that closed on november 5 , 2018 , the first day of our fiscal year 2019. in connection with the ca merger , we entered into a definitive agreement to sell veracode , inc. , a wholly owned subsidiary of ca and provider of application security testing solutions , to thoma bravo , llc for cash consideration of $ 950 million . the discussions below related to our business , reporting segments and financial results for fiscal year 2018 and prior periods do not include any impact from or information relating to the ca merger . acquisitions and divestitures the discussion and analysis in this section and the accompanying consolidated financial statements include the results of operations of acquired companies commencing on their respective acquisition dates . acquisition of brocade communications systems , inc. on november 17 , 2017 , we acquired brocade , or the brocade merger , for approximately $ 5.3 billion in cash in exchange for all shares of brocade common stock issued and outstanding immediately prior to the effective time of the brocade merger and paid $ 701 million to retire brocade 's term loan . in addition , we assumed all unvested brocade stock options , rsus and performance stock units held by continuing employees . all vested in-the-money brocade stock options , after giving effect to any acceleration , were cashed out upon the brocade merger . we financed the brocade merger with the net proceeds from the issuance of our senior unsecured notes , issued during october 2017 , or the october 2017 senior notes , as well as cash on hand . see note 8 . “ borrowings ” included in part ii , item 8. of this annual report on form 10-k for further detail . 35 following the brocade merger , on december 1 , 2017 , we sold brocade 's internet protocol networking business , including the ruckus wireless and icx switch businesses , to arris international plc for cash consideration of $ 800 million , before contractual working capital adjustments . acquisition of broadcom corporation on february 1 , 2016 , broadcom became the successor to avago technologies limited , or avago , and acquired broadcom corporation , or brcm , in which , avago shareholders exchanged their shares on a one-for-one basis for newly issued broadcom shares , or the broadcom merger . brcm shareholders received , in aggregate , approximately $ 16.8 billion in cash , 112 million broadcom shares and 23 million partnership units in exchange for all shares of brcm common stock , par value $ 0.0001 per share , issued and outstanding immediately prior to the effective time of the broadcom merger . in addition , we also paid $ 137 million in cash for vested brcm equity awards . broadcom also assumed unvested rsus originally granted by brcm and converted them into 6 million broadcom rsus . the aggregate consideration for the broadcom merger was approximately $ 35.7 billion . we funded the cash portion of the broadcom merger with net proceeds from the issuance of $ 15.6 billion in term loans under a guaranteed , collateralized credit agreement , or the 2016 credit agreement , that we entered into at the time of closing of the broadcom merger , as well as cash on hand of the combined companies . during fiscal year 2016 , we completed the sales of certain non-core brcm businesses for aggregate cash proceeds of $ 830 million and recognized an aggregate gain of $ 36 million from the sales . net revenue substantially all of our net revenue is derived from sales of a broad range of semiconductor devices that are incorporated into electronic products , as well as from modules , switches and subsystems . we have four reportable segments : wired infrastructure , wireless communications , enterprise storage and industrial & other , which align with our target markets . our overall net revenue , as well as the percentage of total net revenue generated by sales in each of our segments , has varied from quarter to quarter , due largely to fluctuations in end-market demand , including the effects of seasonality , which are discussed in detail below under “ seasonality ” . oems or their contract manufacturers and distributors typically account for the substantial majority of our sales . we sell products directly to oems , and other end customers , many of whom also purchase products from our distributors and who direct contract manufacturers to purchase products from us . we have established strong relationships with leading oem customers across multiple target markets and we have a direct sales force focused on supporting large oems . story_separator_special_tag distributors also account for a significant portion of our business and we recognize revenue upon delivery of product to the distributors , which can cause our quarterly net revenue to fluctuate significantly . such revenue is reduced for estimated returns and distributor allowances . costs and expenses total cost of products sold . cost of products sold consists primarily of the costs for semiconductor wafers and other materials as well as the costs of assembling and testing those products and materials . such costs include personnel and overhead related to our manufacturing operations , which include stock-based compensation expense ; related occupancy ; computer services ; equipment costs ; manufacturing quality ; order fulfillment ; warranty adjustments ; inventory adjustments , including write-downs for inventory obsolescence ; and acquisition costs , which include direct transaction costs and integration-related costs . total costs of products sold also includes the purchase accounting effect on inventory , amortization of acquisition-related intangible assets and restructuring charges . although we outsource a significant portion of our manufacturing activities , we do have some proprietary semiconductor fabrication facilities . if we are unable to utilize our owned fabrication facilities at a desired level , the fixed costs associated with these facilities will not be fully absorbed , resulting in higher average unit costs and lower gross margins . research and development . research and development expense consists primarily of personnel costs for our engineers engaged in the design and development of our products and technologies , including stock-based compensation expense . these expenses also include project material costs , third-party fees paid to consultants , prototype development expense , allocated facilities costs and other corporate expenses and computer services costs related to supporting computer tools used in the engineering and design process . selling , general and administrative . selling expense consists primarily of compensation and associated costs for sales and marketing personnel , including stock-based compensation expense , sales commissions paid to our independent sales representatives , advertising costs , trade shows , corporate marketing , promotion , travel related to our sales and marketing operations , related occupancy and equipment costs , and other marketing costs . general and administrative expense consists primarily of compensation and associated costs for executive management , finance , human resources and other 36 administrative personnel , including stock-based compensation expense , outside professional fees , allocated facilities costs , acquisition-related costs and other corporate expenses . amortization of acquisition-related intangible assets . in connection with our acquisitions , we recognize intangible assets that are being amortized over their estimated useful lives of 1 year to 25 years . we also recognize goodwill , which is not amortized , and in-process research and development , or ipr & d , which is initially capitalized as an indefinite-lived intangible asset , in connection with acquisitions . upon completion of each underlying project , ipr & d assets are reclassified as an amortizable purchased intangible asset and amortized over their estimated useful lives . restructuring , impairment and disposal charges . restructuring , impairment and disposal charges consist primarily of compensation costs associated with employee exit programs , alignment of our global manufacturing operations , rationalizing product development program costs , in-process research and development impairment , fixed asset impairment , facility and lease abandonments , and other exit costs , including curtailment of service or supply agreements . interest expense . interest expense includes coupon interest , commitment fees , accretion of original issue discount and amortization of debt issuance costs , and expenses related to debt modification . other income , net . other income , net includes interest income , gains ( losses ) on foreign currency remeasurement , and other miscellaneous items . provision for income taxes . the 2017 tax reform act made significant changes to the u.s. internal revenue code , including ( 1 ) a decrease in the u.s. corporate tax rate from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , ( 2 ) the accrual of u.s. income tax on foreign earnings when earned , allowing certain foreign dividends to then be tax-exempt , rather than deferring such income tax payments until the foreign earnings are repatriated into the u.s. , and ( 3 ) the transition tax on the mandatory deemed repatriation of accumulated non-u.s. earnings of u.s. controlled foreign corporations , or the transition tax . following the enactment of the 2017 tax reform act , the securities and exchange commission , or sec , issued guidance for situations when there is insufficient information to complete the accounting for certain income tax effects of the 2017 tax reform act . based on our interpretation of the 2017 tax reform act and the sec 's guidance , we recognized an income tax benefit of $ 7,278 million during fiscal year 2018. we also recognized an income tax benefit of $ 1,162 million primarily as a result of the redomiciliation transaction . we have structured our operations to maximize the benefit from tax incentives extended to us in various jurisdictions to encourage investment or employment . one of the tax incentives from the singapore economic development board , an agency of the government of singapore , provides that any qualifying income earned in singapore is subject to a tax incentive or reduced rates of singapore income tax . subject to our compliance with the conditions specified in this incentive and legislative developments , this singapore tax incentive is presently expected to expire in fiscal year 2020 , subject in certain cases to potential extensions , which we may or may not be able to obtain . absent this tax incentive , the corporate income tax rate in singapore that would otherwise apply to us would be 17 % . we also have a tax holiday on our qualifying income in malaysia , which is scheduled to expire in fiscal year 2028. the tax incentives and tax holiday that we have obtained are also subject to our compliance with various operating and other conditions .
| we recognized $ 106 million in fiscal year 2018 for an other than temporary impairment of one of our cost method investments . loss on extinguishment of debt . loss on extinguishment of debt was $ 166 million for fiscal year 2017. we issued senior unsecured notes in january 2017 , or january 2017 senior notes , to repay all of the term loans outstanding under our guaranteed , collateralized credit agreement dated february 1 , 2016. as a result , we wrote-off $ 166 million of debt issuance costs . 44 other income , net . other income , net includes interest income , gains ( losses ) on foreign currency remeasurement and other miscellaneous items . other income , net was $ 144 million and $ 62 million in fiscal years 2018 and 2017 , respectively . the increase was primarily due to increases in interest income and gains on foreign currency remeasurement . provision for income taxes . our benefit from income taxes was $ 8,084 million for fiscal year 2018 , compared to a provision for income taxes of $ 35 million for fiscal year 2017. the benefit from income taxes in fiscal year 2018 was primarily due to the income tax benefits recognized from the enactment of the 2017 tax reform act and the redomiciliation transaction . the provision for income taxes in fiscal year 2017 was primarily due to an increase in profit before tax and a discrete expense of $ 76 million resulting from entity reorganizations , partially offset by the recognition of $ 273 million of excess tax benefits from stock-based equity awards that vested or were exercised during fiscal year 2017 and , to a lesser extent , the recognition of previously unrecognized tax benefits primarily as a result of audit settlements . fiscal year 2017 compared to fiscal year 2016 replace_table_token_8_th net revenue replace_table_token_9_th 45 replace_table_token_10_th our total net revenue increased primarily due to the full year contribution from acquired brcm products in fiscal year 2017 compared to only three quarters in
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our customers often require reduced prices or other pricing , quality or delivery commitments as a condition to their purchasing from us in any given period or increasing their purchase volume , which can , among other things , result in reduced gross margins in order to maintain or expand our market share . although we do not have any long-term contracts that require customers to place orders with us , lam research and applied materials have been our customers for over 10 years . discontinued operations discontinued operations consist of the results of operations for our systems integration business . the primary purpose of this business was to build modules and tools ( metal organic chemical vapor deposition or ion implant ) for veeco instruments , inc. in january 2016 , our management and the board of directors decided to discontinue this business because it consumed a significant amount of resources while generating low gross margins and contributing only a small amount to our net income . we completed our final builds of these products at the end of may 2016. components of our results of operations the following discussion sets forth certain components of our statements of operations as well as significant factors that impact those items . sales we generate sales primarily from the design , manufacture and sale of subsystems for semiconductor capital equipment and the sale of refurbished tools . sales are recognized when persuasive evidence of an arrangement exists , transfer of title has occurred , the fee is fixed or determinable , and collectability is reasonably assured . our shipping terms are fob shipping point or fob destination , or equivalent terms , and accordingly , sales are recognized when legal title has passed to the customer upon shipment or delivery . 36 cost of sales and gross profit cost of sales consists primarily of purchased materials , direct labor , indirect labor , plant overhead cost and depreciation expense for our manufacturing facilities and equipment , as well as certain engineering costs that are related to non-recurring engineering services that we provide to , and for which we invoice , our customers in connection with their product development activities . our business has a highly variable cost structure with a low fixed overhead structure as a percentage of cost of sales . in addition , our existing global manufacturing plant capacity is scalable and we are able to adjust to increased customer demand for our products without significant additional capital investment . we operate our business in this manner in order to avoid having excessive fixed costs during a cyclical downturn while retaining flexibility to expand our production volumes during periods of growth . however , this approach results in a smaller increase in gross margin as a percentage of sales in times of increased demand . since the gross margin on each of our products differs , our overall gross margin as a percentage of our sales changes based on the mix of products we sell in any period . operating expenses our operating expenses primarily include research and development and sales , general and administrative expenses . personnel costs are the most significant component of operating expenses and consist of salaries , benefits , bonuses , share-based compensation and , with regard to sales and marketing expense , sales commissions . operating expenses also include overhead costs for facilities , it and depreciation . in addition , our operating expenses include costs related to the impairment of goodwill and intangible assets , amortization of intangible assets and restructuring costs . research and development . research and development expense consists primarily of activities related to product design and other development activities , new component testing and evaluation , and test equipment and fixture development . research and development expense does not include engineering costs that are related to non-recurring engineering services that we provide to and for which we invoice our customers as part of sales , which are reflected as cost of sales . we expect research and development expense will increase in absolute dollars as our customers continue to increase their demand for new product designs and as we invest in our research and product development efforts to enhance our product capabilities and access new customer markets . selling , general and administrative . selling expense consists primarily of salaries and commissions paid to our sales and sales support employees and other costs related to the sales of our products . general and administrative expense consists primarily of salaries and overhead associated with our administrative staff , professional fees and depreciation and other allocated facility related costs . we expect selling expenses to increase in absolute dollars as we continue to invest in expanding our markets and as we expand our international operations . we expect general and administrative expenses to also increase in absolute dollars due to an increase in costs related to being a public company , including higher legal , corporate insurance and accounting expenses . amortization of intangibles . amortization of intangible assets is related to our finite-lived intangible assets and is computed using the straight-line method over the estimated economic life of the asset . interest expense , net interest expense , net consists of interest on our outstanding debt under our credit facilities and any other indebtedness we may incur in the future . other expense ( income ) , net the functional currency of our international subsidiaries located in the united kingdom , singapore and malaysia is the u.s. dollar . transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense , net on the accompanying consolidated statements of operations . substantially all of our sales and agreements with third party suppliers provide for pricing and payments in u.s. dollars and , therefore , are not subject to material exchange rate fluctuations . story_separator_special_tag 37 income tax expense ( b enefit ) income tax expense ( benefit ) consists primarily of the impact of foreign operations , including withholding taxes , offset in part by a discrete tax benefit of approximately $ 2.3 million that was recorded as a result of the purchase accounting from the ajax acquisition ( see note 2– ajax-united patterns & molds , inc. acquisition ) . our historical income tax benefit resulted from losses recorded in the u.s. , which were being fully benefited through the third quarter of 2015 as a result of an overall deferred tax liability position in the u.s. , offset in part by the impact of foreign operations , including withholding taxes . starting in the fourth quarter of 2015 we are no longer benefiting the losses generated in the u.s. results of operations the following table sets forth our results of operations for the periods presented . the period-to-period comparison of results is not necessarily indicative of results for future periods . replace_table_token_6_th 38 the following table sets forth our results of operations as a percentage of our total sales for the periods presented . replace_table_token_7_th comparison of the years ended december 30 , 2016 and december 25 , 2015 sales year ended change december 30 , 2016 december 25 , 2015 amount % ( dollars in thousands ) sales $ 405,747 $ 290,641 $ 115,106 39.6 % the increase in sales from 2015 to 2016 was primarily related to an increase in sales volume . the sales volume increase was due to an approximate 7 % , or approximately $ 48.1 million , increase in our market share at our two largest customers , and an approximately $ 47.0 million increase in the volume of purchases by our two largest customers driven by overall industry growth . we refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share of that customer . ajax contributed $ 20.0 million to our sales during 2016. on a geographic basis , sales in the united states increased by $ 58.9 million in 2016 to $ 216.6 million . foreign sales increased by $ 56.2 million in 2016 to $ 189.1 million . 39 cost of sales and gross margin replace_table_token_8_th the increase in cost of sales from 2015 to 2016 was primarily due to the increase in sales . the increase in absolute dollars of gross profit from 2015 to 2016 was driven primarily by an increase in sales volume . the decline in gross margin percentage from 2015 to 2016 was primarily due to a decline in margin at individual customers and a shift in customer mix during 2016. research and development year ended change december 30 , 2016 december 25 , 2015 amount % ( dollars in thousands ) research and development $ 6,383 $ 4,813 $ 1,570 32.6 % the increase in research and development expenses from 2015 to 2016 was due to an increase in headcount and consulting expense to support additional projects . selling , general and administrative year ended change december 30 , 2016 december 25 , 2015 amount % ( dollars in thousands ) selling , general , and administrative $ 28,126 $ 24,729 $ 3,397 13.7 % the increase in selling , general , and administrative expenses from 2015 to 2016 was due to a $ 2.1 million increase in share-based compensation expenses , $ 1.5 million in incremental operating expenses from ajax , and $ 1.3 million in acquisition-related transaction costs , partially offset by a $ 1.4 million decrease in initial public offering expenses . initial public offering expenses incurred in 2015 were expensed , while those costs incurred in 2016 in relation to our december ipo were offset against proceeds . interest expense , net year ended change december 30 , 2016 december 25 , 2015 amount % ( dollars in thousands ) interest expense , net $ 4,370 $ 3,831 $ 539 14.1 % 40 the increase in interest expense , net from 2015 to 2016 was due to a $ 12.9 million increase in the average amount borrowed in 2016 as a result of additional borrowings used to fund the ajax acquisition . prevailing interest rates were comparable during those periods . we paid down $ 40.0 million of borrowings in december 2016 using proceeds from our ipo . total borrowings outstanding at december 25 , 2015 , net of debt issuance costs , was $ 62.6 million , compared to $ 37.9 million at december 30 , 2016. other expense ( income ) , net year ended change december 30 , 2016 december 25 , 2015 amount % ( dollars in thousands ) other expense ( income ) , net $ ( 629 ) $ ( 46 ) $ ( 583 ) n/m the change in other expense ( income ) , net from 2015 to 2016 was due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations , principally the singapore dollar , malaysian ringgit , and british pound . additionally , we recorded $ 0.2 million in investment income in 2016 related to our equity method investment . income tax benefit from continuing operations year ended change december 30 , 2016 december 25 , 2015 amount % ( dollars in thousands ) income tax benefit from continuing operations $ ( 649 ) $ ( 3,991 ) $ 3,342 -83.7 % the decrease in the income tax benefit from continuing operations from 2015 to 2016 was primarily due to the valuation allowance against substantially all u.s. federal and state net deferred tax assets which was originally recorded during the fourth quarter of 2015. during the fourth quarter of 2015 , we determined that it is more likely than not that our u.s. entities will not generate sufficient taxable income to offset reversing deductible temporary differences and to fully utilize tax attribute carryforwards .
| 46 liquidity and capital resources we had cash and restricted cash of $ 52.6 million as of december 30 , 2016. our principal uses of liquidity are to fund our working capital needs , satisfy our debt obligations , and purchase new capital equipment . the increase in cash and reduction in long-term debt is primarily due to net proceeds from our initial public offering , or ipo , completed in december 2016 of $ 47.1 million , cash flows from operating activities of $ 27.7 million , partially offset by net payments of debt of $ 25.2 million , cash paid for the acquisition of ajax of $ 17.4 million in april 2016 , and capital expenditures of $ 4.3 million . we believe that our cash , the amounts available under our credit facilities and our cash flows from operations , together with the net proceeds from our ipo , will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months . cash flow analysis the following table sets forth a summary of operating , investing , and financing activities for the periods presented : replace_table_token_13_th operating activities we generated $ 27.7 million of cash from operating activities during 2016 due to net income of $ 16.7 million , non-cash charges of $ 10.8 million , and a net decrease of $ 0.2 million in our net operating assets and liabilities . non-cash charges primarily related to $ 9.5 million in depreciation and amortization , $ 3.2 million in share-based compensation , and $ 0.5 million in amortization of debt issuance cost , offset in part by $ 2.4 million in deferred tax benefit . the decrease in net operating assets and liabilities was primarily due to an increase in accounts payable of $ 36.8 million resulting from increased materials purchased to support higher sales volumes . the decrease in our net operating assets and liabilities was partially offset by an
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38 adjusted ebit return on invested capital adjusted ebit return on invested capital for 2015 was 48.0 % on a trailing four quarters basis , an increase from 36.5 % on the same basis for 2014 and an increase from 34.0 % for 2013 . the increase in adjusted ebit return on invested capital from 2014 to 2015 was due to increases in adjusted ebit offset by decreases in invested capital due in part to foreign currency translation . we manage our operations with the objective of maximizing sales , earnings and cash flow over time . doing so requires that we successfully balance our growth , profitability and working capital and other investments to support sustainable , long-term financial performance . we use adjusted ebit return on invested capital as a performance measure in evaluating our operating results , in making operating and investment decisions and in balancing the growth and profitability of our operations . generally , we favor those businesses and investments that provide a high return on invested capital . operating segment overview— specialty construction chemicals ( scc ) following is an overview of the financial performance of scc for the years ended december 31 , 2015 , 2014 , and 2013 . net sales—scc 39 sales were $ 694.3 million for 2015 , a decrease of 4.4 % compared with the prior year . the sales decrease was primarily due to unfavorable currency translation ( -12.7 % ) partially offset by improved pricing ( +4.7 % ) and higher sales volumes ( +3.6 % ) . unfavorable currency translation affected sales of both the cement and concrete product groups with the largest effects in europe and latin america as the dollar strengthened against the euro , the real , the bolivar and other currencies . sales volumes increased in both product groups in north america and asia pacific and in europe , due to increased demand . cement volumes decreased in europe due to weaker demand and sales decline in eastern europe and the baltics . pricing improvements in venezuela partially offset unfavorable currency translation in that country . sales in the emerging regions which represented approximately 44 % of sales for 2015 decreased 4.3 % due to lower sales in eastern europe and latin america , primarily due to unfavorable currency translation . excluding the impact of currency , sales increased double digits in the middle east and emerging asia . sales were $ 726.3 million for 2014 , an increase of 5.6 % compared with the prior year . the sales increase was due to higher sales volumes ( +6.3 % ) and improved pricing ( +2.7 % ) , partially offset by unfavorable currency translation ( -3.4 % ) . sales volumes benefited from increased concrete and cement demand primarily in north america and asia pacific . concrete admixtures sales volumes increased 6.0 % , driven by increased demand in asia pacific , north america and latin america . cement additives sales volumes increased 6.9 % , primarily due to increased demand in north america , europe and asia pacific . prices improved in latin america , offsetting unfavorable currency movements , and to a lesser extent in other regions . we generally are able to increase prices over time to reflect improved value of our products and in response to higher raw materials costs or unfavorable currency movements . segment operating income ( soi ) and margin—scc gross profit was $ 244.3 million for 2015 , a decrease of 0.2 % compared with the prior year . adjusted gross margin was 35.2 % compared with 33.7 % for the prior year , primarily due to improved pricing in venezuela , sales growth due to increased demand in north america and asia pacific and lower raw material costs . segment operating income was $ 83.7 million for 2015 , an increase of 15.6 % compared with the prior year . segment operating margin increased to 12.1 % , an improvement of 210 basis points compared with the prior year . these increases primarily resulted from volume growth in north america , asia pacific and europe in addition to lower raw material costs , productivity gains and lower operating expenses . gross profit was $ 244.8 million for 2014 , a decrease of 7.7 % compared with the prior year . adjusted gross margin was 33.7 % compared with 33.0 % for the prior year . during 2014 we integrated our concrete production management systems product line into the scc operating segment and reclassified the cost of certain of its employees from cost of goods sold to operating expenses to be consistent with the classification of similar employee costs in the scc operating segment . this change increased adjusted gross margin by approximately 60 basis points , decreased segment operating expenses by the same amount , and had no effect on segment operating income . 40 segment operating income was $ 72.4 million for 2014 , an increase of 15.3 % compared with the prior year . segment operating margin for 2014 increased to 10.0 % , an improvement of 90 basis points compared with the prior year . this increase was primarily due to improved operating leverage and good expense control . operating segment overview— specialty building materials ( sbm ) following is an overview of the financial performance of sbm for the years ended december 31 , 2015 , 2014 , and 2013 . net sales—sbm sales were $ 398.1 million for 2015 , an increase of 5.0 % compared with the prior year . the sales increase was due to higher sales volumes ( +8.5 % ) and improved pricing ( +1.1 % ) , partially offset by unfavorable currency translation ( -4.6 % ) . sales volumes increased primarily due to increases in the residential building and specialty construction product groups , driven by favorable market conditions in north america . the specialty construction product group continued to expand its distribution in emerging regions but the emerging regions ' increased sales volumes were offset by weakness in china and mexico . story_separator_special_tag sales volumes in building envelope increased ( +4.0 % ) but were more than offset by unfavorable currency translation ( -5.1 % ) . building envelope experienced sales volume growth in north america , eastern europe and the middle east . sales were $ 379.3 million for 2014 , an increase of 2.5 % compared with the prior year . the sales increase was due to improved pricing ( +2.0 % ) and higher sales volumes ( +0.8 % ) , partially offset by unfavorable currency translation ( -0.3 % ) . sales volumes increased primarily due to strong commercial waterproofing demand and increased fire protection sales as a result of improved distribution of our fire protection products in the emerging regions . sales volumes declined approximately 15 % in the residential building products group in north america during a transition in our channel partner strategy and business model during the year . we added new channel partners , revised the design of our channel partner compensation program and made other changes to our channel marketing program . since completing these changes , sales volumes in the residential building products group have improved significantly . 41 segment operating income ( soi ) and margin—sbm gross profit was $ 179.5 million for 2015 , an increase of 13.6 % compared with the prior year . adjusted gross margin was 45.1 % compared with 41.7 % for the prior year , primarily due to improved product mix , improved pricing and lower raw material costs . segment operating income was $ 99.6 million for 2015 , an increase of 31.6 % compared with the prior year . segment operating margin for 2015 increased to 25.0 % , an improvement of 500 basis points compared to prior year . these increases were primarily due to the revenue growth driven by the residential building product group ( +34 % ) and specialty construction product line ( +13 % ) in addition to lower raw material costs , productivity gains and lower operating costs . gross profit was $ 158.0 million for 2014 , an increase of 1.7 % compared with the prior year . adjusted gross margin was 41.7 % compared with 42.0 % for the prior year . the decline in adjusted gross margin was due to lower margins in certain growth markets , partially offset by improved adjusted gross margin in north america . segment operating income was $ 75.7 million for 2014 , a decrease of 1.6 % compared with the prior year . segment operating margin for 2014 decreased to 20.0 % , a decrease of 80 basis points . the decrease in segment operating income was primarily due to the transition in our channel partner strategy and business model in the residential building products group in north america , partially offset by growth in our building envelope and specialty construction product groups . 42 operating segment overview— darex packaging technologies ( darex ) following is an overview of the financial performance of darex for the years ended december 31 , 2015 , 2014 , and 2013 . net sales—darex sales were $ 326.2 million for 2015 , a decrease of 13.0 % compared with the prior year . the sales decrease was due unfavorable currency translation ( -12.9 % ) and lower sales volumes ( -4.0 % ) , partially offset by improved pricing ( +3.9 % ) . sales volumes decreased primarily in asia pacific and latin america due to lower demand for our coatings and closures products , partially offset by higher coatings demand in europe and north america from new product technology . sales volumes in sealants were lower due to a shift from three-piece to two-piece cans . we anticipate that market growth will offset this technology conversion in 2016. we implemented productivity initiatives which improved pricing , particularly in venezuela to offset unfavorable currency translation in that country . sales were $ 374.8 million for 2014 , a decrease of 2.4 % compared with the prior year . the sales decrease was due to unfavorable currency translation ( -2.1 % ) and lower sales volumes ( -1.4 % ) , partially offset by improved pricing ( +1.1 % ) . sales volumes decreased primarily in asia pacific and latin america due to lower demand for our sealant and closures products . we implemented price increases , particularly in latin america to offset unfavorable currency translation in that region . we generally are able to increase prices over time to reflect improved value of our products and in response to higher raw materials costs or unfavorable currency movements . 43 segment operating income ( soi ) and margin—darex gross profit was $ 113.9 million for 2015 , a decrease of 5.9 % compared with the prior year . adjusted gross margin was 34.9 % compared with 32.3 % for the prior year . the increase was primarily due to lower manufacturing costs , 230 basis points , and improved pricing , partially offset by lower sales volume . segment operating income was $ 72.8 million for 2015 , a decrease of 1.8 % compared with the prior year . segment operating margin increased to 22.3 % , an increase of 250 basis points . operating income decreased due to a decline in gross profit , partially offset by lower operating expenses and the favorable impact from the sale of an operating asset for $ 2.5 million . gross profit was $ 121.0 million for 2014 , a decrease of 3.9 % compared with the prior year . adjusted gross margin was 32.3 % compared with 32.8 % for the prior year . gross profit and adjusted gross margin declined due to lower sales volumes , higher manufacturing costs , including higher raw materials costs , which had a negative effect of approximately 20 basis points , and currency translation . segment operating income was $ 74.1 million for 2014 , a decrease of 6.9 % compared with the prior year . segment operating margin decreased to 19.8 % , or 90 basis points .
| other pension related costs including annual mark-to-market adjustments and actuarial gains and losses are excluded from adjusted ebit . these amounts are not used by management to evaluate the performance of the gcp businesses and significantly affect the peer-to-peer and period-to-period comparability of our financial results . mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of the gcp businesses . nm—not meaningful 35 gcp overview following is an overview of our financial performance for the years ended december 31 , 2015 , 2014 , and 2013 . during these periods , we benefited from increased construction spending in north america , and to a lesser extent , increased construction spending in asia pacific . sales volumes in europe and latin america have been weaker , particularly in latin america where sales volumes have decreased most recently . we also benefited from relatively stable raw material costs through 2014 , and from declining raw material costs in 2015 , which contributed to the increase in gross margin in 2015. currency changes , particularly the stronger u.s. dollar and weaker emerging region currencies , have had a significant negative effect on sales and earnings during this time period . we generally expect these demand trends to continue through 2016. we also expect currency changes , particularly in the emerging regions , to continue to have a negative effect on sales and earnings through 2016. net sales and adjusted gross margin the following tables identify the year-over-year increase or decrease in sales attributable to changes in sales volume and or mix , product price , and the impact of currency translation . replace_table_token_14_th sales for 2015 decreased 4.2 % overall compared with the prior year . the sales decrease was due to unfavorable currency translation ( -10.3 % ) partially offset by improved pricing ( +3.2 % ) and higher sales volumes ( +2.9 % ) . unfavorable currency translation against the dollar , primarily in europe ,
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· nonrefundable upfront license fees that are received in exchange for the transfer of our technology to licensees , for which no further obligations to the licensee exist with respect to the basic technology transferred , are recognized as revenue on the earlier of when payments are received or collections are assured . · nonrefundable upfront license fees that are received in connection with agreements that include time-based payments are , together with the time-based payments , deferred and amortized ratably over the estimated research period of the license . · milestone payments , which are contingent upon the achievement of certain research goals , are recognized as revenue when the milestones , as defined in the particular agreement , are achieved . · direct and indirect costs reimbursed are offset against r & d costs . the effect of any change in revenues from technology license and development agreements would be reflected in revenues in the period such determination was made . historically , no such adjustments have been made . estimates of expenses our research and development agreements with third parties provide for an estimate of our expenses and costs , which are variable and are based on the actual services performed by the third party . we estimate the aggregate amount of the expenses based upon the projected amounts that are set forth in the agreements , and we accrue the expenses for which we have not yet been invoiced or prepay the expenses that have been invoiced but the services have not yet been performed . in estimating the expenses , we consider , among other things , the following factors : · the existence of any prior relationship between us and the third party provider ; · the past results of prior research and development services performed by the third party provider ; and · the scope and timing of the research and development services set forth in the agreement with the third party provider . after the research services are performed and we are invoiced , we make any adjustments that are necessary to accurately report research and development expense for the period . income taxes we account for income taxes in accordance with an asset and liability approach requiring the recognition of deferred tax assets and liabilities for the expected tax consequences of events that have been recognized in the financial statements or tax returns . deferred tax assets and liabilities are recorded without consideration as to their ability to be realized . the deferred tax asset includes net operating loss and credit carryforwards , and the cumulative temporary differences related to stock-based compensation . the portion of any deferred tax asset , for which it is more likely than not that a tax benefit will not be realized , must then be offset by recording a valuation allowance against the asset . 26 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 future taxable income and tax planning strategies in making this assessment . management believes it is more likely than not that we will not realize the deferred tax assets in excess of deferred tax liabilities , and as such , a full valuation allowance is maintained against the net deferred tax assets . while we believe that our tax positions are fully supportable , there is a risk that certain positions could be challenged successfully . in these instances , we look to establish reserves . if we determine that a tax position is more likely than not of being sustained upon audit , based solely on the technical merits of the position , we recognize the benefit . we measure the benefit by determining the amount that has likelihood greater than 50 % of being realized upon settlement . we presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information . we regularly monitor our tax positions , tax assets and tax liabilities . we reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit or derecognize a previously recorded tax benefit when ( i ) there is a completion of a tax audit , ( ii ) there is a change in applicable tax law including a tax case or legislative guidance , or ( iii ) there is an expiration of the statute of limitations . significant judgment is required in accounting for tax reserves . stock-based compensation we measure all employee stock-based compensation awards using a fair value method and record such expense in our consolidated financial statements . such expense is amortized on a straight line basis over the requisite service period of the award . we estimate the grant date fair value of stock options using the black-scholes option-pricing model which requires the input of highly subjective assumptions . these assumptions include estimating the expected term of the award , the estimated volatility of our stock price over the expected term and the probability of achievement of any performance goals that may be required to be achieved in order for the stock options to vest . changes in these assumptions and in the estimated forfeitures of stock option awards may materially affect the amount of stock-based compensation recognized in our consolidated statements of operations . story_separator_special_tag in connection with any performance goals that may be required to be achieved in order for the stock options to vest , our management reviews the specific goals of such plans to determine if such goals have been achieved or are probable that they will be achieved . if the goals have been achieved or are probable of being achieved , then the amount of compensation expense determined on the date of grant related to those specific goals is charged to compensation expense at such time . patent costs we expense patent related costs as incurred as research and development costs in the consolidated statements of operations . prior to the fourth quarter of fiscal 2015 , certain patent related costs were capitalized . we concluded , based upon historical write offs of patent costs , that the future beneficial value of our patent assets were uncertain and as such made a change to our accounting policy . this change is considered a change in estimate for accounting purposes and is reflected on a prospective basis beginning in the fourth quarter of fiscal 2015 . 27 accordingly , we incurred approximately $ 508,205 expense impact from expensing patent-related assets during the fourth quarter of fiscal 2015 as a result of this change in estimate and our basic and diluted earnings per share for fiscal 2015 decreased by $ 0.03. we will apply this approach prospectively for future patent costs . goodwill and intangible assets goodwill represents the excess of purchase price over the fair value of net assets acquired by the company . goodwill is not amortized , but assessed for impairment on an annual basis or more frequently if impairment indicators exist . the impairment model prescribes a two-step method for determining impairment . the first step compares a reporting unit 's fair value to its carrying amount to identify potential goodwill impairment . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , the second step of the impairment test must be completed to measure the amount of the reporting unit 's goodwill impairment loss , if any . step two requires an assignment of the reporting unit 's fair value to the reporting unit 's assets and liabilities to determine the implied fair value of the reporting unit 's goodwill . the implied fair value of the reporting unit 's goodwill is then compared with the carrying amount of the reporting unit 's goodwill to determine the goodwill impairment loss to be recognized , if any . for the fiscal year ended june 30 , 2015 , the company determined that there was impairment to goodwill and recorded an adjustment to goodwill in the amount of $ 8,121,966. intangible assets include in-process research and development ( ipr & d ) of pharmaceutical product candidates . ipr & d are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist . if the associated research and development effort is abandoned , the related assets will be written-off and the company will record a non-cash impairment loss on its consolidated statement of operations . for those compounds that reach commercialization , the ipr & d assets will be amortized over their estimated useful lives . for the year ended june 30 , 2015 , the company determined that there was no impairment to ipr & d . warrant liability and stock rights the fair value of warrant liability and stock rights are estimated using a monte carlo valuation model . the unobservable input used by the company is the estimation of the likelihood of a reset occurring on the warrants and the anti-dilutive rights . these estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions and anti-dilutive rights are based on numerous factors , including the remaining term of the financial instruments and the company 's overall financial condition . changes in these assumptions may materially affect the amount of the warrant liability recorded on our consolidated balance sheet . 28 impairment of intangible assets we assess the impairment in value of intangible assets at least annually or sooner if circumstances indicate that their carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant negative industry trends ; significant underutilization of the assets ; significant changes in how we use the assets or its plans for their use ; and changes in technology and the appearance of competing technology . if a triggering event occurs and if our review determines that the future undiscounted cash flows related to the groups , including these assets , will not be sufficient to recover their carrying value , we will reduce the carrying values of these assets down to its estimate of fair value . 29 liquidity and capital resources overview for the fiscal year ended june 30 , 2015 , net cash of $ 7,344,696 was used in operating activities primarily due to a net loss of $ 18,063,785 which was reduced by non-cash expenses of $ 11,817,748 and increased by changes in operating assets and liabilities in the amount of $ 1,098,659. the $ 1,098,659 change in operating assets and liabilities was the result of a decrease in accounts payable and accrued expenses in the amount of $ 1,176,268 due to the timing of expenses and payments , which was partially offset by an increase in deferred revenue of $ 75,000. during the fiscal year ended june 30 , 2015 , cash used by investing activities amounted to $ 259,587 , which was related to capitalized patent costs and fixed assets purchased . cash provided by financing activities during the fiscal year ended june 30 , 2015 amounted to $ 4,827,569 , as a result of the issuance of common stock , preferred stock and warrants .
| in addition , during the fiscal years ended june 30 , 2015 and 2014 , 556,061 and 30,924 options , respectively , expired or were forfeited . stock-based compensation for the fiscal year ended june 30 , 2015 was lower than the fiscal year ended june 30 , 2014 primarily due to options issued during the fiscal year ended june 30 , 2015 had a lower black-scholes value than options issued during the fiscal year ended june 30 , 2014 combined with the cancellation of options for terminated employees . · delaware franchise tax increased for the fiscal year ended june 30 , 2015 due to increase in the computed tax calculation resulting from the reverse stock split in during the fiscal year ended june 30 , 2014 and acquisition of fabrus , inc. in may 2014 . · investor relations fees for the fiscal year ended june 30 , 2015 was lower than for the fiscal year ended june 30 , 2014 primarily as a result of an investor relations program started in october 2013 , the termination of an investor relations consulting agreement in september 2013 and a special meeting of stockholders held in august 2013 , which were not incurred during the current year . · consulting fees for the fiscal year ended june 30 , 2015 were lower than for the fiscal year ended june 30 , 2014 primarily due to certain financial advisory agreements entered into during the fiscal year ended june 30 , 2014 . · depreciation and amortization for the fiscal year ended june 30 , 2015 was lower than for the fiscal year ended june 30 , 2014 primarily as a result of abandoning certain patents and the change in accounting estimate to expense patent costs as incurred in the fourth quarter of fiscal year 2015 . · other general and administrative expenses for the fiscal year ended june 30 , 2015 were higher than for the fiscal year ended june 30 , 2014 primarily due to an increase in cash director fees . we expect cash-based general and administrative expenses to
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in 2015 , we continued to take steps to position ourselves for sustainable value creation over the long term . we : successfully completed the integration of big fish games which added $ 413.7 million of net revenue and $ 108.0 million of adjusted ebitda ; set all time-records for virtually every metric for our kentucky oaks and kentucky derby week event which resulted in $ 6.0 million of incremental adjusted ebitda ; grew twinspires.com handle by 7.5 % , compared to industry growth of 1.2 % which contributed to the $ 6.3 million of incremental adjusted ebitda ; grew adjusted ebitda within our casino businesses organically in every market but one and completed the 25 % equity investment in sch which resulted in $ 7.4 million of incremental adjusted ebitda ; and remained focused on improving our racing economics outside of kentucky oaks and kentucky derby week which resulted in $ 4.7 million of incremental adjusted ebitda as we : maintained our focus on cost reductions across all properties and our maintenance capital and capital expenditure discipline ; and benefited from the elimination of racing losses at calder as a result of an agreement with the stronach group . we accomplished these initiatives while returning $ 155.5 million to shareholders through dividends and share repurchases . as we look to 2016 and beyond , we remain focused on positioning ourselves for long-term sustainable growth while continuing to deliver strong financial results . our free cash flow and strong balance sheet support our primary focus on organic growth and other strategic acquisitions and investment opportunities which create value for our shareholders . our operations we manage our operations through six operating segments : racing , casinos , twinspires , big fish games , other investments and corporate . see `` item 1. business '' for more information on our operating segments and a description of our competition and government regulations and potential legislative changes that affects our business . our critical accounting policies our financial statements have been prepared in conformity with u.s. gaap and are based upon certain critical accounting policies . these policies may require management to make estimates , judgments and assumptions that we believe are reasonable based on our historical experience , contract terms , observance of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period . actual results may differ from those initial estimates . our critical accounting policies are : revenue recognition ; goodwill and indefinite intangible assets ; property and equipment ; and income tax expense . our significant accounting policies and recently adopted accounting policies are more fully described in note 1 to the consolidated financial statements included in item 8 . `` financial statements and supplementary data '' of this annual report on form 10-k. revenue recognition racing and twinspires : our racing and twinspires revenue and income are influenced by our racing calendar . therefore , revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable 39 with results for the corresponding period of the previous year . we historically have had fewer live racing days during the first quarter of each year , and the majority of our live racing revenue occurs during the second quarter with the running of the kentucky oaks and kentucky derby . pari-mutuel revenue is recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state 's racing regulatory body . other operating revenue such as admissions , programs and concession revenue are recognized once delivery of the product or service has occurred . racing and twinspires revenue is generated by pari-mutuel wagering on live and simulcast racing content . live racing handle includes patron wagers made on live races at our racetracks and also wagers made on imported simulcast signals by patrons at our racetracks during live meets . import simulcasting handle includes wagers on imported signals at our racetracks when the respective tracks are not conducting live racing meets , at our otbs and through our adw providers throughout the year . export handle includes all patron wagers made on live racing signals sent to other tracks , otbs and adw providers . advance deposit wagering consists of patron wagers through an advance deposit account . we retain as revenue a pre-determined percentage or commission on the total amount wagered , and the balance is distributed to the winning patrons . the gross percentages earned in 2015 approximated 19 % of handle for twinspires and 11 % of handle for racing . casinos casinos revenue represents net casino wins which is the difference between casino wins and losses . other operating revenue , such as concession revenue , is recognized once delivery of the product or service has occurred . big fish games our big fish games segment derives its revenue from the sale of in-app purchases within our free-to-play games and sales of our premium paid games . we offer social casino and casual and mid-core free-to-play games that customers can play at no cost . customers can purchase virtual currency that can be used to buy virtual items to enhance the game playing experience . these games are distributed primarily through third party mobile platform providers , including but not limited to , apple and google . we receive and utilize reports from these third party mobile platform providers which break down the virtual goods purchased in our casual mid-core and casino free-to-play games for a given time period . story_separator_special_tag the proceeds from the sale of virtual goods are initially recorded as deferred revenue and recognized as revenue when persuasive evidence of an arrangement exists , the service has been provided to the user , the price paid by the user is fixed or determinable and collectability is reasonably assured . determining whether and when some of these criteria have been satisfied requires judgments that may have a significant impact on the timing and amount of revenue we report in each period . for the purpose of determining when the service has been provided to the player , we have determined that an implied obligation exists to the paying user to continue to make available the purchased virtual goods within the game over the estimated life of the virtual goods . for casino games , the life of the virtual goods is estimated to be the time period over which virtual goods are consumed , approximating three days . for all other casual games , the average playing period of paying players of approximately four months represents our best estimate of the average life of virtual goods . the proceeds from the sale of virtual goods are recorded as deferred revenue and recognized as revenue over the estimated life of the virtual goods . premium game revenue is derived from our pc subscription business , the big fish game club , and from the sale of individual games on pc , mac and mobile devices . subscribers receive a game credit each month with subscription . the value of the game credit is recognized when a customer redeems the game credit . we record breakage revenue related to outstanding premium game credits . for credits that are subject to expiration , breakage revenue is recorded when the credits have legally expired . breakage revenue is recorded for game credits with no legal expiration when we have determined the likelihood of redemption is remote based on historical game credit redemption patterns . we estimate revenue from digital storefronts , such as apple and google , in the current period when reasonable estimates of these amounts can be made . the digital storefronts provide reliable interim preliminary sale reporting data within a reasonable time frame following the end of each month which , when validated against our internal data , allows us to make reasonable estimates of revenue and therefore to recognize revenue during the reporting period . determination of the appropriate amount of revenue recognized involves judgments and estimates that we believe are reasonable , but it is possible that actual results may differ from our estimates . when we receive the final reports , to the extent not received within a reasonable time frame following the end of each month , we record any differences between estimated revenue and actual revenue in the reporting period when we determine the actual amounts . historically , the revenue on the final revenue report has not differed significantly from the reported revenue for the period . we evaluate our digital storefront agreements in order to determine whether or not we are acting as the principal or as an agent when selling our games which we consider in determining if revenue should be reported gross or net . we primarily use digital storefronts for distributing our casino and casual free-to-play games . key indicators that we evaluate in order to reach this determination include : 40 the terms and conditions of our contracts with the digital storefronts ; the party responsible for billing and collecting fees from the end-users , including the resolution of billing disputes ; whether we are paid a fixed percentage of the arrangement 's consideration or a fixed fee for each game ; the party which sets the pricing with the end-user , has the credit risk and provides customer support ; and the party responsible for the fulfillment of the game and that determines the specifications of the game . based on the evaluation of the above indicators , we have determined that we are generally acting as a principal and are the primary obligor to end-users for games distributed through digital storefronts ; therefore , we recognize revenue related to these arrangements on a gross basis . goodwill and indefinite intangible assets we perform an annual review for impairment of goodwill and indefinite-lived intangible assets as of march 31 of each fiscal year , or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable . adverse industry or economic trends , lower projections of profitability , or a sustained decline in our market capitalization , among other items , may be indications of potential impairment issues which are triggering events requiring the testing of an asset 's carrying value for recoverability . goodwill is allocated among and evaluated for impairment at the reporting unit level which is defined as an operating segment or one level below an operating segment . goodwill and intangible assets can or may be required to be tested using a two-step impairment test . we assess qualitative factors to determine whether it is necessary to complete the two-step impairment test using a more likely than not criteria . if an entity believes it is more likely than not that the fair value of a reporting unit is greater than its carrying value , including goodwill , the two-step test can be bypassed . qualitative factors include macroeconomic conditions , industry and market conditions , cost factors , overall financial performance , among others . these factors require significant judgment and estimates , and application of alternative assumptions could produce significantly different results . evaluations of possible impairment utilizing the two-step approach require us to estimate , among other factors , forecasts of future operating results , revenue growth , ebitda margin , tax rates , capital expenditures , depreciation , working capital , weighted average cost of capital , long-term growth rates , risk premiums , terminal values and fair market values of our reporting units and assets .
| our operating income increased $ 33.2 million in 2015 driven by $ 18.9 million from the full year impact of the big fish games acquisition , $ 23.0 million from our racing and twinspires segments as a result of a successful kentucky oaks and kentucky derby week and the effect of a strong triple crown season , $ 9.5 million from our casinos segment as a result of revenue growth and operational cost savings at most of our casino properties , $ 6.4 million of big fish games 2014 transaction expense that did not recur in 2015 and $ 5.5 million of luckity and capital view casino & resort ( `` capital view '' ) non-cash impairment charges in 2014 that did not recur in 2015. partially offsetting these improvements were $ 11.6 million of calder exit costs , $ 17.9 million of non-cash big fish games acquisition-related charges associated with the earnout and deferred founder liabilities fair value adjustments , and $ 0.6 million of other expense . our net income increased $ 18.8 million in 2015 driven by a $ 33.2 million increase in operating income , a $ 4.9 million increase in income from our equity investments , and a $ 5.8 million gain from the sale of our remaining hrtv investment . partially offsetting these increases were $ 7.8 million of additional interest expense , $ 11.5 million of additional income tax expense associated with the increase in income from continuing operations , $ 5.2 million of additional income tax expense as a result of certain non-deductible big fish games acquisition expense , and $ 0.6 million of other expense . year ended december 31 , 2014 , compared to the year ended december 31 , 2013 our total net revenue increased $ 33.2 million in 2014 driven by $ 42.2 million from the oxford acquisition , $ 13.9 million from the impact of the big fish games acquisition , $ 5.9 million from our twinspires segment due to a 3.3 % increase in handle and the return of illinois wagering which temporarily ceased during 2013. partially offsetting these increases were $ 11.1 million of revenue declines at our other casino properties due to
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total assets increased $ 235 million , or 8 % , to $ 3.20 billion at december 31 , 2018 from $ 2.96 billion at december 31 , 2017 , primarily as a result of loan growth . we continue to focus on the residential mortgage market , construction , and commercial real estate lending . net loans increased $ 302 million , or 12 % , to $ 2.90 billion at december 31 , 2018 from $ 2.59 billion at december 31 , 2017. our net income increased $ 25 million , or 67 % , to $ 63 million for the year ended december 31 , 2018 , primarily as a result of income from loan growth outpacing corresponding increases in expenses . basis of presentation adjustments to prior years ' financial statements in the second quarter of 2018 , the company corrected the classification of commitment fees , net of direct loan origination costs , earned on construction loans and other lines of credit to commercial customers in its consolidated statements of income to the financial statement caption , interest and fees on loans , within interest income , which were previously reported in service charges and fees , within non-interest income . the company has made the correction to conform with u.s. gaap . as a result , prior years ' financial statements included herein have been adjusted from the amounts previously reported . 48 the amount of the adjustment to decrease service charges and fees , and increase interest and fees on loans was $ 2,088,000 and $ 1,153,000 for the year ended december 31 , 2017 and 2016 , respectively . there was no change to the reported net income or income per share , basic and diluted , as previously reported as a result of this immaterial correction . management has evaluated the materiality of these corrections on its previously filed financial statements from a quantitative and qualitative perspective , and has concluded that these corrections were not material to the prior years as previously reported and the quarterly periods within those years . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap and with general practices within the financial services industry . application of these principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances . these assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent , objective sources . we evaluate our estimates on an ongoing basis . use of alternative assumptions may have resulted in significantly different estimates . actual results may differ from these estimates . we have identified the following accounting policies and estimates that , due to the difficult , subjective or complex judgments and assumptions inherent in those policies and estimates , and the potential sensitivity of our consolidated financial statements to those judgments and assumptions , are critical to an understanding of our financial condition and results of operations . we believe that the judgments , estimates and assumptions used in the preparation of our consolidated financial statements are appropriate . allowance for loan losses the allowance for loan losses is a valuation allowance for probable incurred credit losses , increased or decreased by the provision for loan losses and decreased by charge offs less recoveries . loan losses are charged against the allowance for loan losses when a loan is considered partially or fully uncollectible , or has such little value that continuance as an asset is not warranted . subsequent recoveries , if any , are credited to the allowance for loan losses . management estimates the allowance for loan losses balance using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors . allocations of the allowance for loan losses may be made for specific loans , but the entire allowance for loan losses is available for any loan that , in management 's judgment , should be charged off . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are individually classified as impaired . the general component covers all other loans and is based on historical loss experience adjusted for general economic conditions and other qualitative factors by portfolio segment . construction loans , commercial real estate loans and commercial and industrial lines of credit are individually evaluated for impairment based upon a quarterly systematic review utilizing among other components our internal risk rating system , similar to those employed by banking regulators . if a loan is impaired , a portion of the allowance for loan losses is allocated so that the loan is reported , net , at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the collateral or operations of collateral . large groups of smaller balance homogeneous loans , such as other consumer and residential real estate loans , are 49 collectively evaluated for impairment , and accordingly , are not separately identified for impairment disclosures . loans which have been modified resulting in a concession , and where the borrower is experiencing financial difficulties , are considered troubled debt restructurings . troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan 's effective rate at inception . if a troubled debt restructuring is considered to be a collateral dependent loan , the loan is reported , net , at the fair value of the collateral . story_separator_special_tag for troubled debt restructurings that subsequently default , the company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired . the general reserve component covers all non-impaired loans and is based on historical loss experience adjusted for qualitative factors . the historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the company over the most recent three-year period . this actual loss experience is supplemented with economic and other factors based on the risks present for each portfolio segment . these economic and other risk factors include consideration of the following : levels of and trends in delinquencies and impaired loans ; levels of and trends in charge offs and recoveries ; trends in volume and terms of loans ; effects of any changes in risk selection and underwriting standards ; other changes in lending policies , procedures , and practices ; experience , ability , and depth of lending management and other relevant staff ; seasoning of loans where the borrower had limited credit history at origination ; national and local economic trends and conditions ; industry conditions ; and effects of changes in credit concentrations . the degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value , the interest rate and the borrower 's ability to repay in an orderly fashion . economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans . weak economic trends indicate that the borrowers ' capacity to repay their obligations may be deteriorating . the classes identified by the company in the residential real estate portfolio segment consist of residential first mortgages and residential second mortgages . our residential first mortgages are further stratified by region and product . adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans . trends in vacancy rates of commercial properties impact the credit quality of these loans . high vacancy rates reduce operating revenues and the ability for the properties to produce sufficient cash flow to service debt obligations . the segmentation classes identified by the company in the commercial real estate portfolio consist of retail , multifamily , offices , hotels/single-room occupancy hotels ( `` sros '' ) , industrial , and other further stratified by region . the commercial lines of credit portfolio is comprised of loans to businesses such as sole proprietorships , partnerships , limited liability companies and corporations for the daily operating needs of the business . the risk characteristics of these loans vary based on the borrowers ' business and industry as repayment is typically dependent on cash flows generated from the underlying business . these loans may be secured by real estate or other assets or may be unsecured . the segmentation classes in the commercial lines of credit portfolio consist of private banking loans broken down between secured or unsecured and commercial & industrial ( `` c & i '' ) lending . private banking is further stratified by region . the construction loan portfolio is comprised of loans to builders and developers primarily for residential , commercial and mixed-use development . in addition to general commercial real estate risks , construction loans have additional risk of cost overruns , market deterioration during construction , lack of permanent financing and no operating history . the portfolio is stratified by region and by product . 50 fair value of financial instruments 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 . we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . for example , debt securities available for sale are carried at fair value each period . other financial instruments , including substantially all of our loans held for sale , are not carried at fair value each period but may require nonrecurring fair value adjustments due to application of lower-of-cost-or-market accounting . we also disclose our estimate of fair value for financial instruments not recorded at fair value , such as loans held for investment or issuances of long-term debt . 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 nominal 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 . when developing fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . when available , we use quoted prices in active markets to measure fair value . if quoted prices in active markets are not available , fair value measurement is based upon models that use primarily market-based or independently sourced market parameters , such as interest rate yield curves and prepayment speeds . in certain cases , when market observable inputs for model-based valuation techniques are not readily available , we are required to make judgments about assumptions market participants would use to estimate fair value . significant judgment is also required to determine whether certain assets measured at fair value are classified as level 2 or level 3 of the fair value hierarchy . when making this judgment , we consider available information , including observable market data , indications of market liquidity and orderliness , and our understanding of the valuation techniques and significant inputs used .
| the average rate we paid on interest-bearing deposits increased 13 basis points to 0.97 % for the year ended december 31 , 2017 from 0.84 % for the year ended december 31 , 2016. our average balance of 64 interest-bearing deposits increased $ 442 million , or 32 % , to $ 1.81 billion for the year ended december 31 , 2017 from $ 1.37 billion for the year ended december 31 , 2016. the average rate paid on borrowings increased 83 basis points to 2.22 % for the year ended december 31 , 2017 from 1.39 % for the year ended december 31 , 2016 due to the increase in subordinated debt and increase in borrowing rates at the fhlb . our average balance of borrowings increased $ 38 million , or 12 % , to $ 355 million for the year ended december 31 , 2017 from $ 317 million for the year ended december 31 , 2016. net interest income . net interest income increased $ 23 million , or 31 % , to $ 99 million for the year ended december 31 , 2017. our net interest rate spread increased 2 basis points to 4.01 % for the year ended december 31 , 2017 from 3.99 % for the year ended december 31 , 2016 , while our net interest margin increased 5 basis points to 4.13 % for the year ended december 31 , 2017 from 4.08 % for the year ended december 31 , 2016. the average yield we earned on interest earning assets increased 26 basis points to 5.19 % and the average rate we paid on interest-bearing liabilities increased by 24 basis points to 1.18 % . provision for loan losses . our provision for loan losses was $ 2.7 million for the year ended december 31 , 2017 compared to $ 1.3 million for the year ended december 31 , 2016. the provisions recorded resulted in an allowance for loan losses of $ 18 million , or 0.71 % of total loans at december 31 , 2017 , compared to $ 15 million , or 0.74 % of total loans at december 31 , 2016. higher provision expense was warranted during 2017 due to our
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replace_table_token_1_th cost of revenue cost of revenue for our instruments and consumables includes cost from the manufacturer , raw material parts costs and associated freight , shipping and handling costs , contract manufacturer costs , salaries and other personnel costs , overhead and other direct costs related to those sales recognized as product revenue in the period . cost of other revenue consists of salaries and other personnel costs and costs related to warranties and other costs of servicing equipment at customer sites . research and development expenses research and development expenses consist of salaries and other personnel costs , stock-based compensation , research supplies , third-party development costs for new products , materials for prototypes , and allocated overhead costs that include facility and other overhead costs . we have made substantial investments in research and development since our inception , and plan to continue to make investments in the future . our research and development efforts have focused primarily on the tasks required to support development and commercialization of new and existing products . we believe that our continued investment in research and development is essential to our long-term competitive position . selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and other personnel costs , and stock-based compensation for our sales and marketing , finance , legal , human resources and general management , as well as professional services , such as legal and accounting services . 56 story_separator_special_tag a loss on debt extinguishment of $ 1.3 million was recognized during the year ended december 31 , 2019 resulting from the decision to pay-off the credit and security agreement with midcap financial trust prior to its maturity date . similarly , we recognized a loss of $ 0.3 million for the same period in 2018 when we paid-off the western alliance lsa . liquidity and capital resources since our inception , we have incurred net losses and negative cash flows from operations . we incurred net losses of $ 29.8 million , and $ 18.5 million , and used $ 29.5 million and $ 19.9 million of cash from our operating activities for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 102.6 million and cash and cash equivalents of $ 17.3 million . sources of liquidity prior to august 2018 , we financed our operations principally through private placements of our convertible preferred stock , borrowings from credit facilities , and revenue from our commercial operations . in august 2018 , we completed the ipo , in which we sold 3,864,000 units ( each unit consisting of one share of common stock and one warrant to purchase one share of our common stock ) at a public offering price of $ 6.125 per unit for net cash proceeds of $ 19.4 million after deducting underwriters ' discounts and commissions of $ 4.3 million . in march 2019 , we entered into a common stock purchase agreement , or the aspire purchase agreement , with aspire capital fund , llc , or aspire capital , which provides that , subject to the terms , conditions and limitations thereto , aspire capital is committed to purchase up to an aggregate of $ 10.0 million of shares of our common stock . upon execution of the aspire purchase agreement , we sold to aspire capital 272,479 shares of common stock at $ 3.67 per share for proceeds of $ 1.0 million and aspire capital committed to purchase up to $ 9.0 million of additional shares of our common stock at our request from time to time during the 30 month period beginning on april 23 , 2019 and at prices based on the market price at the time of each sale , subject to certain conditions . in consideration for entering into the aspire purchase agreement and concurrently with the execution of the aspire purchase agreement , we issued to 58 aspire capital 69,444 shares of our common stock . in december , 2019 , pursuant to the terms of the aspire purchase agreement , we sold 1,067,361 shares of our common stock to aspire capital , resulting in $ 1.1 million in gross proceeds to us . in march 2019 , we entered into a common stock purchase agreement , or the innovatus purchase agreement , with certain entities affiliated with innovatus life sciences lending fund i , lp , or the innovatus investors , pursuant to which we agreed to issue and sell to the innovatus investors 406,504 shares of our common stock at $ 3.69 per share for proceeds of $ 1.5 million . upon execution of the innovatus purchase agreement , we sold all of such shares to the innovatus investors . in october 2019 , we completed a follow-on public offering , which resulted in gross proceeds to us , before deducting underwriting discounts and commissions and other offering expenses , of approximately $ 18.0 million . preferred stock financings through the date of our ipo , we raised approximately $ 129.3 million in net equity proceeds through sales of our preferred stock . loan facilities in march 2016 , we entered into a new term loan and security agreement with western alliance bank , or the western alliance lsa , for $ 7.0 million . in june 2018 , we entered into a new credit and security agreement with midcap financial trust , or the midcap financial csa , which provided a five-year , $ 15 million term loan facility . the midcap financial csa was secured by a lien covering substantially all of our assets , including intellectual property . upon executing the agreement , we drew down a $ 10.0 million term loan from the credit facility . the loan proceeds were used to repay the outstanding $ 7.0 million balance on the western alliance lsa . story_separator_special_tag in march 2019 , we entered into a new loan and security agreement , or the innovatus lsa , with innovatus life sciences lending fund i , lp , or innovatus , and certain lenders , which provides for borrowings up to $ 25.0 million pursuant to certain term loans and an additional $ 5.0 million under a revolving credit line . the innovatus lsa is secured by a lien covering substantially all of our assets , including our intellectual property . also in march 2019 , we drew down $ 20.0 million in term loans from the innovatus lsa . these loan proceeds were used to repay the outstanding balance under the midcap financial csa . beginning in may 2019 , we began drawing down on the revolving credit line . see note 7 to our financial statements for a discussion of terms and provisions to the western alliance lsa , the midcap financial csa , and the innovatus lsa . note purchase agreement in february 2018 , we entered into a note purchase agreement with various investors , or the investors , pursuant to which we agreed to sell the investors 8 % convertible promissory notes , or the convertible notes , in the original principal amount up to approximately $ 16.0 million . in the second quarter 2018 , we amended the note purchase agreement to , among other things , increase the principal amount available for issuance under the note purchase agreement to approximately $ 19.4 million . in august 2018 , the outstanding convertible promissory notes of $ 14.3 million and accrued interest was converted into 3,239,294 shares of common stock upon completion of the ipo . cash flows we derive cash flows from operations primarily from the sale of our products and services . our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business . we have historically experienced negative cash flows from operating activities as we have developed our technology , expanded our business and built our infrastructure and this may continue in the future . the following table sets forth the cash flow from operating , investing and financing activities for the periods presented : replace_table_token_4_th operating activities 59 net cash used in operating activities was $ 29.5 million during the year ended december 31 , 2019 as compared to $ 19.9 million during the year ended december 31 , 2018. the increase in cash used in operating activities of $ 9.6 million is attributed to increased headcount across all business segments , increased professional fees to support ongoing business operations and to comply with obligations associated with being a publicly-traded company , and increased investments in marketing and promotions . these increases are partly offset by lower facilities expense as a result of us subleasing one of our leased facilities in the fourth quarter of 2018. investing activities historically , our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure . we expect to continue to incur additional costs for capital expenditures related to these efforts in future periods . we did not use a significant amount of cash in investing activities during the year ended december 31 , 2019 as well as for the same period in 2018. financing activities historically , we have financed our operations principally through private placements of our convertible preferred stock and promissory notes and borrowings from credit facilities , as well as gross profits from our commercial operations . in august 2018 , we completed the ipo . net cash provided by financing activities was $ 30.4 million during the year ended december 31 , 2019 as compared to $ 35.8 million during the year ended december 31 , 2018 , a decrease of $ 5.4 million . during the year ended december 31 , 2019 , we had net proceeds of $ 11.0 million from the innovatus lsa and innovatus purchase agreement , $ 2.5 million from the aspire purchase agreement , and net proceeds from our follow-on public offering of $ 16.0 million . during the same period of 2018 , we had net proceeds from the issuance of convertible notes of $ 14.3 million , ipo net proceeds of $ 19.4 million , and net debt proceeds of $ 2.0 million . capital resources we performed an analysis of our ability to continue as a going concern . we believe , based on our current business plan , that our existing cash and cash equivalents will be sufficient to fund our operations and obligations through the second quarter of 2020 , but will not be sufficient to fund our operations and obligations throughout the remainder of the year . we plan to continue to fund our operations through cash and cash equivalents on hand , as well as through public or private equity or debt financings , strategic collaborations , licensing arrangements , asset sales , or other arrangements . there can be no assurance that additional funds will be available when needed from any source or , if available , will be available on terms that are acceptable to us . even if we raise additional capital , we may also be required to modify , delay or abandon some of our plans which could have a material adverse effect on our business , operating results and financial condition and our ability to achieve our intended business objectives . any of these actions could materially harm our business , results of operations and future prospects . off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined under sec rules , and similarly did not and do not have any holdings in variable interest entities . recent accounting pronouncements see note 2 to our condensed consolidated financial statements included elsewhere in this annual report on for information concerning recent accounting pronouncements .
| this was offset by increased employee compensation costs due to headcount additions to our assays and regents , genome informatics , and engineering teams in an effort to expand our product offerings and innovation . selling , general and administrative expenses selling , general and administrative expenses increased $ 5.9 million , or 42 % , to $ 20.2 million for the year ended december 31 , 2019 as compared to $ 14.2 million for the same period in 2018. we incurred increased employee compensation costs due to headcount additions to our global sales and marketing teams as well as back-office support teams to assist with the growth of our world-wide product distribution . in addition , we have incurred increased professional fees to support ongoing business operations and to comply with obligations associated with being a publicly-traded company . lastly , we have increased our marketing and promotional spending in order to help drive sales . we expect our selling , general and administrative expenses to increase in future periods as the number of sales , technical support and marketing and administrative personnel grows and we continue to broaden our customer base and grow our business . interest expense interest expense increased by $ 0.9 million , or 66 % , to $ 2.3 million for the year ended december 31 , 2019 , as compared to $ 1.4 million for the same period in 2018 , driven by changes in our long-term debt . during that time , the principal balance of our debt increased from $ 10 million under the midcap financial csa to $ 20 million under our loan and security agreement with innovatus life sciences lending fund i , lp , as further discussed below . change in fair value of preferred stock warrants change in fair value of preferred stock warrants and expirations decreased to zero for the year ended december 31 , 2019 compared to $ 4.0 million for the same period in 2018. prior to the
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we regularly review our customers ' financial positions to ensure that collectability is reasonably assured . under asc 606 , revenue is recognized when performance obligations under the terms of a contract are satisfied , which occurs for the company upon shipment or delivery of products or services to our customers based on written sales terms , which is also when control is transferred . revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer . warranty costs . we provide limited warranties for parts and labor at no cost to our customers within a specified time period after the sale . the warranty terms are typically from one to five years . the company 's warranties are of an assurance-type and come standard with all company product to cover repair or replacement should a product not perform as expected . the company 's warranties are not a separate performance obligation and no transaction price is allocated to it . provisions for estimated expenses related to product warranties are made at the time products are sold . these estimates are established using historical information about the nature , frequency and average cost of warranty claim settlements as well as product manufacturing and recovery from suppliers . management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty costs . we estimate the actual historical warranty claims coupled with an analysis of unfulfilled claims to record a liability for specific warranty purposes . our product warranty obligations are included in other accrued liabilities in the balance sheets . as of december 31 , 2019 , and december 31 , 2018 , we had accrued a liability for warranty reserve of $ 375,000 and $ 175,000 , respectively . management believes that the warranty accrual is appropriate ; however , actual claims incurred could differ from original estimates , requiring adjustments to the accrual . the company does not provide any service warranties to its customers that require to be accounted for as a separate performance obligation . inventory . we write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value-based upon assumptions about future demand , future pricing and market conditions . if actual future demand , future pricing or market conditions are less favorable than those projected by management , additional inventory write-downs may be required and the differences could be material . once established , write-downs are considered permanent adjustments to the cost basis of the obsolete or unmarketable inventories . stock-based compensation . the company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of asc 718 , compensation—stock compensation . , and under the recently issued guidance following fasb 's pronouncement , asu 2018-07 , compensation—stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting . under asc 718 , and applicable updates adopted , share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service , or vesting , period . the company values its equity awards using the black-scholes option pricing model , and accounts for forfeitures when they occur . use of the black-scholes option pricing model requires the input of subjective assumptions including expected volatility , expected term , and a risk-free interest rate . the company estimates volatility using a blend of its own historical stock price volatility as well as that of market comparable entities since the company 's common stock has limited trading history and limited observable volatility of its own . the expected term of the options is estimated by using the securities and exchange commission staff bulletin no . 107 's simplified method for estimate expected term . the risk-free interest rate is estimated using comparable published federal funds rates . 37 income taxes . our estimate of income taxes payable , deferred income taxes and the effective tax rate is based on an analysis of many factors including interpretations of federal and state income tax laws , the difference between tax and financial reporting bases of assets and liabilities , estimates of amounts currently due or owed in various jurisdictions , and current accounting standards . we review and update our estimates on a quarterly basis as facts and circumstances change and actual results are known . we recognize income taxes for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our financial statements or tax returns . a valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized . effects of inflation the impact of inflation and changing prices has not been significant on the financial condition or results of operations of our company . impact of recent accounting pronouncements see “ note 1 – organization and summary of significant accounting policies – recent accounting pronouncements ” of the notes to financial statements commencing on page f-7 of this annual report on form 10-k for management 's discussion as to the impact of recent accounting pronouncements . jumpstart our business startups act of 2012 on april 5 , 2012 , the jobs act was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . story_separator_special_tag we have irrevocably elected not to avail ourselves of this extended transition period and , as a result , we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an “ emerging growth company ” we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , ( ii ) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the dodd-frank wall street reform and consumer protection act , ( iii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) , and ( iv ) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer 's compensation to median employee compensation . these exemptions will apply until we no longer meet the requirements of being an “ emerging growth company. ” we will remain an “ emerging growth company ” until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering ; ( iii ) the date on which we have issued more than $ 1.07 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . financial performance summary – year ended december 31 , 2019 during 2019 , we experienced mixed results . we had significant growth during the first three quarters of the year with 96 % of our annual revenues derived from this period . the overall increase in revenues during 2019 as compared to 2018 is a direct result of increased sales of our dc power systems to u.s. tier-1 telecommunications customers during the first three quarters of the year . our revenues for the year ended december 31 , 2019 were $ 24,801,141 , compared to $ 24,046,354 for the year ended december 31 , 2018. we reported a net loss of $ 4,044,751 for 2019 , as compared to net loss of $ 848,252 for 2018 . 38 during the fourth quarter of 2019 , and continuing into the first quarter of 2020 , we experienced a decline in revenues , with product orders and shipments being postponed to the latter part of 2020. we believe these product order and shipment delays are temporary and are a result of a combination of factors including , among others , the transition from 3g and 4g to 5g networks in the u.s. markets by all major tier-1 wireless providers resulting in a slowdown in sales of our backup generators . we believe that our wireless customers are focusing their financial resources into deployment of their 5g networks rather than on back-up power solutions , especially because of delays experienced by network providers in determining the future power requirements for macro cells sites connected to hundreds of small cells in a 5g network . in addition , we have observed a trend where tier-1 network operators are divesting their tower assets to invest capital into the acquisition of spectrum . our backlog as of december 31 , 2019 was approximately $ 4.0 million , with 75 % of that amount being attributable to u.s. tier-1 telecommunications customers , 16 % to telecommunications customers overseas , 2 % to military customers , and 7 % to other customers . we anticipate that the majority of our future sales during the next twelve months will be comprised of dc power systems for applications within the mobile telecommunications tower market in the u.s. and international markets as we continue to expand our sales infrastructure in these markets . story_separator_special_tag $ 83,165. our interest expense included approximately $ 51,589 in fees in connection with selling $ 13,228,765 of receivables to citibank under our supplier agreement . another $ 51,746 is primarily attributable to interest paid for financing of production equipment . other income ( expense ) , net . during 2019 , our interest income was $ 40,061 , as compared to $ 55,706 during 2018 , a decrease of $ 15,645. our interest income is primarily derived from liquid interest-bearing bank accounts . income tax benefit . in 2019 , the company did not recognize any benefit from income taxes as carry back claims of income taxes were applied . during 2018 , we recognized a benefit from income taxes of $ 215,000 attributable to refundable federal and state income taxes . net loss . as a result of the factors identified above , we generated a net loss of $ 4,044,751 for 2019 , as compared to net loss of $ 848,252 for 2018 , an increase loss of $ 3,196,499. a significant portion of the increase in net loss can be attributed to the results of our fourth quarter of 2019 which included a decrease in shipments of our dc power systems and an increase in factory overhead absorption . 41 liquidity and capital resources sources of liquidity during the year ended december 31 , 2019 , we funded our operations primarily from cash on hand and sales of receivables under our supplier agreement with citibank .
| u.s. telecommunications customers accounted for 95 % of our total net sales during 2019 , as compared to 90 % of total net sales in 2018. although we experienced an overall increase in net sales during 2019 , net sales for the fourth quarter of 2019 were only $ 878,490. this represents an 87 % decrease in net sales as compared to our third quarter of 2019. in addition , we experienced a decline in revenues during the first quarter of 2020. we believe this recent decline in revenues is a result of a combination of factors including , among others , a temporary shift by our u.s. tier-1 telecommunications customers in budget allocation toward for mergers and acquisitions and the deployment of their 5g networks rather than purchasing back-up power generators . we also believe that many of our major customers have held off purchasing our products as they continue to evaluate the impact of 5g on their future power requirements and attempt to define the correct power output for future 5g sites . although we expect that sales will improve in the upcoming quarters once our customers define their power needs for their 5g systems and the u.s. economy recovers from the covid-19 crises , we are not able to estimate the full effects that the pandemic may have on our ability generate improved revenues during the remainder of 2019 and perhaps beyond . 40 our revenue from telecommunications customers accounted for 96 % and 90 % of total net sales during 2019 , and 2018 , respectively . our three largest customers are u.s. tier-1 telecommunications providers . at & t represented 68 % of total net sales for 2019 , t-mobile 17 % , and verizon wireless 6 % , as compared to 53 % , 22 % , and 10 % , respectively , of our total net sales for 2018. cost of sales . cost of sales increased by $ 3,267,168 , or 20 % , to $ 19,881,742 during 2019 , compared to $ 16,614,574 during 2018. cost of sales as a percentage of net sales increased from 69.1 % in 2018 to 80.2 % in 2019 as a result of an increase in factory overhead absorption primarily during the fourth quarter of 2019. the increase in factory overhead absorption during 2019 is primarily attributed to additional facilities and staff added during the ramp up period during
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we recognize revenue for services rendered during the period based upon a previously negotiated fee arrangement . we also sell inventory to these customers and recognize revenue at the time title and risk of loss transfers to the customer . selling , general and administrative expenses we include warehousing , purchasing , branch operations , information services , and marketing and selling expenses in this category , as well as other types of general and administrative costs . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we have a systematic procedure using estimates based on historical data and reasonable assumptions of collectibles made at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts . excess and obsolete inventory we write down our inventory to its net realizable value based on internal factors derived from historical analysis of actual losses . we identify items at risk of becoming obsolete , which are defined as excess of 36 months supply relative to demand or movement . we then analyze the ultimate disposition of previously identified excess inventory items , such as sold , returned to supplier , or scrapped . this item by item analysis allows us to develop an estimate of the likelihood that an item identified as being in excess supply ultimately becomes obsolete . we apply the estimate to inventory items currently in excess of 36 months supply , and reduce our inventory carrying value by the derived amount . we revisit and test our assumptions on a periodic basis . historically , we have not had material changes to our assumptions and do not anticipate any material changes in the future . supplier volume rebates we receive rebates from certain suppliers based on contractual arrangements with them . since there is a lag between actual purchases and the rebates received from the suppliers , we must estimate and accrue the approximate amount of rebates available at a specific date . we record the amounts as other accounts receivable on the balance sheet . the corresponding rebate income is recorded as a reduction of cost of goods sold . the appropriate level of such income is derived from the level of actual purchases made by us from suppliers . supplier volume rebate rates have historically ranged between approximately 0.8 % and 1.3 % of sales depending on market conditions . in 2012 , the rebate rate was 1.3 % . goodwill and indefinite life intangible assets we test goodwill and indefinite life intangible assets for impairment annually during the fourth quarter using information available at the end of september , or more frequently when events or circumstances occur indicating that their carrying value may not be recoverable . we test for goodwill impairment on a reporting unit level . the evaluation of impairment involves comparing the current fair value of goodwill and indefinite life intangible assets to the recorded value . we estimate the fair value of goodwill using a combination of discounted cash flow analyses and market multiples . assumptions used for these fair value techniques are based on a combination of historical results , current forecasts , market data and recent economic events . we evaluate the recoverability of indefinite life intangible assets using a discounted cash flow analysis based on projected financial information . the determination of fair value involves significant management judgment and we apply our best judgment when assessing the reasonableness of financial projections . two primary assumptions were a discount rate of 9.8 % and a terminal growth rate of 5.0 % . a possible indicator of goodwill impairment is the relationship of a company 's market capitalization to its book value . as of december 31 , 2012 , our market capitalization exceeded our book value and there were no reporting units sensitive to impairment . 18 the reported value of indefinite life trademarks totaled $ 105.1 million and $ 46.9 million at december 31 , 2012 and 2011 , respectively . two trademarks totaling $ 18.1 million are most sensitive to a decline in financial performance . we are taking actions to improve our financial performance related to these businesses ; however , we can not predict whether or not there will be certain events that could adversely affect the reported value of these trademarks . intangible assets we account for certain economic benefits purchased as a result of our acquisitions , including customer relations , distribution agreements , technology and trademarks , as intangible assets . most trademarks have an indefinite life . we amortize all other intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax benefits . useful lives vary between 4 and 20 years , depending on the specific intangible asset . insurance programs we use commercial insurance for auto , workers ' compensation , casualty and health claims as a risk sharing strategy to reduce our exposure to catastrophic losses . our strategy involves large deductibles where we must pay all costs up to the deductible amount . we estimate our reserve based on historical incident rates and costs . income taxes we recognize deferred tax assets and liabilities for expected future tax consequences of events that have been included in our consolidated financial statements or tax returns . deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . we record our deferred tax assets at amounts that are expected to be realized . we evaluate future taxable income and potential tax planning strategies in assessing the potential need for a valuation allowance . story_separator_special_tag should we determine that it is more likely than not that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . we account for uncertainty in income taxes using a recognition threshold and measurement attribute prescribed by income tax accounting guidance . we frequently review tax issues and positions taken on tax returns to determine the need and amount of contingency reserves necessary to cover any probable audit adjustments . convertible debentures we separately account for the liability and equity components of our convertible debentures in a manner that reflects our nonconvertible debt borrowing rate . we estimate our non-convertible debt borrowing rate through a combination of discussions with our financial institutions and review of relevant market data . the discounts to the convertible debenture balances are amortized to interest expense , using the effective interest method , over the implicit life of the debentures . stock-based compensation our stock-based employee compensation plans are comprised of stock options , stock-settled stock appreciation rights , restricted stock units , and performance-based awards . compensation cost for all stock-based awards is measured at fair value on the date of grant , and compensation cost is recognized , net of estimated forfeitures , over the service period for awards expected to vest . the fair value of stock options and stock-settled appreciation rights is determined using the black-scholes valuation model . the performance-based awards are valued based upon a monte carlo simulation model . expected volatilities are based on historical volatility of our common stock . we estimate the expected life of stock options and stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations . the risk-free rate is based on the u.s. treasury yields in effect at the time of grant . the forfeiture assumption is based on our historical employee behavior , which we review on an annual basis . restricted stock units with vesting dependent upon service conditions are valued based on the market price on the grant date . no dividends are assumed for stock-based awards . story_separator_special_tag increased at a lower rate than sales due to the continued effectiveness of our cost control initiatives and the fixed cost nature of certain sg & a expense components . sg & a payroll expenses for 2011 of $ 608.9 million increased by $ 81.4 million compared to 2010. the increase in sg & a payroll expense was primarily due to an increase in salary expense of $ 43.9 million and an increase in commissions and incentives of $ 23.7 million . these increases are primarily due to an increase in headcount , which is the result of both recent acquisitions and organic growth initiatives . the remaining sg & a expenses for 2011 of $ 263.1 million increased by $ 27.0 million compared to 2010 due to an increase in variable operating expenses associated with the growth in sales . depreciation and amortization . depreciation and amortization increased $ 7.7 million to $ 31.6 million in 2011 , compared with $ 23.9 million in 2010. the increase in depreciation and amortization was primarily due to an increase in capital expenditures from $ 15.1 million in 2010 to $ 33.3 million in 2011. income from operations . income from operations increased by $ 122.1 million , or 57.9 % , to $ 332.9 million in 2011 , compared to $ 210.9 million in 2010. interest expense . interest expense totaled $ 53.6 million in 2011 , compared with $ 57.6 million in 2010 , a decrease of 6.9 % . in 2010 , interest expense was negatively impacted by $ 4.2 million resulting from the resolution of an outstanding tax matter . other income . no other income was reported in 2011. in 2010 , other income was comprised of equity income from the ladd joint venture totaling $ 4.3 million . income taxes . our effective income tax rate increased to 29.8 % in 2011 , compared with 26.7 % in 2010 , primarily as a result of the increase in taxable income in the united states . net income . net income increased by $ 80.8 million , or 69.9 % , to $ 196.2 million in 2011 , compared to $ 115.4 million in 2010. net loss attributable to noncontrolling interest . net loss attributable to noncontrolling interest totaled less than $ 0.1 million in 2011. net income attributable to wesco international , inc. net income and diluted earnings per share attributable to wesco international , inc. on a consolidated basis totaled $ 196.3 million and $ 3.96 per share , respectively , in 2011 , compared with $ 115.4 million and $ 2.50 per share , respectively , in 2010. liquidity and capital resources total assets were $ 4.6 billion at december 31 , 2012 , compared to $ 3.1 billion at december 31 , 2011 . the $ 1.3 billion increase in total assets was principally attributable to the increase in goodwill of $ 769.7 million , intangible assets of $ 339.9 million , inventory of $ 167.0 million , and accounts receivable of $ 96.8 million . these increases are primarily attributable to recent acquisitions along with an increase in sales activity . total liabilities at december 31 , 2012 compared to december 31 , 2011 increased by $ 1.3 billion to $ 3.1 billion . contributing to the increase in total liabilities was the increase in long-term debt of $ 1,052.5 million and accounts payable of $ 63.8 million . these increases were associated with the recent and current year acquisitions and increased purchasing activity . stockholders ' equity increased by 15.4 % to $ 1.6 billion at december 31 , 2012 , compared with $ 1.3 billion at december 31 , 2011 , primarily as a result of net earnings of $ 201.8 million .
| the increase in sg & a payroll expense was primarily due to an increase in salary expense of $ 40.8 million and an increase in benefits of $ 15.5 million . these increases are primarily due to an increase in headcount , which is the result of both recent acquisitions and organic growth initiatives . temporary labor costs and other sg & a payroll related costs each decreased $ 2.0 million . the remaining sg & a expenses for 2012 of $ 263.3 million increased by $ 0.2 million compared to 2011. depreciation and amortization . depreciation and amortization in creased $ 6.0 million to $ 37.6 million in 2012 , compared with $ 31.6 million in 2011 . the in crease in depreciation and amortization was primarily due to the impact from recent acquisitions of $ 4.6 million . income from operations . income from operations de creased by $ 0.1 million to $ 332.9 million in 2012 , compared to $ 333.0 million in 2011 . interest expense . interest expense totaled $ 47.8 million in 2012 , compared with $ 53.6 million in 2011 , a de crease of 10.9 % . non-cash interest expense , which includes convertible debt interest , interest related to uncertain tax positions , and the amortization of deferred financing fees , for 2012 and 2011 was $ 1.5 million and $ 8.8 million , respectively . loss on debt extinguishment . in 2012 , a loss on debt extinguishment of $ 3.5 million was incurred due to the redemption of the 2017 notes . income taxes . our effective income tax rate de creased to 28.4 % in 2012 , compared with 29.8 % in 2011 , primarily as a result of the increase in taxable income outside the united states that is taxed at a lower rate . net income . net income increased by $ 5.5 million , or 2.8 % , to $ 201.8 million in 2012 , compared to $ 196.2 million in 2011 . net loss attributable to noncontrolling interest . net loss attributable to noncontrolling interest totaled less than $ 0.1 million in 2012 and
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we also repaid $ 350 million of senior notes at their maturity date in november 2015. additionally , we repurchased 435 thousand common shares in the open market for $ 34 million and increased our quarterly cash dividend by 7 percent in 2015. our cash flow and balance sheet remain strong and we are well positioned for future strategic initiatives . we are committed to an on-going continuous improvement effort to optimize our manufacturing network to control our fixed costs and use our resources efficiently . on september 8 , 2015 , we announced plans to consolidate our manufacturing network in brazil whereby plants in trombudo central and conchal will be closed and production will be moved to plants in balsa nova and mogi guaçu , respectively . we continuously evaluate our manufacturing network for improvement opportunities . by consolidating production into balsa nova and mogi guaçu , we believe that we will reduce costs and improve operational efficiencies in our south american manufacturing network . in addition to balsa nova and mogi guaçu , we will continue to operate facilities in cabo and rio de janeiro , brazil . the consolidation process has commenced and is expected to be complete by the end of 2016. we will remain vigilant in our efforts to maximize productivity and enhance shareholder value . on december 15 , 2015 , we sold our manufacturing assets in port colborne , ontario , canada for $ 35 million in cash . this transaction should help us to better balance supply with our customers ' needs as we focus on the growth of our higher-value specialty ingredient product portfolio . looking ahead , we anticipate that our operating income and net income will grow in 2016 compared to 2015. in north america , we expect operating income to increase driven by improved product mix and margins . in south america , we expect another challenging year . we believe that operating income will be relatively flat with 2015 as we anticipate continued slow economic growth and local foreign currency weakness . we intend to maintain a high degree of focus on cost and network optimization in this segment during this period which we expect to be challenging . in the longer-term , we believe that the underlying business fundamentals for our south american segment are positive for the future . we expect operating income in asia pacific and emea to grow modestly in 2016 , despite currency headwinds associated with a stronger us dollar . we anticipate that this growth will be driven mainly by improved price/product mix from our specialty ingredient product portfolio and effective cost control . on february 4 , 2016 , we announced that we entered into a definitive agreement with pingyuan county juyuan state-owned asset management co. , ltd. to acquire the state-owned shandong huanong specialty corn development co. , ltd. in pingyuan county , shandong province , china . this pending acquisition is expected to support our specialty ingredients business in china and has been approved by our board of directors . the transaction represents another step in executing our strategic blueprint for growth . it enhances our capacity in the asia-pacific region with a vertically integrated manufacturing base for specialty ingredients . the acquisition is subject to approval by the chinese government authorities as well as to other customary closing conditions . the acquisition is not expected to have a material impact on our financial condition , results of operations or cash flows . we currently expect that our available cash balances , future cash flow from operations , access to debt markets and borrowing capacity under our credit facilities will provide us with sufficient liquidity to fund our anticipated capital expenditures , dividends and other investing and or financing activities for the foreseeable future . story_separator_special_tag impact of the stronger us dollar . our gross profit margin for 2015 was 22 percent , compared to 20 percent in 2014. despite reduced selling prices driven by lower corn costs , we have generally maintained per unit gross profit levels in us dollars , resulting in the improved gross profit margin percentages . selling , general and administrative expenses . selling , general and administrative ( sg & a ) expenses for 2015 increased to $ 555 million from $ 525 million in 2014. the increase primarily reflects incremental operating expenses of the acquired businesses as well as other costs associated with the acquisition and integration of those businesses . favorable translation effects associated with the stronger us dollar more than offset higher compensation-related and various other costs . currency translation associated with weaker foreign currencies reduced sg & a expenses for 2015 by approximately 8 percent from 2014. sg & a expenses represented 45 percent of gross profit in 2015 , as compared to 47 percent of gross profit in 2014. other income-net . other income-net of $ 1 million for 2015 decreased from other income-net of $ 24 million in 2014. the decrease for 2015 primarily reflects a $ 10 million gain from the sale of the port colborne plant and an $ 11 million unfavorable swing from $ 7 million of income in 2014 to $ 4 million of expense in 2015 associated with a tax indemnification agreement relating to a subsidiary acquired from akzo nobel n.v. ( akzo ) in 2010. in 2014 , we recognized a charge to our income tax provision for an expected unfavorable income tax audit result at this subsidiary related to a pre-acquisition period for which we are indemnified by akzo . the costs incurred by the acquired subsidiary were recorded in our provision for income taxes while the reimbursement from akzo under the indemnification agreement was recorded as other income . in 2015 , based upon the final settlement of the matter , we determined that the unfavorable income tax audit amount should be reduced from $ 7 million to $ 3 million . story_separator_special_tag accordingly , in 2015 , we recognized a $ 4 million income tax benefit and a charge to other income-net of $ 4 million to reduce our receivable from akzo associated with the indemnification agreement . the impact on our net income for 2015 and 2014 is zero . other income-net for 2015 also includes $ 7 million of costs relating to a litigation settlement . a summary of other income-net is as follows : replace_table_token_5_th 30 operating income . a summary of operating income is shown below : replace_table_token_6_th operating income for 2015 increased to $ 660 million from $ 581 million in 2014. operating income for 2015 includes a $ 10 million gain from the sale of our port colborne plant , $ 12 million of charges for impaired assets and restructuring costs associated with our plant closings in brazil , a restructuring charge of $ 12 million for estimated severance-related costs associated with the penford acquisition , costs of $ 7 million relating to a litigation settlement , a $ 4 million restructuring charge for estimated severance-related expenses and other costs associated with the sale of the port colborne plant , and $ 10 million of other costs associated with the acquisitions and integration of the penford and kerr businesses . additionally , the 2015 results include $ 10 million of costs associated with the sale of penford and kerr inventory that was marked up to fair value at the acquisition date in accordance with business combination accounting rules . operating income for 2014 included a $ 33 million charge to write-off impaired goodwill at our southern cone of south america reporting unit and $ 2 million of costs associated with our then-pending acquisition of penford . without the gain from the plant sale , the litigation settlement costs and the restructuring , impairment and acquisition-related charges , operating income for 2015 would have grown 14 percent from 2014. this increase primarily reflects significantly improved operating income in north america compared to the weaker results of 2014. unfavorable currency translation attributable to the stronger us dollar negatively impacted operating income by approximately $ 68 million as compared to 2014. our product pricing actions helped to mitigate the unfavorable impact of currency translation . north america operating income increased 28 percent to $ 479 million from $ 375 million in 2014. earnings contributed by the acquired operations represented approximately 6 percentage points of the increase . the remaining organic operating income improvement of 22 percent for 2015 primarily reflects more normal weather conditions , organic volume growth and lower corn , energy and other manufacturing costs . our north american results for 2015 also include $ 7 million of business interruption insurance recoveries related to last year 's weather . our 2014 results were negatively impacted by harsh winter weather conditions that caused high energy , transportation and production costs . translation effects associated with a weaker canadian dollar unfavorably impacted operating income by approximately $ 13 million in the segment . south america operating income decreased 6 percent to $ 101 million from $ 108 million in 2014. the decline primarily reflects weaker results in brazil driven principally by local currency weakness . improved selling prices for our products helped to partially offset the unfavorable impacts of currency devaluation and higher local production costs in the segment . translation effects associated with weaker south american currencies ( particularly the brazilian real , colombian peso and the argentine peso ) negatively impacted operating income by approximately $ 36 million . we currently anticipate that our business in south america will continue to be challenged by difficult economic conditions in 2016. asia pacific operating income grew 4 percent to $ 107 million from $ 103 million in 2014. volume growth and lower raw material costs helped to mitigate the impact of local currency weakness in the segment . translation effects associated with weaker asia pacific currencies negatively impacted operating income by approximately $ 9 million in the segment . emea operating income declined 2 percent to $ 93 million from $ 95 million in 31 2014. this decrease primarily reflects the impact of currency translation . cost reductions and improved sales volumes helped to partially offset this unfavorable impact . additionally , the prior year results included a $ 3 million gain from the sale of an idled plant in kenya . t ranslation effects primarily associated with the weaker euro and british pound sterling had an unfavorable impact of $ 10 million on operating income in the segment . an increase in corporate expenses was driven by an adjustment with respect to the previously-mentioned akzo tax indemnification that unfavorably impacted operating income by $ 11 million for 2015 , as compared to 2014. financing costs-net . financing costs-net was $ 61 million in 2015 , consistent with 2014. lower interest expense and higher interest income were offset by a $ 5 million increase in foreign currency transaction losses . the reduction in interest expense reflects lower average interest rates driven by the effect of our interest rate swaps and our low-rate term loan borrowing that we arranged in 2015 , which more than offset the impact of higher average borrowings . the increase in interest income was driven primarily by higher average cash balances . the increase in foreign currency transaction losses primarily reflects the impact of the december devaluation of the argentine peso . hedge costs spiked in december and prevented hedges from offsetting the impact of the devaluation , negatively affecting argentine peso denominated assets . provision for income taxes . our effective tax rate was 31.2 percent in 2015 , as compared to 30.2 percent in 2014. we use the us dollar as the functional currency for our subsidiaries in mexico . because of the continued decline in the value of the mexican peso versus the us dollar , our tax provision for 2015 was increased by $ 17 million , or 2.9 percentage points .
| net income attributable to ingredion for 2015 increased to $ 402 million , or $ 5.51 per diluted common share , from $ 355 million , or $ 4.74 per diluted common share in 2014. our results for 2015 include after-tax charges of $ 11 million ( $ 0.15 per diluted common share ) for impaired assets and restructuring costs in brazil and canada , after-tax restructuring charges of $ 7 million ( $ 0.10 per diluted common share ) for employee severance-related costs associated with the penford acquisition , after-tax costs of $ 7 million ( $ 0.10 per diluted common share ) associated with the acquisition and integration of both penford and kerr , after-tax costs of $ 6 million ( $ 0.09 per diluted common share ) relating to the sale of penford and kerr inventory that was adjusted to fair value at the respective acquisition dates in accordance with business combination accounting rules , after-tax costs of $ 4 million ( $ 0.06 per diluted common share ) relating to a litigation settlement and an after-tax gain of $ 9 million ( $ 0.12 per diluted common share ) from the sale of our port colborne plant . our results for 2014 include an impairment charge of $ 33 million ( $ 0.44 per diluted common share ) to write-off goodwill at our southern cone of south america reporting unit ( see note 5 of the notes to the consolidated financial statements for additional information ) and after-tax costs of $ 2 million ( $ 0.02 per diluted common share ) related to our then-pending acquisition of penford . without the gain from the plant sale , the litigation settlement costs and the impairment , restructuring and acquisition-related charges , our net income and diluted earnings per share would have grown 10 percent and 13 percent , respectively , from 2014. these increases primarily reflect significantly improved operating income in north america for 2015 , as compared to 2014. our improved diluted earnings per common share for 2015 also reflects the favorable impact of our share repurchases . net sales . net sales for 2015 decreased to $ 5.62 billion from $ 5.67 billion in 2014. a summary of net sales by reportable business segment is shown below : replace_table_token_4_th the businesses acquired from penford and kerr contributed $ 328 million of net sales in 2015. the decrease in net sales primarily reflects unfavorable currency translation of 9 percent due to the stronger us dollar , which more than offset volume growth of 7 percent that was driven mainly by the operations of the acquired businesses and price/product mix improvement of 1 percent . the pass
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frutarom 's products are focused on three principal areas : ( 1 ) savory solutions , ( 2 ) natural product solutions , which includes natural health ingredients , natural color and natural food protection , and ( 3 ) taste solutions . 2018 financial performance overview sales in 2018 increased 17 % on a reported basis and 15 % on a currency neutral basis ( which excludes the effects of changes in currency ) , with the effects of the frutarom acquisition contributing approximately 11 % to reported growth rates and 10 % to currency neutral growth rates . taste achieved reported sales growth of 6 % and currency neutral sales growth of 5 % . scent achieved sales growth of 6 % on a reported basis and 4 % on a currency neutral basis in 2018 . from a geographic perspective , north america ( `` noam '' ) , europe , africa and middle east ( `` eame '' ) , greater asia ( `` ga '' ) and latin america ( `` la '' ) all delivered sales growth on a consolidated basis in 2018 , led by eame . overall , our 2018 results continued to be driven by our strong emerging market presence that represented 48 % of total sales and experienced 17 % growth on a reported basis and 16 % growth on a currency neutral basis in 2018 . we continue to benefit from our diverse portfolio of products and geographies and had sales growth in our taste and scent business units . both taste and scent benefited from new win performance ( net of losses ) . exchange rate variations did not have a material impact on revenue in 2018 . the effect of exchange rates can vary by business and region depending upon the mix of sales by country as well as the relative percentage of local sales priced in u.s. dollars versus local currencies . we saw currency neutral sales growth during each quarter of 2018 . our 25 largest customers accounted for 47 % of total sales in 2018 ; this percentage has remained fairly constant for several years . sales to our largest customer across all end-use categories accounted for 9 % to 12 % of our sales for each of the last three fiscal years . a key factor for commercial success is inclusion on our strategic customers ' core supplier lists , which provides opportunities to win new business . we are on the core supplier lists of a large majority of our global and strategic customers within flavors and fragrances . 37 gross margin decreased 102 basis points ( `` bps '' ) year-over-year , driven primarily by unfavorable price versus input costs ( including the net impact of the basf supply disruption ) , which was only partially offset by cost savings and productivity initiatives . included in 2018 was $ 23.6 million of frutarom acquisition related inventory `` step-up '' costs , $ 1.7 million of costs associated with operational improvement initiatives and $ 0.1 million of integration related costs , offset by $ 7.1 million income from net insurance recoveries from the previously disclosed fda mandated product recall , compared to $ 15.9 million of acquisition-related inventory `` step-up '' costs , $ 11.0 million related to the fda mandated product recall , $ 1.8 million of costs associated with operational improvement initiatives and $ 0.5 million of integration related costs in 2017 . excluding these items , adjusted gross margin decreased 142 bps compared to the prior year period . operating profit increased $ 31.3 million to $ 583.9 million ( 14.7 % of sales ) in 2018 compared to $ 552.6 million ( 16.3 % of sales ) in 2017 . included in 2018 were frutarom acquisition related costs of $ 89.6 million , integration related costs of $ 7.2 million , restructuring and other charges of $ 4.1 million and operational improvement initiative costs of $ 2.2 million , partially offset by $ 7.1 million in income from net insurance recoveries from the previously disclosed fda mandated product recall , acquisition related costs of $ 1.3 million and gain on sale of fixed assets of $ 1.2 million . included in 2017 were restructuring and other charges of $ 19.7 million , acquisition-related costs of $ 20.4 million , $ 11.0 million relating to an fda mandated product recall , reserve for payment of a tax assessment related to commercial rent for prior periods of $ 5.3 million , integration related costs of $ 4.2 million , pension settlement charges of $ 2.8 million , operational improvement initiative costs of $ 1.8 million and an additional charge related to litigation settlement of $ 1.0 million , partially offset by gain on sale of fixed assets of $ 0.2 million . excluding these charges , adjusted operating profit was $ 677.4 million for 2018 , an increase from $ 618.6 million for 2017 , principally driven by volume growth , the impact of foreign exchange , and cost and productivity initiatives which was partially offset by price to input costs ( including the impact of the basf supply chain disruption ) and increases selling and administrative expenses . foreign currency had a 3 % favorable impact on operating profit in the 2018 period compared to a 1 % unfavorable impact on operating profit in the 2017 period . operating profit as a percentage of sales , excluding the above charges , decreased from 17.0 % for 2018 compared to 18.2 % for 2017 , principally driven by lower margins as a result of price to input costs ( including the net impact of the basf supply chain disruption ) and increases in selling and administrative expenses , offset by cost and productivity initiatives and new win performance ( net of losses ) cash flows from operations were $ 437.6 million or 11.0 % of sales in 2018 as compared to cash flows from operations of $ 390.8 million , or 11.5 % of sales , during 2017 . story_separator_special_tag the increase in operating cash flows in 2018 as compared to 2017 was principally driven by lower litigation settlement and pension payments and higher net income , offset by higher net working ( principally related to inventories ) . our capital spend was $ 170.1 million ( 4.3 % of sales ) during 2018 . in light of our requirement to begin relocating one of our fragrance ingredients facilities in china , the ongoing construction of new facilities in india and indonesia , and capital 38 requirements to integrate our recently acquired frutarom business , we expect that capital spending in 2019 will be about 5- 6 % of sales ( net of potential grants and other reimbursements from government authorities ) . effective the first quarter of 2018 , we adopted new accounting guidance related to revenue recognition and the presentation of pension costs . the revenue recognition guidance was adopted effective the first day of fiscal 2018 and prior period amounts were not revised to conform to the new guidance . the adoption of the new revenue guidance did not have a material impact on our results of operations . the guidance related to the presentation of pension costs was applied retroactively and prior period amounts have been adjusted to conform to the new guidance . as noted in note 16 to the consolidated financial statements , the net effect of the change was to decrease operating profit and increase other income . 2019 outlook we believe that market conditions and the macro-economic environment will continue to be volatile in many markets in 2019 but that overall , there will be slight improvements as compared to recent years . pressures from increasing costs and the impact of supply chain disruptions related to key ingredients used in the flavors and fragrance industry may reduce our currency neutral operating profit growth in 2019 . during 2018 , the raw material cost environment continued its recent upward trend . we believe that , for the next several quarters , we will continue to see higher costs of raw materials across a range of categories . raw material costs continue to be impacted by supply chain disruptions , mainly impacting our scent business unit . we continue to seek improvements in our margins through operational performance , cost reduction efforts and mix enhancement as well as integration savings with frutarom . on a long-term basis , we expect that sales growth for the industry will generally be in line with the underlying assumptions that support our long-term strategic goals , albeit with some risk in the near term given the continuing global economic uncertainty . we believe changing social habits resulting from increased disposable income , improved focus on personal health and wellness awareness should help drive growth of our consumer product customers ' businesses . 39 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; '' > restructuring and other charges restructuring and other charges primarily consist of separation costs for employees , including severance , outplacement and other benefit costs . replace_table_token_4_th 2017 productivity program on february 15 , 2017 , the company announced that it was adopting a multi-year productivity program designed to improve overall financial performance , provide flexibility to invest in growth opportunities and drive long-term value creation . in connection with this program , we expect to optimize our global footprint and simplify the company 's organizational structures globally . the company recorded $ 3.9 million and $ 20.6 million of charges related to personnel-related costs in 2018 and 2017 , respectively , with no further anticipated personnel-related and other costs after the first quarter of 2019. the company made payments of $ 7.3 million and $ 14.0 million related to severance in 2018 and 2017 , respectively . the overall charges were split approximately evenly between taste and scent . no charges were allocated to the frutarom segment . this initiative is expected to result in the reduction of approximately 370 members of the company 's global workforce , including acquired entities , in various parts of the organization . amortization of acquisition-related intangibles amortization expenses increased to $ 75.9 million in 2018 compared to $ 34.7 million in 2017 . the increase of $ 41.2 million is principally due to the acquisition of frutarom . operating results by business unit we evaluate the performance of business units based on segment profit which is defined as operating profit before restructuring and certain non-recurring items , interest expense , other expense , net and taxes on income . see note 15 to our consolidated financial statements for the reconciliation to income before taxes . 42 replace_table_token_5_th nmf : not meaningful _ ( 1 ) includes $ 23.6 million related to amortization of inventory `` step-up '' costs . taste business unit taste segment profit increased $ 34.7 million to $ 395.2 million ( 22.7 % of segment sales ) in 2018 from $ 360.5 million ( 22.1 % of segment sales ) in the comparable 2017 period . the increase principally reflected the impact of cost savings and productivity initiatives and the impact of foreign exchange , partially offset by increases in selling and administrative expenses . scent business unit scent segment profit increased $ 10.6 million to $ 329.5 million in 2018 , compared to $ 319.0 million reported in 2017 primarily due to new win performance ( net of losses ) and price increases ( principally due to increases in raw material input costs ) , which were partially offset by volume reductions on existing business . segment profit as a percentage of segment sales decreased to 17.5 % in 2018 from 18.1 % in 2017 primarily due to the impact of unfavorable price versus input costs ( including the net impact of the basf supply chain disruption ) and increases in r & d and selling and administrative expenses , partially offset by new win performance ( net of losses ) .
| sales sales for 2018 totaled $ 4.0 billion , an increase of 17 % from the prior year on a reported and 15 % on a currency neutral basis . sales growth reflected new win performance ( net of losses ) and favorable price to input costs in both taste and scent . on a reported and currency neutral basis , the effect of the acquisition of frutarom was approximately 11 % and 10 % , respectively , to net sales amounts . sales performance by segment was as follows : replace_table_token_3_th _ ( 1 ) currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding 2018 period . taste taste sales in 2018 increased 6 % on a reported basis and 5 % on a currency neutral basis versus the prior year period . overall growth was primarily driven by new win performance ( net of losses ) and price increases ( principally due to increases in raw material input costs ) . the taste business delivered currency neutral growth across all regions . sales growth in the taste business unit was led by noam , which were primarily driven by new wins and price increases ( principally due to increases in raw material input costs ) , and followed by eame . ga and la sales growth was primarily driven by new wins . scent scent sales in 2018 increased 6 % on a reported basis and 4 % on a currency neutral basis . year-over-year , 2018 sales growth reflected new win performance ( net of losses ) and price increases ( principally due to increases in raw material input costs ) , which were partially offset by volume reductions on existing business . sales growth in the scent business unit was led by ingredients , which were primarily driven by price increases ( principally due to increases in raw material input costs ) , followed by fragrance compounds , primarily driven by new wins partially offset by
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the terms of the various consulting agreements may also result in inconsistent revenues from period to period based upon the delivery requirements and timelines of the services . we believe , however , that over time our business model will enable us to rapidly grow our revenues while enabling us to control costs and overhead expenses . story_separator_special_tag into advisory agreements for brand management services as well as agreements to produce entertainment related events , which include production assistance for television and music recording agreements . in regard to sales for advisory and production related services , we record revenue when the services are provided and the customer is invoiced at agreed upon rates and terms in the agreement . in several of our agreements , for our services we have accepted common stock , options or warrants ( an equity position ) from our customer . in fiscal 2017 , this division recorded net sales of $ 1,359,803 , of which $ 483,993 was received as an equity position . additional revenue earned at the corporate level for advisory 31 agreements is included in the entertainment division for segment reporting . these advisory agreements are related to referral fee arrangements and advisory agreements with services provided by the corporate entity , level brands . for fiscal 2017 revenue from these contracts was $ 350,364 , of which $ 314,000 was received as an equity position . cost of sales our cost of sales includes costs associated with distribution , external fill and labor expense , components , and freight for our professional products divisions , and includes labor and third party service providers for our licensing and entertainment divisions . our cost of sales as a percentage of net sales was 30.3 % in fiscal 2017 as compared to 79.7 % in fiscal 2016. in order to explain the change in cost of sales we must account for the two new divisions and look at each division separately to see the cumulative impact . in our professional products division , cost of sales was 90.2 % and 79.7 % of its net sales for fiscal 2017 and fiscal 2016 , respectively . cost of sales variances are primarily related to two key impacts . first , allowances from this division have varied significantly based on the product line being new and various advertising and promotional packages have been used to promote the products at initial launch . second , with the initial beauty & pin-ups product launch in fiscal 2016 , we had incurred significantly higher shipping and logistics expenses primarily as the result of minimum orders required by our vendors for our initial orders , and we also incurred charges for expedited processing to meet our first order deadlines . in fiscal 2017 we moved into an online channel and conducted our first online promotion to create more brand visibility , and with this provided significant discount pricing on a new packaged item specifically for that channel . in addition we have added two new distributors at the end of the year and although not at the same level of fiscal 2016 , we had promotional packages for those new launches . as we continue to refine our operations , we expect our cost of sales to decrease , thereby increasing our gross profit , as we expect to be able to not offer as many promotional packages , manage the production of our product lines more efficiently by procuring materials used in our process with better pricing as well as having a more effective inventory management control process . in our licensing division , cost of sales for fiscal 2017 was 2.7 % of its net sales . we expect this division to have a low cost of sales as the business is structured in a manner that the licensee ( our customer ) incur the significant costs and revenues associated with the sale of licensed products . we recognize the associated royalty fees on a net basis . when we are involved in providing advisory services , we allocate the utilized internal resources costs to our cost of sales . in our entertainment division , cost of sales for fiscal 2017 was 31.8 % of its net sales . the cost of sales for this division will vary based upon the type of projects in which it is involved . for instance , its cost of sales is expected to be less for advisory services , which utilize internal resources , as compared to television production services which require the use of external facilities and personnel , which increases our cost . as a result , our gross margin for the entertainment division will vary from period to period . operating expenses our operating expenses include wages , advertising , travel , rent , professional service fees , and expenses related to industry distribution and trade shows . our operating expenses decreased to $ 3,358,863 for the year ended september 30 , 2017 from $ 4,146,423 in fiscal 2016 a decrease of $ 787,559 or 18.9 % . during fiscal 2017 as compared to fiscal 2016 , expenses related to social media , public relations , advertising and marketing process , tradeshows , and promotions decreased approximately $ 362,182 , our travel and entertainment expenses decreased approximately $ 150,255 , our professional outside services related to product formulation , design , marketing and tradeshow expenses decreased approximately by $ 553,455 , our rent expense decreased $ 56,968 , and commissions paid to an outside sales consultant decreased approximately $ 137,493. the decrease during fiscal 2017 was partially offset by certain increases in operating expenses during such period , mostly due to costs related to startup of our two new subsidiaries an increase of $ 200,000 and accounting and legal costs related to our audits and the sec registration process , an increase of $ 440,681. during fiscal 2017 as compared to fiscal 2016 our staff related expenses increased approximately $ 308,780 as we added executive management and management over our new licensing and entertainment divisions . story_separator_special_tag in addition , our accounting and legal expenses increased by approximately $ 440,681 as we have engaged independent auditors for our fiscal audits and quarterly reviews as well as counsel for our sec registration process . during fiscal 2017 we had an increase in non-cash expense of $ 231,484 related to the issuance of restricted stock awards to our board members as well as for options issued to employees . 32 professional products division operating expenses in the professional products division were approximately $ 1,797,000 for fiscal 2017 as compared to $ 2,867,000 for fiscal 2016 , a decrease of 37.3 % . operating expenses for these periods , respectively , include staff related expenses and management fees which were approximately $ 538,000 and $ 697,000 , accounting and legal expenses of approximately $ 212,000 and $ 51,000 , expenses related to social media , public relations , advertising , marketing , promotions and tradeshow of approximately $ 270,000 and $ 683,000 , travel and entertainment expenses of approximately $ 131,000 and $ 273,000 , professional outside services related to product formulation , design , and marketing expenses of approximately $ 146,000 and $ 297,000 , and commissions paid to an outside sales consultant of approximately $ 38,000 and $ 176,000 respectively . the overall decrease in operating expenses is related to management shift to a more structured approach as the strategy for this business unit was reviewed and repositioned . licensing division operating expenses in the licensing division were approximately $ 935,000 for fiscal 2017. operating expenses include staff related expenses of $ 91,000 , accounting and legal expenses of approximately $ 45,000 , expenses related to social media , public relations , and tradeshow of approximately $ 21,000. we had $ 100,000 of initial startup costs when the division was started in january 2017. in addition , we had referral fees of $ 528,000 paid to our corporate entity for two large contracts and internal management fees also to corporate of $ 90,000. w e expect to continue to allocate corporate management fees to this division in future periods , however , the amount of such fees will vary depending upon the amount of time devoted by our senior management to this division . the corporate charges eliminate upon consolidation of our financial statements . entertainment division operating expenses in the entertainment division were approximately $ 580,000 for fiscal 2017. operating expenses include staff related expenses of $ 92,000 , accounting and legal expenses of approximately $ 39,000. expenses related to social media , public relations , and tradeshows of approximately $ 30,000. we had $ 100,000 of initial startup costs when the division was started in january 2017. in addition , we had referral fees of $ 228,000 paid to our corporate entity for one large contract and internal management fees also to corporate of $ 90,000. as with our licensing division , we expect to continue to allocate corporate management fees to this division in future periods , however , the amount of such fees will vary depending upon the amount of time devoted by our senior management to this division . the corporate charges eliminate upon consolidation of our financial statements . corporate overhead corporate overhead operating expenses were approximately $ 1,075,000 for fiscal 2017 as compared to $ 1,711,000 for fiscal 2016 , a decrease of 37.2 % . operating expenses for these periods , respectively , include staff related expenses which were approximately $ 343,000 and $ 489,000 , accounting and legal expenses of approximately $ 276,000 and $ 81,000 , charitable expenses of $ 22,000 and $ 225,000 , and stock compensation expense of approximately $ 243,000 and $ 11,000. we also had ended the use of outside consultants in fiscal 2017 and this had related expenses of $ ( 120,000 ) in fiscal 2017 as compared to $ 690,000 in fiscal 2016. interest expense and other non-operating expenses our interest expense increased to $ 500,627 for fiscal 2017 from $ 154,978 for fiscal 2016. the increase was related to increased borrowings under the 8 % convertible promissory notes issued and sold in october 2016. the 8 % convertible promissory notes were converted to equity as of june 30 , 2017 , and upon conversion we accelerated the unamortized debt discount and debt issuance fees and have recorded interest expense of $ 499,708 in fiscal 2017 of non-cash charges . in addition , we converted the $ 2,125,000 principal amount of 8 % convertible promissory notes and all accrued interest of $ 127,500 into our common shares , and we accounted for a conversion inducement in accordance with asc 470-20 on the conversion price reduction from $ 5.00 to $ 3.95 per share and recorded a non-cash debt conversion expense of $ 446,250 in fiscal 2017. this is a one-time non-cash charge . we also sold marketable securities we had received from a customer for services . in this transaction , we determined that an other-than-temporary impairment on securities of $ 175,000 occurred and recorded the loss in the consolidated statement of operations . 33 in some cases , we may , from time to time , enter into contracts where all or a portion of the consideration provided by the customer in exchange for our services is the value of the consideration provided could decline and require an impairment charge to be recorded in non-operating income in the consolidated statement of operations . net loss and net loss attributable to our common shareholders our net loss for fiscal 2017 decreased 64.4 % to $ ( 1,386,168 ) as compared to a net loss of $ ( 3,896,270 ) in fiscal 2016. at september 30 , 2017 and 2016 , we owned 100 % and 78 % , respectively , of the membership interests of beauty & pin-ups and 100 % of the voting interests in each of i'm1 and ee1 and 51 % membership interest in each of i'm1 and ee1 .
| the year ending september 30 , 2016 saw the launch of the beauty & pin-ups products with initial success , however the marketing , training , and education support for the distribution channel did not ramp up effectively or in a timely manner and therefore we saw a drop in sales through orders from our sales channel , which led to a significant drop in reorders in fiscal 2017. we have made a strategic decision to increase our distributors and have added two new distributors entering fiscal 2018 , and are targeting to add additional distributors while also adding other sales channels , including large retail and online channels . in addition , we have added independent sales representatives and revamped our education team and process . we believe these changes will support the product line and sales process better , although no assurance can be given as to when and if our product line will receive more acceptance in the marketplace . as is customary in the wholesale distribution of hair care and beauty products , we provide our distributors an allowance against the sales price for advertising and distribution , damaged good , product development allowance , and a discount if paid within a prescribed time frame , which is typically 2 % if paid within 10 days . these allowances were 48.3 % and 22.8 % , respectively , of gross sales of our professional products division for fiscal 2017 and fiscal 2016. the large increase in the fiscal 2017 periods is related to discounting of hair irons to our distribution channel in an effort to offer incentives to customers and move historical products as we prepared and launched three new products in fiscal 2017 as well as a rollout of a discounted sample sized product with our entrance into a new sales channel . licensing division the licensing division began operating in january 2017 , and enters into various license agreements that can provide revenues based on minimum royalties and advertising/marketing fees and additional revenues based on a percentage of defined sales . minimum royalty and advertising/marketing revenue is recognized on a straight-line basis over the term of each contract year , as defined , in each license agreement . royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee 's sales . payments received as consideration of the grant of a license are recognized ratably as revenue over the term of the
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34 following the issuance of the shares sold in the ipo , the company had a total of 39,969,228 common shares outstanding and no preferred shares issued and outstanding as of february 1 , 2015. on february 5 , 2015 , subsequent to our fiscal 2014 year end , we completed a follow-on offering of 6,600,000 shares of our common stock at a price of $ 29.50 per share . we granted the underwriters an option to purchase an additional 990,000 shares of our common stock which was exercised in full on february 20 , 2015. all of these shares were offered by the selling stockholders . in connection with the offering , 300,151 options were exercised at a weighted average price of $ 4.49. we issued new shares in satisfaction of this exercise . we received $ 1,346 upon the exercise of options which were sold as part of this offering . as of february 1 , 2015 , oak hill funds beneficially owned approximately 79.2 % of our outstanding stock and certain members of our board of directors and our management beneficially owned approximately 3.7 % of our outstanding stock . the remaining 17.1 % was owned by the public . subsequent to the follow-on offering transactions , the oak hill funds beneficially own approximately 62.1 % of our outstanding stock and certain members of our board of directors and our management beneficially own approximately 2.2 % of our outstanding stock . the remaining 35.7 % is owned by the public . d & b entertainment has no material assets or operations other than 100 % ownership of the outstanding common stock of d & b holdings . d & b holdings has no material assets or operations other than 100 % ownership of the outstanding common stock of d & b inc. as such , the following discussion , unless specifically identified otherwise , addresses the operations of d & b inc. key measures of our performance we monitor and analyze a number of key performance measures to manage our business and evaluate financial and operating performance . these measures include : comparable store sales . comparable store sales are a year-over-year comparison of sales at stores open at the end of the period which have been opened for at least 18 months as of the beginning of each of the fiscal years . it is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends . our comparable stores consisted of 57 , 55 and 54 stores as of february 1 , 2015 , february 2 , 2014 and february 3 , 2013 , respectively . fiscal 2014 comparable store sales exclude sales from our bethesda location , which permanently closed on august 12 , 2014. our farmingdale store , which closed on february 8 , 2015 subsequent to our fiscal 2014 year end , is included in comparable store sales for all periods presented . new store openings . our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets . the success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models . our new locations typically open with sales volumes in excess of their run-rate levels , which we refer to as a honeymoon effect . we expect our new store volumes in year two to be 15 % to 20 % lower and our store-level adjusted ebitda margins to be two to five percentage points lower in the second full year of operations than our year one targets , and to grow in line with the rest of our comparable store base thereafter . as a result of the substantial revenues associated with each new store and the seasonality of our business , the number and timing of new store openings will result in significant fluctuations in quarterly results . non-gaap financial measures in addition to the results provided in accordance with generally accepted accounting principles ( gaap ) , we provide non-gaap measures which present operating results on an adjusted basis . these are supplemental measures of performance that are not required by or presented in accordance with gaap and include store-level ebitda , store-level ebitda margin , adjusted ebitda and adjusted ebitda margin . these non-gaap measures do not represent and should not be considered as an alternative to net income or cash flows from operations , as determined in accordance with gaap , and our calculations thereof may not be comparable to similarly entitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . although we use these non-gaap measures to assess the operating performance of our business , they have significant limitations as an analytical tool because they exclude certain material costs . for example , adjusted ebitda and adjusted ebitda margin do not take into account a number of significant items , including our interest expense and depreciation and amortization expense . because adjusted ebitda does not account for these expenses , its utility as a measure of our operating performance has material limitations . in addition , adjusted ebitda excludes pre-opening costs and adjustments for changes in the accruals for deferred amusement revenue and ticket liability , which we expect customers to redeem in future periods and which may be important in analyzing our gaap results . our calculations of adjusted ebitda adjust for these amounts because they vary from period to period and do not directly related to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of underlying business between periods . nevertheless , because of the limitations described above management does not view adjusted ebitda in isolation and also uses other measures , such as net sales , gross margin , operating income and net income ( loss ) , to measure operating performance . story_separator_special_tag 35 store-level ebitda and store-level ebitda margin . we define store-level ebitda as net income ( loss ) , plus interest expense ( net ) , loss on debt retirement , provision ( benefit ) for income taxes , depreciation and amortization expense , general and administrative expenses and pre-opening costs . store-level ebitda margin is defined as store-level ebitda divided by total revenues . store-level ebitda margin allows us to evaluate operating performance of each store across stores of varying size and volume . we believe that store-level ebitda is another useful measure of evaluating our operating performance because it removes the impact of general and administrative expenses , which are not incurred at the store-level , and the costs of opening new stores , which are non-recurring at the store-level , and thereby enables the comparability of the operating performance of our stores for the periods presented . we also believe that store-level ebitda is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity , efficiency and performance , and we use store-level ebitda as a means of evaluating store financial performance compared with our competitors . however , because this measure excludes significant items such as general and administrative expenses and pre-opening costs , as well as our interest expense and depreciation and amortization expense , which are important in evaluating our consolidated financial performance from period to period , the value of this measure is limited as a measure of our consolidated financial performance . adjusted ebitda and adjusted ebitda margin . we define adjusted ebitda as net income ( loss ) , plus interest expense ( net ) , loss on debt retirement , provision ( benefit ) for income taxes , depreciation and amortization expense , loss on asset disposal , share-based compensation , currency transaction ( gain ) loss , pre-opening costs , reimbursement of affiliate and other expenses , change in deferred amusement revenue and ticket liability estimations , transaction costs and other . adjusted ebitda margin is defined as adjusted ebitda divided by total revenues . adjusted ebitda is presented because we believe that it provides useful information to investors regarding our operating performance and our capacity to incur and service debt and fund capital expenditures . we believe that adjusted ebitda is used by many investors , analysts and rating agencies as a measure of performance . in addition , adjusted ebitda is approximately equal to ebitda as defined in our new senior credit facility and our presentation of adjusted ebitda is consistent with that reported to our lenders to allow for leverage-based assessments . by reporting adjusted ebitda , we provide a basis for comparison of our business operations between current , past and future periods by excluding items that we do not believe are indicative of our core operating performance . adjusted ebitda is a metric utilized to measure performance-based bonuses paid to our executive officers and certain managers . presentation of operating results we operate on a 52 or 53 week fiscal year that ends on the sunday after the saturday closest to january 31. each quarter consists of 13 weeks , except for a 53 week year when the fourth quarter consists of 14 weeks . our 2012 fiscal year consisted of 53 weeks and all other years presented consist of 52 weeks . all references to 2014 , fiscal 2014 , fiscal year 2014 or similar references relate to the 52 week period ending february 1 , 2015. all references to 2013 , fiscal 2013 , fiscal year 2013 or similar references relate to the 52 week period ended february 2 , 2014. all references to 2012 , fiscal 2012 , fiscal year 2012 or similar references relate to the 53 week period ended february 3 , 2013. as a result of the 53 week fiscal year in 2012 , our 2013 fiscal year began one week later than our 2012 fiscal year . in order to provide useful information to investors to better analyze our business , we have provided comparable store sales presented on a calendar week basis . comparable store sales for year-to-date on a calendar week basis compares the results for the period from february 4 , 2013 through february 2 , 2014 ( weeks 1 through 52 of our 2013 fiscal year ) to the results for the period from february 6 , 2012 through february 3 , 2013 ( weeks 2 through 53 of our 2012 fiscal year ) . the fiscal year 2012 comparable store sales have been adjusted to remove the impact of the 53rd week prior to calculating the year-over-year comparable sales change percentage . we believe comparable store sales calculated on a calendar week basis is more indicative of the health of our business . however , we also recognize that comparable store sales growth calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial statements . 36 key line item descriptions revenues . total revenues consist of food and beverage revenues as well as amusement and other revenues . beverage revenues refer to alcoholic beverages . for the year ended february 1 , 2015 , we derived 32.5 % of our total revenue from food sales , 15.6 % from beverage sales , 51.1 % from amusement sales and 0.8 % from other sources . for the year ended february 2 , 2014 , we derived 33.6 % of our total revenue from food sales , 15.2 % from beverage sales , 50.4 % from amusement sales and 0.8 % from other sources . for the year ended february 3 , 2013 , we derived 33.9 % of our total revenue from food sales , 15.2 % from beverage sales , 50.1 % from amusement sales and 0.8 % from other sources . our revenues are primarily influenced by the number of stores in operation and comparable store revenue .
| it also includes the reimbursement of expenses made to oak hill capital management , llc in the amount of $ 41 and $ 115 in fiscal years 2014 and 2013 , respectively . ( 4 ) primarily represents costs related to capital market transactions and store closure costs . ( 5 ) represents stock compensation expense under our 2010 stock incentive plan and 2014 stock incentive plan . ( 6 ) represents costs incurred prior to the opening of our new stores . ( 7 ) represents quarterly increases or decrease to accrued liabilities established for future amusement games play and the fulfillment of tickets won by customers on our redemption games . 40 reconciliations of non-gaap financial measures store-level ebitda and store-level ebitda margins the following table reconciles ebitda to store-level ebitda for the years ended february 1 , 2015 and february 2 , 2014 : replace_table_token_8_th capital additions the following table represents total accrual-based additions to property and equipment . capital additions do not include any reductions for tenant improvement allowances received or receivable from landlords . replace_table_token_9_th revenues total revenues increased $ 111,172 , or 17.5 % , to $ 746,751 in fiscal year 2014 compared to total revenues of $ 635,579 in fiscal year 2013. the increased revenues were derived from the following sources : non-comparable stores $ 70,241 comparable stores 41,954 other ( 1,023 ) total $ 111,172 comparable store revenue increased $ 41,954 , or 7.3 % in fiscal 2014 compared to fiscal 2013. comparable walk-in revenues , which accounted for 87.7 % of comparable store revenue for fiscal 2014 , increased $ 38,921 , or 7.8 % compared to fiscal 2013. comparable store special events revenues , which accounted for 12.3 % of consolidated comparable store revenue for fiscal 2014 , increased $ 3,033 , or 4.2 % compared to fiscal 2013. the increase in comparable store revenue over prior year is attributable to our brand strength , increased consumer prosperity , and favorability due to weather . our brand strength can be credited to many factors including
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2015 compared with 2014 cost of goods sold decreased in 2015 compared with 2014 by $ 427.4 million or approximately 27 % primarily due to a drop in raw materials prices , particularly cumene and natural gas ( approximately 26 % impact ) , and lower sales volume due to unplanned plant outages ( approximately 1 % impact ) . gross margin percentage increased in 2015 compared with 2014 by 1 % primarily due to the net impact of pricing over raw material costs ( approximately 2 % favorable impact ) , partially offset by unfavorable production volumes ( approximately 1 % unfavorable impact ) . selling , general and administrative expenses replace_table_token_7_th changes in the selling , general and administrative expenses were not material when comparing 2016 with 2015 and 2015 with 2014. tax expense replace_table_token_8_th the company 's effective income tax rates in 2016 , 2015 and 2014 were higher compared to the u.s. federal statutory tax rate of 35.0 % due primarily to state taxes and , to a lesser extent , losses incurred in foreign jurisdictions with rates lower than the u.s. federal statutory rate , partially offset by the federal tax credit for research activities and the u.s. manufacturing incentive credits . 32 for 2016 , 2015 and 2014 , there were no unrecognized tax benefits recorded by the company . although there are no unrecognized income tax benefits , when applicable , the company 's policy is to report interest expense related to unrecognized income tax benefits in the income tax provision . for additional discussion of income taxes and the effective income tax rate , see “ note 4 – income taxes ” in the notes accompanying the audited consolidated and combined financial statements . net income 2016 compared with 2015 as a result of the factors described above , our net income was $ 34.1 million in 2016 as compared to $ 63.8 million in 2015 . 2015 compared with 2014 as a result of the factors described above , our net income was $ 63.8 million in 2015 as compared to $ 83.9 million in 2014. non-gaap measures the following tables set forth the non-gaap financial measures of ebitda and ebitda margin . ebitda is defined as net income before interest , income taxes , depreciation and amortization . ebitda margin is equal to ebitda divided by sales . the company believes these non-gaap financial measures provide meaningful supplemental information as they are used by the company 's management to evaluate the company 's operating performance , enhance a reader 's understanding of the financial performance of the company , and facilitate a better comparison among fiscal periods and performance relative to its competitors , as the non-gaap measures exclude items that are not considered part of the company 's ongoing operations . these non-gaap results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with gaap . non-gaap financial measures should be read only in conjunction with the comparable gaap financial measures . the company 's non-gaap measures may not be comparable to other companies ' non-gaap measures . the following is a reconciliation between the non-gaap financial measures of ebitda and ebitda margin to their most directly comparable gaap financial measure : ( dollars in thousands , unless otherwise noted ) replace_table_token_9_th liquidity and capital resources liquidity following the spin-off , our capital structure and sources of liquidity changed significantly from our historical capital structure and sources of liquidity . we no longer participate in cash management and funding arrangements with honeywell . instead , our ability to fund our capital needs depends on our ongoing ability to generate cash from operations and access to credit and capital markets . 33 we believe that our cash balances , together with a portion of the cash proceeds under our credit agreement and operating cash flows will provide adequate funds to support our current annual operating plan , subject to the risks and uncertainties outlined below and in the risk factors previously discussed in item 1a . our principal source of liquidity is our cash flow generated from operating activities , which is expected to provide us with the ability to meet the majority of our short-term funding requirements . our operating cash flows are affected by capital requirements and production volume as well as the prices of our raw materials and general economic and industry trends . we monitor the third-party depository institution that holds our cash and cash equivalents . our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds . on a recurring basis , our primary future cash needs will be centered on operating activities , working capital , capital expenditures and environmental compliance costs , employee benefit obligations , interest payments , debt repayment and strategic acquisitions . we expect that our future cash from operations , together with our access to funds on hand and credit and capital markets , will provide adequate resources to fund our expected operating and financing needs for the next twelve months . our ability to fund our capital needs , however , will depend on our ongoing ability to generate cash from operations and access to credit and capital markets , which are subject to the risk factors previously discussed in item 1a as well as general economic , financial , competitive , regulatory and other factors that are beyond our control . we incurred indebtedness in the aggregate principal amount of approximately $ 270 million in the form of a term loan , the net proceeds of which were distributed to honeywell substantially concurrent with the consummation of the spin-off . we also entered into a $ 155 million revolving credit facility to fund our working capital and other cash needs and drew down $ 40 million , before fees , under this facility substantially concurrent with the spin-off . story_separator_special_tag at december 31 , 2016 , we had repaid the borrowings under the revolving credit facility as well as made a $ 3.4 million payment against the term loan . going forward , cash provided by operating activities will be needed to fund future interest payments in respect of our outstanding indebtedness . we assumed all health , safety and environmental ( “ hse ” ) liabilities and compliance obligations related to the past and future operations of our business , as well as all hse liabilities associated with our three current manufacturing locations and the other locations used in our current operations , including cleanup or other liabilities related to any contamination that may have occurred at such properties in the past . honeywell retained all hse liabilities related to former business locations or the operation of our former businesses . see “ certain relationships and related party transactions – agreements with honeywell – separation and distribution agreement ” . although we have ongoing environmental remedial obligations at certain of our facilities , in the past three years , our remediation costs have not been material , and we do not expect our remediation costs to address known obligations to be material for 2017. during january 2017 , the company made a contribution to the advansix retirement earnings plan of $ 2.2 million . the company plans to make additional contributions during 2017 sufficient to satisfy pension funding requirements of approximately $ 20 million as well as additional contributions in future years sufficient to satisfy pension funding requirements in those periods . we expect that our primary cash requirements for 2017 will be to fund our on-going operations , costs associated with planned plant outages , capital expenditures , postretirement benefit obligations and the amounts related to contractual obligations noted in the tables below . see the items noted below in “ contractual obligations ” and “ capital expenditures ” for more information . cash flow summary for the years ended december 31 , 2016 , 2015 and 2014 our cash flows from operating , investing and financing activities for the years ended december 31 , 2016 , 2015 and 2014 , as reflected in the audited consolidated and combined financial statements included elsewhere in this form 10-k , are summarized as follows : replace_table_token_10_th 34 2016 compared with 2015 cash provided by operating activities in 2016 increased by $ 12.2 million compared to 2015 primarily due to ( 1 ) a $ 43.6 million favorable impact from net working capital outflows driven by the timing of payments on the accounts payables balance , ( 2 ) a $ 3.9 million increase in depreciation and amortization expense , ( 3 ) a $ 1.6 million net increase in deferred income taxes and ( 4 ) a $ 1.3 million increase in stock based compensation expense which was partially offset by ( a ) a $ 29.6 million decrease in net income and ( b ) a $ 9.1 million net decrease in other assets and liabilities and accrued liabilities . cash used for investing activities in 2016 decreased by $ 11.8 million compared to 2015 primarily due to a decrease in capital expenditures of $ 13.1 million . cash used for financing activities in 2016 increased by $ 9.9 million compared to 2015 primarily due to $ 269.3 million distributed to honeywell in connection with the spin-off , a $ 4.4 million larger reduction in invested equity , $ 3.0 million of financing fees related to the credit agreement and $ 3.4 million of term loan repayments , partially offset by $ 270.0 million proceeds from the term loan . 2015 compared with 2014 cash provided by operating activities in 2015 decreased by $ 86.9 million compared to 2014 primarily due to ( 1 ) a $ 35.7 million decrease in customer advances driven primarily by timing of advance payments and fulfilment of sales orders , ( 2 ) a $ 22.2 million unfavorable impact from working capital , ( 3 ) a $ 20.1 million decrease in net income and ( 4 ) a decrease in deferred taxes of $ 7.0 million driven by the impact of accelerated tax depreciation . cash used for investing activities in 2015 decreased by $ 4.0 million compared to 2014 primarily due to a decrease in capital expenditures of $ 4.2 million . cash used for financing activities in 2015 increased by $ 82.9 million compared to 2014 primarily due to an $ 83.1 million net decrease in invested equity . credit agreement for information regarding our credit agreement , refer to note 9 – long-term debt and credit agreement to the consolidated and combined financial statements in item 8 of this report . as of december 31 , 2016 , $ 155 million is available for use out of the total credit of $ 425 million under the long-term debt and credit agreement . under the terms of the credit agreement , we are subject to restrictive covenants that limit our ability , among other things , to incur additional indebtedness , pay dividends or make other distributions , and consolidate , merge , sell or otherwise dispose of assets , as well as financial covenants that require us to maintain interest coverage and leverage ratios at levels specified in the credit agreement . these covenants may limit how we conduct our business , and in the event of certain defaults , our repayment obligations may be accelerated . contractual obligations ( dollars in thousands , unless otherwise noted ) replace_table_token_11_th 35 ( 1 ) long-term debt - principal repayments : refer to note 9 -- long-term debt and credit arrangements to the consolidated and combined financial statements in item 8 of this report . interest payments are estimated based on the interest rate applicable as of december 31 , 2016 . ( 2 ) transition services agreement : on september 28 , 2016 , in connection with , and as a condition to the spin-off , honeywell and advansix inc. entered into a transition services agreement ( the “ transition services agreement ” ) .
| we believe that , in addition to a potential recovery that has historically followed periods of oversupply and declining prices , certain anticipated trends in the nylon 6 resin industry may begin to bolster an increase in demand . nylon 6 end-market growth generally tracks global gdp with certain applications growing at faster rates including engineered plastics and packaging . additionally , one of our strategies is to continue developing specialty resin and copolymer products that we believe will obtain higher margins . our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur , two key crop nutrients . global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea , which is the most widely used source of nitrogen-based fertilizer in the world . urea pricing has been under pressure recently due to the loosening of urea export restrictions by the chinese government and the growth of both chinese and broader global production capacity . a secondary global price driver for ammonium sulfate fertilizer is the price of future deliveries of crops , including corn , wheat and coffee , which are impacted by general trends in the agricultural industry . we produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process , but sales experience quarterly cyclicality based on the timing and length of the growing seasons in north and south america . due to the ammonium sulfate fertilizer sales cycle , we occasionally build up higher inventory balances because our production is continuous and not tied to seasonal demand for fertilizers . sales of most of our other products have generally been subject to minimal or no seasonality . we seek to run our production facilities on a nearly continuous basis for maximum efficiency and several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain . on average , we schedule two planned outages per year to conduct routine and major maintenance at our facilities , which are referred to as plant turnarounds . while
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kadi is not a customer or a supplier of borqs . in accordance with the letter of intent , we have made three of four scheduled cash advances to kadi due of $ 150,000 , with the fourth payment due in april 2018. these advances will be deducted from our initial cash payments to kadi under the definitive agreement to be negotiated . if this transaction is not consummated within nine months after signing of the letter of intent , the advance payments will be converted into shares representing five percent of the outstanding capital stokc of kadi . there are no termination fees or penalties under the letter of intent . we have achieved significant growth since inception in 2007. net revenues increased from $ 75.1 million in 2015 to $ 120.6 million in 2016 and $ 154.3 million to 2017. we recorded net income of $ 0.8 million and $ 2.6 million in the years 2015 and 2016 , respectively . for the year ended december 31 , 2017 , we had a net loss of $ 12.4 million , which included non-cash merger related costs of $ 14.5 million . key factors affecting results of operations the connected solutions business unit represented 73.4 % , 70.9 % and 79.2 % of our net revenues for the year ended december 31 , 2015 , 2016 and 2017 , respectively . for the year ended december 31 , 2015 , 2016 and 2017 , we generated 85 % , 93 % and 86 % of our net revenues from customers headquartered outside of china and 15 % , 7 % and 14 % of our net revenues from customers headquartered within china . as of december 31 , 2017 , we had collaborated with six mobile chipset manufacturers and 29 mobile device oems to commercially launch android based connected devices in 11 countries , and sales of connected devices with the borqsware software platform solutions are embedded in more than 12 million units worldwide . revenue mix impacts our overall gross profit and gross margin . in particular : connected solutions bu . revenue from product sales is the largest component of connected solutions bu revenue . product sales gross margin is primarily affected by competition cost of components and intellectual property royalties . gross margin for engineering design fees and software royalties tends to be higher because the associated cost of revenues is less and pricing is less subject to competitive pressure . in addition , because product sales and software royalties are generally calculated on a per-unit basis , our revenue will vary depending upon the volume of product sales . engineering design fees are generally not related to volume of product sales . connected solutions bu net revenues and gross profits are affected by general factors in the highly competitive mobile industry , such as shifts in consumer preferences and customer demands , technological innovations , competing mobile operating systems , and pricing trends . results are also affected by developments in the android platform and software market specifically , such as google 's continued support of the android platform , continued availability of a free and open source software license for that platform , continued deployment of the android platform , and continued outsourcing of software development to third party providers . unfavorable changes in any of these factors could affect market demand for our solutions and materially adversely affect our revenues and results of operations . revenues and gross profit in the connected solutions bu are also affected by company-specific factors , including : ● we rely on a limited number of customers for a significant portion of our net revenues , particularly our relationship with a customer that is a prominent mobile chipset manufacturer . we also rely on this mobile chipset manufacturer from a strategic viewpoint , since products that we develop for this customer may also be scaled to other mobile device oem customers . we devote a significant portion of our research and development resources to this effort . our results of operations would be significantly harmed if our collaboration with this customer was to decline or its android-related product development efforts were not successful . ● our ability to grow our net revenues depends on our ability to expand our customer base , both in terms of number of customers and geographic concentration , and increase the number of projects we undertake for existing and new customers . our ability to do so depends on the success of our products and services and those of our customers , and on our marketing and sales performance . 39 ● our ability to maintain our position as one of the largest independent android platform software company will require us to continue to strengthen our technology expertise and capabilities by focusing our research and development to maintain technology leadership and offer advanced android platform software and service solutions on our customers ' demanding timelines . in addition , our ability to grow our revenues will largely depend on how quickly we and our customers can roll out new products and services . ● competing successfully in the android platform and software market requires us to maintain a competitive pricing structure , including labor costs and operating expenses . competition for software engineers is intense , particularly in mainland china and in india . mvno bu . gross margin of the mvno bu is affected by the wholesale rates t obtained from the incumbent operator , as well as the competition in the market . over time , we expect wholesale rates generally decline due to competition and newer technologies ( e.g . 4g , 4.5g , and 4.75g ) . mvno bu revenues and gross profit are affected by general factors in the mobile telecom industry in china , such as the voice/data pricing trends offered by other mvnos and incumbent operators . we enter into profit sharing arrangements with franchisees , under which franchisees receive a percentage of profits on sales of bundled services as they are used by the consumers . story_separator_special_tag profit sharing amounts are recognized as selling expenses , and limited discounts provided by franchisees to consumers are recognized as reductions of revenue in accordance with asc 605-50. competitive factors in voice/data pricing could affect the demand for our mvno services and affect our mobile subscriber growth , which could materially and adversely affect our revenues and result of operations . mvno bu revenues and gross profit are also directly affected by company-specific factors , including : ● the bulk wholesale rates for voice and data service . we rely on china unicom , the incumbent operator , to provide us with attractive and competitive bulk wholesale rates of voice-per-minute and mb-of-data to compete with our competitors . ● the chinese government policy on mvno services . we rely on china 's government to continue to grant us a license to operate the mvno services . the aggregate amount of cash and cash equivalent and restricted cash are not materially affected by currency fluctuations because the majority of our revenues are denominated in u.s. dollars based on contracts made in hong kong and the cayman islands . financings from sales of equity and working capital loans are denominated in u.s. dollars and executed in hong kong and the cayman islands , and repayments have been made in u.s. dollars outside of china , thus not requiring approval from the prc state administration of foreign exchange . the mvno business , and small amounts of connected solutions bu activities within china , generate revenue in renminbi . personnel and personnel-related expenses are primarily paid in renminbi , and costs of components used in connected solutions bu hardware revenues are primarily paid in u.s. dollars . as of december 31 , 2017 , we held $ 12 million outside of china and our entities held rmb3.6 million and $ 0.5 million in china , totaling $ 13 million on a consolidated basis . story_separator_special_tag border-bottom : black 1.5pt solid '' > 41 the following table sets forth our net revenues , as well as the components of such revenues , for the periods indicated , both in absolute amount and as a percentage of total net revenues : replace_table_token_8_th software software net revenues were $ 22.5 million , $ 14.9 million and $ 11.2 million in 2015 , 2016 and 2017 , respectively , representing 40.8 % , 17.5 % and 9.2 % of connected solutions bu net revenues . the $ 7.6 million decrease in 2016 over 2015 mainly reflected decreases in software engineering activities completed for customers in 2015 as well as the recognition of pcs delivered during 2016 for projects completed in 2015. we account for software engineering contracts applying the completed contract method , recognizing the entire software project fixed fees ratably over the pcs service periods . pcs service periods are generally 12 months , with ranges from six months to three years , and commences upon completion of customer acceptance of the completed software projects . the $ 3.7 million decline in software net revenues in 2017 from 2016 was mainly attributable to an overall decrease in software engineering project sales . hardware hardware net revenues were $ 32.6 million , $ 70.5 million and $ 111.0 million in 2015 , 2016 and 2017 , respectively , representing 59.2 % , 82.5 % and 90.8 % of connected solutions bu net revenues . the $ 37.9 million increase in 2016 and the $ 40.5 million increase in 2017 reflected the increased volume of sales of products in those periods , particularly in tablets , ruggedized handsets , and high speed data smartphones and home entertainment remote controls . all hardware sales were contracted and made to order , and our sales were final without taking returns . small percentages of replacement units and parts were provided to customers and those costs were included in cost of revenues . we provide engineering design work as specified by our customers , and production begins after the customer accepts the design . we are responsible for procurement of all components , materials and tooling , and for selection of third-party factories for product assembly . revenue is recognized when products are shipped to the customer . we are not engaged in the marketing and distribution of the hardware products . customer concentration we were initially focused on research and development efforts for providing borqsware software platform solutions to mobile device oems . we have since leveraged our deep technology expertise to provide borqsware software platform solutions to mobile chipset manufacturers and mobile operators . the following table sets forth net revenues by type of customer , both in absolute amount and as a percentage of net revenues for the periods presented : replace_table_token_9_th we expect our net revenues from mobile device oems to continue to grow as we develop more connected devices , especially iot products . 42 geographic concentration the following table sets forth our net revenues from customers based on location of the customer 's headquarters , both in absolute amount and as a percentage of net revenues . these figures do not take into account the geographic location of end-users of customer products : replace_table_token_10_th the company net revenues from customers with headquarters in the united states are attributed to its ongoing collaboration with a prominent mobile chipset vendor and other mobile device oems . from 2015 to 2017 , revenues from customers with headquarters in china declined slightly , and we engaged a significant new customer in india during the second half of 2016 and this customer continued to place orders with us in 2017. net revenues — mvno bu the mvno bu provides a full range of 2g/3g/4g mobile communication services to consumers , as well as some traditional commercial telephony services . in 2014 , the mvno bu entered into a business agreement with china unicom , the incumbent mainland china mobile network operator to obtain bulk access to network services at wholesale rates in 2014. the mvno bu has its own brand in mainland china , “ yuantel.
| replace_table_token_7_th net revenues — connected solutions bu connected solutions bu net revenues consist of engineering design fees , software royalties and product sales . mvno bu net revenues consist primarily of monthly recurring revenue . borqsware software platform solutions are based on the company 's core proprietary software and include base chipset software supporting various radio network chipsets and application processors , commercial grade software to differentiate the android platform for our customers and mobile operator required services . borqsware software platform solutions are embedded directly into connected devices . we generate revenues from our borqsware software platform solutions by charging our customers a product fee for project-based design contracts and or a service fee for research and development services on a time and material basis , depending upon the nature of the contracts we entered into with our customers . in addition , we charge usage-based royalties in a majority of our project-based software contracts , which royalties are determined based on the customer 's volume of sales of products in which a mobile chipset or connected device with borqsware software platform solutions embedded . as discussed more fully under “ — critical accounting policies and estimates — revenue recognition — project-based software contracts , ” the company 's project-based software contracts include post-contract support , or pcs , where the customer has the right to receive unspecified upgrades/enhancements on a when-and-if available basis . since we are unable to establish vendor-specific objective evidence of fair value of post contract services , or pcs , revenues from project-based software contracts are recognized on a straight-line basis over the longest expected delivery period of undelivered elements of the arrangement , which is typically the pcs period . project-based software contracts that include pcs , which have a typical pcs period of 12 months , range from six to 36 months . as a result of this revenue recognition method , some portion of the net revenues we report in each period is recognition of
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we anticipate opportunities for growth through the ability to leverage additional future services and capabilities . prior to the business combination , sourcehov transformed into an industry-agnostic solution provider and acquired key technology through the acquisition of transcentra , inc. ( `` transcentra '' ) in september 2016 , a provider of integrated outsourced billing , remittance processing and imaging software and consulting services . the addition of transcentra increased sourcehov 's footprint in the remittance transaction processing and presentment area , expanded its mobile banking offering and enabled significant cross-selling and up-selling opportunities . revenues itps revenues are primarily generated from a transaction-based pricing model for the various types of volumes processed , licensing and maintenance fees for technology sales , and a mix of fixed management fee and transactional revenue for document logistics and location services . hs revenues are primarily generated from a transaction-based pricing model for the various types of volumes 40 processed for healthcare payers and providers . llps revenues are primarily based on time and materials pricing as well as through transactional services priced on a per item basis . people we draw on the business and technical expertise of our talented and diverse global workforce to provide our customers with high-quality services . our business leaders bring a strong diversity of experience in our industry and a track record of successful performance and execution . as of december 31 , 2017 , we had approximately 22,000 employees globally , with 52 % located in the united states and the remainder located primarily in europe , india , the philippines , canada , mexico , and china . costs associated with our employees represent the most significant expense for our business . we incurred personnel costs of $ 532.3 million , $ 373.2 million , and $ 388.3 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the majority of our personnel costs are variable and are incurred only while we are providing our services . facilities we lease and own numerous facilities worldwide with larger concentrations of space in texas , michigan , connecticut , california , india , mexico , the philippines , and china . our owned and leased facilities house general offices , sales offices , service locations , and production facilities . the size of our active property portfolio as of december 31 , 2017 was approximately 4.0 million square feet at an annual operating cost of approximately $ 48.3 million and comprised 159 leased properties and 8 owned properties . we believe that our current facilities are suitable and adequate for our current businesses . because of the interrelation of our business segments , each of the segments uses substantially all of these properties at least in part . key performance indicators we use a variety of operational and financial measures to assess our performance . among the measures considered by our management are the following : revenue by segment ; ebitda ; and adjusted ebitda . revenue we analyze our revenue by comparing actual monthly revenue to internal projections and prior periods across our operating segments in order to assess performance , identify potential areas for improvement , and determine whether segments are meeting management 's expectations . ebitda and adjusted ebitda we view ebitda and adjusted ebitda as important indicators of performance . we define ebitda as net income , plus taxes , interest expense , and depreciation and amortization . we define adjusted ebitda as ebitda plus optimization and restructuring charges , including severance and retention expenses ; transaction and integration costs ; other non-cash charges , including non-cash compensation , ( gain ) or loss from sale or disposal of assets , and impairment charges ; and management fees and expenses . see `` other financial information ( non-gaap financial measures ) '' for more 41 information and a reconciliation of ebitda and adjusted ebitda to net loss , the most directly comparable financial measure calculated and presented in accordance with gaap . story_separator_special_tag expense related party expense increased $ 22.9 million to $ 33.4 million for the year ended december 31 , 2017 compared to $ 10.5 million for the year ended december 31 , 2016. the increase was primarily attributable to contract termination and advising fees as a result of the business combination . interest expense interest expense increased $ 19.1 million , or 17.5 % , to $ 128.5 million for the year ended december 31 , 2017 compared to $ 109.4 million for the year ended december 31 , 2016. the increase was primarily attributable to the issuance of new debt in conjunction with the business combination . loss on extinguishment of debt loss on extinguishment of debt for the year ended december 31 , 2017 was $ 35.5 million relating to the restructuring and business combinations . there was no loss on extinguishment in 2016. sundry expense sundry expense increased by $ 1.6 million to $ 2.3 million for the year ended december 31 , 2017 compared to $ 0.7 million for the year ended december 31 , 2016. the increase was mainly attributable to higher foreign currency transaction losses associated with exchange rate fluctuations . other income other income for the year ended december 31 , 2017 was $ 1.3 million . there was no other income in 2016 as this item relates solely to the interest rate swap entered into in 2017. the interest rate swap was not designated as a hedge . as such , changes in the fair value of the derivative are recorded directly in earnings . income tax benefit income tax benefit increased $ 48.4 million to $ 60.2 million for the year ended december 31 , 2017 compared to $ 11.8 million for the year ended december 31 , 2016. the increase in the income tax benefit was primarily due to net deferred tax liabilities assumed in the acquisition of novitex which reduced the valuation allowance . story_separator_special_tag 44 results of operations year ended december 31 , 2016 , compared to year ended december 31 , 2015 replace_table_token_7_th revenue our revenue decreased $ 15.3 million , or 1.9 % , to $ 789.9 million for the year ended december 31 , 2016 compared to $ 805.2 million for the year ended december 31 , 2015. this decrease is primarily related to a decrease in our llps segment revenues of $ 29.9 million . for the year ended december 31 , 2016 , our itps , hs , and llps segments constituted 55.7 % , 31.4 % , and 12.9 % of our total revenue , respectively , compared to 52.3 % , 31.3 % , and 16.4 % , respectively , for the year ended december 31 , 2015. the revenue changes by reporting segment was as follows : itpsrevenues increased $ 18.5 million , or 4.4 % , to $ 439.9 million for the year ended december 31 , 2016 compared to $ 421.4 million for the year ended december 31 , 2015. the increase is primarily attributable to the acquisition of transcentra which contributed approximately $ 33.3 million in revenue . the increase was partially offset by a $ 7.5 million decrease resulting from the impact of the devaluation of gbp and eur against the usd in our european business due to the potential exit of the united kingdom from the european union . additional offsets were a decrease of $ 4.4 million in pass through revenue and decrease of $ 3.9 million from shifts in customer volumes in the unified communication service lines . hsrevenues decreased $ 3.9 million , or 1.5 % , to $ 247.8 million for the year ended december 31 , 2016 compared to $ 251.7 million for the year ended december 31 , 2015. the revenue decrease was primarily driven by an $ 11.4 million decline in a federal contract due to volume constraints resulting 45 from a site consolidation project executed in mid-2016 , partially offset by a $ 9.7 million increase in revenue due to higher volumes from existing customers and the on-boarding of new customers . llpsrevenues decreased $ 29.9 million , or 22.7 % , to $ 102.2 million for the year ended december 31 , 2016 compared to $ 132.1 million for the year ended december 31 , 2015. the decrease was primarily due to declines of $ 24.0 million in the legal claims administration services including the winding down of the outsourced contract costs mortgage mega-case settlement . the legal claims administration market has shifted from major restitutions to fines and settlements from the regulatory authorities . the market remains steady with a supply of small settlements and cases in the absence of any mega-cases for settlement . the remaining decrease was primarily attributable to the labor and employment practice as the company continues to right-size the employee base to improve utilization metrics per full time equivalent and reduce fixed costs . cost of revenue cost of revenue decreased $ 40.7 million , or 7.3 % , to $ 519.1 million for the year ended december 31 , 2016 compared to $ 559.8 million for year ended december 31 , 2015. the decrease was primarily attributable to decreases in the itps , hs and llps segments of $ 6.3 million , $ 15.6 and $ 18.9 million , respectively . the cost of revenue decrease by operating segment was as follows : itpscost of revenue decreased $ 6.3 million , or 2.1 % , to $ 296.8 million for the year ended december 31 , 2016 compared to $ 303.1 million for year ended december 31 , 2015. the decrease was primarily attributable to $ 27.8 million in cost saving initiatives implemented during the year for various service offerings , a decrease of $ 4.4 million in pass-through expenses and a decrease of $ 2.3 million in the unified communication service lines due to the shift in customer volumes . these decreases were partially offset by an increase in cost of revenue of $ 27.2 million related to the acquisition of transcentra . hscost of revenue decreased $ 15.6 million , or 8.9 % , to $ 158.8 million for the year ended december 31 , 2016 compared to $ 174.4 million for year ended december 31 , 2015. the decrease was primarily attributable to $ 13.6 million in cost saving initiatives implemented during the year for various service offerings and a $ 2.0 million decrease related to changes in revenue mix . llpscost of revenue decreased $ 18.9 million , or 23.0 % , to $ 63.5 million for the year ended december 31 , 2016 compared to $ 82.4 million for year ended december 31 , 2015. the decrease was primarily related to the changes in revenue mix . the cost of revenues declined by $ 11.8 million primarily due to lower revenue in the legal claims administration service lines including the winding down of the outsourced contract costs mortgage settlement . additionally , a decrease of $ 5.6 million was driven by the labor and employment practice as it scaled down during the year . selling , general and administrative expenses selling , general , and administrative expenses increased $ 9.7 million , or 8.1 % , to $ 130.4 million for the year ended december 31 , 2016 compared to $ 120.7 million for the year ended december 31 , 2015. the increase was primarily due to increases in personnel costs and professional fees . depreciation & amortization depreciation and amortization expense increased $ 4.2 million , or 5.6 % , to $ 79.6 million for the year ended december 31 , 2016 compared to $ 75.4 million for the year ended december 31 , 2015. the increase was primarily related to the write-off of outsourced contract costs during the year ended december 31 , 2016 .
| 42 hsrevenues decreased $ 14.2 million , or 5.7 % , to $ 233.6 million for the year ended december 31 , 2017 compared to $ 247.8 million for the year ended december 31 , 2016. the decrease was primarily attributable to a surge in demand from healthcare provider customers in early 2016 as a result of a change in regulatory coding requirements beginning in the fourth quarter of 2015 , resulting in a decline in revenue of $ 17.9 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. we have since experienced a normalization of demand as healthcare provider customers have reduced outsourcing of the service . the decrease was partially offset by an increase in revenues of $ 3.7 million from the payer business during the period . llpsrevenues decreased $ 10.6 million , or 10.4 % , to $ 91.6 million for the year ended december 31 , 2017 compared to $ 102.2 million for the year ended december 31 , 2016. the decrease was primarily attributable to lower revenue resulting from the sale of meridian consulting group , llc of approximately $ 4.4 million , lower revenue from the legal claims administration services of $ 4.3 million , and lower revenue from labor and employment practice of $ 1.9 million , during the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. cost of revenue cost of revenue increased $ 310.0 million , or 59.7 % , to $ 829.1 million for the year ended december 31 , 2017 compared to $ 519.1 million for year ended december 31 , 2016. the increase was primarily attributable to an increase in the itps segment of $ 323.9 million , offset by decreases in the hs and llps segments of $ 5.9 million and $ 7.9 million , respectively . the cost of revenue decrease by operating segment was as follows : itpscost of revenue increased $ 323.9 million , or 109.1 % , to $ 620.7 million for the year ended december 31 , 2017 compared to $ 296.8 million for year ended december 31 , 2016. the increase was primarily attributable to the acquisition of novitex , which contributed $ 248.6 million . the acquisition of transcentra contributed approximately $ 75.4 million . the increase was partially offset by various cost savings initiatives implemented during the year ended december 31 ,
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revenues we believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors , including our broad range of complex engineering and manufacturing service offerings , flexible low-cost manufacturing platform , process optimization capabilities , advanced supply chain management , excellent customer service and experienced management team . although we expect the prices we charge for our manufactured products to decrease over time ( partly as a result of competitive market forces ) , we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time , adjust our product mix by focusing on more complicated products , improve product quality and yields , and reduce material costs for the products we manufacture . we believe these capabilities will enable us to help our oem customers reduce their manufacturing costs while maintaining or improving the design , quality , reliability and delivery times of their products . 39 revenues , by percentage , from individual customers representing 10 % or more of our total revenues in the respective periods were as follows : replace_table_token_3_th because we depend upon a small number of customers for a significant percentage of our total revenues , a reduction in orders from , a loss of , or any other adverse actions by , any one of these customers would reduce our revenues and could have a material adverse effect on our business , operating results and share price . moreover , our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure . many of our existing and potential customers have substantial debt burdens , have experienced financial distress or have static or declining revenues , all of which may be exacerbated by the continued uncertainty in the global economies . certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market . we generate significant accounts payable and inventory for the services that we provide to our customers , which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers . therefore , any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs , provisions for doubtful accounts , and increases in working capital requirements due to increased days inventory and in accounts receivable . furthermore , reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us . in addition , although we enter into master supply agreements with our customers , the level of business to be transacted under those agreements is not guaranteed . instead , we are awarded business under those agreements on a project-by-project basis . some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us . if we are unable to maintain our relationships with our existing significant customers , our business , financial condition and operating results could be harmed . on june 30 , 2018 , we adopted revenue from contracts with customers ( topic 606 ) , which created accounting standards codification topic 606 ( asc 606 ) , using the modified retrospective method applied to those contracts which were not completed as of june 29 , 2018. the modified retrospective method requires us to recognize the cumulative effect of the adoption of asc 606 , for all contracts with customers , to the opening balance of equity at june 30 , 2018. accordingly , our comparative financial information as of june 29 , 2018 has not been adjusted and continues to be reported under asc 605 , revenue recognition ( asc 605 ) . in accordance with the new revenue standard requirements , the impact of adoption of asc 606 on our consolidated statements of operations and comprehensive income for the year ended june 28 , 2019 was as follows : replace_table_token_4_th 40 ( 1 ) adjustment relates to certain manufacturing contracts with vendor-managed inventory arrangements for which revenue was recognized at shipping . ( 2 ) adjustment relates to costs associated with revenue recognized . ( 3 ) adjustment relates to net impact on net income upon adoption of asc 606. revenues by geography we generate revenues from three geographic regions : north america , asia-pacific , and europe . revenues are attributed to a particular geographic area based on the bill-to-location of our customers , notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region . the substantial majority of our revenues are derived from our manufacturing facilities in asia-pacific . the percentage of our revenues generated from a bill-to-location outside of north america decreased from 53.1 % in fiscal year 2018 to 52.3 % in fiscal year 2019 , which was partially due to a decrease in sales to our customers in europe by 1.4 % . based on the short and medium term indications and forecasts from our customers , we expect that the portion of our future revenues attributable to customers in regions outside of north america will increase as compared with the portion of revenues attributable to such customers during fiscal year 2019. the following table presents percentages of total revenues by geographic regions : replace_table_token_5_th our contracts we enter into supply agreements with our customers which generally have an initial term of up to three years , subject to automatic renewals for subsequent one-year terms unless expressly terminated . although there are no minimum purchase requirements in our supply agreements , our customers provide us with rolling forecasts of their demand requirements . our supply agreements generally include provisions for pricing and periodic review of pricing , consignment of our customer 's unique production equipment to us , and the sharing of benefits from cost-savings derived from our efforts . story_separator_special_tag we are generally required to purchase materials , which may include long lead-time materials and materials that are subject to minimum order quantities and or non-cancelable or non-returnable terms , to meet the stated demands of our customers . after procuring materials , we manufacture products for our customers based on purchase orders that contain terms regarding product quantities , delivery locations and delivery dates . our customers generally are obligated to purchase finished goods that we have manufactured according to their demand requirements . materials that are not consumed by our customers within a specified period of time , or are no longer required due to a product 's cancellation or end-of-life , are typically designated as excess or obsolete inventory under our contracts . once materials are designated as either excess or obsolete inventory , our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products . the excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment . cost of revenues the key components of our cost of revenues are material costs , employee costs , and infrastructure-related costs . material costs generally represent the majority of our cost of revenues . several of the materials we require to manufacture products for our customers are customized for their products and often sourced from a single 41 supplier or in some cases , our own subsidiaries . shortages from sole-source suppliers due to yield loss , quality concerns and capacity constraints , among other factors , may increase our expenses and negatively impact our gross profit margin or total revenues in a given quarter . material costs include scrap material . historically , scrap rate diminishes during a product 's life cycle due to process , fixturing and test improvement and optimization . a second significant element of our cost of revenues is employee costs , including indirect employee costs related to design , configuration and optimization of manufacturing processes for our customers , quality testing , materials testing and other engineering services ; and direct costs related to our manufacturing employees . direct employee costs include employee salaries , insurance and benefits , merit-based bonuses , recruitment , training and retention . historically , our employee costs have increased primarily due to increases in the number of employees necessary to support our growth and , to a lesser extent , costs to recruit , train and retain employees . our cost of revenues is significantly impacted by salary levels in thailand , the prc and the united kingdom , the fluctuation of the thai baht , chinese renminbi ( rmb ) and pound sterling ( gbp ) against our functional currency , the u.s. dollar , and our ability to retain our employees . we expect our employee costs to increase as wages continue to increase in thailand and the prc . wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin . we seek to mitigate these cost increases through improvements in employee productivity , employee retention and asset utilization . our infrastructure costs are comprised of depreciation , utilities , facilities management and overhead costs . most of our facility leases are long-term agreements . our depreciation costs include buildings and fixed assets , primarily at our pinehurst and chonburi campuses in thailand , and capital equipment located at each of our manufacturing locations . during fiscal years 2019 , 2018 and 2017 , discretionary merit-based bonus awards were made to our non-executive employees . charges included in cost of revenues for bonus awards to non-executive employees were $ 3.9 million , $ 3.5 million and $ 3.2 million for fiscal years 2019 , 2018 and 2017 , respectively . share-based compensation expense included in cost of revenues was $ 5.7 million , $ 6.8 million and $ 5.3 million for fiscal years 2019 , 2018 and 2017 , respectively . we expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets , though we are not able to determine the amount of these incremental expenses . selling , general and administrative expenses our sg & a expenses primarily consist of corporate employee costs for sales and marketing , general and administrative and other support personnel , including research and development expenses related to the design of customized optics and glass , travel expenses , legal and other professional fees , share-based compensation expense and other general expenses not related to cost of revenues . in fiscal year 2020 , we expect our sg & a expenses will increase compared with our fiscal year 2019 sg & a expenses . the compensation committee of our board of directors approved a fiscal year 2019 executive incentive plan with quantitative objectives based solely on achieving certain revenue targets and non-u.s. gaap gross margin targets for fiscal year 2019. bonuses under the fiscal year 2019 executive incentive plan are payable after the end of fiscal year 2019. in fiscal year 2018 , the compensation committee approved a fiscal year 2018 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-u.s. gaap gross margin targets for fiscal year 2018. because we did not achieve the targets under our fiscal year 2018 executive incentive plan , no bonuses were paid under such plan . discretionary merit-based bonus awards are also available to our non-executive employees and payable on a quarterly basis . charges included in sg & a expenses for bonus distributions to non-executive and executive employees were $ 3.7 million , $ 0.5 million and $ 4.4 million for fiscal years 2019 , 2018 and 2017 , respectively . 42 share-based compensation expense included in sg & a expenses was $ 11.5 million , $ 15.8 million and $ 21.2 million for fiscal years 2019 , 2018 and 2017 , respectively .
| our gross profit increased by $ 25.8 million , or 16.8 % , to $ 179.2 million , or 11.3 % of total revenues , for fiscal year 2019 , compared with $ 153.4 million , or 11.2 % of total revenues , for fiscal year 2018. the increase in gross profit percentage in fiscal year 2019 was due to higher revenue and fixed costs leverage . sg & a expenses . our sg & a expenses decreased by $ 2.7 million , or 4.7 % , to $ 55.1 million , or 3.5 % of total revenues , for fiscal year 2019 , compared with $ 57.8 million , or 4.2 % of total revenues , for fiscal year 2018. our sg & a expenses decreased during fiscal year 2019 , compared with fiscal year 2018 , mainly due to ( 1 ) a decrease in share-based compensation expenses of $ 4.3 million because we did not expect to achieve the pre-defined performance targets for vesting of certain performance-based restricted share units awarded under our 2017 inducement equity incentive plan and ( 2 ) a decrease in executive severance payments of $ 2.1 million and a decrease in key executive benefits of $ 1.8 million in connection with the transition of the executive chairman of our board of directors to non-executive chairman during fiscal year 2018. the decrease was offset by ( 1 ) an increase of $ 2.4 million in executive cash bonuses under our fiscal year 2019 executive incentive plan due to our expectation that certain pre-defined revenue targets and non-u.s. gaap gross margin targets would be achieved ; ( 2 ) an increase in severance payment of $ 1.0 million in connection with non-executive management separations ; ( 3 ) an increase in public company cost of $ 0.6 million ; and ( 4 ) an increase in severance liability expense of $ 0.4 million due to an increase in headcount as well as a change in labor protection law in thailand that increased the required
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sales during the third and fourth fiscal quarters are typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year . there are , however , variations in the seasonal demands from year to year depending in large part upon municipal budgets , distinct replacement cycles , and student enrollment . the seasonality and annual variations of seasonality could impact the ability to compare results between fiscal periods . f actors affecting our expenses and other items our expenses and other line items in our consolidated statements of operations are principally driven by the following factors : cost of goods sold . the components of our cost of goods sold consist of material costs ( principally powertrain components , steel and rubber , as well as aluminum and copper ) , labor expense , and overhead . our cost of goods sold may vary from period to period due to changes in sales volume , efforts by certain suppliers to pass through the economics associated with key commodities , design changes with respect to specific components , design changes with respect to specific bus models , wage increases for plant labor , productivity of plant labor , delays in receiving materials and other logistical challenges , and the impact of overhead items such as utilities . selling , general and administrative expenses . our selling , general and administrative expenses include costs associated with our selling and marketing efforts , engineering , centralized finance , human resources , purchasing , and information technology services , along with other administrative matters and functions . in most instances , other than direct costs associated with sales and marketing programs , the principal component of these costs is salary expense . changes from period to period are typically driven by the number of our employees , as well as by merit increases provided to experienced personnel . interest expense . our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt . interest expense also includes unrealized gains or losses from interest rate hedges , if any , as well as expenses related to debt guarantees , if any . income taxes . we make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate . in addition , provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken . other expense , net . this includes periodic pension expense as well as gains or losses on foreign currency , if any . other immaterial amounts not associated with operating expenses may also be included here . equity in net income of non-consolidated affiliate . we include in this line item our 50 % share of net income or loss from our investment in micro bird , our unconsolidated canadian joint venture . key non-gaap financial measures we use to evaluate our performance this filing includes the following non-gaap financial measures “ adjusted ebitda ” ; “ adjusted ebitda margin ” ; and “ free cash flow ” . management views these metrics as a useful way to look at the performance of our operations between periods and to exclude decisions on capital investment and financing that might otherwise impact the review of profitability of the business based on present market conditions . adjusted ebitda is defined as net income prior to interest income , interest expense including the component of operating lease expense ( which is presented as a single operating expense in selling , general and administrative expenses in our gaap financial statements ) that represents interest expense on lease liabilities , income taxes , depreciation and amortization including the component of operating lease expense ( which is presented as a single operating expense in selling , general and administrative expenses in our gaap financial statements ) that represents amortization charges on right-of-use lease assets , and disposals , as adjusted to add back certain charges that we may record each year , such as stock-compensation expense , as well as non-recurring charges such as ( i ) significant product design changes ; ( ii ) transaction related costs ; or ( iii ) discrete expenses related to major cost cutting initiatives . we believe these expenses and non-recurring charges are not considered an indicator of ongoing company performance . we define adjusted ebitda margin as adjusted ebitda as a percentage of net sales . adjusted ebitda and adjusted ebitda margin are not measures of performance defined in accordance with gaap . the measures are used as a supplement to gaap results in evaluating certain aspects of our business , as described below . we believe that adjusted ebitda and adjusted ebitda margin are useful to investors in evaluating our performance because the measures consider the performance of our operations , excluding decisions made with respect to capital investment , financing , and other non-recurring charges as outlined in the preceding paragraph . we believe the non-gaap metrics offer additional financial metrics that , when coupled with the gaap results and the reconciliation to gaap results , provide a more complete understanding of our results of operations and the factors and trends affecting our business . 28 adjusted ebitda and adjusted ebitda margin should not be considered as alternatives to net income as an indicator of our performance or as alternatives to any other measure prescribed by gaap as there are limitations to using such non-gaap measures . story_separator_special_tag although we believe that adjusted ebitda and adjusted ebitda margin may enhance an evaluation of our operating performance based on recent revenue generation and product/overhead cost control because they exclude the impact of prior decisions made about capital investment , financing , and other expenses , ( i ) other companies in blue bird 's industry may define adjusted ebitda and adjusted ebitda margin differently than we do and , as a result , they may not be comparable to similarly titled measures used by other companies in blue bird 's industry , and ( ii ) adjusted ebitda and adjusted ebitda margin exclude certain financial information that some may consider important in evaluating our performance . we compensate for these limitations by providing disclosure of the differences between adjusted ebitda and gaap results , including providing a reconciliation to gaap results , to enable investors to perform their own analysis of our operating results . our measure of “ free cash flow ” is used in addition to and in conjunction with results presented in accordance with gaap and free cash flow should not be relied upon to the exclusion of gaap financial measures . free cash flow reflects an additional way of viewing our liquidity that , when viewed with our gaap results , provides a more complete understanding of factors and trends affecting our cash flows . we strongly encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure . we define free cash flow as total cash provided by/used in operating activities minus cash paid for fixed assets and acquired intangible assets . we use free cash flow , and ratios based on free cash flow , to conduct and evaluate our business because , although it is similar to cash flow from operations , we believe it is a more conservative measure of cash flow since purchases of fixed assets and intangible assets are a necessary component of ongoing operations . in limited circumstances in which proceeds from sales of fixed or intangible assets exceed purchases , free cash flow would exceed cash flow from operations . however , since we do not anticipate being a net seller of fixed or intangible assets , we expect free cash flow to be less than operating cash flows . our segments we manage our business in two operating segments , which are also our reportable segments : ( i ) the bus segment , which involves the design , engineering , manufacture and sales of school buses and extended warranties ; and ( ii ) the parts segment , which includes the sales of replacement bus parts . financial information is reported on the basis that it is used internally by the chief operating decision maker ( “ codm ” ) in evaluating segment performance and deciding how to allocate resources to segments . the president and chief executive officer of the company has been identified as the codm . management evaluates the segments based primarily upon revenues and gross profit . consolidated results of operations for the fiscal years ended september 28 , 2019 and september 29 , 2018 : replace_table_token_3_th 29 the following provides the results of operations of blue bird 's two reportable segments : replace_table_token_4_th net sales . net sales were $ 1.019 billion for the fiscal year ended 2019 , a decrease of $ 6.1 million , or ( 0.6 ) % , compared to $ 1.025 billion for the fiscal year ended 2018 . bus sales decreased $ 10.5 million , or 1.1 % , reflecting a decrease in units booked and higher sales prices . in the fiscal year ended 2019 , 11,017 units were booked compared to 11,649 units booked for the fiscal year ended 2018 . the average net sales price per unit for the fiscal year ended 2019 was 4.6 % higher than the price per unit for the fiscal year ended 2018 . the increase in unit price mainly reflects pricing taken to partially offset commodity costs , as well as product and customer mix changes . parts sales increased $ 4.4 million , or 7.1 % , for the fiscal year ended 2019 compared to fiscal year ended 2018 , resulting from higher volumes primarily due to incentive and shipping programs launched in the previous fiscal year . cost of goods sold . total cost of goods sold was $ 885.4 million for the fiscal year ended 2019 , a decrease of $ 17.6 million , or 1.9 % , compared to $ 903.0 million for the fiscal year ended 2018 . as a percentage of net sales , total cost of goods sold decreased from 88.1 % to 86.9 % . bus segment cost of goods sold decreased $ 20.5 million , or 2.4 % , for the fiscal year ended 2019 compared to the fiscal year ended 2018 . the average cost of goods sold per unit for the fiscal year ended 2019 was 3.2 % higher compared to the average cost of goods sold per unit for the fiscal year ended 2018 due to raw material price increases related to rising commodity costs and tariffs , which were partially offset by cost savings resulting from our operational improvement initiatives . the $ 3.0 million , or 7.3 % , increase in parts segment cost of goods sold for the fiscal year ended 2019 compared to the fiscal year ended 2018 was primarily attributed to increased parts sales volume . operating profit . operating profit was $ 43.8 million for the fiscal year ended 2019 , an increase of $ 8.8 million , or 25.0 % , compared to $ 35.1 million for the fiscal year ended 2018 . profitability was positively impacted by an increase of $ 11.5 million in gross profit , which was partially offset by an increase of $ 2.7 million in selling , general and administrative expenses due in large part to several non-recurring product development initiatives as well as higher share-based compensation expense .
| in fiscal 2018 , we finalized our tax reform estimates under sab 118. the effective tax rate for the fiscal year ended 2017 was 31.7 % , which differed from the statutory federal income tax rate of 35 % , reflecting the benefits of income tax credits , the domestic production activities deduction , and recording a tax windfall from share-based compensation awards exercised , which were offset by the application of tax credits claimed as offsets against our payroll tax liabilities , and interest and penalties on uncertain tax positions . adjusted ebitda . adjusted ebitda was $ 70.4 million , or 6.9 % of net sales , for the fiscal year ended 2018 , an increase of $ 1.5 million , or 2.1 % , compared to $ 68.9 million , or 7.0 % of net sales , for the fiscal year ended 2017 . the increase in adjusted ebitda was primarily the result of a decrease in selling , general and administrative expenses when adjusted for specific non-recurring operational and product development initiatives , which was partially offset by decreased gross profit . 33 the following table sets forth a reconciliation of net income to adjusted ebitda for the fiscal years presented : replace_table_token_8_th liquidity and capital resources the company 's primary sources of liquidity are cash generated from operations , available cash , and borrowings under the credit facility . at september 28 , 2019 , the company had $ 71.0 million of available cash and cash equivalents ( net of outstanding checks ) and $ 93.1 million of additional borrowings available under the revolving line of credit portion of its senior secured credit facilities . the company 's revolving line of credit is available for working capital requirements , capital expenditures and other general corporate purposes . credit agreement on december 12 , 2016 ( the “ closing date ” ) , blue bird body company as the borrower ( the `` borrower '' ) , a wholly-owned subsidiary of the company , executed a $ 235.0 million five-year credit agreement with bank of montreal , which acts as the administrative agent and an issuing bank , fifth third bank , as co-syndication agent and an issuing bank , and regions bank , as co-syndication agent , together with other lenders ( the `` credit agreement '' ) . the credit facility provided for under the credit agreement consists of a term loan facility
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we expect to achieve a target adjusted ebitda exit margin between 36-38 % in the fourth quarter of fiscal 2018. in addition , we recently announced our goal to generate targeted adjusted ebitda exit margin of 40 % or above for the fiscal year ending june 30 , 2019 ( `` fiscal 2019 '' ) . during fiscal 2016 , we executed against this goal by expanding margin on consolidated net earnings attributable to cdk by 270 basis points to 11.3 % and expanding consolidated adjusted ebitda margin by 370 basis points to 26.6 % . see `` results of operations - non-gaap measures '' for a discussion regarding our use of non-gaap measures and a reconciliation of our non-gaap measures to the nearest gaap measures . our fiscal 2018 and 2019 targets represent financial objectives distinct from forecasts of performance . therefore , we have not provided reconciliations of our fiscal 2018 and 2019 adjusted ebitda targets to the most directly comparable gaap measure of net earnings attributable to cdk , because projecting potential adjustments to gaap results for fiscal 2018 and 2019 targets is not feasible and could be misleading to users of this financial information . the ebitda reconciliation disclosed under `` results of operations - non-gaap measures '' is indicative of the reconciliations that will be prepared for the same fiscal 2018 and 2019 adjusted measures in the future . we expect to incur expenses in connection with the execution of our business transformation plan of approximately $ 150.0 million through fiscal 2018 comprising of approximately $ 55.0 million of restructuring expenses and approximately $ 95.0 million of other business transformation expenses , which reflects a reallocation between restructuring and other business transformation 33 expenses . the allocation change is based on progress to date and ongoing evaluation of the effort necessary to execute the business transformation plan . we continue to evaluate our estimate of expenses and the allocation of those expenses as we execute the business transformation plan , including increased expenses associated with our fiscal 2019 adjusted ebitda target . restructuring expenses associated with the business transformation plan included employee-related costs , which represent severance and other termination-related benefits , and contract termination costs , which include costs to terminate facility leases . we recognized $ 20.2 million and $ 2.4 million of restructuring expenses for the fiscal 2016 and 2015 , respectively . since the inception of the business transformation plan , we have recognized cumulative restructuring expenses of $ 22.6 million . during fiscal 2016 , our severance accrual increased as a result of an action to reduce our global workforce under the ongoing business transformation plan which occurred in the fourth quarter of fiscal 2016. in addition , we eliminated numerous open positions and reduced the use of external contractors . restructuring expenses are presented separately on the consolidated and combined statements of operations . restructuring expenses are recorded in the other segment , as these initiatives are predominantly centrally directed and are not included in internal measures of segment operating performance . accruals for restructuring expenses were included within accrued expenses and other current liabilities on the consolidated balance sheets as of june 30 , 2016 and 2015. the following table summarizes the activity for the restructuring accrual for fiscal 2016 : replace_table_token_5_th our business transformation plan includes a goal to reduce the number of north american facilities we occupy by 40 % . in august 2016 , we announced all of the north american facilities we intend to close through fiscal 2018. these efforts are expected to result in an increase in contract termination costs in future periods . in addition to the restructuring expenses discussed above , we expect to incur additional costs to implement the business transformation plan , including consulting , training , stock-based compensation expense , and other transition costs . we may also incur accelerated depreciation and or amortization expenses if the expected useful lives of our assets are adjusted . while these costs are directly attributable to our business transformation plan , they are not included in restructuring expenses on our consolidated and combined statements of operations . we recognized $ 39.7 million and $ 1.9 million of other business transformation expenses for fiscal 2016 and 2015 , respectively . since the inception of the business transformation plan , we have recognized cumulative other business transformation expenses of $ 41.6 million . in december 2015 , we announced our intent to return $ 1.0 billion to our stockholders in the form of dividends and share repurchases , and subsequently announced an acceleration of the completion of this return of capital plan by the end of calendar year 2016. since we announced this intent in december 2015 , we repurchased $ 550.0 million of our common stock under accelerated share repurchase transactions and paid dividends of $ 63.1 million . execution of our business transformation plan will result in increased earnings , which will drive free cash flow ( the amount of cash generated from operating activities less capital expenditures and capitalized software ) . we intend to continue to return free cash flow to our stockholders as our business transformation plan progresses . 34 sources of revenues and expenses revenues . we generally receive fee-based revenues by providing services to customers . 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 customer 's location . we also receive revenues for installing on-site and hosted dms solutions and for training and consulting with customers , in addition to monthly fees related to hosting dms solutions in cases where customers outsource their information technology management activities to the company . story_separator_special_tag in our arna segment , we also receive revenues on a fee per transaction processed basis , where we provide automotive retailers , primarily in the u.s. , solutions with third parties to process credit reports , vehicle registrations , data updates , and automotive equity mining . 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 customers 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 processed by customers of our transactional business , or indirectly through changes in our customers ' 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 . we currently operate in over 100 countries and derive a significant amount of our overall revenues 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 2016 , 2015 , and 2014 , we incurred $ 161.0 million , $ 170.1 million , and $ 165.7 million , respectively , of expenses to research , develop , and deploy new and enhanced solutions for our customers . 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 customers ' 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 . 35 factors affecting comparability of financial results our spin-off 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 were prepared in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) . these financial statements include the combined 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 .
| segment reporting during fiscal 2016 , we began to report segment revenues and earnings before income taxes using actual foreign exchange rates . previously , our revenues and earnings before income taxes for each segment were adjusted to reflect budgeted foreign exchange rates , which resulted in a reconciling item for foreign exchange so as to present segment results on a 38 consistent basis without the impact of fluctuations in foreign currency exchange rates . segment information for fiscal 2015 and 2014 has been updated to conform to the new presentation and the effect of foreign exchange now resides within reportable segment revenues and earnings before income taxes . as discussed in `` reportable segments '' under item 1 - `` business , '' our operating segments changed effective july 1 , 2016. our new operating segments comprise of retail solutions north america , advertising north america , and cdk international . we will revise prior period segment data to conform to the new segment reporting structure in future filings . fiscal 2016 compared to fiscal 2015 the following is a discussion of the results of our consolidated and combined results of operations for fiscal 2016 and 2015 , respectively . for a discussion of our operations by segment , see `` analysis of reportable segments '' below . the table below presents consolidated and combined statements of operations for the periods indicated and the dollar change and percentage change between periods . replace_table_token_6_th revenues . revenues for fiscal 2016 increased $ 51.1 million as compared to fiscal 2015 . the dm segment contributed $ 35.3 million and the arna segment contributed $ 21.4 million , partially offset by a decrease in revenues in the ari segment of $ 5.6 million . see the discussion below for drivers of each segment 's revenue growth . the impact of foreign exchange rates on revenues was a decrease of $ 39.1 million . the foreign exchange rate impact was
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changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in louisiana and our other out-of-state market areas . during the extended period of historically low interest rates , we continue to evaluate our investments in interest-earning assets in relation to the impact such investments have on our financial condition , results of operations and shareholders ' equity if interest rates were to suddenly increase as they did in the second and third quarters of 2013 . 28 financial highlights for 2014 and 2013 : ● net income for the years ended december 31 , 2014 and 2013 was $ 11.2 million and $ 9.1 million , respectively . ● net income available to common shareholders after preferred stock dividends was $ 10.8 million and $ 8.4 million for the years ended december , 31 2014 and 2013 , respectively . dividends on preferred stock decreased $ 0.3 million to $ 0.4 million for 2014 when compared to $ 0.7 million for 2013. this decrease was the result of a lower dividend rate due to the increase in qualified small business loans as a part of the u.s. treasury 's sblf program . ● earnings per common share were $ 1.72 and $ 1.34 for the years ended december 31 , 2014 and 2013 , respectively . ● net interest income for 2014 was $ 44.1 million compared to $ 39.8 million for 2013 . ● total assets at december 31 , 2014 increased $ 82.4 million , or 5.7 % , to $ 1.5 billion when compared to $ 1.4 billion at december 31 , 2013 . ● investment securities totaled $ 641.6 million at december 31 , 2014 , an increase of $ 7.1 million when compared to $ 634.5 million at december 31 , 2013. at december 31 , 2014 , available for sale securities , at fair value , totaled $ 499.8 million ; an increase of $ 15.6 million when compared to $ 484.2 million at december 31 , 2013. at december 31 , 2014 , held to maturity securities , at amortized cost , totaled $ 141.8 million ; a decrease of $ 8.5 million when compared to $ 150.3 million at december 31 , 2013. mortgage-backed securities , backed by u.s. government agencies or enterprises , made up $ 57.3 million of the $ 141.8 million of the held to maturity securities at december 31 , 2014 . ● average weighted life of investment securities at december 31 , 2014 was 5.3 years a decline of 0.4 years when compared to the average life of 5.7 years at december 31 , 2013. the company has continued to reduce the average life of the securities portfolio as a part of its overall interest rate risk management process . ● the net loan portfolio at december 31 , 2014 totaled $ 781.2 million , a net increase of $ 88.4 million from $ 692.8 million at december 31 , 2013. net loans are reduced by the allowance for loan losses which totaled $ 9.1 million at december 31 , 2014 and $ 10.3 million at december 31 , 2013. total loans net of unearned income were $ 790.3 million at december 31 , 2014 compared to $ 703.2 million at december 31 , 2013 . ● total impaired loans decreased $ 0.4 million to $ 29.5 million at december 31 , 2014 compared to $ 29.9 million at december 31 , 2013 . ● nonaccrual loans decreased $ 2.3 million to $ 12.2 million at december 31 , 2014 compared to $ 14.5 million at december 31 , 2013 . ● retained earnings increased $ 6.8 million to $ 54.3 million at december 31 , 2014 when compared to $ 47.5 million at december 31 , 2013 . ● return on average assets for the year end december 31 , 2014 and december 31 , 2013 was 0.77 % and 0.65 % , respectively . ● return on average common equity was 11.40 % and 9.31 % for 2014 and 2013 , respectively . ● book value per common share was $ 15.92 as of december 31 , 2014 compared to $ 13.35 as of december 31 , 2013. tangible book value per common share was $ 15.34 as of december 31 , 2014 compared to $ 12.72 as of december 31 , 2013 . ● the increase in book value was principally due to a change in accumulated other comprehensive income from an unrealized loss on available-for-sale securities of $ 9.1 million at december 31 , 2013 to an unrealized gain on available-for-sale securities of $ 0.2 million at december 31 , 2014. retained earnings increased $ 6.8 million to $ 54.3 million at december 31 , 2014 . ● the company 's board of directors declared and the company paid cash dividends of $ 0.64 per common share in 2014 and 2013 . 29 application of critical accounting policies our accounting and reporting policies conform to generally accepted accounting principles in the united states and to predominant accounting practices within the banking industry . certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . story_separator_special_tag loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely . the allowance , which is based on evaluation of the collectability of loans and prior loan loss experience , is an amount that , in the opinion of management , reflects the risks inherent in the existing loan portfolio and exists at the reporting date . the evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions that may affect a borrower 's ability to pay , adequacy of loan collateral and other relevant factors . in addition , regulatory agencies , as an integral part of their examination process , periodically review the estimated losses on loans . such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination . the following are general credit risk factors that affect our loan portfolio segments . these factors do not encompass all risks associated with each loan category . construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property . farmland and agricultural loans have risks such as weather , government agricultural policies , fuel and fertilizer costs , and market price volatility . one- to four-family residential , multi-family , and consumer credits are strongly influenced by employment levels , consumer debt loads and the general economy . non-farm non-residential loans include both owner-occupied real estate and non-owner occupied real estate . common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses . commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral . although management uses available information to recognize losses on loans , because of uncertainties associated with local economic conditions , collateral values and future cash flows on impaired loans , it is reasonably possible that a material change could occur in the allowance for loan losses in the near term . however , the amount of the change that is reasonably possible can not be estimated . the evaluation of the adequacy of loan collateral is often based upon estimates and appraisals . because of changing economic conditions , the valuations determined from such estimates and appraisals may also change . accordingly , we may ultimately incur losses that vary from management 's current estimates . adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated . all loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely . recoveries are credited to the allowance at the time of recovery . the allowance consists of specific , general , and unallocated components . the specific component relates to loans that are classified as doubtful , substandard , and impaired . for such loans that are also classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan is lower than the carrying value of that loan . also , a specific reserve is allocated for our syndicated loans . the general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors . an unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses . the allowance for loan losses is reviewed on a monthly basis . the monitoring of credit risk also extends to unfunded credit commitments , such as unused commercial credit lines and letters of credit . a reserve is established as needed for estimates of probable losses on such commitments . other-than-temporary impairment of investment securities . securities are evaluated periodically to determine whether a decline in their value is other-than-temporary . the term “ other-than-temporary ” is not intended to indicate a permanent decline in value . rather , it means that the prospects for near-term recovery of value are not necessarily favorable , or that there is a lack of evidence to support fair values equal to , or greater than , the carrying value of the investment . management reviews criteria such as the magnitude and duration of the decline , the reasons for the decline , and the performance and valuation of the underlying collateral , when applicable , to predict whether the loss in value is other-than-temporary . once a decline in value is determined to be other-than-temporary , the carrying value of the security is reduced to its fair value and a corresponding charge to earnings is recognized . valuation of goodwill , intangible assets and other purchase accounting adjustments . intangible assets are comprised of goodwill , core deposit intangibles and mortgage servicing rights . goodwill and intangible assets deemed to have indefinite lives are no longer amortized , but are subject to annual impairment tests . our goodwill is tested for impairment on an annual basis , or more often if events or circumstances indicate impairment may exist . adverse changes in the economic environment , declining operations , or other factors could result in a decline in the implied fair value of goodwill . if the implied fair value is less than the carrying amount , a loss would be recognized in other noninterest expense to reduce the carrying amount to implied fair value of goodwill . our goodwill impairment test includes two steps that are preceded by a “ step zero ” qualitative test . the qualitative test allows management to assess whether qualitative factors indicate that it is more likely than not that impairment exists .
| as a result , interest income on the securities portfolio decreased $ 5.5 million for the year ended december 31 , 2013 when compared to 2012. in addition , gains on securities during 2013 decreased $ 3.3 million to $ 1.6 million from $ 4.9 million of securities gains in 2012. the impact of these changes in our securities portfolio was mitigated by a combination of increased income on loans of $ 1.2 million as a result of loan growth as well as a reduction in funding costs totaling $ 2.0 million in 2013 when compared to 2012. in addition , the credit quality of the loan portfolio continued to improve and as a result the provision for loan losses was $ 2.5 million for 2013 compared to $ 4.1 million for 2012 , a decrease of $ 1.6 million . although net income for 2013 was down $ 2.9 million from 2012 , income available to common shareholders for the year ended december 31 , 2013 was $ 8.4 million , a decrease of only $ 1.7 million from 2012. this was the result of qualified loan growth that reduced the dividend rate paid on our series c preferred stock to 1.0 % per annum , which resulted in the payment of $ 0.7 million in dividends in 2013 compared to $ 2.0 million in 2012. net interest income our operating results depend primarily on our net interest income , which is the difference between interest income earned on interest-earning assets , including loans and securities , and interest expense incurred on interest-bearing liabilities , including deposits and other borrowed funds . interest rate fluctuations , as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities , combine to affect net interest income . our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities . it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds . a financial institution 's asset and liability structure is substantially different from that of a non-financial company , in that virtually all assets and liabilities are monetary in nature . accordingly , changes in interest rates may have a significant
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shipping and handling costs are included in cost of goods sold . research and development the company incurs formulation costs that include salaries , materials and consultant fees . these costs are classified as product development , selling and general and administrative expenses in the consolidated statements of operations . income taxes the company accounts for income taxes under the liability 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 in effect for the year in which those temporary differences are expected to be recovered or settled . a valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will be realized . earnings per share the company computes basic and diluted earnings per share amounts in accordance with asc topic 260 , earnings per share . basic earnings per share is computed by dividing net income ( loss ) available to common shareholders by the weighted average number of common shares outstanding during the reporting period . diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the company . story_separator_special_tag at : left '' > · $ 133,071 for other general and administrative costs . liquidity and capital resources we had cash and cash equivalents of $ 4,517,604 and working capital of $ 6,615,258 at december 31 , 2015. our operating and capital requirements in connection with supporting our expanding operations and introducing new products have been and will continue to be significant to us . since inception , our losses from operations and working capital required to grow our business were satisfied through the initial contribution by our founders in 2007 , through sales of our common stock and by credit financing , including borrowings from third parties . we have sustained operational losses since our inception . at december 31 , 2015 , we had an accumulated deficit of $ 20,987,750. the company can not predict how long it will continue to incur further losses or whether it will ever become profitable as this is dependent upon the reduction of certain operating expenses , success of new and existing products and increase in overall revenue among other things . these conditions raise substantial doubt about the entity 's ability to continue as a going concern . we have commenced implementing , and will continue to implement , various measures to address our financial condition , including increasing gross profit margins and reducing operational costs and overhead . we are continuing to seek debt and equity financing ; however , there can be no assurances that the company will be able to raise additional capital on favorable terms , or at all . we also satisfied our working capital requirements in 2015 and 2014 , through the sale of common stock and borrowings from third parties . bank loans - on june 25 , 2015 , the company 's mexican subsidiary obtained a bank loan for mxn 2,000,000 or $ 127,715 , payable in monthly installments over 36 months and payment began in july 2015. as of december 31 , 2015 , the remaining outstanding amount on this bank loan was mxn 479,461 , or $ 27,651 and bears interest of 12.28 % . on july 6 , 2015 , the company 's mexican subsidiary obtained another bank loan for mxn 3,150,000 or $ 201,151 , payable in monthly installments over 36 months and payment began in august 2015. as of december 31 , 2015 , the remaining outstanding amount on this bank loan was mxn 2,764,743 , or $ 159,445 and bears annual interest of 9.3 % . promissory notes during the fourth quarter of 2014 , the company entered into a $ 350,000 promissory note with a private party . the promissory note was due on may 28 , 2015. on june 1 , 2015 , the parties agreed to convert the note plus accrued interest to common shares and the company on september 15 , 2015 issued 191,202 common shares valued at $ 387,100. with the same lender , in 2015 , the company entered into a $ 450,000 promissory note , as amended on september 1 , 2015. the note was secured by inventory , provided interest at 1 % per month and had a maturity date of december 31 , 2015. in connection with issuing the note , the company also issued warrants to purchase 30,000 common shares at $ 0.85 per share with an expiration date of april 20 , 2017 and 10,000 common shares at $ 2.50 per share with an expiration date of september 1 , 2017. the warrants had an aggregate estimated fair value of $ 26,048. on september 15 , 2015 , the warrant for 30,000 common shares were exercised . the note was paid off in full on december 23 , 2015 , excluding accrued interest of $ 22,933. cash flows for the year ended december 31 , 2015 cash flows from operating activities our operating activities used $ 2,509,212 in net cash for 2015 as compared to $ 1,583,567 in net cash used for 2014. the increase of $ 925,645 or 58.45 % in net cash used for operating activities of $ 2,509,212 was due increased net loss of $ 10,742,806 , partially offset by increased non-cash items of $ 8,540,426 and changes in operating assets and liabilities of $ 306,932. for additional details , see the consolidated statements of cash flows in the consolidated financial statements . story_separator_special_tag 23 cash flows from investing activities our investing activities used $ 7,137 in net cash for 2015 as compared to $ 68,345 in net cash used for 2014. the decrease in net cash used for investing of $ 61,208 was primarily due to a reduction in the purchase of furniture and equipment of $ 122,942 offset by proceeds from disposal of fixed assets of $ 61,734. for additional details , see the consolidated statements of cash flows in the consolidated financial statements . cash flows from financing activities our financing activities provided $ 5,746,595 in net cash for 2015 as compared to $ ( 56,833 ) in cash used for 2014. the change in cash flows from financing activities of $ 5,803,407 was primarily due to net proceeds from private placement of $ 4,514,000 , proceeds from the sale of common stock of $ 1,020,000 and net proceeds from loans and notes of $ 187,095. for additional details , see the consolidated statements of cash flows in the consolidated financial statements . financial position total assets our total assets increased from $ 8,281,328 as of december 31 , 2014 to $ 10,715,426 as of december 31 , 2015. the increase in our total assets of $ 2,434,098 , or 29.3 % , is a result of an increase in current assets , partially offset by a decrease in non-current assets . current assets our current assets increased from $ 6,948,213 as of december 31 , 2014 to $ 10,715,426 as of december 31 , 2015. the increase in our current assets of $ 3,116,144 , or 44 % , is attributable to increases in cash and cash equivalents , prepaid and other current assets and accounts receivable , net , partially offset by a decrease in inventories , net . cash and cash equivalents cash and cash equivalents increased from $ 1,128,556 as of december 31 , 2014 to $ 4,517,604 as of december 31 , 2015. the increase in cash and cash equivalents of $ 3,389,048 was primarily related to cash provided by financing activities of $ 5,746,595 partially offset by cash used in operating activities of $ 2,509,212 for additional details , see the consolidated statements of cash flows in the consolidated financial statements . inventories , net inventories , net decreased from $ 3,862,532 as of december 31 , 2014 to $ 3,733,213 as of december 31 , 2015. the decrease in inventories , net of $ 129,319 or 3.3 % , is a result of decreased demand and in line with our decline in revenue . accounts receivable , net accounts receivable , net increased from $ 1,678,411 as of december 31 , 2014 to $ 1,557,560 as of december 31 , 2015. the increase in accounts receivable , net of $ 120,851 , or 7.2 % , was primarily a result of reduced terms and increased bad debt given and from certain customers . prepaid expenses and other current assets prepaid and other current assets increased from $ 278,714 as of december 31 , 2014 to $ 255,980 as of december 31 , 2015. the increase in prepaid and other current assets of $ 22,734 was primarily related to prepaid vendor trade credits received for certain sales of the company 's slower moving inventory and prepaid marketing . non-current assets our non-current assets decreased from $ 1,101,373 as of december 31 , 2014 to $ 483,765 as of december 31 , 2015. the decrease in non-current assets of $ 617608 , or 56 % is attributable to decreases in intangible assets , net of $ 617,608 , or 56 % and furniture and equipment , net of $ 69,956 , or 41 % , as compared to december 31 , 2014. the decrease in intangible assets was due to $ 337,500 of impairment related to the brazilian distributor rights , $ 125,251 of amortization expenses and $ 154,857 of foreign currency translation loss related to our mexican subsidiary , which is a non-usd functional currency entity . the decrease in furniture and equipment , net was mainly related to depreciation expenses . total liabilities our total liabilities decreased from $ 3,765,589 as of december 31 , 2014 to $ 3,422,271 as of december 31 , 2015. the decrease in our total liabilities of $ 343,418 , or 9 % , is attributable to a decrease in current liabilities , partially offset by an increase in long-term debt , net of current portion . current liabilities our current liabilities decreased from $ 3,740,692 as of december 31 , 2014 to $ 3,307,221 as of december 31 , 2015. the decrease in our current liabilities of $ 433,471 or 12 % is attributable to an aggregate net decrease of $ 180,513 or 5 % , in accounts payable , accrued expenses and other current liabilities and a decrease of $ 252,958 in note payable . the aggregate net decrease in accounts payable , accrued expenses and other current liabilities was related , in part , to lower business volume and timing of payments . the decrease in note payable was related he note plus accrued interest to common shares and the company issued 191,202 common shares valued at $ 387,100 on september 15 , 2015 . 24 long term debt , net of current portion our long term debt , net of current portion increased from $ 24,997 as of december 31 , 2014 to $ 115,050 as of december 31 , 2015. the increase of $ 90,053 or 360 % was primarily related to new bank loans obtained by the company 's mexican subsidiary . see below material commitments for additional information .
| our mexican net revenue decreased by $ 680,063 , or 17.7 % from $ 3,832,045 for 2014 to $ 3,151,982 for 2015. of the decrease in our mexican net revenue , $ 556,358 was related to the strengthening of the u.s. dollar versus the mexican peso and the remaining decrease in our mexican net revenue of $ 123,705 , or 3 % is not significant . our us net revenue also decreased by $ 869,292 or 9.2 % , from $ 9,495,070 for 2014 to $ 8,625,778 for 2015. the decreased in us net revenue was the primarily due to weaker demand for our products , increased bad debts and delays in shipping . cost of goods sold our total cost of goods sold decreased $ 84,458 , or 1.5 % , from $ 5,461,976 for 2014 to $ 5,377,518 for 2015. the increase in total cost of goods sold was due to an increase in us cost of goods sold , partially offset by a decrease in mexican cost of goods sold . our us cost of goods sold increased by $ 113,453 , or 3 % , from 3,842,652 for 2014 to $ 3,956,106 for 2015. the increase in us cost of goods sold was primarily due to the reversal of the barter credits issued in exchange for slow moving merchandise but that not qualify as revenue under asc 605. our mexican cost of goods sold decreased by $ 482,151 , or 22 % , from $ 2,212,721 for 2014 to $ 1,730,570. the decrease in our mexican cost of goods sold was primarily due to the strengthening of the u.s. dollar versus the mexican peso , which was approximately $ 305,463. without the effect of the changes in foreign currency translation rates , our mexican cost of goods sold would have decreased by $ 176,688 , or 8 % . this decrease in mexican cost of goods sold was primarily due to decrease in sales . the overall increase in cost of goods sold contributed to a decline in our overall gross margin 5 % from 59 % for 2014 to 54 % for 2015. our consolidated gross profit decreased $ 1,464,897 , or 18.6 % , from $ 7,865,139 for 2014 to $ 6,400,242 for 2015. of the total decrease in gross profit , our us gross
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the company developed and marketed product lines based on these motion pictures . the next motion picture based on the company 's properties is g.i . joe : retaliation which is scheduled to be released in march of 2013 by paramount pictures . the company has motion picture projects based on other brands in development for potential release in future years . in addition to using motion pictures to provide entertainment experiences for its brands , the company has an internal wholly-owned production studio , hasbro studios , which is responsible for the creation and development of television programming based primarily on hasbro 's brands . this programming is currently aired throughout the world . the company is a 50 % partner in a joint venture with discovery communications , inc. ( discovery ) which runs the hub , a cable television network in the united states dedicated to high-quality children 's and family entertainment and educational programming . programming on the hub includes content based on hasbro 's brands , discovery 's library of children 's educational programming , as well as programming developed by third parties . hasbro studios programming is distributed in the u.s. to the hub , other leading children 's networks internationally and on various digital platforms , such as netflix and itunes . the company 's television initiatives support its strategy of growing its brands well beyond traditional toys and games and providing entertainment experiences for consumers of all ages in any form or format . the company 's strategic blueprint and brand architecture also focus on extending its brands further into digital media and gaming , including through the licensing of the company 's properties to a number of partners who develop and offer digital games and other gaming experiences based on those brands . an example of these digital gaming relationships is the company 's agreement with electronic arts inc. ( ea ) , which provides ea the exclusive worldwide rights , subject to existing limitations on the company 's rights and certain other exclusions , to create digital games for all platforms , such as mobile devices , gaming consoles and personal computers , based on a number of the company 's intellectual properties , including monopoly , scrabble , yahtzee , and boggle . similarly , the company has an agreement with activision under which activision offers digital games based on the transformers brand , as well as with other third party digital gaming companies such as dena and gameloft . the company continues to seek and develop additional outlets for its brands in digital gaming , including casual , mobile and online gaming . the company also seeks to express its brands through its lifestyle licensing business . under its lifestyle licensing programs , the company enters into relationships with a broad spectrum of apparel , food , bedding and 27 other lifestyle products companies for the global marketing and distribution of licensed products based on the company 's brands . these relationships further broaden and amplify the consumer 's ability to experience the company 's brands . as the company seeks to grow its business in entertainment , licensing and digital gaming , the company will continue to evaluate strategic alliances and acquisitions which may complement its current product offerings , allow it entry into an area which is adjacent to or complementary to the toy and game business , or allow it to further develop awareness of its brands and expand the ability of consumers to experience its brands in different forms and formats . during 2011 , the company established hasbro 's gaming center of excellence in rhode island to centralize games marketing and development while building on hasbro 's strategy of re-imagining , re-inventing and re-igniting core brands as well as inventing new brands . during the first quarter of 2012 the company took certain measures to strengthen its organization and right size certain businesses and functions , resulting in employee termination and recognition of severance costs of approximately $ 11,100. during the fourth quarter of 2012 the company announced a plan in which it expects to generate annual cost savings of $ 100,000 by 2015. this plan includes an approximate 10 % workforce reduction , facility consolidations and process improvements which reduce redundancy and increase efficiencies . other cost savings initiatives include focus on fewer , larger global brands and a reduction in the number of skus . during the fourth quarter of 2012 , the company incurred expenses of approximately $ 36,100 related to this plan . the company expects to incur additional charges through 2013 as additional components of the plan are implemented . the company 's business is highly seasonal with a significant amount of revenues occurring in the second half of the year . in 2012 , 2011 and 2010 , the second half of the year accounted for 64 % , 63 % and 65 % of the company 's net revenues , respectively . the company sells its products both within the united states and in a number of international markets . in recent years , the company 's international net revenues have experienced growth as the company has sought to increase its international presence . one of the ways the company has driven international growth is by opening offices in certain markets to develop a greater presence . since 2006 , the company has opened up operations in new markets around the world including china , brazil , russia , korea , czech republic , peru and colombia . these represent emerging markets where the company believes that it can achieve higher revenue growth than it could achieve in more mature markets . net revenues in emerging markets increased by 16 % in 2012 compared to 2011 and represented more than 10 % of consolidated net revenues in 2012. net revenues of the company 's international segment represented 44 % , 43 % and 39 % of total net revenues in 2012 , 2011 and 2010 , respectively . story_separator_special_tag the company 's business is separated into three principal business segments , u.s. and canada , international and entertainment and licensing . the u.s. and canada segment develops , markets and sells both toy and game products in the united states and canada . the international segment consists of the company 's european , asia pacific and latin and south american toy and game marketing and sales operations . the company 's entertainment and licensing segment includes the company 's lifestyle licensing , digital gaming , movie , television and online entertainment operations . in addition to these three primary segments , the company 's world-wide manufacturing and product sourcing operations are managed through its global operations segment . the company is committed to returning excess cash to its shareholders through share repurchases and dividends . as part of this initiative , from 2005 through 2011 , the company 's board of directors ( the board ) adopted six successive share repurchase authorizations with a cumulative authorized repurchase amount of $ 2,825,000. the sixth authorization was approved in may 2011 for $ 500,000. at december 30 , 2012 , the company had $ 127,282 remaining available under this authorization . during the three years ended 2012 , the company spent a total of $ 1,159,730 , to repurchase 28,918 shares in the open market . the company intends to , at its discretion , opportunistically repurchase shares in the future subject to market conditions , the company 's other potential uses of cash and the company 's levels of cash generation . in addition to the share repurchase program , the company also seeks to return excess cash through the payment of quarterly dividends . in february 28 2013 the company 's board increased the company 's quarterly dividend rate , effective for the dividend payment in may 2013 , to $ 0.40 per share , an 11 % increase from the prior year quarterly dividend of $ 0.36 per share . this was the ninth dividend increase in the previous 10 years . during that period , the company has increased its quarterly cash dividend from $ 0.03 to $ 0.40 per share . story_separator_special_tag products compared to 2010 were more than offset by lower net revenues from furreal friends and littlest pet shop products . in the games category , higher net revenues from magic : the gathering , twister , battleship and boys ' action gaming products , primarily star wars and transformers products , in 2012 were partially offset by lower net revenues from other game brands . similarly , in 2011 , higher net revenues from magic : the gathering products compared to 2010 were more than offset by lower net revenues from board games . in the boys category , higher sales of marvel products , particularly movie-related products related to the avengers and spider-man , in 2012 compared to 2011 were more than offset by lower net revenues from transformers , star wars , beyblade and nerf products . in 2011 , higher net revenues from transformers , particularly movie-related products , compared to 2010 as well as higher sales of beyblade products and the introduction of kre-o products were partially offset by lower net revenues from nerf and to a lesser extent star wars and tonka products . increased net revenues from playskool heroes , primarily marvel-related , and to a lesser extent higher net revenues from play-doh products were more than offset by decreased sales of sesame street and tonka products . in 2011 , higher net revenues from sesame street , transformers and star wars products compared to 2010 were partially offset by lower net revenues from playskool , tonka and play-doh products . 31 u.s. and canada operating profit increased 15 % in 2012 compared to 2011 and decreased 20 % in 2011 compared to 2010. operating profit margin improved to 15.1 % in 2012 compared to 12.4 % in 2011. the increase in operating profit and margin was primarily the result of product mix as well as improved inventory management , which resulted in lower inventory obsolescence costs in 2012 compared to 2011. changes in product mix included less impact from closeout sales in 2012 compared to 2011. u.s. and canada operating profit decreased by 20 % in 2011 compared to 2010. the operating profit margin in 2011 decreased to 12.4 % of net revenues compared to 15.2 % in 2010. the decline in operating profit and margin in 2011 compared to 2010 was primarily the result of the decline in net revenues in 2011 ; product mix , including lower revenues from games and higher revenues from entertainment-based products ; and the impact of closeout sales . foreign currency translation did not have a material impact on u.s. and canada operating profit in 2012 or 2011. international international segment net revenues for the year ended december 30 , 2012 decreased 4 % compared to 2011 while net revenues for the year ended december 25 , 2011 increased 19 % compared to 2010. in 2012 , net revenues were negatively impacted by currency translation of approximately $ 98,000 as a result of a stronger u.s. dollar whereas net revenues in 2011 were positively impacted by currency translation of $ 59,300 as a result of a weaker u.s. dollar . excluding the impact of foreign exchange , net revenues for 2012 and 2011 increased 1 % and 16 % , respectively , compared to prior years . the following table presents net revenues by geographic region for the company 's international segment for 2012 , 2011 and 2010. replace_table_token_7_th in 2012 , a negative impact from currency translation of $ 79,100 and $ 20,000 for europe and latin america , respectively , in addition to challenging economic environments in certain developed economies contributed to the overall decline in net revenues for the segment . currency translation did not have a material impact on net revenues for the asia pacific region .
| consolidated net revenues in 2012 and 2011 were impacted by foreign currency translation of approximately $ ( 98,500 ) and $ 64,300 , respectively . the following table presents net revenues by product category for the years ended december 30 , 2012 and december 25 , 2011. replace_table_token_5_th for the year ended december 30 , 2012 , decreased net revenues in the boys and preschool categories were partially offset by increases in the girls and games categories . for the year ended december 25 , 2011 , decreased net revenues in the girls and games categories were more than offset by increases in the boys and preschool categories . boys : net revenues in the boys category decreased 13 % in 2012 compared to 2011 as a result of lower net revenues from transformers and beyblade products , which were partially offset by higher sales of marvel products , primarily due to sales of products based on the theatrical releases of marvel 's the avengers in may 2012 and the amazing spider-man in july 2012. in 2011 , net revenues in the boys category grew 35 % compared to 2010 , primarily due to higher net revenues from transformers , beyblade and kre-o products . in 2011 , transformers net revenues were positively impacted by the theatrical release of transformers : dark of the moon in june 2011. also , 2011 marked the first full year of sales of beyblade products , which were re-introduced during the second half of 2010 , and the introduction of kre-o products during the second half of 2011. games : net revenues in the games category increased 2 % in 2012 compared to 2011 as a result of higher net revenues from magic : the gathering , battleship and twister , as well as the introduction of boys ' action gaming products , which included star wars fighter pods , angry birds star wars and transformers bot shots . these higher revenues were partially offset by lower net revenues from other game brands , including scrabble , connect 4 and yahtzee . in 2011 ,
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included in this initiative is the company 's plan to leverage the global capabilities of our staffing operations based in bangalore , india and offshore a significant number of strategically identified roles to this location . the plan will affect approximately 125 employees . the company expects to incur a total estimated pre-tax restructuring charge of approximately $ 1.2 million of severance and benefit costs in the first half of its fiscal year ending november 1 , 2020. as a result of this offshoring plan , along with executing on additional organizational cost savings initiatives during fiscal 2020 , the company estimates it will realize annualized net savings of approximately $ 10.0 million . 20 consolidated results of continuing operations and financial highlights ( fiscal 2019 vs. fiscal 2018 ) results of continuing operations by segment ( fiscal 2019 ( 53 weeks ) vs. fiscal 2018 ( 52 weeks ) ) replace_table_token_2_th replace_table_token_3_th ( 1 ) revenues are primarily derived from volt customer care solutions business through june 2019 . ( 2 ) the majority of intersegment sales results from north american staffing providing resources to volt customer care solutions business . results of operations consolidated ( fiscal 2019 vs. fiscal 2018 ) net revenue in fiscal 2019 decreased $ 42.1 million , or 4.0 % , to $ 997.1 million from $ 1,039.2 million in fiscal 2018 , including the impact of fiscal 2019 consisting of 53 weeks while fiscal 2018 consisted of 52 weeks . the revenue decline was primarily due to decreases in our north american staffing segment of $ 29.6 million , the corporate and other category of $ 19.9 million and the negative impact of foreign currency fluctuations of $ 6.0 million . these decreases were partially offset by an increase of $ 9.0 million in our north american msp segment and $ 3.0 million in our international staffing segment on a constant currency basis . excluding the impact on net revenue of the 53rd week in fiscal 2019 of approximately $ 18.9 million , foreign currency fluctuations and $ 20.5 million in revenue from businesses exited during the periods , net revenue decreased $ 34.4 million , or 3.5 % . operating loss in fiscal 2019 decreased $ 18.6 million , or 65.4 % , to $ 9.8 million from $ 28.4 million in fiscal 2018. excluding the businesses exited during the periods , as well as restructuring and severance costs and impairment charges , operating loss in fiscal 2019 decreased $ 14.6 million , or 67.2 % . this decrease in operating loss of $ 14.6 million was primarily the result of improvements in our north american staffing segment of $ 4.9 million and north american msp segment of $ 3.1 million . in addition , the corporate and other category improved by $ 6.2 million primarily as a result of reductions in corporate support costs . 21 results of continuing operations by segments ( fiscal 2019 vs. fiscal 2018 ) net revenue the north american staffing segment revenue decrease d $ 29.6 million , or 3.4 % in fiscal 2019. excluding the impact of the 53rd week in fiscal 2019 of approximately $ 15.8 million partially offset by revenue from our customer care solutions business , which we exited in june 2019 , of $ 1.2 million , revenue decreased $ 44.2 million or 5.1 % in fiscal 2019. the segment 's revenue was impacted by lower demand from certain large customers and changes in other customers ' staffing models , partially offset by growth from new and existing customers . this was primarily driven by decreases from our customers in our administrative and office job category and to a lesser extent in our professional job category . the year over year decrease in revenue improved from a decline of 6.4 % in fiscal 2018 compared to fiscal 2017. the international staffing segment revenue decreased $ 3.0 million , or 2.5 % . excluding the negative impact of foreign currency fluctuations of $ 6.0 million and $ 0.7 million of revenue from a business exited in fiscal 2018 , partially offset by the 53rd week in fiscal 2019 of approximately $ 2.2 million , international staffing revenue increased by $ 1.5 million , or 1.3 % , primarily due to growth in direct hire and managed service business . the north american msp segment revenue increase of $ 9.0 million , or 30.1 % , was primarily due to growth in both payroll service and managed service businesses . excluding the 53rd week in fiscal 2019 of approximately $ 0.9 million , revenue increased $ 8.1 million , or 27.1 % . the loss of several programs in early fiscal 2018 was offset by new contracts and program expansions in the latter half of the year . the corporate and other category revenue decrease d $ 19.9 million , or 56.5 % , primarily as a result of our exit from the customer care solutions business in the beginning of june 2019. cost of services and gross margin cost of services in fiscal 2019 decreased $ 41.0 million , or 4.6 % , to $ 844.5 million from $ 885.5 million in fiscal 2018. excluding the impact on cost of services of the 53rd week in fiscal 2019 of approximately $ 15.6 million , cost of services in fiscal 2019 decreased $ 56.5 million , or 6.4 % , to $ 829.0 million . gross margin as a percent of revenue in fiscal 2019 increased to 15.3 % from 14.8 % in fiscal 2018. our north american staffing segment margin as a percent of revenue improved as a result of lower payroll tax rates , partially offset by a higher mix of larger price-competitive customers and a decline in higher-margin direct hire revenue . in addition , our north american msp segment margin as a percent of revenue increased due to increases in both payroll and managed service businesses . story_separator_special_tag this improvement was partially offset by lower margins from our customer care solutions business which we exited in june 2019 and lower headcount from reduced client demand earlier in the year . excluding this business , gross margin increased to 15.5 % and 15.1 % in fiscal years 2019 and 2018 , respectively . selling , administrative and other operating costs selling , administrative and other operating costs in fiscal 2019 decreased $ 16.2 million , or 9.4 % , to $ 157.1 million from $ 173.3 million in fiscal 2018. excluding the impact on selling , administrative and other operating costs of the 53rd week in fiscal 2019 of approximately $ 2.6 million , selling , administrative and other operating costs in fiscal 2019 decreased $ 18.8 million , or 10.9 % , to $ 154.5 million . this decrease was primarily due to on-going cost reductions in all areas of the business including $ 13.1 million in labor costs due to lower headcount and revised incentive plans , $ 2.4 million in facility related costs and $ 1.0 million in travel expenses . in addition , legal and consulting fees were $ 3.0 million lower primarily related to corporate and cost-efficiency initiatives in the first quarter of 2018. these improvements were offset by $ 1.9 million in higher medical claims experience in fiscal 2019. as a percent of revenue , these costs were 15.8 % and 16.7 % in fiscal years 2019 and 2018 , respectively . restructuring and severance costs on october 16 , 2018 , the company approved a restructuring plan ( the “ 2018 plan ” ) based on an organizational and process redesign intended to optimize the company 's strategic growth initiatives and overall business performance . restructuring and severance costs in fiscal 2019 decreased $ 3.5 million to $ 4.7 million from $ 8.2 million in fiscal 2018. the costs in fiscal 2019 primarily included $ 2.1 million of severance and lease termination costs in connection with exiting our customer care solutions business , $ 1.0 million incurred under the 2018 plan and $ 0.9 million incurred in accordance with the separation agreement with the former chief financial officer . the remaining $ 0.7 million of restructuring and severance costs were from other restructuring actions taken by the company as part of its continued efforts to reduce costs and achieve operational efficiency . in fiscal 2018 , costs primarily included $ 4.4 million incurred under the 2018 plan and $ 2.6 million incurred in accordance with the separation agreement with the company 's former president and chief executive officer . the remaining $ 1.2 million of 22 restructuring and severance costs are from other restructuring actions taken by the company as part of its continued efforts to reduce costs and achieve operational efficiency . impairment charges impairment charges in fiscal 2019 increased $ 0.2 million to $ 0.7 million from $ 0.5 million in fiscal 2018. in fiscal 2019 , we recorded an impairment charge of $ 0.3 million on equipment used in our customer care solutions business , $ 0.3 million on software no longer in use and $ 0.1 million on equipment in closed facilities . in fiscal 2018 , we made the decision to forgo future use of a previously purchased software tool , which resulted in an impairment charge of $ 0.5 million . other income ( expense ) , net other expense in fiscal 2019 increased $ 1.1 million , or 31.8 % , to $ 4.4 million from $ 3.3 million in fiscal 2018 primarily as a result of non-cash net foreign exchange loss on intercompany balances as well as increased interest expense as a result of higher weighted-average rates and an increase in borrowings under our financing program . these increases were partially offset by lower amortization of deferred financing fees . income tax provision income tax provision in fiscal 2019 amounted to $ 1.0 million and was primarily related to locations outside of the united states . the income tax provision of $ 1.0 million in fiscal 2018 was primarily related to locations outside the united states , which was partially offset by a $ 1.1 million reversal of uncertain tax provisions in early 2018. liquidity and capital resources our primary sources of liquidity are cash flows from operations and proceeds from our financing arrangements with dz bank and with pnc bank , national association ( “ pnc bank ” ) until the termination of the pnc financing program ( as defined below ) in january 2018. borrowing capacity under these arrangements is directly impacted by the level of accounts receivable , which fluctuates during the year due to seasonality and other factors . our business is subject to seasonality with our fiscal first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of contingent labor . generally , the first and fourth quarters of our fiscal year are the strongest for operating cash flows . our operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for our contingent staff and in-house employees ; federal , foreign , state and local taxes ; and trade payables . we generally provide customers with 15 - 45 day credit terms , with few extenuating exceptions , while our payroll and certain taxes are paid weekly . we manage our cash flow and related liquidity on a global basis . we fund payroll , taxes and other working capital requirements using cash supplemented as needed from our borrowings . our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $ 20.0 million . we generally target minimum global liquidity to be 1.5 times our average weekly requirements taking into account seasonality and cyclical trends . we also maintain minimum effective cash balances in foreign operations and use a multi-currency netting and overdraft facility for our european entities to further minimize overseas cash requirements .
| to finance the purchase of such receivables , we may request that dz bank make loans from time to time to the company that are secured by liens on those receivables . on june 4 , 2019 , the company entered into an amendment with dz bank to temporarily exclude the receivables due from a specific customer from the securitization pool under the dz financing program for three subsequent reporting periods as of may 2019 through july 2019. this customer experienced internal processing issues related to specific volt purchase orders resulting in significant payment delays , which negatively impacted the 90 -day delinquency rate , as defined in the dz financing program . although this change improved the delinquency rate , it temporarily decreased the company 's borrowing availability under the dz financing program by approximately $ 2.0 - $ 3.0 million . these payment delays were not credit related and the company collected the past due amounts . the issue was resolved and the receivables from this customer were added back to the securitization pool under the original terms of the agreement , as permitted under a provision in the amendment . loan advances may be made under the dz financing program through january 25 , 2021 and all loans will mature no later than july 25 , 2021. loans will accrue interest ( i ) with respect to loans that are funded through the issuance of commercial paper notes , at the cp rate , and ( ii ) otherwise , at a rate per annum equal to adjusted libor . the cp rate will be based on the rates paid by the applicable lender on notes it issues to fund related loans . adjusted libor is based on libor for the applicable interest period and the rate prescribed by the board of governors of the federal reserve system for determining the reserve requirements with respect to eurocurrency funding . if an event of default occurs , all loans shall
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the policy changes in the 2017 final rule continue to shift skilled nursing facility medicare payments from volume to value . the final rule makes changes to the snf quality reporting program and value–based purchasing program with some of these changes effective for the fiscal year beginning october 1 , 2017. for 2017 , our average medicare per diem rate for skilled nursing facilities increased 1.8 % compared to the same period in 2016. no assurances can be given as to whether congress will increase or decrease reimbursement in the future , the timing of any action or the form of relief , if any , that may be enacted . medicaid – skilled nursing facilities effective july 1 , 2017 and for the fiscal year 2018 , the state of tennessee implemented specific individual nursing facility rate increases . we estimate the resulting increase in revenue for the 2018 fiscal year will be approximately $ 3,600,000 annually , or $ 900,000 per quarter . effective october 1 , 2017 and for the fiscal year 2018 , south carolina implemented specific individual nursing facility rate changes . we estimate the resulting increase in revenue for the 2018 fiscal year will be approximately $ 1,100,000 annually , or $ 275,000 per quarter . effective august 1 , 2017 and for the fiscal year 2018 , the state of missouri approved a medicaid rate decrease of $ 5.37 per patient day , or an approximate 3.5 % decrease , to missouri skilled nursing providers . we estimate the resulting decrease in revenue will be approximately $ 1,400,000 annually , or $ 350,000 per quarter . overall our average medicaid per diem increased 2.0 % in 2017 compared to 2016. we face challenges with respect to states ' medicaid payments , because many currently do not cover the total costs incurred in providing care to those patients . states will continue to control medicaid expenditures and also look for adequate funding sources , including provider assessments or increasing state funding for home and community–based services , potentially having an impact on funding for skilled nursing facilities . 33 medicare – homecare programs in november 2017 and effective january 1 , 2018 , cms released its final rule for 2018 home health prospective payment system rates . cms estimated the net impact of the pps rule resulted in a 0.4 % decrease ( $ 80 million ) in medicare payments for agencies in 2018. this decrease reflects the effects of a 1.0 % home health payment update percentage ; a -0.97 % percent adjustment to the national , standardized 60-day episode payment rate to account for nominal case-mix growth ; and the sunset of the rural add-on provision for an impact of -0.5 % . the rule also finalizes proposals for the home health value-based purchasing ( hhvbp ) model and the home health quality reporting program ( hh qrp ) . cms is not finalizing the implementation of the home health groupings model ( hhgm ) in this final rule . in october 2016 and effective january 1 , 2017 , cms released its final rule for 2017 home health prospective payment system rates . cms estimated the net impact of the pps rule resulted in a 0.7 % decrease ( $ 130 million ) in medicare payments for agencies in 2017. the estimated decrease reflects the effects of a 2.5 % home health payment update ; rebasing adjustments to the national standardized 60-day episode payment rate , the national per-visit payment rate , and the non-routine medical supplies conversion factor ( expected impact of -2.3 % ) , and the effects of an adjustment to the national standardized 60-day episode payment rate to account for nominal case-mix growth ( expected impact of -0.9 % ) . however , the freestanding home health agencies were expected to have an overall reduction of 0.8 % , and agencies in eight states including the states of south carolina and florida were expected to average a reimbursement decrease of 1.9 % . segment reporting beginning in the first quarter of 2017 with the leadership change of the company 's chief executive officer , we reassessed and realigned our reportable operating segments to coincide with the way our new leadership and codm measures company performance and allocates resources . the company has two reportable operating segments : ( 1 ) inpatient services , which includes the operation of skilled nursing facilities and assisted and independent living facilities , and ( 2 ) homecare services . these reportable operating segments are consistent with information used by the company 's chief executive officer , as codm , to assess performance and allocate resources . the company also reports an “ all other ” category that includes revenues from rental income , management and accounting services fees , insurance services , and costs of the corporate office . the company has presented the financial information for the years ended december 31 , 2017 , 2016 and 2015 on a comparative basis to conform with the current year segment presentation . for additional information on these reportable segments see note 1 - “ story_separator_special_tag common stockholders . there have been four newly constructed healthcare facilities placed in service during 2015 and 2016 ( two skilled nursing facilities and two assisted living facilities ) . the operating losses before income taxes for these entities were approximately $ 7,583,000 and $ 3,705,000 for the years ended december 31 , 2016 and 2015 , respectively . therefore , excluding the operating losses from these four newly constructed facilities , net income attributable to nhc would have been $ 55,164,000 and $ 48,584,000 for the years ended december 31 , 2016 and 2015 , respectively . story_separator_special_tag the overall average census in owned and leased skilled nursing facilities for 2016 was 89.5 % compared to 90.0 % in 2015. the composite skilled nursing facility per diem increased 1.0 % in 2016 compared to 2015. medicare and managed care per diem rates increased 2.9 % and 0.5 % , respectively , in 2016 compared to 2015. medicaid and private pay per diem rates increased 1.8 % and 3.2 % , respectively , in 2016 compared to 2015. net patient revenues totaled $ 880,724,000 , an increase of $ 15,878,000 , or 1.8 % , compared to the prior year . the majority of the increase in net patient revenues was derived from the four newly constructed healthcare facilities placed in service in 2015 and 2016 ( $ 10,491,000 ) . in the fourth quarter of 2016 , we recorded revenue of $ 1,374,000 for the settlement and the withdrawal of our administrative appeals process with south carolina health and human services surrounding the audit of our 2013 and 2014 cost reports . other revenues this year were $ 45,914,000 , an increase of $ 4,138,000 , or 9.9 % , as further detailed in note 3 of the consolidated financial statements . other revenues in 2016 include management and accounting service fees of $ 15,953,000 ( $ 14,586,000 in 2015 ) , insurance services revenue of $ 7,195,000 ( $ 7,012,000 in 2015 ) and rental revenues of $ 21,835,000 ( $ 19,191,000 in 2015 ) . as to rental revenues , effective january 1 , 2016 , we entered into a new triple net lease agreement for 11 of the 13 healthcare properties that we own and lease to third party operators . the new lease agreement is for a ten-year period and increased rental income for the year ended december 31 , 2016 by approximately $ 2,283,000 over 2015 and the previous lease agreement . total costs and expenses for 2016 increased $ 26,600,000 , or 3.2 % , to $ 866,096,000 from $ 839,496,000 in 2015. salaries , wages and benefits , the largest operating costs of the company , increased $ 15,272,000 , or 2.9 % , to $ 548,007,000 from $ 532,735,000. these costs were 59.1 % and 58.8 % of net operating revenues for 2016 and 2015 , respectively . the majority of the increase in salaries , wages and benefits was derived from our same–facility nursing centers ( $ 7,353,000 ) , which was to retain and attract quality partners . the remaining increase in salaries and wages in 2016 was from the four newly constructed healthcare facilities placed in service in 2015 and 2016 ( $ 6,527,000 ) . other operating expenses increased $ 6,761,000 , or 3.0 % , to $ 233,833,000 for 2016 compared to $ 227,072,000 in 2015. these costs were 25.2 % and 25.0 % of net operating revenues for 2016 and 2015 , respectively . the increase in other operating expenses is primarily due to the increased general and professional liability costs ( $ 3,380,000 ) . as of december 31 , 2016 , we and or our managed facilities are currently defendants in 43 claims . at december 31 , 2015 , we and or our managed facilities were defendants in 32 claims . in addition to the increased professional liability costs , the remaining other operating expense increase was derived from the new operations of the four healthcare facilities placed in service in 2015 and 2016. facility rent expense increased $ 1,325,000 , or 3.3 % , to $ 41,292,000. depreciation and amortization increased 5.1 % to $ 39,023,000. the majority of the increase in depreciation expense is due to the four newly constructed healthcare facilities . interest expense increased $ 1,333,000 to $ 3,941,000 in 2016 from $ 2,608,000 in 2015. the increase in interest expense is due from twelve months of borrowings on the credit facility compared to just two months of borrowings during 2015. the company 's preferred stock was redeemed in november 2015 ; therefore , initiating the borrowings on the credit facility . at december 31 , 2016 and 2015 , we had $ 110 million outstanding on our credit facility . 39 non–operating income in 2016 increased $ 1,517,000 , or 8.4 % , to $ 19,665,000 , as further detailed in note 4 of the consolidated financial statements . the increase in non–operating income is primarily from the increased equity in earnings from our geriatric psychiatric hospital in osage beach , missouri ( $ 1,416,000 ) . the income tax provision for 2016 is $ 29,669,000 ( an effective income tax rate of 37.0 % ) . the income tax provision and effective tax rate for 2016 were favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $ 1,368,000 or 1.7 % of income before taxes in 2016. the income tax provision for 2015 was $ 32,131,000 ( an effective income tax rate of 37.7 % ) . the income tax provision and effective tax rate for 2015 were favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $ 2,141,000 or 2.5 % of income before taxes in 2015. liquidity , capital r esources and financial condition sources and uses of funds our primary sources of cash include revenues from the healthcare and senior living facilities we operate , homecare services , insurance services , management services and accounting services . our primary uses of cash include salaries , wages and benefits , operating costs of the healthcare facilities , the cost of additions to and acquisitions of real property , rent expenses , and dividend distributions . these sources and uses of cash are reflected in our consolidated statements of cash flows and are discussed in further detail below .
| there have been five newly constructed healthcare facilities placed in service during 2016 and 2017 ( two skilled nursing facilities and three assisted living facilities ) . the operating losses before income taxes for these entities were approximately $ 7,003,000 and $ 3,882,000 for the years ended december 31 , 2017 and 2016 , respectively . therefore , excluding the operating losses from these five newly constructed facilities and the 2017 fourth quarter tax reform benefit , net income attributable to nhc would have been $ 51,526,000 and $ 52,906,000 for the years ended december 31 , 2017 and 2016 , respectively . 37 the overall average census in owned and leased skilled nursing facilities for 2017 was 90.2 % compared to 89.5 % in 2016. the composite skilled nursing facility per diem increased 2.6 % in 2017 compared to 2016. medicare and managed care per diem rates increased 1.8 % and 0.2 % , respectively , in 2017 compared to 2016. medicaid and private pay per diem rates increased 2.0 % and 3.2 % , respectively , in 2017 compared to 2016. net patient revenues totaled $ 919,843,000 , an increase of $ 39,119,000 , or 4.4 % , compared to the prior year . the newly constructed healthcare facilities placed in service during 2016 and 2017 helped increase net patient revenues $ 17,441,000 compared to a year ago . the remaining increase in our net patient revenues is primarily due to the census increase and per diem increases in our existing skilled nursing facility operations . other revenues this year were $ 47,153,000 , an increase of $ 1,239,000 , or 2.7 % , as further detailed in note 3 of the consolidated financial statements . other revenues in 2017 include management and accounting service fees of $ 16,169,000 ( $ 15,953,000 in 2016 ) , insurance services revenue of $ 8,003,000 ( $ 7,195,000 in 2016 ) and rental revenues of $ 21,957,000 ( $ 21,835,000 in 2016 ) . during the first quarter of 2017 , we began management contract
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a continuation of ( i ) low customer exploration and drilling activity levels , and ( ii ) the increasing size of the global offshore support vessel fleet as newly built vessels are placed into service could , in isolation or together , have a material adverse effect on the company 's business , financial position , results of operations , cash flows and growth prospects . the company adheres to a strategy of cold-stacking vessels ( removing from active service ) during periods of weak utilization in order to reduce the daily running costs of operating the fleet , primarily personnel , repairs and maintenance costs , as well as to defer some drydocking costs into future periods . the company considers various factors in determining which vessels to cold-stack , including upcoming dates for regulatory vessel inspections and related docking requirements . the company may maintain class certification on certain cold-stacked vessels , thereby incurring some drydocking costs while cold-stacked . cold-stacked vessels are returned to active service when market conditions improve or management anticipates improvement , typically leading to increased costs for drydocking , personnel , repair and maintenance in the periods immediately preceding the vessels ' return to active service . depending on market conditions , vessels with similar characteristics and capabilities may be rotated between active service and cold-stack . on an ongoing basis , the company reviews its cold-stacked vessels to determine if any should be designated as retired and removed from service based on the vessel 's physical condition , the expected costs to reactivate and restore class certification , if any , and its viability to operate within current and projected market conditions . as of december 31 , 2017 , 37 of the company 's 141 owned and leased-in in-service vessels were cold-stacked worldwide , and an additional three owned vessels and one leased-in vessel were retired and removed from service . certain components of revenues and expenses the company operates its fleet in five principal geographic regions : the united states , primarily in the gulf of mexico ; africa , primarily in west africa ; the middle east and asia ; brazil , mexico , central and south america ; and europe , primarily in the north sea . the company 's vessels are highly mobile and regularly and routinely move between countries within a geographic region . in addition , the company 's vessels are also redeployed among the geographic regions , subject to flag restrictions , as changes in market conditions dictate . the number and type of vessels operated , their rates per day worked and their utilization levels are the key determinants of the company 's operating results and cash flows . unless a vessel is cold-stacked , there is little reduction in daily running costs and , consequently , operating margins are most sensitive to changes in rates per day worked and utilization . the company manages its fleet by utilizing a global network of shore side support , administrative and finance personnel . operating revenues . the company generates revenues by providing services to customers primarily pursuant to two different types of contractual arrangements : time charters and bareboat charters . under a time charter , the company provides a vessel to a customer and is responsible for all operating expenses , typically excluding fuel . under a bareboat charter , the company provides a vessel to a customer and the customer assumes responsibility for all operating expenses and all risks of operation . vessel charters may range from several days to several years . time charter statistics . time charter statistics are the key performance indicators for the company 's time charter revenues . the rate per day worked is the ratio of total time charter revenues to the aggregate number of days worked . utilization is the ratio of aggregate number of days worked to total available days for all vessels available for time charter . unless vessels have been retired and removed from service , available days represents the total calendar days for which vessels available for time charter were owned or leased-in by the company , whether marketed , under repair , cold-stacked or otherwise out-of-service . direct operating expenses . the aggregate cost of operating the company 's fleet depends primarily on the size and asset mix of the fleet . its direct operating costs and expenses , other than leased-in equipment expense , are grouped into the following categories : personnel ( primarily wages , benefits , payroll taxes , savings plans and travel for marine personnel ) ; repairs and maintenance ( primarily routine repairs and maintenance and main engine overhauls that are performed in accordance with planned maintenance programs ) ; drydocking ( primarily the cost of regulatory drydockings performed in accordance with applicable regulations ) ; insurance and loss reserves ( primarily the cost of hull and machinery and protection and indemnity insurance premiums and loss deductibles ) ; fuel , lubes and supplies ; and other ( communication costs , expenses incurred in mobilizing vessels between geographic regions , third party ship management fees , freight expenses , customs and importation duties and other ) . 40 the company expenses drydocking , engine overhaul and vessel mobilization costs as incurred . if a disproportionate number of drydockings , overhauls or mobilizations are undertaken in a particular fiscal year or quarter , operating expenses may vary significantly when compared with the prior year or prior quarter . direct vessel profit . direct vessel profit ( defined as operating revenues less operating expenses excluding leased-in equipment , “ dvp ” ) is the company 's measure of segment profitability when applied to reportable segments and a non-gaap measure when applied to individual vessels , fleet categories or the combined fleet . story_separator_special_tag dvp is a critical financial measure used by the company to analyze and compare the operating performance of its individual vessels , fleet categories , regions and combined fleet , without regard to financing decisions ( depreciation for owned vessels vs. leased-in expense for leased-in vessels ) . dvp is also useful when comparing the company 's fleet 's performance against those of its competitors who may have differing fleet financing structures . leased-in equipment . in addition to the company 's owned fleet , it operates leased-in vessels from lessors under bareboat charter arrangements that currently expire between 2018 and 2021. certain of these vessels were previously owned and subject to sale and leaseback transactions with their lessors . impairments . as a result of the difficult conditions experienced in the offshore oil and natural gas markets beginning in the second half of 2014 and the corresponding reductions in utilization and rates per day worked of its fleet , the company identified indicators of impairment and recognized impairment charges primarily associated with its anchor handling towing supply fleet , its liftboat fleet , certain specialty vessels , vessels removed from service and goodwill . when reviewing its fleet for impairment , the company groups vessels with similar operating and marketing characteristics , including cold-stacked vessels expected to return to active service , into vessel classes . all other vessels , including vessels retired and removed from service , are evaluated for impairment on a vessel by vessel basis . during 2017 , the company recorded impairment charges of $ 27.5 million primarily associated with its anchor handling towing supply vessels , one leased-in supply vessel removed from service as it is not expected to be marketed prior to the expiration of its lease , one owned fast support vessel removed from service and two owned in-service specialty vessels . during 2016 , the company recorded impairment charges of $ 119.7 million primarily associated with its anchor handling towing supply fleet , its liftboat fleet and one specialty vessel . during 2015 , the company recorded impairment charges of $ 7.1 million primarily related to the suspended construction of two fast support vessels and the removal from service of one leased-in supply vessel . in addition , the company recorded an impairment to goodwill of $ 13.4 million during 2015. estimated fair values for the company 's owned vessels were established by independent appraisers and other market data such as recent sales of similar vessels . for information regarding the company 's vessel fair value measurement determinations , see “ note 10. fair value measurements ” in the audited consolidated financial statements included elsewhere in this annual report on form 10-k. if market conditions further decline from the depressed utilization and rates per day worked experienced over the last three years , fair values based on future appraisals could decline significantly . the company 's other vessel classes and other individual vessels in active service and cold-stacked status , for which no impairment was deemed necessary , have generally experienced a less severe decline in utilization and rates per day worked based on specific market factors . the market factors include vessels with more general utility to a broad range of customers ( e.g. , fast support vessels ) , vessels required for customers to meet regulatory mandates and operating under multiple year contracts ( e.g. , standby safety vessels ) or vessels that service customers outside of the offshore oil and natural gas market ( e.g. , wind farm utility vessels ) . for vessel classes and individual vessels with indicators of impairment but not recently impaired as of december 31 , 2017 , the company has estimated that their future undiscounted cash flows exceed their current carrying values by more than 40 % . the company 's estimates of future undiscounted cash flows are highly subjective as utilization and rates per day worked are uncertain , including the timing of an estimated market recovery in the offshore oil and natural gas markets and the timing and cost of reactivating cold-stacked vessels . if market conditions decline further , changes in the company 's expectations on future cash flows may result in recognizing additional impairment charges related to its long-lived assets in future periods . 41 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; text-align : justify ; text-indent:48px ; font-size:10pt ; '' > operating revenues . time charter revenues were $ 3.8 million lower in 2017 compared with 2016. on an overall basis , time charter revenues were $ 0.8 million lower due to reduced utilization of the active fleet , $ 5.9 million lower due to reduced utilization as a consequence of cold-stacking vessels , $ 6.6 million lower due to a decrease in average day rates and $ 0.4 million lower due to the repositioning of vessels between geographic regions . in addition , time charter revenues for anchor handling towing supply were $ 3.2 million lower in 2017 to the deferral of revenue for one vessel on time charter ( excluded from time charter operating data ) to a customer as collection was not reasonably assured . time charter revenues were $ 13.1 million higher due to net fleet additions . as of december 31 , 2017 , the company did not have any of its 16 owned and leased-in vessels cold-stacked in this region compared with three of 12 vessels as of december 31 , 2016. as of december 31 , 2017 , the company had one fast support vessel and one specialty vessel retired and removed from service in this region . direct operating expenses . direct operating expenses were $ 6.4 million higher in 2017 compared with 2016. on an overall basis , operating costs were $ 8.1 million higher due to net fleet additions and $ 2.4 million lower due to the effect of cold-stacking and retiring and removing vessels from service . 51 repairs and maintenance expenses were $ 3.3 million higher primarily due to the replacement of main engines on one fast support vessel for $ 2.0 million during 2017 .
| a reconciliation of dvp by vessel class to operating loss , its most comparable gaap measure , is included in the table above . 47 replace_table_token_14_th _ ( 1 ) direct vessel profit by vessel class is a non-gaap financial measure . see “ -certain components of revenues and expenses - direct vessel profit ” for a discussion of the usefulness of this measure . it should be noted that dvp by vessel class has material limitations as an analytical tool in that it does not reflect all of the costs associated with the operation of the company 's fleet , and it should not be considered in isolation or used as a substitute for the company 's results as reported under gaap . a reconciliation of dvp by vessel class to operating loss , its most comparable gaap measure , is included in the table above . 48 operating income ( loss ) united states , primarily gulf of mexico . for the years ended december 31 , the company 's direct vessel profit ( loss ) in the united states was as follows ( in thousands , except statistics ) : replace_table_token_15_th 2017 compared with 2016 operating revenues . time charter revenues were $ 10.8 million lower in 2017 compared with 2016 primarily due to reduced utilization as a consequence of cold-stacking vessels . time charter revenues were $ 14.7 million lower for the anchor handling towing supply vessels , $ 2.4 million higher for the liftboat fleet , $ 0.9 million higher for the fast support vessels and $ 0.6 million higher for the supply vessels . available days for fast support vessels were higher in 2017 primarily due to the acquisition of 11 vessels for $ 10.0 million at a bankruptcy auction during the third quarter of 2016. these vessels were idle when purchased , are still not working and are therefore contributing to the overall decline in fast support vessel utilization . as of december 31 , 2017 , the company had 34 of 42 owned and leased-in vessels cold-stacked in this region ( ten anchor handling
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the following is a reconciliation of return on assets to adjusted roic : replace_table_token_13_th 1 as a result of the adoption of the lease standard , we add back the operating lease interest to reflect how we manage our business . operating lease interest is a component of operating lease cost recorded in occupancy costs and is calculated in accordance with the lease standard . 2 capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating under the previous lease standard if they had met the criteria for a finance lease or we had purchased the property . the asset base for each quarter is calculated as the trailing four quarters of rent expense multiplied by eight , a commonly used method to estimate the asset base we would record for our capitalized operating leases . 3 for leases with property incentives that exceed the rou assets , we reclassify the amount from assets to other current liabilities and other liabilities . as a result of the adoption of the lease standard , we reduce average total assets , as this better reflects how we manage our business . 4 results for 2018 included lower income tax expense primarily associated with the tax act and a $ 72 unfavorable impact related to the estimated non-recurring charge , which negatively impacted return on assets by approximately 60 basis points and adjusted roic by approximately 80 basis points ( see note 1 : nature of operations and summary of significant accounting policies in item 8 ) . results for 2017 included a $ 42 unfavorable impact related to the tax act . results for 2016 included a $ 197 unfavorable impact related to the trunk club non-cash goodwill impairment charge . 5 for 2019 , the adoption of the lease standard negatively impacted return on assets by approximately 120 basis points and adjusted roic by approximately 40 basis points . integration charges of $ 32 in 2019 , were primarily non-cash related and negatively impacted return on assets by approximately 30 basis points and adjusted roic by approximately 40 basis points . nordstrom , inc. and subsidiaries 27 liquidity and capital resources we strive to maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to maintain appropriate levels of short-term borrowings . we believe that our operating cash flows , available credit facility and potential future borrowings are sufficient to meet our cash requirements for the next 12 months and beyond . over the long term , we manage our cash and capital structure to maximize shareholder return , maintain our financial position , manage refinancing risk and allow flexibility for strategic initiatives . we regularly assess our debt and leverage levels , capital expenditure requirements , debt service payments , dividend payouts , potential share repurchases and other future investments . we believe that as of february 1 , 2020 , our existing cash and cash equivalents on-hand of $ 853 , available credit facility of $ 800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives . for more information , see subsequent events in note 1 : nature of operations and summary of significant accounting policies in item 8. the following is a summary of our cash flows by activity : replace_table_token_14_th operating activities the majority of our operating cash inflows are derived from sales . we also receive cash payments for property incentives from developers . our operating cash outflows generally consist of payments to our merchandise vendors ( net of vendor allowances ) and shipping carriers , payments to our employees for wages , salaries and other employee benefits and payments to our landlords for rent . operating cash outflows also include payments for income taxes and interest payments on our short-term and long-term borrowings . net cash provided by operating activities decreased by $ 60 between 2019 and 2018 primarily due to payments made related to the estimated non-recurring charge and a decrease in sales . investing activities our investing cash outflows include payments for capital expenditures , including stores , supply chain improvements and technology costs . our investing cash inflows are generally from proceeds from sales of property and equipment . net cash used in investing activities increased by $ 256 between 2019 and 2018 due to increases in capital expenditures , primarily related to our supply chain network , including our omni-channel center , and nordstrom nyc . the opening of our first large-scale omni-channel center in riverside , california , which will initially support our full-price customers in the west coast region and off-price customers in the future , is expected to open in the spring of 2020. we also opened a smaller local omni-channel hub in torrance , california in 2019 , which supports the greater los angeles market as part of our market strategy . capital expenditures our capital expenditures , net are summarized as follows : replace_table_token_15_th 1 deferred property incentives are included in our cash provided by operations in our consolidated statements of cash flows in item 8 . we operationally view the property incentives we receive from our developers and vendors as an offset to our capital expenditures . 28 financing activities the majority of our financing activities include repurchases of common stock , long-term debt proceeds and or payments and dividend payments . net cash used in financing activities decreased $ 436 between 2019 and 2018 primarily due to decreased share repurchase activity . share repurchases in august 2018 , our board of directors authorized a new program to repurchase up to $ 1,500 of our outstanding common stock , with no expiration date . in 2019 , we repurchased 4.1 shares of our common stock for an aggregate purchase price of $ 186 , compared with 14.3 shares for an aggregate purchase price of $ 702 during 2018 . story_separator_special_tag we had $ 707 remaining in share repurchase capacity as of february 1 , 2020 . the actual timing , price , manner and amounts of future share repurchases , if any , will be subject to market and economic conditions and applicable sec rules . borrowing activity during 2019 , we issued $ 500 aggregate principal amount of 4.375 % senior unsecured notes due april 2030 . we recorded debt issuance costs incurred as a result of the issuance in other financing activities , net in the consolidated statements of cash flows . with the proceeds of these new notes , we retired our $ 500 senior unsecured notes that were due may 2020 ( see note 9 : debt and credit facilities in item 8 ) . additionally , in 2018 , we fully repaid $ 47 outstanding on our wholly owned subsidiary puerto rico 's unsecured borrowing facility ( see note 9 : debt and credit facilities in item 8 ) . dividends in 2019 , we paid dividends of $ 229 , or $ 1.48 per share , compared with $ 250 , or $ 1.48 per share , in 2018 . in determining the dividends to pay , we analyze our dividend payout ratio and dividend yield , while taking into consideration our current and projected operating performance and liquidity . our dividend payout ratio target range is 30 % to 40 % of the prior year 's net earnings . in february 2020 , subsequent to year end , we declared a quarterly dividend of $ 0.37 per share , which will be paid on march 25 , 2020 to shareholders of record as of march 10 , 2020 . free cash flow ( non-gaap financial measure ) free cash flow is one of our key liquidity measures , and when used in conjunction with gaap measures , we believe it provides investors with a meaningful analysis of our ability to generate cash from our business . free cash flow is not a measure of financial performance under gaap and should be considered in addition to , and not as a substitute for , operating cash flows or other financial measures prepared in accordance with gaap . our method of determining non-gaap financial measures may differ from other companies ' methods and therefore may not be comparable to those used by other companies . the financial measure calculated under gaap which is most directly comparable to free cash flow is net cash provided by operating activities . the following is a reconciliation of net cash provided by operating activities to free cash flow : replace_table_token_16_th nordstrom , inc. and subsidiaries 29 adjusted ebitda ( non-gaap financial measure ) adjusted ebitda is one of our key financial metrics to reflect our view of cash flow from net earnings . adjusted ebitda excludes significant items which are non-operating in nature in order to evaluate our core operating performance against prior periods . the financial measure calculated under gaap which is most directly comparable to adjusted ebitda is net earnings . adjusted ebitda is not a measure of financial performance under gaap and should be considered in addition to , and not as a substitute for net earnings , overall change in cash or liquidity of the business as a whole . our method of determining non-gaap financial measures may differ from other companies ' methods and therefore may not be comparable to those used by other companies . the following is a reconciliation of net earnings to adjusted ebitda : replace_table_token_17_th credit capacity and commitments as of february 1 , 2020 , we had total short-term borrowing capacity of $ 800 under the revolver that expires september 2023. provided that we obtain written consent from our lenders and that we are in compliance with the revolver at the time , we have the option to increase the revolver by up to $ 200 , to a total of $ 1,000 , and two options to extend the revolver by one year . as of february 1 , 2020 , we had no borrowings outstanding under our revolver . for more information , see subsequent events in note 1 : nature of operations and summary of significant accounting policies and note 9 : debt and credit facilities in item 8. in october 2021 , our $ 500 4.00 % senior unsecured notes will come due . we maintain trade and standby letters of credit to facilitate our international payments . as of february 1 , 2020 , we have $ 8 available and none outstanding under the trade letter of credit and $ 15 available and $ 2 outstanding under the standby letter of credit . impact of credit ratings changes in our credit ratings may impact our costs to borrow and may require we hold collateral . for our revolver , the interest rate applicable to any borrowings we may enter into depends upon the type of borrowing incurred plus an applicable margin , which is determined based on our credit ratings . at the time of this report , our credit ratings and outlook were as follows : credit ratings outlook moody 's baa2 stable standard & poor 's bbb stable should the ratings assigned to our long-term debt improve , the applicable margin associated with any borrowings under the revolver may decrease , resulting in a lower borrowing cost under this facility . conversely , should the ratings assigned to our long-term debt worsen , the applicable margin associated with any borrowings under the revolver may increase , resulting in a higher borrowing cost under this facility . debt covenants the revolver requires that we maintain an adjusted debt to ebitdar leverage ratio of no more than four times . the revolver 's ratio calculation methodology has not been impacted by the adoption of the lease standard . as of february 1 , 2020 , we were in compliance with this covenant .
| 3 prior year net sales included a decrease of approximately 150 basis points in 2018 due to the 53rd week in 2017. in 2019 , total company net sales decreased 2.2 % , compared with 2018 . while net sales decreased , we successfully executed plans to drive our top-line in the second half of the year due to our loyalty , digital marketing and merchandising programs . digital sales increased 7 % compared with 2018 and order pickup as a percentage of digital sales increased compared with 2018. during the year , we expanded nordstrom nyc with the opening of our flagship store , which is a cornerstone of our market strategy . in addition , we opened one fls , five nordstrom rack stores and two nordstrom locals . we closed six nordstrom fls and one nordstrom rack store . full-price net sales decreased 3.5 % , compared with 2018 . full-price sales reflected a decrease in the number of items sold , partially offset by an increase in the average selling price per item sold . shoes was the top-performing merchandise category . off-price net sales increased 0.2 % , compared with 2018 . off-price sales reflected an increase in the average selling price per item sold , partially offset by a decrease in the number of items sold . men 's was the top-performing merchandise category . credit card revenues , net credit card revenues , net include our portion of the ongoing credit card revenue , net of credit losses , pursuant to our program agreement with td . td is the exclusive issuer of our consumer credit cards and we perform the account servicing functions . credit card revenues , net were $ 392 in 2019 , compared with $ 380 in 2018 , increasing $ 12 primarily as a result of our strategic partnership with td to responsibly grow our receivables and associated revenues as well as efforts to drive new account growth . 24 gross profit the following table summarizes gross profit : replace_table_token_6_th our gross profit
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available water supply in southern california is constrained every year by regulatory restrictions on each of the state 's three main water sources : ( 1 ) the cra ; ( 2 ) the state water project , which provides water supplies from northern california to the central and southern parts of the state ; and ( 3 ) the los angeles aqueduct , which delivers water from the eastern sierra nevada mountains to los angeles . southern california 's water providers and farmers rely on imports from these systems to meet demand , but deliveries from all three into the region are consistently below capacity , even in wet years . further , the availability of supplies in california differs greatly from year to year due to natural hydrological variability . over the last decade , california experienced an historic drought featuring record-low winter precipitation , followed by record wet years . the 2018-2019 winter was a wet year , with snowpack and rainfall well above average through the summer of 2019 , however 2020 is on track to be another dry year , with snowpack at 45 % of normal through february . the rapid swings between wet and dry years challenges california 's traditional supply system and supports the need for reliable storage and local supply . given the variety of challenges and limitations presented by the state 's existing infrastructure , southern california water providers and farmers are presently pursuing investments in storage , supply and infrastructure to meet long-term demand and pursuing sustainable water and agriculture sources . we have a record of sustainable agricultural development and groundwater management to support our continued integration into california 's water and agriculture portfolio . 23 our current working capital requirements relate largely to the final development activities associated with the water project and those activities consistent with the water project related to further development of our land and agricultural assets . while we continue to believe that the ultimate implementation of the water project will provide a significant source of future cash flow , we also believe there is substantial value in our underlying agricultural assets and in our current agricultural ventures and lease arrangements . we also continue to explore additional sustainable beneficial uses of our land and water resource assets , including the marketing of our approved desert tortoise land conservation bank , which is located on our properties outside the water project area , and other long-term legacy uses of our properties , such as land stewardship and conservation programs . w ater resource development the water project is designed to capture and conserve renewable native groundwater currently being lost to evaporation from the aquifer system underlying our cadiz/fenner property and provide a new reliable water supply for approximately 400,000 people in southern california . in this first phase , phase i , the total quantity of groundwater to be recovered and conveyed to water project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years . the water project also offers participants in phase i the ability to carry-over their annual supply and store it in the groundwater basin from year to year . up to 150,000 acre-feet can be stored as part of phase i. a second phase of the water project , phase ii , will offer up to one million acre-feet of storage capacity that can be used to hold water supplies imported to the project area . water project facilities required for phase i primarily include , among other things : high-yield wells designed to efficiently recover available native groundwater at the water project area ; a water conveyance pipeline to deliver water from the well-field to project participants ; an energy source to provide power to the well-field , pipeline and pumping facilities ; and a water treatment facility at the wellfield to meet anticipated water quality requirements set by the operator of the cra . if an imported water storage component of the project is ultimately implemented in phase ii , the following additional facilities would be required , among other things : facilities to pump water through the conveyance pipeline from the cra to the water project well-field and or through our pipeline from barstow , ca , to our cadiz valley property ; and 24 spreading basins , which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water . phase i phase i has been fully reviewed and permitted in accordance with the california environmental quality act ( “ ceqa ” ) . the project was also separately reviewed and approved by the county of san bernardino in accordance with its local ordinances regulating groundwater . the project presently is permitted to provide an average of 50,000 acre-feet of water for 50 years at cadiz to meet municipal and industrial ( m & i ) water needs in southern california . the permits also authorize up to 150,000 acre-feet of carry-over groundwater storage , allowing water agencies to hold conserved water in the aquifer system for future dry years . construction of the water project facilities that would allow for conservation , carry-over storage and delivery of groundwater to public water providers is expected to cost approximately $ 310 million and will require capital financing that we expect will be secured by definitive purchase and sale agreements with project participants and the new facility assets . prior to construction , the water project must ( 1 ) finalize contracts with project participating agencies , ( 2 ) finalize arrangements and secure necessary permits and approvals to transport water conserved at cadiz via water transportation infrastructure and into each participant 's service area , and ( 3 ) complete final design and permitting . below is a discussion of present activities to advance these objectives . story_separator_special_tag ( 1 ) contracts with public water agencies or private water utilities we have executed letters of intent ( “ lois ” ) , option agreements and purchase agreements , or contracts ( collectively , “ agreements ” ) with public water agencies and private water utilities in california during the project 's development . these participating agencies serve more than one million customers in cities throughout california 's san bernardino , riverside , los angeles , orange , imperial and ventura counties . twenty percent of water project supplies have been reserved for san bernardino county-based agencies . santa margarita water district ( “ smwd ” ) , orange county 's second largest water provider , was the first participant to convert its option agreement and adopt resolutions approving a water purchase and sale agreement for 5,000 acre-feet of water . the structure of the smwd purchase agreement calls for an annually adjusted water supply payment , plus a pro rata portion of the capital recovery charge and operating and maintenance costs . the capital recovery charge is calculated by amortizing the total capital investment by the company over a 30-year term . agreements entered into prior to the beginning of the ceqa review process provide to participants the right to acquire an annual supply of 5,000 acre-feet of water at $ 775 per acre-foot ( 2010 dollars , subject to adjustment ) , which is competitive with the incremental cost of new water . in addition , these agencies received options to acquire storage rights in the water project to allow for the management of their water project supplies in complement with their own water resources . up to 150,000 acre-feet of carry-over storage is available for reservation by the agencies prior to construction commencement . participants that elect to achieve year-to-year flexibility in their use of project water by utilizing carry-over storage will reserve storage capacity for $ 1,500 per acre-foot prior to construction . 25 lois that have been entered into since completion of the ceqa review process reserve supplies from the water project at $ 960 per acre-foot ( 2014 dollars , subject to adjustment ) . these lois also include the option to reserve carry-over storage capacity for $ 1,500 per acre-foot prior to construction . prior to construction of the water project , we expect to convert existing option agreements and lois to purchase agreements . we will work collaboratively with the participating water agencies to allow for inclusive participation across southern california . ( 2 ) transportation infrastructure and conveyance arrangements a. southern route prior to construction of the water project , and in coordination with final participation contracts described in ( 1 ) above , we must obtain approvals from government agencies for conveyance of water from our property in cadiz to water users via the colorado river aqueduct ( “ cra ” ) . these approvals include : ( i ) arrangements with the us bureau of land management ( “ blm ” ) to construct a 43-mile water conveyance pipeline within a portion of the arizona & california railroad company ( “ arzc ” ) right-of-way that intersects with the cra ( southern pipeline ” ) ; ( ii ) an agreement for moving water supplies in the cra with metropolitan water district of southern california ( “ metropolitan ” ) , which owns and controls the cra ; and ( iii ) a review and finding by the california state lands commission of an application filed under newly established water code section 1815 that conveying water in the cra will not adversely affect the desert environment . i. blm approval of southern pipeline in october 2017 , the blm provided a letter finding that the project 's proposed use of a portion of the arzc right-of-way from our cadiz valley property to freda , california to construct and operate the water project 's water conveyance pipeline and related railroad improvements is within the scope of the original right-of-way grant and not subject to additional permitting . the buried pipeline would be constructed parallel to the railroad tracks and be used to convey water between our cadiz valley property and the cra . the letter was challenged in los angeles central district federal court in 2018 by national environmental organizations , which claimed it violated the law . in a june 2019 procedural ruling , the court remanded the letter back to blm , concluding that the agency needed to explain more explicitly why it withdrew and reversed specific findings previously made in 2015 on the same issue . however , the court did not find that the conclusions of the 2017 evaluation were in error . 26 on february 7 , 2020 we received from the blm a revised evaluation responsive to the court 's remand ( “ 2020 evaluation ” ) . the 2020 evaluation reaffirmed that the project 's proposed use of the arzc right-of-way for the southern pipeline and related railroad improvements furthers a railroad purpose and is within the scope of the right-of-way , consistent with blm 's conclusion in october 2017. the 2020 evaluation references an extensive record and sets forth the factual basis for its conclusions in detail while reaffirming the agency 's 2017 finding . we expect the court will review the 2020 evaluation this year per its remand order . ii . aqueduct transportation via mwd water supplies conserved by the project would enter the cra at the termination of the project 's conveyance pipeline near rice , ca . the ceqa process considered a variety of options to enter the cra and assumed final entry into the cra would be determined by mwd in consultation with the project 's participating agencies . once arrangements are reached , the metropolitan board would take action as a responsible agency under ceqa regarding the terms and conditions of the water project 's use of the cra to transport water to its participating agencies .
| general and administrative expenses during the year ended december 31 , 2019 , totaled $ 12.2 million compared with $ 11.4 million for the year ended december 31 , 2018. non-cash compensation costs related to stock and option awards are included in general and administrative expenses . compensation costs from stock and option awards for the year ended december 31 , 2019 , totaled $ 0.6 million compared with $ 0.5 million for the year ended december 31 , 2018. depreciation . depreciation expense totaled $ 265 thousand for the year ended december 31 , 2019 , and $ 258 thousand for the year ended december 31 , 2018. interest expense . interest expense totaled $ 17.1 million during the year ended december 31 , 2019 , compared to $ 15.3 million during the year ended december 31 , 2018. the following table summarizes the components of net interest expense for the two periods ( in thousands ) : 32 replace_table_token_1_th the interest on outstanding debt increased from $ 12.6 million to $ 13.1 million due to compounded interest on a larger credit facility associated with our may 2017 debt refinancing . additionally , during the year ended december 31 , 2018 , the company recorded net unrealized gains on warrants of $ 1.5 million ( see note 6 to the consolidated financial statements , “ long-term debt ) ” . the underlying warrants were reclassified to equity on january 1 , 2019 upon adoption of the related accounting standard ( see note 2 to the consolidated financial statements , “ summary of significant accounting policies ” ) . interest income . interest income totaled $ 226 thousand during the year ended december 31 , 2019 , and $ 223 thousand for the year ended december 31 , 2018. liquidity and capital resources ( a ) current financing arrangements as we have not received significant revenues from our development activities to date , we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence . historically , we have addressed these needs primarily through secured debt financing arrangements and private equity placements . in november 2018 , we entered into an
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royalty revenues are recognized based on actual revenues as reported to us by bracco . when actual results are not available , we estimate royalty revenues based on bracco 's estimates of historical revenues and trends . we continually review these estimates and record adjustments to the estimates when we receive actual information from bracco . these adjustments have not been significant to date , but could have a material effect on our future results of operations . research and development research and development costs , including those associated with technology , licenses and patents , are expensed as incurred . research and development costs primarily include employee salaries and related costs , third party service costs and consulting expenses . in order to conduct the clinical trials required for the company 's initial product , ms-325 , the company enters into contracts with vendors who render services over an extended period of time , generally one to three years . typically , the company enters into two types of vendor contracts , time based and patient based . under a time based contract , using critical factors contained within the contract , typically the stated duration of the contract , and the timing of services provided , the company records the contractual expense for each service provided under the contract ratably over the period during which the company estimates the service will be performed . under a patient based contract , the company first determines an appropriate per patient cost using critical factors contained within the contract , which include the estimated number of patients and the total dollar value of the contract . the company then records expense based upon the total number of patients enrolled during the period . on a quarterly basis , the company reviews both the timetable of services to be rendered and the timing of 39 services actually received . based upon this review , revisions may be made to the forecasted timetable or to the extent of services performed , or both , in order to reflect the company 's most current estimate of the contract . adjustments are recorded in the period in which the revisions are estimable . these adjustments could have a material effect on our results of operations . employee stock compensation we have elected to follow accounting principles board opinion no . 25 , `` accounting for stock issued to employees , '' or apb 25 , and related interpretations in accounting for our employee stock options because the alternative fair value accounting provided for under statement of financial accounting standards ( `` sfas '' ) no . 123 , `` accounting for stock-based compensation , '' as amended by sfas no . 148 , requires use of option valuation models that were not developed for use in valuing employee stock options . under apb 25 , because the exercise price equals the market price of the underlying stock on the date of the grant , no compensation expense is recognized . if we accounted for stock options under sfas 123 , we would have recorded additional compensation expense for the stock option grants to employees . if we are unable to or decide not to continue to account for stock options under apb 25 , our financial results would be materially adversely affected to the extent of the additional compensation expense we would have to recognize , which could change significantly from period to period based on several factors including the number of stock options granted and fluctuations in our stock price and or interest rates . see also note 2 to the financial statements . story_separator_special_tag > interest income for the year ended december 31 , 2002 was $ 1.1 million as compared to $ 1.0 million for the year ended december 31 , 2001. the increase of approximately $ 100,000 was primarily due to realized gains from the sale of marketable securities and higher average levels of invested cash , cash equivalents and marketable securities , partly offset by lower interest rates . net realized gains on marketable securities , which are included in interest income , were $ 156,000 for the year ended december 31 , 2002 as compared to none for year the ended december 31 , 2001. interest expense for the year ended december 31 , 2002 was $ 362,000 as compared to $ 339,000 for the year ended december 31 , 2001. this increase in interest expense in 2002 was the result of a full year of interest paid to bracco under the bracco agreement . provision for income taxes the provision for income taxes , which represents italian income taxes related to the bracco agreement , was $ 94,000 for the year ended december 31 , 2002 as compared to $ 1.1 million for the year ended december 31 , 2001. the higher foreign income tax expense in 2001 of approximately $ 1.0 million is directly attributable to the receipt of $ 10.0 million from bracco in september 2001 upon the execution of the worldwide license agreement with bracco . any future payments received from bracco are subject to italian income tax withholding . 42 years ended december 31 , 2001 and 2000 revenues revenues for the years ended december 31 , 2001 and 2000 were $ 9.6 million and $ 6.9 million , respectively . revenues for 2001 consisted of $ 5.8 million of product development revenue from schering ag , $ 2.1 million of royalty and license fee revenue related to the bracco agreement and $ 1.7 million of license fee revenue related to the schering ag and tyco strategic collaboration agreements for the development and marketing of ms-325 . the increase in revenues is a result of $ 2.1 million related to the bracco agreement and $ 600,000 in license fee revenue associated with granting schering ag the rights to market ms-325 in japan . research and development expenses research and development expenses for the year ended december 31 , 2001 were $ 22.9 million as compared to $ 25.8 million for 2000. story_separator_special_tag in the year 2000 , a one-time charge of $ 4.9 million was included in research and development expenses , which related to the reacquisition of the japanese rights to develop and commercialize ms-325 from daiichi , causing an overall decrease in research and development expenses from 2000 to 2001. excluding this one-time charge in 2000 , research and development expenses increased $ 2.0 million from 2000 to 2001 primarily due to increased costs for personnel and other resources to support research and development of the company 's thrombus imaging program and higher costs associated with advancing ms-325 through clinical trials . general and administrative expenses general and administrative expenses for the year ended december 31 , 2001 were $ 5.5 million as compared to $ 4.8 million for 2000. general and administrative expenses increased $ 670,000 during 2001 as compared to 2000 primarily as a result of ongoing corporate activities , royalty expense associated with the bracco agreement and increased personnel and related expenses . interest income and interest expense interest income for the year ended december 31 , 2001 was $ 1.0 million as compared to $ 1.3 million for 2000. the $ 300,000 decrease was primarily due to lower interest rates during 2001 compared to 2000 offset by higher average cash , cash equivalent and marketable securities balances in 2001 as compared to 2000. interest expense for the year ended december 31 , 2001 was $ 339,000 as compared to $ 468,000 in 2000. the $ 129,000 decrease was attributable to lower interest rates in the year ended december 31 , 2001 along with lower interest expense associated with our decreasing capital lease obligation and the repayment of our note payable . this decrease was offset by increased interest expense associated with the bracco agreement . provision for income taxes the provision for income taxes of $ 1.1 million for the year ended december 31 , 2001 represents italian income taxes related to the bracco agreement signed in september 2001 which we are unable to offset against net operating losses . there was no provision for income taxes recorded in 2000. liquidity and capital resources our principal sources of liquidity consist of cash , cash equivalents and available-for-sale marketable securities of $ 28.1 million at december 31 , 2002. on january 18 , 2002 , we raised $ 30.1 million through the issuance and sale of 2.575 million shares of our common stock pursuant to our previously filed shelf registration statement . in september 2000 , we entered into an agreement with acqua wellington north american equities fund ltd. , or acqua 43 wellington , for an equity financing facility . during 2001 , we received $ 8,666,346 and in 2000 , we received $ 885,397 in net proceeds using this facility . this equity financing facility was terminated in january 2002 , in accordance with the terms of the equity financing facility agreement , as a result of our sale of all of the remaining shares available on our then available s-3 shelf registration statement . acqua wellington did not purchase any shares in the january 2002 offering . we used approximately $ 24.0 million of net cash to fund operations for the year ended december 31 , 2002 compared to $ 7.6 million to fund operations for the year ended december 31 , 2001. for the year ended december 31 , 2002 , net cash used for operating activities was primarily attributable to our net loss of $ 22.2 million . excluding the $ 9.0 million we received from bracco in september 2001 , we used $ 16.6 million of cash for operations for the year ended december 31 , 2001. our investing activities resulted in net cash used of $ 13.1 million for the year ended december 31 , 2002 and net cash provided of $ 12.2 million for the year ended december 31 , 2001. for the year ended december 31 , 2002 , we purchased $ 42.4 million of available-for-sale marketable securities . a majority of the funds used for these purchases were derived from the proceeds of the common stock offering completed on january 18 , 2002. we also received proceeds of $ 30.3 million as a result of investment sales and redemptions . other investing activities included capital expenditures of $ 1.1 million for the year ended december 31 , 2002 , and $ 698,000 for the year ended december 31 , 2001. our capital expenditures consist primarily of purchases of property and equipment , including lab equipment , computer equipment and software . we expect that our capital expenditures will increase in the future as we continue to enhance and expand our principal lab space . cash provided by financing activities was $ 28.0 million for the year ended december 31 , 2002 and $ 8.6 million for the year ended december 31 , 2001. the principal source of financing for the year ended december 31 , 2002 was the issuance and sale of 2.575 million shares of our common stock pursuant to our previously filed shelf registration statement in january 2002 , which resulted in net proceeds to us of $ 30.1 million . partly offsetting some of the cash provided from financing activities was the repayment of the $ 3.0 million outstanding loan with tyco in october 2002. we currently receive quarterly cash payments from schering ag for their share of development costs of ms-325 , quarterly royalty payments from bracco on their sales of multihance® and interest income earned on our cash , cash equivalents and available-for-sale marketable securities . in the future , we may also obtain funding from collaborations for our thrombus program or for other research activities or from a sale of shares of our common stock pursuant to our effective shelf registration statement filed with the sec in march 2002 , whereby we registered 5 million shares of our common stock . additional future cash flows depend on the successful filing of an nda , fda approval and product launch of ms-325 , and include up to $ 27.0
| if granted expedited review , we could receive product approval within six to eight months from the date of the nda filing date . however , historically , the fda has required approximately twelve months to review a product nda prior to initial regulatory action with an additional period of at least three to six months required prior to approval . if approved by the fda , our partner , schering ag , will have primary responsibility for the product launch and marketing of ms-325 . 40 both the time-frame and costs involved in completing the development of ms-325 , gaining fda approval and commercializing the product may vary greatly for several reasons , including the following : we conduct our phase iii clinical trial program in accordance with specific protocols , which we have filed with the fda . if the fda modifies the protocols we have filed with them or requires us to perform additional studies , we could incur significant additional costs and additional time to complete our phase iii clinical trial program according to the revised plan . this would also result in a delay in our ability to file an nda with the fda and a delay in the commercialization of our product . we rely on third party clinical trial centers to find suitable patients for our clinical trial program . if these third parties do not find suitable patients in the time-frame for which we have planned , we will not be able to complete our clinical trial program according to our expected schedule . such a delay would result in an increase in costs for the development of our ms-325 program , a delay in filing an nda with the fda , and a delay in commercialization of our product . the length of time that the fda takes to review our nda and the length of time it takes us to respond to fda questions can also vary widely . any delay in that
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this increase comes is attributable to higher sales volumes and market share gains across all regions of the world . in europe , the powertrain business sales increased by 6 % compared to an increase in european 97 light vehicle production of 4 % and a decrease in commercial vehicle production of 9 % . in north america , the powertrain business sales increased by 9 % compared to an increase in both light vehicle and commercial vehicle production of 5 % and 12 % respectively . in the rest of the world ( `` row '' ) , as the powertrain business ' presence in the emerging light vehicle market continued to grow , its sales increased by 12 % , compared to an increase in light vehicle production of 1 % and a decline in commercial vehicle production of 2 % . when taking into account the powertrain business ' regional and market mix , its sales therefore grew in excess of underlying market demand . net sales in the motorparts business increased by $ 281 million ( 10 % ) primarily due to the affinia chassis and the honeywell brake component acquisitions . this increase was partially offset by a decrease in sales in north america of 2 % primarily due to the exit of certain unprofitable business . in europe , the sales of the motorparts business decreased by 3 % primarily due to a decrease in sales in the eastern europe region . sales in row increased by 4 % driven by stronger aftermarket demand in the china and india . cost of products sold for the year ended december 31 , 2014 increased by $ 375 million ( 6 % ) as compared to the corresponding prior year period . including acquisitions , the increase in materials , labor and overhead as a direct result of external sales volumes/mix was $ 507 million . the impact from unfavorable productivity and motorparts business ' strategic initiatives and project costs of $ 38 million as well as an increase in depreciation of $ 26 million were partially offset by decreases due to dispositions of $ 119 million , savings in material costs of $ 34 million and foreign currency of $ 43 million . gross margin for the year ended december 31 , 2014 increased by $ 37 million ( 4 % ) as compared to the corresponding prior year period . the favorable impact on margins due to external sales volumes/mix was $ 107 million , including acquisitions . favorable materials and services sourcing savings of $ 34 million were offset in part by unfavorable customer pricing of $ 30 million , project costs and costs related to the motorparts business ' strategic initiatives of $ 27 million , increased depreciation of $ 26 million , unfavorable productivity of $ 11 million and unfavorable foreign currency impact of $ 8 million . year ended december 31 , 2013 compared to the year ended december 31 , 2012 consolidated net sales increased for the year ended december 31 , 2013 by $ 241 million ( 4 % ) as compared to the corresponding prior year period . the increase included a favorable foreign currency impact of $ 25 million . excluding sales directly related to the acquisition of the spark plug business from borgwarner , inc. ( `` bwa '' ) of $ 43 million , sales from the european distribution agreement for ignition products of $ 112 million and reduced sales of $ 103 million associated with dispositions , sales organically increased by $ 164 million , which is net of $ 19 million from customer price decreases . this organic growth is comprised of the powertrain business ' sales increases of $ 203 million partially offset by the motorparts business ' sales decreases of $ 39 million . given the powertrain business ' weighted market presence in the light vehicle , commercial vehicle and industrial markets and the year-over-year changes in production rates for those markets , the expected powertrain business ' sales change would be negligible compared to the prior year . however , the powertrain business ' sales increased by 2 % , excluding the impact on sales from the acquisition of the spark plug business from bwa , reflecting growth in excess of the underlying market . this was driven by an increase in sales in north america and row of 8 % and 12 % , respectively , partly offset by a decrease in sales in europe of 3 % . in the motorparts business , external sales volumes decreased by $ 39 million excluding the impact of sales from the european distribution agreement for ignition products of $ 112 million and reduced sales of $ 20 million associated with dispositions . this was primarily attributable to the decrease in sales in north america of 4 % . this reflects the exit of selected non-strategic business contracts as well as a softening in the export business , mainly in venezuela as a result of a tightening of exchange rate control in that country . however , this was partly offset by an increase in sales in the motorparts business in europe of 4 % resulting from aftermarket volume gains and improved market conditions . cost of products sold for the year ended december 31 , 2013 increased by $ 132 million ( 2 % ) as compared to the corresponding prior year period . the increase in materials , labor and overheads as a direct result of the increase in external and inter-segment sales volumes was $ 249 million . other increases include currency movements of $ 24 million and increased depreciation of $ 12 million . these increases were partially offset by a decrease due to net acquisition/disposition activities of $ 74 million , materials and sourcing savings of $ 72 million , reduced pension expense of $ 6 million and favorable productivity of $ 1 million . story_separator_special_tag gross margin for the year ended december 31 , 2013 increased by $ 109 million ( 12 % ) as compared to the corresponding prior year period , primarily due to materials and services sourcing savings of $ 72 million . the product mix issues experienced in the first half of the year due to commercial vehicle production declining to a greater extent than light vehicle production has stabilized . therefore , the impact on margins due to volume increases was an increase of $ 58 million . other factors contributing to the increased margin were $ 14 million from net acquisition/disposition activities , reduced pension expense of $ 6 million , favorable productivity of $ 1 million and currency movements of $ 1 million . these increases were offset in part by unfavorable 98 customer pricing of $ 19 million , increased depreciation of $ 12 million and unabsorbed fixed costs on inter-segment sales volumes of $ 12 million . energy replace_table_token_12_th ( 1 ) for the period may 5 , 2012 ( date of acquisition of a controlling interest ) through december 31 , 2012 . 99 the following table provides a reconciliation of our energy segment 's petroleum business ' gross margin to refining margin and refining margin adjusted for fifo impacts for the periods indicated : replace_table_token_13_th ( 1 ) for the period may 5 , 2012 ( date of acquisition of a controlling interest ) through december 31 , 2012. cvr 's annual report on form 10-k contains a detailed description of its business , products , industry , operating strategy and associated risks . cvr 's filings with the sec are available on the sec 's website at www.sec.gov . we acquired a controlling interest in cvr on may 4 , 2012. cvr is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in cvr refining , lp ( “ cvr refining ” ) and cvr partners , lp ( “ cvr partners ” ) , respectively . cvr refining is an independent petroleum refiner and marketer of high value transportation fuels . cvr partners produces nitrogen fertilizers in the form of urea ammonium nitrate ( `` uan '' ) and ammonia . as of december 31 , 2014 , cvr owned 100 % of the general partners of cvr refining and cvr partners and approximately 66 % of the common units of cvr refining and 53 % of the common units of cvr partners . as of december 31 , 2014 , we owned 82.0 % of the total outstanding common stock of cvr . in addition , as of december 31 , 2014 , icahn enterprises and icahn enterprises holdings directly owned approximately 4.0 % of the total outstanding common stock of cvr refining . major influences on results of operations the earnings and cash flows of our energy segment 's petroleum business are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products . the cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depend on factors beyond its control , including the supply of and demand for crude oil , as well as gasoline and other refined products which , in turn , depend on , among other factors , changes in domestic and foreign economies , weather conditions , domestic and foreign political affairs , production levels , the availability of imports , the marketing of competitive fuels and the extent of government regulation . because the petroleum business applies first-in , first-out ( `` fifo '' ) accounting to value its inventory , crude oil price movements may impact net income in the short term because of changes in the value of its unhedged on-hand inventory . the effect of changes in crude oil prices on our results of operations is influenced by the rate at which the prices of refined products adjust to reflect these changes . the prices of crude oil and other feedstocks and refined product prices are also affected by other factors , such as product pipeline capacity , local market conditions and the operating levels of competing refineries . crude oil costs and the prices of refined products have historically been subject to wide fluctuations . widespread expansion or upgrades of competitors ' facilities , price volatility , international political and economic developments and other factors are likely to continue to play an 100 important role in refining industry economics . these factors can impact , among other things , the level of inventories in the market , resulting in price volatility and a reduction in product margins . moreover , the refining industry typically experiences seasonal fluctuations in demand for refined products , such as increases in the demand for gasoline during the summer driving season and for home heating oil during the winter , primarily in the northeast . in addition to current market conditions , there are long-term factors that may impact the demand for refined products . these factors include mandated renewable fuels standards , proposed climate change laws and regulations , and increased mileage standards for vehicles . the petroleum business is also subject to the epa 's renewable fuel standard ( `` rfs '' ) , which requires it to either blend `` renewable fuels '' in with its transportation fuels or purchase renewable fuel credits , known as renewable identification numbers ( `` rins '' ) , in lieu of blending . the epa is required to determine and publish the applicable annual renewable fuel percentage standards for each compliance year by november 30 for the forthcoming year . the percentage standards represent the ratio of renewable fuel volume to gasoline and diesel volume . beginning in 2011 , the coffeyville refinery was required to blend renewable fuels into its gasoline and diesel fuel or purchase rins in lieu of blending . in 2013 , the wynnewood refinery was subject to the rfs for the first time .
| effective january 1 , 2014 , icahn partners master fund ii lp and icahn partners master fund iii lp were merged with and into icahn partners . we and certain of mr. icahn 's wholly owned affiliates are the sole investors in the investment funds . icahn onshore lp and icahn offshore lp ( together , the `` general partners '' ) act as the general partner of icahn partners and the master funds , respectively . the general partners provide investment advisory and certain administrative and back office services to the investment funds but do not provide such services to any other entities , individuals or accounts . interests in the investment funds are not offered to outside investors . mr. icahn , along with his affiliates ( excluding icahn enterprises and icahn enterprises holdings ) , makes investments in the investment funds . as of december 31 , 2014 and 2013 , the total fair market value of investments in the investment funds made by mr. icahn and his affiliates was approximately $ 4.8 billion and $ 4.7 billion , respectively . our interests in the investment funds as of december 31 , 2014 and 2013 , we had investments with a fair market value of approximately $ 4.3 billion and $ 3.7 billion , respectively , in the investment funds . our share of the investment funds ' net ( losses ) profits through our interests in the investment funds was $ ( 305 ) million , $ 812 million , and $ 157 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . returns the following table sets forth performance information for the investment funds for the comparative periods presented . these returns represent a weighted-average composite of the average returns , net of expenses for the investment funds . replace_table_token_9_th performance attribution the following table sets forth the performance attribution for the investment funds for the comparative periods presented . replace_table_token_10_th ( 1 ) the investments funds ' aggregate gross return would have been 20.2 % if the investment funds had elected not to distribute shares of cvr to our subsidiary iep energy in 2012 and if additional purchases
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impacts on business from covid-19 the global outbreak of covid-19 and the public health measures that have been undertaken in response have had a significant adverse impact on our business , our tenants and the global economy . the effects of covid-19 , including related government restrictions , border closings , quarantines , “ shelter-in-place ” orders and “ social distancing ” guidelines , have forced many of our tenants to close stores , reduce hours or significantly limit service , and have resulted in a dramatic increase in national unemployment and a significant economic contraction . since we can not estimate when the covid-19 pandemic and the responsive measures to combat it will end , we can not estimate the ultimate operational and financial impact of covid-19 on our business . approximately 70 % of our shopping centers are anchored by grocery stores . grocery stores and other essential tenants have remained open throughout this time and many have experienced stable or increased sales , which we believe will help to partially mitigate the adverse impact of covid-19 on our business . in addition , we have encouraged our tenants whose businesses have been impacted by covid-19 to explore their eligibility for benefits under government assistance programs intended to provide financial support to affected businesses . covid-19 significantly impacted our operations during 2020 , and the following operating trends , combined with macroeconomic trends such as significantly increased unemployment and changes in consumer spending , lead us to believe that our operating results for 2021 will continue to be adversely affected by covid-19 . the following table presents information related to rent collections and store closures : replace_table_token_9_th ( 1 ) businesses deemed essential for day-to-day living . ( 2 ) businesses deemed essential for day-to-day living , but operating in a moderated capacity , and businesses deemed essential for day-to-day living in many , but not all jurisdictions . ( 3 ) businesses deemed non-essential for day-to-day living . timing of rental payments : certain tenants experiencing economic difficulties during the pandemic have sought rent relief , which has been provided on a case-by-case basis primarily in the form of rent deferrals , and , in more limited cases , in the form of rent abatements . rent deferrals have significantly increased our receivables , net . we are in ongoing discussions with our tenants regarding rent that has not yet been collected or addressed through executed deferral or abatement agreements . leasing activity : while lease execution velocity notably slowed in the second quarter of 2020 , it has since recovered to levels similar to those experienced in prior periods . 27 we have taken various steps to mitigate the impact of covid-19 on our liquidity , including the deferral of approximately $ 130.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend in the second and third quarters of 2020. in june 2020 and august 2020 , we issued an aggregate of $ 800.0 million principal amount of 4.050 % senior notes due 2030 , the net proceeds of which were used to repurchase our 3.875 % senior notes due 2022 , repay outstanding indebtedness under our $ 1.25 billion revolving credit facility ( the “ revolving facility ” ) , and for general corporate purposes . as of february 5 , 2021 , we have approximately $ 330.0 million in cash and cash equivalents and restricted cash , approximately $ 1.2 billion of remaining availability under the revolving facility , and no debt maturities until 2022. we expect the significance of the covid-19 pandemic and the resulting economic slowdown on our financial and operational results to be dictated by , among other things , the scope , severity and duration of the pandemic , the speed and effectiveness of vaccine and treatment developments and deployment , potential mutations of covid-19 , including sars-cov-2 and the response thereto , the direct and indirect economic effects of the pandemic and containment measures , and potential sustained changes in consumer behavior . adverse developments related to these conditions could increase the number of tenants that are unable to meet their lease obligations to us , that close their stores , and or that file for bankruptcy protection , and could limit the demand for space from new tenants . therefore , there can be no assurances that we will not experience declines in revenues , net income or funds from operations , which could be material . see item 1a . “ risk factors ” included elsewhere in this annual report on form 10-k for additional information . story_separator_special_tag operating expenses ( in thousands ) replace_table_token_12_th operating costs the decrease in operating costs for the year ended december 31 , 2020 of $ 13.2 million , as compared to the corresponding period in 2019 , was primarily due to a $ 3.8 million decrease in operating costs due to net disposition activity and a $ 9.4 million decrease for the remaining portfolio primarily due to proactive cost reductions taken in response to covid-19 and favorable insurance captive adjustments . real estate taxes the decrease in real estate taxes for the year ended december 31 , 2020 of $ 2.0 million , as compared to the corresponding period in 2019 , was primarily due to a $ 3.7 million decrease in real estate taxes due to net disposition activity , partially offset by a $ 1.7 million increase for the remaining portfolio primarily due to increases in assessments from several jurisdictions , partially offset by an increase in capitalized real estate taxes . story_separator_special_tag depreciation and amortization the increase in depreciation and amortization for the year ended december 31 , 2020 of $ 3.2 million , as compared to the corresponding period in 2019 , was primarily due to a $ 10.8 million increase for assets owned for the full year primarily related to value-enhancing reinvestment capital expenditures and tenant write-offs , partially offset by a decrease in depreciation and amortization related to acquired in-place lease intangibles and a $ 7.6 million decrease in depreciation and amortization due to net disposition activity . impairment of real estate assets during the year ended december 31 , 2020 , aggregate impairment of $ 19.6 million was recognized on three shopping centers and one partial shopping center as a result of disposition activity and three operating properties . during the year ended december 31 , 2019 , aggregate impairment of $ 24.4 million was recognized on six shopping centers and one partial shopping center as a result of disposition activity , three operating properties and one partial operating property . impairments recognized were due to changes in anticipated hold periods primarily in connection with our capital recycling program . general and administrative the decrease in general and administrative costs for the year ended december 31 , 2020 of $ 4.0 million , as compared to the corresponding period in 2019 , was primarily due to a decrease in marketing , professional and travel costs due to covid-19 and a decrease in net compensation costs , partially offset by an increase in litigation and other non-routine legal expenses . during the years ended december 31 , 2020 and 2019 , construction compensation costs of $ 14.6 million and $ 14.7 million , respectively , were capitalized to building and improvements and leasing legal costs of $ 0.8 million and $ 0.0 million , respectively , and leasing commission costs of $ 5.7 million and $ 6.0 million , respectively , were capitalized to deferred charges and prepaid expenses , net . 30 other income and expenses ( in thousands ) replace_table_token_13_th dividends and interest the decrease in dividends and interest for the year ended december 31 , 2020 of $ 0.2 million , as compared to the corresponding period in 2019 , was primarily due to a $ 0.2 million decrease in investment income from marketable securities . interest expense the increase in interest expense for the year ended december 31 , 2020 of $ 10.2 million , as compared to the corresponding period in 2019 , was primarily due to higher overall debt obligations as we bolstered liquidity in response to covid-19 . gain on sale of real estate assets during the year ended december 31 , 2020 , we disposed of seven shopping centers , five partial shopping centers and one land parcel that resulted in aggregate gain of $ 32.6 million . in addition , during the year ended december 31 , 2020 , we received aggregate net proceeds of $ 1.0 million and resolved contingencies of $ 0.5 million from previously disposed assets resulting in aggregate gain of $ 1.5 million , and we received final insurance proceeds related to two shopping centers that were damaged by hurricane michael resulting in aggregate gain of $ 0.4 million . during the year ended december 31 , 2019 , we disposed of 18 shopping centers and two partial shopping centers that resulted in aggregate gain of $ 53.4 million . in addition , during the year ended december 31 , 2019 , we received aggregate net proceeds of $ 1.6 million from previously disposed assets resulting in aggregate gain of $ 1.4 million . loss on extinguishment of debt , net during the year ended december 31 , 2020 , we repurchased all $ 500.0 million of our 3.875 % senior notes due 2022 and repaid our $ 7.0 million secured loan , resulting in a $ 28.1 million loss on extinguishment of debt , net . loss on extinguishment of debt , net includes $ 26.2 million of prepayment fees and $ 1.9 million of accelerated unamortized debt issuance costs and debt discounts , net of premiums . during the year ended december 31 , 2019 , we repaid $ 500.0 million of an unsecured term loan under our senior unsecured credit facility agreement , as amended april 29 , 2020 ( the “ unsecured credit facility ” ) , resulting in a $ 1.6 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs . other the increase in other expense for the year ended december 31 , 2020 of $ 2.4 million , as compared to the corresponding period in 2019 , was primarily due to unfavorable tax adjustments in the current year . comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 see item 7 . “ management 's discussion and analysis of financial condition and results of operations ” in our form 10-k for the year ended december 31 , 2019 , filed with the securities and exchange commission ( “ sec ” ) on february 10 , 2020 , for a discussion of the comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018. liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months and beyond for all anticipated uses , including all scheduled payments on our outstanding debt , current and 31 anticipated tenant and other capital improvements , stockholder distributions to maintain our qualification as a reit and other obligations associated with conducting our business . our primary expected sources and uses of capital are as follows : sources cash and cash equivalent balances ; operating cash flow ; available borrowings under the unsecured credit facility ; dispositions ; issuance of long-term debt ; and issuance of equity securities . uses maintenance capital expenditures ; leasing capital expenditures ; debt repayments ; dividend/distribution payments value-enhancing reinvestment capital expenditures ; acquisitions ; and repurchases of equity securities .
| million resulting in aggregate gain of $ 53.4 million and aggregate impairment of $ 16.4 million . in addition , during the year ended december 31 , 2019 , we received aggregate net proceeds of $ 1.6 million from previously disposed assets resulting in aggregate gain of $ 1.4 million . results of operations the results of operations discussion is combined for bpg and the operating partnership because there are no material differences in the results of operations between the two reporting entities . comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 revenues ( in thousands ) replace_table_token_11_th rental income the decrease in rental income for the year ended december 31 , 2020 of $ 115.4 million , as compared to the corresponding period in 2019 , was due to a $ 28.2 million decrease in rental income due to net disposition activity and an $ 87.2 million decrease for the remaining portfolio . the decrease for the remaining portfolio was due to ( i ) a $ 55.9 million increase in revenues deemed uncollectible ; ( ii ) a $ 35.1 million decrease in straight-line rental income , net ; ( iii ) a $ 3.2 million decrease in percentage rents ; ( iv ) a $ 1.8 million decrease in accretion of above- and below-market leases and tenant inducements , net ; ( v ) a $ 1.7 million decrease in expense reimbursements ; and ( vi ) a $ 0.4 million decrease in ancillary and other rental income ; partially offset by ( vii ) a $ 7.7 million increase in base rent ; and ( viii ) a $ 3.2 million increase in lease termination fees . the increase in revenues deemed uncollectible and decrease in straight-line rental income , net were primarily attributable to covid-19 . the $ 7.7 million increase in base rent was primarily due to contractual rent increases , an increase in weighted average billed occupancy , and positive rent spreads for new and renewal leases and option
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crv431 does not directly target the virus and , as such , should be less susceptible to drug resistance , borne from viral mutations . 49 thus far , in vitro testing of crv431 has been conducted in-house and in collaboration with external groups including for example , the scripps research institute ( scripps ) . data in various cell lines of either transfected or infected hbv demonstrates nanomolar efficacy ( ec50 values ) and micromolar toxicity ( cc50 values ) . the selective index ( si ) , therefore , is wide and suggests that crv431 presents a viable clinical drug candidate for the treatment of viral infections , including hbv . additional testing in a transgenic mouse model of hbv indicated that crv431 reduced hbv dna in the liver . in a non-alcoholic steatohepatitis ( nash ) mouse model , crv431 demonstrated anti-fibrotic potential , thus addressing an important concern of the downstream effects of chronic hbv infection and liver disease . both animal models confirmed that crv431 is orally active and appeared to be well tolerated . valnivudine valnivudine is an orally available , small molecule , nucleoside analogue pro-drug of cf-1743 that we are developing for the treatment of herpes zoster , which is an infection caused by the reactivation of varicella zoster virus or vzv . vzv is responsible for producing the infectious disease known as chicken pox in individuals upon initial exposure to the virus . after the initial infection , the virus can remain dormant in nerve endings for many years and if reactivated , causes a painful rash called shingles . valnivudine is being developed specifically for the treatment of shingles . nucleoside analogs are capable of disrupting replication of the virus . valnivudine is a pro-drug of cf-1743 , which enables us to take advantage of valnivudine 's more readily absorbed properties compared to cf-1743 when given orally . valnivudine is then broken down to the active moiety , cf-1743 , upon entry into the blood stream . published preclinical studies demonstrate that valnivudine is significantly more potent against vzv than currently marketed compounds acyclovir , valacyclovir , and famciclovir , the fda-approved drugs used for the treatment of shingles . we conducted an extensive review of the clinical data from the completed phase 2 trial , including performing post-hoc analyses . we performed additional market research ( including unmet medical need ) , reimbursement , pricing , and competitive landscape analyses , etc . we also evaluated a number of clinical , regulatory and commercial pathways for the potential future development of valnivudine . based upon the analyses of the completed phase 2 study coupled with the additional market research , we approached the fda to discuss our clinical development program and requested an end of phase 2 ( eop2 ) meeting . the meeting was granted and the result was a streamlined development plan for valnivudine that allowed us to proceed directly into a phase 3 trial without the need to conduct any additional phase 2 studies . we had satisfied these criteria and initiated protocol 007 during 2q/2015 . in parallel to the phase 3 initiation , study 008 , a drug-drug interaction trial was conducted during january-march , 2015. the study 's objective was to highlight potential drug interactions with compounds which are metabolized using the cyp450 pathway . this is a very common trial in virology and in drug development overall . financial operations overview from inception through june 30 , 2017 , we have an accumulated deficit of approximately $ 59.5 million . from inception through june 30 , 2017 , we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products . we do not expect to have such for several years , if at all . on october 7 , 2015 , we entered into an underwriting agreement related to the public offering and sale of 5,000,000 50 shares of common stock and warrants to purchase up to 3,000,000 shares of common stock , at a fixed combined price to the public of $ 3.00 under our current shelf registration statement on form s-3 . the shares of common stock and warrants were issued separately on october 13 , 2015. the warrants are immediately exercisable and will be exercisable for a period of five years from the date of issuance at an exercise price of $ 4.25 per share . there is not , nor is there expected to be , any trading market for the warrants issued in the offering contemplated by the underwriting agreement . the gross proceeds were $ 15,000,000 , before deducting the underwriting discount and other offering expenses payable of approximately $ 1,474,000. if the warrants were exercised in full , we would receive additional proceeds of approximately $ 12,750,000. on april 4 , 2016 , the company closed on a public offering of 4,929,578 shares of its common stock and warrants to purchase up to 2,464,789 shares of common stock , at a fixed combined price to the public of $ 1.42 under the company 's current shelf registration statement on form s-3 . the warrants are immediately exercisable and will be exercisable for a period of five years from the date of issuance at an exercise price of $ 1.70 per share . there is not , nor is there expected to be , any trading market for the warrants issued in the offering contemplated by the underwriting agreement . story_separator_special_tag the gross proceeds to the company were $ 7,000,000 , before deducting the underwriting discount and other offering expenses payable by the company of approximately $ 700,000. if the warrants were exercised in full , contravir would receive additional proceeds of approximately $ 4,200,000. on april 25 , 2017 we closed on a public offering of 12,000,000 shares of our common stock and warrants to purchase up to 6,000,000 shares of common stock , at a fixed combined price to the public of $ 1.00 under our current shelf registration statement on form s-3 . the warrants are immediately exercisable and will be exercisable for a period of five years from the date of issuance at an exercise price of $ 1.25 per share . there is not , nor is there expected to be , any trading market for the warrants issued in the offering contemplated by the underwriting agreement . the gross proceeds to us were $ 12.0 million , before deducting the underwriting discount and other offering expenses payable by us of approximately $ 0.9 million . if the warrants were exercised in full , we would receive additional proceeds of approximately $ 7.5 million . our product development efforts are in their early stages and we can not make estimates of the costs or the time they will take to complete . the risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing , the specific performance of proposed products under stringent clinical trial protocols , the extended regulatory approval and review cycles , our ability to raise additional capital , the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources . critical accounting policies this discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 3 to our audited financial statements appearing elsewhere in this annual report , we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements . going concern as of june 30 , 2017 we had $ 13.0 million in cash . net cash used in operating activities was $ 19.2 million for the year ended june 30 , 2017. net loss for the year ended june 30 , 2017 was $ 14.9 million . as of june 30 , 2017 we had an accumulated deficit of $ 59.5 million . as of june 30 , 2017 , we had working capital of $ 10.2 million , whereas on june 30 , 2016 we had working capital of $ 2.8 million . we expect to incur losses for the next several years as we expand our research , development and clinical trials of valnivudine , txl and crv143 . we are unable to predict the extent of any future losses or when we will become profitable , if at all . our financial statements have been prepared under the assumption that we will continue as a going concern . due to our recurring and expected continuing losses from operations , we concluded there is substantial doubt in our ability to continue as a going concern within one year after the financial statements are issued without additional capital becoming available to attain further operating efficiencies and , ultimately , to generate revenue . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . we will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels . we can not be certain that additional funding will be available on acceptable terms , or at all . to the extent that we raise additional funds by issuing equity securities , our stockholders may experience significant dilution . any debt financing , if available , may involve restrictive covenants that impact our ability to conduct business . if we are unable to raise additional capital when 51 required or on acceptable terms , we may have to ( i ) significantly delay , scale back or discontinue the development and or commercialization of product candidates ; ( ii ) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available ; or ( iii ) relinquish or otherwise dispose of rights to technologies , product candidate or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms . fair value of financial instruments financial instruments consist of cash , accounts payable and derivative instruments . these financial instruments are stated at their respective historical carrying amounts , which approximate fair value due to their short term nature , except for derivative instruments , which are marked to market at the end of each reporting period . warrants we have issued common stock warrants in connection with the execution of certain equity financings .
| this change in fair value of the derivative liabilities is primarily due to a decrease in our stock price , which is one of the inputs used in the black-scholes option pricing model used to revalue the liability-classified warrants each reporting period . during the year ended june 30 , 2017 , we received an income tax benefit of $ 1.9 million resulting from the sale of our net operating losses to a third party . net loss for the years ended june 30 , 2017 and 2016 was $ 14.9 million and $ 17.0 million , respectively , which was a result of the operating expenses and change in fair value of our warrant liability discussed above . liquidity and capital resources the following table summarizes our cash flows for the years ended june 30 , 2017 and 2016 : replace_table_token_3_th as of june 30 , 2017 , we had $ 13.0 million in cash , as compared to $ 7.4 million as of june 30 , 2016. net cash used in operating activities was approximately $ 19.2 million for the year ended june 30 , 2017 , as compared to $ 16.6 million for the year ended june 30 , 2016. this cash was primarily used to continue clinical development of our three drug compounds as well as general and administrative costs and expenses . additionally , the cash used in operations included a decrease of $ 4.3 million related to the non cash change in fair market value of our warrant liability , partially offset by $ 1.7 million of non-cash stock-based compensation expense . as of june 30 , 2017 , we had working capital of $ 10.2 million , as compared to $ 2.8 million as of june 30 , 2016. net cash provided by financing activities for the year ended june 30 , 2017 primarily consisted of net proceeds of $ 24.8 million from an equity offering and the controlled equity offering , described further below . net cash provided by financing activities for the year ended june 30 , 2016 primarily consisted of net proceeds of $ 19.9 million from the issuance
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other income , net increased $ 6.1 million when 2016 is compared 34 to 2015 , primarily reflecting a decrease in the net reduction of the fdic indemnification asset related to the acquired covered loans and covered other real estate , a net gain on the sale of premises and equipment as a result of the sale of a former bank branch during 2016 compared to a net loss on the sale of premises and equipment recorded during 2015 on the sale of a former bank branch acquired in the banctrust merger and an increase in other miscellaneous income related to various vendor contract bonuses and settlements , a one-time arrangement fee and merchant service fees received during 2016. noninterest expense for 2016 increased $ 5.6 million , or 1.4 % , when compared to 2015 principally due to increases in salaries and employee benefits expense and services and fees , partially offset by declines in other real estate expense and other expense . salaries and employee benefits expense increased $ 9.4 million , or 4.1 % , when 2016 is compared to 2015 , primarily due to non-routine transaction expenses related to the erp and plan termination and higher commissions expense as a result of improvements in mortgage loan production , partially offset by cost savings realized related to the erp . services and fees expense increased $ 1.2 million , or 2.0 % , when 2016 is compared to 2015 , primarily to due to increases in date processing expenses related to software , other outside services and fees and advertising , partially offset by declines in legal and communications expenses . other real estate expense for 2016 declined $ 4.3 million , or 88.0 % , compared to 2015 , principally due to an increase in the net gain on sales of other real estate and a decrease in other real estate carrying costs . other expense declined $ 1.2 million , or 2.4 % , when 2016 is compared to 2015 , primarily due to decreases in franchise taxes , the amortization of the non-taxable core deposit intangible asset and loan expenses , partially offset by increases in customer related fraud losses and a property valuation adjustment recorded during 2016 on assets held for sale . trustmark 's provision for loan losses , lhfi , for 2016 totaled $ 11.0 million , an increase of $ 2.6 million , or 30.8 % , when compared to a provision for loan losses , lhfi of $ 8.4 million for 2015. the increase in the provision for loan losses , lhfi when 2016 is compared to 2015 primarily reflects the increase in the amount of required reserves for lhfi , partially offset by a decrease in net charge-offs and the additional provision expense recorded during 2015 as a result of revisions to the allowance for loan loss methodology . please see the section captioned “ provision for loan losses , lhfi , ” for additional information regarding the provision for loan losses , lhfi . the provision for loan losses , acquired loans for 2016 totaled $ 3.8 million , an increase of $ 332 thousand , or 9.7 % , when compared to 2015. please see the section captioned “ provision for loan losses , acquired loans , ” for additional information regarding the provision for loan losses , acquired loans . in total , the provision for loan losses , net was $ 14.7 million for 2016 , an increase of $ 2.9 million , or 24.7 % , when compared to 2015. at december 31 , 2016 , nonperforming assets , excluding acquired loans and covered other real estate , totaled $ 111.3 million , a decrease of $ 21.2 million , or 16.0 % , compared to december 31 , 2015 due to declines in both nonaccrual lhfi and other real estate , excluding covered other real estate . total nonaccrual lhfi were $ 49.2 million at december 31 , 2016 , representing a decrease of $ 6.1 million , or 11.0 % , relative to december 31 , 2015 principally due to substandard credits that were paid off or foreclosed in the mississippi market region , returned to accrual status in the florida market region , and charged off in the mississippi and texas market regions partially offset by lhfi migrating to nonaccrual status in the mississippi , florida and tennessee market regions during 2016. the percentage of loans , excluding acquired loans , that are 30 days or more past due and nonaccrual lhfi decreased in 2016 to 1.33 % compared to 1.44 % in 2015 and 2.12 % in 2014. other real estate , excluding covered other real estate , declined $ 15.1 million , or 19.6 % , during 2016 primarily due to properties sold as well as write-downs of properties in trustmark 's florida , mississippi , alabama and tennessee market regions partially offset by properties foreclosed in these four market regions . lhfi totaled $ 7.851 billion at december 31 , 2016 , an increase of $ 759.8 million , or 10.7 % , compared to december 31 , 2015. the increase in lhfi during 2016 represented net growth across all five of trustmark 's market regions , primarily in loans secured by real estate , commercial and industrial loans and state and other political subdivision loans . for additional information regarding changes in lhfi and comparative balances by loan category , see the section captioned “ lhfi. story_separator_special_tag ” while both classified and criticized lhfi balances remain at low levels and continue to reflect strong credit quality , both classified and criticized lhfi increased during the second half of 2016. as of december 31 , 2016 , classified lhfi balances increased $ 68.2 million , or 43.2 % , while criticized lhfi balances increased $ 72.2 million , or 39.6 % , when compared to balances at december 31 , 2015. the increase in the volume of classified and criticized lhfi was primarily a result of downgrades to several commercial and industrial credits in the texas and mississippi market regions during the second half of 2016. the downgrades were primarily energy-related credits identified during trustmark 's ongoing quarterly assessment of its energy portfolio and have been reserved for appropriately . management has continued its practice of maintaining excess funding capacity to provide trustmark with adequate liquidity for its ongoing operations . in this regard , trustmark benefits from its strong deposit base , its highly liquid investment portfolio and its access to funding from a variety of external funding sources such as upstream federal funds lines , fhlb advances and , on a limited basis , brokered deposits . total deposits were $ 10.056 billion at december 31 , 2016 , an increase of $ 467.8 million , or 4.9 % compared to december 31 , 2015. during 2016 , noninterest-bearing deposits decreased $ 25.5 million , or 0.8 % , while interest-bearing deposits increased $ 493.2 million , 35 or 7.5 % , primarily due to growth in interest-bearing demand deposit accounts , predominantly in public interest checking , and savings accounts partially offset by declines in certificates of deposits . trustmark uses short-term borrowings to fund growth of earning assets in excess of deposits growth . other short-term borrowings totaled $ 1.310 billion at december 31 , 2016 , an increase of $ 455.9 million , or 53.4 % , when compared with $ 853.7 million at december 31 , 2015 as a result of the increase in earning assets , principally lhfi , out-pacing the growth in deposits . the increase in other short-term borrowings was principally due to a $ 350.0 million increase in outstanding short-term fhlb advances with the fhlb of dallas , primarily as a result of a $ 500.0 million outstanding fhlb advance which was reclassified from long-term to short-term during the fourth quarter of 2016 , and a $ 102.4 million increase in upstream federal funds purchased as trustmark continues to utilize these attractively priced funding sources to fund the difference between loan and deposit growth . long-term fhlb advances totaled $ 251.0 million at december 31 , 2016 , a decrease of $ 250.1 million , or 49.9 % , when compared to $ 501.2 million at december 31 , 2015. the decrease in long-term fhlb advances was primarily a result of the $ 500.0 million long-term fhlb advance obtained in december 2015 being reclassified to short-term during the fourth quarter of 2016 , as noted above . during the second quarter of 2016 , trustmark obtained a $ 250.0 million long-term fhlb advance from the fhlb of dallas . similar to the long-term advance obtained in december 2015 , the advance has a variable rate and a two-year maturity . trustmark chose to utilize fhlb advances with the fhlb of dallas as a funding source for loan growth due to the advantageous rates available in comparison to other sources of funding . critical accounting policies trustmark 's consolidated financial statements are prepared in accordance with gaap and follow general practices within the financial services industry . application of these accounting principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , actual financial results could differ from those estimates . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . these critical accounting policies are described below . for additional information regarding the accounting policies discussed below , please see note 1 – significant accounting policies set forth in part ii . item 8 . – financial statements and supplementary data – of this report . allowance for loan losses , lhfi the allowance for loan losses , lhfi is established through provisions for estimated loan losses charged against net income . the allowance reflects management 's best estimate of the probable loan losses related to specifically identified lhfi as well as probable incurred loan losses in the remaining loan portfolio and requires considerable judgment . the allowance is based upon management 's current judgments and the credit quality of the loan portfolio , including all internal and external factors that impact loan collectibility . accordingly , the allowance is based upon both past events and current economic conditions . a significant shift in one or more factors included in the allowance for loan loss methodology could result in a material change to trustmark 's allowance for loan losses , lhfi . for example , if there were changes in one or more of the estimates , assumptions or judgments used as they relate to a portfolio of commercial lhfi , trustmark could find that it needs to increase the level of future provisions for possible loan losses with respect to that portfolio . additionally , credit deterioration of specific borrowers due to changes in these factors could cause the internally assigned risk rating to shift to a more severe category . as a result , trustmark could find that it needs to increase the level of future provisions for possible loan losses with respect to these lhfi .
| interest and fees on lhfs and lhfi increased $ 6.5 million , or 9.2 % , when the fourth quarter of 2016 is compared to the same time period in 2015 , primarily due to an increase in the lhfi portfolio . lhfi totaled $ 7.851 billion at december 31 , 2016 , an increase of $ 759.8 million , or 10.7 % , when compared to december 31 , 2015 , as a result of net growth across all of trustmark 's market regions and all categories in its lhfi portfolio , with the exception of other loans . noninterest income for the fourth quarter of 2016 increased $ 2.5 million , or 6.2 % , when compared to the same time period in 2015 , primarily due to increases in other income , net and mortgage banking , net . other income , net increased $ 2.6 million when the fourth quarter of 2016 is compared to the same time period in 2015 , principally due to an increase in other miscellaneous income and the reduction of amortization related to the fdic indemnification asset and the tax credit partnerships . mortgage banking , net increased $ 1.1 million , or 26.6 % , when the fourth quarter of 2016 is compared to the same time period in 2015 , principally due to a decrease in the negative net hedge ineffectiveness and an increase in the gain on sales of loans , net , partially offset by an increase in the negative net valuation adjustment for lhfs , interest rate lock commitments and forward sales contracts . interest and fees on acquired loans decreased $ 3.6 million , or 30.4 % , when the fourth quarter of 2016 is compared to the same time period in 2015 , in accordance with prior expectations . this was primarily due to a $ 1.6 million decline in recoveries from the settlement of debt and a $ 1.5 million decline in accretion income as acquired loans have continued to pay down as anticipated . interest on taxable securities declined $ 2.4 million , or 11.2 % , when the fourth quarter of 2016 is compared to the same time period in 2015 , principally due to declines in the yield maintenance payments on
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the agreement also provides for us to receive increased royalties by co-funding phase iii development costs of drug candidates under the collaboration . if we elect to co-fund such costs , we would be entitled to co-promote omecamtiv mecarbil in north america and participate in agreed commercialization activities in institutional care settings , at amgen 's expense . we conducted a clinical trials program for omecamtiv mecarbil comprised of multiple phase i and phase iia clinical trials designed to evaluate the safety , tolerability , pharmacodynamics and pharmacokinetic profiles of both intravenous and oral formulations in a diversity of patients , including patients with stable heart failure and patients with ischemic cardiomyopathy . in these trials , omecamtiv mecarbil exhibited generally linear , dose-proportional pharmacokinetics across the dose ranges studied . the adverse effects observed at intolerable doses in humans appeared similar to the adverse findings which occurred in preclinical safety studies at similar plasma concentrations . these effects are believed to be related to the mechanism of action of this drug candidate which , at intolerable doses , resulted in an excessive prolongation of the systolic ejection time ( i.e. , the time in which the heart is contracting ) . however , these effects resolved promptly with discontinuation of the infusions of omecamtiv mecarbil . we expect omecamtiv mecarbil to be developed as a potential treatment across the continuum of care in heart failure both as an intravenous formulation for use in the hospital setting and as an oral formulation for use in the outpatient setting . atomic-ahf . in april 2011 , amgen initiated an international , randomized , double-blind , placebo-controlled , phase iib clinical trial of an intravenous formulation of omecamtiv mecarbil , now known as atomic-ahf ( acute treatment with omecamtiv mecarbil to increase contractility in acute heart failure ) , in patients with left ventricular systolic dysfunction hospitalized with acutely decompensated heart failure . this clinical trial is expected to enroll approximately 600 patients in three sequential , ascending-dose cohorts . the primary objective of this trial is to evaluate the effect of 48 hours of intravenous omecamtiv mecarbil compared to placebo on dyspnea ( shortness of breath ) in patients with left ventricular systolic dysfunction hospitalized for acute heart failure . the secondary objectives are to assess the safety and tolerability of three dose levels of intravenous omecamtiv mecarbil compared with placebo and to evaluate the effects of 48 hours of treatment with intravenous omecamtiv mecarbil on additional measures of dyspnea , patients ' global assessments , change in n-terminal pro brain-type natriuretic peptide ( a biomarker associated with the severity of heart failure ) and short-term clinical outcomes in these patients . in addition , the trial will evaluate the relationship between omecamtiv mecarbil plasma concentrations and echocardiographic parameters in patients with acute heart failure . patient dosing in the first cohort of this trial is continuing . a review of data from the first cohort of this trial will be conducted by an independent data monitoring committee . a decision regarding the potential progression to the second cohort of the trial is anticipated in the first half of 2012. oral formulation development . in february 2012 , amgen initiated a phase i study designed to assess the safety , tolerability and pharmacokinetics of multiple oral formulations of omecamtiv mecarbil in healthy volunteers . this clinical trial will be used to guide selection of an oral formulation of omecamtiv mecarbil for later-stage clinical trials . we and amgen are discussing plans for the initiation of an additional clinical trial designed to assess the safety , tolerability and pharmacokinetics of oral omecamtiv mecarbil in stable heart failure patients . next-generation research . in the fourth quarter of 2011 , we agreed with amgen to additional research activities intended to be conducted through 2012 under the research plan directed to next-generation compounds in our cardiac muscle contractility program . under our collaboration agreement , amgen will reimburse us for the agreed research activities we perform . 50 the clinical trials program for omecamtiv mecarbil may proceed for several years , and we will not be in a position to generate any revenues or material net cash flows from sales of this drug candidate until the program is successfully completed , regulatory approval is achieved , and the drug is commercialized . omecamtiv mecarbil is at too early a stage of development for us to predict if or when this may occur . we funded all research and development costs associated with this program prior to amgen 's option exercise in may 2009. we recorded research and development expenses for activities relating to our cardiac muscle contractility program of approximately $ 2.8 million , $ 1.6 million and $ 9.9 million in the years ended december 31 , 2011 , 2010 and 2009 , respectively . we recognized research and development revenue from amgen of $ 2.1 million in 2011 and $ 1.5 million in 2010 , consisting of reimbursements of full-time employee equivalent ( fte ) and other expenses . we recognized research and development revenue from amgen of $ 7.1 million in the 2009 , consisting of $ 4.0 million for the transfer of our existing inventories of omecamtiv mecarbil and related reference materials to amgen and $ 3.1 million for reimbursements of ftes and other costs . we anticipate that our expenditures relating to the research and development of compounds in our cardiac muscle contractility program will increase if we participate in the future advancement of omecamtiv mecarbil through clinical development . our expenditures will also increase if amgen terminates development of omecamtiv mecarbil or related compounds and we elect to develop them independently , or if we elect to co-fund later-stage development of omecamtiv mecarbil or other compounds in our cardiac muscle contractility program under our collaboration and option agreement with amgen . skeletal muscle contractility ck-2017357 is the lead drug candidate from this program . story_separator_special_tag we are also advancing a potential drug candidate from this program , ck-2127107 , in non-clinical studies intended to enable the filing of an ind . ck-2017357 and ck-2127107 are structurally distinct and selective small molecule activators of the fast skeletal sarcomere . these compounds activate the fast skeletal muscle troponin complex by increasing its sensitivity to calcium , leading to an increase in skeletal muscle contractility . we are evaluating the potential indications for which ck-2017357 and ck-2127107 may be useful . each of ck-2017357 and ck-2127107 has demonstrated encouraging pharmacological activity in preclinical models . in addition , with respect to ck-2017357 , evidence of potentially clinically relevant pharmacodynamic effects has been observed in healthy volunteers , in patients with als , and in patients with peripheral artery disease and claudication . in july 2010 , we were awarded a grant in the amount of approximately $ 2.8 million by the ninds , which is intended to support for three years our research and development of ck-2017357 for the potential treatment of myasthenia gravis . the grant was awarded under the american recovery and reinvestment act of 2009. we recognized revenue of $ 1.7 million and $ 0.4 million under this grant arrangement in 2011 and 2010 , respectively , which we recorded as research and development , grant and other revenues . in 2010 , we initiated three evidence of effect phase iia clinical trials of ck-2017357 . two of these trials have been completed , one in patients with als and one in patients with symptoms of claudication associated with peripheral artery disease . a trial in patients with generalized myasthenia gravis is ongoing . these studies are intended to translate the mechanism of action of ck-2017357 into potentially clinically relevant pharmacodynamic effects ( as we did in healthy volunteers ) , which may then form the basis for larger clinical trials designed to demonstrate proof of concept and possibly even to support registration . in march 2010 , ck-2017357 received an orphan drug designation from the fda for the treatment of als . in march 2012 , ck-2017357 received an orphan medicinal product designation from the european medicines agency . ck-2017357 : clinical development phase i ( healthy volunteers ) . a phase i clinical trial of single doss of ck-2017357 in healthy volunteers demonstrated the maximum-tolerated single oral dose to be 2000 mg. in addition , single doses of 51 ck-2017357 from 250 to 1000 mg were shown to produce concentration-dependent , statistically significant increases versus placebo in the force developed by the tibialis anterior muscles of healthy volunteers in response to transcutaneous neuronal stimulation . in a multiple dose phase i clinical trial , ck-2017357 displayed generally dose-proportional pharmacokinetics and only modest accumulation during dosing to steady state . ck-2017357 was well-tolerated and no serious adverse events were reported in these phase i trials . als phase i drug-drug interaction ( cy 4013 ) . in 2011 , we conducted a phase i drug-drug interaction study of ck-2017357 administered orally to healthy volunteers . the co-administration of ck-2017357 and riluzole , the current standard of care for als , approximately doubled the average maximum plasma levels of riluzole ; it also reduced the variability of plasma levels of riluzole in the study subjects . accordingly , we believe that in future ck-2017357 clinical trials , a standard dose adjustment to the riluzole dose could be made for all patients receiving ck-2017357 , regardless of the dose level of ck-2017357 . data from the part of this study investigating the effect of food on the pharmacokinetics of ck-2017357 administered orally indicated that ck-2017357 may be best administered to patients in a fasting state . phase iia evidence of effect ( cy 4021 ) . in april 2011 , data from our phase iia evidence of effect clinical trial in als patients were presented at the clinical trials session at the 63 rd annual meeting of the american academy of neurology . in that trial , the single doses of ck-2017357 evaluated appeared generally well-tolerated . in addition , both patients and investigators perceived a positive change in the patients ' overall status , in a dose-dependent fashion , at 6 hours after dosing with ck-2017357 , based on a global assessment in which the patient and the investigator each independently assessed patients ' status compared to prior to dosing . there was a clear relationship between improvements in global assessments and the ck-2017357 plasma concentration . also at this 6-hour time point , there was a trend towards decreased muscle fatigability , as evidenced by data from a test of sub-maximal hand-grip endurance . data from that clinical trial also demonstrated a statistically significant increase in the maximum volume of air patients could inhale and exhale in twelve seconds ( maximum voluntary ventilation ) at both 6 and 24 hours after 500 mg of ck-2017357 , and small but statistically significant increases in maximum strength of certain muscle groups tested . phase ii multiple dose ( cy 4024 ) . in 2011 , we initiated a two-part , phase ii safety , tolerability , pharmacokinetic and pharmacodynamic clinical trial of multiple doses of ck-2017357 in als patients . part a of this trial , which was completed in 2011 , enrolled 24 patients who were not taking riluzole . part b of this trial , which is ongoing , is designed to evaluate 24 patients who are concurrently taking riluzole . in december 2011 , at the 22 nd international symposium on als and motor neurone disease in sydney , australia , we presented data from part a. ck-2017357 appeared well-tolerated at all dose levels evaluated which ranged from 125 mg to 375 mg , once daily , for two weeks . plasma concentrations of ck-2017357 increased in proportion with dose . the incidence and persistence of dizziness appeared dose-related but was mild in severity in all patients who completed study drug treatment .
| 59 research and development , grant and other revenues in 2011 , 2010 and 2009 included grant revenue from the ninds , grant revenue from the u.s. department of the treasury ( dot ) and research and development revenue from global blood targeting , inc. in july 2010 , the ninds awarded us a grant to support research and development of ck-2017357 directed to the potential treatment for myasthenia gravis for a period of up to three years . we recognized grant revenue of $ 1.7 million and $ 0.4 million under this grant arrangement in 2011 and 2010 , respectively . in november 2010 , we were notified by the dot that we would receive total cash grants of $ 0.7 million based on our applications for certain investments in qualified therapeutic discovery projects under section 48d of the internal revenue code . the grants relate to certain research and development costs we incurred in 2009 in connection with our cardiac , skeletal and smooth muscle contractility programs . we received and recognized as grant revenue $ 0.7 million under this grant in 2010. in october 2011 , as part of an initiative to seek certain smaller collaborations intended to allow us to offset our research costs , we entered into an agreement with global blood targeting , inc. , an early-stage biopharmaceutical company . under an agreed research plan , scientists from global blood targeting and our ftes conduct research focused on small molecule therapeutics that target the blood . we provide to global blood targeting access to certain research facilities , ftes and other resources at agreed reimbursement rates that approximate our costs . we are the primary obligor in the collaboration arrangement , and accordingly , we record expense reimbursements from global blood targeting as research and development revenue . we recognized revenue of $ 0.3 million from global blood targeting in 2011. license revenues from related parties in 2009 refers to license revenues from our strategic alliance with amgen . license revenues were zero in 2011 and 2010 , and $ 74.4 million in 2009. license revenues for 2009 consisted of the may 2009 $ 50.0 million option exercise
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for more information on our adjusted net interest margin , see `` —non-gaap financial measures '' and for a reconciliation to the most directly comparable gaap financial measure , see `` item 6. selected financial data—non-gaap financial measures reconciliations '' . net income for the year represents earnings per fully diluted common share of $ 2.45 , compared to $ 2.14 for fiscal year 2016 . on october 26 , 2017 , our board of directors declared a dividend of $ 0.20 per common share payable on november 22 , 2017 to owners of record as of the close of business on november 10 , 2017 . 65 total loans were $ 8.97 billion as of september 30 , 2017 , compared to $ 8.68 billion as of september 30 , 2016 . the net growth of $ 285.9 million , or 3.3 % , during the fiscal year was primarily driven by growth in the cre portfolio of $ 370.7 million , partially offset by an $ 88.1 million reduction in residential real estate loans outstanding . deposits as of september 30 , 2017 were $ 8.98 billion , representing an increase of $ 372.8 million or 4.3 % from $ 8.60 billion as of september 30 , 2016 which was primarily due to growth in commercial deposit accounts . asset quality metrics remained relatively stable as loans classified as `` watch '' status were $ 311.6 million as of september 30 , 2017 , a decrease of $ 16.0 million , or 4.9 % , compared to september 30 , 2016 and loans classified as `` substandard '' were $ 232.8 million , a decrease of $ 8.8 million , or 3.6 % , over the same period . at september 30 , 2017 , nonaccrual loans were $ 138.3 million , with $ 4.9 million of the balance covered by fdic loss-sharing agreements . total nonaccrual loans increased by $ 11.9 million , or 9.4 % , during the year driven by the deterioration of a small number of relationships in the agriculture portfolio that have been closely monitored for a number of quarters , partially offset by improvements in the commercial non-real estate and cre portfolios . oreo balances decreased by $ 1.3 million , or 12.6 % , during the year . net charge-offs for fiscal year 2017 were $ 22.7 million , or 0.26 % of average loans , compared to $ 9.5 million , or 0.12 % of average loans in fiscal year 2016 . net charge-offs were primarily concentrated in the commercial non-real estate and agriculture loan portfolios . our capital position is strong and stable , with tier 1 capital , total capital and tier 1 leverage ratios of 11.4 % , 12.5 % and 10.3 % , respectively , at september 30 , 2017 , compared to 11.1 % , 12.2 % and 9.5 % , respectively , at september 30 , 2016 . in addition , our common equity tier 1 ratio was 10.7 % at september 30 , 2017 , compared to 10.2 % at september 30 , 2016 . our tangible common equity to tangible assets ratio was 9.2 % at september 30 , 2017 , compared to 8.5 % at september 30 , 2016 . all regulatory capital ratios remain above regulatory minimums to be considered `` well capitalized . '' for more information on our tangible common equity to tangible assets ratio , see `` —non-gaap financial measures '' and for a reconciliation to the most directly comparable gaap financial measure , see `` item 6. selected financial data—non-gaap financial measures reconciliations '' . key factors affecting our business and financial statements economic conditions our loan portfolio can be affected in several ways by changes in economic conditions in our local markets and across the country . for example , declining local economic prospects can reduce borrowers ' willingness to take out new loans or our expectations of their ability to repay existing loans , while declining national conditions can limit the markets for our commercial and agribusiness borrowers ' products . conversely , rising consumer and business confidence can increase demand for loans to fund consumption and investments , which can lead to opportunities for us to grant new loans and further develop our banking relationships with our customers . some elements of the business environment that affect our financial performance include short-term and long-term interest rates , inflation and price levels ( particularly for agricultural commodities ) , monetary policy , unemployment and the strength of the domestic economy and the local economy in the markets in which we operate . because commercial non-real estate and owner-occupied cre borrowers are particularly exposed to external economic conditions such as consumer sentiment , repayment of commercial non-real estate and owner-occupied cre loans may be more sensitive than other types of loans to adverse conditions in the real estate market or the general economy . these loans totaled approximately $ 2.94 billion , or 32.6 % , of our total loan portfolio as of september 30 , 2017 . in addition , agricultural loans , which comprised 23.6 % of our loan portfolio as of september 30 , 2017 , depend on the health of the agricultural industry broadly and in the location of the borrower in particular and on commodity prices . see “ item 1a . risk factors—risks related to our business—our business may be adversely affected by conditions in the financial markets and economic conditions generally and in our states in particular. ” 66 interest rates net interest income is our largest source of income and is the difference between the interest income we receive from interest-earning assets ( e.g . , loans and investment securities ) and the interest expense we pay on interest-bearing liabilities ( e.g . , deposits and borrowings ) . the level of net interest income is primarily a function of the average balance of interest-earning assets , the average balance of interest-bearing liabilities and the spread between the yield on such assets and the cost of such liabilities . story_separator_special_tag these factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities . interest rates can be volatile and are highly sensitive to many factors beyond our control , such as economic conditions , the policies of various governmental and regulatory agencies and , in particular , the monetary policy of the fomc . the cost of our deposits and short-term borrowings is largely based on short-term interest rates , the level of which is driven primarily by the fomc 's actions . however , the yields generated by our loans and securities are typically driven by longer-term interest rates , which are dictated by the market or , at times , the fomc 's actions , and generally vary from day to day . the level of net interest income is therefore influenced by movements in such interest rates , the changing mix in our funding sources and the pace at which such movements occur . see “ item 1a . risk factors—risks related to our business—we are subject to interest rate risk ” and “ item 7a . quantitative and qualitative disclosures about market risk. ” asset quality and loss-sharing agreements our asset quality remained relatively stable during fiscal year 2017 with net charge-offs as a percentage of average loans of 26 basis points . we continue to run off assets from our acquisition of tierone bank that are not part of our core lending business , including non-owner-occupied cre loans and construction and development loans , particularly those outside our footprint . at september 30 , 2017 , we had approximately $ 99.9 million of loans acquired as part of the tierone bank acquisition , representing 1.1 % of our overall loan portfolio and approximately $ 663.4 million of loans acquired as part of the hf financial acquisition , representing 7.4 % of our overall loan portfolio . the majority of our loans acquired from tierone bank continue to be subject to a loss-sharing agreement with the fdic where we are indemnified by the fdic for 80 % of our losses associated with any covered loans . while our ability to seek indemnification under the commercial loss-sharing agreement terminated in june 2015 , the single-family loss-sharing agreement , which covered $ 57.5 million in loans at september 30 , 2017 , does not terminate until june of 2020. the amount of reimbursement we receive as a result of these indemnity payments , and the amount of income derived from the underlying loans , has decreased over time as the volume of covered loans we continue to hold declines . to date , we have not had any indemnity claims arising from the fdic loss-sharing agreements rejected by the fdic . future indemnity claims may be denied if we fail to comply with the requirements of our loss-sharing agreements with the fdic , which could result in additional losses and charge-offs related to these loans . see “ item 1a . risk factors—risks related to our fdic—assisted acquisition of tierone bank—our bank purchased certain assets and assumed certain liabilities of tierone bank in an fdic-assisted transaction. ” banking laws and regulations we are subject to extensive supervision and regulation under federal and state banking laws . see “ item 1. business—supervision and regulation ” and “ item 1a . risk factors—risks related to the regulatory oversight of our business. ” financial institutions have been subject to increased regulatory scrutiny in recent years as significant structural changes in the bank regulatory framework have been adopted in response to the recent financial crisis . in particular , federal bank regulators have increased regulatory expectations generally and with respect to consumer compliance , economic sanctions , anti-money laundering and bank secrecy act requirements . as a result of these heightened expectations , we may incur additional costs associated with legal compliance that may affect our financial results in the future . payment of interest on demand deposits . in addition , effective july 2011 , the dodd-frank act repealed the prohibition restricting depository institutions from paying interest on demand deposits , such as checking accounts . we offer an interest-bearing corporate checking account , but interest rates on this product remain low due to current market conditions . consequently , this change has not significantly affected our financial results . if interest rates on this product increase in the future , our business may be affected . basel iii and its implementing regulations . in july 2013 , the federal bank regulators approved new regulations implementing the basel iii capital framework and various provisions of the dodd-frank act . these regulations became effective for us on january 1 , 2015 , subject to phase-in of various provisions . the most significant changes from the current risk-based capital guidelines applicable to us were the revisions affecting the numerator in regulatory capital calculations and the increased risk weightings for higher-volatility cre loans , for revolving lines of credit of less than one year in duration and for past-due and impaired loans . see “ —capital ” and `` item 1a . risk factors—risks related to the regulatory oversight of our business—we may be subject to more stringent capital requirements in the future '' for further information . 67 interchange fees . the small issuer exemption applies to any debit card issuer that , together with its affiliates , has total assets of less than $ 10 billion as of the end of the previous calendar year . because our consolidated total assets remained under $ 10 billion as of december 31 , 2015 , we were able to qualify for the small issuer exemption from the interchange fee cap until we exceeded $ 10 billion in assets during the third quarter of fiscal year 2016. effective july 1 , 2017 we became subject to the interchange fee cap , and no longer qualify for the small issuer exemption , which resulted in a negative impact on the debit card and atm fees we received after that date .
| results of op erations—fiscal years ended september 30 , 2017 , 2016 and 2015 overview the following table highlights certain key financial and performance information for fiscal years 2017 , 2016 and 2015 : for the fiscal year ended september 30 , 2017 2016 2015 ( dollars in thousands , except share and per share amounts ) operating data : interest and dividend income ( fte ) $ 450,266 $ 403,232 $ 369,957 interest expense 45,320 33,524 29,884 noninterest income 56,062 42,537 33,890 noninterest expense 216,643 207,640 186,794 provision for loan and lease losses 21,539 16,955 19,041 net income 144,786 121,253 109,065 adjusted net income 1 $ 145,226 $ 130,982 $ 109,065 common shares outstanding 58,834,066 58,693,304 55,219,596 weighted average diluted common shares outstanding 59,029,382 56,729,350 57,500,878 earnings per common share - diluted $ 2.45 $ 2.14 $ 1.90 adjusted earnings per common share - diluted 1 2.46 2.31 1.90 < td colspan= '' 3 ''
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the revolving credit facility can be used for general corporate purposes , including working capital . under the credit agreement , revolving loans outstanding will bear interest at a rate of libor plus an applicable margin of between 1.25 % and 1.75 % depending on our consolidated leverage ratio or at a base rate , as selected by us . base rate loans will bear interest at the highest of ( a ) the federal funds rate plus 0.50 % , ( b ) the prime rate or ( c ) libor plus 1.00 % . we are required to pay a non-utilization fee of between 0.10 % and 0.25 % on the unused portion of the revolving loan commitment depending on our quarterly average balance of unrestricted cash and our consolidated leverage ratio . borrowings under the revolving credit facility are secured by a first priority perfected security interest in substantially all of the borrowers ' assets excluding railcars held by our railcar leasing subsidiary , jaix . the borrowers also have pledged all of the equity interests in our direct and indirect domestic subsidiaries as security for the revolving credit facility . the credit agreement has both affirmative and negative covenants , including , without limitation , a negative covenant requiring a maximum consolidated net leverage ratio of 2.50:1.00 and limitations on indebtedness , liens and investments . the credit agreement also provides for customary events of default . as of december 31 , 2018 and 2017 , we had no borrowings under the revolving credit facility . as of december 31 , 2018 and 2017 , we had $ 4.9 million and $ 5.5 million , respectively , in outstanding letters of credit under the revolving credit facility . the existing credit facility is an earnings based facility . given the operating losses experienced , we will not be able to borrow against the credit facility until we return to positive earnings . we are in the process of negotiating a new asset based lending facility which we expect to be in place prior to the expiration of the current facility . our restricted cash and restricted certificates of deposit balance was $ 5.0 million as of december 31 , 2018 and $ 5.7 million as of december 31 , 2017 , and consisted of cash and certificates of deposit used to collateralize standby letters of credit with respect to performance guarantees and to support our worker 's compensation insurance claims . the decrease in restricted cash balances as of december 31 , 2018 compared to december 31 , 2017 was a result of decreases in standby letters of credit with respect to performance guarantees and our corresponding obligation to collateralize them . the standby letters of credit outstanding as of december 31 , 2018 are scheduled to expire at various dates through january 18 , 2020. we expect to establish restricted cash balances and restricted certificates of deposit in future periods to minimize bank fees related to standby letters of credit . based on our current level of operations and known changes in planned volume based on our backlog , we believe that our operating cash flows , our marketable securities and our cash balances will be sufficient to meet our expected liquidity needs . our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facility and any other indebtedness . we may also require additional capital in the future to fund working capital as demand for railcars increases , payments for contractual obligations , organic growth opportunities , including new plant and equipment and development of railcars , joint ventures , international expansion and acquisitions , and these capital requirements could be substantial . based upon our operating performance and capital requirements , we may , from time to time , be required to raise additional funds through additional offerings of our common stock and through long-term borrowings . there can be no assurance that long-term debt , if needed , will be available on terms attractive to us , or at all . furthermore , any additional equity financing may be dilutive to stockholders and debt financing , if available , may involve restrictive covenants . our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition . we historically provided pension and retiree welfare benefits to certain salaried and hourly employees upon their retirement . benefits under our pension plan are now frozen and will not be impacted by increases due to future service and compensation increases . the most significant assumptions used in determining our net periodic benefit costs are the discount rate used on our pension and postretirement welfare obligations and expected return on pension plan assets . as of december 31 , 2018 , our benefit obligation under our defined benefit pension plan was $ 48.6 million , which exceeded the fair value of plan assets by $ 5.8 million . we made no contributions to our defined benefit pension plan during 2018 and are not required to make any contributions to our defined benefit pension plan in 2019. funding levels will be affected by future contributions , investment returns on plan assets , growth in plan liabilities and interest rates . as of december 31 , 2018 , our benefit obligation under our postretirement benefit plan was $ 5.4 million , which is unfunded . we made contributions to our postretirement benefit plan of $ 0.6 million for salaried retirees during 2018 and expect to make $ 0.4 million in contributions to our postretirement benefit plan in 2019 for salaried retirees . 13 cash flows the following table summarizes our net cash provided by or used in operating activities , investing activities and financing activities for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th operating activities . story_separator_special_tag our net cash provided by or used in operating activities reflects net income or loss adjusted for non-cash charges and changes in operating assets and liabilities . cash flows from operating activities are affected by several factors , including fluctuations in business volume , contract terms for billings and collections , the timing of collections on our contract receivables , processing of bi-weekly payroll and associated taxes , and payments to our suppliers . as some of our customers accept delivery of new railcars in train-set quantities , variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities . we do not usually experience business credit issues , although a payment may be delayed pending completion of closing documentation . our net cash used in operating activities for the year ended december 31 , 2018 was $ 31.6 million compared to net cash provided by operating activities of $ 40.3 million for the year ended december 31 , 2017. our net cash used in operating activities for the year ended december 31 , 2018 reflects our net loss of $ 40.6 million , increases in accounts receivable of $ 10.6 million , increases in inventories of $ 16.3 million to meet current production needs which were partially offset by increases in accounts and contractual payables of $ 10.7 million , non-cash depreciation and amortization of $ 12.1 million and the net $ 10.0 million decrease in deferred tax assets as a result of our valuation allowance . our net cash provided by operating activities for the year ended december 31 , 2017 reflects decreases in working capital including a $ 50.6 million decrease in inventory and the receipt of a federal income tax refund of $ 11.9 million . investing activities . net cash used in investing activities for the year ended december 31 , 2018 was $ 10.9 million and primarily represented the $ 37.3 million cost of railcars available for lease which was partially offset by the $ 25.4 million maturity of u.s. treasury securities and certificates of deposit ( net of purchases ) and the $ 0.8 million maturity of restricted certificates of deposit ( net of purchases ) . net cash used in investing activities for the year ended december 31 , 2017 was $ 45.3 million and primarily represented the $ 42.7 million purchase of u.s. treasury securities and certificates of deposit ( net of maturities ) and the $ 3.1 million purchase of restricted certificates of deposit ( net of maturities ) , which were partially offset by $ 1.4 million of state and local incentives received . financing activities . net cash used in financing activities for the year ended december 31 , 2018 was $ 0.1 million compared to $ 3.4 million for the year ended december 31 , 2017 , reflecting the suspension of our quarterly cash dividend to our stockholders in november 2017. the declaration and payment of future dividends will be at the discretion of our board of directors and will depend on , among other things , general economic and business conditions , our strategic plans , our financial results , contractual and legal restrictions on the payment of dividends by us and our subsidiaries and such other factors that our board of directors consider to be relevant . capital expenditures our capital expenditures were $ 2.2 million for the year ended december 31 , 2018 compared to $ 1.0 million for the year ended december 31 , 2017. during the year ended december 31 , 2018 , we also acquired $ 17.2 million of equipment as part of the net settlement of our acquisition of navistar 's business at our shoals facility . capital expenditures for 2017 were primarily to maintain our facilities . excluding unforeseen expenditures , we expect that total capital expenditures will be between $ 4 million and $ 5 million for 2019 . 14 critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period . significant estimates include long-lived assets , goodwill , pension and postretirement benefit assumptions , the valuation reserve on net deferred tax assets , warranty accrual and contingencies and litigation . actual results could differ from those estimates . our critical accounting policies include the following : long-lived assets we evaluate long-lived assets , including property , plant and equipment , under the provisions of asc 360 , property , plant and equipment , which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of . for assets to be held or used , we group a long-lived asset or assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . an impairment loss for an asset group reduces only the carrying amounts of a long-lived asset or assets of the group being evaluated . our estimates of future cash flows used to test the recoverability of a long-lived asset group include only the future cash flows that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset group . our future cash flow estimates exclude interest charges . we test long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable .
| selling , general and administrative expenses consolidated selling , general and administrative expenses for the year ended december 31 , 2018 were $ 29.1 million compared to $ 33.0 million for the year ended december 31 , 2017. manufacturing segment selling , general and administrative expenses for the year ended december 31 , 2018 were $ 8.0 million compared to $ 5.9 million for the year ended december 31 , 2017 primarily due to higher allocated costs of $ 1.0 million , increases in salaries and wages of $ 0.5 million and higher third-party sales commissions of $ 0.2 million . corporate and other selling , general and administrative expenses were $ 21.0 million for the year ended december 31 , 2018 compared to $ 27.0 million for the year ended december 31 , 2017. the decrease in corporate and other selling , general and administrative expenses was primarily due to $ 7.5 million of costs associated with a confidential litigation settlement and related legal expenses recorded during 2017 and decreases of $ 0.9 million in employee severance costs which were partially offset by increases in salaries and wages of $ 0.9 million and stock-based compensation of $ 1.9 million . 11 restructuring and impairment charges there were no restructuring and impairment charges for the year ended december 31 , 2018. in the first quarter of 2017 , in response to lower order trends in the industry , we announced reductions to our salaried workforce , initiatives to reduce discretionary spending and the idling of our danville , illinois facility . restructuring and impairment charges for the year ended december 31 , 2017 included employee severance and other employment termination costs and pension and postretirement benefit plan curtailment and special termination benefits of $ 1.9 million and non-cash impairment charges of $ 0.3 million for property , plant and equipment at our idled danville , illinois facility . as a result of implementing asu 2017-07 , improving the presentation of
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see note 19 – subsequent events , to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report . the following table provides summary information regarding the number of facilities and related operational beds/units by operator affiliation giving effect to the omega lease termination as of january 15 , 2019 : replace_table_token_8_th ( 1 ) on march 1 , 2019 , the company transferred operations of the 106-bed mountain trace facility to vero health , an affiliate of vero health management . see note 19 – subsequent events to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report . ( 2 ) excludes the impact of the psa the company entered into on april 15 , 2019 with respect to four owned skilled nursing facilities ( two facilities per operator affiliation ) , which psa could be terminated for any reason by the buyer prior to may , 15 2019 , at 5:00 p.m. eastern time . see note 19 – subsequent events , to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report . 54 acquisitions and dispositions on march 8 , 2017 , the company executed a purchase agreement ( the “ meadowood purchase agreement ” ) with meadowood retirement village , llc and meadowood properties , llc to acquire an assisted living and memory care community with 106 operational beds in glencoe , alabama ( the “ meadowood facility ” ) for $ 5.5 million cash . in addition , on march 21 , 2017 , the company executed a long-term , triple net operating lease with an affiliate of c.r management ( the “ meadowood operator ” ) to lease the facility upon purchase . lease terms include : ( i ) a 13-year initial term with one five-year renewal option ; ( ii ) base rent of $ 37,500 per month ; ( iii ) a rental escalator of 2.0 % per annum in the initial term and 2.5 % per annum in the renewal term ; ( iv ) a cross renewal provision , whereby the meadowood operator may exercise the lease renewal for the meadowood facility if its affiliate exercises the lease renewal option for a skilled nursing facility with 122 operational beds in glencoe , alabama ( the “ coosa valley facility ” ) ; and ( v ) a security deposit equal to one month of base rent . the company completed the purchase of the meadowood facility on may 1 , 2017 pursuant to the meadowood purchase agreement , at which time the lease commenced and operations of the meadowood facility transferred to the meadowood operator . effective january 15 , 2019 , the company 's lease of the omega facilities , which leases were due to expire august 2025 and which omega facilities the company subleased to third party subtenants , was terminated by mutual consent of the company and the lessor of such facilities . in connection with the omega lease termination , the company transferred approximately $ 0.4 million of all its integral physical fixed assets in the omega facilities to the lessor and on january 28 , 2019 received from the lessor gross proceeds of approximately $ 1.5 million , consisting of ( i ) a termination fee in the amount of $ 1.2 million and ( ii ) approximately $ 0.3 million to satisfy other net amounts due to the company under the leases . see note 10 – acquisitions and dispositions and note 19 – subsequent events to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report . divestitures for information regarding the company 's divestitures , please refer to note 11 - discontinued operations , to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report . the following table summarizes the activity of discontinued operations for the years ended december 31 , 2018 and 2017 : replace_table_token_9_th critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses . on an ongoing basis we review our judgments and estimates , including , but not limited to , those related to doubtful accounts , income taxes , stock compensation , intangible assets and loss contingencies . we base our estimates on historical experience , business knowledge and on various other assumptions that we believe to be reasonable under the circumstances at the time . actual results may vary from our estimates . these estimates are evaluated by management and revised as circumstances change . we believe that the following represents our critical accounting policies . 55 revenue recognition and allowances triple-net leased properties . the company 's triple-net leases provide for periodic and determinable increases in rent . we recognize rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is probable . recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants , creating a straight-line rent receivable that is included in straight-line rent receivable on our consolidated balance sheets . in the event the company can not reasonably estimate the future collection of rent from one or more tenant ( s ) of the company 's facilities , rental income for the affected facilities will be recognized only upon cash collection , and any accumulated straight-line rent receivable will be reversed in the period in which the company deems rent collection no longer probable . story_separator_special_tag rental revenues for five facilities located in ohio ( until operator transition on december 1 , 2018 ) and one facility in north carolina are recorded on a cash basis . see note 7 - leases to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report ) management fee revenues and other revenues . the company recognizes management fee revenues as services are provided . the company has one contract to manage three facilities , with payment for each month of service received in full on a monthly basis . the maximum penalty to the company for nonperformance under the management contract is $ 50,000 per year , payable after the end of the year . further , the company recognizes interest income from loans and investments , using the effective interest method when collectability is probable , payments received on impaired loans are applied against the allowance . we apply the effective interest method on a loan-by-loan basis . allowances . the company assesses the collectability of our rent receivables , including straight-line rent receivables and working capital loans to tenants . the company bases its assessment of the collectability of rent receivables and working capital loans to tenants on several factors , including payment history , the financial strength of the tenant and any guarantors , the value of the underlying collateral , and current economic conditions . if the company 's evaluation of these factors indicates it is probable that the company will be unable to receive the rent payments or payments on a working capital loan , then the company provides a reserve against the recognized straight-line rent receivable asset or working capital loan for the portion that we estimate may not be recovered . if the company changes its assumptions or estimates regarding the collectability of future rent payments required by a lease or required from a working capital loan to a tenant , the company may adjust its reserve to increase or reduce the rental revenue or interest revenue from working capital loans to tenants recognized in the period the company makes such change in its assumptions or estimates . as of december 31 , 2018 and december 31 , 2017 , the company reserved for approximately $ 1.4 million and $ 2.6 million , respectively , of gross patient care related receivables arising from its legacy operations . allowances for patient care receivables are estimated based on an aged bucket method as well as additional analyses of remaining balances incorporating different payor types . any changes in patient care receivable allowances are recognized as a component of discontinued operations . all uncollected patient care receivables were fully reserved at december 31 , 2018 and december 31 , 2017. accounts receivable , net totaled $ 1.0 million at december 31 , 2018 compared with $ 0.9 million at december 31 , 2017. asset impairment we review the carrying value of long-lived assets that are held and used in our operations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of these assets is determined based upon expected undiscounted future net cash flows from the operations to which the assets relate , utilizing management 's best estimate , assumptions , and projections at the time . if the carrying value is determined to be unrecoverable from future operating cash flows , the asset is deemed impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair value of the asset . we estimate the fair value of assets based on the estimated future discounted cash flows of the asset . management has evaluated its long-lived assets and identified no material asset impairment during the years ended december 31 , 2018 and 2017 . 56 we test indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable . goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations . goodwill is subject to annual testing for impairment . in addition , goodwill is tested for impairment if events occur or circumstances change that would reduce the fair value of a facility below its carrying amount . we perform annual testing for impairment during the fourth quarter of each year ( see note 6 - intangible assets and goodwill to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report ) . extinguishment of debt the company recognizes extinguishment of debt when the criteria for a troubled debt restructure are not met and the change in the debt terms is considered substantial . the company calculates the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt ( including deferred finance fees ) and recognizes a gain or loss on the income statement of the period of extinguishment . self-insurance reserve the company has self-insured against professional and general liability claims since it discontinued its healthcare operations in connection with the transition . the company evaluates quarterly the adequacy of its self-insurance reserve based on a number of factors , including : ( i ) the number of actions pending and the relief sought ; ( ii ) analyses provided by defense counsel , medical experts or other information which comes to light during discovery ; ( iii ) the legal fees and other expenses anticipated to be incurred in defending the actions ; ( iv ) the status and likely success of any mediation or settlement discussions , including estimated settlement amounts and legal fees and other expenses anticipated to be incurred in such settlement , as applicable ; and ( v ) the venues in which the actions have been filed or will be adjudicated .
| the company recognizes all rental revenues on a straight line rent accrual basis , except with respect to the ohio beacon affiliates , the mountain trace facility and the oceanside facility prior to recertification ( which was recertified by cms , in february 2017 ) , for which rental revenue is recognized based on cash received . 59 other revenues —other revenues decreased by $ 0.3 million , or 63.1 % , to $ 0.2 million for the twelve months ended december 31 , 2018 , compared with $ 0.5 million for the year ended december 31 , 2017 due to a $ 0.3 million decrease in interest income on the $ 3.0 million note issued to skyline healthcare , llc ( “ skyline ” ) in relation to their purchase of nine former facilities of the company located in arkansas ( the “ skyline note ” ) , due to skyline 's bankruptcy . facility rent expense —facility rent was $ 8.7 million for the twelve months ended december 31 , 2018 , and $ 8.7 million for the year ended december 31 , 2017. rent expense year over year is comparable due to the completion of the transition . see note 7 - leases , to our audited consolidated financial statements in part ii , item 8. , “ financial statements and supplementary data ” in this annual report . depreciation and amortization —depreciation and amortization decreased by approximately $ 0.3 million or 4.8 % , to $ 4.6 million for the year ended december 31 , 2018 , compared with $ 4.9 million for the year ended december 31 , 2017. the decrease is primarily due to the reduction in depreciation from fully depreciated equipment and computer related assets in the current year , partially off-set by depreciation on the meadowood facility acquired on may 1 , 2017 and leasehold improvements on the peach facilities . general and administrative —general and administrative costs decreased by $ 0.2 million or 4.2 % , to $ 3.7 million for the year ended december 31 , 2018 , compared with $ 3.9 million for the year ended december 31 ,
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gross profit decreased 10 % from $ 11,905,758 for the year ended december 31 , 2014 to $ 10,696,188 for the year ended december 31 , 2015 , primarily due to the sharp decreases in commodity prices . we had selling , general and administrative expenses ( exclusive of acquisition related expenses and depreciation and amortization ) of $ 24,046,464 for the year ended december 31 , 2015 , compared to $ 19,089,545 from the prior year 's period , an increase of $ 4,956,919 or 26 % from the prior period , due to an increase in overall administrative expenses generated by the new business lines and additional compensation expenses associated with employees acquired as a result of the acquisitions we made during 2014. we incurred an additional $ 175,172 of one-time legal , accounting , auditing and investment banking expenses during the year ended december 31 , 2015 related to the acquisition of assets from heartland and other miscellaneous matters . we had total other loss of $ 3,117,848 for the year ended december 31 , 2015 , compared to total other income of $ 4,634,742 for the year ended december 31 , 2014. the main reasons for the decrease in other income was $ 4,922,353 of goodwill impairment in connection with the full impairment of the goodwill related to our black oil and recovery divisions and a $ 944,036 increase in interest expense associated with the credit agreements , described below under “ liquidity and capital resources ” . we had $ 5,479,463 of gain on change in value of derivative liability for the year ended december 31 , 2015 , in connection with a beneficial conversion feature on certain warrants granted in june 2015 , as described in greater detail in note 13 to the consolidated financial statements included herein under `` part ii '' - '' item 8- financial statements and supplementary data '' . we had a loss before income taxes of $ 17,210,889 for the year ended december 31 , 2015 compared to a loss before income taxes of $ 5,859,879 for the year ended december 31 , 2014 , a 194 % increase . the increase in net loss before taxes was largely due to the sharp decline during the year in commodity prices , the increased operating expenses related to the new facilities acquired during 2014 , in addition to the increased selling , general and administrative expenses incurred as a result of the new business lines and additional employees . we had a reduction in contingent liability during the 12 months ended december 31 , 2015 of $ 6,069,000 which positively affected income from operations during 2015. during the 12 months ended december 31 , 2014 we had a $ 5,248,588 reduction in contingent liability which positively affected income from operations during the prior period . we had an income tax expense of $ 5,306,000 during the 12 month period ended december 31 , 2015 , compared to $ 11,763 during the 12 month period ended december 31 , 2014. we had a net loss of $ 22,516,889 for the year ended december 31 , 2015 compared to a net loss of $ 5,871,642 for the year ended december 31 , 2014 , an increase in net loss of $ 16,645,247 or 283 % from the prior period for the reasons described above . our revenues and cost of revenues are significantly impacted by fluctuations in commodity prices ; decreases in commodity prices typically result in decreases in revenue and cost of revenues . our gross profit is to a large extent a function of the market discount we are able to obtain in purchasing feedstock , as well as how efficiently management conducts operations . during the year ended december 31 , 2015 , the processing costs for our refining and marketing business located at kmtex were $ 3,845,209. revenues for the same period were $ 31,154,066 while income from operations was $ 3,339,841 . 62 set forth below , we have disclosed a quarter-by-quarter summary of our statements of operations and statements of operations by segment information for the quarters ended december 31 , september 30 , june 30 , and march 31 , 2015 and 2014 , respectively . replace_table_token_8_th 63 replace_table_token_9_th the below graph charts our total quarterly revenue over time from march 31 , 2014 to december 31 , 2015 : liquidity and capital resources the success of our current business operations has become more dependent on repairs , and maintenance to our facilities and our ability to make routine capital expenditures . we also must maintain relationships with feedstock suppliers and end product customers , and operate with efficient management of overhead costs . through these relationships , we have historically been able to achieve volume discounts in the procurement of our feedstock , thereby increasing the margins of our divisions ' operations . the resulting operating cash flow is crucial to the viability and growth of our existing business lines . we had total assets of $ 95,338,688 as of december 31 , 2015 compared to $ 133,822,231 at december 31 , 2014. this significant decrease was partly due to the $ 5,251,712 decrease in cash and cash equivalents as of december 31 , 2015 , the $ 9,072,305 decrease in the value of inventory , the 9,495,000 change in deferred tax assets related to our accumulated net losses and $ 8,308,000 in notes receivable which were moved to assets held for sale total current assets as of december 31 , 2015 of $ 23,166,774 include cash and cash equivalents of $ 765,364 , accounts receivable , net , of $ 6,315,414 , inventory of $ 3,548,311 and prepaid expenses of $ 1,367,442. we also had assets held for sale of $ 11,170,243 related to the churchill county , nevada 64 plant which was sold in january 2016. this balance includes the $ 8,308,000 note receivable related to the omega acquisition , fixed story_separator_special_tag gross profit decreased 10 % from $ 11,905,758 for the year ended december 31 , 2014 to $ 10,696,188 for the year ended december 31 , 2015 , primarily due to the sharp decreases in commodity prices . we had selling , general and administrative expenses ( exclusive of acquisition related expenses and depreciation and amortization ) of $ 24,046,464 for the year ended december 31 , 2015 , compared to $ 19,089,545 from the prior year 's period , an increase of $ 4,956,919 or 26 % from the prior period , due to an increase in overall administrative expenses generated by the new business lines and additional compensation expenses associated with employees acquired as a result of the acquisitions we made during 2014. we incurred an additional $ 175,172 of one-time legal , accounting , auditing and investment banking expenses during the year ended december 31 , 2015 related to the acquisition of assets from heartland and other miscellaneous matters . we had total other loss of $ 3,117,848 for the year ended december 31 , 2015 , compared to total other income of $ 4,634,742 for the year ended december 31 , 2014. the main reasons for the decrease in other income was $ 4,922,353 of goodwill impairment in connection with the full impairment of the goodwill related to our black oil and recovery divisions and a $ 944,036 increase in interest expense associated with the credit agreements , described below under “ liquidity and capital resources ” . we had $ 5,479,463 of gain on change in value of derivative liability for the year ended december 31 , 2015 , in connection with a beneficial conversion feature on certain warrants granted in june 2015 , as described in greater detail in note 13 to the consolidated financial statements included herein under `` part ii '' - '' item 8- financial statements and supplementary data '' . we had a loss before income taxes of $ 17,210,889 for the year ended december 31 , 2015 compared to a loss before income taxes of $ 5,859,879 for the year ended december 31 , 2014 , a 194 % increase . the increase in net loss before taxes was largely due to the sharp decline during the year in commodity prices , the increased operating expenses related to the new facilities acquired during 2014 , in addition to the increased selling , general and administrative expenses incurred as a result of the new business lines and additional employees . we had a reduction in contingent liability during the 12 months ended december 31 , 2015 of $ 6,069,000 which positively affected income from operations during 2015. during the 12 months ended december 31 , 2014 we had a $ 5,248,588 reduction in contingent liability which positively affected income from operations during the prior period . we had an income tax expense of $ 5,306,000 during the 12 month period ended december 31 , 2015 , compared to $ 11,763 during the 12 month period ended december 31 , 2014. we had a net loss of $ 22,516,889 for the year ended december 31 , 2015 compared to a net loss of $ 5,871,642 for the year ended december 31 , 2014 , an increase in net loss of $ 16,645,247 or 283 % from the prior period for the reasons described above . our revenues and cost of revenues are significantly impacted by fluctuations in commodity prices ; decreases in commodity prices typically result in decreases in revenue and cost of revenues . our gross profit is to a large extent a function of the market discount we are able to obtain in purchasing feedstock , as well as how efficiently management conducts operations . during the year ended december 31 , 2015 , the processing costs for our refining and marketing business located at kmtex were $ 3,845,209. revenues for the same period were $ 31,154,066 while income from operations was $ 3,339,841 . 62 set forth below , we have disclosed a quarter-by-quarter summary of our statements of operations and statements of operations by segment information for the quarters ended december 31 , september 30 , june 30 , and march 31 , 2015 and 2014 , respectively . replace_table_token_8_th 63 replace_table_token_9_th the below graph charts our total quarterly revenue over time from march 31 , 2014 to december 31 , 2015 : liquidity and capital resources the success of our current business operations has become more dependent on repairs , and maintenance to our facilities and our ability to make routine capital expenditures . we also must maintain relationships with feedstock suppliers and end product customers , and operate with efficient management of overhead costs . through these relationships , we have historically been able to achieve volume discounts in the procurement of our feedstock , thereby increasing the margins of our divisions ' operations . the resulting operating cash flow is crucial to the viability and growth of our existing business lines . we had total assets of $ 95,338,688 as of december 31 , 2015 compared to $ 133,822,231 at december 31 , 2014. this significant decrease was partly due to the $ 5,251,712 decrease in cash and cash equivalents as of december 31 , 2015 , the $ 9,072,305 decrease in the value of inventory , the 9,495,000 change in deferred tax assets related to our accumulated net losses and $ 8,308,000 in notes receivable which were moved to assets held for sale total current assets as of december 31 , 2015 of $ 23,166,774 include cash and cash equivalents of $ 765,364 , accounts receivable , net , of $ 6,315,414 , inventory of $ 3,548,311 and prepaid expenses of $ 1,367,442. we also had assets held for sale of $ 11,170,243 related to the churchill county , nevada 64 plant which was sold in january 2016. this balance includes the $ 8,308,000 note receivable related to the omega acquisition , fixed
| the end products are delivered by barge and truck to customers . recovery - the recovery division is a generator solutions company for the proper recovery and management of hydrocarbon streams . this division also provides dismantling , demolition , decommission and marine salvage services at industrial facilities . we own and operate a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials . our revenues are affected by changes in various commodity prices including crude oil , natural gas , # 6 oil and metals . cost of revenues black oil - cost of revenues for our black oil division are comprised primarily of feedstock purchases from a network of providers . other cost of revenues include processing costs , transportation costs , purchasing and receiving costs , analytical assessments , brokerage fees and commissions , and surveying and storage costs . refining and marketing - the refining and marketing division incurs cost of revenues relating to the purchase of feedstock , purchasing and receiving costs , and inspection and processing of the feedstock into gasoline blendstock , pygas and fuel oil cutter by a third party . cost of revenues also includes broker 's fees , inspection and transportation costs . recovery - the recovery division incurs cost of revenues relating to the purchase of hydrocarbon products , purchasing and receiving costs , inspection , demolition and transporting of metals and other salvage and materials . cost of revenues also includes broker 's fees , inspection and transportation costs . our cost of revenues are affected by changes in various commodity indices , including crude oil , natural gas , # 6 oil and metals . for example , if the price for crude oil increases , the cost of solvent additives used in the production of blended oil products , and fuel cost for transportation cost from third party providers will generally increase . similarly , if the price of crude oil falls , these costs may also decline . general and administrative expenses our
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the test systems operating segment is its own reporting unit while the other reporting units are one level below our aerospace operating segment . companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units . companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired . economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we would consider in determining whether to perform a quantitative test . when we evaluate the potential for goodwill impairment using a qualitative assessment , we consider factors including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for our products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , we proceed to a quantitative two-step impairment test . quantitative testing first requires a comparison of the fair value of each reporting unit to the carrying value . we use the discounted cash flow method to estimate the fair value of each of our reporting units . the discounted cash flow method incorporates various assumptions , the most significant being projected revenue growth rates , operating profit margins and cash flows , the terminal growth rate and the discount rate . management projects revenue growth rates , operating margins and cash flows based on each reporting unit 's current business , expected developments and operational strategies . if the carrying value of the reporting unit exceeds its fair value , goodwill is considered impaired and any loss must be measured . in measuring the impairment loss , the implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit 's assets and liabilities , including any unrecognized intangible assets , as if the reporting unit had been acquired in a business combination at fair value . if the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill , an impairment loss would be recognized in an amount equal to that excess . in 2014 , we performed quantitative assessments for the seven reporting units which have goodwill and concluded that it is more likely than not that their fair values exceed their carrying values . based on our quantitative assessments of our reporting units , we concluded that goodwill was not impaired . 18 amortized intangible asset impairment testing amortizable intangible assets with a carrying value of $ 95.0 million at december 31 , 2014 are amortized over their assigned useful lives . we test these long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable . the recoverability test consists of comparing the projected undiscounted cash flows associated with the asset to its carrying amount . an impairment loss would then be recognized for the carrying amount in excess of its fair value . there were no impairment charges in 2014 , 2013 or 2012. depreciable asset impairment testing property , plant and equipment with a carrying value of $ 116.3 million at december 31 , 2014 are depreciated over their assigned useful lives . we test these long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable . the recoverability test consists of comparing the projected undiscounted cash flows , with its carrying amount . an impairment loss would then be recognized for the carrying amount in excess of its fair value . there were no impairment charges in 2014 , 2013 or 2012. inventory valuation we record valuation reserves to provide for excess , slow moving or obsolete inventory or to reduce inventory to the lower of cost or market value . in determining the appropriate reserve , management considers the age of inventory on hand , the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that we believe is no longer salable . at december 31 , 2014 , our reserve for inventory valuation was $ 12.3 million , or 9.6 % of gross inventory . at december 31 , 2013 , our reserve for inventory valuation was $ 11.0 million , or 11.5 % of gross inventory . deferred tax asset valuation allowances deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized . significant assumptions regarding future profitability is required to estimate the value of these deferred tax assets . we consider recent earnings projections , allowable tax carryforward periods , tax planning strategies and historical earnings performance to determine the amount of the valuation allowance . changes in these factors could cause us to adjust our valuation allowance , which would impact our income tax expense and the carrying value of these assets when we determine that these factors have changed . as of december 31 , 2014 , we had net deferred tax liabilities of $ 13.2 million . included in the deferred tax liabilities are approximately $ 20.3 million in deferred tax assets net of a $ 3.1 million valuation allowance . these deferred tax assets principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation and state and foreign general business tax credit carry-forwards . as of december 31 , 2013 , we had net deferred tax liabilities of $ 19.9 million . story_separator_special_tag included in the deferred tax liabilities are approximately $ 17.5 million in deferred tax assets net of a $ 2.5 million valuation allowance . these deferred tax assets principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation and state and foreign general business tax credit carry-forwards . because of the uncertainty as to the company 's ability to generate sufficient future taxable income in certain states , the company has recorded the valuation allowances accordingly in 2014 and 2013. supplemental executive retirement plan ( serp ) assumptions we maintain two non-qualified defined benefit supplemental retirement plans ( serp and serp ii ) for certain executive officers and retired former executive officers . expense for these plans in 2014 was $ 1.6 million . plan obligations and the related costs are determined using actuarial valuations that involve several assumptions that may be highly uncertain and may have a material impact on the financial statements if different reasonable assumptions had been used . the most critical assumptions include the discount rate , future wage increases , retirement age and life expectancy . the discount rate is used to state expected future cash flows at present value . using a lower discount rate increases the present value of pension obligations and increases pension expense . for determining the discount rate the company considers long-term interest rates for high-grade corporate bonds . the discount rate for determining the expense recognized in 2014 was 5.1 % compared with 4.2 % in 2013. we will use a discount rate of 4.05 % in determining our 2015 expense . the assumption for compensation increases takes a long-term view of inflation and performance based salary adjustments based on the company 's approach to executive compensation . the rate used for future wage increases was 5 % . it was assumed that each participant retires after fully vesting in the plan at age 62 or 65. a 100 point increase in the discount rate we used would decrease our annual pension expense for 2015 by $ 0.3 million . if we had assumed annual wage increases of 6 % , our 2015 pension expense would increase approximately $ 0.2 million . 19 stock-based compensation we have stock-based compensation plans , which include non-qualified stock options as well as incentive stock options . expense recognized for stock-based compensation was $ 1.7 million for 2014 , $ 1.4 million for 2013 and $ 1.4 million for 2012. we determine the fair value of the option awards at the date of grant using a black-scholes model . option pricing models require management to make assumptions and to apply judgment to determine the fair value of the award . these assumptions and judgments include estimating the future volatility of our stock price , expected dividend yield , future employee stock option exercise behaviors and future employee turnover rates . changes in these assumptions can materially affect the fair value estimate . acquisitions the company accounts for its acquisitions under asc topic 805 , business combinations and reorganizations ( asc topic 805 ) . asc topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred , identifiable assets acquired , liabilities assumed , non-controlling interests , and goodwill acquired in a business combination . asc topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations . acquisition costs are expensed as incurred . acquisition expenses in 2014 and 2013 were approximately $ 0.3 and $ 1.9 million , respectively , and were insignificant in 2012. when the company acquires a business , we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values . we record any premium over the fair value of net assets acquired as goodwill . the allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value . the way we characterize the assets has important implications , as long-lived assets with definitive lives , for example , are depreciated or amortized , whereas goodwill is tested annually for impairment , as explained previously . with respect to determining the fair value of assets , the most subjective estimates involve valuations of long-lived assets , such as property , plant , and equipment as well as identified intangible assets . we use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets . the fair values of long-lived assets are determined using valuation techniques that use discounted cash flow methods , independent market appraisals and other acceptable valuation techniques . with respect to determining the fair value of the purchase price , the most subjective estimates involve valuations of contingent consideration . significant judgment is necessary to determine the fair value of the purchase price when the transaction includes an earn-out provision , such as the earn-out provision included in our 2013 acquisition of aerosat . we engage valuation specialists to assist in the determination of the fair value of contingent consideration . key assumptions used to value the contingent consideration include future projections and discount rates . during 2014 , acquisitions added approximately $ 17.1 million in property , plant and equipment and $ 10.1 million in purchased intangible assets . see note 19 in the notes to the consolidated financial statements in item 8 , financial statements and supplementary data , regarding the acquisitions in 2014 and 2013. consolidated results of operations and outlook replace_table_token_6_th ( 1 ) our results of operations for 2012 include the operations of max-viz , beginning july 30 , 2012 . ( 2 ) our results of operations for 2013 include the operations of peco beginning july 18 , 2013 , aerosat beginning october 1 , 2013 and pga beginning december 5 , 2013 .
| with the acquisition of ats in 2014 , future growth and profitability of the test business is dependent on developing and procuring new and follow-on business in commercial electronics and semi-conductor markets as well as with the military . the nature of our test systems business is such that it pursues large multi-year projects . there can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period . each of the markets that we serve presents opportunities that we expect will provide growth for the company over the long-term . we continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions . challenges which continue to face us include improving shareholder value through increasing profitability . increasing profitability is dependent on many things , primarily revenue growth and the company 's ability to control operating expenses and to identify means of creating improved productivity . revenue is driven by increased build rates for existing aircraft , market acceptance and economic success of new aircraft , continued government funding of defense programs , the company 's ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our test systems segment . reduced aircraft build rates driven by a weak economy , tight credit markets , reduced air passenger travel and an increasing supply of used aircraft on the market would likely result in reduced demand for our products , which will result in lower profits . reduction of defense spending may result in fewer opportunities for us to compete , which could result in lower profits in the future . many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology
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while the company had several short-term barrier rental projects in 2016 , the total revenue from these projects were less than the one in 2017. the company 's standard highway barrier rentals remained strong in 2017 with a slight increase over the year 2016. management believes standard highway barrier rentals will continue to be strong in 2018 as the outlays for infrastructure spending by federal and state governments continues to increase . the company increased its barrier rental fleet during 2017 and continues to pursue its rental barrier expansion plans for its local geographical sales areas and expects its core rental business to increase . shipping and installation – shipping revenue results from shipping our products to the customers ' final destination and is recognized when the shipping services take place . installation activities include installation of our products at the customers ' construction site . installation revenue results when attaching architectural wall panels to a building , installing an easi-set® building at a customers ' site , setting highway barrier , or setting any of our other precast products at a site specific to the requirements of the owner . shipping and installation revenues decreased by 10.5 % during 2017 when compared to 2016. the decrease was mainly due to a decrease in installation revenue with less slenderwall projects installed at the job-site during 2017 as compared to 2016. with the large order for the i-66 expansion project in northern virginia that includes installation , management believes that shipping and installation revenues for 2018 will be slightly higher than 2017. royalty revenue – royalty revenues increased by 5.1 % in 2017 as compared to 2016. the company signed two new licenses during 2017 , one for buildings and one for barrier . slenderwall royalties increased during 2017 , with two licensees producing and erecting the product , while 2016 had zero slenderwall royalties . the company also lost two licenses during 2017 that were only producing minimum royalties in the recent years , which now allows for potential new licensees in those geographic areas . the company continues to explore opportunities around the world to expand the reach of slenderwall . management believes that overall royalties will increase during 2018 as the construction industry continues to expand , especially in the infrastructure section of the market . the company believes that in addition to the increase in royalties from licensees , the sale of new licenses will also improve in 2018. cost of goods sold – total cost of goods sold for the year ended december 31 , 2017 was $ 30,136 , an increase of $ 435 , or 1.5 % , from $ 29,701 for the year ended december 31 , 2016 . total cost of goods sold , as a percentage of total revenue decreased to 72 % for the year ended december 31 , 2017 from 74 % for the year ended december 31 , 2016 . the decrease in the cost of goods sold as a percentage of total revenue was , in part , product mix and an increase in barrier rental sales . raw material costs increased slightly in 2017 over 2016 with some inflationary pressures for the company . prices for steel products , one of our largest purchases , remained relatively flat during 2017 , but is expected to rise slightly in 2018. in addition , the company had one large short-term barrier rental project in 2017 , which was larger than the several short-term barrier projects in 2016 combined and , as these types of short-term projects are sold at higher margins than many of our normal precast product sales , it had a favorable effect on margins . the company continues to seek new vendor partnerships to help develop a price advantage for its raw materials as well as a continuous supply of these materials and has changed several vendors due to better supply sources and better pricing . general and administrative expenses – for the year ended december 31 , 2017 , the company 's general and administrative expenses increased by $ 1,479 , or 38.0 % , to $ 5,370 from $ 3,891 during the same period in 2016 . the increase in general and administrative expenses resulted primarily from an increase in stock compensation , an increase in salaries , and an increase in general and administrative expenses associated with the full year operation in columbia , sc . salaries increase because the company had to hire a few additional people to help generate the current backlog , while also competing in a tough employment market . the stock compensation increased to reward and retain key performers for continuous improvement and company earnings . selling expenses – selling expenses for the year ended december 31 , 2017 increased by $ 374 , or 17.6 % , to $ 2,496 from $ 2,122 for the year ended december 31 , 2016 . the increase was due to an increase in salary expense , and minor increases in office expense and travel . the company is currently searching for an additional sales persons to be located in columbia , south carolina . with the current increase in sales and continued anticipation of increases in future years , additional sales persons remain a priority for the company . 15 operating income – the company had operating income for the year ended december 31 , 2017 of $ 3,715 compared to operating income of $ 4,336 for the year ended december 31 , 2016 , a decrease of $ 621 . the decrease in operating income was primarily the result of an increase in stock compensation and an increase in salaries for year ended december 31 , 2017 as compared to 2016. interest expense – interest expense was $ 184 for the year ended december 31 , 2017 compared to $ 162 for the year ended december 31 , 2016 . story_separator_special_tag the increase of $ 22 , or 14 % , was due primarily to the $ 1.3 million note payable for the acquisition of the columbia , south carolina facility during 2016 , as the company did not add significant debt in 2017. income tax expense – the company had income tax expense of $ 1,057 for the year ended december 31 , 2017 compared to income tax expense of $ 1,462 for the year ended december 31 , 2016 . the company had an effective rate of 28.3 % for the year ended december 31 , 2017 compared to an effective rate of 34.0 % for the same period in 2016 . the decrease in the tax expense and effective rate was mainly impacted by the new tax reform , which concurrently impacted deferred tax balances . net income – the company had net income of $ 2,684 for the year ended december 31 , 2017 , compared to net income of $ 2,835 for the same period in 2016 . the basic and diluted income per share was $ 0.53 for 2017 , compared to basic income per share of $ 0.57 and diluted income per share of $ 0.56 for the year ended december 31 , 2016 . there were 5,042 basic and 5,079 diluted weighted average shares outstanding in 2017 and 4,934 basic and 5,066 diluted weighted average shares outstanding in the 2016 . liquidity and capital resources ( in thousands ) the company financed its capital expenditures requirements for 2017 with cash flows from operations , cash balances on hand and notes payable to a bank . the company had $ 3,533 of debt obligations at december 31 , 2017 , of which $ 637 was scheduled to mature within twelve months . during the twelve months ended december 31 , 2017 , the company made repayments of outstanding debt in the amount $ 584 . the company has a note payable to summit community bank ( the “ bank ” ) with a balance of $ 1,071 as of december 31 , 2017 . the note has a remaining term of approximately five years and a fixed interest rate of 3.99 % annually with monthly payments of $ 26 and is secured by principally all of the assets of the company . under the terms of the note , the bank will permit chattel mortgages on purchased equipment not to exceed $ 250 for any one individual loan so long as the company is not in default . on august 3 , 2017 , the company increased its limit of $ 1.5 million to $ 3.5 million for annual capital expenditures for calendar year 2017. at december 31 , 2017 , the company was in compliance with all covenants pursuant to the loan agreement , as amended . on march 27 , 2016 , the company executed an agreement to purchase the land , building and fixtures of a facility located in hopkins , south carolina ( `` smith-columbia '' ) for a purchase price of $ 1.55 million . the facility is located on 39 acres of land and has approximately 40,000 square feet of production space . the agreement was completed in july 2016 , and was financed by a new 10 year term facility from the bank . the note has a remaining term of approximately nine and one-half years and a fixed interest rate of 5.29 % annually with monthly payments of $ 11 and is secured by all of the assets of smith-columbia and a guarantee by the company . the balance of the note payable at december 31 , 2017 was $ 1,234 . the acquisition of smith-columbia was approved by the bank , and as such , was excluded from the $ 1.5 million capital expenditures limit during 2016. in addition to the notes payable discussed above , the company also has a $ 2 million line of credit with the bank , of which there was no outstanding balance at december 31 , 2017 . the line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on september 12 , 2018. the loan is collateralized by a first lien position on the company 's accounts receivable and inventory and a second lien position on all other business assets . key provisions of the line of credit require the company , ( i ) to obtain bank approval for capital expenditures in excess of $ 1.5 million during the term of the loan ; and ( ii ) to obtain bank approval prior to its funding any acquisition . on november 30 , 2017 the company received a commitment letter from the bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $ 1.5 million . the commitment provides for the purchase of equipment with minimum advances of $ 50 for which a note payable will be executed with a term not to exceed five years with an interest rate at the wall street journal prime rate plus .5 % with a floor of 4.49 % per annum . the loan is collateralized by a first lien position on all equipment purchased under the line . the commitment for the guidance line of credit matures on november 29 , 2018. as of december 31 , 2017 , the company had not purchased any equipment pursuant to the $ 1.5 million commitment . 16 at december 31 , 2017 , the company had cash totaling $ 3,390 and $ 1,098 of investment securities available for sale compared to cash totaling $ 3,523 and $ 1,050 of investment securities available for sale at december 31 , 2016 . during 2017 , the company 's operating activities provided $ 2,926 of cash due mainly to the net income and continued aggressive collections of accounts receivable during 2017 . in 2017 , investing activities used $ 2,727 in cash primarily for the purchase of property and capital equipment .
| architectural sales – architectural panel sales increased by 20.5 % in 2017 compared to 2016 as the company was awarded more architectural wall panels to produce during 2017 , which coincided with slenderwall production ( see the slenderwall section below ) . the architectural product line is lagging far behind our other product lines , as it becomes a more of a commodity product in the market , but still continues to be a complimentary product to the company 's proprietary slenderwall panel system . management does believe , however , that 2018 architectural sales should increase over the 2017 sales volume . slenderwall sales – slenderwall panel sales increased by 23.5 % in 2017 when compared to 2016 . the company had a total of two slenderwall projects in production in 2017 while there was only one major slenderwall project in production in 2016. slenderwall sales should be up in 2018 as the company currently has a letter of intent on a large slenderwall project that is in the final steps of being awarded to the company . the company has received authorization to begin production by the project owner . management believes the slenderwall project has a high probability of being awarded to the company , which will provide the proprietary product with major visibility in the marketplace , although no assurance can be given . miscellaneous sales – miscellaneous sales are highly customized precast concrete products that do n't fit other standard revenue types . miscellaneous sales decreased by 10.9 % in 2017 when compared to 2016 , due mainly to one large order for a highly customized noise deflection wall produced in 2016. miscellaneous projects are difficult to predict from year to year , however , based on the company 's current backlog of orders and our bid outlook , management believes that production and sales of miscellaneous products in 2018 will be somewhat less than 2017 levels . barrier sales – barrier sales are dependent on the number of highway
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the total consideration payable pursuant to the purchase agreement was $ 8.3 million , comprised of $ 5.1 million in cash , common stock consideration with a deemed value of $ 1.2 million resulting in the issuance of 248,000 common shares , a maximum of $ 2.0 million in future cash consideration subject to the achievement of certain performance targets set forth in an earn-out agreement and the assumption of certain specified liabilities . in april 2011 , we paid the first earn-out payment of $ 0.5 million to the sellers of advantage . during the fourth quarter of 2011 we completed a revaluation of the remaining contingent earn-out obligation and recorded a reduction of approximately $ 0.5 million with a remaining obligation of $ 0.7 million as of december 31 , 2011. in march 2010 , the president signed into law the health reform act . the health reform act includes several provisions that may affect reimbursement for home health agencies . the health reform act is broad , sweeping reform , and is subject to change , including through the adoption of related regulations , the way in which its provisions are interpreted and the manner in which it is enforced . we can not assure you that the provisions of the health reform act will not adversely impact our business , results of operations or financial position . we may be unable to mitigate any adverse effects resulting from the health reform act . on july 14 , 2010 , the ocr published proposed regulations to implement the hitech act . failure to comply with hipaa could result in fines and penalties that could have a material adverse effect on us . recently , the ocr has imposed substantial financial and other penalties on covered entities that improperly disclosed individuals ' health information . in november 2010 , cms released its final 2011 home health pps update . it included a 1.1 % market basket increase for 2011 ( after application of the mandated 1 % reduction ) and a mandated 3.79 % rate reduction . the rate reduction resulted from the cms determination that there had been a general increase in case mix that cms believed was unwarranted . cms believed that this case-mix creep was due to improved coding , coding practice changes , and other behavioral responses to the change in reimbursement that went in to effect in 2009 , including greater use of high therapy treatment plans above what cms believed was related to an increase in patient acuity . cms warned that it would continue to monitor changes in case-mix . if new data identifies additional increases in case-mix , cms would immediately impose further reductions . the final 2011 payment base rate reflected a 0.3 % decrease from the proposed market basket rate in july 2010. cms announced that it was postponing its proposed 3.79 % reduction in home health rates for calendar year 2012 pending its further monitoring of case-mix changes . home health agencies that did not submit required quality data would be subject to a 2 % reduction in the market basket update . on august 2 , 2011 the president signed into law the budget control act of 2011 , which raised the debt ceiling and put into effect a series of actions for deficit reduction . the budget control act created a congressional joint select committee on deficit reduction that was tasked with proposing additional deficit reduction of at least $ 1.5 trillion . the committee was unsuccessful which triggered automatic across the board reductions in spending of $ 1.2 trillion . medicare is subject to these reductions but medicare reductions are capped at 2 % . as mandated by the health reform act , on october 20 , 2011 , cms released final regulations for the medicare shared savings program . although the health reform act mandates that the program be established no later than 50 january 1 , 2012 , cms set start dates of april 1 , 2011 and july 1 , 2011. the medicare shared savings program is designed to give financial incentives to healthcare providers and suppliers that meet criteria established by dhhs that work together to manage and coordinate care through acos for fee-for-service medicare beneficiaries assigned to the aco by cms to increase quality of care and reduce costs . participating providers and suppliers would share in the savings generated and , in one of two plans , bear the risk of losses . in proposed regulations published april 7 , 2011 , cms requested comments on a number of issues including the range of providers and suppliers that could participate in an aco . reaction to the proposed regulations issued on april 7 , 2011 was generally negative especially with regard to start up costs , retroactive assignment of beneficiaries , antitrust issues , the proposed quality measures ( both the number and complexity ) , and the lack of a model that only includes shared savings . the final regulations addressed several but not all of these concerns . the final regulations set a savings-only model where providers share any savings over a threshold amount but do not share any losses , as well as a two sided model where the aco shares in the savings but is also at risk for losses . the number of quality measures is reduced by almost one half , and beneficiaries are assigned prospectively . in connection with the aco rules , also on october 20 , 2011 , the ftc and the doj released a joint antitrust policy statement , the irs released a fact sheet , and the oig released an interim final rule with five fraud waivers ( waiving prosecution under the anti-kickback law , the stark law and the cmpl and laws regarding gain sharing arrangements ) . the ftc and the doj antitrust policy statement addressed some but not all antitrust concerns . the oig waivers set forth who would be protected by the waivers and under what circumstances . story_separator_special_tag a home health agency can not qualify for a waiver for activities during aco pre-participation , which would include activities in the start-up period until an application is accepted but which cms states could also occur during the participation period . post-acute care facilities , such as snfs and irfs , can qualify for pre-participation waivers . without a pre-participation waiver , it may be difficult for home health agencies , such as ours , to participate in the planning process for formation of an aco and this may put us at a disadvantage in negotiating sharing of savings if we were to participate in an aco . in addition , because other post-acute care providers , such as snfs and irfs , can participate in the planning process they may more readily participate in acos and may attract referrals that otherwise would have been made to us . although provider and supplier participation in an aco is voluntary , participation by our competitors in some markets may force us to participate as well , or if we do not participate , result in loss of business . also , where we do not participate we will need to be mindful of quality measure criteria and if we are unable to meet those criteria we could be at risk for losing medicare referrals . in addition , other savings programs similar to acos may be adopted by government and commercial payors to control costs and reduce hospital readmissions in which we could be financially at risk . we can not predict what affect , if any , acos will have on our company . on july 15 , 2011 , dhhs published two sets of proposed regulations relating to health insurance exchanges established under the health reform act providing guidance and options to states on how to structure their exchanges . on september 30 , 2011 , dhhs extended the date for public comment from september 28 to october 31 , 2011. at this point it is uncertain what services will be mandated for coverage by exchanges or at what level services will be paid or what impact the exchanges will have on other payors . pursuant to the final 2012 home health pps update , cms finalized a 5.06 % reduction to the national standardized 60-day episode rates to account for its perceived nominal case-mix growth since the inception of the home health pps through 2009 , phasing in the reduction over 2 years . the reduction in calendar year 2012 is 3.79 % and the remaining 1.32 % will be applied for calendar year 2013. the effective market basket update for calendar year 2012 is 1.4 % ( resulting from a market basket update of 2.4 % less the required reduction of 1.0 % ) . home health agencies that do not meet quality data reporting requirements have a market basket update of -0.6 % . after applying the 3.79 % reduction , the 60-day episode rate for calendar year 2012 is lower than the rate for calendar year 2011. cms also implemented several other changes that it had proposed in its notice of proposed rulemaking in july 2011. first , cms removed two codes for hypertension from the home health pps case-mix model 's hypertension group . second , cms revised payment weights to provide what it believes are more accurate case-mix payments , lowering the relative weights for home health episodes with a high number of therapy visits and increasing the weights for episodes with little or no therapy . the effect is to lower payments for home health episodes with high numbers of therapy visits and increase payments to episodes with little or no therapy . third , cms increased payments for episodes of care with three to five therapy visits so that these have higher payment to cost ratios and reduced payments for episodes with 20 or just higher than 20 therapy visits so that episodes with approximately 20 therapy visits will have more reasonable payment to cost ratio . episodes 51 with three to five therapy visits have a higher payment to cost ratio and receive higher payments and episodes of 20 or just over 20 visits have lower cost ratios . all changes were to be made in a budget neutral way . cms also reported that for future rulemaking it plans to do further analysis of the costs for providing therapy visits and the use of therapy assistants and plans to make further rate adjustments in accordance with its findings . for more information , see businessgovernment regulation. segments we operate our business through two segments , home & community services and home health services . we have organized our internal management reports to align with these segment designations . as such , we have identified two reportable segments , home & community and home health , applying the criteria in asc 280 , disclosure about segments of an enterprise and related information . the following table presents our locations by segment , setting forth acquisitions , start-ups and closures for the period january 1 , 2010 to december 31 , 2011 : replace_table_token_10_th as of december 31 , 2011 , we provided our services through 118 locations across 19 states . our payor clients are principally federal , state and local governmental agencies . the federal , state and local programs under which they operate are subject to legislative , budgetary and other risks that can influence reimbursement rates . our commercial insurance carrier payor clients are typically for profit companies and are continuously seeking opportunities to control costs . we are seeking to grow our private duty business in both of our segments . for 2011 , 2010 , and 2009 , our payor revenue mix by segment was as follows : replace_table_token_11_th we also measure the performance of each segment using a number of different metrics . for our home & community segment , we consider billable hours , billable hours per business day , revenues per billable hour and 52 the number of consumers , or census .
| net service revenues increased $ 10.6 million , or 5.1 % , to $ 220.8 million for the year ended december 31 , 2010 compared to $ 210.1 million for the year ended december 31 , 2009. net service revenue growth in the home & community segment included the advantage acquisition , which contributed $ 4.6 million in service revenues or 2.2 % of the increase in 2010. the remainder of the growth in net services revenues of $ 6.0 million , or 2.9 % was primarily attributable to a 2.9 % increase in revenue per billable hour . gross profit , expressed as a percentage of net service revenues , decreased by 0.1 % to 25.4 % for the year ended december 31 , 2010 , from 25.5 % in 2009. excluding the gross profit contribution from advantage , gross profit , expressed as a percentage of net service revenues , decreased by 0.2 % to 25.3 % in 2010 compared to 25.5 % in 2009. the decrease of 0.2 % was principally due to contractual field wage increases that became effective during the second half of 2010. general and administrative expenses , expressed as a percentage of net service revenues , decreased 0.3 % to 13.9 % for the year ended december 31 , 2010 , from 14.2 % in 2009. excluding the general and administrative expenses from advantage , general and administrative expenses increased $ 0.3 million , or 2.3 % , to $ 30.0 million for the year ended december 31 , 2010 compared to $ 29.7 million in 2009. the increase was primarily due to an increase of $ 0.9 million in consulting , legal related costs , and other administrative expenses , partially off-set by a $ 0.6 million reduction in management bonuses and wage related costs . depreciation and amortization , expressed as a percentage of net service revenues , decreased by 0.4 % to 1.2 % for the year ended december 31 , 2010 , from 1.6 % in 2009. amortization of intangibles , which are principally amortized using accelerated methods , totaled $ 2.5 million and $ 3.2 million for the year ended december 31 , 2010 and 2009 , respectively . 60 home health segment the following table sets forth , for the periods indicated , a
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license revenue is recognized when amounts owed to digimarc have been earned , are fixed or determinable ( within our normal 30 to 60 day payment terms ) , and collection is reasonably assured . if the payment terms extend beyond our normal 30 to 60 days , the fee may not be considered to be fixed or determinable , and the revenue would then be recognized when installments are due . we record revenue from certain license agreements upon cash receipt as a result of collectability not being reasonably assured . our standard payment terms for license arrangements are 30 to 60 days . extended payment terms increase the likelihood we will grant a customer a concession , such as reduced license payments 23 or additional rights , rather than hold firm on minimum commitments in an agreement to the point of losing a potential advocate and licensee of patented technology in the marketplace . extended payment terms on patent license arrangements are not considered to be fixed or determinable if payments are due beyond our standard payment terms , primarily because of the risk of substantial modification present in our patent licensing business . as such , revenue on license arrangements with extended payment terms are recognized as fees become fixed and determinable . deferred revenue consists of billings in advance for professional services , licenses and subscriptions for which revenue has not been earned . goodwill : we account for business combinations under the acquisition method of accounting in accordance with asc 805 , business combinations , where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values . the purchase price is allocated using the information currently available , and may be adjusted , up to one year from acquisition date , after obtaining more information regarding , among other things , asset valuations , liabilities assumed and revisions to preliminary estimates . contingent consideration is recorded at the acquisition date based upon the estimated fair value of the contingent payments . the fair value of the contingent consideration is re-measured each reporting period with any adjustments in fair value being recognized in earnings from operations . the purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill . we test goodwill for impairment annually in june and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . such reviews assess the fair value of our assets compared to their carrying value . we operate as a single reporting unit . we estimate the fair value of our reporting unit using a market approach , which takes into account our market capitalization plus an estimated control premium . impairment of long-lived assets : we assess long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable , in accordance with the provisions of asc 360 property , plant and equipment . this statement requires that long-lived assets , including definite-lived intangible assets , be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net undiscounted cash flows expected to be generated by the assets over their remaining useful life . if 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 . fair value is determined based on discounted cash flows or appraised values , depending on the nature of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . contingencies : we evaluate all pending or threatened contingencies or commitments , if any , that are reasonably likely to have a material adverse effect on our operations or financial position . we assess the probability of an adverse outcome and determine if it is remote , reasonably possible or probable as defined in accordance with the provisions of asc 450 contingencies . if information available prior to the issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of our financial statements , and the amount of the loss , or the range of probable loss can be reasonably estimated , then the loss is accrued and charged to operations . if no accrual is made for a loss contingency because one or both of the conditions pursuant to asc 450 are not met , but the probability of an adverse outcome is at least reasonably possible , we will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss , or state that such an estimate can not be made . 24 stock-based compensation : we account for stock-based compensation in accordance with asc 718 compensationstock compensation , which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock based on estimated fair values . for stock options , we use the black-scholes option pricing model as our method of valuation . our determination of the fair value on the date of grant is affected by our stock price as well as assumptions regarding a number of subjective variables . these variables include , but are not limited to , the expected life of the award , our expected stock price volatility over the term of the award , the risk-free interest rate and the expected dividend yield . story_separator_special_tag although the fair value of stock-based awards is determined in accordance with asc 718 and staff accounting bulletin ( sab ) no . 107 shared-based payment , the black-scholes option pricing model requires the input of subjective assumptions , and other reasonable assumptions could provide differing results . the fair value of restricted stock awards granted is based on the fair market value of our common stock on the date of the grant ( measurement date ) , and is recognized over the vesting period of the related restricted stock using the straight-line method . income taxes : we account for income taxes in accordance with asc 740 income taxes utilizing the asset and liability method . under the asset and liability method , deferred income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment . valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not expected to be realized . a valuation allowance is required for deferred tax assets if , based on available evidence , it is more likely than not that all or some portion of the asset will not be realized due to the inability to generate sufficient taxable income in the period and or of the character necessary to utilize the benefit of the deferred tax asset . the more-likely-than-not criterion means the likelihood of realization is greater than 50 percent . when evaluating whether it is more likely than not that all or some portion of the deferred tax asset will not be realized , we evaluate all available evidence , both positive and negative , that may affect the realizability of deferred tax assets and that should be identified and considered in determining the appropriate amount of the valuation allowance . we are subject to federal and state income taxes within the u.s. and in the ordinary course of business , there are transactions and calculations where the ultimate tax determination is uncertain . we are also subject to withholding taxes in various foreign jurisdictions . the withholding taxes are computed by our customers and paid to foreign jurisdictions on our behalf . we report a liability ( or contra asset ) for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return . we recognize interest and penalties , if any , related to the unrecognized tax benefits in income tax expense . 25 results of operationsthe years ended december 31 , 2013 and december 31 , 2012 the following tables present our consolidated statements of operations data for the periods indicated . replace_table_token_7_th ( 1 ) includes the results of operations of attributor from the date of acquisition , december 3 , 2012 to the end of the year . 26 replace_table_token_8_th summary in 2013 , we increased the level of our investments in our product development and sales growth initiatives . these initiatives included developing and marketing digimarc discover , the digimarc barcode and other aspects of our intuitive computing platform as well as further developing our retained patent assets . we also continued research efforts to explore strategic opportunities in the mobile payments market . these investments support our vision of enabling computers , networks and other digital devices to see , hear , understand and respond to their surroundings . our revenue decreased 21 % to $ 35.0 million in 2013 from 2012 primarily as a result of the $ 8.0 million past due royalties payment received from verance corporation ( verance ) in the first quarter of 2012 and the end of the quarterly license fee payments from intellectual ventures ( iv ) in the second quarter of 2013. the comparative decline was partially offset by increased subscription revenue due to a full year of attributor 's operations in 2013 and higher service revenue from the central banks . total operating expense increased primarily as a result of increased compensation cost due to higher headcount as we accelerated our product development and sales growth initiatives as well as the impact of a full year of attributor 's operations in 2013 and related acquisition and integration costs . 27 revenue replace_table_token_9_th service . service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agreements , or fixed price consulting agreements . most of our service revenue is derived from contracts with the central banks , iv and government agency contractors . the agreements range from several months to several years in length , and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually . these contracts generally provide for billing hours worked at predetermined rates and , to a lesser extent , reimbursement for third party costs and services . increases or decreases in the services provided under these contracts are generally subject to both volume and price changes . the volume of work is generally negotiated at least annually and can be modified as the customer 's needs change . we also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables . contracts with government agency contractors are generally shorter term in nature , less linear in billings and less predictable than our longer term contracts because the contracts with government agency contractors are subject to government budgets and funding .
| the decrease in subscription gross profit resulted primarily from the impact of attributor 's operations , which has a higher cost component than other subscriptions . the increases in license gross profit was due primarily to the payments from iv and verance . the increase in total gross profit as a percentage of revenue was due primarily to changes in revenue mix with higher license revenue , which carries a higher margin than service revenue , as a percent of total revenue . the slight decrease in service gross profit as a percentage of revenue resulted from changes in services cost mix . the slight decrease in subscription gross profit as a percentage of revenue resulted from lower subscription margins from our guardian product . operating expenses sales and marketing replace_table_token_22_th the decrease in sales and marketing expenses resulted primarily from : decreased marketing and professional fees of $ 0.6 million related to the introduction of our digimarc discover platform in 2011 ; partially offset by increased compensation-related expenses of $ 0.1 million related to an additional layer of stock-based awards . research , development and engineering replace_table_token_23_th 38 the increase in research , development and engineering expense resulted primarily from : increased compensation-related expenses of $ 1.7 million from hiring engineers and scientists in second half of 2011 to facilitate growth in our product and service offerings , and an additional layer of stock-based awards ; offset partially by decreased recruiting expenses of $ 0.2 million due to lower hiring in 2012 ; and decreased professional fees of $ 0.1 million due to increased use of internal resources . general and administrative replace_table_token_24_th the decrease in general and administrative expenses resulted primarily from : decreased legal fees of $ 1.0 million related to the litigation matter with verance ; and decreased accounting fees of $ 0.2 million related to the transition to our new auditors ; partially offset by increased compensation-related expenses of $ 0.6 million related to an additional layer of stock-based awards , and
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despite its prevalence , pad is underdiagnosed and undertreated relative to many other serious vascular conditions , including cad , in part because up to half of the pad population is asymptomatic , or shows no symptoms , and many dismiss symptoms as normal signs of aging . recent analysis suggests that approximately 17.6 million people in the u.s. suffer from pad . however , only 20-30 % of p ad patients are actively being treated . we anticipate revenue from this recently commercialized business segment to grow over t ime . our sales strategy includes either selling the dabra laser with a transfer in title or placing it in high-volume practices f or a nominal periodic fee while we retain title . we sell extended warranties for our lasers that have been purchased . each vascular procedure requires the one-time use of our proprietary catheters which we expect to be the primary source of revenue for the vascular segment . therefore , under both the sale and periodic fee options , we anticipate recurring revenue in catheter sales for each laser in operation . we currently use our internal sales force to target the u.s. market and we utilize distributors outsi de the u.s. pharos is our excimer laser device that emits highly concentrated ultraviolet light and is used as a tool in the treatment of dermatological skin disorders . physicians use pharos by applying 308 nanometer ultraviolet light to the skin . the fda has granted 510 ( k ) clearance to market pharos in the u.s. for psoriasis , vitiligo , atopic dermatitis , and leukoderma . pharos was granted ce mark approval in september of 2016 for use in the treatment of psoriasis , vitiligo , atopic dermatitis and leukoderma by the application of uvb ultraviolet light . we have also received clearance to market pharos from the china food and drug administration , or cfda , and south korea ministry of drug safety ( now called the ministry of food and drug safety , or mdfs ) , in the applicable jurisdictions . pharos was commercialized in 2004 and we have shipped over 1,000 systems to customers globally through december 31 , 2018. pharos is in use in nearly every u.s. state and in over 20 markets including several non-u.s. countries . while we have entered into periodic fee arrangements , our primary strategy is to sell pharos . we recognize additional recurring revenue from the sale of extended warranties for pharos . we do not anticipate significant organic revenue growth in the near term from this mature product line . we incurred net losses of $ 30.8 million and $ 17.8 million for the years ended december 31 , 2018 and december 31 , 2017 , respectively , and had an accumulated deficit of $ 60.2 million as of december 31 , 2018. as of december 31 , 2018 , we had available cash and cash equivalents of approximately $ 64.3 million and had current liabilities of approximately $ 6.0 million and long-term liabilities of approximately $ 1.4 million . as of december 31 , 2018 , our liabilities included equipment financings of $ 0.9 million . since inception , we have financed our operations primarily through sales of our products and services , the net proceeds from our initial public offering , and , to a lesser extent , private placements of our common stock and debt financing arrangements . we expect to continue to incur net losses for the near term as we commercialize our products in the u.s. , including building our sales and marketing organization and expanding our manufacturing facilities , continuing research and development efforts , and seeking regulatory clearance for new products and product enhancements , including new indications , both in the u.s. and in select non-u.s. markets . we may need additional funding to pay expenses relating to our operating activities , including selling , general and administrative expenses and research and development expenses . if needed , adequate funding may not be available to us on commercially acceptable terms , or at all . our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business , financial condition , and results of operations . 72 recent developments we experienced issues that had an impact on our fourth quarter revenue and into the first quarter of 2019. in particular , the hiring and training of qualified sales personnel was dependent on the onboarding of our chief commercial officer , who joined in december 2018 , and we also found that we needed a more robust training program for our newly hired sales personnel . in addition , we experienced production limitations in our manufacturing process as we scaled up catheter production . these production limitations affected the number of evaluation cases performed during the fourth quarter of 2018 and into the first quarter of 2019. we made changes in our production flow and we are now in the final stages of validating our manufacturing process . in addition , our chief commercial officer implemented a new training program during the first quarter of 2019 . initial public offering on october 1 , 2018 , we closed on our initial public offering , or ipo , of 4,485,000 shares of common stock at an offering price of $ 17.00 per share , which included the full exercise of the underwriters ' option to purchase 585,000 additional shares of our common stock . we raised a total of $ 76.2 million in gross proceeds from the ipo , or approximately $ 67.3 million in net proceeds after deducting underwriting discount and commissions of $ 5.3 million and offering costs of $ 3.6 million . story_separator_special_tag our registration statement on form s-1 relating to our ipo was declared effective by the securities and exchange commission on september 26 , 2018. components of our results of operations net revenue product sales consist of the sale of dabra and pharos lasers , the sale of catheters for use with the dabra laser and the sale of consumables and replacement parts . service and other revenue consists primarily of sales of extended warranties , which we recognize over the contract period and billable services , including repair activity , which is recognized when the service is provided . it also includes income from the rental of our lasers . we currently use our internal sales force to target the u.s. market , and we utilize distributors outside the u.s. in markets where we have received regulatory approval . we expect to continue to seek regulatory approvals for our products in additional strategic markets . cost of revenue and gross margin cost of revenue for product sales consists primarily of costs of components for use in our products , the materials and labor that are used to produce our products , and the manufacturing overhead that directly support production . cost of revenue for service and other includes the cost of maintaining and servicing the warranties on our products . we expect cost of revenue to increase to the extent our total revenue grows . we calculate gross margin as gross profit divided by total net revenue . our gross margin has been and will continue to be affected by a variety of factors , primarily production volumes , the cost of direct materials , discounting practices , manufacturing costs , product yields , headcount and cost-reduction strategies . we expect our gross margin to increase over the long term as our production volume increases and certain costs remain fixed or increase at a slower rate . we intend to use our design , engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes , which we believe will reduce costs and increase our gross margin . while we expect gross margin to increase over the long term as our production volume increases , it will likely fluctuate from quarter to quarter as we continue to introduce new products and adopt new manufacturing processes and technologies . 73 research and development expenses research and development , or r & d , expenses consist of applicable personnel , consulting , materials and clinical trial expenses . r & d expenses include : certain employee-related expenses , including salaries , benefits , travel expense and stock-based compensation expense ; cost of outside consultants who assist with technology development and clinical affairs ; cost of clinical studies to support new products and product enhancements , including expanded indications ; and supplies used for internal research and development and clinical activities . we expense r & d costs as incurred . in the future , we expect r & d expenses to increase as we continue to develop new products , enhance existing products and technologies and perform activities related to obtaining additional regulatory approval . however , we expect r & d expenses as a percentage of total revenue to vary over time depending on the level and timing of our new product development efforts , as well as our clinical development , clinical trials and studies and other related activities . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses consist of employee-related expenses , including salaries , benefits , travel expense , sales commissions and stock-based compensation expense . other sg & a expenses include promotional activities , marketing , conferences and trade shows , professional services fees , including legal , audit and tax fees , insurance costs , general corporate expenses , allocated facilities-related expenses and shipping and handling costs . we expect to continue to grow our sales force and increase marketing efforts as we continue commercializing dabra in both domestic and international markets . we also expect increased costs due to the additional legal , accounting , insurance and other expenses associated with becoming a public company . story_separator_special_tag style= '' margin-top:9pt ; margin-bottom:0pt ; text-indent:0 % ; font-weight : bold ; font-style : italic ; font-size:10pt ; font-family : times new roman ; text-transform : none ; font-variant : normal ; '' > dermatology gross profit was $ 2.0 million and $ 1.6 million for the years ended december 31 , 2018 and 2017 , respectively . the increase of $ 0.4 million was primarily due to efficiencies derived from the increase in total lasers manufactured , which included lasers manufactured to support the vascular segment . comparison of years ended december 31 , 2018 , and 2017—general selling , general and administrative expenses . sg & a expenses were $ 30.4 million and $ 14.9 million for the years ended december 31 , 2018 and 2017 , respectively . the $ 15.5 million increase was related to increases of ( i ) $ 6.2 million in salary , benefits , recruiting expenses and other personnel-related costs due to expanding our sales force and hiring administrative staff to operate as a public company , ( ii ) $ 3.2 million in stock-based compensation expense primarily due to the modification accounting treatment of replacement awards and new grants , ( iii ) $ 2.1 million in legal and consulting fees to operate as a public company , ( iv ) $ 1.5 million in travel and trade shows , ( v ) $ 0.7 million in marketing and advertising costs , ( vi ) $ 0.6 million in sales training related costs ( vii ) $ 0.6 million in insurance due to being publicly traded , ( viii ) $ 0.3 million in shipping costs due to increased volume from the vascular product offering and ( ix ) $ 0.3 million in various other administrative costs .
| the decrease of approximately $ 0.9 million was due primarily to a decrease in direct unit product sales as a result of diverting some of our sales resources in 2018 to commercializing the dabra system , aggregated in our vascular segment , partially offset by an increase of $ 0.3 million in revenue from service contracts on our dermatology lasers . cost of revenue the following table shows our cost of revenue from our two segments for the years ended december 31 , 2018 and 2017 , ( in thousands ) : replace_table_token_7_th vascular cost of revenue was $ 1.5 million and $ 0.2 million for the years ended december 31 , 2018 and 2017. the $ 1.3 million increase was primarily due to increased labor , material and overhead costs to support the increased sales efforts of our vascular products , which increased following the completion of our initial 12-month commercial launch in june 2018. dermatology cost of revenue was $ 2.7 million and $ 4.0 million for the years ended december 31 , 2018 and 2017 , respectively . the decrease of $ 1.3 million was primarily due to fewer units manufactured as a result of lower sales and lower costs of the units that were manufactured due to efficiencies derived from the increase in total lasers manufactured , which included lasers manufactured to support the vascular segment . 75 gross profit the following table shows our gross profit from our two segments for the years ended december 31 , 2018 , and 2017 ( in thousands ) : replace_table_token_8_th vascular gross profit was $ 31,000 for the year ended december 31 , 2018 and $ 66,000 for the year ended december 31 , 2017 , respectively . compared to the year ended december 31 , 2017 , the year ended december 31 , 2018 included increased costs to scale up our manufacturing capacity following the completion of our initial 12-month commercial launch period in june 2018 compared to nominal catheter sales during our initial
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principal measurements the principal measurements used by the company in evaluating its business are : ( 1 ) constant currency sales growth by segment and geographic region ; ( 2 ) internal sales growth by segment and geographic region ; and ( 3 ) adjusted operating income and margins of each reportable segment , which excludes the impacts of purchase accounting , corporate expenses , and certain other items to enhance the comparability of results period to period . these principal measurements are not calculated in accordance with accounting principles generally accepted in the united states ; therefore , these items represent non-us gaap measures . these non-us gaap measures may differ from other companies and should not be considered in isolation from , or as a substitute for , measures of financial performance prepared in accordance with us gaap . the company defines “ constant currency ” sales growth as the increase or decrease in net sales from period to period excluding precious metal content and the impact of changes in foreign currency exchange rates . this impact is calculated by comparing current-period revenues to prior-period revenues , with both periods converted at the u.s. dollar to local currency foreign exchange rate for each month of the prior period , for the currencies in which the company does business . the company defines “ internal ” sales growth as constant currency sales growth excluding the impacts of net acquisitions and divestitures , merger accounting impacts and discontinued products . business drivers the primary drivers of internal growth include macroeconomic factors , global dental market growth , innovation and new product launches by the company , as well as continued investments in sales and marketing resources , including clinical education . management believes that the company 's ability to execute its strategies should allow it to grow faster than the underlying dental market over time . on a short term basis , changes in strategy or distributor inventory levels can impact internal growth . the company has a focus on maximizing operational efficiencies on a global basis . the company has expanded the use of technology as well as process improvement initiatives to enhance global efficiency . in addition , management continues to evaluate the consolidation of operations and functions , as part of integration activities , to further reduce costs . while the current period results reflect the unfavorable impact of integration related inefficiencies , the company believes that the future benefits from these global efficiency and integration initiatives will improve the cost structure and help mitigate the impacts of rising costs such as energy , employee benefits and regulatory oversight and compliance . the company has targeted a cost reduction initiative of approximately $ 100 million expected to be achieved over the next several years as the benefits of these initiatives , net of related investments , are realized over time . the company expects that it will record restructuring charges , from time to time , associated with such initiatives . these restructuring charges could be material to the company 's consolidated financial statements and there can be no assurance that the target adjusted operating income margins will continue to be achieved . 38 as announced in october 2016 , the company proposed plans in germany to reorganize and combine portions of its manufacturing , logistics and distribution networks within the company 's two segments . as required under german law , the company entered into a statutory co-determination process under which it collaborated with the appropriate labor groups to jointly define the infrastructure and staffing adjustments necessary to support this initiative . in 2017 , the company received all necessary approvals and is proceeding with its current plans . the company estimates the cost of these initiatives to be approximately $ 65 million , primarily for severance related benefits for employees , which is expected to be incurred as actions are implemented over the next two years . the company recorded costs of approximately $ 29 million associated with these plans . the company estimates that the future annual savings related to these plans to be in the range of $ 12 million and $ 14 million to be realized over the next one to three years . there is no assurance that future savings will be fully achieved . the company continues to initiate similar actions in other regions of the world . product innovation is a key component of the company 's overall growth strategy . new advances in technology are anticipated to have a significant influence on future products in the dentistry and consumable medical device markets in which the company operates . as a result , the company continues to pursue research and development initiatives to support technological development , including collaborations with various research institutions and dental schools . in addition , the company licenses and purchases technologies developed by third parties . although the company believes these activities will lead to new innovative dental , healthcare consumable and dental technology products , they involve new technologies and there can be no assurance that commercialized products will be developed . the company 's business is subject to quarterly fluctuations of consolidated net sales and net income . price increases , promotional activities as well as changes in inventory levels at distributors contribute to this fluctuation . the company typically implements most of its price increases in october or january of a given year across most of its businesses . distributor inventory levels tend to increase in the period leading up to a price increase and decline in the period following the implementation of a price increase . required minimum purchase commitments under agreements with key distributors may increase inventory levels in excess of retail demand . these net inventory changes have impacted the company 's consolidated net sales and net income in the past , and may continue to do so in the future , over a given period or multiple periods . story_separator_special_tag in addition , the company may from time to time , engage in new distributor relationships that could cause quarterly fluctuations of consolidated net sales and net income . distributor inventory levels may fluctuate , and may differ from the company 's predictions , resulting in the company 's projections of future results being different than expected . there can be no assurance that the company 's dealers and customers will maintain levels of inventory in accordance with the company 's predictions or past history , or that the timing of customers ' inventory build or liquidation will be in accordance with the company 's predictions or past history . any of these fluctuations could be material to the company 's consolidated financial statements . the company had two exclusive distribution agreements with patterson companies , inc. ( “ patterson ” ) for the marketing and sales of certain legacy sirona products and equipment in the united states and canada . in order to maintain exclusivity , certain purchase targets had to be achieved . in the fourth quarter of 2016 , patterson 's decision not to extend the exclusivity beyond september 2017 was announced . following that announcement , in may 2017 , the company entered into a new three-year agreement with patterson whereby patterson would continue to distribute the company 's equipment lines in the united states on a non-exclusive basis . in the second quarter of 2017 , the company also entered into two separate multi-year agreements with henry schein , inc. ( “ henry schein ” ) for the distribution of the company 's equipment lines in the united states and canada . while the agreement with henry schein with respect to the united states was effective september 1 , 2017 , the agreement relating to canada was effective june 2017. the company began shipping initial stocking orders for the equipment products to henry schein under the agreements in the second quarter of 2017 and continued through the balance of 2017. during the second quarter of 2017 , the company also modified its distribution agreement with henry schein with respect to the distribution of certain products in france . based on the company 's estimate , year-over-year changes in distributor inventories associated with these agreements positively impacted the company 's reported sales for the full year of 2017 by approximately $ 23 million . based on the company 's estimate , distributor inventories increased during 2017 by approximately $ 26 million as compared to an increase of approximately $ 3 million during 2016. the increase in inventory levels was the result of the combination of lower equipment sales to end-users as well as higher than anticipated inventory levels held by distributors . the company 's anticipated decrease in inventory levels held by distributors is projected to negatively impact the company 's sales by approximately $ 40 million during 2018. the company will continue to pursue opportunities to expand the company 's product offerings , technologies and sales and service infrastructure through partnerships and acquisitions . although the professional dental and the consumable medical device markets in which the company operates have experienced consolidation , they remain fragmented . management believes that there will continue to be adequate opportunities to participate as a consolidator in the industry for the foreseeable future . 39 impact of foreign currencies and interest rates due to the company 's significant international presence , movements in foreign exchange and interest rates may impact the consolidated statements of operations . with approximately two thirds of the company 's net sales located in regions outside the united states , the company 's consolidated net sales are impacted negatively by the strengthening or positively impacted by the weakening of the u.s. dollar . additionally , movements in certain foreign exchange and interest rates may unfavorably or favorably impact the company 's results of operations , financial condition and liquidity . reclassification of prior year amounts certain reclassifications have been made to prior years ' data in order to conform to current year presentation . during the quarter ended september 30 , 2017 , the company realigned reporting responsibilities for multiple businesses , as a result of a retirement of one of the company 's then chief operating officers , into three operating segments . furthermore , as a result of changes in the senior management level during the quarter ended december 31 , 2017 , the company realigned reporting responsibilities into two operating segments . the segment information reflects the revised fourth quarter organizational structure for all periods shown . results of operations 2017 compared to 2016 net sales the discussion below summarizes the company 's sales growth which excludes precious metal content , into the following components : ( 1 ) impact of the merger ; and ( 2 ) the results of the “ combined businesses ” as if the businesses were merged on january 1 , 2016. these disclosures of net sales growth provide the reader with sales results on a comparable basis between periods . management believes that the presentation of net sales , excluding precious metal content , provides useful information to investors because a portion of dentsply sirona 's net sales is comprised of sales of precious metals generated through sales of the company 's precious metal dental alloy products , which are used by third parties to construct crown and bridge materials . due to the fluctuations of precious metal prices and because the cost of the precious metal content of the company 's sales is largely passed through to customers and has minimal effect on earnings , dentsply sirona reports net sales both with and without precious metal content to show the company 's performance independent of precious metal price volatility and to enhance comparability of performance between periods . the company uses its cost of precious metal purchased as a proxy for the precious metal content of sales , as the precious metal content of sales is not separately tracked and invoiced to customers .
| nm - not meaningful sales growth by region net sales , excluding precious metal content , for the year ended december 31 , 2016 and 2015 , respectfully , by geographic region is as follows : replace_table_token_21_th a reconciliation of reported net sales to net sales , excluding precious metal content , of the combined business by geographic region for the year ended december 31 , 2016 and 2015 , respectfully , is as follows : replace_table_token_22_th ( a ) represents sirona sales for january and february 2016 ( b ) represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under business combination accounting standards to make the 2016 and 2015 non-u.s. gaap combined business results comparable . 52 replace_table_token_23_th ( a ) represents sirona sales for the year ended december 31 , 2015. united states reported net sales , excluding precious metal content , increased by 36.3 % for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. this increase reflects sales of $ 352.3 million as a result of the merger and other acquisitions , primarily the consolidation of the sirona businesses for ten months . this excludes approximately $ 11.9 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred income . for the year ended december 31 , 2016 , sales of our combined businesses grew 1.0 % on a constant currency basis . this includes a benefit of 2.3 % from net acquisitions and was unfavorably impacted by discontinued products by approximately 40 basis points , which results in a negative internal sales growth rate of 0.9 % . this was driven by lower sales in the technologies & equipment segment and was the result of lower purchases by a dealer compared to the prior period . europe reported net sales , excluding precious metal content , increased by 33.5 % for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. this increase reflects sales of $ 361.6 million as a result of the merger and other acquisitions , primarily the consolidation of the sirona businesses for ten months . this excludes approximately $ 1.6 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred income .
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we believe that rz358 complements our two other metabolic pipeline opportunities including : ( i ) our plasma kallikrein inhibitor , rz402 , which is a late stage preclinical program that offers the potential of an oral therapy to treat diabetic macular edema , the leading cause of blindness in adults in the us , and ( ii ) our super-long-acting basal insulin , ab101 , which is currently in phase 1 clinical development to assess the safety and tolerability , pharmacokinetics and pharmacodynamics of ab101 in patients with diabetes mellitus . for fiscal and calendar year 2019 , we have the following objectives to advance our development strategy : ( i ) initiate a phase 2b clinical study for rz358 in the us and europe , ( ii ) complete the necessary toxicology studies for rz402 to enable the filing of an ind and initiation of clinical studies , and ( iii ) complete the phase 1 study for ab101 and explore partnership opportunities . in order to meet these objectives , we need to raise additional capital through an equity financing ( “ financing ” ) . throughout calendar year 2018 , we have met with a variety of large and mid-size health care funds ( “ funds ” ) to unveil the rezolute story with rz358 as our lead pipeline program . many of these funds have expressed interest in rezolute and more than 10 funds have conducted extensive due diligence on our programs and prospects involving many meetings and hundreds of hours of review and analysis . by june 2018 , it became readily apparent that with few exceptions , funds were evaluating our prospects based solely upon rz358 . a few funds did diligence and expressed interest in rz402 ; however , given that rz402 is preclinical , it has generally not been prioritized relative to rz358 . in addition , none of the funds have expressed any interest in ab101 . in fact , there has been universal consensus that we should continue with our ab101 strategy of completing our ongoing phase 1 study for the program and then seek to out-license the program or terminate it depending upon the phase 1 study results . importantly , no fund has expressed a willingness to provide capital for us to continue to advance ab101 beyond the first study . funds have also been clear that they believe that rezolute needs to raise at least $ 40 million in order to fund the company through the completion of our planned phase 2b study for rz358 . as a result , notwithstanding our initial desire to raise approximately $ 20-25 million and then conduct additional financings based upon the achievement of clinical milestones , we are now targeting a $ 40 million raise . further , while some funds either declined to consider an investment in rezolute or declined to invest following their diligence , by august 2018 various funds concluded that they would be interested in investing in rezolute as part of a syndicate on the condition that at least one fund serve as the lead investor to prepare a term sheet and related documents . in the second half of august 2018 , we received a term sheet from one potential investor ( the “ lead investor ” ) ; however , we did not believe that the terms were in the best interests of the company and its shareholders and continued evaluating alternatives . another fund declined to serve as lead investor in rezolute or to participate in a syndicate as part of the financing ; nonetheless , this fund suggested that we consider a strategic business combination with one of their existing portfolio companies ( the “ portfolio company ” ) . in the second half of september 2018 , we engaged in a diligence process with the portfolio company culminating in our receipt of a term sheet proposal from the portfolio company for a strategic transaction . following discussions between the companies on october 11 , 2018 , we concluded that a transaction with the portfolio company was not the best option for rezolute and its shareholders . we have continued discussions with the lead investor through the first half of october 2018 and have concluded that finalizing a term sheet with that fund whereby they would invest $ 7 million in the financing was the best path forward for the company—particularly given that other funds that have completed their diligence have expressed interest in following the lead investor as part of a syndicate to raise $ 40 million . our objective is to finalize a non-binding term sheet with the lead investor and to then prepare definitive documentation for the financing while building the syndicate . we believe that it will take several months to complete the financing particularly if we concurrently up-list onto a national exchange as part of the transaction . in the interim , we will need to secure additional bridge funding given our low cash position . while no assurance can be given that : ( i ) we will execute a term sheet with the lead investor ; ( ii ) we will be able to negotiate a purchase agreement that is satisfactory to all parties ; ( iii ) we will be able to generate enough interest from other funds to raise the full $ 40 million ; ( iv ) that we will be able to raise additional bridge financing to continue operations pending the completion of the financing , we believe that this financing strategy is the best option for the company and its shareholders . our inability to either secure additional bridge funding or complete the financing would materially and adversely impact our ability to continue as a going concern . story_separator_special_tag 23 significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to the useful lives of depreciable assets and measure of any impairment , the fair value of share-based payments and warrants , fair value of derivative instruments , complex debt and equity financing , debt extinguishment , the valuation allowance of deferred tax assets due to continuing and expected future operating losses and the estimates of probability and potential magnitude of contingent liabilities . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , 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 . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property , which will not be considered until regulatory approval and successful commercialization of a drug candidate . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , license fees and expenses paid in connection with license agreements with third parties , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at fair value of the common stock at the date which we became obligated to issue the shares . the value of the shares is expensed over the requisite service period . derivatives we account for our derivative liabilities by recording the fair value of such instruments and embedded features at inception . the fair value of our derivatives is calculated using either the black-scholes pricing model or a lattice model . embedded derivative instruments are bifurcated and assessed , along with free-standing instruments such as warrants , on their issuance date and measured at their fair value for accounting purposes . the company uses the black-scholes option pricing formula . upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability , the company records the shares at fair value , relieves all related notes , derivatives and debt discounts and recognizes a net gain or loss on debt extinguishment . changes in the fair value in subsequent periods are recorded to derivative gains or losses for the period . income taxes we use the asset and liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years , as well as for our net operating loss carryforwards . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . 24 story_separator_special_tag raise . 26 further , while some funds either declined to consider an investment in rezolute or declined to invest following their diligence , by august 2018 various funds concluded that they would be interested in investing in rezolute as part of a syndicate on the condition that at least one fund serve as the lead investor to prepare a term sheet and related documents . in the second half of august 2018 , we received a term sheet from one potential investor ( the “ lead investor ” ) ; however , we did not believe that the terms were in the best interests of the company and its shareholders and continued evaluating alternatives . another fund declined to serve as lead investor in rezolute or to participate in a syndicate as part of the financing ; nonetheless , this fund suggested that we consider a strategic business combination with one of their existing portfolio companies ( the “ portfolio company ” ) . in the second half of september 2018 , we engaged in a diligence process with the portfolio company culminating in our receipt of a term sheet proposal from the portfolio company for a strategic transaction .
| other ( expense ) income - $ 1,550,000. the company recorded interest expense of approximately $ 689,188 and $ 1,600 as of june 30 , 2018 and 2017 , respectively . the increase is attributable to convertible notes , bearing an interest rate between 12 % and 15 % , which were issued in february and april 2018. additional increase is attributable to the amortization of debt issuance costs and debt discount costs , which are recorded through interest expense . the convertible notes will continue to bear interest at 15 % due to an event of default . the debt discounts will become fully amortized to interest expense upon maturity in january 2019. factors impacting our results operations we have not generated any revenues since our inception in march 2010. since inception , we have engaged in organizational activities , conducted private placements which raised additional capital , built out the manufacturing suite and then sold the assets , produced material for our lead product candidate under good laboratory practices ( glp ) , conducted studies using the glp material , and conducted research and development on our pipeline product candidates . due to the time required to conduct clinical trials and obtain regulatory approval for any of our product candidates , we anticipate it will be some time before we generate substantial revenues , if ever . we expect to generate operating losses for the foreseeable future , therefore we are continuing to evaluate raising additional capital in the near future to maintain the current operating plan . we can not assure you that we will secure such financing or that it will be adequate to execute our business strategy . even if we obtain this financing , it may be costly and may require us to agree to covenants or other provisions that will favor new investors over our existing stockholders . 25 our stated strategy has been to build a metabolic focused biopharmaceutical company by in-licensing compelling compounds that we believe clearly target different diseases where there is an unmet need . in
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we may be able to report revenue from prescriptions which are sold in the first quarter in the quarterly report on form 10-q that we will file for the quarter ended june 30 , 2013. trokendi xr ( extended-release topiramate ) received tentative approval from the fda on june 25 , 2012 and may not receive final approval until after the expiry of marketing exclusivity associated with safety information of topamax 's nda in a specific pediatric population . in early december , 2012 , the company submitted to the fda a request for final approval as an amendment to the nda including a safety data update , a new package insert and packaging configurations for trokendi xr and was informed that should the fda approve such amendment , it will most likely be in the form of a tentative approval because the review period of such amendment would be expected to conclude in the second quarter prior to the june 22 , 2013 expiration of the pediatric exclusivity . the company continues to expect getting the final approval and commercially launching trokendi xr in the third quarter of 2013. we intend to market both products through our in-house sales force . we hired approximately 75 sales representatives for the commercial launch of oxtellar xr and we may expand this sales force to over 100 sales representatives over the next six months to support the launch of trokendi xr later this year . in addition to our two lead products , we have a product pipeline with several lead product candidates . spn-810 ( molindone hydrochloride ) is being developed as a treatment for impulsive aggression in patients with adhd and completed a phase iib trial that showed positive topline results . we expect to advance this program into later stage clinical development after we meet with the fda . our plans for spn-810 involve a continued , in-depth analysis of the full dataset from the phase iib trial along with plans to meet with the fda to discuss the next steps in the development program and the design and protocol for phase iii clinical trials . spn-812 is being developed as a non-stimulant treatment for adhd . spn-812 completed a phase iia proof on concept trial in 2011 and we are currently focused on developing an extended release formulation that will be the subject of a future phase iib trial . 85 critical accounting policies and use of estimates the significant accounting policies and basis of presentation for our consolidated financial statements are described in note 3 `` summary of significant accounting policies '' . the preparation of our financial statements in accordance with u.s. generally accepted accounting principles requires ( gaap ) us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , expenses and the disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the following accounting policies and estimates to be critical : inventories . we carry inventories at the lower of cost or market using the first-in , first-out method . although at december 31 , 2012 inventory is 100 % raw materials , in the future inventory values will include materials , labor , overhead and other direct and indirect costs . inventory is evaluated for impairment through consideration of factors such as lower of cost or market , net realizable value , expiry and obsolescence . our inventories have values that do not exceed either replacement cost or net realizable value . we believe oxtellar xr and trokendi xr have limited risk of obsolescence or expiry based on the market research we used to project future demand and based on anticipated product dating . we capitalize inventories produced in preparation for commercial launches when it becomes probable the related product candidates will receive regulatory approval and the related costs will be recoverable through the commercial sale of the product . accordingly , we began to capitalize inventories for trokendi following the june 25 , 2012 tentative approval from the fda and for oxtellar xr following the october 19 , 2012 final approval from the fda . prior to capitalization , the costs of manufacturing drug product is recognized in research and development expense in the period the cost is incurred . therefore , manufacturing costs incurred prior to capitalization are included in research and development ; such costs incurred after capitalization are included in cost of sales . deferred revenue . we have entered into collaboration agreements to have both oxtellar xr and trokendi xr commercialized outside of the u.s. these agreements generally include an up-front license fee and ongoing milestone payments upon the achievement of specific events . we believe the milestones meet all of the necessary criteria to be considered substantive and therefore should be recognized as revenue when and if occurred . for the up-front license fee , we have estimated the service period of the contract and are recognizing this payment as revenue on a straight-line basis over this service period . revenue recognitionproduct sales . we anticipate recognizing revenue from product sales during 2013. revenue from product sales will be recognized when persuasive evidence of an arrangement exists , delivery has occurred and title of the product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer has been reasonably assured and all performance obligations have been met and returns can be reasonably estimated . product sales are recorded net of accruals for estimated rebates , chargebacks , discounts , co-pay assistance and other accruals ( collectively , `` sales deductions '' ) as well as estimated product returns . our products will be distributed through wholesalers and pharmaceutical distributors . story_separator_special_tag each of these wholesalers and distributors will take title and ownership of the product upon physical receipt of the product and then distribute our products to the pharmacies . though these distributors will be invoiced concurrent with the product shipment , we will be unable to recognize revenue upon shipment until such time as we can reasonably estimate and record accruals for sales deductions and product returns 86 utilizing historical information and market research projections . specific consideration for sales of both oxtellar xr and trokendi xr are : rebates . allowances for rebates include mandated discounts under the medicaid drug rebate program as well as negotiated discounts with commercial health-care providers . rebates are amounts owed after the final dispensing of the products to a benefit plan participant and are based upon contractual agreements or legal requirements with the public sector ( e.g . medicaid ) and private sector benefit providers . the allowance for rebates is based on statutory and contractual discount rates and expected utilization . our estimates for expected utilization of rebates are based in part on third party market research . rebates are generally invoiced and paid quarterly in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarters ' unpaid rebates . if actual future rebates vary from estimates , we may need to adjust prior period accruals , which would affect revenue in the period of adjustment . chargebacks . chargebacks are discounts that occur when contracted customers purchase directly from an intermediary distributor or wholesaler . contracted customers , which currently consist primarily of public health service institutions and federal government entities purchasing via the federal supply schedule , generally purchase the product at a discounted price . the distributor or wholesaler , in turn , charges back the difference between the price initially paid by the distributor or wholesaler and the discounted price paid to the distributor or wholesaler by the customer . the allowance for distributor/wholesaler chargebacks is based on known sales to contracted customers . distributor/wholesaler deductions . u.s. specialty distributor and wholesalers are offered various forms of consideration including allowances , service fees and prompt payment discounts . distributor allowances and service fees arise from contractual agreements with distributors and are generally a percentage of the purchase price paid by the distributors and wholesalers . wholesale customers are offered a prompt pay discount for payment within a specified period . co-pay assistance . patients who have commercial insurance and meet certain eligibility requirements may receive co-pay assistance from the company . liabilities for co-pay assistance will be based on actual program participation and estimates of program redemption using data provided by third-party administrators . returns . sales of our products are not subject to a general right of return ; however , the company will accept product that is damaged or defective when shipped directly from our warehouse or for expired product up to 12 months subsequent to its expiry date . product that has been used to fill patient prescriptions is no longer subject to any right of return . although we have not recognized any revenue to date for sales of our own products , we anticipate doing so in 2013 and each of these rebates , chargebacks and other discounts will have an effect on the timing and amount of revenue recognized in any period . research and development expenses research and development expenditures are expensed as incurred . research and development costs primarily consist of employee-related expenses , including salaries and benefits ; expenses incurred under agreements with contract research organizations , investigative sites , and consultants that conduct the company 's clinical trials ; the cost of acquiring and manufacturing clinical trial materials ; the cost of manufacturing materials used in process validation , to the extent that those materials are manufactured prior to receiving regulatory approval for those products and are not expected to be sold commercially , facilities costs that do not have an alternative future use ; related depreciation and other allocated expenses ; license fees for and milestone payments related to in-licensed products and technologies ; 87 stock-based compensation expense ; and costs associated with non-clinical activities and regulatory approvals . stock-based compensation employee stock-based compensation is measured based on the estimated fair value on the grant date . the grant date fair value of options granted is calculated using the black-scholes option-pricing model , which requires the use of subjective assumptions including volatility , expected term , risk-free rate , and the fair value of the underlying common stock . for awards that vest based on service conditions , the company recognizes expense using the straight-line method less estimated forfeitures . the company has awarded non-vested stock . prior to the company 's ipo the estimated fair value of these awards was determined at the date of grant based upon the estimated fair value of the company 's common stock . subsequent to the company 's ipo , the fair value of the common stock is based on observable market prices . for stock option grants and non-vested stock subject to performance-based milestone vesting , the company records the expense over the remaining service period when management determines that achievement of the milestone is probable . management evaluates when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the applicable reporting date . the company records the expense for stock option grants to non-employees based on the estimated fair value of the stock option using the black-scholes option-pricing model . the fair value of non-employee awards is re-measured at each reporting period .
| interest income and other income ( expense ) , net interest income and other income ( expense ) , net was an expense of approximately $ 0.5 million for the year ended december 31 , 2012 compared to income of approximately $ 0.1 million for the same period in 2011 , representing a change of $ 0.7 million . the change is primarily the result of the change in fair value of the derivative warrant liability during the year ended december 31 , 2012 as compared to the year ended december 31 , 2011. interest expense interest expense was approximately $ 3.6 million for the year ended december 31 , 2012 , compared to $ 1.9 million for the same period in 2011. this increase is primarily due to the drawdown of the second $ 15.0 million under our secured credit facility in december 2011 , resulting in this additional amount of indebtedness being outstanding and accruing interest throughout 2012. loss from continuing operations loss from continuing operations was $ 46.3 million for the year ended december 31 , 2012 , compared to a loss of $ 39.5 million for the same period in 2011. this increase is primarily due to the increase in interest expense and sales and marketing costs offset by the decrease in clinical trial costs . income from discontinued operations income from discontinued operations was $ 77.0 million for the year ended december 31 , 2011. there were no activities related to discontinued operations in 2012 from the sale of tcd royalty sub , llc in december 2011 . 90 comparison of the year ended december 31 , 2011 and the year ended december 31 , 2010 replace_table_token_13_th revenues our revenues were approximately $ 0.8 million for the year ended december 31 , 2011 compared to approximately $ 0.1 million for the same period in 2010 , representing an increase of $ 0.7 million . this increase was principally attributable to a one-time milestone payment of $ 0.8 in 2011 under our license agreement with united therapeutics . research and development our research and development expenses were $ 30.6 million for the year ended december 31 , 2011 compared to $ 35.1 million
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accordingly , the credit quality of the borrower is not of substantial importance to our evaluation of the risk of recovery from the investment . hotel we acquire hotels in certain opportunistic situations in which we are able to purchase at a significant discount to replacement cost or can implement our value-add investment approach . residential and other in certain cases , we may pursue for sale housing acquisition opportunities , including land for entitlements , finished lots , urban infill housing sites and partially finished and finished housing projects . on certain income-producing acquisitions , there are adjacent land parcels that we assign little or no basis and for which we may pursue entitlement activities or , in some cases , development or re-development opportunities . this group also includes our investment in marketable securities . included in western u.s. residential are three residential investments and one loan investment in hawaii . our investment account balance for these hawaiian investments is $ 148.3 million . while our core investments have been in the specific markets and locations listed above , we will evaluate opportunities to earn above market returns across many other segments and geographic locations . kw services kw services includes our investment management platform along with our property services , research , brokerage and auction and conventional sales divisions . these businesses generate revenue for us through fees and commissions . we manage approximately 50 million square feet of properties for the company and its investment partners ( including kwe ) in the united states , europe , and asia , which includes assets we have ownership interests in and third party owned assets . with 25 offices throughout the united states , the united kingdom , ireland , jersey , spain , italy and japan , we have the capabilities and resources to provide property services to real estate owners as well as the experience , as a real estate investor , to understand client concerns . the managers of kw services have an extensive track record in their respective lines of business and in the real estate community as a whole . their knowledge and relationships are an excellent driver of businesses through the services business as well as on the investment front . additionally , kw services plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments , generating proprietary transaction flow and creating value through efficient implementation of asset management or repositioning strategies . investment management our investment management division , provides acquisition , asset management and disposition services to our equity partners as well as to third parties . currently , we have seven closed end funds for which we serve as general partner and manager and separate accounts with strategic partners . in addition , we serve as the manager of kwe and are entitled to receive management fees ( 50 % of which are paid in kwe shares ) equal to 1 % of kwe 's adjusted net asset value ( reported by kwe to be $ 2.4 billion at december 31 , 2015 ) and certain performance fees . under us gaap , we are required to consolidate the results of kwe and as such fees earned from kwe are eliminated in consolidation . property services our property services division manages commercial real estate for third-party clients , fund investors , and investments held by kennedy wilson . in addition to earning property management fees , consulting fees , leasing commissions , construction management fees , disposition fees , and accounting fees , the property services division gives kennedy wilson insight into local markets and potential acquisitions . leveraging over 38 years of real estate experience , we approach property management from the perspective of an owner and are active in identifying and implementing value creation strategies . the division has a proven track record of success in managing stabilized as well as value-add investments . 33 research meyers research llc ( `` meyers '' ) , a kennedy wilson company , is a premier consulting practice and provider of data for residential real estate development and new home construction industry . meyers ' offers a national perspective as well as local expertise to homebuilders , multifamily developers , lenders and financial institutions . these relationships have led to investment opportunities with homebuilders in the western u.s. region . we believe zonda , a meyers innovation launched in october 2013 , is the housing industry 's most comprehensive solution for smart business analysis , real-time market data reporting and economic and housing data in one place and on-the-go . brokerage our brokerage division represents tenants and landlords on every aspect of site selection , negotiation and occupancy . the division also specializes in innovative marketing programs tailored to client objectives for all types of investment grade and income producing real estate . the division 's property marketing programs combine proven techniques with its detailed market knowledge to create optimum results . auction and conventional sales the auction and conventional sales division provides innovative marketing and sales strategies for all types of commercial and residential real estate , including single family homes , mixed-use developments , estate homes , multifamily dwellings , new home projects , and conversions . generally the division 's auction sales business is countercyclical to the traditional sales real estate market and has been a bellwether for us in forecasting market conditions . financial measures and descriptions our key financial measures and indicators are discussed below . please refer to the critical accounting policies in the notes to the consolidated financial statements for additional detail regarding the gaap recognition policies associated with the captions described below . revenues rental income - rental income is comprised of rental revenue earned by our consolidated real estate investments . hotel income - hotel income is comprised of hotel revenue earned by our consolidated hotels . story_separator_special_tag sale of real estate - sales of real estate consists of gross sales proceeds received on the sale of consolidated real estate that is not defined as a business by generally accepted accounting principles . this typically includes the sale of condominium units . investment management , property services and research fees - investment management , property services , and research fees are primarily comprised of base asset management fees , performance based fees , and acquisition fees generated by our investment management division , property management fees generated by our property services division , leasing fees and sales commissions generated by our brokerage and auction divisions , and consulting fees generated by meyers . loans and other income - loans and other income is primarily composed of interest income earned on the company 's loan originations and investments in discounted loan purchases . expenses rental operating expenses - rental operating expenses consists of the operating expenses of our consolidated real estate investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . hotel operating expenses - hotel operating expenses consists of operating expenses of our consolidated hotel investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . commission and marketing expenses - commission and marketing expenses includes fees paid to third party sales and leasing agents as well as business development costs necessary to generate revenues . compensation and related expenses - compensation and related expenses include : ( a ) employee compensation , comprising of salary , bonus , employer payroll taxes and benefits paid on behalf of employees and ( b ) share-based compensation associated with the grants of share-based awards . general and administrative - general and administrative expenses represent administrative costs necessary to run kw group 's business and include things such as occupancy and equipment expenses , professional fees , public company costs , travel and related expenses , and communications and information services . depreciation and amortization - depreciation and amortization is comprised of depreciation expense which is recognized ratably over the useful life of an asset and amortization expense which primarily consist of the amortization of assets allocated to the value of in-place leases upon acquisition of a consolidated real estate asset . 34 non-operating income ( expense ) income from unconsolidated investments - income from unconsolidated investments consists of ( a ) the company 's share of income or loss earned on investments in which the company can exercise significant influence but does not have control , and ( b ) interest income from unconsolidated loan pool participations . additionally , interest income from loan pool participations are recognized on a level yield basis , where a level yield model is utilized to determine a yield rate which , based upon projected future cash flows , accretes interest income over the estimated holding period . see the unconsolidated investments footnote of the attached notes to the consolidated financial statements for summarized financial data , including balance sheet and income statement information of the underlying investments . acquisition-related gains - acquisition-related gains consist of non-cash gains recognized by the company upon a gaap required fair value remeasurement due to a business combination . these gains are typically recognized when kw group converts a loan into consolidated real estate owned and the fair value of the underlying real estate exceeds the basis in the previously held loan . these gains also arise when there is a change of control of an existing investment . the gain amount is based upon the fair value of the company 's equity in the investment in excess of the carrying amount of the equity directly preceding the change of control or the separately determined fair value of an investment being an excess of cash paid . acquisition-related expenses - acquisition-related expenses consists of the costs incurred to acquire assets . generally , the majority of these expenses relate to stamp duty taxes on foreign transactions ( primarily within kwe ) . acquisition-related expenses may also include and professional fees associated with closing the transactions and the write off of any costs associated with acquisitions which did not materialize . gain on sale of real estate - gain on sale of real estate relates to the amount received over the carrying value of assets sold that met the definition of a business under us gaap . interest expense - corporate debt - interest expense - corporate debt represents interest costs associated with our senior notes payable , junior subordinated debentures and line of credit facility . this debt is unsecured and we typically use the funds generated from corporate borrowings to fund new investments . interest expense - investment - interest expense -investment represents interest costs associated with mortgages on our consolidated real estate and unsecured debt held by kwe . the mortgages are typically secured by the underlying real estate collateral . other income - other income includes the realized foreign currency exchange income or loss relating to the settlement of foreign transactions during the year which arise due to changes in currency exchange rates , realized gains or losses related to the settlement of derivative instruments , the gain or loss on the sale of marketable securities , and other non-operating interest income . income taxes - the company 's services business operates globally as corporate entities subject to federal , state , and local income taxes and the investment business operates through various partnership structures to participate in multifamily , office and residential property acquisitions as well as originate loans and purchases loan pools . the company 's distributive share of income from its partnership investments will be subject to federal , state , and local taxes at the entity level and the related tax provision attributable to the company 's share of the income tax is reflected in the consolidated financial statements .
| there have been no share repurchases made under the program yet . investment business for 4q and fy 2015 , the company 's investment segment reported the following results : same property results : the company continued to drive growth in same property revenue and net operating income across its income-producing portfolio as shown below by asset type ( excludes kwe ) : replace_table_token_15_th investment transactions : the company , together with its equity partners ( including kwe ) , completed investment transactions of approximately $ 1.2 billion in 4q- 2015 and $ 5.4 billion for fy-2015 : replace_table_token_16_th ( 1 ) cap rate includes only income-producing properties . for the three months and year ended december 31 , 2015 , $ 67.9 million and $ 388.1 million of acquisitions and $ 160.6 million and $ 518.3 million of dispositions , respectively , were non-income producing assets . please see `` common definitions '' for a definition of cap rate . ( 2 ) kennedy wilson 's ownership is shown on a weighted-average basis . ( 3 ) the three months ended and year ended december 31 , 2015 includes $ 308.9 million and $ 1.7 billion of acquisitions by kwe , respectively . ( 4 ) the three months ended and year ended december 31 , 2015 includes $ 100.5 million and $ 186.5 million of dispositions by kwe , respectively . 36 debt financing : the company and its equity partners ( including kwe ) completed total financings and refinancings of $ 2.3 billion in 2015 . replace_table_token_17_th ( 1 ) excludes new $ 475 million corporate line of credit , which was undrawn as of december 31 , 2015. services business the company 's services segment earns fees primarily from its investment management business along with its property services and research activities . for 4q and fy 2015 , the company 's services segment reported the following results : replace_table_token_18_th ( 1 ) adjusted fees earned from kwe were $ 37.1 million and $ 5.3 million for 4q 2015 and 4q 2014 and $ 14.0 million and $ 67.0
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as production levels rise and factory utilization increases , the fixed costs are spread over increased output , which may contribute to increasing profit margins . conversely , when production levels decline our fixed costs are spread over reduced levels , which may contribute to decreasing margins . the security products market is characterized by constant incremental innovation in product design and manufacturing technologies . generally , the company devotes 6-8 % of revenues to research and development ( r & d ) on an annual basis . the company does not expect products resulting from our r & d investments in a given fiscal year to contribute materially to revenue during that same fiscal year , but should benefit the company over future years . in general , the new products introduced by the company are initially shipped in limited quantities , and increase over time . prices and manufacturing costs tend to decline over time as products and technologies mature . economic and other factors we are subject to the effects of general economic and market conditions . in the event that the u.s. or international economic conditions deteriorate , our revenue , profit and cash-flow levels could be materially adversely affected in future periods . in the event of such deterioration , many of our current or potential future customers may experience serious cash flow problems and as a result may , modify , delay or cancel purchases of our products . additionally , customers may not be able to pay , or may delay payment of , accounts receivable that are owed to us . if such events do occur , they may result in our fixed and semi-variable expenses becoming too high in relation to our revenues and cash flows . seasonality the company 's fiscal year begins on july 1 and ends on june 30. historically , the end users of napco 's products want to install its products prior to the summer ; therefore sales of its products historically peak in the period april 1 through june 30 , the company 's fiscal fourth quarter , and are reduced in the period july 1 through september 30 , the company 's fiscal first quarter . in addition , demand is affected by the housing and construction markets . the timing of any significant deterioration of the current economic conditions may also affect this trend . critical accounting policies and estimates the company 's significant accounting policies are fully described in note 1 to the company 's consolidated financial statements included in its 2018 annual report on form 10-k. management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . revenue recognition the company recognizes revenue when the following criteria are met : ( i ) persuasive evidence of an agreement exists , ( ii ) there is a fixed and determinable price for the company 's product or service , ( iii ) shipment and passage of title occurs or service has been provided , and ( iv ) collectability is reasonably assured . revenues from product sales are recorded at the time the product is shipped or delivered to the customer pursuant to the terms of the sale . revenues for services are recorded at the time the service is provided to the customer pursuant to the terms of sale . the company reports its sales on a net sales basis , with net sales being computed by deducting from gross sales the amount of actual sales returns and other allowances and the amount of reserves established for anticipated sales returns and other allowances . the company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the company 's past history . estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers . accordingly , the company believes that its historical returns analysis is an accurate basis for its allowance for sales returns . actual results could differ from those estimates . concentration of credit risk an entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers . such risks of loss manifest themselves differently , depending on the nature of the concentration , and vary in significance . the company had one customer with an accounts receivable balance that comprised 22 % and 24 % of the company 's accounts receivable at june 30 , 2018 and 2017 , respectively . sales to this customer comprised 10 % and 13 % of net sales in the fiscal years ended june 30 , 2018 and 2017 , respectively . the company had another customer with an accounts receivable balance that comprised 11 % of the company 's accounts receivable at june 30 , 2018. sales to this customer did not exceed 10 % of net sales in any of the fiscal years ended june 30 , 2018 and 2017. in the ordinary course of business , we have established a reserve for doubtful accounts and customer deductions in the amount of $ 195,000 and $ 155,000 as of june 30 , 2018 and 2017 , respectively . our reserve for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings . this reserve is based upon the evaluation of accounts receivable agings , specific exposures and historical or anticipated events . story_separator_special_tag inventories inventories are valued at the lower of cost or net realizable value , with cost being determined on the first-in , first-out ( fifo ) method . the reported net value of inventory includes finished saleable products , work-in-process and raw materials that will be sold or used in future periods . inventory costs include raw materials , direct labor and overhead . the company 's overhead expenses are applied based , in part , upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products . these proportions , the method of their application , and the resulting overhead included in ending inventory , are based in part on subjective estimates and actual results could differ from those estimates . in addition , the company records an inventory obsolescence reserve , which represents the difference between the cost of the inventory and its estimated market value , based on various product sales projections . this reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age , historical trends , requirements to support forecasted sales , and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand . there is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage . in addition , and as necessary , the company may establish specific reserves for future known or anticipated events . the company also regularly reviews the period over which its inventories will be converted to sales . any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current . intangible assets impairment of long-lived assets– the company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future net undiscounted cash flows expected to be generated by the asset group . if 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 . as of june 30 , 2018 and 2017 , the company has determined that no impairment of long-lived assets exists . the company evaluates its indefinite intangible assets for impairment at least on an annual basis and will evaluate them earlier if there are indicators of a potential impairment . 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 if there is 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 . the company has concluded that no impairment of intangible assets occurred during the years ended june 30 , 2018 and 2017. income taxes the company has identified the united states and new york state as its major tax jurisdictions . the fiscal 2015 and forward years are still open for examination . in addition , the company has a wholly-owned subsidiary which operates in a free zone in the dominican republic ( “ dr ” ) and is exempt from dr income tax . for the year ended june 30 , 2018 , the company recognized a net income tax expense of $ 684,000. during the year ending june 30 , 2018 the company increased its reserve for uncertain income tax positions by $ 38,000. 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 , 2018 , the company had accrued interest totaling $ 0 and $ 221,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . the company claims research and development ( “ r & d ” ) tax credits on eligible research and development expenditures . the r & d tax credits are recognized as a reduction to income tax expense . deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized .
| the company 's effective tax rate decreased to 8 % for fiscal 2018 as compared to 11 % for fiscal 2017. the decrease in the effective tax rate was due primarily to certain provisions in the h. r. 1 , tax cuts and jobs act , enacted on december 22 , 2017 , which reduced the u. s. corporate income tax rate to 21 % net income for fiscal 2018 increased by $ 2,050,000 to $ 7,649,000 as compared to $ 5,599,000 in fiscal 2017. 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 to perform his services for any significant period of time , the company 's ability to grow could be adversely affected . in addition , factors that could cause actual results to differ materially from the forward-looking statements include , but are not limited to , uncertain economic , military and
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21 earnings from continuing operations before interest expense and income taxes ( ebit ) and earnings before interest expense , income taxes , depreciation and amortization ( ebitda ) are non-gaap financial measures which we believe provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures , debt levels , and , for ebitda , capital investment . these measures are not in accordance with , or an alternative for , gaap . the most comparable gaap measure is net earnings from continuing operations . ebit and ebitda should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . other companies may calculate ebit and ebitda differently , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_14_th ( a ) consisted of 53 weeks . ( b ) adoption of the new accounting standards resulted in a $ 29 million and $ 17 million decrease in ebit and a $ 2 million and $ 3 million increase in ebitda for 2017 and 2016 , respectively . ( c ) represents total depreciation and amortization , including amounts classified within depreciation and amortization and within cost of sales . 22 we have also disclosed after-tax roic , which is a ratio based on gaap information . we believe this metric is useful in assessing the effectiveness of our capital allocation over time . other companies may calculate roic differently , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th ( a ) consisted of 53 weeks . ( b ) represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases . calculated using the discount rate for each lease and recorded as a component of rent expense within sg & a expenses . operating lease interest is added back to operating income in the roic calculation to control for differences in capital structure between us and our competitors . ( c ) calculated using the effective tax rates for continuing operations , which were 20.3 percent and 19.9 percent for the trailing twelve months ended february 2 , 2019 , and february 3 , 2018 , respectively . for the trailing twelve months ended february 2 , 2019 , and february 3 , 2018 , includes tax effect of $ 839 million and $ 851 million , respectively , related to ebit , and $ 17 million and $ 16 million , respectively , related to operating lease interest . ( d ) the effective tax rate for the trailing twelve months ended february 2 , 2019 , and february 3 , 2018 , includes discrete tax benefits of $ 36 million and $ 343 million , respectively , related to the tax act . ( e ) total short-term and long-term operating lease liabilities included within accrued and other current liabilities and noncurrent operating lease liabilities on the consolidated statements of financial position . ( f ) included in other assets and liabilities on the consolidated statements of financial position . ( g ) average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period . ( h ) adoption of the new lease standard reduced roic by approximately 0.5 percentage points for all periods presented . 23 analysis of financial condition liquidity and capital resources our period-end cash and cash equivalents balance decreased to $ 1,556 million from $ 2,643 million in 2017 primarily because we repatriated cash previously held by entities located outside the u.s. and deployed it during 2018 in support of our business objectives . our cash and cash equivalents balance includes short-term investments of $ 769 million and $ 1,906 million as of february 2 , 2019 , and february 3 , 2018 , respectively . our investment policy is designed to preserve principal and liquidity of our short-term investments . this policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less . we also place dollar limits on our investments in individual funds or instruments . capital allocation we follow a disciplined and balanced approach to capital allocation based on the following priorities , ranked in order of importance : first , we fully invest in opportunities to profitably grow our business , create sustainable long-term value , and maintain our current operations and assets ; second , we maintain a competitive quarterly dividend and seek to grow it annually ; and finally , we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals . operating cash flows operating cash flow provided by continuing operations was $ 5,970 million in 2018 compared with $ 6,861 million in 2017 and $ 5,337 million in 2016. the 2018 operating cash flow decrease was primarily due to a larger increase in inventory in 2018 compared with 2017 , partially offset by lower income tax payments in 2018 due to the tax act . the 2017 operating cash flow increase was due to increased payables leverage primarily driven by changes in vendor payment terms in 2017 , partially offset by an inventory increase in 2017 compared with a decrease during 2016. the operating cash flow increase was also partially due to the payment of approximately $ 500 million of taxes during 2016 related to the sale of our pharmacy and clinic businesses . inventory year-end inventory was $ 9,497 million , compared with $ 8,597 million in 2017 . we increased inventory in 2018 to support higher sales , including market share opportunities in toys and baby-related merchandise . in addition , inventory levels were increased to support new brand launches and our efforts to improve in-stock levels . story_separator_special_tag 24 capital expenditures capital expenditures increased in 2018 from the prior year primarily due to increased investments in existing stores as we further accelerated our current store remodel program . this investment acceleration follows an increase in 2017 as we accelerated our store remodel program . in addition to these cash investments , we entered into leases related to new stores in 2018 , 2017 , and 2016 with total future minimum lease payments of $ 473 million , $ 438 million , and $ 550 million , respectively . we expect capital expenditures in 2019 at a level consistent with 2018 as we continue the current store remodel program , open additional small-format stores , and make other investments in our business . we also expect to continue our current rate of investment in store leases . dividends we paid dividends totaling $ 1,335 million ( $ 2.52 per share ) in 2018 and $ 1,338 million ( $ 2.44 per share ) in 2017 , a per share increase of 3.3 percent . we declared dividends totaling $ 1,347 million ( $ 2.54 per share ) in 2018 , a per share increase of 3.3 percent over 2017 . we declared dividends totaling $ 1,356 million ( $ 2.46 per share ) in 2017 , a per share increase of 4.2 percent over 2016 . we have paid dividends every quarter since our 1967 initial public offering , and it is our intent to continue to do so in the future . share repurchases during 2018 , 2017 , and 2016 we returned $ 2,067 million , $ 1,026 million , and $ 3,686 million , respectively , to shareholders through share repurchase . see part ii , item 5 of this annual report on form 10-k and note 21 to the financial statements for more information . 25 financing our financing strategy is to ensure liquidity and access to capital markets , to maintain a balanced spectrum of debt maturities , and to manage our net exposure to floating interest rate volatility . within these parameters , we seek to minimize our borrowing costs . our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity . our continued access to these markets depends on multiple factors , including the condition of debt capital markets , our operating performance , and maintaining strong credit ratings . as of february 2 , 2019 , our credit ratings were as follows : credit ratings moody 's standard and poor 's fitch long-term debt a2 a a- commercial paper p-1 a-1 f2 if our credit ratings were lowered , our ability to access the debt markets , our cost of funds , and other terms for new debt issuances could be adversely impacted . each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same as described above . in 2018 , we funded our holiday sales period working capital needs through internally generated funds and the issuance of commercial paper . in 2017 , we funded our holiday sales period working capital needs through internally generated funds . we have additional liquidity through a committed $ 2.5 billion revolving credit facility obtained through a group of banks . in october 2018 , we extended this credit facility by one year to october 2023. no balances were outstanding at any time during 2018 , 2017 , or 2016 . most of our long-term debt obligations contain covenants related to secured debt levels . in addition to a secured debt level covenant , our credit facility also contains a debt leverage covenant . we are , and expect to remain , in compliance with these covenants . additionally , at february 2 , 2019 , no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade , except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both ( i ) a change in control and ( ii ) our long-term credit ratings are either reduced and the resulting rating is non-investment grade , or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade . note 16 of the financial statements provides more information about financing activities . we believe our sources of liquidity will continue to be adequate to maintain operations , finance anticipated expansion and strategic initiatives , fund debt maturities , pay dividends , and execute purchases under our share repurchase program for the foreseeable future . we continue to anticipate ample access to commercial paper and long-term financing . 26 commitments and contingencies replace_table_token_18_th ( a ) represents principal payments only . see note 16 of the financial statements for further information . ( b ) finance and operating lease payments include $ 127 million and $ 778 million , respectively , related to options to extend lease terms that are reasonably certain of being exercised . see note 18 of the financial statements for further information . ( c ) the timing of deferred compensation payouts is estimated based on payments currently made to former employees and retirees and the projected timing of future retirements . ( d ) real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities . ( e ) estimated tax contingencies of $ 334 million , including interest and penalties and primarily related to continuing operations , are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement . see note 19 of the financial statements for further information . ( f ) purchase obligations include all legally binding contracts such as firm minimum commitments for inventory purchases , merchandise royalties , equipment purchases , marketing-related contracts , software acquisition/license commitments , and service contracts .
| adjusted diluted earnings per share from continuing operations ( adjusted eps ) , a non-gaap metric , excludes the impact of certain items . management believes that adjusted eps is useful in providing period-to-period comparisons of the results of our continuing operations . a reconciliation of non-gaap financial measures to gaap measures is provided on page 21 . ( a ) consisted of 53 weeks . ( b ) lease standard adoption resulted in a $ 0.03 and $ 0.02 reduction in gaap and adjusted eps , respectively , for 2017 , and a less than $ 0.01 and $ 0.01 reduction in gaap and adjusted eps , respectively , for 2016. we report after-tax return on invested capital ( roic ) from continuing operations because we believe roic provides a meaningful measure of our capital-allocation effectiveness over time . for the trailing twelve months ended february 2 , 2019 , roic was 14.7 percent , compared with 15.4 percent for the trailing twelve months ended february 3 , 2018 . excluding the discrete impacts of the tax cuts and jobs act ( tax act ) , roic was 14.6 percent and 13.6 percent for the trailing twelve months ended february 2 , 2019 , and february 3 , 2018 , respectively . a reconciliation of roic is provided on page 23 . 17 analysis of results of operations replace_table_token_5_th ( a ) consisted of 53 weeks . replace_table_token_6_th note : gross margin rate is calculated as gross margin ( sales less cost of sales ) divided by sales . all other rates are calculated by dividing the applicable amount by total revenue . ( a ) consisted of 53 weeks . sales sales include all merchandise sales , net of expected returns , and gift card breakage . note 3 of the financial statements defines gift card `` breakage '' . comparable sales is a measure that highlights the performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable , prior-year period of equivalent length . comparable sales include all sales ,
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impact of covid-19 pandemic events surrounding the sars-cov-2 virus that emerged in late 2019 and the ensuing global pandemic has had a dramatic impact on businesses globally and our business as well . the severity and duration of the pandemic and economic repercussions of the virus and government actions in response to the pandemic remain uncertain and will ultimately depend on many factors , including the speed and effectiveness of the containment efforts throughout the world , the duration and spread of the virus as well as potential seasonality or new outbreaks . in the united states , federal , state , and local government directives and policies have been put in place to manage public health concerns and address the economic impacts , including sharply reduced business activity , increased unemployment , and overall uncertainty presented by this new healthcare challenge . similar actions have been taken by governments around the world . while all our sites are currently operational globally , our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates or as a result of the pandemic . to mitigate risks , we continue to evaluate the nature and extent covid-19 may have to our business and operations and adjust risk mitigation planning and business continuity activities as needed . new sars-cov-2 diagnostic products as a leader in point-of-care diagnostics and with established expertise in respiratory infectious disease products , we are well-positioned to respond to the covid-19 pandemic . we worked closely with national and local governments , agencies , and industry partners to develop , manufacture and supply critical diagnostic products to support testing initiatives to help curb the spread of the sars-cov-2 virus . in particular , we have developed new molecular and antigen products to diagnose the sars-cov-2 virus . we have experienced exceptional demand for such products . in response , we have committed and continue to commit significant resources toward the expansion of our production capacity . we expect demand for our molecular and antigen assays and instruments to continue for the near-term at elevated levels , especially in the united states . at the same time , we also have observed decreased demand for certain of our other diagnostic products in connection with customers closing or decreasing their operations and or patients deferring treatment . the extent to which covid-19 will impact demand for our products depends on future developments , which are highly uncertain and very difficult to predict , including new information that may emerge concerning the severity of the coronavirus , impact of new sars-cov-2 variants and actions to contain and treat its impacts , including the vaccination programs now being implemented . 36 operations and employee safety while many governments have implemented lockdown and shelter-in-place orders , requiring non-essential businesses to shut down operations , our business is deemed “ essential ” and we have continued to operate , manufacture and distribute products to customers . we have implemented preparedness plans designed to help protect the safety of our employees and maintain operational continuity with an emphasis on manufacturing , product distribution and product development during this crisis . to date , we have been able to maintain our operations without significant interruption and have been able to develop and quickly scale manufacturing capacity for new products related to the covid-19 pandemic . to mitigate the pandemic 's impact , we have transitioned many non-essential employees to work remotely , and have implemented preventative protocols intended to help safeguard our on-site employees and maintain business continuity in the event government restrictions or severe outbreaks impact our operations at certain sites . we have also enhanced cleaning and sanitizing procedures , provided additional personal hygiene supplies and protective equipment to personnel , implemented health screening protocols and periodic testing for essential personnel , limited access to facilities to outside persons who are not critical to continuing our operations , trained employees on guidelines for social distancing and face coverings and isolation and quarantine of personnel as we deem appropriate given the facts , circumstances and applicable laws or regulations . these measures have created additional burdens on our infrastructure and information technology systems and may result in decreased productivity and increased operating costs . however , the various responses we have put in place have to date resulted in limited disruption to our normal business operations . supply chains as a result of the covid-19 pandemic , we have seen delays in receipts for certain raw materials and components for our products . such delays can result in disruption to our business operations . we are continuously evaluating our supply chain to identify potential gaps and take steps intended to ensure continuity . we have considered potential political , legal or regulatory actions that could be taken as a result of the pandemic in jurisdictions where we manufacture , source or distribute products that could impact our supply of products to our customers or the availability of raw materials and components from our suppliers . we can not currently predict the frequency , duration or scope of these government actions and any supply disruptions , and the availability of various products is dependent on our suppliers , their location and the extent to which they are impacted by the covid-19 pandemic , among other factors . we are proactively working with manufacturers , industry partners and government agencies to help meet the needs of our customers during the pandemic . our inventory levels continue to fluctuate due to supply chain constraints in conjunction with larger and more frequent customer orders . in response , we have added alternate suppliers for certain critical components and instruments , increased inventory of raw materials needed in our operations , increased manufacturing capacity and continue to explore opportunities for further expansion in our athens , ohio and san diego , california facilities . in january 2021 , we significantly expanded our capacity by entering into a long-term lease for an additional manufacturing facility in carlsbad , california . story_separator_special_tag this facility is expected to begin operations in the second half of 2021. we are seeking to minimize the impact of delays and secure allocations of vital raw materials to meet extremely high demand for our products . however , dependent on the duration and continued intensity of the current pandemic , we may experience some sort of interruption to our supply chains , and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations depending on the nature and duration of such interruption . outlook we anticipate continued revenue growth over the next year , including increased sales of testing products related to the covid-19 pandemic , with a positive impact on gross margin and earnings . we expect to continue to invest heavily in research and development activities for our next generation immunoassay and molecular platforms as well as additional assays to be launched on our current platforms , with the most recent focus on assays to address the covid-19 pandemic . additionally , we are making substantial investments in the expansion of our production capacity in response to the demand driven by the covid-19 pandemic . we intend to continue our focus on prudently managing our business and delivering improved financial results , while at the same time striving to introduce new products into the market and maintain our emphasis on research and development investments for longer term growth . finally , we expect to continue to evaluate opportunities to acquire new product lines , technologies and companies . 37 results of operations comparison of years ended december 31 , 2020 and 2019 our fiscal year is the 52 or 53 weeks ending the sunday closest to december 31. fiscal year 2020 was 53 weeks and fiscal year 2019 was 52 weeks . total revenues the following table compares total revenues for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_4_th for the year ended december 31 , 2020 , total revenues increased 211 % to $ 1,661.7 million . the rapid immunoassay category was the largest contributor to revenue growth , driven by the sofia sars antigen and sofia 2 flu + sars antigen immunoassays . molecular diagnostic solutions sales grew $ 201.2 million over the prior year , driven by the lyra sars-cov-2 assays . the decrease in cardiometabolic immunoassay and specialized diagnostic solutions sales was mainly due to lower demand during the covid-19 pandemic . currency exchange rate impact for the period was favorable by $ 0.7 million , which had a minimal impact on the growth rate . see further discussion in item 7a of this annual report for additional information related to our calculation and use of constant currency and constant currency revenue growth . gross profit gross profit increased to $ 1,348.9 million , or 81 % of revenue for the year ended december 31 , 2020 , compared to $ 320.8 million , or 60 % of revenue for the year ended december 31 , 2019. the increased gross profit was driven by the demand for our sars-cov-2 products , which drove improved product mix . in addition , higher production volumes contribut ed to increased manufacturing overhead absorption , which offset increases in spend required to expedite the production ramp . gross margin improved compared to the same period in the prior year due to the same factors . operating expenses the following table compares operating expenses for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_5_th 38 research and development expense research and development expense for the year ended december 31 , 2020 increased from $ 52.6 million to $ 84.3 million due primarily to increased spending on savanna , sofia and next-generation instrument development projects . we also incurred higher labor , material and clinical trials spend associated with covid-19 product development . research and development expenses include direct external costs such as fees paid to consultants , and internal direct and indirect costs such as compensation and other expenses for research and development personnel , supplies and materials , clinical trials and studies , facility costs and depreciation . due to the risks inherent in the product development process and given the early-stage of development of certain projects , we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization . we expect our research and development costs to be substantial as we move other product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development . sales and marketing expense sales and marketing expense for the year ended december 31 , 2020 increased from $ 111.1 million to $ 134.0 million primarily due to higher employee-related costs , freight and bad debt expense , partially offset by reduced travel , meeting and trade show costs due to the covid-19 travel restrictions . general and administrative expense general and administrative expense for the year ended december 31 , 2020 increased from $ 52.8 million to $ 66.6 million due to higher compensation costs from increased headcount to support the growth experienced in 2020 as well as improved performance in the period . acquisition and integration costs acquisition and integration costs of $ 3.7 million for the year ended december 31 , 2020 primarily related to the evaluation of new business development opportunities . acquisition and integration costs of $ 11.7 million for the year ended december 31 , 2019 consisted primarily of global operation integration costs . other expense , net the following table compares other expense , net , for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_6_th interest and other expense , net decreased from $ 14.8 million to $ 9.6 million .
| we are currently planning approximately $ 300 million in capital expenditures over the next 12 months , of which approximately $ 33 million is expected to be funded through a contract with the national institute of health ( “ nih ” ) , entered into during the third quarter of 2020. see note 1 in the consolidated financial statements included in this annual report for further discussion of the nih contract . we plan to fund the remainder of the capital expenditures with the cash on our balance sheet . the primary purpose for our capital expenditures is to invest in manufacturing capacity expansion , including implementation of our new manufacturing facility in carlsbad , california , to acquire sofia , solana and triage instruments , to acquire scientific equipment , to purchase or develop information technology and to implement facility improvements . we have $ 32.1 million in firm purchase commitments with respect to planned inventory purchases as of december 31 , 2020. cash used by financing activities was $ 130.3 million during the twelve months ended december 31 , 2020 primarily related to repurchases of common stock of $ 47.9 million , payment on convertible senior notes and derivative liability of $ 43.4 million , payments on deferred consideration of $ 42.0 million , and acquisition contingent consideration of $ 6.0 million , partially offset by proceeds from issuance of stock of $ 9.6 million . cash used by financing activities was $ 98.3 million during the year ended december 31 , 2019 primarily related to payments on deferred consideration of $ 44.0 million , payments on the revolving credit facility of $ 53.2 million , acquisition contingent consideration of $ 4.0 million and repurchases of common stock of $ 10.7 million , partially offset by proceeds from issuance of stock of $ 14.8 million from stock option exercises . 41 off-balance sheet arrangements at december 31 , 2020 and 2019 , we did not have any relationships with unconsolidated entities or financial partners , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . as such , we are not materially exposed to any financing , liquidity , market or credit risk that could arise if we
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3 studies in pediatric patients in atopic dermatitis and asthma fda granted breakthrough therapy designation for the treatment of atopic dermatitis in pediatric patients initiate phase 2 study in food allergies ema accepted for review the maa for atopic dermatitis initiated phase 3 study in patients with nasal polyps completed patient enrollment in phase 2 study in eoe regn2222 ( rsv-f antibody ) complete patient enrollment in phase 3 nursery pre-term study report results from phase 3 study fasinumab ( ngf antibody ) initiated phase 3 long-term safety study in patients with osteoarthritis of knee or hip continue patient enrollment in phase 3 long-term safety study in osteoarthritis initiated phase 2b study in chronic low back pain report additional data from phase 2/3 study in patients with osteoarthritis pain reported positive top-line results from phase 2/3 study in patients with osteoarthritis pain initiate additional phase 3 study in patients with osteoarthritis pain phase 2b study in chronic low back pain put on clinical hold by fda initiate phase 3 study in chronic low back pain performed an unplanned interim review of phase 2b study results in chronic low back pain evinacumab ( angptl-3 antibody ) fda granted orphan-drug designation for treatment of hofh report additional results from phase 2 hofh study completed phase 1 study in patients with dyslipidemia reported positive interim results from ongoing proof-of-concept study in patients with hofh completed patient enrollment in phase 2 hofh study 65 antibody-based clinical programs ( continued ) : 2016 and 2017 events to date 2017 plans rinucumab/aflibercept ( pdgfr-beta antibody co-formulated with aflibercept ) completed patient enrollment in phase 2 study and reported top-line results discontinued clinical development program nesvacumab/aflibercept ( ang2 antibody co-formulated with aflibercept ) initiated phase 2 studies in wet amd and dme report results from phase 2 studies completed patient enrollment in phase 2 ruby study in dme completed patient enrollment in phase 2 onyx study in wet amd regn2810 ( pd-1 antibody ) continued patient enrollment in phase 1 study continue patient enrollment in phase 1 and phase 2 studies initiated phase 2 potentially pivotal study for the treatment of advanced cutaneous squamous cell carcinoma initiate phase 2 study in non-small cell lung cancer presented positive phase 1 results from a dose-ranging study in heavily-pretreated patients with solid tumor cancers initiate phase 2 study in basal cell carcinoma trevogrumab ( gdf8 antibody ) initiated phase 1 combination therapy study with regn2477 continue patient enrollment in phase 1 study regn1908-1909 ( feld1 antibody ) completed initial proof-of-concept study continue early stage development regn1979 ( cd20 and cd3 antibody ) continued patient enrollment in phase 1 study complete patient enrollment in phase 1 study initiated phase 1 study in combination with regn2810 for treatment of b-cell malignancies regn3470-3471-3479 ( antibody to ebola virus ) initiated phase 1 study in healthy volunteers initiate additional healthy volunteer study fda granted orphan drug designation for the treatment of ebola virus infection completed patient enrollment in phase 1 study in healthy volunteers regn2477 ( activin a antibody ) initiated phase 1 combination therapy study with trevogrumab in healthy volunteers initiate phase 2 study in fop patients completed patient enrollment in phase 1 study in healthy volunteers fda granted orphan drug designation for the treatment of fop regn3500 ( il-33 antibody ) initiated phase 1 study in healthy volunteers initiate phase 2 study in patients completed patient enrollment in phase 1 study in healthy volunteers initiated phase 1 study in patients with mild asthma regn3767 ( lag-3 antibody ) initiated phase 1 study ( administered alone or in combination with regn2810 ) in advanced malignancies continue patient enrollment in phase 1 study 66 developing and commercializing new medicines entails significant risk and expense . before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized , we ( or our collaborators ) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the fda and regulatory authorities in other countries . in addition , the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive , and new developments may render our products and technologies uncompetitive or obsolete . our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our continued success in commercializing eylea . we expect to continue to incur substantial expenses related to our research and development activities , a significant portion of which we expect to be reimbursed by our collaborators . also , our research and development activities outside our collaborations , the costs of which are not reimbursed , are expected to expand and require additional resources . we also expect to incur substantial costs related to the commercialization of praluent and preparation for potential commercialization of sarilumab and dupixent , approximately half of which we expect to be reimbursed by sanofi under the companies ' collaboration agreement . our financial results may fluctuate from quarter to quarter and will depend on , among other factors , the net sales of our marketed products , the scope and progress of our research and development efforts , the timing of certain expenses , the continuation of our collaborations , in particular with sanofi and bayer , including our share of collaboration profits or losses from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators , and the amount of income tax expense we incur , which is partly dependent on the profits or losses we earn in each of the countries in which we operate . story_separator_special_tag we can not predict whether or when new products or new indications for marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such product ( s ) and whether or when they may become profitable . critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 1 to our consolidated financial statements . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our consolidated financial statements are appropriate . however , if actual experience differs from the assumptions used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our consolidated financial statements are described below . revenue recognition product revenue product sales consist of u.s. sales of eylea and arcalyst . revenue from product sales is recognized when persuasive evidence of an arrangement exists , title to product and associated risk of loss have passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , we have no further performance obligations , and returns can be reasonably estimated . we record revenue from product sales upon delivery to our distributors and specialty pharmacies ( collectively , our customers ) . revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental and other programs , such as medicaid and veterans ' administration ( va ) , distribution-related fees , prompt pay discounts , and other sales-related deductions . we estimate reductions to product sales based upon contracts with customers and government agencies , statutorily-defined discounts applicable to government-funded programs , historical experience , estimated payer mix , inventory levels in the distribution channel , shelf life of the product , and other relevant factors . calculating these provisions involves estimates and judgments . we review our estimates of rebates , chargebacks , and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . the following table summarizes the provisions , and credits/payments , for sales-related deductions . 67 replace_table_token_4_th collaboration revenue we earn collaboration revenue in connection with collaboration agreements to develop and commercialize product candidates and utilize our technology platforms . these arrangements may require us to deliver various rights , services , and or goods across the entire life cycle of a product or product candidate . the terms of these agreements typically include that consideration be provided to us in the form of non-refundable up-front payments , research progress ( milestone ) payments , payments for development and commercialization activities , and sharing of profits or losses arising from the commercialization of products . in arrangements involving multiple deliverables , we must determine whether each deliverable qualifies as a separate unit of accounting , whether the deliverables have value to the collaborator on a standalone basis , and how the consideration should be allocated to each separate unit of accounting based on the relative selling price of each deliverable . payments which are based on achieving a specific substantive performance milestone , involving a degree of risk , are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable , provided there is no future service obligation associated with that milestone . in determining whether a payment is deemed to be a substantive performance milestone , we take into consideration ( i ) the enhancement in value to the related development product candidate , ( ii ) our performance and the relative level of effort required to achieve the milestone , ( iii ) whether the milestone relates solely to past performance , and ( iv ) whether the milestone payment is considered reasonable relative to all of the deliverables and payment terms . payments for achieving milestones which are not considered substantive are deferred and recognized over the related performance period . in connection with non-refundable licensing payments , our performance period estimates are principally based on projections of the scope , progress , and results of our research and development activities . due to the variability in the scope of activities and length of time necessary to develop a drug product , changes to development plans as programs progress , and uncertainty in the ultimate requirements to obtain governmental approval for commercialization , revisions to performance period estimates are likely to occur periodically , and could result in material changes to the amount of revenue recognized each year in the future . in addition , our estimated performance periods may change if development programs encounter delays , or we and our collaborators decide to expand or contract our clinical plans for a drug candidate in various disease indications . when we are entitled to reimbursement of all or a portion of the research and development expenses that we incur under a collaboration , we record those reimbursable amounts as collaboration revenue proportionately as we recognize our expenses .
| reimbursement of regeneron commercialization-related expenses represents reimbursement of internal and external costs in connection with preparing to commercialize or commercializing , as applicable , praluent , sarilumab , and , effective in the first quarter of 2016 , dupilumab . in 2014 , we and sanofi began sharing commercial expenses related to praluent and sarilumab in accordance with the companies ' license and collaboration agreement . in addition , effective in the first quarter of 2016 , we and sanofi also began sharing pre-launch commercialization expenses related to dupilumab . as such , during the same periods in which we recorded reimbursements from sanofi related to our commercialization expenses , we also recorded our share of losses in connection with the companies preparing to commercialize or commercializing , as applicable , praluent , sarilumab , and dupilumab within sanofi collaboration revenue . our share of losses in connection with commercialization of antibodies increased in 2016 compared to 2015 due to higher commercialization expenses in connection with the ongoing launch of praluent , and higher expenses in connection with preparing to commercialize sarilumab and dupilumab . our share of losses in connection with commercialization of antibodies increased in 2015 compared to 2014 primarily in connection with launching praluent in the united states . in 2016 , net product sales of praluent in the united states were $ 94.4 million and net product sales of praluent outside of the united states were $ 21.9 million . in 2015 , net product sales of praluent in the united states were $ 9.5 million and net product sales of praluent outside of the united states were $ 1.0 million . in july 2015 , we and sanofi entered into a global strategic collaboration to discover , develop , and commercialize antibody-based cancer treatments in the field of immuno-oncology . in 2016 , sanofi 's reimbursement of our immuno-oncology research and 72 development expenses consisted of $ 86.5 million under our io discovery agreement and $ 52.0 million under our io license and collaboration agreement related to regn2810 , compared to $ 29.2 million
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data are expected in the second half of 2018 and will inform the dose and dosing regimen for our multi viral protection ( mvp ) -peds study . given the broad-spectrum antiviral activity of brincidofovir and the known frequency of multiple dna viral infections in hct recipients , we intend to conduct a multi-viral prevention study in high-risk hct recipients which we plan to discuss with regulators in 2018. following availability of data from adult patients in the studies described above , we anticipate conducting study ( ies ) in treatment of bk viremia in order to prevent bk-associated nephropathy in kidney transplant recipients . in addition , the improved drug concentrations in the central nervous system ( cns ) achieved with iv brincidofovir in animals could support the study of iv brincidofovir in viral cns infections such as herpes encephalitis , jc virus infection , and cmv infection , which has recently been described to be associated with glioblastoma . our ability to provide brincidofovir in oral and iv formulations enables development across multiple indications and populations with the potential for best-in-class efficacy and safety . in 13-week animal studies and single dose administration in healthy subjects , iv bcv has shown the potential for less gi injury compared to oral brincidofovir , even with higher plasma drug concentrations and longer-term dosing . cmx521 for norovirus cmx521 is a nucleoside analog identified from our proprietary chemical library which targets the norovirus polymerase , a part of the virus that is common to all strains and is required for viral replication . it therefore has the potential to be active against the multiple genetically diverse norovirus strains that circulate each year and cause disease in humans . cmx521 is the first antiviral specific for the treatment and or prevention of norovirus . chronic norovirus infection is increasingly being diagnosed in immune compromised patients . approximately 15-20 percent of hct and solid organ transplant ( sot ) recipients are diagnosed with norovirus within the first 1-2 years after transplant , a diagnosis that has been associated with chronic diarrhea , electrolyte disturbances , and graft rejection . in december 2017 , we initiated a first-time-in-human study of cmx521 . the phase 1 study is evaluating the pharmacokinetics , safety and tolerability of cmx521 in up to 50 adult subjects . the study also includes the collection of gut biopsy specimens , which will allow for the determination of active drug concentrations in the target gut tissue . study results are expected in mid-2018 . advance study we have completed advance , a study of the current standard-of-care for treatment of adv in france , germany , italy , netherlands , spain , the czech republic and the united kingdom . we expect data from advance to describe the incidence and outcomes associated with standard-of-care treatment of adv infection , supporting the need for new therapeutic options . final data analysis will be presented at the european bone marrow treatment conference in march 2018. we also plan to conduct a study to capture the practice patterns and incidence of adv infection in the u.s. , called advance us the second half of 2018. brincidofovir expanded access program we continue to receive requests for bcv via our expanded access and named patient programs . during 2017 , we granted almost 350 requests for adv , highlighting the continued unmet need in this area . financial overview revenues to date , we have not generated any revenue from product sales . all of our revenue to date has been derived from a government grant and contract and the receipt of up-front proceeds under our collaboration and license agreements . 54 in february 2011 , we entered into a contract with barda , a u.s. governmental agency that supports the advanced research and development , manufacturing , acquisition , and stockpiling of medical countermeasures . the contract originally consisted of an initial performance period , referred to as the base performance segment , which ended on may 31 , 2013 , plus up to four extension periods , referred to as option segments . subsequent option segments to the contract are not subject to automatic renewal and are not exercisable at chimerix 's discretion . the contract is a cost plus fixed fee development contract . under the contract as currently in effect , we may receive up to $ 75.8 million in expense reimbursement and $ 5.3 million in fees if all remaining option segments are exercised . we are currently performing under the second and third option segments of the contract during which we may receive up to a total of $ 21.6 million and $ 11.6 million in expense reimbursement and fees , respectively . the second option and third option segment is scheduled to end on september 30 , 2018. as of december 31 , 2017 , we had recognized revenue in aggregate of $ 56.1 million with respect to the base performance segment and the first three option periods . on december 17 , 2014 , we entered into a collaboration and licensing agreement with contravir pharmaceuticals ( nasdaq : ctrv ) . in exchange for the license to cmx157 rights , we received an upfront payment consisting of 120,000 shares of contravir series b convertible preferred stock with a stated value of $ 1.2 million . in addition , we are eligible to receive clinical , regulatory and initial commercial milestones in the united states and europe , as well as royalties and additional milestones based on commercial sales in those territories . we recognized the upfront license fee payment from contravir as deferred revenue for the year ended december 31 , 2014 , and during the second quarter of 2015 we completed our performance obligations and recorded $ 1.5 million in revenue . in september 2016 , we converted our shares of contravir series b convertible preferred stock into 1,071,429 shares of contravir common stock . story_separator_special_tag in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sales of products developed under 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 , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or 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 since our inception , we have focused our resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our product candidates . we recognize research and development expenses as they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors . we can not determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates . our research and development expenses consist primarily of : fees paid to consultants and contract research organizations ( cros ) , including in connection with our preclinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; salaries and related overhead expenses , which include stock option , restricted stock unit ( rsu ) and employee stock purchase program compensation and benefits , for personnel in research and development functions ; payments to third-party manufacturers , which produce , test and package our drug substance and drug product ( including continued testing of process validation and stability ) ; costs related to legal and compliance with regulatory requirements ; and license fees for and milestone payments related to licensed products and technologies . from our inception through december 31 , 2017 , we have incurred approximately $ 404.8 million in research and development expenses , of which $ 360.0 million relates to our development of brincidofovir . these costs were largely related to the conduct of our clinical trials of brincidofovir . the table below summarizes our research and development expenses for the periods indicated ( in thousands ) . our direct research and development expenses consist primarily of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with our clinical trials , preclinical development , and payments to third-party manufacturers of drug substance and drug product . we typically use our employee and infrastructure resources across multiple research and development programs . 55 replace_table_token_3_th the successful development of our clinical and preclinical product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our product candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; the ability to market , commercialize and achieve market acceptance for any of our product candidates that we are developing or may develop in the future ; the results of ongoing or future clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate in the united states or in europe , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . brincidofovir the majority of our research and development resources has been focused on completing our phase 3 trial of brincidofovir for prevention of cmv in hct recipients ( suppress ) , our trial of brincidofovir as a treatment for adv ( advise ) , our recently initiated adapt study in pediatric hct recipients and our other clinical and preclinical studies and other work needed to provide sufficient data supporting the safety , tolerability and efficacy of brincidofovir for approval in the united states and equivalent health authority approval outside the united states . in addition , pursuant to our contract with barda , we are evaluating brincidofovir for the treatment of smallpox .
| mainly related to our development of an iv formulation of brincidofovir , development of cmx521 , our clinical candidate for norovirus , and other early stage compounds . general and administrative expenses for the year ended december 31 , 2017 , our general and administrative expenses increased to $ 27.1 million compared to $ 25.0 million for the year ended december 31 , 2016 . the increase of $ 2.1 million , or 8.6 % , was primarily related to the following : an increase of $ 2.0 million in global commercial readiness costs ; an increase of $ 1.0 million in costs related to an indemnification claim ; offset by a decrease of $ 0.6 million related to compensation expense . 61 interest income for the year ended december 31 , 2017 , our interest income was $ 2.3 million compared to interest income of $ 1.6 million for the year ended december 31 , 2016 . the increase of $ 0.7 million was attributable to higher interest rates . other-than-temporary impairment of investment for the year ended december 31 , 2017 , other-than-temporary impairment of investment was $ 1.2 million related to the write-down in value of our investment in contravir common stock . we recorded no other-than-temporary impairment of investment for the year ended december 31 , 2016 . comparison of the years ended december 31 , 2016 and december 31 , 2015 the following table summarizes the results of our operations for the years ended december 31 , 2016 and december 31 , 2015 , together with the year-over-year changes in those items in dollars ( in thousands , except for percentages ) : replace_table_token_8_th contract revenue for the year ended december 31 , 2016 , contract revenue decreased to $ 5.7 million compared to $ 9.2 million for the year ended december 31 , 2015 . the decrease of $ 3.5 million , or 38.1 % , was related to a
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story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; '' > tables below , including ( i ) adjusted net income from continuing operations , adjusted diluted net income per share from continuing operations , adjusted earnings from continuing operations and adjusted earnings per share from continuing operations ( collectively , the “ adjusted earnings measures ” ) , and ( ii ) adjusted ebitda , which the company defines as earnings excluding depreciation , amortization , interest , foreign currency transaction gains or losses , loss on early extinguishment of debt , gain on disposition of equity securities , equity in loss of unconsolidated subsidiary and provision or benefit for income taxes . management believes that the presentation of these measures provides users of the financial statements with greater transparency and facilitates a more meaningful comparison of operating results across a broad spectrum of companies with varying capital structures , compensation strategies , derivative instruments and depreciation and amortization methods . in addition , management believes this information provides a more in-depth and complete view of the company 's financial performance , competitive position and prospects for the future and may highlight trends in the company 's business that may not otherwise be apparent when relying on financial measures calculated in accordance with gaap . management also believes that non-gaap measures are frequently used by investors to analyze operating performance , evaluate the company 's ability to incur and service debt and its capacity for making capital investments , and to help assess the company 's estimated enterprise value . management believes the non-gaap measures included herein , including the adjustments shown , provide more meaningful information regarding the ongoing operating performance , provide more useful period-to-period comparisons of operating results , both internally and in relation to operating results of competitors , enhance analysts ' and investors ' understanding of the core operating results of the business and provide a more accurate indication of the company 's ability to generate cash flows from operations . therefore , management believes it important to clearly identify these measures for investors . in calculating adjusted earnings from continuing operations and adjusted earnings per share from continuing operations , management excludes intangible asset amortization , non-cash equity-based compensation , convertible debt non-cash interest and issuance cost amortization , and foreign currency transaction gains or losses . in addition , management has determined that the adjustments to the adjusted earnings measures and adjusted ebitda , as applicable , included in the tables below are useful to investors in order to allow them to compare the company 's financial results for the years ended december 31 , 2015 , 2014 and 2013 without the effect of the below items , which management believes are less frequent in nature : the loss on early extinguishment of debt ; the gain on disposition of equity securities ; severance and other employee-related costs for administrative and operations staff reductions in connection with the company 's reorganization to better align the corporate and operating cost structure with its remaining storefront operations after the enova spin-off ( the “ reorganization ” ) ; the loss on significant divestitures of non-strategic operations ; charges related to a significant litigation settlement in 2013 ( the “ 2013 litigation settlement ” ) ; the charges related to the closure of 36 locations in texas in 2013 that offered consumer loans as their primary source of revenue ( the “ texas consumer loan store closures ” ) ; the adjustments for a penalty paid to the consumer financial protection bureau ( the “ cfpb ” ) in connection with the issuance of a consent order by the cfpb in november 2013 ( the “ regulatory penalty ” ) ; an adjustment made in 2013 ( the “ ohio adjustment for the ohio reimbursement program ” ) to decrease the company 's remaining liability following an assessment of the claims made under a voluntary program initiated in 2012 to reimburse ohio customers in connection with certain legal collections proceedings initiated by the company in ohio ; and 40 a recognized income tax benefit related to a tax deduction included on the company 's 2013 federal income tax return for its tax basis in the stock of its subsidiary that previously owned its mexico-based pawn operations , creazione estilo , s.a. de c.v. ( “ creazione ” ) , a mexican sociedad anónima de capital variable ( the “ creazione deduction ” ) . management provides non-gaap financial information for informational purposes and to enhance understanding of the company 's gaap consolidated financial statements . readers should consider the information in addition to , but not instead of or superior to , its financial statements prepared in accordance with gaap . this non-gaap financial information may be determined or calculated differently by other companies , limiting the usefulness of those measures for comparative purposes . adjusted earnings measures the following table provides a reconciliation for the years ended december 31 , 2015 , 2014 and 2013 , between net income ( loss ) from continuing operations and diluted net income ( loss ) per share from continuing operations calculated in accordance with gaap to the adjusted earnings measures , which are shown net of tax ( dollars in thousands , except per share data ) . amounts for the years ended december 31 , 2014 and 2013 include the company 's mexico-based pawn operations , which were sold in august 2014. replace_table_token_7_th ( a ) for information about the company 's calculation of diluted shares , see “ item 8. financial statements and supplementary data— note 1 . ” in addition , per-share values using weighted average common shares outstanding may contain rounding adjustments . ( b ) since a net loss exists for the year ended december 31 , 2014 , all potentially dilutive securities are anti-dilutive and are therefore excluded from the per-share calculations . 41 the table below outlines the pre-tax gross amounts and approximate after-tax amounts for each of the adjustments included in the table above . story_separator_special_tag the taxes are calculated using a consistently applied marginal tax rate , except for transactions in which a specific legal entity tax rate applies and differs materially from the consistently applied rate . replace_table_token_8_th adjusted ebitda the following table provides a reconciliation between net income ( loss ) from continuing operations , which is the nearest gaap measure presented in the company 's financial statements , to adjusted ebitda from continuing operations ( dollars in thousands ) : replace_table_token_9_th ( a ) for the year ended december 31 , 2013 , includes income tax benefit of $ 33.2 million related to the creazione deduction . ( b ) for the year ended december 31 , 2013 , excludes $ 0.2 million of depreciation and amortization expenses , which are included in the “ texas consumer loan store closures. ” 42 year ended december 31 , 2015 compared to year ended december 31 , 2014 pawn lending activities on a consolidated basis , the average balance of pawn loans outstanding decrease d $ 10.2 million , or 4.0 % , in 2015 compared to 2014 , partly due to a $ 3.2 million decrease in the average balance outstanding related to the company 's mexico-based pawn operations , which were sold in august 2014. in addition , consolidated pawn loan fees and services charges decrease d $ 10.4 million , or 3.2 % , in 2015 compared to 2014 , partly due to a $ 5.0 million decrease due to the company 's mexico-based operations . the following table sets forth selected data related to the company 's domestic pawn lending activities , excluding the company 's mexico-based pawn operations , as of and for the years ended december 31 , 2015 and 2014 ( dollars in thousands except where otherwise noted ) : replace_table_token_10_th ( a ) excludes amounts related to the company 's mexico-based pawn operations , which were sold in august 2014. for the year ended december 31 , 2014 , mexico-based pawn operations had pawn loan fees and service charges of $ 5,031 , an average pawn loan balance outstanding of $ 3,243 ( $ 5,347 for the year-to-date period ended on the date of sale in august 2014 ) , pawn loans written and renewed of $ 38,837 , an average amount per pawn loan of $ 87 , and an annualized yield on pawn loans of 144.9 % . average domestic pawn loan balances decrease d in 2015 compared to 2014 by $ 6.9 million , or 2.8 % , primarily due to lower average pawn loan balances in same-store domestic pawn locations throughout 2015 , as well as a decrease in the number of stores offering pawn loans due to the closure or sale of less profitable store locations . pawn loan balances at the beginning of 2015 were below prior year levels , and this negative differential expanded through the first three quarters of 2015 , before narrowing at the end of 2015. same-store domestic pawn loan balances were 0.5 % lower as of december 31 , 2015 compared to december 31 , 2014 . domestic pawn loan fees and service charges decrease d in 2015 compared to 2014 by $ 5.4 million , or 1.6 % . this decrease was primarily driven by lower average domestic pawn loan balances during 2015 as compared to 2014 , partially offset by a higher domestic pawn loan yield of 132.1 % in 2015 compared to 130.5 % in 2014 . the higher domestic pawn loan yield was primarily due to a shift in the geographic concentration of pawn loans into states with higher statutory pawn loan yields and , to a lesser extent , an increase in the permitted statutory loan fees in some markets . 43 merchandise sales activities proceeds from disposition of merchandise profit from the disposition of merchandise represents the proceeds received from the disposition of merchandise in excess of the cost of disposed merchandise , which is generally the principal amount loaned on an item or the amount paid for purchased merchandise . management separates proceeds from disposition of merchandise and gross profit on disposition of merchandise into two groups , retail sales and commercial sales . retail sales include the sale of jewelry and general merchandise primarily to consumers through the company 's locations . commercial sales represent a secondary source of disposition and include the sale of refined gold , diamonds , platinum , and silver to brokers or manufacturers . on a consolidated basis , proceeds from disposition decreased in 2015 compared to 2014 by $ 39.2 million , or 5.9 % , partly due to the sale in 2014 of the company 's mexico-based operations , which generated $ 12.3 million in proceeds from disposition in 2014. gross profit on disposition decreased $ 4.4 million , or 2.3 % , in 2015 compared to 2014 , partly due to the sale of the company 's mexico-based operations , which generated $ 2.6 million in gross profit on disposition in 2014. the following table summarizes the proceeds from the disposition of merchandise and the related profit for domestic pawn operations , excluding the company 's mexico-based pawn operations , for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_11_th ( a ) excludes amounts related to the company 's mexico-based pawn operations , which were sold in august 2014. for the year ended december 31 , 2014 , mexico-based pawn operations had proceeds from disposition of $ 12,298 , gross profit on disposition of $ 2,582 , and gross profit margin of 21.0 % . proceeds from disposition for domestic pawn operations decreased in 2015 compared to 2014 by $ 27.0 million , or 4.2 % . commercial proceeds from disposition decrease d $ 43.5 million , or 33.3 % , as a result of the company 's continued emphasis on retail jewelry sales in its storefront locations and efforts to place less reliance on the commercial disposition of jewelry due to the prevailing lower market price of gold .
| on a consolidated basis , net revenue decreased $ 22.4 million , or 3.8 % , in 2015 compared to 2014 , partly due to a $ 7.8 million decrease related to the company 's mexico-based pawn operations , which were sold in august 2014. the following tables show the components of net revenue for the years ended december 31 , 2015 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_6_th ( a ) excludes amounts related to the company 's mexico-based pawn operations , which were sold in august 2014. for the years ended december 31 , 2014 and 2013 , mexico-based pawn operations had pawn loan fees and service charges of $ 5,031 and $ 7,288 , proceeds from disposition of merchandise , net of cost of disposed merchandise , of $ 2,582 and $ 2,489 , pawn-related net revenue of $ 7,613 and $ 9,777 , other revenue of $ 168 and $ 505 and net revenue of $ 7,781 and $ 10,282 , respectively . domestic net revenue decreased $ 14.6 million , or 2.5 % in 2015 compared to 2014 . consumer loan net revenue decreased $ 7.3 million , or 10.9 % , in 2015 compared to 2014 , primarily due to the closures and sale of certain lending locations that offered consumer loans and the company 's strategic decision to deemphasize and eliminate short-term consumer lending activities in many of its locations . domestic pawn loan fees and service charges decreased $ 5.4 million , or 1.6 % , in 2015 compared to 2014 , primarily due to lower average pawn loan balances . proceeds from disposition of merchandise , net of cost of disposed merchandise , decreased $ 1.8 million , or 1.0 % , in 2015 compared to 2014 , primarily due to lower gross profit on commercial disposition activities , partially offset by higher gross profit on retail sales . same-store net revenue for domestic locations decreased 1.1 % in 2015 compared to 2014 . 39 non-gaap disclosure in addition to the financial information prepared in conformity with generally accepted accounting principles in the united states of america ( “ gaap ” ) , the company
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although some constraints exist around residential construction activities , we believe that we are well positioned to take advantage of both the market expansion and the inherent long term growth opportunities in our industry . additionally , recent regulation passed by the u.s. department of energy mandates all new and replacement motors and pumps for swimming pools must meet certain compliance regulations by july 2021. this mandate , coupled with additional product developments and technological advancements , offers further growth opportunities over the next few years . in 2020 , we benefited from strong pool construction trends as robust demand fueled by the covid-19 pandemic led to increased home investment trends . while we estimate that new pool construction increased from approximately 80,000 units in 2019 to approximately 100,000 new units in 2020 , construction levels are still down approximately 55 % compared to peak historical levels and down approximately 40 % from what we consider normal levels . favorable weather plays a role in industry growth by accelerating growth in any given year , expanding the number of available construction days , extending the pool season and pool usage and positively impacting demand for discretionary products . conversely , unfavorable weather impedes growth . in establishing our outlook each year , we base our growth assumptions on normal weather conditions and do not incorporate alternative weather predictions into our guidance . we established our initial outlook for 2021 based on reasonable expectations of organic market share growth , ongoing leverage of existing investments in our business and continuous process improvements . for 2021 , we expect strong growth in the first half of the year , particularly the first quarter of 2021 , due to continued elevated demand influenced by the ongoing covid-19 pandemic . in the second half of the year , we expect to face tougher year-over-year comparisons and inherent industry capacity constraints , although we remain encouraged by positive industry outlooks . impacts from the covid-19 pandemic , coupled with heightened demand , could also adversely impact our supply chain , making it difficult to source and receive products needed to keep our customers adequately supplied . we anticipate that we may face product shortages or elevated prices specifically related to trichlor , a popular sanitizer for pools and hot tubs , as the industry faces constraints resulting from the loss of a major supplier due to a fire in the summer of 2020. although supply constraints did not have a material impact on our business in 2020 , it is difficult to predict the extent to which this could impact our business in 2021. we expect to continue to gain market share through our comprehensive service and product offerings , which we continually diversify through internal sourcing initiatives and expansion into new markets . we also plan to broaden our geographic presence by opening 8 to 10 new sales centers in 2021 and by making selective acquisitions when appropriate opportunities arise . 26 the following summarizes our outlook for 2021 : we expect sales growth of 8 % to 12 % , impacted by the following factors and assumptions : ◦ normal weather patterns for 2021 ; ◦ continued elevated demand for residential pool products , driven by home-centric trends influenced by the covid-19 pandemic ; ◦ a benefit from construction backlogs depending on our customers ' building capacity , including the availability of labor , and weather ; ◦ estimated 4 % to 5 % growth from acquisitions completed throughout 2020 ; ◦ market share gains ; ◦ inflationary product cost increases of approximately 2 % to 3 % ( compared to our historical average of 1 % to 2 % ) ; and ◦ estimated 2 % growth in the installed base of pools . we expect gross margin to decline 20 to 40 basis points for the full year of 2021 compared to the full year of 2020 with gains or relatively neutral gross margin trends in the first half of 2021 and declines in the latter half of 2021. we expect operating expenses will grow at approximately 60 % to 70 % of the rate of our gross profit growth , reflecting inflationary increases and incremental costs to support our sales growth expectations , with greater growth in the first half of the year and more modest growth in the back half . the main challenges in achieving this metric include managing people and facility costs in tight labor and real estate markets . however , we continue to see significant opportunity to leverage our existing infrastructure to achieve this goal . we also expect performance-based compensation for the full year of 2021 to normalize and decrease by approximately $ 30.0 million compared to the full year of 2020. in 2021 , we expect our effective tax rate will approximate 25.5 % , excluding the impact of asu 2016-09. our effective tax rate is dependent upon our results of operations and may change if actual results are different from our current expectation . due to asu 2016-09 requirements , we expect our effective tax rate will fluctuate from quarter to quarter , particularly in periods when employees elect to exercise their vested stock options or when restrictions on share-based awards lapse . based on our december 31 , 2020 stock price , we estimate that we have approximately $ 4.5 million in unrealized excess tax benefits related to stock options that expire and restricted awards that vest in the first quarter of 2021. we may recognize additional tax benefits related to stock option exercises in 2021 from grants that expire in years after 2021 , for which we have not included any expected benefits in our guidance . the estimated impact related to asu 2016-09 is subject to several assumptions which can vary significantly , including our estimated share price and the period that our employees will exercise vested stock options . story_separator_special_tag we recorded a $ 28.6 million benefit in our provision for income taxes for the year ended december 31 , 2020 related to asu 2016-09. we project that 2021 earnings will be in the range of $ 9.12 to $ 9.62 per diluted share , including an estimated $ 0.11 benefit from asu 2016-09 during the first quarter of 2021. we expect cash provided by operations will approximate net income for fiscal year 2021. we expect to continue to use cash to fund opportunistic share repurchases over the next year . we also expect to use cash for the payment of cash dividends as and when declared by our board of directors . the forward-looking statements in this current trends and outlook section are subject to significant risks and uncertainties , including the effects of the evolving covid-19 pandemic , the sensitivity of our business to weather conditions , changes in the economy and the housing market , our ability to maintain favorable relationships with suppliers and manufacturers , competition from other leisure product alternatives and mass merchants and other risks detailed in item 1a of this form 10-k. also see “ cautionary statement for purposes of the safe harbor provisions of the private securities litigation reform act of 1995 ” prior to the heading “ risk factors ” in item 1a . 27 critical accounting estimates critical accounting estimates are those estimates made in accordance with u.s. generally accepted accounting principles that involve a significant level of estimation uncertainty and have had , or are reasonably likely to have , a material impact on our financial condition or results of operations . management has discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board . our critical accounting estimates are discussed below , including , to the extent material and reasonably available , the impact such estimates have had , or are reasonably likely to have , on our financial condition or results of operations . allowance for doubtful accounts we maintain an allowance for doubtful accounts based on an estimate of the losses we will incur if our customers do not make required payments . we perform periodic credit evaluations of our customers and typically do not require collateral . consistent with industry practices , we generally require payment from our north american customers within 30 days , except for sales under early buy programs for which we provide extended payment terms to qualified customers . the extended terms usually require payments in equal installments in april , may and june or may and june , depending on geographic location . credit losses have generally been within or better than our expectations . similar to our business , our customers ' businesses are seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . we provide reserves for uncollectible accounts based on our accounts receivable aging . these reserves range from 0.05 % for amounts currently due to up to 100 % for specific accounts more than 60 days past due . at the end of each quarter , we perform a reserve analysis of all accounts with balances greater than $ 20,000 and more than 60 days past due . additionally , we perform a separate reserve analysis on the balance of our accounts receivables with emphasis on past due accounts . we estimate future losses based upon historical bad debts , customer receivable balances , age of customer receivable balances , customers ' financial conditions and current and forecasted economic trends , including certain trends in the housing market , the availability of consumer credit and general economic conditions ( as commonly measured by gross domestic product or gdp ) . we monitor housing market trends through review of the house price index as published by the federal housing finance agency , which measures the movement of single-family house prices . during the year , we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote . these write-offs are charged against our allowance for doubtful accounts . in the past five years , write-offs have averaged approximately 0.08 % of net sales annually . write-offs as a percentage of net sales approximated 0.09 % in 2020 , 0.12 % in 2019 and 0.07 % in 2018. we expect that write-offs will range from 0.05 % to 0.10 % of net sales in 2021. at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end allowance for doubtful accounts balance to ( i ) current year write-offs and ( ii ) any significantly aged outstanding receivable balances . based on our hindsight analysis , we concluded that the prior year allowance was within a range of acceptable estimates and that our estimation methodology is appropriate . if the balance of the accounts receivable reserve increased or decreased by 20 % at december 31 , 2020 , pretax income would change by approximately $ 1.0 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2020 ) . inventory obsolescence product inventories represent the largest asset on our balance sheet . our goal is to manage our inventory such that we minimize stock-outs to provide the highest level of service to our customers . to do this , we maintain at each sales center an adequate inventory of stock keeping units ( skus ) with the highest sales volumes . at the same time , we continuously strive to better manage our slower moving classes of inventory , which are not as critical to our customers and thus , inherently turn at slower rates .
| operating income for the year increased 36 % to $ 464.0 million , up from $ 341.2 million in 2019. operating margin increased 110 basis points to 11.8 % in 2020 compared to 10.7 % in 2019. we recorded a $ 28.6 million , or $ 0.70 per diluted share , benefit from accounting standards update ( asu ) 2016-09 , improvements to employee share-based payment accounting , for the year ended december 31 , 2020 compared to a benefit of $ 23.5 million , or $ 0.57 per diluted share , realized in 2019. net income increased 40 % to $ 366.7 million in 2020 compared to $ 261.6 million in 2019. earnings per share increased 40 % to a record $ 8.97 per diluted share compared to $ 6.40 per diluted share in 2019. excluding the impact of non-cash impairments , net of tax , in 2020 and the impact from asu 2016-09 in both periods , adjusted diluted earnings per share increased 44 % to $ 8.42 in 2020 compared to $ 5.83 in 2019. see the reconciliation of gaap to non-gaap measures included in results of operations below . financial position and liquidity cash provided by operations was $ 397.6 million in 2020 , which helped fund the following initiatives : payments of $ 124.6 million for acquisitions ; net debt repayments of $ 95.8 million ; quarterly cash dividend payments to shareholders , totaling $ 91.9 million for the year ; share repurchases , totaling $ 76.2 million for the year ; net capital expenditures of $ 21.7 million ; and growth in net working capital of $ 21.1 million . total net receivables , including pledged receivables , increased 28 % compared to december 31 , 2019 , reflecting december sales growth and partially offset by improved collections . our allowance for doubtful accounts was $ 4.8 million at december 31 , 2020 and $ 5.5 million at december 31 , 2019. our days sales outstanding ratio , as calculated on a trailing four quarters basis , was 26.5 days at december 31 , 2020 and 29.0 days at december 31 , 2019. inventory levels grew 11 % to $ 781.0 million at december 31 , 2020 compared to $ 702.3 million
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accordingly , until such time as we can generate significant revenue from sales of our product candidates , if ever , we expect to finance our cash needs through equity offerings , debt financings or other capital sources , including potentially collaborations , licenses and other similar arrangements . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay , scale back or discontinue the development of our existing product candidates or our efforts to expand our product pipeline . australian operations in january 2017 , we established crinetics australia pty ltd ( “ capl ” ) , a wholly-owned subsidiary which was formed to conduct various preclinical and clinical activities for our product and development candidates . we believe capl will be eligible for certain financial incentives made available by the australian government for research and development expenses . specifically , the australian taxation office provides for a refundable tax credit in the form of a cash refund equal to 43.5 % of qualified research and development expenditures under the australian research and development tax incentive program ( the “ australian tax incentive ” ) , to australian companies that operate the majority of their research and development activities associated with such projects in australia . a wholly-owned australian subsidiary of a non-australian parent company is eligible to receive the refundable tax credit , provided that the australian subsidiary retains the rights to the data and intellectual property generated in australia , and provided that the total revenues of the parent company and its consolidated subsidiaries during the period for which the refundable tax credit is claimed are less than $ 20.0 million australian dollars . if we lose our ability to operate capl in australia , or if we are ineligible or unable to receive the research and development tax credit , or the australian government significantly reduces or eliminates the tax credit , the actual refund amounts we receive may differ from our estimates . financial operations overview grant revenues to date , we have not generated any revenues from the commercial sale of approved products , and we do not expect to generate revenues from the commercial sale of our product candidates for at least the foreseeable future , if ever . revenues for 2018 , 2017 and 2016 were derived from small business innovation research grants ( “ sbir grants ” ) awarded to us by the national institute of diabetes and digestive and kidney diseases of the national institutes of health . we do not currently expect future grant revenues to be a material source of funding . research and development to date , our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates . research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received . research and development expenses include : salaries , payroll taxes , employee benefits , and stock-based compensation charges for those individuals involved in research and development efforts ; external research and development expenses incurred under agreements with contract research organizations , or cros , investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies ; laboratory supplies ; costs related to manufacturing our product candidates for clinical trials and preclinical studies , including fees paid to third-party manufacturers ; costs related to compliance with regulatory requirements ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent , maintenance of facilities , insurance , equipment and other supplies . 71 we recognize the australian tax incentive as a reduction of research and development expense . the amounts are determined based on eligible research and development expenditures . the australian tax incentive is recognized when there is reasonable assurance that the australi an tax incentive will be received , the relevant expenditure has been incurred , and the amount of the australian tax incentive can be reliably measured . our direct research and development expenses consist principally of external costs , such as fees paid to cros , investigative sites and consultants in connection with our clinical trials , preclinical and non-clinical studies , and costs related to manufacturing clinical trial materials . the majority of our third-party expenses during 2018 , 2017 and 2016 related to the research and development of crn00808 . we deploy our personnel and facility related resources across all of our research and development activities . our clinical development costs may vary significantly based on factors such as : per patient trial costs ; the number of trials required for approval ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; number of doses that patients receive ; drop-out or discontinuation rates of patients potential additional safety monitoring requested by regulatory agencies ; the duration of patient participation in the trials and follow-up ; the cost and timing of manufacturing our product candidates ; the phase of development of our product candidates ; and the efficacy and safety profile of our product candidates . we plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and discovery of new product candidates . we can not determine with certainty the timing of initiation , the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development . story_separator_special_tag clinical and preclinical development timelines , the probability of success and development costs can differ materially from expectations . we anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials , regulatory developments and our ongoing assessments as to each product candidate 's commercial potential . we will need to raise substantial additional capital in the future . in addition , we can not forecast which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . general and administrative general and administrative expenses consist primarily of salaries and employee-related costs , including stock-based compensation , for personnel in executive , finance and other administrative functions . other significant costs include facility-related costs , legal fees relating to intellectual property and corporate matters , professional fees for accounting and consulting services and insurance costs . we anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and , if any of our product candidates receive marketing approval , commercialization activities . we also anticipate increased expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs associated with operating as a public company . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated 72 financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognit ion , accrued expenses and stock-based compensation . 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 ju dgments 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 . while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements . grant revenues under the terms of the sbir grants awarded , we are entitled to receive reimbursement of our allowable direct expenses , allocated overhead , general and administrative expenses and payment of other specified amounts . revenues from development and support activities under the grants are recorded in the period in which the related costs are incurred for cost reimbursement grants . revenue is recognized when earned and expenses are recognized when incurred . any of the funding sources may request reimbursement for expenses or return of funds , or both , as a result of noncompliance by us with the terms of the grants . no reimbursement of expenses or return of funds for noncompliance has been requested or made since inception of the contract and grants . australian research and development tax incentive capl is eligible to obtain a cash refund from the australian taxation office for eligible research and development expenditures under the australian tax incentive . the australian tax incentive is recognized as a reduction to research and development expense when there is reasonable assurance that the australian tax incentive will be received , the relevant expenditure has been incurred , and the amount can be reliably measured . although we do not expect our estimates to be materially different from amounts actually received , if our estimates of the amounts and timing of the receipt of the australian tax incentive differ from actual amounts received , it could result in us reporting amounts that are too high or too low in any particular period . accrued expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our 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 the actual cost . we make estimates of our accrued expenses as of each balance sheet date 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 the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors 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 .
| net other income was $ 1.6 million for the year ended december 31 , 2018 , compared with net other expense of $ 30,000 for the year ended december 31 , 2017. the increase was primarily due to interest income earned on higher cash and investment balances due to the funds raised from investors in 2018. other expense was $ 153,000 and $ 56,000 for the years ended december 31 , 2018 and 2017 , respectively , and is primarily comprised of losses on transactions denominated in foreign currencies . 75 comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_4_th grant revenues . grant revenues were $ 2.0 million and $ 0.6 million for the years ended december 31 , 2017 and 2016 , respectively . the increase was primarily due to increased research and development activities related to our sbir grants . research and development expenses . research and development expenses were $ 9.2 million and $ 5.1 million for the years ended december 31 , 2017 and 2016 , respectively . the increase of $ 4.1 million was primarily due to increases in the following : $ 1.2 million of clinical study related expenses , $ 1.2 million of manufacturing expenses , $ 1.2 million of external non-clinical expenditures , and $ 0.7 million of personnel related expenses . in 2017 , the expenses above were offset in part by an australian tax incentive of $ 0.5 million . general and administrative expenses . general and administrative expenses were $ 1.9 million and $ 1.5 million for the years ended december 31 , 2017 and 2016 , respectively . the increase of $ 0.4 million was primarily due to increases in the following : $ 0.2 million of personnel related expenses , $ 0.1 million of professional services primarily related to patent activities and corporate legal fees , and $ 0.1 million of facility related expenses and other general and administrative expenses . other income ( expense ) . other expense was $ 30,000 for the year ended december 31 , 2017 , compared with net other income of $ 25,000 for the year ended december 31 , 2016 , as a result of an increase in losses on transaction denominated in foreign currencies . cash flows we have incurred cumulative net losses and negative cash flows from operations since our inception and anticipate
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we also recognized lower product and tooling sales in 2019 related to a large product launch for a specific north america customer during the second quarter of 2018. core sales to the beauty market increased 4 % on strong growth in skin care and fragrance dispensing systems , primarily driven by the chinese luxury market and retail travel . higher sales of our products used on air care and dish care applications drove the core sales growth in the home care market . replace_table_token_9_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . 20 /atr 2019 form 10-k adjusted ebitda for 2019 decreased to $ 181.2 million from $ 185.9 million reported in 2018. during 2019 , we experienced favorable material cost impacts due to lower raw material input costs and the associated positive impact from the timing delay of passing through resin cost to our customers . we also realized improved profitability on our tooling projects , but these favorable variances were not enough to overcome the softening demand from our personal care customers as discussed above . adjusted ebitda as a percentage of sales improved to 13.4 % in 2019 compared to 13.0 % in 2018 due to the positive impact of our transformation initiatives along with the other positive factors mentioned above . pharma segment replace_table_token_10_th ( 1 ) adjusted ebitda is calculated as earnings before net interest , taxes , depreciation , amortization , unallocated corporate expenses , restructuring , acquisition-related costs and other special items . adjusted ebitda margins are calculated as adjusted ebitda divided by reported net sales . see the reconciliation of non-u.s. gaap measures starting on page 22 . reported net sales increased approximately 14 % in 2019 to $ 1.09 billion compared to $ 954.7 million in 2018. changes in currencies negatively affected net sales by 5 % while our acquisitions of csp technologies , gateway , nanopharm and noble positively impacted sales by 9 % in 2019. therefore , core sales increased 10 % in 2019 compared to the prior year . sales increased in all of our markets during 2019. core sales to the prescription drug market increased 13 % mainly driven by strong demand for our products sold for central nervous system and allergic rhinitis treatments . we also benefitted from the realization of $ 1.8 million of revenue for achieving a development milestone related to a customer project . core sales to the consumer health care market increased 6 % on increased demand for our products used on eye care and nasal saline treatments . core sales of our products to the injectables markets grew 8 % due to increased demand across the majority of our product offerings and in all regions . active packaging core sales comparisons are from our acquisition of csp technologies at the end of august 2018. the core sales increase is mostly due to strong pre-commercial sales activity for our new active blister packaging solution for oral solid dose drug delivery . replace_table_token_11_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . adjusted ebitda for 2019 increased to $ 387.5 million compared to $ 343.7 million in 2018. the strong product sales growth discussed above along with incremental profit related to our acquisitions led to the increase in reported results for 2019 compared to 2018 . 2018 results also include a gain of approximately $ 6.5 million on our investment in propeller health . adjusted ebitda as a percentage of sales declined to 35.5 % in 2019 compared to 36.0 % in 2018. excluding the propeller health gain in 2018 , the adjusted ebitda percentage would have improved slightly during 2019. food + beverage segment replace_table_token_12_th ( 1 ) adjusted ebitda is calculated as earnings before net interest , taxes , depreciation , amortization , unallocated corporate expenses , restructuring , acquisition-related costs and other special items . adjusted ebitda margins are calculated as adjusted ebitda divided by reported net sales . see the reconciliation of non-u.s. gaap measures starting on page 22 . 21 /atr 2019 form 10-k reported net sales increased by approximately 8 % in 2019 to $ 416.0 million compared to $ 383.7 million in 2018. incremental sales from our csp technologies acquisition positively impacted net sales by 7 % while changes in currency rates negatively impacted net sales by 2 % . therefore , core sales increased 3 % in 2019 compared to the prior year . core sales to the food market increased 7 % while core sales to the beverage market decreased 2 % compared to 2018. sales to the food market increased due to strong sales of our products across all of our largest applications , including increases in sales to our sauces and condiments , non-beverage dairy , infant nutrition and granular powder customers . for the beverage market , strong sales of our products to our bottled water and concentrate customers were offset by a decline in beverage closure volumes related to a customer in china . lower tooling sales and the pass-through of resin price changes also negatively impacted core sales compared to 2018 by $ 0.9 million and $ 5.1 million , respectively . replace_table_token_13_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . adjusted ebitda increased to $ 68.1 million in 2019 compared to $ 57.6 million in 2018. this increase is due to incremental profit related to our csp technologies acquisition and solid core sales growth discussed above . we also benefitted from the positive timing delay of passing on resin cost decreases from previous quarters to our customers . story_separator_special_tag during 2018 , we recognized an impairment of $ 1.6 million related to prepaid royalties as a result of lower than expected sales during the contractual period . this impairment does not impact our current product portfolio or future project pipeline related to the underlying technology . adjusted ebitda as a percentage of sales improved to 16.4 % in 2019 compared to 15.0 % in 2018 due to favorable operational performance along with the other positive factors discussed above . corporate & other in addition to our three reporting segments , aptar assigns certain costs to “ corporate & other , ” which is presented separately in note 18 of the notes to the consolidated financial statements . for corporate & other , adjusted ebitda ( which excludes net interest , taxes , depreciation , amortization , restructuring , acquisition-related costs and other special items ) primarily includes certain professional fees , compensation and information system costs which are not allocated directly to our reporting segments . corporate & other expense in 2019 increased to $ 44.4 million compared to $ 36.3 million in 2018. as discussed above , this increase is mainly due to higher professional fees and personnel costs as we continue to implement our growth strategy . non-u.s. gaap measures in addition to the information presented herein that conforms to u.s. gaap , we also present financial information that does not conform to u.s. gaap , which are referred to as non-u.s. gaap financial measures . management may assess our financial results both on a u.s. gaap basis and on a non-u.s. gaap basis . we believe it is useful to present these non-u.s. gaap financial measures because they allow for a better period-over-period comparison of operating results by removing the impact of items that , in management 's view , do not reflect aptar 's core operating performance . these non-u.s. gaap financial measures should not be considered in isolation or as a substitute for u.s. gaap financial results , but should be read in conjunction with the audited consolidated statements of income and other information presented herein . investors are cautioned against placing undue reliance on these non-u.s. gaap measures . further , investors are urged to review and consider carefully the adjustments made by management to the most directly comparable u.s. gaap financial measure to arrive at these non-u.s. gaap financial measures . 22 /atr 2019 form 10-k in our md & a , we exclude the impact of foreign currency translation when presenting net sales and other information , which we define as “ constant currency. ” changes in net sales excluding the impact of foreign currency translation is a non-u.s. gaap financial measure . as a worldwide business , it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies . consequently , when our management looks at our financial results to measure the core performance of our business , we exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates . as a result , our management believes that these presentations are useful internally and may be useful to investors . we also exclude the impact of material acquisitions when comparing results to prior periods . changes in operating results excluding the impact of acquisitions are non-u.s. gaap financial measures . we believe it is important to exclude the impact of acquisitions on period over period results in order to evaluate performance on a more comparable basis . we present earnings before net interest and taxes ( “ ebit ” ) and earnings before net interest , taxes , depreciation and amortization ( “ ebitda ” ) . we also present our adjusted earnings before net interest and taxes ( “ adjusted ebit ” ) and adjusted earnings before net interest , taxes , depreciation and amortization ( “ adjusted ebitda ” ) , both of which exclude , among other special items , the business transformation charges and acquisition-related costs . our operations outlook is also provided on a non-u.s. gaap basis because certain reconciling items are dependent on future events that either can not be controlled , such as tax and exchange rates , or reliably predicted because they are not part of our routine activities , such as restructuring and acquisition-related costs . we provide a reconciliation of net debt to net capital as a non-u.s. gaap measure . net debt is calculated as interest bearing debt less cash , cash equivalents and short-term investments while net capital is calculated as stockholder 's equity plus net debt . net debt to net capital measures a company 's financial leverage , which gives users an idea of a company 's financial structure , or how it is financing its operations , along with insight into its financial strength . we believe that it is meaningful to take into consideration the balance of our cash , cash equivalents and short-term investments when evaluating our leverage . if needed , such assets could be used to reduce our gross debt position . finally , we provide a reconciliation of free cash flow as a non-u.s. gaap measure . free cash flow is calculated as cash provided by operating activities less capital expenditures . we use free cash flow to measure cash flow generated by operations that is available for dividends , share repurchases , acquisitions and debt repayment . we believe that it is meaningful to investors in evaluating our financial performance and measure our ability to generate cash internally to fund our initiatives . replace_table_token_14_th 23 /atr 2019 form 10-k replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th 24 /atr 2019 form 10-k liquidity and capital resources we believe we are in a strong financial position and have the financial resources to meet our business requirements in the foreseeable future .
| net sales for the year ended december 31 , 2019 , reported net sales increased 3 % to $ 2.86 billion from $ 2.76 billion a year ago . the average u.s. dollar exchange rate strengthened compared to most of our major operating currencies , resulting in a negative currency translation impact of 4 % . the acquisitions of csp technologies , gateway , nanopharm and noble positively impacted sales by 4 % . therefore , core sales for 2019 increased 3 % over 2018 as growth in our pharma and food + beverage segments compensated for slightly negative core sales to our beauty + home segment . replace_table_token_5_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . for further discussion on net sales by reporting segment , please refer to the segment analysis of net sales and operating income on the following pages . the following table sets forth , for the periods indicated , net sales by geographic location : replace_table_token_6_th 18 /atr 2019 form 10-k cost of sales ( exclusive of depreciation and amortization shown below ) our cost of sales ( “ cos ” ) as a percent of net sales decreased to 63.6 % in 2019 compared to 65.6 % in 2018. our cos percentage was positively impacted by our mix of business and lower material costs . the mix of business positively impacted results as the sales growth of our higher margin pharma products was greater than the sales growth of products in the other two segments . we also realized lower raw material input costs in 2019 compared to 2018 and the associated positive impact from the timing of passing through resin cost reductions to our customers . selling , research & development and administrative our selling , research & development and administrative expenses ( “ sg & a ” ) increased approximately 6 % or $ 24.7 million to $ 454.6 million in 2019 compared to $ 430.0 million in 2018. excluding changes in foreign
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bh/re and equityco are limited liability companies and are taxed as partnerships for federal income tax purposes . mezzco has elected to be taxed as a corporation for federal income tax purposes . opbiz , a wholly-owned subsidiary of mezzco , will be treated as a division of mezzco for federal income tax purposes , and accordingly , will also be subject to federal income taxes . mezzco and opbiz account for income taxes in accordance with sfas no . 109 , accounting for income taxes . sfas 109 requires the recognition of deferred income tax assets , net of applicable reserves , related to net operating loss carryforwards and certain temporary differences . the standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not . otherwise , a valuation allowance is applied . 19 preopening costs we account for costs incurred during the preopening and start-up phases of operations in accordance with statement of position 98-5 , reporting on the costs of start-up activities . preopening and start-up costs include , but are not limited to , salary related expenses for new employees , travel and entertainment expenses . preopening costs are expensed as incurred . story_separator_special_tag style= '' font-style : italic ; margin:0pt 0pt 6.0pt 30.0pt ; page-break-after : avoid ; text-indent : -10.0pt ; '' > food and beverage food and beverage revenues are derived from food and beverage sales in the restaurants , bars , room service , banquets and entertainment outlets . food and beverage revenue is recognized at the time the food and or beverage are provided to the guest . food and beverage revenues increased 6.4 % to $ 72.5 million for the year ended december 31 , 2004 as compared to $ 68.1 million for the year ended december 31 , 2003. the average guest check increased to $ 24.66 for the year ended december 31 , 2004 as compared to $ 22.61 for the year ended december 31 , 2003. the increase in the average guest check was primarily due to selected price increases , particularly in the buffet . 22 food and beverage revenues increased 13.2 % to $ 68.1 million for the year ended december 31 , 2003 as compared to $ 60.1 million for the year ended december 31 , 2002. the average guest check decreased to $ 22.61 for the year ended december 31 , 2003 as compared to $ 23.32 for the year ended december 31 , 2002. the increase in food and beverage revenues was primarily due to price and volume increases at the buffet in 2003 , which were driven by increased marketing and promotional efforts , and revenues from the center stage lounge , which opened in late 2002. food and beverage expenses increased 9.8 % to $ 48.3 million for the year ended december 31 , 2004 as compared to $ 44.0 million for the year ended december 31 , 2003. food and beverage margins decreased 2.0 percentage points over the same periods . the increase in food and beverage expenses was due to increased employee benefit expenses , as well as increases in selected food cost items . food and beverage expenses increased 14.0 % to $ 44.0 million for the year ended december 31 , 2003 as compared to $ 38.6 million for the year ended december 31 , 2002. food and beverage margins decreased 0.5 percentage points over the same periods . other other revenue includes entertainment sales , retail sales , telephone and other miscellaneous income and is recognized at the time the goods or services are provided to the guest . other revenues decreased 8.7 % to $ 16.8 million for the year ended december 31 , 2004 as compared to $ 18.4 million for the year ended december 31 , 2003. the decrease in other revenues is primarily due to a decrease in entertainment revenue , which was the result of fewer performances in the tpa during 2004. other revenues increased 3.8 % to $ 18.4 million for the year ended december 31 , 2003 as compared to $ 17.7 million for the year ended december 31 , 2002. other expenses decreased 12.5 % to $ 12.6 million for the year ended december 31 , 2004 as compared to $ 14.3 million for the year ended december 31 , 2003. other expenses increased 3.8 % to $ 14.3 million for the year ended december 31 , 2003 as compared to $ 13.8 million for the year ended december 31 , 2002. selling , general and administrative ( sg & a ) sg & a expenses increased 5.5 % to $ 65.1 million for the year ended december 31 , 2004 as compared to $ 61.7 million for the year ended december 31 , 2003. sg & a expenses as a percentage of net revenues decreased 0.4 percentage points over the same periods . the increase in sg & a expenses was primarily due to an increase in payroll and related expenses , as well as management and centralized services fees incurred under the starwood management agreement beginning in september 2004. a large portion of these costs are fixed and , as a result , as revenues increased the percentage of sg & a expenses to net revenues decreased . sg & a expenses increased 3.7 % to $ 61.7 million for the year ended december 31 , 2003 as compared to $ 59.5 million for the year ended december 31 , 2002. sg & a expenses as a percentage of net revenues decreased 2.1 percentage points over the same periods . depreciation and amortization depreciation and amortization expense decreased 82.0 % to $ 7.8 million for the year ended december 31 , 2004 as compared to $ 43.5 million for the year ended december 31 , 2003. aladdin gaming was not recording depreciation expense during 2004 , as the assets were classified as held for sale . story_separator_special_tag as a result , the depreciation expense for the year ended december 31 , 2004 was significantly less than in the prior year . 23 depreciation and amortization expense decreased 33.0 % to $ 43.5 million for the year ended december 31 , 2003 as compared to $ 64.9 million for the year ended december 31 , 2002 , as a result of the cessation of depreciation resulting from the classification of assets held for sale on august 29 , 2003. interest expense , net interest expense , net increased 91.6 % to $ 19.1 million for the year ended december 31 , 2004 as compared to $ 10.0 million for the year ended december 31 , 2003. the increase in interest expense , net is directly related to the addition of the credit agreement we entered into upon the completion of the acquisition of the aladdin on september 1 , 2004. interest expense , net decreased 16.2 % to $ 10.0 million for the year ended december 31 , 2003 as compared to $ 11.9 million for the year ended december 31 , 2002. in 2003 , aladdin gaming made adequate protection payments of $ 16.2 million to various creditors pursuant to orders of the bankruptcy court . most of these payments were made in respect of aladdin gaming 's pre- petition obligations to its secured creditors under both its bank credit facility and its gaming equipment term loan , and under capital leases for certain non-gaming furniture , fixtures and equipment ( ff & e ) . the payments in 2003 were allocated between interest and principal on the gaming equipment term loan and the capital leases for non-gaming ff & e on a pro-rata basis . contractual interest related to pre-petition bank credit facility obligations totaled $ 92.7 million in 2003. liquidity and capital resources the following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business , financial condition , results of operations , dispositions , acquisitions , expansion projects and our subsidiaries , which involve risks and uncertainties that can not be predicted or quantified , and consequently , actual results may differ materially from those expressed or implied herein . such risks and uncertainties include , but are not limited to , financial market risks , the ability to maintain existing management , integration of acquisitions , competition within the gaming industry , the cyclical nature of the hotel business and gaming business , economic conditions , regulatory matters and litigation and other risks described in our filings with the securities and exchange commission . all forward-looking statements are based on our current expectations and projections about future events . during the year ended december 31 , 2004 , the aladdin generated cash flows from operating activities of approximately $ 63.4 million . we also had restricted cash and cash equivalents of approximately $ 96.2 million , which is designated to be used for costs associated with the renovation of the aladdin to the ph resort . our primary cash requirements for 2005 are expected to include ( i ) up to approximately $ 100 million in capital expenditures related to the renovation project , ( ii ) approximately $ 9.0 million for maintenance capital expenditures and ( iii ) up to approximately $ 27.1 million in interest payments on our debt . we believe that cash generated from operations , the capital invested in opbiz at the closing and the working capital , including the cash , we acquired from aladdin gaming under the purchase agreement will be adequate to meet the anticipated working capital , capital expenditure , renovation and debt service obligations of opbiz for the first 12 months after the aladdin acquisition . we may have other liquidity needs , such as tax distributions to the members of equityco and bh/re . the credit agreement provides that opbiz will be permitted to make tax distributions . there can be no assurance that we have accurately estimated our liquidity needs , or that we will not experience unforeseen events that may materially increase our need for liquidity to fund our operations or capital expenditure programs or decrease the amount of cash generated from our operations . we expect to experience a reduction in cash generated by our operations during our planned renovations to the aladdin and have negotiated the terms of the credit agreement to address those anticipated reductions . for 24 example , the covenant in the credit agreement requiring opbiz to achieve specified levels of earnings before interest , taxes , depreciation and amortization ( ebitda ) , during the first two years of the credit agreement is significantly below the aladdin 's current ebitda levels . also , the interest rate during the first three years of the credit agreement is lower than the interest rate in the last three years . off balance sheet arrangements as of december 31 , 2004 , we do not have any off balance sheet arrangements . we have not entered into any transactions with special purposes entities , nor have we engaged in any derivative transactions . commitments and contractual obligations the following table summarizes our scheduled commitments and contractual obligations as of december 31 , 2004 : replace_table_token_3_th ( a ) see note 7 to the consolidated financial statements in this annual report on form 10-k. ( b ) we pay management fees to sheraton under the hotel management contract . these management fees are generally based on various percentages of our non-gaming revenues . see above under item 1. businessmaterial agreementssheraton hotel management contract. we will also pay sheraton a centralized service fee , a portion of which is fixed and which is shown in the table above , and other de minimis charges which are included in the table above . amounts are based on internal projections made by management . ( c ) fees under the planet hollywood licensing agreement generally commence when we begin operating as the ph resort and are based on a percentage of our non-gaming revenues .
| casino revenue is defined as the win from gaming activities , computed as the difference between gaming wins and losses . casino revenues vary from time to time due to general economic conditions , competition , popularity of entertainment offerings , table game hold , slot machine hold and occupancy percentages in the hotel . casino revenues also vary depending upon the amount of gaming activity , as well as variations in the odds for different games of chance . casino revenue is recognized at the end of each gaming day . casino revenues increased 7.4 % to $ 118.8 million for the year ended december 31 , 2004 as compared to $ 110.6 million for the year ended december 31 , 2003. the increase in casino revenues is primarily due to the addition of new and more popular gaming devices and the conversion of a significant amount of our gaming devices to ticket-in , ticket-out technology . table games revenues also increased by $ 1.1 million over the same twelve-month periods . casino revenues increased 14.1 % to $ 110.6 million for the year ended december 31 , 2003 as compared to $ 97.0 million for the year ended december 31 , 2002. in 2003 , management continued to focus on maximizing the profitability of slot machines by implementing ticket-in/ticket-out technology and installing more popular slot machines . slot machine revenues also benefited from the expansion of the casino marketing database , which resulted in more revenues from special events and promotions . table games revenues also increased by $ 1.3 million due to an increase in the hold to 17.2 % in 2003 from 16.6 % in 2002. casino expenses increased 3.1 % to $ 64.6 million for the year ended december 31 , 2004 as compared to $ 62.6 million for the year ended december 31 , 2003. casino margins increased 2.3 percentage points over the same periods . the increase in casino expenses was mainly the result of increased employee benefit expenses , as well as an
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we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates and material effects on our operating results and financial position may result . the accounting policies which our management believes involve the most significant application of judgment or involve complex estimation , are inventories and associated reserves ; goodwill and intangibles asset valuations and associated impairment assessments ; revenue reserves and share-based compensation . when we evaluate inventory for excess quantities and obsolescence , we utilize historical product usage experience and expected demand for establishing our reserve estimates . our actual product usage may vary from the historical experience and estimating demand is inherently difficult , particularly given the cyclical nature of the semiconductor industry , both of these factors may result in us recording excess and obsolete inventory amounts that do not match the required amounts . significant management judgment is required in our valuation of goodwill and intangible assets and when assessing for potential impairment , many of which are based the creation of forecasts of future operating results that are used in the valuation , including ( i ) estimation of future cash flows , ( ii ) estimation of the long-term rate of growth for our business , ( iii ) estimation of the useful life over which cash flows will occur , ( iv ) terminal values , if applicable , and ( v ) the determination of our weighted average cost of capital , which helps determine the discount rate . it is possible that these forecasts may change and our performance projections included in our forecasts of future results may prove to be inaccurate . if our actual results , or the forecasts and estimates used in future impairment analysis , are lower than the original estimates used to assess the recoverability of these assets , we could incur additional impairment charges . the value of our goodwill and purchased intangible assets could also be impacted by future adverse changes such as a decline in the valuation of technology company stocks , including the valuation of our common stock , or a significant slowdown in the worldwide economy or in the optical communications equipment or semiconductor industry . we establish revenue reserves , primarily for distributor price adjustments , which requires the use of judgment and estimates that impact the amount and timing of revenue recognition . we record reductions of revenue for such distributor pricing adjustments in the same period that the related revenue is recorded based on estimates of historical pricing adjustments granted to distributors . the actual pricing adjustments granted to distributors may significantly exceed or be less than the historical estimates resulting in adjustments to revenue in the incorrect period . we account for share-based compensation arrangements using the fair value method as described in note 2 - summary of significant accounting policies to our consolidated financial statements in this annual report . there are a significant number of estimates and assumptions required for the initial valuation of certain transactions as well as for the ongoing valuation of certain share-based compensation items . these estimates may vary significantly and the assumptions may not be accurate resulting us to make adjustments to historically recorded balances . historically , we have not experienced material differences in our estimates and actual results . for additional information related to these and other accounting policies refer to note 2 - summary of significant accounting policies to our consolidated financial statements included in this annual report which is incorporated by reference herein . 39 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > primarily as a result of additional costs from our acquisitions , higher depreciation expense and share-based compensation and increased spending on new product development initiatives . selling , general and administrative . in fiscal year 2017 , selling , general and administrative expenses increased by $ 42.5 million , or 29.2 % to $ 187.9 million , or 26.9 % of revenue , compared with $ 145.4 million , or 26.7 % of revenue , for fiscal year 2016 . selling , general and administrative expenses increased in fiscal year 2017 primarily due to $ 12.0 million of change in control compensation expense , and $ 11.0 million of transaction related expenses associated with the appliedmicro acquisition . in addition , we incurred higher intangible amortization and share-based compensation as well as additional acquisition integration related costs in fiscal year 2017 , partially offset by lower binoptics acquisition related compensation expenses and variable compensation expense . impairment charges . we recorded impairment charges of $ 4.4 million during fiscal year 2017 related to an in process research and development technology asset that was placed in service , at which time we determined that the intangible asset value was impaired due to lower than expected cash flow projections . the remaining $ 3.6 million value of the technology was transferred to acquired technology as of september 29 , 2017 . during fiscal year 2016 , we recorded an impairment charge of $ 11.8 million related to a strategic decision to exit a product line and end programs associated with our gan-on silicon carbide license and technology transfer . restructuring charges . in fiscal year 2017 , restructuring charges were $ 2.7 million , or 0.4 % of our revenue , compared with $ 3.5 million , or 0.6 % of our revenue , for fiscal year 2016 . the slight decrease in restructuring charges during fiscal year 2017 was primarily related to completion of metelics acquisition restructuring activities as well as our planned exit of a facility in california . story_separator_special_tag we expect to incur additional restructuring costs in the range of approximately $ 3.6 million and $ 4.5 million during our fiscal year 2018 as we complete restructuring actions primarily associated with facility consolidations . warrant liability expense . in fiscal year 2017 , we recorded warrant expense of $ 2.5 million compared to an expense of $ 16.4 million for fiscal year 2016 . the differences between periods were driven by changes in the estimated fair value of common stock warrants we issued in december 2010 , which we carry as a liability at fair value . provision f or income taxes . in fiscal year 2017 , the provision for income taxes was an expense of $ 100.9 million compared to a benefit of $ 18.0 million for fiscal year 2016 . the provision increased primarily due to an establishment of a full valuation allowance against our u.s. deferred tax assets during the quarter ended march 31 , 2017. the difference between the u.s. federal statutory income tax rate of 35 % and our effective income tax rate for fiscal year 2017 was primarily impacted by an establishment of a full valuation allowance against our u.s. deferred tax assets as well as income taxed in foreign jurisdictions at tax rates generally lower than the u.s. rate . for fiscal year 2016 , our effective income tax rate was primarily impacted by changes in fair value of the stock warrant liability which is not deductible for tax purposes , as well as income taxed in foreign jurisdictions at tax rates generally lower than the u.s. rate , research and development credits and non-deductible compensation . during fiscal year 2017 , the company 's unrecognized tax benefits did not change and remained at $ 1.7 million . the unrecognized tax benefits primarily relate to positions taken by the company in its 2014 u.s. tax filings . comparison of fiscal year ended september 30 , 2016 to fiscal year ended october 2 , 2015 revenue . in fiscal year 2016 , our revenue increased $ 123.7 million , or 29.4 % , to $ 544.3 million from $ 420.6 million for fiscal year 2015 . 42 revenue from our primary markets , the percentage of change between the years and revenue by primary markets expressed as a percentage of total revenue were ( in thousands , except percentages ) : replace_table_token_8_th for fiscal year 2015 , the table above includes $ 17.4 million recognized in connection with a change in estimates related to distribution revenue recognition . these amounts were primarily recorded in the first fiscal quarter of 2015 and include $ 6.1 million related to networks , $ 5.6 million related to a & d and $ 5.7 million related to multi-market . in fiscal year 2016 , our networks market revenue increased by $ 119.8 million , or 43.7 % , compared to fiscal year 2015. the increase was primarily related to our sales of products acquired in the binoptics acquisition in december 2014 and the fibest acquisition in december 2015 as well as increased sales of our products addressing carrier infrastructure , fiber to the home access networks , initial 100g long haul deployments , and other optical and optoelectronic applications . these increases were partially offset by lower demand for our products targeting wired broadband and wireless backhaul as well as the distributor revenue adjustment recorded during fiscal year 2015. in fiscal year 2016 , our a & d market revenue decreased by $ 7.4 million , or 8.9 % , compared to fiscal year 2015. the decrease was primarily due to the impact of the change in distributor revenue recognition during fiscal year 2015 , as well as lower demand for products targeting satellite communication applications during fiscal year 2016 , which were partially offset by incremental revenue from the december 2015 metelics acquisition . in fiscal year 2016 , our multi-market revenues increased $ 11.4 million , or 18.0 % , compared to fiscal year 2015. the increase was primarily due to incremental revenue from the metelics acquisition in december 2015 , partially offset by the change in distributor revenue recognition during fiscal year 2015. gross profit . in fiscal year 2016 , our gross profit increased by $ 78.0 million , or 38.3 % , compared to fiscal year 2015. gross margin of 51.7 % increased 330 basis points compared to fiscal year 2015. gross profit during fiscal year 2016 was positively impacted by increased sales of higher gross margin products , revenue and the associated profit from newly acquired businesses , as well as lower expenses associated with the step-up in fair value of inventory related to acquisitions , partially offset by higher compensation and depreciation expense from newly acquired businesses , charges associated with the exit of one of our product lines incurred during the second fiscal quarter of 2016 , as well as lower margins for certain products due to forward pricing in exchange for volume orders . research and development . in fiscal year 2016 , research and development expense increased $ 25.5 million , or 31.0 % , to $ 107.7 million representing 19.8 % of revenue , compared with $ 82.2 million , or 19.5 % of revenue , in fiscal year 2015. research and development expense increased in fiscal year 2016 , primarily as a result of additional costs from our acquisitions , higher share-based and variable compensation as well as increased spending on new product development initiatives . selling , general and administrative . in fiscal year 2016 , selling , general and administrative expense increased $ 35.4 million , or 32.2 % , to $ 145.4 million , or 26.7 % of revenue , compared with $ 110.0 million , or 26.2 % of revenue for fiscal year 2015. selling , general and administrative expense increased in fiscal year 2016 primarily due to higher intangible amortization , share-based and variable compensation as well as additional costs from acquisitions , partially offset by lower acquisition related compensation and transaction expenses . impairment charges .
| ( 7 ) includes impairment charges of $ 4.4 million during fiscal year 2017 related to the revaluation of ipr & d technology placed in service during the fiscal year , as well as impairment related charges of $ 11.8 million during fiscal year 2016 related to the exiting of a product line . ( 8 ) includes acquisition and transaction related costs of $ 10.9 million associated with the appliedmicro acquisition during fiscal year 2017 , and $ 2.7 million and $ 0.5 million associated with the fibest acquisition and metelics acquisition during fiscal year 2016 . 40 the following table sets forth , for the periods indicated , our statement of operations data expressed as a percentage of our revenue : replace_table_token_6_th comparison of fiscal year ended september 29 , 2017 to fiscal year ended september 30 , 2016 we acquired appliedmicro on january 26 , 2017 and certain assets of picometrix on august 9 , 2017. for additional information related to the appliedmicro acquisition refer to note 3 - acquisitions and note 21 - discontinued operations in this annual report on form 10-k. our annual statements of operations includes activity since the date of acquisition . we acquired fibest and metelics during december 2015. for additional information related to the fibest acquisition and metelics acquisition refer to note 3 - acquisitions . our annual statements of operations includes activity since the dates of acquisition , representing less than twelve months of activity for fibest and metelics for the fiscal year ended september 30 , 2016 . revenue . in fiscal year 2017 , our revenue increased by $ 154.4 million , or 28.4 % , to $ 698.8 million from $ 544.3 million for fiscal year 2016 . revenue from our primary markets , the percentage of change between the years and revenue by primary markets expressed as a percentage of total revenue were ( in thousands , except percentages ) : replace_table_token_7_th in fiscal year 2017 , our networks market revenue increased by $ 118.8 million , or 30.2 % , compared to fiscal year 2016 . the increase was primarily related to the inclusion of revenue from the sales of products
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at the end of fiscal 2015 , packaway inventory was 47 % of total inventory compared to 45 % and 49 % at the end of fiscal 2014 and 2013 , respectively . investing activities net cash used in investing activities was $ 362.5 million , $ 639.0 million , and $ 563.8 million in fiscal 2015 , 2014 , and 2013 , respectively . the decrease in cash used for investing activities in fiscal 2015 compared to fiscal 2014 and fiscal 2013 was primarily due to a reduction in our capital expenditures . in fiscal 2015 , 2014 , and 2013 , our capital expenditures were $ 367.0 million , $ 646.7 million , and $ 550.5 million , respectively . our capital expenditures include costs to build or expand distribution centers , open new stores and improve existing stores , and for various other expenditures related to our information technology systems , buying , and corporate offices . the decrease in capital expenditures in fiscal 2015 compared to fiscal 2014 was primarily due to the purchase in september 2014 of our new york buying office and the construction of two distribution centers . we opened 90 , 95 , and 88 new stores in fiscal 2015 , 2014 , and 2013 , respectively . our capital expenditures over the last three years are set forth in the table below : replace_table_token_9_th we are forecasting approximately $ 425 million in capital expenditures for fiscal year 2016 to fund costs for fixtures and leasehold improvements to open new ross and dd 's discounts stores , the upgrade or relocation of existing 24 stores , investments in information technology systems , and for various other expenditures related to our stores , distribution centers , buying and corporate offices . we expect to primarily fund capital expenditures with available cash and cash flows from operations . we had purchases of investments in fiscal 2015 and 2013 of $ 0.7 million and $ 12.0 million , respectively . we had no purchases of investments in fiscal 2014 . we had proceeds from investments of $ 1.1 million , $ 12.0 million , and $ 1.6 million in fiscal 2015 , 2014 , and 2013 , respectively . financing activities net cash used in financing activities was $ 898.7 million , $ 460.4 million , and $ 681.8 million in fiscal 2015 , 2014 , and 2013 , respectively . during fiscal 2015 , 2014 , and 2013 , our liquidity and capital requirements were provided by available cash and cash flows from operations and in fiscal 2014 , the issuance of our unsecured 3.375 % senior notes due september 2024 ( `` 2024 notes '' ) . in september 2014 , we issued $ 250 million of unsecured 2024 notes and used most of the net proceeds of approximately $ 246 million to purchase our new york buying office building for $ 222 million and the remaining $ 24 million for other general corporate purposes . we repurchased 13.7 million , 14.8 million , and 16.4 million shares of common stock for aggregate purchase prices of approximately $ 700 million , $ 550 million , and $ 550 million in fiscal 2015 , 2014 , and 2013 , respectively . we also acquired 1.3 million , 1.1 million , and 1.0 million shares in fiscal 2015 , 2014 , and 2013 , respectively , of treasury stock from our employee stock equity compensation programs , for aggregate purchase prices of approximately $ 68.9 million , $ 39.0 million , and $ 29.9 million during fiscal 2015 , 2014 , and 2013 , respectively . in february 2015 , our board of directors approved a two-year $ 1.4 billion stock repurchase program for fiscal 2015 and 2016. on march 1 , 2016 , our board of directors declared a quarterly cash dividend of $ 0.1350 per common share , payable on march 31 , 2016 . our board of directors declared cash dividends of $ 0.1175 per common share in february , may , august , and november 2015 , cash dividends of $ 0.1000 per common share in february , may , august , and november 2014 , and cash dividends of $ 0.0850 per common share in may , august , and november 2013 . during fiscal 2015 , 2014 , and 2013 , we paid dividends of $ 192.3 million , $ 168.5 million , and $ 147.9 million , respectively . short-term trade credit represents a significant source of financing for merchandise inventory . trade credit arises from customary payment terms and trade practices with our vendors . we regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit , bank lines , and other credit sources to meet our capital and liquidity requirements , including lease payment obligations , in 2016 . our existing $ 600 million unsecured revolving credit facility expires in june 2017 and contains a $ 300 million sublimit for issuance of standby letters of credit . interest on this facility is based on libor plus an applicable margin ( currently 100 basis points ) and is payable quarterly and upon maturity . as of january 30 , 2016 , we had no borrowings or standby letters of credit outstanding on this facility and our $ 600 million credit facility remains in place and available . we plan to renew our revolving credit facility in 2016. we estimate that existing cash balances , cash flows from operations , bank credit lines , and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments , common stock repurchases , and quarterly dividend payments for at least the next twelve months . 25 contractual obligations the table below presents our significant contractual obligations as of january 30 , 2016 : replace_table_token_10_th 1 we have a $ 94.2 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheets . story_separator_special_tag this liability is excluded from the schedule above as the timing of payments can not be reasonably estimated . ²our new york buying office building is subject to a 99-year ground lease . senior notes . in september 2014 , we issued unsecured 2024 notes with an aggregate principal amount of $ 250 million . the 2024 notes were issued at a price equal to 99.329 % of the principal amount . interest on the 2024 notes is payable semi-annually beginning march 2015. as of january 30 , 2016 , we also had outstanding two series of unsecured senior notes in the aggregate principal amount of $ 150 million , held by various institutional investors . the series a notes totaling $ 85 million are due in december 2018 and bear interest at a rate of 6.38 % . the series b notes totaling $ 65 million are due in december 2021 and bear interest at a rate of 6.53 % . borrowings under these senior notes are subject to certain financial covenants , including interest coverage and other financial ratios . as of january 30 , 2016 , we were in compliance with those covenants . the 2024 notes , series a , and series b senior notes are all subject to prepayment penalties for early payment of principal . off-balance sheet arrangements operating leases . we currently lease all but three of our store locations , three warehouse facilities , and a buying office . in addition , we have a ground lease related to our new york buying office . except for certain leasehold improvements and equipment , these leased locations do not represent long-term capital investments . two of the warehouses are in carlisle , pennsylvania with leases expiring in 2016 and 2017 . the third warehouse is in fort mill , south carolina , with a lease expiring in 2019. the leases for the two carlisle , pennsylvania warehouses contain renewal provisions . we currently lease approximately 68,000 square feet of office space for our los angeles buying office . the lease term for this facility expires in 2017 and contains renewal provisions . purchase obligations . as of january 30 , 2016 we had purchase obligations of approximately $ 1,721 million . these purchase obligations primarily consist of merchandise inventory purchase orders , commitments related to construction projects , store fixtures and supplies , and information technology service , transportation , and maintenance contracts . standby letters of credit and collateral trust . we use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize our insurance obligations . as of january 30 , 2016 and january 31 , 2015 , we had $ 15.3 million and $ 19.5 million , respectively , in standby letters of credit outstanding and $ 56.4 million and $ 56.3 million , respectively , in a collateral trust . the standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash , cash equivalents , and investments . trade letters of credit . we had $ 32.0 million and $ 32.8 million in trade letters of credit outstanding at january 30 , 2016 and january 31 , 2015 , respectively . 26 effects of inflation or deflation . we do not consider the effects of inflation or deflation to be material to our financial position and results of operations . other critical accounting policies the preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts . these estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable . we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles ( “ gaap ” ) , with no need for management 's judgment in their application . there are also areas in which management 's judgment in selecting one alternative accounting principle over another would not produce a materially different result . see our audited consolidated financial statements and notes thereto under item 8 in this annual report on form 10-k , which contain accounting policies and other disclosures required by gaap . merchandise inventory . our merchandise inventory is stated at the lower of cost ( determined using a weighted average basis ) or net realizable value . we purchase inventory that can either be shipped to stores or processed as packaway merchandise with the intent that it will be warehoused and released to stores at a later date . the timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise , and its relation to the company 's store merchandise assortment plans . as such , the aging of packaway varies by merchandise category and seasonality of purchase , but typically packaway remains in storage less than six months . packaway inventory accounted for approximately 47 % , 45 % , and 49 % of total inventories as of january 30 , 2016 , january 31 , 2015 , and february 1 , 2014 , respectively . merchandise inventory includes acquisition , processing , and storage costs related to packaway inventory . included in the carrying value of our merchandise inventory is a provision for shortage . the shortage reserve is based on historical shortage rates as evaluated through our annual physical merchandise inventory counts and cycle counts . if actual market conditions , markdowns , or shortage are less favorable than those projected by us , or if sales of the merchandise inventory are more difficult than anticipated , additional merchandise inventory write-downs may be required . long-lived assets .
| although our strategies and store expansion program contributed to sales gains in fiscal 2015 , 2014 , and 2013 , we can not be sure that they will result in a continuation of sales growth or in an increase in net earnings . cost of goods sold . cost of goods sold in fiscal 2015 increased $ 638.9 million compared to the prior year mainly due to increased sales from the opening of 84 net new stores during the year and a 4 % increase in sales from comparable stores . cost of goods sold as a percentage of sales for fiscal 2015 decreased approximately five basis points from the prior year primarily due to a 45 basis point increase in merchandise gross margin and five basis points of occupancy leverage . this improvement was partially offset by a 35 basis point increase in distribution expenses related to our recent infrastructure investments and higher freight costs of 10 basis points . cost of goods sold in fiscal 2014 increased $ 577.0 million compared to the prior year mainly due to increased sales from the opening of 86 net new stores during the year and a 3 % increase in sales from comparable stores . cost of goods sold as a percentage of sales for fiscal 2014 decreased approximately five basis points from the prior year primarily due to a 20 basis point increase in merchandise gross margin . this improvement was partially offset by a 15 basis point increase in buying costs . we can not be sure that the gross profit margins realized in fiscal 2015 , 2014 , and 2013 will continue in future years . 22 selling , general and administrative expenses . for fiscal 2015 , selling , general and administrative expenses ( “ sg & a ” ) increased $ 123.4 million compared to the prior year , mainly due to increased store operating costs reflecting the opening of 84 net new stores and the impact of wage rate increases during the year . sg & a as a percentage of sales for fiscal 2015
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as of december 31 , 2020 , 62 % of the loans in our delinquency inventory are subject to a forbearance plan . the covid-19 pandemic may adversely affect our future business , results of operations , and financial condition . the extent of the adverse effects will depend on the duration and continued severity of the covid-19 pandemic and its effect on the u.s. economy and housing market . the level of unemployment , interest rates , and home prices may change in the future . for the possible effects of such changes , see our risk factors titled `` if the volume of low down payment home mortgage originations declines , the amount of insurance that we write could decline , ” “ downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing , with a corresponding decrease in our returns , ” “ changes in interest rates , house prices or mortgage insurance cancellation requirements may change the length of time that our policies remain in force , '' and `` the covid-19 pandemic may continue to materially impact our financial results and may also materially impact our business , liquidity , and financial condition . '' mortgage lending the past several years of favorable housing fundamentals and in our view , favorable risk characteristics of our recently insured loans contributed to declining delinquent inventory , and lower losses incurred and claims paid in 2019. while favorable trends continued in the housing market in 2020 , we experienced an increase in our losses incurred due to the impacts of the covid-19 pandemic . after easing somewhat in 2018 , lending standards became tighter again in 2019. the percentage of our niw with dti ratios over 45 % declined in 2020 and 2019. change in both years was primarily driven by adjustments to gse underwriting guidelines for loans with dti ratios over 45 % and our pricing for loans with such dti ratios . the increase in the percentage of our niw from refinance transactions in 2020 and 2019 was due to the low interest rate environment and also resulted in a consistently lower percentage of our niw with ltv ratios over 95 % for both years . refer to `` mortgage insurance portfolio '' for additional discussion of changes in our niw mix during 2020. competition pmi . the private mortgage insurance industry is highly competitive and is expected to remain so . we believe that we currently compete with other private mortgage insurers based on premium rates , underwriting requirements , financial strength ( including based on credit or financial strength ratings ) , customer relationships , name recognition , reputation , strength of management teams and field organizations , the ancillary products and services provided to lenders and the effective use mgic investment corporation 2020 form 10-k | 46 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms of technology and innovation in the delivery and servicing of our mortgage insurance products . pricing practices in recent years much of the changes in premium pricing practices has centered on the decrease in the use of our standard rate card as published on our website , www.mgic.com/rates , the increased use of `` risk-based pricing systems '' that utilize a spectrum of filed rates that allow for formulaic , risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters , and customized rate plans both of which typically have rates lower than the standard rate card . we expect our direct premium yield to continue to decline as older policies with higher premium rates run off , and new insurance policies with lower premium rates are written . for information about competition in the private mortgage insurance industry , see our risk factor titled “ competition or changes in our relationships with our customers could reduce our revenues , reduce our premium yields and or increase our losses '' in item 1a . gse risk share transactions in 2018 , the gses initiated secondary mortgage market programs with loan level mortgage default coverage provided by various ( re ) insurers that are not mortgage insurers governed by pmiers , and that are not selected by the lenders . due to differences in policy terms , these programs may offer premium rates that are below prevalent single premium lpmi rates . while we view these programs as competing with traditional private mortgage insurance , we participate in these programs from time to time . the gses ( and other investors ) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance , such as engaging in credit-linked note transactions executed in the capital markets , or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors , including competitors and an affiliate of mgic ; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage ; or accepting credit risk without credit enhancement . government programs . pmi also competes against government mortgage insurance programs such as the fha , va , and usda , primarily for lower fico score business . the combined market share of primary mortgage insurance written by government programs continues to exceed that written by pmi in 2019 and 2020. the strong refinance markets in 2019 and 2020 , and pmi premium rate reductions , have contributed to a pmi market share at its highest levels since the financial crisis . refer to `` mortgage insurance portfolio '' for additional discussion of the 2020 business environment and the impact it had on operating measures including niw , iif and rif . pmiers we operate under the requirements of the pmiers of the gses in order to insure loans delivered to or purchased by them . the pmiers include financial requirements as well as business , quality control and certain transactional approval requirements . story_separator_special_tag the financial requirements of the pmiers require a mortgage insurer 's `` available assets '' ( generally only the most liquid assets of an insurer ) to equal or exceed its `` minimum required assets '' ( which are based on an insurer 's book of risk in force , calculated from tables of factors with several risk dimensions , reduced for credit given for risk ceded under reinsurance transactions , and subject to a floor amount ) . based on our application of the more restrictive pmiers , mgic 's available assets under pmiers totaled $ 5.3 billion , an excess of $ 1.8 billion over its minimum required assets at december 31 , 2020. business outlook for 2021 our outlook for 2021 should be viewed against the backdrop of the business environment discussed above . niw our niw is affected by total mortgage originations , the percentage of total mortgage originations using private mortgage insurance ( the `` pmi penetration rate '' ) , and our market share within the pmi industry . as of late january 2021 , the total mortgage origination forecasts from the gses and mba indicate average mortgage originations of $ 3.3 trillion in 2021 , compared to an average estimated $ 4 trillion in 2020. purchase originations are expected to increase in 2021 , compared to 2020 , while refinance transactions are expected to decrease in 2021. our niw from refinance originations is expected to be lower in 2021 compared to a strong 2020. in 2020 , the majority of the refinances were from recent books that experienced only a modest level of price appreciation . therefore , many of the refinanced loans in 2020 required mortgage insurance . we expect the pmi penetration rate on refinance transactions to decline in 2021. the widespread use of risk based pricing systems by the pmi industry makes it more difficult to compare our rates to those offered by our competitors . we may not be aware of industry rate changes until we observe that our volume of niw has changed . in addition , business under customized rate plans is awarded by certain customers for only limited periods of time . as a result , our niw may fluctuate more than it had in the past . iif our iif increased 10.9 % in 2020 , and we expect our iif to grow in 2021. our book of iif is an important driver of our future revenues , and its growth is driven by our ability to generate niw and retain existing policies in force , as measured by our persistency . interest rates influence both our niw and persistency . in a rising rate environment , total mortgage originations may decline ; however , we would also expect policy cancellation rates to decline , and in turn increase persistency , although the impact generally lags the change in interest rates . the federal reserve has indicated that they expect interest rates to remain low . results of operations premiums . despite an increase in iif , we expect our 2021 earned premiums ( on a direct basis ) to be lower than they were in 2020. overall , our premium rates have been trending down in recent years , including in 2020 , as the books of business written at lower rates represent an increasing percentage of our total iif . our 2021 direct premiums written are expected to be comparable to 2020 , while our net premiums earned are expected to decrease in 2021. our net premiums written and earned will be impacted by the downward trend in premium rates noted above and by the amount of premiums we cede under our quota share and excess mgic investment corporation 2020 form 10-k | 47 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms of loss reinsurance transactions . net premiums earned are also impacted by the amount of accelerated premiums from single premium policy cancellations . our unearned premium decreased to $ 287.1 million at december 31 , 2020 from $ 380.3 million at december 31 , 2019. the amount of profit commission we receive , which reduces the amount of premiums we cede , is variable year-to-year and is dependent on the amount of losses ceded . in 2020 , our profit commission was impacted by the increase in ceded losses incurred . the amount of premiums we cede in 2021 will be affected by any changes in our reinsurance coverage . factors that affect the amount of premiums we earn from our iif are further discussed in our `` consolidated results of operations - premium yield . '' investment income . net investment income is a material contributor to our results of operations . we expect net investment income in 2021 to be comparable to 2020. we expect our invested assets will remain relatively flat . the amount of investment income will be impacted by the change in the yield we can earn on investments . losses . losses incurred , net in 2020 were $ 364.8 million , an increase of $ 246.2 million over the prior year losses incurred of $ 118.6 million . the increase was primarily due to an increase in the delinquency inventory due to the impacts of the covid-19 pandemic , including unemployment resulting from initiatives intended to reduce the transmission of covid-19 . we expect 2021 losses incurred to be lower than the comparable amount for 2020 as we expect to receive fewer new delinquency notices in 2021. however , given the uncertainty surrounding the long-term economic impact of covid-19 , it is difficult to predict the ultimate effect of covid-19 related delinquencies on our loss incidence . the foreclosure moratoriums and forbearance plans in place have decreased our losses and lae paid in 2020. as foreclosure moratoriums and forbearance plans end , we expect to see an increase in claims received and claims paid , but the magnitude and timing of the increases are uncertain . underwriting and operating expenses , net .
| mgic investment corporation 2020 form 10-k | 74 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms capital structure the following table summarizes our capital structure as of december 31 , 2020 , and 2019. replace_table_token_42_th the increase in total shareholders ' equity in 2020 from 2019 was primarily due to net income during 2020 , offset by our repurchases of our common stock and an increase in gross unrealized gains . see note 13 - `` shareholders ' equity '' for further information . mgic investment corporation 2020 form 10-k | 75 mgic investment corporation and subsidiaries management 's discussion and analysis | glossary of terms and acronyms debt at our holding company and holding company liquidity debt obligations - holding company in august , 2020 , we issued $ 650.0 million aggregate principal amount of 5.25 % notes due in 2028. we used a portion of the proceeds to repurchase $ 182.7 million in aggregate principal of our 5.75 % senior notes due in 2023 and $ 48.1 million in aggregate principal of our 9 % debentures due 2063. the 5.75 % notes , 5.25 % notes , and 9 % debentures are obligations of our holding company , mgic investment corporation , and not of its subsidiaries . we have no debt obligations due within the next twelve months . as of december 31 , 2020 , our 5.25 % notes had $ 650 million of outstanding principal due in 2028 , our 5.75 % notes had $ 242.3 million of outstanding principal due in august 2023 , and our 9 % debentures had $ 208.8 million of outstanding principal due in april 2063. the 9 % debentures are a convertible debt issuance . subject to certain limitations and restrictions , holders of the 9 % debentures may convert their notes into shares of our common stock at their option prior to certain dates prescribed under the terms of their issuance , in which case our corresponding obligation will be eliminated prior to the scheduled maturity . in the third quarter of 2020 , mgic distributed to the holding company , as a dividend , its ownership
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therefore , actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements . the company undertakes no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . company overview strategic overview igi laboratories is a developer , manufacturer , and marketer of topical formulations . our goal is to become a leader in the generic topical pharmaceutical market . under our igi label , we sell generic topical pharmaceutical products that are bioequivalent to their brand name counterparts . we also provide development , formulation , and manufacturing services to the pharmaceutical , over-the-counter ( otc ) , and cosmetic markets . our strategy is based on three initiatives : manufacturing , developing , and marketing a portfolio of generic pharmaceutical products in our own label in topical dosage forms ; increasing our current contract manufacturing and development business ; and , creating unique opportunities through the acquisition of additional intellectual property , and the expansion of the use of our existing intellectual property , including our licensed novasome ® technology . in december , 2012 , we completed the implementation of our commercial infrastructure and launched our first generic topical pharmaceutical products under the igi label . we have filed nine abbreviated new drug applications , or andas , with the united states food and drug administration , or fda for additional pharmaceutical products . we filed one application in september 2010 , january 2011 and december 2011 , we filed two applications in november 2011 , two applications in june 2012 , one in november 2012 , and one in january 2013. all of the submissions are for generic topical prescription drugs . we will continue to expand our presence in the generic topical pharmaceutical market through the filing of additional andas with the fda and the subsequent launch of products as these applications are approved . our target is to file six andas per year through our internal research and development program . we will also seek to license or acquire further products , intellectual property , or andas to expand our portfolio . on february 1 , 2013 , we acquired assets and intellectual property , including an anda , for econazole nitrate cream 1 % . igi also develops , manufactures , fills , and packages topical semi-solid and liquid products for branded and generic pharmaceutical customers as well as the otc and cosmetic markets . these products are used in a wide range of applications from cosmetics and cosmeceuticals to the prescription treatment of conditions like dermatitis , psoriasis , and eczema . igi has structured a new management team to implement this plan , including a new president and ceo , senior vice president of research and development and a manager of national accounts to head up the sales efforts for the newly launched igi label products . the team brings a wealth of experience in the generic pharmaceutical industry to igi . igi 's facilities and manufacturing equipment have been designed to produce topical and liquid products and support the company 's target prescription dosage forms . 24 contract manufacturing services will continue to be crucial to igi 's success . the customer base for these services is pharmaceutical companies as well as cosmetic , cosmeceutical , and otc product marketers who require product development/manufacturing support . this is a highly-competitive market with a number of larger , greater-resourced companies offering similar services . igi looks to create niche opportunities for itself by providing high quality , customer-oriented service . igi has exclusive rights for the use of novasome® technology in topical formulations and intends to pursue collaboration opportunities with established pharmaceutical companies seeking to develop topical products with unique properties . in addition , the company will explore line extension opportunities through innovative packaging or alternate dosage forms of existing pharmaceutical molecules . story_separator_special_tag width= '' 88 '' > income taxes $ 184 $ 226 $ ( 42 ) ( 19 ) % the tax benefit of $ 184,000 in 2012 and $ 226,000 in 2011 was the result of a sale of a portion of the company 's state tax operating loss carry forwards to a third party , pursuant to a program run by the state of new jersey . there can be no assurance we will continue or be able to continue to sell these operating loss carry forwards . replace_table_token_4_th the increase in net loss attributable to common stockholders for the year ended december 31 , 2012 as compared to the same period in 2011 is primarily due to the increased research and development expenses and non-cash interest charges incurred related to the note payable related party noted above . 26 liquidity and capital resources the company 's business operations have been primarily funded over the past three years through private placements of our capital stock . as described more fully in the notes to our consolidated financial statements appear elsewhere in this annual report on form 10-k , we raised an aggregate of approximately $ 2,000,000 through private placements of equity with accredited investors in 2012. the use of proceeds was intended for general working capital needs as well as the acquisition of econozale nitrate cream 1 % which was purchased february 1 , 2013. in 2012 , we also entered into a new $ 3,000,000 line of credit , of which we drew down $ 1,000,000 in 2012 and have subsequently drawn down an additional $ 1,000,000 in february of 2013. we may require additional funding and this funding will depend , in part , on the timing and structure of potential business arrangements . story_separator_special_tag if necessary , we may continue to seek to raise additional capital through the sale of our equity or through a strategic alliance with a third party . there may also be additional acquisition and growth opportunities that may require external financing . there can be no assurance that such financing will be available on terms acceptable to us , or at all . we believe that our existing capital resources including the recently completed line of credit and private placement detailed below will be sufficient to support our current business plan and operations beyond march 2014. on august 31 , 2012 , we entered into a loan and security agreement with square 1 bank pursuant to which square 1 bank agreed to extend credit facilities to us . we drew down $ 1,000,000 in principal amount on august 31 , 2012 , and we drew down an additional $ 1,000,000 in principal amount in february of 2013 , primarily to finance the working capital requirements of our recent igi product launch . on december 21 , 2012 , we closed a $ 2,000,000 private placement , or the offering , with amzak capital management , llc , or amzak . the use of proceeds was intended for general working capital needs as well as the acquisition of econozale nitrate cream 1 % which was purchased february 1 , 2013. pursuant to the terms of a securities purchase agreement entered into with amzak , or the securities purchase agreement , on december 20 , 2012 , we issued to amzak ( i ) 1,965,740 shares of our common stock , par value $ 0.01 per share , held in treasury , or the shares and ( ii ) a ten-year warrant to purchase up to an aggregate of 387,201 shares of our common stock , with an exercise price of $ 0.01 per share , or the warrants . the warrants , which were exercisable immediately , were exercised in full by amzak on december 27 , 2012. in addition , we executed as of december 31 , 2012 a settlement agreement with amzak capital management , llc in connection with a common stock purchase warrant we issued to amzak on december 21 , 2012 under which we issued a ten-year warrant to purchase up to 427,713 shares of our common stock , with an exercise price of $ 0.55 per share . the warrants were exercised in full on february 8 , 2013. our operating activities used $ 2.4 million of cash during the years ended december 31 , 2012 and 2011. the use of cash for the years ended december 31 , 2012 and 2011 was substantially a result of the net loss for the period offset by non-cash expense items . our cash used in operating activities included $ 2.8 million of research and development efforts . our investing activities used $ 342,000 of cash in the year ended december 31 , 2012 compared to $ 350,000 of cash used in investing activities in the comparable period of 2011. the funds used in both years were for additional equipment and related services for the analytical and compounding area , packaging and filling lines . our financing activities generated $ 2.3 million of cash in the year ended december 31 , 2012 compared to $ 542,000 generated in the year ended december 31 , 2011. the cash provided for the year ended december 31 , 2012 was primarily the proceeds of the sale of our treasury stock as more fully described in note 18 to our consolidated financial statements , in addition to the $ 1.0 million of proceeds from the drawdown of our new credit facility , which was offset by the repayment of the note payable related party of $ 0.5 million as a result of the termination of the existing credit facility . the cash provided for the year ended december 31 , 2011 was mainly the proceeds from the drawdown of the note payable related party as more fully described in note 7 to our consolidated financial statements . our principal sources of liquidity are cash and cash equivalents of approximately $ 2.5 million at december 31 , 2012 , the $ 2.0 million available on the $ 3.0 million credit facility and future cash from operations . we drew down an additional amount of principal of $ 1.0 million from the credit facility in february of 2013. we had working capital of $ 4.2 million at december 31 , 2012 . 27 recent pronouncements there were no new accounting pronouncements for the twelve months ended december 31 , 2012 that have a material impact on the company 's consolidated financial statements . critical accounting policies and estimates the sec defines critical accounting policies as those that require application of 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 and may change in subsequent periods . our significant accounting policies are described in note 1 to our consolidated financial statements . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . revenue recognition the company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement , delivery has occurred or contractual services rendered , the sales price is fixed or determinable , and collection is reasonably assured in conformity with asc 605 , revenue recognition .
| cost of sales as a percentage of total revenue was 68 % for the year ended december 31 , 2012 as compared to 71 % for the year ended december 31 , 2011. cost of sales as a percentage of total revenue declined as a result of a shift in the mix of our product sales to include greater higher margin pharmaceutical products , and our increase in revenue from research and development services rendered in 2012. we expect cost of sales as a percentage of revenue to decline over time . replace_table_token_2_th 25 selling , general and administrative expenses for the year ended december 31 , 2012 remained unchanged as compared to the same period in 2011. there were increases in severance payments of $ 150,000 and recruiting fees of $ 152,000 in 2012 as compared to 2011 due to the changes to the executive and senior management team in 2012. these increases were partially offset by a decrease of $ 124,000 in the allocation of overhead costs due to the increases in headcount in the departments outside of the selling and administrative functions , a decrease in consulting fees of $ 60,000 , a decrease in our listing fee of $ 12,000 and a $ 100,000 decrease in professional fees , as a result of decreased transactions requiring outside counsel . as we created our pharmaceutical foundation , transitioning from a contract manufacturer to a generic topical pharmaceutical company , product development and research expenses for the year ended december 31 , 2012 increased as compared to the same period for 2011. consistent with our strategy to expand our portfolio of generic prescription topical pharmaceutical products , we increased spending on clinical studies , outside testing and supplies by $ 0.2 million , and increased headcount , which resulted in an increase of $ 0.1 million in salaries and related costs . in addition we incurred approximately $ 0.3 million in fees related to the generic drug user fee act , of
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at certain times , we may decrease inventory levels to the point where layers of inventory recorded under the lifo method that were purchased in preceding years are liquidated . the inventory in these layers may be valued at an amount that is different than our current costs . if there is a liquidation of an inventory layer , there may be an impact to our cost of sales and net income for that period . if the liquidated inventory is at a cost lower than our current cost , there would be a reduction in our cost of sales and an increase to our net income during the period . conversely , if the liquidated inventory is at a cost higher than our current cost , there will be an increase in our cost of sales and a reduction to our net income during the period . during fiscal 2013 and 2012 , inventory quantities carried on a lifo basis were decreased at the company 's u.s. carbon black sites . these reductions led to liquidations of lifo inventory quantities and resulted in a decrease in cost of sales of $ 1 million and an increase in consolidated net income of $ 1 million ( $ 0.01 per diluted common share ) in both fiscal years . no such reductions occurred in fiscal 2014. we review inventory for both potential obsolescence and potential declines in anticipated selling prices 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 obsolete , unmarketable , slow moving or overvalued inventory . we write down the value of our inventories by an amount equal to the difference between the cost of inventory and the estimated market value . historically , such write-downs have not been significant . if actual market conditions are less favorable than those projected by management at the time of the assessment , however , additional inventory write-downs may be required , which could reduce our gross profit and our earnings . 31 goodwill and long-lived assets we record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting . amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition . goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired . goodwill is not amortized but is reviewed for impairment annually as of may 31 , or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value . a reporting unit , for the purpose of the impairment test , is at or below the operating segment level , and constitutes a business for which discrete financial information is available and regularly reviewed by segment management . the separate businesses included within performance materials are considered separate reporting units . the goodwill balance relative to this segment is recorded in the fumed metal oxides reporting unit within performance materials . for the purpose of the goodwill impairment test , we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value , an additional quantitative evaluation is performed under the two-step impairment test . alternatively , we may elect to proceed directly to the quantitative goodwill impairment test . if based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount , we perform an analysis of the fair value of all assets and liabilities of the reporting unit . if the implied fair value of the reporting unit 's goodwill is determined to be less than its carrying amount , an impairment is recognized for the difference . the fair value of a reporting unit is based on discounted estimated future cash flows . the fair value is also benchmarked against a market approach using the guideline public companies method . the assumptions used to estimate fair value include management 's best estimates of future growth rates , operating cash flows , capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level . should the fair value of any of our reporting units decline because of reduced operating performance , market declines , changes in the discount rate , or other indicators of impairment , charges for impairment may be necessary . based on our most recent annual goodwill impairment test performed as of may 31 , 2014 , the fair values of the reinforcement materials and fumed metal oxides reporting units were substantially in excess of their carrying values . the fair value of the purification solutions reporting unit exceeded its carrying value by approximately 9 % . at september 30 , 2014 , the purification solutions reporting unit had the most significant goodwill balance , in the amount of $ 458 million . the future growth in the purification solutions business is highly dependent on achieving expected volumes and margins in the activated carbon based mercury removal business . these volumes and margins are highly dependent on demand for mercury removal products and our successful realization of our anticipated share of volumes in this segment over the next 3 years . story_separator_special_tag the demand for mercury removal products significantly depends on : ( 1 ) the implementation and enforcement of environmental laws and regulations , particularly those that would require u.s. based coal fired electrical utilities to reduce the quantity of air pollutants they release , including mercury , to comply with the mercury and air toxics standards that become effective beginning in april 2015 and ( 2 ) other factors such as the anticipated usage of activated carbon in the coal fired energy units . recently , the u.s. supreme court agreed to consider whether the epa appropriately considered costs in determining whether it is necessary and appropriate to regulate hazardous air pollutants emitted by electric utilities . it is not possible to predict the outcome of the supreme court 's review of this matter . we use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination . the determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model . we estimate the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets . the projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition . 32 definite-lived intangible assets , which are comprised of customer relationships and developed technologies , are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists , such as a significant reduction in cash flows associated with the assets . we evaluate indefinite-lived intangible assets , which are comprised of the trademarks of purification solutions , for impairment annually or when events occur or circumstances change that may reduce the fair value of the asset below its carrying amount . the annual review is performed as of may 31. we may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test or bypass the qualitative assessment and proceed directly to performing the quantitative impairment test . the quantitative impairment test is based on discounted estimated future cash flows . the assumptions used to estimate fair value include management 's best estimates of future growth rates and discount rates over an estimate of the remaining operating period at the unit of accounting level . these future growth rates depend on achieving the expected volumes and pricing levels of the products of purification solutions . our long-lived assets primarily include property , plant and equipment , long-term investments and assets held for rent . the carrying values of long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable . an asset impairment is recognized when the carrying value of the asset is not recoverable based on the probability-weighted undiscounted estimated future cash flows to be generated by the asset . our estimates reflect management 's assumptions about selling prices , production and sales volumes , costs and market conditions over an estimate of the remaining operating period . if an impairment is indicated , the asset is written down to fair value . if the asset does not have a readily determinable market value , a discounted cash flow model may be used to determine the fair value of the asset . the key inputs to the discounted cash flow would be the same as the undiscounted cash flow noted above , with the addition of the discount rate used . in circumstances when an asset does not have separate identifiable cash flows , an impairment charge is recorded when we no longer intend to use the asset . to test for impairment of assets we generally use a probability-weighted estimate of the future undiscounted net cash flows of the assets over their remaining lives to determine if the value of the asset is recoverable . long-lived assets are grouped with other assets and liabilities at the lowest level for which independent identifiable cash flows are determinable . pensions and other postretirement benefits we maintain both defined benefit and defined contribution plans for our employees . in addition , we provide certain postretirement health care and life insurance benefits for our retired employees . plan obligations and annual expense calculations are based on a number of key assumptions . the assumptions , which are specific for each of our u.s. and foreign plans , are related to both the assets we hold to fund our plans ( where applicable ) and the characteristics of the benefits that will ultimately be provided to our employees . the most significant assumptions relative to our plan assets include the anticipated rates of return on these assets . assumptions relative to our pension obligations are more varied ; they include estimated discount rates , rates of compensation increases for employees , mortality , employee turnover and other related demographic data . projected health care and life insurance obligations also rely on the above mentioned demographic assumptions and assumptions surrounding health care cost trends . actual results that differ from the assumptions are generally accumulated and amortized over future periods and could therefore affect the recognized expense and recorded obligation in such future periods . however , cash flow requirements may be different from the amounts of expense that are recorded in the consolidated financial statements . litigation and contingencies we are involved in litigation in the ordinary course of business , including personal injury and environmental litigation . after consultation with counsel , as appropriate , we accrue a liability for litigation 33 when it is probable that a liability has been incurred and the amount can be reasonably estimated . the estimated reserves are recorded based on our best estimate of the liability associated with such matters or the low end of the estimated range of liability if we are unable to identify a better estimate within that range .
| in calculating our operating tax rate , we exclude discrete tax items , which include : i ) unusual or infrequent items such as a significant release of a valuation allowance , ii ) items related to uncertain tax positions such as the tax impact of audit settlements , interest on tax reserves , and the release of tax reserves from the expiration of statutes of limitations , and iii ) other discrete tax items , such as the tax impact of legislative changes and , on a quarterly basis , the timing of losses in certain jurisdictions and the cumulative rate adjustment , if applicable . we also exclude the tax impact of certain items , as defined below in the discussion of total segment ebit , on both operating income and the tax provision . our 35 definition of the operating tax rate may not be comparable to the definition used by other companies . management believes that the non-gaap financial measure is useful supplemental information because it helps our investors compare our tax rate year to year on a consistent basis and understand what our tax rate on current operations would be without the impact of these items which we do not believe are reflective of the underlying business results . total segment ebit is a non-gaap performance measure , and should not be considered an alternative for income from continuing operations before taxes , the most directly comparable gaap financial measure . in calculating total segment ebit , we make certain adjustments such as excluding certain items , meaning items that management does not consider representative of our fundamental segment results , as well as items that are not allocated to our business segments , such as interest expense and other corporate costs . our chief operating decision maker uses segment ebit to evaluate the operating results of each segment and to allocate resources to the segments . we believe total segment ebit provides useful supplemental information for our investors as it is an important indicator of the company 's operational strength and performance . investors should consider the limitations associated with this non-gaap measure , including the potential lack of comparability of this measure from one company to another . a reconciliation of total segment ebit to income from continuing operations before income taxes and equity in earnings of affiliated companies is provided in note t of our consolidated financial statements . cabot is organized into four reportable business segments : reinforcement materials , performance materials , advanced technologies and purification solutions . cabot is also organized for operational purposes
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for example , we believe that many of our target product developer and engineer customers are facing three mega trends , which are disrupting long-term product growth models . we believe our customers are facing increased pressure to shorten product life-cycles , to embed products with connectivity driven by the internet of things technology , and to deliver products that are personalized and customized to unique customer specifications . we believe we continue to be well positioned to benefit from these trends , given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom parts . while our business may be positively affected by these trends , our results may also be favorably or unfavorably impacted by other trends that affect product developer and engineer orders for custom parts in low volumes , including , among others , economic conditions , changes in product developer and engineer preferences or needs , developments in our industry and among our competitors , and developments in our customers ' industries . for a more complete discussion of the risks facing our business , see part i , item 1a . “ risk factors ” of this annual report on form 10-k. 32 key financial measures and trends revenue our operations are comprised of three geographic operating segments in the united states , europe and japan . revenue is derived from our injection molding , cnc machining , 3d printing and sheet metal product lines . injection molding revenue consists of sales of custom injection molds and injection-molded parts . cnc machining revenue consists of sales of cnc-machined custom parts . 3d printing revenue consists of sales of custom 3d-printed parts . sheet metal revenue consists of sales of fabricated sheet metal custom parts . our revenue is generated from a diverse customer base , with no single customer company representing more than 2 % of our total revenue in 2019. our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities , including : the introduction of our 3d printing product line through our acquisition of fineline in 2014 ; expanding 3d printing to europe through our acquisition of alphaform in october 2015 ; the introduction of our sheet metal product line through our acquisition of rapid in 2017 ; continuously improving the usability of our product lines such as our web-centric applications ; and expanding the breadth and scope of our products by adding more sizes and materials to our offerings . during 2019 , we served 47,774 unique product developers and engineers who purchased our products through our web-based customer interface , an increase of 3.9 % over the same period in 2018. during 2018 , we served 45,968 unique product developers and engineers who purchased our products through our web-based customer interface , an increase of 22.5 % over the same period in 2017. during 2017 , we served 37,538 unique product developers and engineers who purchased our products through our web-based customer interface , an increase of 19.3 % over the same period in 2016. cost of revenue , gross profit and gross margin cost of revenue consists primarily of raw materials , equipment depreciation , employee compensation including benefits and stock-based compensation , facilities costs and overhead allocations associated with the manufacturing process for molds and custom parts . we expect our personnel-related costs to increase in order to retain and attract top talent and remain competitive in the market . overall , we expect cost of revenue to increase in absolute dollars , but remain relatively constant as a percentage of total revenue . our business model requires that we invest in our capacity well in advance of demand to ensure we can fulfill the expectations for quick delivery of our products to our customers . therefore , during each of 2019 , 2018 and 2017 we made significant investments in additional factory space , equipment , and infrastructure in the united states . we also made significant investments in infrastructure in europe in 2017 and significant investments in additional factory space in japan in 2019 and 2016. we expect to continue to grow in future periods , which will result in the need for additional investments in factory space and equipment . we expect that these additional costs for factory and equipment expansion can be absorbed by revenue growth , and allow gross margins by product line to remain relatively consistent over time . we define gross profit as our revenue less our cost of revenue , and we define gross margin as gross profit expressed as a percentage of revenue . our gross profit and gross margin are affected by many factors , including our mix of revenue by product line , pricing , sales volume , manufacturing costs , the costs associated with increasing production capacity , the mix between domestic and foreign revenue sources and foreign exchange rates . 33 operating expenses operating expenses consist of marketing and sales , research and development and general and administrative expenses . personnel-related costs are the most significant component in each of these categories . our recent growth in operating expenses is mainly due to higher headcounts to support our growth and expansion , and we expect that trend to continue . our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn , on-demand injection-molded , cnc-machined , cnc-turned , 3d-printed and sheet metal custom parts for prototyping and low-volume production . in order to achieve our goals , we anticipate continued substantial investments in technology and personnel , resulting in increased operating expenses . marketing and sales . marketing and sales expense consists primarily of employee compensation , benefits , commissions , stock-based compensation , marketing programs such as electronic , print and pay-per-click advertising , trade shows and other related overhead . story_separator_special_tag we expect sales and marketing expense to increase in the future as we increase the number of marketing and sales professionals and marketing programs targeted to increase our customer base and grow revenue . research and development . research and development expense consists primarily of personnel and outside service costs related to the development of new processes and product lines , enhancement of existing product lines , software developed for internal use , maintenance of internally developed software , quality assurance and testing . costs for internal use software are evaluated by project and capitalized where appropriate under accounting standards codification ( asc ) 350-40 , intangibles — goodwill and other , internal-use software . we expect research and development expense to increase in the future as we seek to enhance our e-commerce interface technology , internal software and supporting business systems , and continue to expand our product lines . general and administrative . general and administrative expense consists primarily of employee compensation , benefits , stock-based compensation , professional service fees related to accounting , tax and legal and other related overhead . we expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization . other income , net other income , net primarily consists of foreign currency-related gains and losses and interest income on cash balances and investments . our foreign currency-related gains and losses will vary depending upon movements in underlying exchange rates . our interest income will vary each reporting period depending on our average cash balances during the period , composition of our marketable security portfolio and the current level of interest rates . provision for income taxes provision for income taxes is comprised of federal , state , local and foreign taxes based on pre-tax income . on december 22 , 2017 , the tax cuts and jobs act was signed into law in the united states . as a result , many provisions will affect our tax rate in future years . some provisions , such as the reduction to the u.s. corporate tax rate from 35 % to 21 % , which began in 2018 , reduced our effective tax rate in 2018 and subsequent years . overall , our effective tax rate for 2018 and beyond will remain consistent based on the current tax laws . 34 story_separator_special_tag center ; font-size : 10pt ; '' > 36 general and administrative . our general and administrative expense decreased $ 2.7 million , or 5.2 % , for 2019 compared to 2018 due to stock- based compensation cost decreases of $ 1.7 million driven by lower performance-related compensation , amortization cost decreases of $ 1.0 million driven by allocations to other expense categories to appropriately reflect the nature of our intangible assets and professional service decreases of $ 0.4 million , which were partially offset by administrative cost increases of $ 0.4 million . other income , net and provision for income taxes other income , net . we recognized other income , net of $ 1.3 million in 2019 , a decrease of $ 1.5 million compared to other income , net of $ 2.8 million for 2018. other income , net for 2019 primarily consisted of $ 2.1 million in interest income on investments , which was partially offset by a $ 0.8 million loss on foreign currency . other income , net for 2018 primarily consisted of $ 1.7 million in interest income on investments , a $ 0.7 million gain on our sale of rapid wire & cable , llc and a $ 0.4 million gain on foreign currency . provision for income taxes . our income tax provision increased by $ 2.4 million for 2019 compared to 2018. the increase in the provision is primarily due to a decrease in tax benefits from the vesting of restricted stock and exercise of stock options . this increase was coupled with an increase in the state tax provision and an increase in valuation allowances . our effective tax rate of 21.6 % for 2019 increased 5.2 % compared to 16.4 % for the same period in 2018. comparison of years ended december 31 , 201 8 and 201 7 revenue revenue by reportable segment and the related changes for 2018 and 2017 is summarized as follows : replace_table_token_9_th our revenue increased $ 101.1 million , or 29.3 % , for 2018 compared with 2017. by reportable segment , revenue in the united states increased $ 87.4 million , or 33.2 % , for 2018 compared with 2017. revenue growth in the united states was partially attributable to the acquisition of rapid in november 2017. revenue in europe increased $ 10.7 million , or 15.3 % , for 2018 compared with 2017. revenue in japan increased $ 2.9 million , or 26.0 % , for 2018 compared with 2017. our revenue growth in 2018 was primarily driven by an increased volume of the product developers and engineers we served . during 2018 , we served 45,968 unique product developers and engineers , an increase of 22.5 % over 2017. average revenue per product developer or engineer increased 6 % during 2018 as compared to 2017 due to changes in the mix of products purchased by our customers . our revenue increases were primarily driven by increases in sales personnel and marketing activities . our sales personnel focus on gaining new customer accounts and expanding the depth and breadth of existing customer accounts . our marketing personnel focus on marketing activities that have proven to generate the greatest number of customer leads to support sales activity . international revenue increased by $ 3.5 million in 2018 compared to 2017 as a result of foreign currency movements , primarily the strengthening of the euro relative to the united states dollar .
| our marketing personnel focus on marketing activities that have proven to generate the greatest number of customer leads to support sales activity . international revenue was negatively impacted by $ 4.2 million in 2019 compared to 2018 as a result of foreign currency movements , primarily the weakening of the euro relative to the united states dollar . revenue by product line and the related changes for 2019 and 2018 is summarized as follows : replace_table_token_8_th by product line , our revenue growth was driven by a 3.3 % increase in injection molding revenue , a 1.3 % increase in cnc machining revenue , a 15.0 % increase in 3d printing revenue , as well as a $ 0.3 million increase in other revenue , which was partially offset by a 16.0 % decrease in sheet metal revenue , in each case for 2019 compared with 2018. the decrease in sheet metal revenue was driven by a decision to move away from certain business which was not scalable and did not fit into the envelope of our revised sheet metal product offerings . cost of revenue , gross profit and gross margin cost of revenue . cost of revenue increased $ 16.5 million , or 8.0 % , for 2019 compared to 2018 , which was faster than the rate of revenue increase of 2.9 % for 2019 compared to 2018. the increase in cost of revenue resulted from the growth of the business and investments to support future growth . specifically , the increases were driven by raw material and production cost increases of $ 2.6 million , an increase in direct labor headcount and wage inflation resulting in personnel and related cost increases of $ 7.8 million and equipment and facility-related cost increases of $ 6.1 million to support increased sales volumes and future growth of the business . gross profit and gross margin . gross profit decreased from $ 238.7 million in 2018 to $ 235.3 million in 2019 primarily due to an increase in expenses associated with the cost of revenue .
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potential borrowers impacted by the pandemic may no longer meet our underwriting criteria . loan production in many portfolio segments may continue to be muted , at least over the first half of 2021. while we currently expect loan production to begin to grow by the second half of 2021 , our ability to increase production will depend on the future trajectory of the pandemic and on the pace and timing of economic recovery . 28 in response to the pandemic , we have prioritized risk management and implemented a number of measures to support our customers , employees and communities . specifically , we have : activated and continue to operate under our business continuity plan under the leadership of executive management . enhanced liquidity monitoring and management protocols . maintained a regular cadence of board of directors update calls . enhanced the level and frequency of pro-active outreach to borrowers and our portfolio management activities . segregated certain segments of the loan portfolio for enhanced monitoring . enhanced our workout and recovery staffing and processes . enhanced our stress testing framework . results of internal stress testing indicate that we have sufficient capital to withstand an increase in credit losses materially beyond levels currently expected , and to withstand a severe downturn . proactively reached out to our critical third party service providers and evaluated their ability to continue to provide support in the current environment . we have experienced no significant service disruptions . expanded certain employee benefits and launched a number of programs to keep our employees healthy and engaged . enhanced personal protective measures for employees working at our corporate locations and begun planning for the eventual return to office of a larger percentage of our workforce , when conditions permit . supported our clients through participating in the small business administration 's ppp , the federal reserve 's mslf program and granting payment deferrals , loan modifications and fee waivers on a case-by-case basis . temporarily halted new residential foreclosure actions . disbursed over 150 grants to nonprofit organizations across our footprint , including an end of year donation of $ 100,000 to local food banks . continued helping to meet the various needs of our community partners through over 1,500 employee `` virtual '' volunteer hours during the pandemic . we remain confident in our long-term underlying strength and stability , and our ability to navigate these challenging conditions . overview the following discussion and analysis presents the more significant factors that affected our financial condition as of december 31 , 2020 and 2019 and results of operations for each of the years then ended . refer to item 7 `` management 's discussion and analysis of financial condition and results of operations '' included in our annual report on form 10-k filed with the sec on february 28 , 2020 for a discussion and analysis of the more significant factors that affected periods prior to 2019. story_separator_special_tag style= '' text-align : center '' > of directors reinstated the share repurchase program . authorization to repurchase up to approximately $ 44.9 million in shares of its outstanding common stock remains under the program . in the first quarter of 2020 , the company increased its quarterly cash dividend by $ 0.02 to $ 0.23 per share , reflecting a 10 % increase from the previous quarterly cash dividend of $ 0.21 per share and has maintained that quarterly dividend level throughout 2020. book value per common share grew to $ 32.05 at december 31 , 2020 from $ 31.33 at december 31 , 2019 while tangible book value per common share increased to $ 31.22 from $ 30.52 over the same period . the company 's and the bank 's capital ratios exceeded all regulatory `` well capitalized '' guidelines . the charts below present the company 's and the bank 's regulatory capital ratios compared to regulatory guidelines at december 31 , 2020 and 2019 : bankunited , inc. bankunited , n.a . : 31 strategic priorities management has identified the following strategic priorities for our company : maximizing risk adjusted returns through a combination of sustainable , diversified and prudently managed organic growth and capital optimization . growing core deposit relationships . building a foundational and scalable small business and middle-market franchise . emphasizing growth in areas where our delivery model is a differentiator . continuing to execute on our bankunited 2.0 revenue generating initiatives . investing in digital capabilities , automation and data analytics . maintaining an efficient , effective and scalable support model through operational excellence . monitoring the m & a landscape while growing organically . some of the challenges confronting our company , which may also impact the banking industry more broadly , include : the current interest rate environment , characterized by generally low interest rates , and relatively tight spreads , may impact our ability to achieve margin expansion . the impact of the ongoing covid-19 crisis on the economy , our borrowers , our employees and the work environment and demand for our products and services . regulatory changes and other policy implications that may follow the recent change in the political landscape . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with gaap and follow general practices within the banking industry . application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances . these assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent , objective sources . we evaluate our estimates on an ongoing basis . use of alternative assumptions may have resulted in significantly different estimates . actual results may differ from these estimates . accounting policies are an integral part of our financial statements . story_separator_special_tag a thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position . we believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity , subjectivity and sensitivity involved in their application . note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies . 32 acl the acl represents management 's estimate of current expected credit losses , or the amount of amortized cost basis not expected to be collected , on our loan portfolio and the amount of credit loss impairment on our afs securities portfolio . determining the amount of the acl is considered a critical accounting estimate because of its complexity and because it requires extensive judgment and estimation . estimates that are particularly susceptible to change that may have a material impact on the amount of the acl include : our evaluation of current conditions ; our determination of a reasonable and supportable economic forecast ; our evaluation of historical loss experience ; our evaluation of changes in composition and characteristic of the loan portfolio , including internal risk ratings ; our estimate of expected prepayments ; the value of underlying collateral , which may impact loss severity and certain cash flow assumptions for collateral-dependent , criticized and classified loans ; our selection and evaluation of qualitative factors ; the amount and timing of expected future cash flows from pcd loans ; and our estimate of expected cash flows on afs debt securities in unrealized loss positions . note 1 to the consolidated financial statements describes the methodology used to determine the acl . recent accounting pronouncements see note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements . results of operations net interest income net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings . net interest income is impacted by the mix of interest earning assets and interest bearing liabilities , the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources , movements in market interest rates , the shape of the yield curve , levels of non-performing assets and pricing pressure from competitors . the mix of interest earning assets is influenced by loan demand , market and competitive conditions in our primary lending markets , by management 's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations . the mix of interest bearing liabilities is influenced by the company 's liquidity profile , management 's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations , our ability to attract and retain core deposit relationships , competition for deposits in the company 's markets and the availability and pricing of other sources of funds . 33 the following table presents , for the years ended december 31 , 2020 , 2019 and 2018 , information about ( i ) average balances , the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields ; ( ii ) average balances , the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates ; ( iii ) net interest income ; ( iv ) the interest rate spread ; and ( v ) the net interest margin . non-accrual and restructured loans are included in the average balances presented in this table ; however , interest income foregone on non-accrual loans is not included . interest income , yields , spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes , at a federal tax rate of 21 % ( dollars in thousands ) : replace_table_token_6_th ( 1 ) on a tax-equivalent basis where applicable . the tax-equivalent adjustment for tax-exempt loans was $ 14.9 million , $ 16.7 million , and $ 17.5 million and the tax-equivalent adjustment for tax-exempt investment securities was $ 3.1 million , $ 4.3 million and $ 5.5 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . ( 2 ) at fair value except for securities held to maturity . increases and decreases in interest income , calculated on a tax-equivalent basis , and interest expense result from changes in average balances ( volume ) of interest earning assets and liabilities , as well as changes in average interest rates . the following table shows the effect that these factors had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated . the effect of changes in volume is determined by multiplying the change in volume by the previous year 's average rate . similarly , the effect of rate changes is calculated by multiplying the change in 34 average rate by the previous year 's volume . changes applicable to both volume and rate have been allocated to volume ( in thousands ) : replace_table_token_7_th net interest income , calculated on a tax-equivalent basis , was $ 769.8 million for the year ended december 31 , 2020 compared to $ 773.8 million for the year ended december 31 , 2019 , a decrease of $ 4.0 million .
| the net interest margin , calculated on a tax-equivalent basis , was 2.35 % for the year ended december 31 , 2020 compared to 2.47 % for the year ended december 31 , 2019. the provision for credit losses totaled $ 178.4 million for the year ended december 31 , 2020. at december 31 , 2020 , the acl was $ 257 million , or 1.08 % of loans compared to $ 109 million or 0.47 % of loans at december 31 , 2019. for the year ended december 31 , 2019 , the company recorded a provision for loan losses , under the incurred loss model , of $ 8.9 million . the increase in the provision for credit losses and the acl resulted from the application of the cecl methodology and the impact on expected credit losses of the covid-19 pandemic . the average cost of total deposits decreased to 0.77 % for the year ended december 31 , 2020 from 1.63 % for 2019. on a spot basis , the average apy on total deposits declined to 0.36 % at december 31 , 2020 from 1.42 % at december 31 , 2019. this decline in the cost of deposits reflects both our ongoing strategy to increase non-interest bearing deposits as a percentage of total deposits and to reduce rates paid on interest-bearing deposits , as well as declines in market interest rates generally . total deposits increased by $ 3.1 billion for the year ended december 31 , 2020 , of which $ 2.7 billion or 88 % was non-interest bearing demand deposits . non-interest bearing demand deposits increased by 63 % in 2020 , to 25 % of total deposits at december 31 , 2020. the following charts illustrate the composition of deposits at december 31 , 2020 and 2019 : interest earning assets grew by $ 2.2 billion during the year ended december 31 , 2020. loans grew by $ 711 million ; we saw growth in ppp loans and the residential and mortgage warehouse portfolio sub-segments while other portfolio sub-segments declined . investment securities grew by $ 1.4 billion as liquidity was deployed into the securities portfolio in a challenging credit environment . loans on deferral totaled $ 207 million or less than 1 % of total loans at december
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12 months , as well as payment of $ 750 million related to our settlement of the patent litigation with cmu . in connection with the patent litigation action with cmu , we reached settlement with cmu in february 2016 and have agreed to pay an aggregate of $ 750 million ( see note 10 commitments and contingencies and note 15 subsequent events in the notes to the consolidated financial statements set forth in part ii , item 8 of this annual report on form 10-k for further discussion of this matter including the charge we recorded in fiscal 2016 and other patent litigation matters ) . a significant number of our products are being incorporated into consumer electronics products , including gaming devices and personal computers , which are subject to significant seasonality and fluctuations in demand . holiday and back to school buying trends may at times negatively impact our results in the first and fourth quarter , and positively impact our results in the second and third quarter of our fiscal years . in addition , consumer electronics sales are heavily dependent on new product launch timelines and product refreshes . for example , our sales of wireless connectivity products may increase significantly during a period when one of our customers launches a new gaming console , and these sales may taper significantly after the initial launch period . historically , a relatively small number of customers have accounted for a significant portion of our net revenue . net revenue from one customer was 18 % , 20 % and 24 % for fiscal 2016 , 2015 and 2014 , respectively . net revenue from a second customer was 13 % , 13 % and 12 % for fiscal 2016 , 2015 and 2014 , respectively . we had net revenue from one distributor representing 11 % for fiscal 2015. no distributors accounted for 10 % or greater of total net revenue in fiscal 2014 or fiscal 2016. we continuously monitor the creditworthiness of our distributors and believe these distributors ' sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk . most of our sales are made to customers located outside of the united states , primarily in asia . sales to customers in asia represented approximately 96 % of our net revenues in each of fiscal 2016 and 2015 , and 95 % of our net revenue for fiscal 2014. because many manufacturers and manufacturing subcontractors of our customers are located in asia , we expect that most of our net revenue will continue to be represented by sales to our customers in that region . a relatively large portion of our sales have historically been made on the basis of purchase orders rather than long-term agreements . in addition , the development process for our products is long , which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures . we anticipate that the rate of new orders may vary significantly from quarter to quarter . 38 consequently , if anticipated sales and shipments in any quarter do not occur when expected , expenses and inventory levels could be disproportionately high , and our operating results for that quarter and future quarters may be adversely affected . critical accounting policies and estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles in the united states ( gaap ) requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to performance-based compensation , revenue recognition , provisions for sales returns and allowances , inventory excess and obsolescence , investment fair values , goodwill and other intangible assets , restructuring , income taxes , litigation and other contingencies . in addition , we use assumptions when employing the monte carlo simulation and black-scholes valuation models to calculate the fair value of share-based awards granted . we base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances when these carrying values are not readily available from other sources . actual results could differ from these estimates , and such differences could affect the results of operations reported in future periods . 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 . we recognize revenue when there is persuasive evidence of an arrangement , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . product revenue is generally recognized upon shipment of product to customers , net of accruals for estimated sales returns and rebates . however , some of our sales are made through distributors under agreements allowing for price protection and limited rights of stock rotation on product unsold by the distributors . although title passes to the distributor upon shipment terms and payment by our distributors is not contingent on resale of the product , product revenue on sales made through distributors with price protection and stock rotation rights are deferred until the distributors sell the product to end customers . deferred revenue less the related cost of the inventories is reported as deferred income . we do not believe that there is any significant exposure related to impairment of deferred cost of sales , as our historical returns have been minimal and inventory turnover for our distributors generally ranges from 60 to 90 days . our sales to direct customers are made primarily pursuant to standard purchase orders for delivery of products . story_separator_special_tag a portion of our net revenue is derived from sales through third-party logistics providers , who maintain warehouses in close proximity to our customer 's facilities . revenue from sales through these third-party logistics providers is not recognized until the product is pulled from stock by the customer . the provision for estimated sales returns and allowances on product sales is recorded in the same period the related revenues are recorded . these estimates are based on historical sales returns , analysis of credit memo data and other known factors . in addition , payments to our customers , in cases where products with potential quality issues are not returned to us and the related quality issue can otherwise not be verified , or where the amount of the payment is not sufficiently supported by the fair value of the quality issue , may be recorded as a reduction of revenue . actual returns could differ from these estimates . we account for rebates by recording reductions to revenue in the same period that the related revenue is recorded . the amount of these reductions is based upon the terms agreed to with the customers . share-based compensation . we measure our share-based compensation at the grant date , based on the fair value of the award , and recognize expense over the requisite service period . we amortize share-based compensation expense for time-based awards under the straight-line attribution method over the vesting period , which is generally four years for annual grants to employees and five years for new hire grants . performance-based awards are amortized using the accelerated method . 39 we estimate the fair value of time-based stock option and stock purchase awards on the date of grant using the black scholes option-pricing model . the fair value of market-based stock option awards is estimated on the date of grant using a monte carlo simulation model . the value of the portion of the awards that is ultimately expected to vest is recognized as expense over the requisite service periods . the black-scholes and monte carlo models incorporate various highly subjective assumptions including expected term of awards , expected future stock price volatility , expected dividend yield and risk-free interest rate . in developing estimates used to calculate assumptions , we establish the expected term for employee options , as well as expected forfeiture rates , based on the historical settlement experience and after giving consideration to vesting schedules . assumptions for stock option exercises and pre-vesting terminations of stock options were stratified by two employee groups and one employee/non-employee group with sufficiently distinct behavior patterns . expected volatility was developed based on an equally weighted combination of historical stock price volatility and implied volatility derived from traded options on our stock in the marketplace . the expected dividend yield is calculated by dividing annualized dividend payments by the closing stock price on the grant date of the option . the fair value of each restricted stock unit is estimated based on the market price of the company 's common shares on the date of grant less the expected dividend yield . additionally , for certain of our performance-based awards , we must make subjective assumptions regarding the likelihood that the related performance metrics will be met . these assumptions are based on various revenue and operating performance criteria . changes in our actual performance could cause a significant adjustment in future periods for these performance-based awards . share-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those share-based awards that are expected to vest . previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred . forfeitures are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from initial estimates . assumptions for forfeitures are stratified by employee groups with sufficiently distinct behavior patterns . changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation expense , as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed . if the actual forfeiture rate is higher than the estimated forfeiture rate , then an adjustment will be made to increase the estimated forfeiture rate , which will result in a decrease to the expense recognized in the financial statements . if the actual forfeiture rate is lower than the estimated forfeiture rate , then an adjustment will be made to lower the estimated forfeiture rate , which will result in an increase to the expense recognized in the financial statements . the expense we recognize in future periods could be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period and or our forecasts . accounting for income taxes . we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheets . we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year , and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated .
| when such agreement would not have occurred but for the request made by marvell , we refer to such transactions internally as pull-ins. pull-in sales increased compared to historical levels beginning in the fourth quarter of fiscal 2015 and returned to historical levels in the third quarter of fiscal 2016. net revenue in fiscal 2016 related to pull-in sales for shipments taken early by our customers were approximately 9 % and 11 % of net revenue in the first and second quarters of fiscal 2016 , respectively , and declined to less than 1 % of net revenue in both the third and fourth quarters of fiscal 2016. this compares to net revenue in fiscal 2015 related to pull-in sales for shipments taken early by our customers , which were less than 1 % in each of the first and second quarters of fiscal 2015 , 1 % in the third quarter of fiscal 2015 and increased to 3 % in the fourth quarter of fiscal 2015. customer concessions related to these pull-in transactions , if any , were 44 recorded in the same period in which the revenue was recognized . beginning in fiscal 2017 , our policy is not to engage in pull-in transactions and we therefore do not expect them to have any meaningful impact on our net revenue in future periods . cost of goods sold replace_table_token_7_th cost of goods sold as a percentage of net revenue was higher in fiscal 2016 due to a shift in the mix of our revenue , particularly in the first half of fiscal 2016 , towards our mobile and wireless products which have a higher average cost of goods sold as a percentage of revenue . in addition , cost of goods sold in fiscal 2016 includes higher inventory write downs due to lower than expected demand for our mobile related products . cost of goods sold in fiscal 2016 also includes a $ 81.3 million charge for the litigation settlement with cmu . for further discussion related to the settlement with cmu ( see note 10 commitments and contingencies and note 15 subsequent events in the notes to the consolidated financial statements set forth in part ii , item 8 of this annual report on form 10-k ) . our cost of goods sold as a percentage of net revenue may fluctuate in future periods due to , among other things , changes in the mix of products sold ; the timing of production ramps of new products ; increased pricing pressures from our customers and competitors , particularly in
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industrial gas turbines are favored in electric generating facilities due to low capital cost at installation , fewer emissions than traditional fossil fuel‑fired facilities and favorable natural gas prices provided by availability of non-conventional ( shale ) gas supplies . as governmental policy shifts away from coal‑fired facilities , demand for industrial gas turbines is expected to increase . volume shipped into the other markets category increased from fiscal 2013 to 2015 , then moderated in fiscal 2016 and improved slightly in fiscal 2017. sales to this market in fiscal 2015 included some high-value special application projects with high average selling prices per pound . the industries in this category focus on upgrading overall product quality , improving product performance through increased efficiency , prolonging product life and lowering long‑term costs . companies in these industries are looking to achieve these goals through the use of “ advanced materials ” which support the increased use of high‑performance alloys in an expanding number of applications . in addition to supporting and expanding the traditional businesses of oil and gas , flue‑gas desulfurization in china , automotive and heat treating , the company expects increased levels of activity overall in non‑traditional markets such as fuel cells and alternative energy applications in the long term . summary of capital spending over the past three years , the company was capacity constrained at times in sheet production as it experienced higher demand for thin-gauge flat products from customers , driven by strong growth in the aerospace market . in response to this heightened demand and the anticipation of future demand growth , the company made investments of $ 22 million to increase capacity in the heat treating and cold rolling areas . entering fiscal 2018 , the company has completed this capacity expansion and is now positioned to increase manufacturing output to service anticipated growth in the aerospace market . as utilization ramps up on this new capacity , the company expects the associated volume increases will have immediate contributions to profitability . in may 2016 , the company announced the relocation of its lebanon , indiana service center operations to laporte , indiana . with this move , the company is increasing its service center capacity and capabilities with new building improvements and equipment in the amount of approximately $ 9.8 million , of which approximately $ 8.7 million has been spent to date . capital spending was $ 31.6 million and $ 15.0 million in fiscal 2016 and 2017 , respectively , and the forecast for capital spending in fiscal 2018 is approximately $ 17.0 million . cumulative capital spending over the past five fiscal years has exceeded $ 170.0 million , which has increased manufacturing capacity in secondary melting , flat products rolling , annealing , value-added cutting , tubular production as well the implementation of a global information technology system . these investments should enable the company to keep pace with anticipated growth in the aerospace market . the $ 17.0 million of planned capital spending in fiscal 2018 includes the completion of cold-finishing capacity expansion and completion of the laporte service center operations expansion , as well as the ongoing maintenance of existing manufacturing capacity . volumes , competition and pricing volumes dropped 11.3 % in fiscal 2016 to 18.0 million pounds , then increased slightly to 18.1 million pounds in fiscal 2017. business conditions became increasingly challenging over fiscal 2016 and 2017 with falling nickel prices and continued headwinds related to foreign currency and lower oil and gas demand creating a spillover impact on the 34 company 's chemical processing and industrial gas turbine businesses . the second half of fiscal 2017 was unfavorably impacted by lower levels of specialty application projects . product average selling price per pound declined by $ ( 1.01 ) or 4.7 % in fiscal 2017 as compared to 2016. a lower value product mix and pricing competition drove a decline of approximately $ ( 1.78 ) per pound . this decline was partially offset by an increase in raw material prices of approximately $ 0.77 per pound , with nickel prices accounting for approximately $ 0.19 per pound of the increase and cobalt prices accounting for approximately $ 0.52 per pound of the increase . while the market price of cobalt has increased dramatically , cobalt usage in the company 's overall shipments is estimated at below 10 % . nickel usage in the company products is more impactful at approximately 50 % . the average market price of nickel as reported by the london metals exchange in fiscal 2014 was $ 7.51 per pound , which declined 20.9 % to $ 5.94 per pound for fiscal 2015 , declined 30.3 % further to $ 4.14 per pound in fiscal 2016 , then increased moderately to $ 4.70 in fiscal 2017. the london metals exchange price for the 30-days ending september 30 , 2017 was $ 5.10 per pound . the company values inventory utilizing the first-in , first-out ( “ fifo ” ) inventory costing methodology . in a period of decreasing raw material costs , the fifo inventory valuation normally results in higher costs of sales as compared to the last-in , first out method . conversely , in a period of rising prices , the fifo inventory valuation normally results in lower costs of sales as compared to the last-in , first out method . gross profit margin trend performance the following tables show net revenue , gross profit margin and gross profit margin percentage for fiscal 2016 and fiscal 2017. replace_table_token_10_th replace_table_token_11_th gross margin dollars in the second half of fiscal 2016 improved due to higher levels of specialty application projects . story_separator_special_tag during the first half of fiscal 2017 , gross margin dollars declined due to lower levels of specialty application projects as compared to fiscal 2016. gross margin dollars in the third quarter of fiscal 2017 continued to trend lower due , primarily , to a lower level of specialty application projects and an increase to the company 's lower-of-cost-or-market and slow-moving reserve , resulting in a gross margin percentage of only 3.7 % . during the fourth quarter of fiscal 2017 , gross margin improved due to higher overall volumes , lack of adjustments to inventory reserves and a more profitable product mix . working capital controllable working capital , which includes accounts receivable , inventory , accounts payable and accrued expenses , was $ 259.1 million at september 30 , 2017 , an increase of $ 3.8 million or 1.5 % from $ 255.4 million at september 30 , 2016. this increase of $ 3.8 million includes an increase in inventory of $ 7.9 million , partially offset by decreases in accounts payable and accrued expenses of $ 4.1 million . 35 dividends declared on november 16 , 2017 , the company announced that the board of directors declared a regular quarterly cash dividend of $ 0.22 per outstanding share of the company 's common stock . the dividend is payable december 15 , 2017 to stockholders of record at the close of business on december 1 , 2017. the aggregate cash payout based on current shares outstanding will be approximately $ 2.7 million , or approximately $ 11.0 million on an annualized basis . backlog set forth below is information relating to the company 's backlog and the 30‑day average nickel price per pound as reported by the london metals exchange . this information should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of “ management 's discussion and analysis of financial condition and results of operations ” included in this annual report on form 10‑k . replace_table_token_12_th ( 1 ) represents the average price for a cash buyer as reported by the london metals exchange for the 30 days ending on the last day of the period presented . backlog was $ 177.3 million at september 30 , 2017 , a decrease of approximately $ 3.6 million , or 2.0 % , from $ 180.9 million at june 30 , 2017. the backlog dollars decreased during the fourth quarter of fiscal 2017 due to a 13.9 % decrease in backlog pounds partially offset by a 13.8 % increase in backlog average selling price . the primary driver for the reduction in backlog was lower order entry which is typical during the summer months . the increase in average selling price is due to a higher-value product mix in the backlog . during fiscal 2017 , the backlog increased by $ 9.0 million , or 5.3 % , from $ 168.3 million at september 30 , 2016 to $ 177.3 million at september 30 , 2017 due to a 5.8 % increase in backlog pounds partially offset by a 0.5 % decrease in backlog average selling price . the increase in backlog pounds was primarily driven by increases in demand in the aerospace market . 36 quarterly market information replace_table_token_13_th story_separator_special_tag style= '' display : inline ; font-style : italic ; '' > cost of sales . cost of sales was $ 365.5 million , or 92.5 % of net revenues , in fiscal 2017 compared to $ 358.8 million , or 88.3 % of net revenues , in fiscal 2016. cost of sales in fiscal 2017 increased by $ 6.7 million as compared to fiscal 2016 primarily due to higher volume , higher raw material costs and increased pension expense , partially offset by a lower-value product mix sold . gross profit . as a result of the above factors , gross margin was $ 29.7 million for fiscal 2017 , a decrease of $ 17.9 million from $ 47.6 million in fiscal 2016 driven by less favorable product mix as a result of less specialty application projects . gross margin as a percentage of net revenue decreased to 7.5 % in fiscal 2017 as compared to 11.7 % in fiscal 2016. selling , general and administrative expense . selling , general and administrative expense was $ 42.4 million for fiscal 2017 , an increase of $ 2.7 million , or 6.8 % , from $ 39.7 million in fiscal 2016. the increase in expense was primarily driven by fluctuations in foreign currencies of $ 2.1 million . higher pension expense and higher bad debt expense also contributed to the increased expense . selling , general and administrative expenses as a percentage of net revenues increased to 10.7 % for fiscal 2017 , compared to 9.8 % for fiscal 2016. research and technical expense . research and technical expense was $ 3.9 million , or 1.0 % of revenue , for fiscal 2017 , compared to $ 3.7 million , or 0.9 % of net revenue , in fiscal 2016. operating income/ ( loss ) . as a result of the above factors , operating loss in fiscal 2017 was $ ( 16.5 ) million , compared to operating income of $ 4.2 million in fiscal 2016. income taxes . a benefit from income taxes of $ 7.0 million was incurred in fiscal 2017 , a difference of $ 5.8 million from a tax benefit of $ 1.3 million in fiscal 2016. the effective tax rate for fiscal 2017 was 40.8 % , compared to 33.8 % in fiscal 2016. the higher tax rate in fiscal 2017 was attributed to a higher proportion of net loss recorded in the higher-rate united states jurisdiction in fiscal 2017 as compared to fiscal 2016. net income/ ( loss ) . as a result of the above factors , net loss for fiscal 2017 was $ ( 10.2 ) million , a decrease of $ 15.2 million from net income of $ 5.0 million in fiscal 2016 .
| the average selling price per pound decrease reflects an increase in pricing competition and a change to a lower-value product mix , which decreased average selling price per pound by approximately $ 1.03 and $ 0.63 , respectively , partially offset by a change in market prices of raw materials , which increased average selling price per pound by approximately $ 0.78. sales to the chemical processing market were $ 70.5 million in fiscal 2017 , a decrease of 2.6 % from $ 72.3 million in fiscal 2016 , due to a 13.2 % , or $ 3.40 , decrease in the average selling price per pound , partially offset by a 12.3 % increase in volume . volumes increased in fiscal 2017 from very low levels , but the increase may suggest the beginning of a recovery in base business . the decrease in the average selling price per pound reflects a change to a lower-value product mix and increased pricing competition , which decreased average selling price per pound by approximately $ 2.69 and $ 1.16 , respectively , partially offset by higher raw material market prices , which increased average selling price per pound by approximately $ 0.45 38 sales to the industrial gas turbine market were $ 61.5 million in fiscal 2017 , a decrease of 9.6 % from $ 68.1 million in fiscal 2016 , due to a 10.0 % decrease in volume partially offset by a 0.4 % , or $ 0.06 , increase in the average selling price per pound . the decrease in volume was due primarily to a decreased level of transactional business in this market , along with a lower level of ingot orders shipped . the increase in average selling price per pound reflects a change to a higher-value product mix and higher raw material market prices , which increased average selling price per pound by approximately $ 1.04 and $ 0.84 , respectively , partially offset by increased pricing competition , which decreased average selling price per pound by approximately $ 1.82. sales to other markets were $ 43.2 million in fiscal 2017 , a decrease of
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we launched our mobile-ordering shack app nationwide for ios in january 2017 , and to mark the occasion , we rewarded each guest who downloaded the shack app with a free single shackburger . s ubsequently in july 2017 we launched our android version of the shack app . g uests can order a shackburger , crinkle cut fries and frozen custard—all from their phone . the launch of our shack app is just another way we are trying to meet our guests where they are and giving a whole new way to experience shake shack . w e also introduced self-serve kiosks for in-shack ordering at a couple of our new york city shacks . our astor place shack in manhattan opened as the first shack with a kiosk-only , cashless environment with hospitality champs there to help and guide guests through the kiosk experience . in addition to launching and learning through the app , we entered into a number of integrated delivery pilots in fiscal 2017. we worked with a number of delivery service partners during this pilot phase and learned about guest demand and our various shacks ' operations as well as gained perspective on our partners and the importance of systems integration . we also m ade great strides this past year in our mission to stand for something good . in january 2017 we announced our u.s. animal welfare policy , providing further transparency to our team , guests and suppliers and reiterating our commitment to achieving ethical and humane practices for the animals in our supply chain . our fiscal 2017 results demonstrate the success of our various growth strategies . our brand power and thoughtful approach to growth have resulted in strong shack performance across a variety of geographic areas and formats . some financial highlights for fiscal 2017 include : ▪ total revenue increased 33.6 % to $ 358.8 million . ▪ shack sales increased 33.6 % to $ 346.4 million . ▪ same-shack sales decreased 1.2 % . ▪ operating income increase d 21.6 % to $ 33.8 million , or 9.4 % of total revenue . ▪ shack-level operating profit margin * , a non-gaap measure , increase d 25.9 % to $ 92.3 million , or 26.6 % of shack sales . ▪ net income was $ 8.9 million and net loss attributable to shake shack inc. was $ 0.3 million , or $ ( 0.01 ) per diluted share . ▪ adjusted ebitda * , a non-gaap measure , increased 28.7 % to $ 64.7 million . ▪ adjusted pro forma net income * , a non-gaap measure , increase d 25.4 % to $ 21.0 million , or $ 0.57 per fully exchanged and diluted share . ▪ 45 net system-wide shack openings , including 26 domestic company-operated shacks and 19 net licensed shacks , representing a 39.5 % increase in system-wide shack count . * shack-level operating profit , adjusted ebitda and adjusted pro forma net income are non-gaap measures . reconciliations of shack-level operating profit to operating income , adjusted ebitda to net income ( loss ) attributable to shake shack inc. , and adjusted pro forma net income to net income ( loss ) attributable to shake shack inc. , the most directly comparable financial measures presented in accordance with gaap , are set forth on pages 58–62 . trends in our business in fiscal 2017 we continued to focus on driving long-term value creation—building the community gathering places our guests love ( both in the shack and online ) , investing in our digital platforms , while innovating around our core menu , and further strengthening the unique culture that differentiates and drives our company forward . we plan to continue to expand our business , drive shack sales and enhance our competitive positioning by executing on the following strategies : ( i ) opening new domestic company-operated shacks ; ( ii ) capitalizing on our outsized brand awareness ; ( iii ) growing same-shack sales ; ( iv ) innovating our digital products and capabilities ; and ( v ) thoughtfully increasing our licensed shacks domestically and abroad . our primary means of growth will be opening new domestic company-operated shacks and we believe we have a strong pipeline of shacks for fiscal 2018. our development strategy this year remains a balance between further penetration of existing markets , shake shack inc. form 10-k | 49 complemented by launches in a number of new markets , including birmingham , charlotte , denver , kansas city , nashville , san francisco and seattle . we will also be growing our presence in existing markets with new shacks planned in california , metro new york , the mid-atlantic , texas and more . internationally , we will continue to execute our strategy of licensed revenue growth through our key partnerships here and abroad , with a focus on asia . in the summer of 2017 , we announced our plans to bring shake shack to hong kong and macau with a total of 14 shacks to open through 2027 , as well our plans to open 25 shacks in greater shanghai through 2028. we have another busy year planned with continued unit growth in fiscal 2018 in the middle east and u.k. as we continue our rapid expansion , we have begun to , and expect to continue to , enter into more “ new build ” spaces , where we may be considered the owner of any landlord-funded construction assets for accounting purposes ( “ build-to-suit leases ” ) . due to various forms of continuing involvement subsequent to the end of construction , we will likely be required to continue to account for these leases as a financing , which would result in higher interest expense and depreciation expense , partially offset by lower occupancy and related expenses . see “ —critical accounting policies and estimates ” and note 2 to the consolidated financial statements for more information . story_separator_special_tag while we believe that there is still ample room to grow our shack-base in our hometown of new york city , the majority of our domestic company-operated shack growth is expected to occur outside of new york city . because our historical average unit volumes ( `` auvs '' ) have been higher , due in large part to our concentration in urban markets , historical domestic company-operated auvs are not a good measure of expected sales at new shacks . as we continue to expand outside of our established markets , we continue to expect our company-wide auv for all domestic company-operated shacks to decline over time as shacks of various unit volumes are introduced into the system . for fiscal 2018 , we expect domestic company-operated auv to be between $ 4.1 to $ 4.2 million . building upon our accomplishments with the shack app and kiosks in fiscal 2017 , we will continue to invest in and expand our digital products and capabilities across the company in fiscal 2018. some of our digital strategies in the next year include : ( i ) continuing to add functionality to our online browsing and ordering experience ; ( ii ) streamlining and removing friction points and improving the overall guest experience when engaging with shake shack in the digital world to build data management and analytics capabilities to deliver enhanced customer insights critical to our ongoing digital product roadmap and our other strategic growth initiatives ; and ( iii ) delivering increasingly personalized marketing programs , allowing us to connect with our existing customers as well as potential customers , and to increasingly focus on rewarding our best customers . we plan on making investments in our people , systems and tools to build on the digital foundation we laid in 2017. we also plan on making investments in our back-office systems , in both the home office and our shacks , to support our ongoing expansion in the most efficient manner . we will continue to embrace our fine-dining heritage and , although our core menu remains focused , we plan to continue supplementing it with targeted innovation . in january 2018 , we launched our latest lto , the griddled chick ' n club—an all-natural chicken breast topped with niman ranch smoked bacon , lettuce , tomato and buttermilk herb mayo . we are excited to see how this option potentially expands the chicken category alongside our already successful fried chick ' n shack . while we believe there are significant opportunities ahead of us , we also face many challenges , along with our industry . we expect the high labor trends to continue into fiscal 2018. we believe that rising minimum wage legislation will continue to affect the entire restaurant industry , as well as increased regulatory pressures such as the fair work week legislation , and we fully expect this labor pressure to continue in the future . several states in which we operate have enacted minimum wage increases and it is possible that other states or the federal government could also enact minimum wage increases . our primary challenge for fiscal 2018 and the next few years will be preserving our margins in the face of these rising labor costs . as more minimum wage increases are enacted , we may be required to implement additional pay increases or offer additional benefits in the future in order to attract and retain the most qualified people , which we expect to put further pressure on our operating margins . while we expect our operating profit to increase in absolute terms , we expect our shack-level operating profit margins to decline due to the labor pressures we face coupled with the introduction of more shacks of various unit volumes . with only 159 shacks system-wide , as of december 27 , 2017 , we still have significant whitespace opportunity ahead of us . despite the challenges we face , we believe that we are positioned well for future growth . 50 | shake shack inc. form 10-k fiscal 2018 outlook for the fiscal year ending december 26 , 2018 , we are providing the following preliminary financial outlook : current outlook total revenue ( inclusive of licensing revenue ) $ 444 to $ 448 million licensing revenue $ 12 to $ 13 million same-shack sales growth ( % ) ( 1 ) 0 % domestic company-operated shack openings 32 to 35 licensed shack openings , net 16 to 18 average annual sales volume for domestic company-operated shacks $ 4.1 to $ 4.2 million shack-level operating profit margin ( % ) 24.5 % to 25.5 % general and administrative expenses ( 2 ) $ 49 to $ 51 million depreciation expense $ 32 million pre-opening costs $ 12 to $ 13 million interest expense $ 2 to $ 2.2 million adjusted pro forma effective tax rate ( % ) 26 % to 27 % ( 1 ) includes approximately 1.5 % to 2 % of menu price increases taken in december 2017 . ( 2 ) excludes approximately $ 4 to $ 6 million of estimated costs related to project concrete , our operational and financial systems upgrade initiative . fiscal 2020 targets by the end of fiscal 2020 , we are targeting : ▪ at least 200 domestic company-operated shacks and at least 120 globally licensed shacks ( more than double the system-wide shack count as of december 27 , 2017 ) ; and ▪ over $ 700 million in total revenue . shake shack inc. form 10-k | 51 results of operations the following table summarizes our results of operations for fiscal 2017 , 2016 and 2015 : replace_table_token_5_th ( 1 ) as a percentage of shack sales . 52 | shake shack inc. form 10-k shack sales shack sales represent the aggregate sales of food , beverages and shake shack branded merchandise at our domestic company-operated shacks . shack sales in any period are directly influenced by the number of operating weeks in such period , the number of open shacks and same-shack sales .
| the increase was primarily due to $ 60.3 million of purchases of marketable securities ( net of sales ) as well as the timing of capital expenditures to construct new domestic company-operated shacks compared to fiscal 2015 and , to a lesser extent , higher capital expenditures related to remodels and replacement equipment as our base of mature shacks has grown . financing activities for fiscal 2017 , net cash provided by financing activities was $ 1.0 million compared to $ 1.2 million for fiscal 2016 , a decrease of $ 0.2 million . this decrease is primarily due to $ 4.8 million in payment made under the tax receivable agreement and $ 0.6 million in distribution to non-controlling interest members , offset by an increase of $ 4.4 million in proceeds from the exercise of employee stock options and $ 0.9 million in proceeds from deemed landlord financing ( net of payments ) . for fiscal 2016 , net cash provided by financing activities was $ 1.2 million compared to $ 61.4 million for fiscal 2015 , a decrease of $ 60.2 million . this decrease was primarily due to $ 109.3 million of net proceeds received from the ipo in the prior year , a decrease in payments ( net of proceeds ) on the revolving credit facility of $ 32.0 million and member distributions of $ 9.4 million and a decrease of $ 4.6 million in employee withholding taxes paid related to net settled equity awards in the prior year , offset by $ 3.2 million of proceeds from employee stock option exercises . revolving credit facility we maintain a revolving credit facility that provides for a revolving total commitment amount of $ 50.0 million , of which $ 20.0 million is available immediately . the revolving credit facility will mature and all amounts outstanding will be due and payable in february 2020. the revolving credit facility permits the issuance of letters of credit upon our request of up to $ 10.0 million . borrowings under the facility bear interest at either : ( i ) libor plus a percentage ranging from 2.3 % to 3.3 % or ( ii ) the prime
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million b/d with small declines seen in the americas , europe and asia / oceania . 46 overseas shipholding group , inc. global oil production in the fourth quarter of 2014 reached 93.9 million b/d , an increase of 2.2 million b/d over the fourth quarter of 2013. opec crude oil production reversed previous declines and production averaged 30.2 million b/d in the fourth quarter of 2014 up from 29.6 million b/d in the fourth quarter of 2013 , although down 0.1 million b/d from the third quarter of 2014. opec production for the year declined by 0.2 million b/d to 30.0 million b/d , partially due to continuing production and political issues in libya . non-opec production growth was largely driven by the united states , which increased production by 1.6 million b/d in the fourth quarter of 2014 compared with the fourth quarter of 2013 to reach 12.4 million b/d . annual oil production in the united states increased by 1.5 million b/d in 2014 to 11.7 million b/d , making the united states the largest oil producer in the world , ahead of russia at 10.9 million b/d . u.s. refinery throughput increased by about 1.7 million b/d in the fourth quarter compared with the comparable quarter in 2013. crude oil imports , however , decreased by about 0.4 million b/d as local production growth more than offset the change in crude runs . imports from opec countries were reduced by 0.8 million b/d , mainly due to reductions of imports from venezuela , west africa and saudi arabia . chinese imports in december 2014 increased to the highest levels on record at 7.2 million b/d , with 2014 averaging 6.2 million b/d . this led to a strong increase in vlcc rates in the fourth quarter of 2014 and the first quarter of 2015. during the fourth quarter of 2014 , the worldwide tanker fleet of vessels over 10,000 deadweight tons ( “ dwt ” ) increased by 2.4 million dwt as the crude fleet increased by 1.7 million dwt , while the product carrier fleet expanded by 0.7 million dwt . during 2014 , the size of the worldwide tanker fleet increased by 7.0 million dwt with vlcc and mrs increasing by 4.1 million dwt each and other sectors decreasing . during the fourth quarter of 2014 , the worldwide tanker orderbook decreased by 1.4 million dwt , with decreases in the vlcc , aframax and mr orderbooks , while there were increases in the suezmax and panamax orderbooks . during 2014 , the total tanker orderbook gained 3.7 million dwt attributable to increases in the vlcc , suezmax and panamax orderbooks . vlcc freight rates improved significantly in the last quarter of 2014 driven by higher chinese imports , lower bunker prices , as well as a contango in the oil market ( where future prices are higher than current prices ) , luring tonnage away from the spot market into period storage fixtures . the other crude segments followed the vlcc lead with improved rates late in 2014. mr earnings , weak during the first part of the year , showed dramatic improvement in the fourth quarter , due to increased demand driven by increased production from refineries capitalizing on low crude prices , but have weakened in early 2015. spot tce rates for prompt jones act product carriers and large atbs averaged $ 94,500 and $ 60,350 per day , respectively , during 2014 , representing increases of 9 % and 11 % , respectively , for each class of vessel compared with average rates of $ 87,000 and $ 54,600 per day , respectively , for 2013. these are estimated rates as there was little spot market activity in 2014 because nearly all vessels were committed to time charters in the u.s. flag coastwise trades . spot voyages only occurred when time-charter customers relet their vessels for the occasional voyage . the increase in rates in 2014 compared with 2013 can largely be attributed to an increase in the coastwise domestic crude oil trade , primarily eagle ford crude . the average monthly rate of production from the eagle ford formation increased by approximately 0.45 million b/d in december 2014 compared with december 2013. eagle ford oil is transported by pipeline to corpus christi , where it is loaded on jones act vessels for transportation to refineries in texas , louisiana , mississippi and the philadelphia area . approximately 34 % of the jones act fleet of product carriers and large atbs is engaged in transporting domestic crude oil . a year ago , it was 25 % . the steep drop in crude oil prices since mid-november 2014 and the contemporaneous narrowing of the spread in pricing between brent and wti created uncertainty in the jones act charter market . the estimated spot tce rates declined slightly in the fourth quarter to average $ 93,000 and $ 59,100 per day . as of december 31 , 2014 , the industry 's entire jones act fleet of product carriers and large atbs ( defined as vessels having carrying capacities of between 0.14 million barrels and 0.35 million barrels , which excludes numerous tank barges below 0.14 million barrel capacity and 11 much larger tankers dedicated exclusively to the alaskan crude oil trade ) consisted of 73 vessels as there were no newbuild deliveries or vessels scrapped during the year . the industry 's firm jones act orderbook as of december 31 , 2014 , with deliveries scheduled between the third quarter of 2015 and the second quarter of 2017 consisted of 14 product carriers and nine large atbs . options for an additional two product carriers and five atbs remain open . in addition , two late-1970s-built alaskan crude tankers ( kodiak and sierra ) have been sold by exxon to competitors who will redeploy them into the lower-48 coastwise trade . the kodiak , renamed the eagle ford , has been redeployed into the eagle ford crude trade from corpus christi to refineries located in the northeast . story_separator_special_tag exxon is expected to deliver the sierra in the second quarter of 2015 at which time it is expected to join the eagle ford trade . delaware bay lightering volumes averaged 0.10 million b/d in 2014 compared with 0.19 million b/d in 2013. the decrease resulted from delaware bay refineries sourcing increased amounts of crude oil from north american sources via rail and u.s. flag vessels at the expense of crude imports . our lightering atbs have offset reduced lightering demand by occasionally carrying crude from the u.s. gulf coast to refineries in the philadelphia area . 47 overseas shipholding group , inc. story_separator_special_tag days less days that vessels were not available for employment due to repairs , drydock or lay-up . revenue days are weighted to reflect the company 's interest in chartered-in vessels . ( d ) ship-operating days represent calendar days . 49 overseas shipholding group , inc. the following table provides a breakdown of tce rates achieved for the years ended december 31 , 2014 , 2013 and 2012 between spot and fixed earnings and the related revenue days . the information in these tables is based , in part , on information provided by the commercial pools or commercial joint ventures in which the segment 's vessels participate . replace_table_token_7_th * effective as of the end of the second quarter of 2012 , the tankers international pool commenced reporting the earnings of its vlcc fleet in two groups : vlccs under 15 years and vlccs aged 15 years and older . the average rates reported in the above tables for vlccs commencing with the second quarter of 2012 represent vlccs less than 15 years of age . average rates for periods prior to the second quarter of 2012 have not been adjusted . the average spot tce rates earned by company 's vlccs on an overall basis during 2014 , 2013 and 2012 were $ 24,358 , $ 17,983 and $ 18,344 , respectively . during 2014 , tce revenues for the international crude tankers segment increased by $ 18,419 , or 9 % , to $ 228,295 from $ 209,876 in 2013. this increase in tce revenues resulted from higher average rates across all fleets in the segment , with the increased rates in the aframax and vlcc sectors being the primary drivers . partially offsetting the strengthened rates was a 2,769 day decrease in revenue days . the decrease in revenue days reflects a reduction in the international crude tankers lightering fleet associated with the company 's exit from the full service international flag lightering business upon the expiry of its lightering contracts in september 2014 and included the sale of two 1994-built aframaxes , one in march 2014 and the second in september 2014. also contributing to the decrease in revenue days were fewer chartered-in days in the aframax and suezmax fleets of 1,121 and 797 , respectively , as well as the company 's sale of a 1996-built vlcc , a 1997-built vlcc and a 2004-built panamax in the fourth quarter of 2014. vessel expenses decreased by $ 9,449 to $ 79,270 from $ 88,719 in 2013. the decrease in vessel expense is due to a 466 day decrease in owned and bareboat chartered-in vessels , along with a decrease in average daily vessel expenses of $ 550. the reduction in days reflects the vessel sales described above . the decreased average daily vessel expenses were driven by lower crew and insurance costs , and the timing of the delivery of spares , partially offset by the technical management fees paid to v.ships . charter hire expenses decreased by $ 35,594 to $ 27,283 in 2014 from $ 62,877 in 2013 , primarily resulting from a decrease of 2,416 chartered-in days in the current year . such decrease was driven by the return of the suezmaxes and aframaxes discussed above , along with the reduction in the international flag lightering chartered-in fleet . depreciation expense decreased by $ 19,876 to $ 56,210 from $ 76,086 in 2013 , reflecting the impact of reductions in vessel bases that resulted from impairment charges on thirteen vessels in the segment recorded in the fourth quarter of 2013. excluding depreciation and amortization expenses , operating results for the international crude tankers lightering business for 2014 were approximately $ 4,121 lower than 2013. weaker results reflect , in part , reductions in the size of the lightering business ' owned and chartered-in fleet due to the exit from providing full service lightering in september 2014 and lower numbers of service-only lighterings following the announcement of the intent to exit the full service business . the decreases were partially offset by lower charter hire expenses due to the return of several workboats to their owners after the first quarter of 2013 . 50 overseas shipholding group , inc. during 2013 , tce revenues for the international crude tankers segment decreased by $ 46,967 or 18 % , to $ 209,876 from $ 256,843. this decrease in tce revenues reflects a 2,758 decrease in revenue days as well as lower average blended rates in the suezmax sector . these decreases were partially offset by a strengthening in average blended rates in the panamax sector . the decrease in revenue days reflects fewer chartered-in days in the vlcc and suezmax fleets of 829 and 1,448 days , respectively . there were also 183 fewer drydock days in the segment during 2013 as compared with 2012. the reduction in the suezmax fleet includes two vessels that were returned to their owners prior to the expiration of their respective charters , one in december 2012 and a second in january 2013. the return of all of the chartered-in vessels had a positive impact on results from vessel operations since such charters-in were fixed at levels above those currently achievable in the market . several chartered-in aframaxes with high charter rates were also replaced at rates that were more in-line with current market conditions .
| these negative factors were substantially offset by a strengthening in rates throughout the international crude tankers segment , particularly in the aframax and vlcc fleets , along with the continued strength in the jones act market that benefitted the u.s. flag segment . income from vessel operations in 2014 reflects third-party technical management fees . as discussed in further detail in item 1 – “ business overview – operations – technical management , ” the company began transferring management of 46 of its international flag conventional tankers to v.ships in march 2014 and completed all of the vessel transfers by september of 2014. vessel operating expenses are expected to increase by approximately $ 1,800 per quarter in 2015 as the vessel transfers are completed . in addition , the company incurred one-time third-party manager set up costs of approximately $ 3,400 during 2014. these increases in vessel expenses will be offset by a decrease in general and administrative expenses , which is expected to exceed the aggregate technical management fees incurred , since the vessel transfers are completed and the employees impacted by the reduction in force announced in january 2014 have left the company . during 2013 , results from vessel operations improved by $ 12,035 to a loss of $ 367,198 from a loss of $ 379,233 in 2012. this improvement reflects the impact of significant decreases in charter hire and vessel expenses and depreciation , partially offset by period-over-period reductions in tce and larger impairment charges recorded in 2013. decreases in charter hire and vessel expenses in 2013 compared with 2012 were principally the result of the company 's rejection of leases and redelivery of 17 time and bareboat chartered-in international flag vessels between late-december 2012 and mid-april 2013. in addition , the company entered into new lease agreements at lower rates on eight other chartered-in vessels , including one redelivered by the company in january 2013 that delivered back to
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we identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components . the test systems operating segment is its own reporting unit while the other reporting units are one level below our aerospace operating segment . companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units under certain circumstances . companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired . economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we would consider in determining whether to perform a quantitative test . when we evaluate the potential for goodwill impairment using a qualitative assessment , we consider factors including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for our products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , we proceed to a quantitative two-step impairment test . quantitative testing first requires a comparison of the fair value of each reporting unit to the carrying value . we use the discounted cash flow method to estimate the fair value of each of our reporting units . the discounted cash flow method incorporates various assumptions , the most significant being projected revenue growth rates , operating profit margins and cash flows , the terminal growth rate and the discount rate . management projects revenue growth rates , operating margins and cash flows based on each reporting unit 's current business , expected developments and operational strategies . if the carrying value of the reporting unit exceeds its fair value , goodwill is considered impaired and any loss must be measured . in measuring the impairment loss , the implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit 's assets and liabilities , including any unrecognized intangible assets , as if the reporting unit had been acquired in a business combination at fair value . if the carrying amount of the reporting unit goodwill exceeds its implied fair value , an impairment loss would be recognized in an amount equal to that excess . in 2016 , we performed quantitative assessments for the eight reporting units which have goodwill and concluded that it is more likely than not that their fair values exceed their carrying values . based on our quantitative assessments of our reporting units , we concluded that goodwill was not impaired . 19 amortized intangible asset impairment testing amortizable intangible assets with a carrying value of $ 98.1 million at december 31 , 2016 and $ 108.3 million at december 31 , 2015 are amortized over their assigned useful lives . we test these long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable . the recoverability test consists of comparing the projected undiscounted cash flows associated with the asset to its carrying amount . an impairment loss would then be recognized for the carrying amount in excess of its fair value . there were no impairment charges in 2016 , 2015 or 2014 . depreciable asset impairment testing property , plant and equipment with a carrying value of $ 122.8 million at december 31 , 2016 and $ 124.7 million at december 31 , 2015 are depreciated over their assigned useful lives . we test these long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable . the recoverability test consists of comparing the projected undiscounted cash flows , with its carrying amount . an impairment loss would then be recognized for the carrying amount in excess of its fair value . there were no impairment charges in 2016 , 2015 or 2014 . inventory valuation we record valuation reserves to provide for excess , slow moving or obsolete inventory or to reduce inventory to the lower of cost or market value . in determining the appropriate reserve , management considers the age of inventory on hand , the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that we believe is no longer salable . at december 31 , 2016 , our reserve for inventory valuation was $ 15.4 million , or 11.7 % of gross inventory . at december 31 , 2015 , our reserve for inventory valuation was $ 14.6 million , or 11.2 % of gross inventory . deferred tax asset valuation allowances deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized . significant assumptions regarding future profitability is required to estimate the value of these deferred tax assets . we consider allowable tax carryforward periods , historical earnings performance , tax planning strategies and recent earnings projections to determine the amount of the valuation allowance . changes in these factors could cause us to adjust our valuation allowance , which would impact our income tax expense and the carrying value of these assets when we determine that these factors have changed . as of december 31 , 2016 , we had net deferred tax liabilities of $ 8.7 million . story_separator_special_tag included in the net deferred tax liabilities are approximately $ 24.2 million in deferred tax assets net of a $ 3.8 million valuation allowance . these deferred tax assets principally relate to employee benefit liabilities , asset reserves , leases , deferred revenue , state net operating loss carry-forwards , and state general business tax credit carry-forwards . as of december 31 , 2015 , we had net deferred tax liabilities of $ 13.4 million . included in the net deferred tax liabilities are approximately $ 20.5 million in deferred tax assets net of a $ 2.6 million valuation allowance . these deferred tax assets principally relate to employee benefit liabilities , asset reserves , leases , deferred revenue , state net operating loss carry-forwards and state general business tax credit carry-forwards . because of the uncertainty as to the company 's ability to generate sufficient future taxable income in certain states , the company has recorded the valuation allowances accordingly in 2016 and 2015 . supplemental executive retirement plan ( serp ) assumptions we maintain two non-qualified defined benefit supplemental retirement plans ( “ serp ” and “ serp ii ” ) for certain executive officers and retired former executive officers . expense for these plans in 2016 was $ 1.9 million and in 2015 was $ 2.1 million . plan obligations and the related costs are determined using actuarial valuations that involve several assumptions that may be highly uncertain and may have a material impact on the financial statements if different reasonable assumptions had been used . the most critical assumptions include the discount rate , future wage increases , retirement age and life expectancy . the discount rate is used to state expected future cash flows at present value . using a lower discount rate increases the present value of pension obligations and increases pension expense . for determining the discount rate the company considers long-term interest rates for high-grade corporate bonds . the discount rate for determining the expense recognized in 2016 was 4.45 % compared with 4.05 % in 2015 . we will use a discount rate of 4.20 % in determining our 2017 expense . the assumption for compensation 20 increases takes a long-term view of inflation and performance based salary adjustments based on the company 's approach to executive compensation . the rate used for future wage increases was 3-5 % . it was assumed that each participant retires after fully vesting in the plan at age 62 or 65. a 100 point increase in the discount rate we used would decrease our annual pension expense for 2017 by $ 0.2 million . if we had assumed annual wage increases of 4-6 % , our 2017 pension expense would increase approximately $ 0.2 million . stock-based compensation we have stock-based compensation plans , which include non-qualified stock options as well as incentive stock options . expense recognized for stock-based compensation was $ 2.3 million for 2016 , $ 2.3 million for 2015 and $ 1.7 million for 2014 . we determine the fair value of the option awards at the date of grant using a black-scholes model . option pricing models require management to make assumptions and to apply judgment to determine the fair value of the award . these assumptions and judgments include estimating the future volatility of our stock price , expected dividend yield , future employee stock option exercise behaviors and future employee turnover rates . changes in these assumptions can materially affect the fair value estimate . acquisitions the company accounts for its acquisitions under asc topic 805 , business combinations and reorganizations ( “ asc topic 805 ” ) . asc topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred , identifiable assets acquired , liabilities assumed , non-controlling interests , and goodwill acquired in a business combination . asc topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations . acquisition costs are expensed as incurred . acquisition related expenses were insignificant in 2016 , and were $ 0.4 million and $ 0.3 million in 2015 and 2014 , respectively . when the company acquires a business , we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values . we record any premium over the fair value of net assets acquired as goodwill . the allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value . the way we characterize the assets has important implications , as long-lived assets with definitive lives , for example , are depreciated or amortized , whereas goodwill is tested annually for impairment , as explained previously . with respect to determining the fair value of assets , the most subjective estimates involve valuations of long-lived assets , such as property , plant , and equipment as well as identified intangible assets . we use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets . the fair values of long-lived assets are determined using valuation techniques that use discounted cash flow methods , independent market appraisals and other acceptable valuation techniques . with respect to determining the fair value of the purchase price , the most subjective estimates involve valuations of contingent consideration . significant judgment is necessary to determine the fair value of the purchase price when the transaction includes an earn-out provision , such as the earn-out provision included in our 2013 acquisition of aerosat . we engage valuation specialists to assist in the determination of the fair value of contingent consideration . key assumptions used to value the contingent consideration include future projections and discount rates . during 2015 , acquisitions added approximately $ 4.7 million in property , plant and equipment and $ 25.1 million in purchased intangible assets .
| there can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period . each of the markets that we serve presents opportunities that we expect will provide growth for the company over the long-term . we continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions . challenges which continue to face us include improving shareholder value through increasing profitability . increasing profitability is dependent on many things , primarily revenue growth and the company 's ability to control operating expenses and to identify means of creating improved productivity . revenue is driven by increased build rates for existing aircraft , market acceptance and economic success of new aircraft , continued government funding of defense programs , the company 's ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our test systems segment . our semiconductor test products are highly dependent on winning new and follow-on programs with our current customers as well as developing new customers . reduced aircraft build rates driven by a weak economy , tight credit markets , reduced air passenger travel and an increasing supply of used aircraft on the market would likely result in reduced demand for our products , which will result in lower profits . reduction of defense spending may result in fewer opportunities for us to compete , which could result in lower profits in the future . many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology on a schedule that is consistent with specific programs . we will continue to address these challenges by working to improve operating efficiencies and focusing on executing on the
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fiscal year 2019 net income increased from fiscal year 2018 by $ 526 thousand to $ 42.2 million . key financial terms and metrics we evaluate our business using a variety of key financial measures : restaurant sales . restaurant sales consist of food and beverage sales by company-owned restaurants . restaurant sales are primarily influenced by total operating weeks in the relevant period and comparable restaurant sales growth . total operating weeks is the total number of company-owned restaurants multiplied by the number of weeks each is in operation during the relevant period . total operating weeks are impacted by restaurant openings and closings , as well as changes in the number of weeks included in the relevant period . comparable restaurant sales growth reflects the change in year-over-year or quarter-over-quarter , as applicable , sales for the comparable restaurant base . we define the comparable restaurant base to be those company-owned restaurants in operation for not less than eighteen months prior to the beginning of the fiscal year including the period being measured . comparable restaurant sales growth is primarily influenced by customer traffic , which is measured by the number of entrées sold , and the average guest check . customer traffic is influenced by the popularity of our menu items , our guest mix , our ability to deliver a high-quality dining experience and overall economic conditions . average guest check , a measure of total restaurant sales divided by the number of entrées , is driven by menu mix and pricing . franchise income . franchise income includes ( 1 ) franchise and development fees charged to franchisees , ( 2 ) sales-based royalty income and ( 3 ) sales-based advertising fees . franchise royalties consist of 5.0 % of adjusted gross sales from each franchisee-owned restaurant . in addition , our more recent franchise agreements require an advertising fee of up to 1.0 % of gross sales to be paid by the franchisee . under our prior franchise agreements , the company would pay 1.0 % out of the 5.0 % royalty toward national advertising . we evaluate the performance of our franchisees by measuring franchisee-owned restaurant operating weeks , which is impacted by franchisee-owned restaurant openings and closings , and comparable franchisee-owned restaurant sales growth , which together with operating weeks , drives royalty income . other operating income . other operating income consists primarily of breakage income associated with gift cards , and includes fees earned from management agreements , banquet-related guarantee and services revenue and other incidental guest fees . food and beverage costs . food and beverage costs include all restaurant-level food and beverage costs of company-owned restaurants . we measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée . food and beverage costs are generally influenced by the cost of food and beverage items , distribution costs and menu mix . restaurant operating expenses . we measure restaurant operating expenses for company-owned restaurants as a percentage of restaurant sales . restaurant operating expenses include the following : labor costs , consisting of restaurant management salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales ; operating costs , consisting of maintenance , utilities , bank and credit card charges , and any other restaurant-level expenses ; and occupancy costs , consisting of both fixed and variable portions of rent , common area maintenance charges , insurance premiums and real property taxes . marketing and advertising . marketing and advertising includes all media , production and related costs for both local restaurant advertising and national marketing . we measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues . we have historically spent approximately 2.5 % to 4.0 % of total revenues on marketing and advertising . during fiscal year 2020 marketing and advertising was significantly reduced in response to the covid-19 pandemic . it is anticipated that spending in this area will increase throughout fiscal year 2021 as the economy improves . general and administrative . general and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company and franchisee growth . general and administrative costs are comprised of management , supervisory and staff salaries and employee benefits , travel , performance-based compensation , stock compensation , information systems , training , corporate rent , professional and consulting fees , technology and market research . we measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues . 25 depreciation and amortization . depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . gain on lease modifications . gain on lease modifications consist of gains and losses related to changes in the scope of a lease or the consideration for a lease that was not included in the original terms of the lease . costs incurred related to the exit of a signed lease are also included . loss on impairments . loss on impairments consist of charges recognized by which the carrying amount of an asset exceeds its fair value ( net realizable value for inventory ) . impairment charges were taken on fixed assets , inventory , liquor licenses and operating lease right-of-use assets . story_separator_special_tag story_separator_special_tag income tax benefit of $ 7.9 million , whereas the effective tax rate for fiscal year 2019 represents income tax expense of $ 8.2 million . the significant change was driven primarily by 27 the company 's generation of a pre-tax loss from continuing operations in fiscal year 2020 , compared with the generation of pre-tax income in fiscal year 2019. net income ( loss ) . net loss was $ 25.3 million during fiscal year 2020 compared to $ 42.2 million net income during fiscal year 2019 due to the factors noted above . fiscal year 2019 compared to fiscal year 2018 restaurant sales . restaurant sales increased $ 13.9 million , or 3.3 % , to $ 441.4 million during fiscal year 2019 from fiscal year 2018. the increase was attributable to a $ 10.7 million increase in new restaurants and a $ 3.2 million increase from comparable company-owned restaurants . total operating weeks during fiscal year 2019 increased to 4,139 from 4,027 during fiscal year 2018. comparable company-owned restaurant sales increased 0.9 % , which consisted of an average check increase of 1.7 % , and 0.8 % decrease in traffic counts . new restaurant sales primarily increased in fiscal year 2019 due to an increase in 66 operating weeks from the mbr franchise acquisition in july 2019 and new restaurants in jersey city , paramus and columbus . franchise income . franchise income decreased $ 40 thousand , or 0.2 % , to $ 17.9 million during fiscal year 2019 from fiscal year 2018. the decrease is primarily attributable to a decrease in sales-based royalty income from the mbr franchise acquisition . other operating income . other operating income increased $ 1.8 million , or 25.8 % , to $ 8.8 million during fiscal year 2019 from fiscal year 2018. other operating income includes our share of income from managed restaurants , gift card breakage revenue and miscellaneous restaurant income . the increase in other operating income was primarily due to an increase of $ 1.1 million in breakage revenue and $ 716 thousand in income from restaurants operating under contractual agreements , including a full year of operations of the new location in reno , nv . food and beverage costs . food and beverage costs increased $ 7.5 million , or 6.2 % , to $ 127.6 million during fiscal year 2019 from fiscal year 2018. food and beverage costs , as a percentage of restaurant sales , increased 80 basis points to 28.9 % compared to fiscal year 2018 largely due to an increase of 8.4 % in total beef costs . restaurant operating expenses . restaurant operating expenses increased $ 8.5 million , or 4.1 % , to $ 214.7 million during fiscal year 2019 from fiscal year 2018. restaurant operating expenses , as a percentage of restaurant sales , increased 40 basis points to 48.6 % compared to fiscal year 2018 primarily due to occupancy related increases . marketing and advertising . marketing and advertising expenses decreased $ 1.2 million , or 7.3 % to $ 15.4 million during fiscal year 2019 from fiscal year 2018. marketing and advertising , as a percent of total revenue , decreased 40 basis points to 3.3 % compared to fiscal year 2018. the decrease in marketing and advertising expenses during fiscal year 2019 was attributable to a planned decrease in marketing research investments . general and administrative . general and administrative expenses decreased $ 2.6 million or 7.0 % to $ 34.6 million during fiscal year 2019 from fiscal year 2018. the decrease in general and administrative costs was attributable to a reduction of $ 1.5 million in compensation costs and a $ 989 thousand reduction in franchisee acquisition and integration costs . depreciation and amortization expenses . depreciation and amortization expense increased $ 2.8 million to $ 21.4 million during fiscal year 2019 , primarily due to property additions related to new restaurants and remodel projects placed in service within the last twelve months including $ 581 thousand of depreciation and amortization related to the mbr franchise acquisition . pre-opening costs . pre-opening costs remained relatively unchanged at $ 1.8 million in fiscal year 2019 compared to $ 1.9 million in fiscal year 2018. interest expense . interest expense increased $ 458 thousand to $ 2.2 million during fiscal year 2019 from fiscal year 2018. the increase in expense was primarily due to higher average debt balances during fiscal year 2019 compared to fiscal year 2018. other income . during fiscal year 2019 we recognized $ 115 thousand of other income . during fiscal year 2018 we recognized $ 73 thousand of other expense . income tax expense . during fiscal year 2019 we recognized $ 8.2 million in income tax expense . the effective tax rate , including the impact of discrete items , decreased to 16.2 % during fiscal year 2019 compared to 16.5 % during fiscal year 2018. the effective tax rate decreased during fiscal year 2019 primarily due to an increased impact from the fica tip credit and a reduction in disallowed executive compensation which was partially offset by a higher state income tax rate . income from continuing operations . income from continuing operations of $ 42.2 million during fiscal year 2019 increased by $ 606 thousand compared to fiscal year 2018 due to the factors noted above . 28 income ( loss ) from discontinued operations , net of income taxes . there was no income ( loss ) from discontinued operations , net of income taxes during fiscal year 2019 compared to income of $ 80 thousand during fiscal year 2018. discontinued operations includes the recurring revenues and expenses of closed restaurants and related income taxes . net income . net income was $ 42.2 million during fiscal year 2019 compared to $ 41.7 million net income during fiscal year 2018 due to the factors noted above . segment profitability segment profitability information for the company 's two operating segments is presented in note 17 of the consolidated financial statements .
| food and beverage costs decreased $ 51.8 million , or 40.6 % , to $ 75.8 million during fiscal year 2020 from fiscal year 2019. food and beverage costs , as a percentage of restaurant sales , increased 17 basis points to 29.1 % compared to fiscal year 2019 largely due to an increase of 1.6 % in total beef costs . restaurant operating expenses . restaurant operating expenses decreased $ 64.3 million , or 29.9 % , to $ 150.4 million during fiscal year 2020 from fiscal year 2019. restaurant operating expenses , as a percentage of restaurant sales , increased 9.1 % to 57.7 % compared to fiscal year 2019 primarily due to the impact of fixed costs on lower restaurant sales in 2020. marketing and advertising . marketing and advertising expenses decreased $ 8.6 million , or 55.6 % to $ 6.9 million during fiscal year 2020 from fiscal year 2019. marketing and advertising , as a percent of total revenue , decreased 80 basis points to 2.5 % compared to fiscal year 2019. the decrease in marketing and advertising expenses during fiscal year 2020 was attributable to the company reducing expenses in response to the covid-19 pandemic . general and administrative . general and administrative expenses decreased $ 1.4 million or 4.0 % to $ 33.2 million during fiscal year 2020 from fiscal year 2019. the decrease in general and administrative costs was attributable to a reduction of $ 1.5 million in compensation costs and a $ 1.2 million reduction in travel related expenses partially offset by an increase in professional fees of $ 1.3 million . depreciation and amortization expenses . depreciation and amortization expense increased $ 610 thousand to $ 22.0 million during fiscal year 2020 , primarily due to property additions related to new restaurants and remodel projects placed in service within the last twelve months . pre-opening costs . pre-opening costs remained relatively unchanged at $ 1.6 million in fiscal year 2020 compared to $ 1.8 million in fiscal year 2019 and primarily relate to pre-opening rent expense on locations that the company has taken possession of the property from the landlord . gain on lease modifications . gain on lease modifications was $ 206
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see note 3 and note 13 to the consolidated financial statements . we operate and account for results in one reportable segment . see note 14 to the consolidated financial statements . during the first quarter of fiscal year 2019 , we restructured and combined the power and high-reliability operating segment with the wireless and sensing operating segment to better align resources with our lora-based initiatives . this resulted in having three operating segments compared to previously having four operating segments . the three operating segments : signal integrity , protection , and wireless and sensing , all have similar economic characteristics and have been aggregated into one reportable segment identified in the table below as the `` semiconductor products group '' . on august 5 , 2016 , we completed the divestiture of the remaining assets in the snowbush ip , now a legacy operating segment , to rambus for a purchase price of $ 32.0 million in cash along with the opportunity to receive additional payments through 2022 based upon a percentage of sales by rambus of new products expected to be developed by them from the snowbush ip . beginning in the third quarter of fiscal year 2017 , we 35 no longer had a systems innovation products group or an “ all others ” category , and therefore we have only three operating segments that aggregate into one reportable segment , the semiconductor products group . most of our sales to customers are made on the basis of individual customer purchase orders . many customers include cancellation provisions in their purchase orders . trends within the industry toward shorter lead-times and `` just-in-time '' deliveries have resulted in our reduced ability to predict future shipments . as a result , we rely on orders received and shipped within the same quarter for a significant portion of our sales . sales made directly to customers during fiscal year 2019 were 32 % of net sales . the remaining 68 % of net sales were made through independent distributors . our business relies on foreign-based entities . most of our subcontractors and suppliers , including third-party foundries that supply silicon waf ers , are located in foreign countries , including china , taiwan , south korea and israel . for the fiscal year ended january 27 , 2019 , approximately 16 % of our silicon , in terms of cost of wafers purchased , was manufactured in china . foreign sales for fiscal year 2019 constituted appro ximately 89 % of our net sales . approximately 76 % of foreign sales in fiscal year 2019 were to customers located in the asia-pacific region . the remaining foreign sales were primarily to customers in europe , canada and mexico . we use several metrics as indicators of future potential growth . the indicators that we believe best correlate to potential future revenue growth are design wins and new product releases . there are many factors that may cause a design win or new product release to not result in revenue , including a customer decision not to go to system production , a change in a customer 's perspective regarding a product 's value or a customer 's product failing in the end-market . as a result , although a design win or new product introduction is an important step towards generating future revenue , it does not inevitably result in us being awarded business or receiving a purchase commitment . 36 story_separator_special_tag meeting certain staffing targets . the ability to meet the requirements to extend the ruling is within our control and we do not anticipate any issues meeting the established targets . the maximum benefit under this tax holiday is chf 500.0 million . depending on the operational performance of our swiss operations , it is possible that we could utilize the maximum benefit during the initial term . once the term of the tax holiday expires or we achieve the maximum benefit , our effective tax rate could be negatively impacted if we are unable to negotiate an extension or expansion of the tax holiday . 38 as a global organization , we are subject to audit by taxing authorities in various jurisdictions . to the extent that an audit , or the closure of a statute of limitations results in adjusting our reserves for uncertain tax positions , our effective tax rate could experience extreme volatility since any adjustment would be recorded as a discrete item in the period of adjustment . for further information on the effective tax rate and tax act 's impact , see note 12 to the consolidated financial statements . fiscal year 2018 compared with fiscal year 2017 all periods presented in the following summary of sales by major end-market reflect our current classification methodology : replace_table_token_12_th ( 1 ) reclassifications have been made to prior period amounts to conform to the current classification . net sales . net sales for fiscal year 2018 were $ 587.8 million , an increase of 8 % compared to $ 544.3 million for fiscal year 2017 . during fiscal year 2018 , our revenues within the high-end consumer end-market increased as a result of expanded use of our proximity sensing solutions and protection products across a broader range of phones and other devices . our enterprise computing end-market benefited from strong demand for our optical products , which are well positioned for the current cycle of data center upgrades and increased pon deployments . the escalating adoption of our lora technology continued to drive growth in the industrial end-market . the decline in our communications end-market was driven by lower demand in surveillance systems and base station markets . gross profit . gross profit was $ 352.0 million and $ 324.9 million in fiscal years 2018 and 2017 , respectively . our gross margin was 59.9 % for fiscal year 2018 , comparable with 59.7 % in fiscal year 2017 . story_separator_special_tag fiscal year 2018 performance benefited from a more favorable mix of higher margin product sales , the benefit of which was offset by a $ 16.2 million charge ( 2.8 % of net sales ) related to the comcast warrant , which was reported as a reduction to revenue . in fiscal year 2017 , the charge related to the comcast warrant was $ 5.4 million ( 1 % of net sales ) . operating costs and expenses . replace_table_token_13_th selling , general & administrative expenses sg & a expenses for fiscal year 2018 increase d by $ 7.6 million as a result of a $ 6.3 million increase in share-based compensation and higher restructuring costs of $ 6.3 million compared to $ 2.3 million in fiscal year 2017. the higher levels of share-based compensation expense primarily resulted from much higher levels of anticipated performance achievement for awards with performance-based vesting conditions , and the impact of increases in our stock price and the related fair value re-measurement of awards accounted for as a liability rather than equity . product development and engineering expenses product development and engineering expenses for fiscal years 2018 and 2017 were $ 104.8 million and $ 102.5 million , respectively or an increase of 2 % . the increase was primarily a result of lower recoveries for non-recurring engineering 39 services and incremental spending associated with the development of sdvoe , partially offset by the benefit of lower spending compared with the higher expense associated with our actions in fiscal year 2017 to reduce our investment in the defense and microwave communications markets and the sale of the snowbush ip to rambus . the levels of product development and engineering expenses reported in a fiscal period can be significantly impacted , and therefore experience period over period volatility , by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services which are recorded as a reduction to product development and engineering expense . intangible amortization intangible amortization was $ 27.9 million and $ 25.3 million in fiscal years 2018 and 2017 , respectively . the increase is related to the amortization of intangible assets that were established as part of the purchase price allocation for aptovision . gain on disposition of business operations in the third quarter of fiscal year 2017 , we completed our divestiture of the snowbush ip to rambus . as a result , we recognized a gain of $ 25.5 million on the disposition of this business . changes in the fair value of contingent earn-out obligations the contingent earn-out expense increased by $ 4.1 million in fiscal year 2018 primarily as a result of the change in our estimated probability of projected net revenue and adjusted earnings associated with the aptovision earn-out . we measure contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within level 3 of the fair value hierarchy . we use a monte carlo valuation method as a valuation technique to determine the value of the earn-out liability . the significant unobservable inputs used in the fair value measurements are revenue projections over the earn-out period , and the probability outcome percentages assigned to each scenario . significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability , with a higher liability capped by the contractual maximum of the contingent earn-out obligation . ultimately , the liability will be equivalent to the amount paid , and the difference between the fair value estimate and amount paid will be recorded in earnings . interest expense interest expense was $ 8.0 million and $ 9.3 million for fiscal years 2018 and 2017 , respectively . the $ 1.3 million decrease is primarily related to the non-reoccurrence of debt issuance costs and the write-off of historical debt issuance costs resulting from the debt modification that was completed in the fourth quarter of fiscal year 2017. primarily as a result of declining revenue , our consolidated leverage ratio exceeded 2.50 at the beginning of fiscal year 2017 , which resulted in our applicable margin increasing to 2.25 % . as our sales performance improved , we ended fiscal year 2017 with a consolidated leverage ratio of approximately 1.69. at the end of fiscal year 2018 , our consolidated leverage ratio was 1.23 as we continued to benefit from increasing sales . ( benefit ) provision for income taxes the provision for income taxes was $ 23.2 million for fiscal year 2018 compared to $ 18.4 million for fiscal year 2017 . the effective tax rates for fiscal years 2018 and 2017 were a tax provision of 38.9 % and 25.2 % , respectively . the increase in the effective tax rate was primarily the result of the one-time provisional impact of the tax act . we do not expect the tax act to have a material impact on our future overall effective tax rate since u.s. based activities have historically generated operating losses for tax purposes . we have established a valuation allowance against these operating losses and , given our current assessment of operations , we expect to continue to establish valuation allowances against future generated operating losses . we will continue to assess the impact of , and opportunities presented by , the tax act on our operations . we receive a tax benefit from a tax holiday that was granted in switzerland . the tax holiday is effective for the initial term and can be extended for an additional five years , subject to meeting certain staffing targets . the ability to meet the requirements to extend the ruling is within our control and we do not anticipate any issues meeting the established targets . the maximum benefit under this tax holiday is chf 500.0 million . depending on the operational performance of our swiss operations , it is possible that we could utilize the maximum benefit during the initial term .
| replace_table_token_11_th selling , general & administrative expense selling , general and administrative ( `` sg & a '' ) expenses for fiscal year 2019 increase d by $ 5.1 million as a result of a $ 20.6 million increase in share-based compensation offset by lower restructuring expenses and the $ 8.0 million recovery from the settlement of the lawsuit we filed against hilight semiconductor limited and related individual defendants ( `` hilight settlement '' ) . the higher levels of share-based compensation expense in fiscal year 2019 primarily resulted from higher levels of performance achievement for awards with performance-based vesting conditions and the impact of increases in our stock price , and the related fair value re-measurement , of awards accounted for as a liability rather than equity . the levels of selling , general and administrative expenses reported in a fiscal period can be significantly impacted , and therefore experience period over period volatility , by share-based compensation which is substantially influenced by movements in our stock price and assumptions regarding performance vesting conditions . 37 product development and engineering expenses product development and engineering expenses for fiscal years 2019 and 2018 were $ 109.9 million and $ 104.8 million , respectively , or an increase of 5 % . the increase was primarily a result of higher variable compensation expense and the timing of development activities . the levels of product development and engineering expenses reported in a fiscal period can be significantly impacted , and therefore experience period over period volatility , by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services which are recorded as a reduction to product development and engineering expense . intangible amortization intangible amortization was $ 26.6 million and $ 27.9 million in fiscal years 2019 and 2018 , respectively . the decrease is related to the full amortization of finite-lived intangible assets associated with the acquisitions of gennum corporation and cycleo sas ( `` cycleo '' ) . changes in the fair value of contingent earn-out obligations changes in the fair value of contingent earn-out expense reflects the impact of changes in the estimated probability of achievement of aptovision earn-out targets . we measure
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temporary investment impairment investment securities are written down to their net realizable value when there is impairment in value that is considered to be other-than-temporary. the determination of whether or not other-than-temporary impairment exists is a matter of judgment . management reviews investment securities regularly for possible impairment that is other-than-temporary by analyzing the facts and circumstances of each investment and the expectations for that investment 's performance . other-than-temporary impairment in the value of an investment may be indicated by the length of time and the extent to which market value has been less than cost ; the financial condition and near term prospects of the issuer ; and whether the corporation has the intent to sell or is likely to be forced to sell the investment prior to any anticipated recovery in market value . stock-based compensation the corporation has two stock compensation plans in place consisting of an employee stock purchase plan ( espp ) and an incentive stock option plan ( isop ) . the corporation accounts for stock compensation plans in accordance with fasb accounting standards codification topic 718 , stock compensation. asc topic 718 requires compensation costs related to share-based payment transactions to be recognized in the financial statements ( with limited exceptions ) . the amount of compensation cost is measured on the grant-date fair value of the equity or liability instruments issued . compensation cost is recognized over the period that an employee provides services in exchange for the award . the corporation calculates the compensation cost of the options by using the black-scholes method to determine the fair value of the options granted . in calculating the fair value of the options , the corporation makes assumptions regarding the risk-free rate of return , the expected volatility of the corporation 's common stock , dividend yield and the expected life of the option . these assumptions are made independently for the espp and the isop and if changed , would change the compensation cost of the options and net income . note 1 of the accompanying financial statements provides additional information about stock option expense . 15 gaap versus non-gaap presentations the corporation supplements its traditional gaap measurements with non-gaap measurements . the non-gaap measurements include return on average tangible assets , return on average tangible equity , tangible book value and tangible common equity ratio . as a result of merger transactions , intangible assets ( primarily goodwill , core deposit intangibles and customer list ) were created . the non-gaap disclosures are intended to eliminate the effects of the intangible assets and allow for better comparisons to periods when such assets did not exist . however , not all companies use the same calculation methods for the same non-gaap measurements and therefore may not be comparable . the following table shows the adjustments made between the gaap and non-gaap measurements : gaap measurement calculation return on average assets net income / average assets return on average equity net income / average equity book value total shareholders ' equity / shares outstanding common equity ratio total shareholders ' equity / total assets non-gaap measurement calculation return on average tangible assets net income plus intangible amortization ( net of tax ) / average assets less average intangible assets return on average tangible equity net income plus intangible amortization ( net of tax ) / average equity less average intangible assets tangible book value total shareholders ' equity less intangible assets / shares outstanding tangible common equity ratio total shareholders ' equity less intangible assets / total assets less intangible assets results of operations : management 's overview the following discussion and analysis is intended to assist the reader in reviewing the financial information presented and should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein . economic factors affecting banks at the end of 2011 are much as they were at the end of 2010. the economy , while showing small signs of improvement is still struggling in many parts of the country . unemployment and foreclosure rates remain high , consumer confidence is low , and short-term rates are now expected to remain at historic lows into 2014. as a result , many banks continue to see a compression of the net interest margin due to the low rate environment , and earnings pressure from nonperforming loans . the nation saw 92 bank failures in 2011 , down from 157 in 2010 . 16 in 2011 , franklin financial services corporation saw the lingering affects of the recession hit sectors of its market area in the form of loan delinquency and charge-offs , resulting in an unprecedented level of provision for loan loss expense for the year . despite these events , the corporation is pleased to report earnings of $ 6.6 million for 2011. however , this is $ 1.0 million less than in 2010. diluted earnings per share were $ 1.66 for the year compared to $ 1.96 per share in 2010. the corporation is also pleased that it was able to maintain its dividend at $ 1.08 per share for the year . the balance sheet grew to $ 990.2 million at year-end from $ 951.9 million in 2010 with growth coming in both loans and core deposits during the year . shareholders ' equity increased during the year due to retained earnings and an additional $ 1.7 million investment by shareholders in the corporation through the dividend reinvestment plan . net interest income increased year over year , but this increase was more than offset by the provision for loan loss expense of $ 7.5 million . noninterest income increased slightly in 2011 , but much of this increase was due to less securities losses in 2011 compared to 2010 , thereby improving the 2011 result . noninterest expense increased during the year due primarily to salaries and benefits . story_separator_special_tag net charge-offs increased to .86 % in 2011 from .45 % in 2010 , but the ratio of nonperforming loans fell from 3.68 % in 2010 to 2.94 % in 2011. other key performance measurements are presented above in item 6 , selected financial data . a more detailed discussion of the areas that had the greatest affect on the reported results follows . net interest income the most important source of the corporation 's earnings is net interest income , which is defined as the difference between income on interest-earning assets and the expense of interest-bearing liabilities supporting those assets . principal categories of interest-earning assets are loans and securities , while deposits , securities sold under agreements to repurchase ( repos ) , short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities . for the purpose of this discussion , balance sheet items refer to the average balance for the year and net interest income is adjusted to a fully taxable-equivalent basis . this tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the federal income taxes that would have been paid if this income were taxable at the corporation 's 34 % federal statutory rate . the components of net interest income are detailed in tables 1 , 2 and 3 . 2011 versus 2010 summary : in 2011 , tax equivalent net interest income totaled $ 34.4 million compared to $ 31.9 million the prior year . interest rates remained low throughout 2011 resulting in a decrease in interest income of $ 824 thousand . however , this reduction was more than offset by a $ 3.3 million reduction in interest expense . as a result , tax equivalent net interest income increased $ 2.5 million in 2011. the corporation 's net interest margin as percentage of earning assets improved from 3.53 % in 2010 to 3.73 % in 2011 primarily due to lower rates on liabilities . assets : average interest earning assets for 2011 were $ 920.3 million , approximately $ 16 million more than in 2010. the yield on assets declined again in 2011 as interest rates remained low throughout the year . lower asset yields drove interest income down by more than the increase produced by higher asset balances . consequently , tax-equivalent interest income declined $ 824 thousand year over year . table 2 presents information on the affect that changes in volume ( balance sheet size ) and the changes in rates have on tax-equivalent interest income . table 3 presents information on the average balance and yields on average earning assets . the average balance of investment securities in 2011 declined by approximately $ 5 million compared to the 2010 average balance . interest income fell by approximately $ 1 million as the cash flow from higher yielding investments was reinvested at lower rates . the bank has not been actively increasing its investment purchases choosing rather to reinvest the funds into loans . investment purchases throughout the year were made primarily to provide collateral needed for secured deposits and repo accounts . the loan portfolio grew in 2011 as average loans totaled $ 764.6 million compared to $ 753.6 million in 2010. for the second straight year , only the commercial loan portfolio showed an increase over the prior year . like the investment portfolio , the low rate environment has continued to reduce the loan yield , dropping it to 5.09 % in 2011 from 5.15 % in 2010. tax equivalent interest income on loans increased year over year primarily due to a larger loan portfolio . 17 commercial loans were the only portfolio sector to grow in 2011. the yield on these loans was 4.83 % in 2011 and remained fairly stable from 2010. commercial lending has remained steady with both new financing opportunities as well as refinancing of existing customers . in an effort to counter the affect of the low rate environment , the bank has been implementing rate floors on new and renewed credits . currently , approximately 81 % of the commercial portfolio is variable rate and $ 184 million of this total has a rate floor . while the rate floors provide an immediate benefit by enhancing interest income , they will delay any potential increase in income as rates rise . residential mortgage loans continue to run-off , decreasing approximately $ 6 million from the 2010 average balance of $ 66.1 to an average of $ 60.5 million in 2011. the bank is retaining fewer of the mortgages it originates and the mortgages retained in 2011 were not sufficient to counter the run-off in the existing portfolio . the yield on these loans declined again in 2011 , but the lower 2011 balance is the primary reason for the decline in interest income from mortgage loans . the balance of the residential mortgage portfolio is highly dependent on the volume of new loans retained by the bank . home equity loans and lines of credit declined for the second straight year in 2011. many consumers have seen their home 's equity fall , have experienced a reduction or loss of income , or have reduced their spending . these factors have all contributed to a reduction in home equity lending . the yield on this product improved slightly due to a floor rate on some products . lower volume was the main contributor to the decline in interest income from home equity products . until real estate prices recover and consumers begin to have confidence in the economy , home equity lending is expected to be slow . liabilities : average interest-bearing liabilities for 2011 declined slightly during the year to $ 788.1 million compared to $ 793.8 million in 2010. however , the reduction is due primarily to a significant decline in long-term debt that more than offset the increase in interest bearing deposits . every deposit category , except time deposits , increased during the year .
| despite the increase in total loans , the yield fell from 5.36 % to 5.15 % in 2010 , but interest income on loans increased $ 679 thousand as higher volume more than offset the negative affect of lower rates on interest income . commercial loans grew by $ 64.5 million in 2010 to an average of $ 576.3 million . the yield on the commercial loan portfolio fell for the second straight year from 4.97 % to 4.85 % . a larger portfolio in 2010 contributed the majority of the increase in interest income . the balance of residential mortgage loans declined in 2010 to an average balance of $ 66.1 million . this is approximately $ 7 million less than the 2009 average balance . the yield on this portfolio fell to 5.68 % in 2010 compared to 6.30 % in 2009. interest income is down $ 861 thousand versus 2009 and rate and volume declines contributed equally to the reduction . home equity balances fell by in 2010 by $ 8.9 , to an average of $ 89.3 million for the year . home equity lending has been affected greatly by the slow economy and lack of consumer confidence . the smaller home equity portfolio had a greater negative affect on the interest income than did lower rates . liabilities : interest bearing liabilities averaged $ 793.8 million in 2010 an increase of $ 13.2 million over the 2009 average . all of the deposit categories recorded an increase over 2009 , except for time deposits . repos and long-term debt also declined year over year . the expense of interest bearing liabilities was $ 12.4 million in 2010 compared to $ 14.7 million in 2009. likewise , the cost of these funds fell from 1.88 % in 2009 to 1.57 % in 2010. the money management product saw a significant increase in balances in 2010 , averaging $ 272.6 million or 26 % higher than the 2009 average . the
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only one quarter of tc 's charges ) ; · net income for 2015 included a non-cash deferred income tax charge of $ 5.6 million as compared to 2014 which included a deferred income tax benefit of $ 1.9 million ; · trade receivables decreased approximately $ 8.8 million in 2015 ( due to a 27.1 % decrease in the average per gallon selling price ) as compared to an increase of approximately $ 3.4 million in 2014 ( due to a 9.9 % increase in volume sold during the fourth quarter and receivables acquired from the acquisition ) ; · prepaid expenses and other assets decreased $ 1.2 million in 2015 ( primarily due to expensing of loan fees and disbursement of the prepayment of a lawsuit settlement ) as compared to an increase of $ 1.4 million in 2014 ( primarily due to prepaid loan fees associated with the debt from the acquisition , prepayment of a lawsuit settlement , and prepaids acquired from the acquisition ) ; and 21 · other liabilities increased $ 2.2 million in 2015 ( due to customer funding of capital projects for custom processing ) as compared to an increase of $ 0.1 million in 2014 ( due to deferred revenue acquired from the acquisition offset by recognition of deferred revenue during 2014 ) . these significant sources of cash were partially offset by the following decreases in cash provided by operations : · income tax receivable increased $ 7.2 million in 2015 ( primarily due to estimated tax payments being made prior to the update of tax laws passed in december 2015 ) as compared to a decrease of $ 0.1 million in 2014 ; · inventory increased $ 3.0 million in 2015 ( due to tc 's increase in raw material receipts from their primary supplier which translated into additional finished goods production ) as compared to a decrease of $ 2.6 million in 2014 ( due to a 31.9 % decrease in cost per gallon ) ; and · accounts payable and accrued liabilities decreased $ 2.4 million in 2015 ( primarily due to construction projects being completed during the year ) as compared to an increase of $ 1.8 million in 2014 ( primarily due to the working capital adjustment payable for the acquisition ) . operating activities generated cash of $ 23.2 million during fiscal 2014 as compared with $ 13.2 million of cash provided during fiscal 2013. although the company 's net income decreased by $ 3.9 million from 2013 to 2014 , the cash provided by operations increased by $ 10.0 million due primarily to the following factors : · net income for 2014 included a non-cash equity in loss from amak of $ 1.1 million as compared to equity in earnings from amak $ 4.7 million and gain on equity issued in amak of $ 4.0 million in 2013 ; · net income for 2014 included a non-cash depreciation and amortization charge of $ 5.7 million as compared to 2013 which included a non-cash depreciation charge of $ 4.0 million ; · net income for 2014 included a non-cash share-based compensation charge of $ 2.1 million as compared to 2013 which included a non-cash share-based compensation charge of $ 1.2 million ; · trade receivables increased approximately $ 3.4 million in 2014 ( due to a 9.9 % increase in volume sold during the fourth quarter and receivables acquired from the acquisition ) as compared to an increase of approximately $ 6.3 million ( due to a 40.1 % increase in volume sold during the fourth quarter ) in 2013 ; · inventory decreased approximately $ 2.6 million in 2014 ( due to a 31.9 % decrease in cost per gallon ) as compared to an increase of approximately $ 2.2 million ( due to a 58.8 % increase in deferred sales ) in 2013 ; and · accounts payable and accrued liabilities increased $ 1.8 million in 2014 ( primarily due to the working capital adjustment payable for the acquisition ) as compared to an increase of $ 1.4 million ( primarily due to an increase in the accrual for raw materials ) in 2013. these significant sources of cash were partially offset by the following decreases in cash provided by operations : · net income for 2014 included non-cash deferred income tax benefits of $ 1.9 million as compared to charges of $ 1.5 million in 2013 ; · prepaid expenses and other assets increased $ 1.4 million in 2014 ( primarily due to prepaid loan fees associated with the debt from the acquisition , prepayment of a lawsuit settlement , and prepaids acquired from the acquisition ) as compared to an increase of $ 1.0 million in 2013 ( primarily due to an increase in prepaid insurance and notes receivable from processing customers ) ; and · other liabilities increased $ 0.1 million in 2014 ( due to deferred revenue acquired from the acquisition offset by recognition of deferred revenue during 2014 ) as compared to an increase of $ 3.0 million in 2013 ( due to the receipt of funds from toll processing customers for modifications of toll processing facilities within the plant ) . 22 investing activities cash used by investing activities during fiscal 2015 was approximately $ 31.3 million , representing a decrease of approximately $ 57.6 million over the corresponding period of 2014. the majority of the decrease was due to the 2014 acquisition for $ 74.8 million , net of $ 0.1 million in cash acquired as discussed in note 3. during 2015 we expended $ 13.3 million on the d-train expansion , $ 1.8 million on tank farm improvements , $ 0.6 million on spare equipment , $ 2.8 on pipeline upgrades , $ 1.5 million on transportation equipment , $ 2.2 million on the oligomerization project ( costs fully paid by the customer ) , $ 2.1 million on the hydrogenation project , $ 1.3 million on a wax stripping column , and $ 5.6 million on various plant improvements and equipment . story_separator_special_tag cash used by investing activities during fiscal 2014 was approximately $ 88.9 million , representing an increase of approximately $ 76.2 million over the corresponding period of 2013. the majority of the increase was due to the acquisition for $ 74.8 million , net of $ 0.1 million in cash acquired as discussed in note 3. during 2014 we also expended $ 6.8 million on the d-train expansion , $ 0.9 million on tank farm improvements , $ 2.4 million on spare equipment , $ 0.3 on pipeline upgrades , and $ 4.4 million on various plant improvements and equipment . financing activities cash provided by financing activities during fiscal 2015 was approximately $ 1.8 million versus cash provided of $ 66.6 million during the corresponding period of 2014. during 2015 we made principal payments of $ 7.0 million on our term debt and $ 6.2 million on our line of credit . we drew $ 15.0 million on our term debt at year end 2015 to pre-fund the new reformer project approved for 2016 since borrowing availability for that particular financing was set to expire on december 31 , 2015. cash provided by financing activities during fiscal 2014 was approximately $ 66.6 million versus cash used of $ 2.4 million during the corresponding period of 2013. during 2014 we entered into an amended and restated loan agreement with the bank as discussed in note 12 for the acquisition , financing for the d-train expansion and a working capital line . we also made principal payments of $ 9.2 million on our term debt and $ 11.5 million on our line of credit . credit agreement on october 1 , 2014 , tocco , shr , gspl , and tc ( shr , gspl and tc collectively the “ guarantors ” ) entered into an amended and restated credit agreement ( “ arc agreement ” ) with the lenders which from time to time are parties to the arc agreement ( collectively , the “ lenders ” ) and bank of america , n.a. , a national banking association , as administrative agent for the lenders , and merrill lynch , pierce , fenner & smith incorporated as lead arranger . subject to the terms and conditions of the arc agreement , tocco may ( a ) borrow , repay and re-borrow revolving loans ( collectively , the “ revolving loans ” ) from time to time during the period ending september 30 , 2019 , up to but not exceeding at any one time outstanding $ 40.0 million ( the “ revolving loan commitment ” ) and ( b ) request up to $ 5.0 million of letters of credit and $ 5.0 million of swingline loans . each of the issuance of letters of credit and the advance of swingline loans shall be considered usage of the revolving loan commitment . all outstanding loans under the revolving loans must be repaid on october 1 , 2019. as of december 31 , 2015 , tocco had outstanding borrowings under the revolving loans aggregating $ 1.0 million . under the arc agreement , tocco also borrowed $ 70.0 million in a single advance term loan ( the “ acquisition term loan ” ) to partially finance the acquisition . as of december 31 , 2015 , tocco had outstanding borrowings under the acquisition term loan aggregating $ 61.3 million . under the arc agreement , tocco also has the right to borrow $ 25.0 million in a multiple advance loan ( the “ term loans , ” together with the revolving loans and acquisition term loan , collectively the “ loans ” ) . borrowing availability under the term loans ended on december 31 , 2015. the term loans convert from a multiple advance loan to a “ mini-perm ” loan once tocco has fulfilled certain obligations such as certification that construction of d-train was completed in a good and workmanlike manner , receipt of applicable permits and releases from governmental authorities , and receipt of releases of liens from the contractor and each subcontractor and supplier . the loans also include a $ 40,000,000 uncommitted increase option ( the “ accordion option ” ) . as of december 31 , 2015 , tocco had borrowed funds under this agreement aggregating $ 20.0 million . 23 all of the loans under the arc agreement will accrue interest at the lower of ( i ) a london interbank offered rate ( “ eurodollar rate ” ) plus a margin of between 2.00 % and 2.50 % based on the total leverage ratio of tocco and its subsidiaries on a consolidated basis , or ( ii ) a base rate ( “ base rate ” ) equal to the highest of the federal funds rate plus 0.50 % , the rate announced by bank of america , n.a . as its prime rate , and eurodollar rate plus 1.0 % , plus a margin of between 1.00 % to 1.50 % based on the total leverage ratio of tocco and its subsidiaries on a consolidated basis . the revolving loans will accrue a commitment fee on the unused portion thereof at a rate between 0.25 % and 0.375 % based on the total leverage ratio of tocco and its subsidiaries on a consolidated basis . interest on the revolving loans will be payable quarterly , with principal due and payable at maturity . interest on the acquisition term loan became payable quarterly using a ten year commercial style amortization , commencing on december 31 , 2014. the acquisition term loan was also payable as to principal beginning on december 31 , 2014 , and continuing on the last business day of each march , june , september and december thereafter , each payment in an amount equal to $ 1,750,000 , provided that the final installment on the september 30 , 2019 , maturity date shall be in an amount equal to the then outstanding unpaid principal balance of the acquisition term loan .
| 2013-2014 petrochemical product sales increased 20.4 % from 2013 to 2014 due to an increase in total sales volume of 23.4 % while average selling price declined slightly by 2.5 % . we saw a significant decline in raw material prices during the fourth quarter of 2014 which caused our average selling price for the year to decline . deferred sales volume increased 12.6 % from the end of 2013 to 2014 which delayed recognition until 2015. processing 2014-2015 processing revenues decreased 13.7 % from 2014 to 2015 due to lower run rates being required by our customers . 2013-2014 processing revenues increased 20.4 % from 2013 to 2014 due to the continued benefit from renegotiated contacts . we remain dedicated to maintaining a certain level of toll processing business in the facility and continue to pursue opportunities . cost of sales ( includes but is not limited to raw materials , total operating expense , natural gas , operating labor and transportation ) 2014-2015 cost of sales decreased 31.6 % from 2014 to 2015 due primarily to a 46.9 % decrease in the average cost per gallon of raw material . this was offset slightly by higher raw material volumes being processed in order to support the 5.0 % increase in sales volume . our raw material composition fluctuated during the year . we use natural gasoline as feedstock which is the heavier liquid remaining after butane and propane are removed from liquids produced by natural gas wells . the material is a commodity product in the oil/petrochemical markets and generally is readily available . we continue to investigate alternative feedstock sources which contain lower percentages of less desirable components in an effort to reduce the amount of byproduct sold into secondary markets at lower margins , thereby increasing overall profitability . 2013-2014 cost of sales increased 18.6 % from 2013 to 2014 due in part to a 19.4 % increase in volumes processed to support the increase in sales volume slightly offset by a 4.4 % decrease in the average cost per gallon of raw
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the second phase 1 trial is an open-label , dose-escalation study designed to evaluate the safety , pharmacokinetics and clinical activity of ipi-145 in patients with advanced hematologic malignancies . following the determination of the maximum tolerated dose in the dose escalation phase of this study , we plan to conduct an expansion phase in patients with specific hematologic malignancies . we expect to report data from both phase 1 trials in the second half of 2012 and to commence phase 2 development of ipi-145 in inflammation in 2012. mundipharma has commercialization rights outside of the united states for products arising from our pi3k inhibitor program . other programs . in addition to our three clinical stage programs , we have several innovative projects in earlier stages of development , encompassing emerging targets in fields such as cancer metabolism , apoptosis and protein homeostasis . through our internal discovery efforts , we also discovered ipi-940 , a novel , orally available inhibitor of fatty acid amide hydrolase , or faah . it is believed that inhibition of faah may enable the body to bolster its own analgesic and anti-inflammatory response , and may have applicability in a broad range of painful or inflammatory conditions . we have licensed worldwide development and commercialization rights to our faah program to mundipharma and its independent associated company , purdue pharmaceutical products l.p. , or purdue . strategic alliances mundipharma and purdue scope in november 2008 , we entered into a strategic alliance with mundipharma and purdue to develop and commercialize pharmaceutical products . the alliance is governed by strategic alliance agreements that we entered into with each of mundipharma and purdue . the agreement with purdue is focused on the development and u.s. commercialization of products targeting faah . the agreement with mundipharma is focused on the development and commercialization outside of the united states of all products and product candidates covered by the alliance , including those targeting faah . the alliance currently includes product candidates that inhibit or target the hedgehog pathway , faah , pi3k , and product candidates arising out of our early discovery projects in all disease fields that are conducted during a prescribed discovery period that runs through december 31 , 2013. our hsp90 program is expressly excluded from the alliance . mundipharma also has the option to include in the alliance certain products or product candidates that we may in-license during the discovery period by paying us a prescribed percentage of the up-front license fee or other acquisition cost , which percentage could be up to 60 % of such fee or cost , and by funding research and development costs in the same manner as products or product candidates arising out of our internal discovery programs , as described below . if we in-license any product or product candidate during the discovery period for which glp ( good laboratory practice ) toxicology studies have not been initiated , as we did with our pi3k inhibitor program in 2010 , such products are automatically included in the alliance just as if they arose out of our internal discovery projects . we have responsibility and decision-making authority for the development of all of our product candidates and performance of early discovery projects on a worldwide basis . there are no joint steering or similar 45 committees for the alliance . except with respect to products targeting faah , for which mundipharma and purdue currently have global commercialization rights , and products for which mundipharma has opted out of development as described below , we will have the right and responsibility to market and sell products arising from the alliance in the united states and mundipharma will have the right and responsibility to market and sell products arising from the alliance outside of the united states . other than pursuant to the strategic alliance agreements , neither we , purdue nor mundipharma may develop , manufacture or commercialize products that are directed to the same target or pathway as a product included in the strategic alliance , unless and until a party terminates its rights with respect to such products . following entry into the strategic alliance agreements , we consider mundipharma , purdue and their respective associated entities to be related parties for financial reporting purposes because of their equity ownership in our company . research and development funding for each alliance program other than faah , mundipharma is obligated to reimburse us for all research and development expenses we incur , up to an annual aggregate cap , until the later of december 31 , 2013 and the commencement of the first phase 3 clinical trial of a product candidate , which we refer to as the transition date. the funding caps for the years ending december 31 , 2012 and december 31 , 2013 are $ 110 million and $ 147.5 million , respectively . the funding caps for the years ended december 31 , 2011 and 2010 were $ 85 million and $ 65 million , respectively . the funding cap for the period between november 19 , 2008 and december 31 , 2009 was $ 50 million . we are obligated to fund any activities in excess of the annual funding cap ourselves , which we did in 2010 primarily as the result of costs associated with the licensing of our pi3k inhibitor program , and in 2011 primarily due to expanded clinical trial activities for saridegib and the commencement of clinical development of ipi-145 . after the transition date for each product candidate , we are obligated to share equally with mundipharma all research and development costs for such product candidate . we are recognizing revenue for reimbursed research and development services we perform for mundipharma and purdue . we recognized $ 85.0 million , $ 65.0 million and $ 46.5 million in such revenue in the years ended december 31 , 2011 , 2010 and 2009 , respectively . story_separator_special_tag in october 2010 , following the completion of the first phase 1 clinical trial of ipi-940 , mundipharma and purdue exercised their rights to assume all worldwide development and commercialization activities and to fund all subsequent research , development and commercialization expenses for products arising out of our faah program . all expenses associated with activities we conduct related to the transition of the faah program to purdue and mundipharma are reimbursed by purdue and mundipharma , with such amounts not counting towards the annual funding cap . we recognized $ 3.5 million and $ 2.0 million in revenue related to reimbursed research and development services for the transition of the faah program in the years ended december 31 , 2011 and 2010 , respectively . opt-out and termination rights mundipharma has the right to opt out of any alliance program , except the hedgehog program , on an annual basis in november of each year . in the event of an opt-out decision , mundipharma would continue to provide funding for , in the aggregate , 100 % of our contractually budgeted research and development expenses for all programs included in the alliance for the calendar year following the date of such opt out , up to an annual cap . this funding commitment for the year ending december 31 , 2013 is $ 51.3 million for our pi3k and early discovery programs . mundipharma may next exercise its right to opt out of the hedgehog program in november 2013. mundipharma is obligated to fund the hedgehog program until it is required to make the decision to opt out or continue funding the program . if mundipharma elects to opt out of participation in the hedgehog program in november 2013 , then mundipharma would be obligated to make an immediate payment of $ 23.65 million to us , which we can use on any program in the alliance . in addition , mundipharma would be obligated to reimburse us 46 for up to $ 23.65 million of additional expenses incurred during 2013 that are associated with the completion of phase 2 clinical trials of saridegib that are ongoing at that time . if mundipharma elects to continue participation in the hedgehog program in november 2013 , it would thereafter have the same annual opt-out right , and one-year residual funding obligation , that applies to the other alliance programs . in addition , we and mundipharma each have the right to opt out of continued development of a product candidate after it has reached the transition date , with a one year tail funding obligation for 50 % of post-transition date research and development expenses for the product candidate . if a party exercises its right to opt out of the development of a product or product candidate after the transition date , the other party may elect to continue the development and assume responsibility for the worldwide commercialization of such product or product candidate , subject to the payment of a royalty . each of the strategic alliance agreements expire when the parties thereto have no further obligations to each other thereunder . either party may terminate the strategic alliance agreement to which it is a party on 60 days ' prior written notice if the other party materially breaches the agreement and fails to cure such breach within the 60-day notice period . the agreements may also be terminated by mundipharma or purdue in the event of a change in control of infinity or in the event that , during the discovery period , either adelene perkins or julian adams is no longer a full-time executive of infinity . upon termination of either strategic alliance agreement by us or either mundipharma or purdue , either party to the other strategic alliance agreement may terminate that agreement . royalties except with respect to products that have been in-licensed by us following initiation of glp toxicology studies , for which no royalties will be payable between the parties , we are obligated to pay mundipharma a 5 % royalty on net sales of the commercialized products until such time as mundipharma has recovered all research and development expenses paid to us under the research program prior to the applicable transition date . after such cost recovery , we are obligated to pay a tiered , 1 % to 3 % royalty on u.s. net sales of those products . for products in which mundipharma has opted-out of development prior to the transition date , we are obligated to pay royalties of 1 % to 5 % of worldwide net sales as a function of the stage of development of the applicable product candidate at the time of opt out . for products in which either party has opted-out of development following the transition date , the commercializing party is obligated to pay the other party a 5 % royalty on net sales . mundipharma is obligated to pay us a tiered , 10 % to 20 % royalty on annual net sales outside of the united states of each product arising out of the alliance , and purdue is obligated to pay us a tiered , 10 % to 20 % royalty on annual net sales of faah products in the united states . royalties are payable until the later to occur of the expiration of specified patent rights and the expiration of non-patent regulatory exclusivities in a country , provided that if royalties are payable solely on the basis of non-patent regulatory exclusivity , each of the rates above is reduced by one-half . in addition , all royalties payable under the strategic alliance agreements , whether by us , mundipharma or purdue , are subject to reduction on account of third party royalty payments or patent litigation damages or settlements , with any such reductions capped at 50 % of the amounts otherwise payable during the applicable royalty payment period .
| 53 research and development expense research and development expenses represented approximately 83 % of our total operating expenses for the year ended december 31 , 2011 , 82 % of our total operating expenses for the year ended december 31 , 2010 , and 80 % of our total operating expenses for the year ended december 31 , 2009. the increase in research and development expense for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was primarily attributable to : an increase of $ 10.3 million in clinical expenses , an increase of $ 4.6 million in pharmaceutical development expenses and an increase in $ 2.9 million in consulting expenses as our hedgehog and pi3k programs have advanced ; and $ 4.0 million associated with the achievement of milestones for the initiation of two phase 1 clinical trials in our pi3k program . these increases were partially offset by an upfront fee of $ 13.5 million to license- our pi3k program , which was recorded as research and development expense during the year ended december 31 , 2010. the increase in research and development expense for the year ended december 31 , 2010 compared to the year ended december 31 , 2009 was primarily attributable to : the $ 13.5 million upfront fee to license our pi3k program and $ 1.2 million of related reimbursement for research and development services performed by millennium ; an increase of $ 2.8 million in compensation and benefits , which was primarily driven by annual base salary increases and an increase in our contingent cash compensation program ; an increase of $ 2.7 million in clinical expenses associated with advancement of our hedgehog and faah programs ; and an increase of $ 1.2 million in consulting expenses primarily related to our hedgehog and faah programs . we began to track and accumulate costs by major program starting on january 1 , 2006. the following table
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10. for a discussion of our capital ratios , see “ liquidity and capital resources—regulatory requirements ” herein . 11. at december 31 , 2020 , our slr reflects the impact of a federal reserve interim final rule in effect until march 31 , 2021. for further information , see “ liquidity and capital resources—regulatory requirements ” herein . december 2020 form 10-k 28 management 's discussion and analysis coronavirus disease ( “ covid-19 ” ) pandemic the covid-19 pandemic and related voluntary and government-imposed social and business restrictions have had , and will likely continue to have , a severe impact on global economic conditions and the environment in which we operate our businesses . we have a return-to-workplace program , which is based on role , location and employee willingness and ability to return and focused on the health and safety of all staff . at this time , however , we do not expect significant numbers of staff to return to offices before the third quarter of 2021. the firm continues to be fully operational , with approximately 90 % of employees in the americas and globally working from home as of december 31 , 2020. though we are unable to estimate the extent of the impact , the ongoing covid-19 pandemic and related global economic crisis may have adverse impacts on our future operating results . to date , given our business model , economic conditions have affected our businesses in different ways . we have increased our allowance for credit losses on loans and lending commitments , and the persistence of low interest rates has continued to negatively affect our net interest margin in the wealth management business segment . overall for the firm , increased client trading and capital markets activity has benefited institutional securities business segment results in sales and trading and investment banking underwriting revenues . however , the high levels of client trading and capital markets activity experienced in the current year may not be repeated and certain other client-driven activity could become subdued . refer to “ risk factors ” and “ forward-looking statements. ” selected non-gaap financial information we prepare our financial statements using u.s. gaap . from time to time , we may disclose certain “ non-gaap financial measures ” in this document or in the course of our earnings releases , earnings and other conference calls , financial presentations , definitive proxy statement and otherwise . a “ non-gaap financial measure ” excludes , or includes , amounts from the most directly comparable measure calculated and presented in accordance with u.s. gaap . we consider the non-gaap financial measures we disclose to be useful to us , investors , analysts and other stakeholders by providing further transparency about , or an alternate means of assessing or comparing our financial condition , operating results and capital adequacy . these measures are not in accordance with , or a substitute for , u.s. gaap and may be different from or inconsistent with non-gaap financial measures used by other companies . whenever we refer to a non-gaap financial measure , we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with u.s. gaap , along with a reconciliation of the differences between the u.s. gaap financial measure and the non-gaap financial measure . the principal non-gaap financial measures presented in this document are set forth in the following tables . reconciliations from u.s. gaap to non-gaap consolidated financial measures replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th 29 december 2020 form 10-k management 's discussion and analysis non-gaap financial measures by business segment replace_table_token_15_th 1. adjusted amounts exclude the effect of costs related to the integration of e * trade , net of tax as appropriate . total integration-related expenses on a pre-tax basis include $ 151 million in compensation expenses and $ 80 million in non-compensation expenses . for more information , see note 3 to the financial statements . 2. roe and rotce represent earnings applicable to morgan stanley common shareholders as a percentage of average common equity and average tangible common equity , respectively . when excluding integration-related costs , both the numerator and average denominator are adjusted . 3. average common equity and average tangible common equity for each business segment is determined using our required capital framework ( see `` liquidity and capital resources—regulatory requirements—attribution of average common equity according to the required capital framework ” herein ) . 4. the sums of the segments ' average common equity and average tangible common equity do not equal the consolidated measures due to parent equity . 5. the calculation of roe and rotce by segment uses net income applicable to morgan stanley by segment less preferred dividends allocated to each segment as a percentage of average common equity and average tangible common equity , respectively , allocated to each segment . return on tangible common equity target in january 2021 , we established a 2-year rotce target of 14 % to 16 % , excluding integration-related expenses . our rotce target is a forward-looking statement that was based on a normal market environment and may be materially affected by many factors , including , among other things : mergers and acquisitions ; macroeconomic and market conditions ; legislative , accounting , tax and regulatory developments ; industry trading and investment banking volumes ; equity market levels ; interest rate environment ; outsized legal expenses or penalties ; the ability to control expenses ; and capital levels . see “ forward-looking statements ” and “ risk factors ” for additional information . given the economic impact of the covid-19 pandemic , it is uncertain if the rotce target will be met within the originally stated time frame . see “ coronavirus disease ( covid-19 ) pandemic ” herein and “ risk factors ” for further information on market and economic conditions and their effects on our financial results . for further information on non-gaap measures ( rotce excluding integration-related expenses ) , see “ selected non-gaap financial information ” herein . story_separator_special_tag business segments substantially all of our operating revenues and operating expenses are directly attributable to our business segments . certain revenues and expenses have been allocated to each business segment , generally in proportion to its respective net revenues , non-interest expenses or other relevant measures . see note 23 to the financial statements for information on intersegment transactions . net revenues investment banking investment banking revenues are derived from client engagements in which we act as an adviser , underwriter or distributor of capital . within the institutional securities business segment , these revenues are primarily composed of fees earned from underwriting equity and fixed income securities , syndicating loans and advisory services in relation to mergers and acquisitions , divestitures and corporate restructurings . within the wealth management business segment , these revenues are derived from the distribution of newly issued securities . trading trading revenues include the realized gains and losses from transactions in financial instruments , unrealized gains and losses from ongoing changes in the fair value of our positions , and gains and losses from financial instruments used to economically hedge compensation expense related to certain employee deferred compensation plans . within the institutional securities business segment , trading revenues arise from transactions in cash instruments and derivatives in which we act as a market maker for our clients . in this role , we stand ready to buy , sell or otherwise transact with customers under a variety of market conditions and to provide firm or indicative prices in response to customer requests . our liquidity obligations can be explicit in some cases , and in others , customers expect us to be willing to transact with them . in order to most effectively fulfill our market-making function , we engage in activities across all of our trading businesses that include , but are not limited to : taking positions in anticipation of , and in response to , customer demand to buy or sell and—depending on the liquidity of the relevant market and the size of the position—to hold those positions for a period of time ; building , maintaining and rebalancing inventory held to facilitate client activity through trades with other market participants ; managing and assuming basis risk ( risk associated with imperfect hedging ) between risks incurred from the facilitation of client transactions and the standardized products available in the market to hedge those risks ; december 2020 form 10-k 30 management 's discussion and analysis trading in the market to remain current on pricing and trends ; and engaging in other activities to provide efficiency and liquidity for markets . in many markets , the realized and unrealized gains and losses from purchase and sale transactions will include any spreads between bids and offers . certain fees received on loans carried at fair value and dividends from equity securities are also recorded in trading revenues since they relate to positions carried at fair value . within the wealth management business segment , trading revenues primarily include revenues from customers ' purchases and sales of fixed income instruments in which we act as principal , and gains and losses related to investments associated with certain employee deferred compensation plans . investments investments revenues are composed of realized and unrealized gains and losses derived from investments , including those associated with employee deferred compensation and co-investment plans . estimates of the fair value of the investments that produce these revenues may involve significant judgment and may fluctuate significantly over time in light of business , market , economic and financial conditions , generally or in relation to specific transactions . within the institutional securities segment , gains and losses are primarily from business-related investments . certain investments are subject to sale restrictions . typically , there are no fee revenues from these investments . within the investment management business segment , investments revenues , in addition to gains and losses from investments , include performance-based fees in the form of carried interest , a portion of which is subject to reversal . the business is entitled to receive carried interest when the return in certain funds exceeds specified performance targets . additionally , there are certain sponsored investment management funds consolidated by us where revenues are primarily attributable to holders of noncontrolling interests . commissions and fees commissions and fees result from arrangements in which the client is charged a fee for executing transactions related to securities , services related to sales and trading activities , and sales of other products . within the institutional securities business segment , commissions and fees include fees earned from market-making activities , such as executing and clearing client transactions on major stock and derivative exchanges , as well as from otc derivatives . within the wealth management business segment , commissions and fees primarily arise from client transactions in equity securities , insurance products , mutual funds , futures and options , and also include revenues from order flow payments for directing customer orders to broker-dealers , exchanges , and market centers for execution . asset management asset management revenues include fees associated with the management and supervision of assets and the distribution of funds and similar products . within the wealth management business segment , asset management revenues are associated with advisory services and management of assets , account service and administration , as well as distribution of products . these revenues are generally based on the net asset value of the account in which a client is invested . within the investment management business segment , asset management revenues are primarily composed of fees received from mutual fund daily average net assets or based on monthly or quarterly invested equity for other vehicles . performance-based fees , not in the form of carried interest , are earned on certain products and separately managed accounts as a percentage of appreciation generally earned by those products and , in certain cases , are based upon the achievement of performance criteria . these performance fees are generally recognized annually .
| on october 8 , 2020 , we entered into a definitive agreement under which we will acquire eaton vance corp. ( “ eaton vance ” ) , subject to customary closing conditions . for further information , see “ business segments—investment management ” herein . net revenues ( $ in millions ) net income applicable to morgan stanley ( $ in millions ) earnings per diluted common share 2020 compared with 2019 we reported net revenues of $ 48,198 million in 2020 compared with $ 41,419 million in 2019. for 2020 , net income applicable to morgan stanley was $ 10,996 million , or $ 6.46 per diluted common share , compared with $ 9,042 million , or $ 5.19 per diluted common share , in 2019. december 2020 form 10-k 26 management 's discussion and analysis non-interest expenses 1 ( $ in millions ) 1. the percentages on the bars in the chart represent the contribution of compensation and benefits expenses and non-compensation expenses to the total . compensation and benefits expenses of $ 20,854 million in 2020 increased 11 % from the prior year , primarily as a result of increases in discretionary incentive compensation and the formulaic payout to wealth management representatives driven by higher revenues , higher expenses related to certain deferred compensation plans linked to investment performance , and incremental compensation as a result of the e * trade acquisition . these increases were partially offset by lower compensation associated with carried interest . non-compensation expenses of $ 12,926 million in 2020 increased 15 % from the prior year , primarily as a result of higher volume-related expenses , incremental operating and other expenses as a result of the e * trade acquisition , integration-related expenses , increased information processing and communications expenses , and an increase in the provision for credit losses for lending commitments , partially offset by a decrease in marketing and business development expenses . income taxes the increase in the firm 's effective tax rate in 2020 compared with the prior year is primarily due to the higher level of earnings and lower net discrete tax benefits . in 2020 , net discrete tax benefits were $
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epoxy segment results were higher than the prior year primarily due to higher product prices , partially offset by increased raw material costs , primarily benzene and propylene , and lower volumes and a less favorable product mix . epoxy segment results for the year ended december 31 , 2018 were negatively impacted by $ 23.1 million of additional maintenance costs and unabsorbed fixed manufacturing costs associated with maintenance turnarounds , which were primarily associated with an approximately two-month planned maintenance turnaround at our production facilities in freeport , tx . epoxy 2017 segment results were negatively impacted by incremental costs to continue operations and unabsorbed fixed manufacturing costs associated with hurricane harvey of $ 27.7 million . epoxy segment income included depreciation and amortization expense of $ 102.4 million and $ 94.3 million in 2018 and 2017 , respectively . winchester reported segment income of $ 38.4 million for 2018 compared to $ 72.4 million for 2017 . winchester segment income declined from the prior year primarily due to increased commodity and other material costs and decreased demand for commercial ammunition resulting in lower commercial sales volumes and lower product pricing . winchester segment income included depreciation and amortization expense of $ 20.0 million and $ 19.5 million in 2018 and 2017 , respectively . during 2018 , we settled certain disputes with respect to insurance coverage for costs at various environmental remediation sites for $ 121.0 million . we recorded a pretax gain of $ 111.0 million to the environmental provision , which was net of estimated liabilities of $ 10.0 million associated with claims by subsequent owners of certain of the settled environmental sites . we incurred legal fees of $ 21.5 million for the year ended december 31 , 2018 associated with these recovery actions . for the year ended december 31 , 2018 , we made long-term debt repayments , net of long-term debt borrowings , of $ 376.1 million . on january 19 , 2018 , olin issued $ 550.0 million aggregate principal amount of 5.00 % senior notes due february 1 , 2030 ( 2030 notes ) , which were registered under the securities act of 1933 , as amended . proceeds from the 2030 notes were used to redeem $ 550.0 million of debt under the $ 1,375.0 million term loan facility . this prepayment of the term loan facility eliminated the required quarterly installments under the $ 1,375.0 million term loan facility . on april 26 , 2018 , our board of directors authorized a share repurchase program for the purchase of shares of common stock at an aggregate price of up to $ 500.0 million . this program will terminate upon the purchase of $ 500.0 million of our common stock . for the year ended december 31 , 2018 , 2.1 million shares were repurchased and retired at a cost of $ 50.0 million . 25 story_separator_special_tag due to higher consulting and contract services of $ 10.5 million , which include transition service fees from dowdupont , and higher stock-based compensation expense of $ 8.2 million , which includes mark-to-market adjustments . selling and administration expenses for 2017 also included costs associated with the information technology project of $ 5.3 million . selling and administration expenses as a percentage of sales were 6 % in both 2017 and 2016. restructuring charges in 2017 and 2016 were primarily associated with the march 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations . for the year ended december 31 , 2016 , $ 76.6 million of these charges were non-cash asset impairment charges for equipment and facilities . restructuring charges for the years ended december 31 , 2017 and 2016 were also associated with permanently closing a portion of the becancour , canada chlor alkali facility in 2014 and the relocation of our winchester centerfire ammunition manufacturing operations from east alton , il to oxford , ms which was completed during 2016. acquisition-related costs for the years ended december 31 , 2017 and 2016 were related to the integration of the acquired business , and consisted of advisory , legal , accounting and other professional fees . other operating income for the year ended december 31 , 2017 included a gain of $ 3.3 million from the sale of a former manufacturing facility . other operating income for the year ended december 31 , 2016 included an $ 11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident . interest expense increased by $ 25.5 million in 2017 from 2016 primarily due to higher interest rates , $ 3.9 million of accretion expense related to the 2020 ethylene payment discount and the write-off of unamortized deferred debt issuance costs of $ 2.7 million associated with the redemption of the sumitomo credit facility and a portion of the $ 1,850.0 million senior credit facility . non-operating pension income includes all components of pension and other postretirement income ( costs ) other than service costs . non-operating pension income was lower for the year ended december 31 , 2017 , primarily due to an increase in the amortization of actuarial losses . the effective tax rate for 2017 included benefits associated with the 2017 tax act , an agreement with the internal revenue service on prior period tax examinations , stock based compensation , u.s. federal tax credits , changes to prior year tax positions and a reduction to the deferred tax liability on unremitted foreign earnings . the effective tax rate also included an expense associated with a net increase in the valuation allowance , primarily related to foreign net operating losses and remeasurement of deferred taxes due to an increase in our state effective tax rates . these factors resulted in a net $ 452.3 million tax benefit , of which $ 437.9 million was a provisional benefit from the 2017 tax act . story_separator_special_tag after giving consideration to these items , the effective tax rate for 2017 of 17.1 % was lower than the 35 % u.s. federal statutory rate , primarily due to favorable permanent salt depletion deductions . the effective tax rate for 2016 included benefits associated with return to provision adjustments , primarily related to salt depletion and non-deductible acquisition costs , and the remeasurement of deferred taxes due to a decrease in our state effective tax rates . the effective tax rate also included an expense associated with a change in prior year uncertain tax positions . these factors resulted in a net $ 3.9 million tax benefit . after giving consideration to these items , the effective tax rate for 2016 of 77.2 % was higher than the 35 % u.s. federal statutory rate , primarily due to favorable permanent salt depletion deductions in combination with a pretax loss . 28 segment results we define segment results as income ( loss ) before interest expense , interest income , other operating income ( expense ) , non-operating pension income and income taxes , and includes the operating results of non-consolidated affiliates . consistent with the guidance in asc 280 “ segment reporting , ” we have determined it is appropriate to include the operating results of non-consolidated affiliates in the relevant segment financial results . we have three operating segments : chlor alkali products and vinyls , epoxy and winchester . the three operating segments reflect the organization used by our management for purposes of allocating resources and assessing performance . chlorine used in our epoxy segment is transferred at cost from the chlor alkali products and vinyls segment . sales and profits are recognized in the chlor alkali products and vinyls segment for all caustic soda generated and sold by olin . replace_table_token_2_th ( 1 ) earnings ( losses ) of non-consolidated affiliates are included in the chlor alkali products and vinyls segment results consistent with management 's monitoring of the operating segment . the losses of non-consolidated affiliates were $ 19.7 million for the year ended december 31 , 2018 , which reflect a $ 21.5 million non-cash impairment charge recorded during 2018. the earnings of non-consolidated affiliates were $ 1.8 million and $ 1.7 million for the years ended december 31 , 2017 and 2016 , respectively . ( 2 ) environmental income ( expense ) for the year ended december 31 , 2018 included insurance recoveries for environmental costs incurred and expensed in prior periods of $ 111.0 million . environmental income ( expense ) is included in cost of goods sold in the consolidated statements of operations . ( 3 ) other corporate and unallocated costs for the years ended december 31 , 2018 and 2017 included costs associated with the implementation of the information technology project of $ 36.5 million and $ 5.3 million , respectively . ( 4 ) restructuring charges for the year ended december 31 , 2018 included costs associated with permanently closing the ammunition assembly operations at our geelong , australia facility in december 2018. restructuring charges for the years ended december 31 , 2018 , 2017 and 2016 were primarily associated with the march 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations and permanently closing a portion of the becancour , canada chlor alkali facility in 2014. for the year ended december 31 , 2016 , $ 76.6 million of these charges were non-cash asset impairment charges for equipment and facilities . restructuring charges for the years ended december 31 , 2017 and 2016 also included costs associated with the relocation of our winchester centerfire ammunition manufacturing operations from east alton , il to oxford , ms which was completed during 2016 . 29 ( 5 ) acquisition-related costs for the years ended december 31 , 2018 , 2017 and 2016 were related to the integration of the acquired business and consisted of advisory , legal , accounting and other professional fees . ( 6 ) other operating income for the year ended december 31 , 2018 included an $ 8.0 million insurance recovery for a second quarter 2017 business interruption at our freeport , tx vinyl chloride monomer facility partially offset by a $ 1.7 million loss on the sale of land . other operating income for the year ended december 31 , 2017 included a gain of $ 3.3 million from the sale of a former manufacturing facility . other operating income for the year ended december 31 , 2016 included an $ 11.0 million insurance recovery for property damage and business interruption related to a 2008 chlor alkali facility incident . ( 7 ) interest expense for the years ended december 31 , 2018 and 2017 included $ 16.0 million and $ 3.9 million , respectively , of accretion expense related to the 2020 ethylene payment discount . interest expense was reduced by capitalized interest of $ 6.0 million , $ 3.0 million and $ 1.9 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . ( 8 ) non-operating pension income reflects the adoption of asu 2017-07 and includes all components of pension and other postretirement income ( costs ) other than service costs , which are allocated to the operating segments based on their respective estimated census data . operating segment results for 2017 and 2016 have been restated to reflect this accounting change . chlor alkali products and vinyls 2018 compared to 2017 chlor alkali products and vinyls sales for 2018 were $ 3,986.7 million compared to $ 3,500.8 million for 2017 , an increase of $ 485.9 million , or 14 % . the sales increase was primarily due to increased caustic soda , edc , chlorine and other chlorine-derivatives pricing . the higher product prices were partially offset by lower caustic soda volumes and a less favorable product mix . chlor alkali products and vinyls 2017 sales volumes were negatively impacted by lost sales associated with hurricane harvey .
| gross margin as a percentage of sales increased to 16 % in 2018 from 11 % in 2017 . selling and administration expenses in 2018 increased $ 60.8 million , or 16 % , from 2017 . the increase was primarily due to higher costs associated with the information technology project of $ 31.2 million , higher legal and legal-related settlement expenses of $ 15.6 million , primarily associated with environmental recovery actions , increased incentive compensation expense of $ 11.6 million , an unfavorable foreign currency impact of $ 10.9 million and higher consulting and contract services of $ 10.4 million , which include transition service fees from dowdupont . these increased costs were partially offset by lower stock-based compensation expense of $ 15.0 million , which includes mark-to-market adjustments . selling and administration expenses as a percentage of sales were 6 % in both 2018 and 2017 . 26 restructuring charges in 2018 and 2017 were primarily associated with the march 2016 closure of 433,000 tons of chlor alkali capacity across three separate locations . restructuring charges in 2018 were also associated with a december 2018 decision to permanently close the ammunition assembly operations at our winchester facility in geelong , australia . acquisition-related costs for the years ended december 31 , 2018 and 2017 were related to the integration of the acquired business , and consisted of advisory , legal , accounting and other professional fees . other operating income for the year ended december 31 , 2018 included an $ 8.0 million insurance recovery for a second quarter 2017 business interruption at our freeport , tx vinyl chloride monomer facility partially offset by a $ 1.7 million loss on the sale of land . other operating income for the year ended december 31 , 2017 included a gain of $ 3.3 million from the sale of a former manufacturing facility . earnings ( losses ) of non-consolidated affiliates decreased by $ 21.5
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we must demonstrate an ability to define , test and meet acceptable specifications for our current good manufacturing practice and iso standards for the manufactured compounds used to prepare intercept-treated red blood cells before we can submit and seek regulatory approval of our red blood cell system . the requirements apply to all suppliers providing raw materials , active ingredients , intermediates and final product . we understand that while the data generated from our european phase 3 clinical trials may be sufficient to receive ce mark approval we may not receive broad usage indications for both chronic and acute anemia usage and , we may need to generate additional safety data from commercial use in order to achieve broad market acceptance . in addition , these trials may need to be supplemented by additional , successful phase 3 clinical trials for approval in certain countries . if such additional phase 3 clinical trials are required , they would likely need to demonstrate equivalency of intercept-treated red blood cells compared to conventional , un-treated red blood cells and the significantly lower lifespan for intercept-treated red blood cells compared to conventional , un-treated red blood cells may limit our ability to obtain any regulatory approvals in certain countries for the red blood cell system . as part of our development activities , we will need to successfully complete a number of in vitro studies prior to receiving 65 any regulatory approvals in europe and certain additional activities , including successfully completing the redes and recepi studies and an additional phase 3 clinical trial for chronic anemia patients , including sickle-cell anemia patients , in the u.s. , prior to receiving any regulatory approvals in the u.s. successful completion of these activities may require capital beyond that which we currently have or that may be available to us under our agreement with the biomedical advanced research and development authority , or barda , and we may be required to obtain additional capital in order to complete the development of and obtain any regulatory approvals for the red blood cell system . in addition , if we are unable to obtain from our suppliers sufficient clinical quantities of the active compounds for our red blood cell system meeting defined quality and regulatory specifications , if our suppliers are not able to maintain regulatory compliance or if we experience additional delays in enrollment for the redes and recepi studies because of the covid-19 pandemic or any other reason , we may experience delays in testing , conducting trials or obtaining approvals , and our product development costs would likely increase . in april 2020 , we extended our agreement with barda , part of the u.s. department of health and human services ' office of the assistant secretary for preparedness and response , through december 2021. the agreement provides funding from barda to support the development of our red blood cell system , including clinical and regulatory development programs in support of potential licensure , and development , manufacturing and scale-up activities , as well as activities related to broader implementation of all three intercept systems in areas of emerging pathogens . the redes and recepi and other studies are being funded as part of our agreement with barda . under the contract , barda reimburses us for allowable direct contract costs , as such costs are incurred , and for allowable indirect costs . see the discussion under “ barda ” below for more information . in november 2020 , we received fda approval for the intercept blood system for cryoprecipitation . the intercept blood system for cryoprecipitation uses our plasma system to produce prcfc for the treatment and control of bleeding , including massive hemorrhage , associated with fibrinogen deficiency . we currently have agreements with certain blood center manufacturing partners and are actively working to identify additional partners to manufacture the extended-storage cryoprecipitate . we are also working on implementing the infrastructure we believe will be necessary to market extended-storage cryoprecipitate product directly to hospitals . until our blood center manufacturing partners receive blas from the fda , we will be limited to selling in those states where we have manufacturing partners located . in addition , we may , in the future , sell the intercept blood system for cryoprecipitation kits to blood centers that are not our manufacturing partners for prcfc . accordingly , this dynamic may in turn create pricing pressures , distrust with our contracted blood center manufacturing partners and competition for hospital business . we have borrowed and in the future may borrow additional capital from institutional and commercial banking sources to fund future growth , including pursuant to our credit , security and guaranty agreement ( term loan ) , or the term loan credit agreement , and our credit , security and guaranty agreement ( revolving loan ) , or the revolving loan credit agreement , both with midcap financial trust , or midcap , as described below , or potentially pursuant to new arrangements with different lenders . we may borrow funds on terms that may include restrictive covenants , including covenants that restrict the operation of our business , liens on assets , high effective interest rates , financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets . in addition , we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations . to the extent that we raise additional capital by issuing equity securities , our stockholders may experience substantial dilution . to the extent that we raise additional funds through collaboration or partnering arrangements , we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies , grant licenses on terms that are not favorable to us , or issue equity that may be substantially dilutive to our stockholders . story_separator_special_tag as a result of economic conditions , general global economic uncertainty , political change , and other factors , including uncertainty associated with the covid-19 pandemic , we do not know whether additional capital will be available when needed , or that , if available , we will be able to obtain additional capital on reasonable terms . specifically , the covid-19 pandemic has significantly disrupted global financial markets , and may limit our ability to access capital , which could in the future negatively affect our liquidity . if we are unable to raise additional capital due to the volatile global financial markets , general economic uncertainty or other factors , we may need to curtail planned development or commercialization activities . in addition , we may need to obtain additional funds to complete development activities for the red blood cell system necessary for potential regulatory approval in europe , if costs are higher than anticipated or we encounter delays . we may need to obtain additional funding to conduct additional randomized controlled clinical trials for existing or new products , particularly if we are unable to access any additional portions of the funding contemplated by our barda agreement , and we may choose to defer such activities until we can obtain sufficient additional funding or , at such time our existing operations provide sufficient cash flow to conduct these trials . although we received fda approval of our platelet and plasma systems in december 2014 , our u.s. commercial efforts continue to be largely focused on enabling blood centers that are using intercept to optimize production and increase the number of platelet and plasma units produced and made available to patients and continuing to develop awareness of intercept 's product profile relative to other platelet and plasma products , including conventional , un-treated components . in addition , to address the entire market in the u.s. , we will need to develop , test and obtain fda approval of additional configurations of the platelet system . in september 2019 , the fda issued a final guidance document , “ bacterial risk control strategies for blood collection establishments and transfusion services to enhance the safety and availability of platelets for transfusion. ” at the time it was issued , the guidance 66 document required all blood collection facilities to comply with the options available under the guidance document , which includes the intercept blood system , for all platelet collections , no later than october 1 , 2021 . blood centers may wait until later in the compliance grace period before beginning to take steps to implement intercept . should a large number of blood centers wait , we may not have sufficient resources or product available to allow customers to timely and successfully implement intercept before the end of the compliance grace period . should we be unable to manufacture intercept in sufficient quantities in a timely manner , or have adequate resources to assist customer with implementing the intercept blood system , u.s. blood centers may be forced to use alternate options allowed by the guidance document , which could permanently impact our ability to convert those blood centers to intercept users . hospitals in regions seeing a surge in covid-19 cases may disallow access to their sites or personnel which will delay our ability to market and sell our products , including prcfc . should the covid-19 pandemic persist or heighten , customers may not be able to implement new technologies such as intercept and may instead choose to utilize other allowable methods with which they may have more familiarity . outside of the u.s. , we recognize product revenues from the sale of our platelet and plasma systems in a number of countries around the world including those in europe , the commonwealth of independent states , or cis , and the middle east . in july 2017 , we entered into agreements with établissement français du sang , or efs to supply illuminators and platelet and plasma disposable kits . the agreement for supply of illuminators and platelet disposable kits provided for a base term of two years , with two options for efs to extend for one year each , both of which have been exercised by efs . in january 2020 , we entered into a new agreement with efs to supply plasma disposable kits and maintenance services for illuminators for a base term of two years , with two options for efs to extend for one year each . we can not assure that efs will use the intercept blood system for plasma at historical levels or at all . we understand that efs has adopted the platelet system across france but can not provide any assurance that national usage is sustainable , since no purchase volume commitments have been made by efs in our current contract or otherwise . in addition , significant product revenue from the french market may decline or not consistently occur quarter-over-quarter . we also can not provide any assurance that we will be able to secure any subsequent contracts with efs or that the terms , including the pricing or committed volumes , if any , of any future contract will be equivalent or superior to the terms under our current contract . if we are unable to gain widespread commercial adoption in markets where our blood safety products are approved for commercialization , including the u.s. , we will have difficulties achieving profitability . in order to commercialize all of our products and product candidates , we will be required to conduct significant research , development , preclinical and clinical evaluation , commercialization and regulatory compliance activities for our products and product candidates , which , together with anticipated selling , general and administrative expenses , are expected to result in substantial losses . accordingly , we may never achieve a profitable level of operations in the future .
| cost of product revenue our cost of product revenue consists of the cost of the intercept blood system sold , provisions for obsolete , slow-moving and unsaleable product , and certain order fulfillment costs , to the extent applicable . inventory is accounted for on a first-in , first-out basis . replace_table_token_2_th cost of product revenue increased by $ 7.7 million during the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. the increase was primarily due to increased sales , and to a lesser extent the write-off of certain inventory components that did not meet our quality standards , partially offset by volume tier discounts from a contract manufacturer and the impact of favorable foreign exchange rates . our gross margin on product sales was 55 % during the year ended december 31 , 2020 , compared to 55 % during the year ended december 31 , 2019. changes in our gross margin on product sales are affected by various factors , including the volume of product manufactured and the relative per unit pricing in our agreement with fresenius , exchange rate of the euro relative to the u.s. dollar , manufacturing and supply chain costs , the mix of product sold , and the mix of customers to which products are sold . we may encounter unforeseen manufacturing difficulties , including those related to the covid-19 pandemic , which , at a minimum , may lead to higher than anticipated costs , scrap rates , delays in manufacturing products , or lower production levels of manufacturing than would be needed to meet demand . in addition , we may face competition which may limit our ability to maintain existing selling prices for our products which in turn would negatively affect our reported gross margins on product sales . our gross margins on product sales may be impacted in the future based on all of these and other criteria . we expect to build inventory levels of both work-in-process and finished
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in february 2009 , new mountain capital formed a co-investment vehicle , new mountain guardian partners , l.p. , comprising $ 20.4 million of commitments . new mountain guardian ( leveraged ) , l.l.c . and new mountain guardian partners , l.p. , together with their respective direct and indirect wholly-owned subsidiaries , are defined as the `` predecessor entities '' . nmfc is a delaware corporation that was originally incorporated on june 29 , 2010. nmfc is a closed-end , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . as such , nmfc is obligated to comply with certain regulatory requirements . nmfc has elected to be treated , and intends to comply with the requirements to qualify annually , as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended , ( the `` code '' ) . aiv holdings is a delaware corporation that was originally incorporated on march 11 , 2011. guardian aiv , a delaware limited partnership , is aiv holdings ' sole stockholder . aiv holdings is a closed-end , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . as such , aiv holdings is obligated to comply with certain regulatory requirements . aiv holdings has elected to be treated , and intends to comply with the requirements to qualify annually , as a ric under the code . on may 19 , 2011 , nmfc priced its initial public offering ( the `` ipo '' ) of 7,272,727 shares of common stock at a public offering price of $ 13.75 per share . concurrently with the closing of the ipo and at the public offering price of $ 13.75 per share , nmfc sold an additional 2,172,000 shares of its common stock to certain executives and employees of , and other individuals affiliated with , new mountain capital in a concurrent private placement ( the `` concurrent private placement '' ) . additionally , 1,252,964 shares were issued to the limited partners of new mountain guardian partners , l.p. at that time for their ownership interest in the predecessor entities . in connection with nmfc 's ipo and through a series of transactions , the operating company owns all of the operations of the predecessor entities , including all of the assets and liabilities related to such operations . nmfc and aiv holdings are holding companies with no direct operations of their own , and their sole asset is their ownership in the operating company . nmfc and aiv holdings each entered into a joinder agreement with respect to the limited liability company agreement , as amended and restated , of the operating company , pursuant to which nmfc and aiv holdings were admitted as members of the operating company . nmfc acquired from the operating company , with the gross proceeds of the ipo and the concurrent private placement , common membership units ( `` units '' ) of the operating company ( the number of units are equal to the number of shares of nmfc 's common stock sold in the ipo and the concurrent private placement ) . additionally , nmfc received units of the operating 68 company equal to the number of shares of common stock of nmfc issued to the limited partners of new mountain guardian partners , l.p. guardian aiv was the parent of the operating company prior to the ipo and , as a result of the transactions completed in connection with the ipo , obtained units in the operating company . guardian aiv contributed its units in the operating company to its newly formed subsidiary , aiv holdings , in exchange for common stock of aiv holdings . aiv holdings has the right to exchange all or any portion of its units in the operating company for shares of nmfc 's common stock on a one-for-one basis at anytime . since nmfc 's ipo , and through december 31 , 2012 , nmfc raised approximately $ 133.4 million in net proceeds from additional offerings of common stock and issued shares valued at approximately $ 56.3 million to aiv holdings for exchanged units . nmfc acquired from the operating company units of the operating company equal to the number of shares of nmfc 's common stock sold in the additional offerings . the current structure was designed to generally prevent nmfc and its stockholders from being allocated taxable income with respect to unrecognized gains that existed at the time of the ipo in the predecessor entities ' assets , and rather such amounts would be allocated generally to aiv holdings and its stockholders . the result is that any distributions made to nmfc 's stockholders that are attributable to such gains generally will not be treated as taxable dividends but rather as return of capital . 69 the diagram below depicts our organizational structure as of december 31 , 2012 . * includes partners of new mountain guardian partners , l.p. * * these common membership units are exchangeable into shares of nmfc common stock on a one-for-one basis . the operating company 's investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure , including first and second lien debt , notes , bonds and mezzanine securities . in some cases , the operating company 's investments may also include equity interests . the primary focus is in the debt of defensive growth companies , which are defined as generally exhibiting the following characteristics : ( i ) sustainable secular growth drivers , ( ii ) high barriers to competitive entry , ( iii ) high free cash flow after capital expenditure and working capital needs , ( iv ) high returns on assets and ( v ) niche market dominance . story_separator_special_tag as of december 31 , 2012 , the operating company 's net asset value was $ 569.9 million and its portfolio had a fair value of approximately $ 989.8 million in 63 portfolio companies , with a weighted average yield to maturity of approximately 10.1 % . this yield to maturity calculation assumes that all investments not on non-accrual are purchased at fair value on december 31 , 2012 and held until their respective maturities with no prepayments or losses and exited at par at maturity . the actual yield to maturity may be higher or lower due to the future selection of the london interbank offered rate ( `` libor '' ) contracts by the individual companies in the operating company 's portfolio or other factors . 70 recent developments on march 6 , 2013 , the operating company 's board of directors , and subsequently nmfc 's board of directors , declared a first quarter 2013 distribution of $ 0.34 per unit/share payable on march 28 , 2013 to holders of record as of march 15 , 2013. subsequently , aiv holdings ' board of directors declared a dividend payable on march 28 , 2013 to holders of record as of march 15 , 2013 in an amount equal to $ 0.34 per unit multiplied by the total number of units owned by aiv holdings of the operating company as of the record date . critical accounting policies the preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and revenues and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following items as critical accounting policies . basis of accounting the operating company consolidates its wholly-owned subsidiary , new mountain finance spv funding , l.l.c . ( `` nmf slf '' ) . nmfc and aiv holdings do not consolidate the operating company . nmfc and aiv holdings apply investment company master-feeder financial statement presentation , as described in accounting standards codification 946 , financial servicesinvestment companies , ( `` asc 946 '' ) to their interest in the operating company . nmfc and aiv holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in asc 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of nmfc and aiv holdings with a clearer depiction of their investment in the master fund . valuation and leveling of portfolio investments at all times consistent with gaap and the 1940 act , the operating company conducts a valuation of assets , which impacts its net asset value , and , consequently , the net asset values of nmfc and aiv holdings . the operating company values its assets on a quarterly basis , or more frequently if required under the 1940 act . in all cases , the operating company 's board of directors is ultimately and solely responsible for determining the fair value of its portfolio investments on a quarterly basis in good faith , including investments that are not publicly traded , those whose market prices are not readily available , and any other situation where its portfolio investments require a fair value determination . security transactions are accounted for on a trade date basis . the operating company 's quarterly valuation procedures are set forth in more detail below : ( 1 ) investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services . ( 2 ) investments for which indicative prices are obtained from various pricing services and or brokers or dealers are valued through a multi-step valuation process , as described below , to determine whether the quote ( s ) obtained is representative of fair value in accordance with gaap . a. bond quotes are obtained through independent pricing services . internal reviews are performed by the investment professionals of the investment adviser to ensure that the quote obtained is representative of fair value in accordance with gaap and if so , the 71 quote is used . if the investment adviser is unable to sufficiently validate the quote ( s ) internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) ; b. for investments other than bonds , the investment professionals of the investment adviser look at the number of quotes readily available and perform the following : i. investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained ; ii . investments for which one quote is received from a pricing service are validated internally . the investment professionals of the investment adviser analyze the market quotes obtained using an array of valuation methods ( further described below ) to validate the fair value . if the investment adviser is unable to sufficiently validate the quote internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) .
| the following table for the operating company for the year ended december 31 , 2012 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income . replace_table_token_14_th ( 1 ) for the year ended december 31 , 2012 , the operating company incurred total incentive fees of $ 15.9 million , of which $ 4.4 million related to capital gains incentive fees on a hypothetical liquidation basis . for the year ended december 31 , 2012 , the operating company had a $ 3.5 million adjustment to interest income for amortization , a decrease of $ 6.9 million to net realized gains and an increase of $ 10.4 million to net change in unrealized appreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above . for the year ended december 31 , 2012 , total adjusted interest income of $ 80.2 million consisted of approximately $ 71.9 million in cash interest from investments , approximately $ 2.2 million in payment-in-kind interest from investments , approximately $ 3.6 million in prepayment fees and net amortization of purchase premiums and discounts and origination fees of approximately $ 2.5 million . the operating company 's adjusted net investment income was $ 46.1 million for the year ended december 31 , 2012 . 78 in accordance with gaap , for the year ended december 31 , 2012 , the operating company accrued $ 4.4 million of hypothetical capital gains incentive fee based upon the cumulative net adjusted realized capital gains and adjusted realized capital losses and the cumulative net adjusted unrealized capital appreciation and adjusted unrealized capital depreciation on investments held at the end of each period . actual amounts paid to the investment adviser are consistent with the investment management agreement and are based only on actual adjusted realized capital gains computed net of all adjusted realized capital losses and adjusted unrealized capital depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value . as of december 31 , 2012 ,
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during 2018 , we generated $ 393 million of cash from operating activities , and reduced managed working capital as a percentage of sales to 31.6 % , approaching our long-term goal of 30 % . we reduced our debt to ebitda ratio to 3.1 at december 31 , 2018. making progress on our risk management strategy for retirement benefit obligations . ati 's qualified defined benefit pension plans are now completely closed to new entrants following the ratification of a collective bargaining agreement at a facility in our hpmc operations , and we completed a $ 97 million risk transfer through the purchase of an annuity contract with a nationally recognized insurance company . this annuity buyout reduced the plan 's liability by approximately 4 % and removed 17 % of plan participants . story_separator_special_tag with united technologies corporation to supply its pratt & whitney subsidiaries with isothermal forgings and powder alloys for next-generation jet engines , as well as for structural components for airframe applications . we also supply products to other important parts of the aviation market such as helicopters and rotary engine fixed wing aircraft . the commercial aerospace market is transitioning to the next generation of single aisle and large twin aisle aircraft , and next-generation jet engines . new airframe designs contain a larger percentage of titanium alloys , and the jet engines that power them use newer nickel-based alloys and titanium-based alloys , in both cases for improved performance and more economical 22 operating costs , compared to legacy airframe and engine designs . boeing and airbus have multi-year backlogs of orders for both legacy models and next-generation aircraft , and there are over 26,600 jet engines with firm orders ( aero engine news , february 2019 ) . both boeing and airbus have implemented production increases , and announced additional production increases over the next several years , which is expected to positively impact the demand for products for jet engine and airframe applications . due to manufacturing cycle times , demand for our specialty materials leads the deliveries of new aircraft by approximately 3 to 12 months . our 2018 hpmc results reflect this demand growth , as the next-generation of aircraft and engines use significantly more of the products we make . use of these newer materials , particularly for jet engine applications , is expected to continue to increase for several years , with strong growth expected in powder metal alloys , including increased usage of isothermal forging and additive manufacturing production processes . additionally , new entrants to the commercial jet aircraft market for single aisle and regional jets are expected to increase demand for products made with titanium- and nickel-based alloys over the next several years . in addition , as our specialty materials are used in rotating components of jet engines , demand for our products for spare parts is impacted by aircraft flight activity and engine refurbishment requirements of u.s. and foreign aviation regulatory authorities . as the number of aircraft in service increases , the need for our materials associated with engine refurbishment is expected to increase . our hpmc segment produces a wide range of high performance materials , including titanium and titanium-based alloys , nickel- and cobalt-based alloys and superalloys , zirconium and related alloys including hafnium and niobium , advanced powder alloys and other specialty materials , in long product forms such as ingot , billet , bar , rod , wire , shapes and rectangles , and seamless tubes , plus precision forgings , castings , components , and machined parts . precision forgings , castings and components sales increased 21 % in 2018 , reflecting improved commercial aerospace demand . sales of nickel-based alloys increased 14 % compared to 2017 , and sales of titanium products were 10 % higher in 2018. comparative information for the segment 's major product categories , based on their percentages of revenue is as follows : replace_table_token_13_th hpmc segment operating profit for 2018 increased 36 % compared to 2017 , to $ 335.4 million , or 14.4 % of sales , reflecting a 250 basis point improvement as a percentage of sales over 2017. this improvement is due to an improved product mix of next-generation nickel alloys and forgings from the aero engine market and higher productivity resulting from increasing aerospace & defense sales . sales of next-generation jet engine product sales growth remained strong , increasing by nearly 50 % versus 2017 , and represented 48 % of total 2018 hpmc jet engine product sales . this improvement is due to higher productivity from increasing aerospace & defense sales , and an improved product mix of next-generation specialty materials from the aero engine market . we anticipate significant industry demand growth for advanced powder materials required to satisfy expanding aerospace & defense market production requirements , and for emerging additive manufacturing of parts and components . to proactively meet this growing demand for complex powder alloy products , ati designed and built an all-new nickel and super alloy powder production facility in north carolina , which started production in 2018. hpmc 2017 results included $ 8 million of start-up costs for this facility . we also announced an expansion of our titanium alloys powder production capabilities at the same north carolina site , which is expected to be completed in early 2019. we acquired assets in 2018 to accelerate the development of our capabilities in metal alloy-based additive manufacturing to provide comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components . additionally , in july 2017 , we formed next gen alloys , a joint venture with ge aviation , for the development of a new meltless titanium alloy powder manufacturing process that eliminates the traditional melt step used prior to converting base material to powder form . the jv will construct a new r & d pilot production facility to focus on increasing the scale of this ge-developed manufacturing process . story_separator_special_tag the next gen alloys joint venture r & d activities are excluded from hpmc segment results . in the medical market , we recently announced that we entered into a joint technology development agreement with bruker energy & supercon technologies , to advance state-of-the-art niobium-based superconductors , including those used in mri magnets for the medical industry , and preclinical mri magnets used in the life-science tools industry . 23 competition continues to be very strong across most key end markets , particularly within the aerospace & defense , oil & gas , and medical market supply chains . we believe that our hpmc segment is very well-positioned for profitable growth , especially in the next-generation jet engine platforms . our hpmc segment is expected to continue sustained profitable growth , supported by long-term agreements that provide significant growth and share gains for ati on next-generation airplanes and the jet engines that power them . we have sufficient available capacity for the forecasted growth in aerospace demand over the next several years , as well as the ability , to some extent , to meet higher demand for products to other key end markets such as oil & gas and electrical energy , when conditions for these markets improve . 2017 compared to 2016 sales for the hpmc segment in 2017 increased 7 % , to $ 2.07 billion . sales to the aerospace & defense markets , which are the largest end markets for hpmc at 76 % of total segment sales , were 9 % higher . this was driven by an 11 % increase in sales in 2017 to the commercial jet engine market , including a 35 % improvement in our sales of next-generation jet engine products , compared to 2016. construction and mining market sales were 40 % higher , and sales to oil & gas market increased 37 % in 2017 , both from low 2016 demand levels . sales to the medical market declined 8 % primarily due to increased competition in mri end uses , and sales to the electrical energy market decreased 12 % . comparative information for our hpmc segment revenues ( in millions ) by market , the respective percentages of overall segment revenues for the years ended 2017 and 2016 , and the percentage change in revenues by market for 2017 is as follows : replace_table_token_14_th our 2017 hpmc results reflect the ongoing transition of the commercial aerospace market to the next generation of single aisle and large twin aisle aircraft , and next-generation jet engines , as the next-generation of aircraft and engines use significantly more of the products we make . sales of differentiated nickel-based superalloy mill products increased 35 % in 2017 compared to 2016 , including both external sales and intercompany sales to our forging operations . precision forgings , castings and components sales increased 17 % in 2017 , reflecting improved commercial aerospace demand . sales of nickel-based alloys increased 14 % compared to 2016 , while sales of titanium products were 6 % lower in 2017. comparative information for the segment 's major product categories , based on their percentages of revenue is as follows : replace_table_token_15_th hpmc segment operating profit for 2017 increased 46 % compared to 2016 , to $ 246.4 million , or 12 % of sales , reflecting higher productivity from increasing aerospace & defense sales , a richer mix of products for next-generation jet engines , which represented 39 % of hpmc jet engine product sales in 2017 , and the benefit of our 2016 titanium operations restructuring activities , including the rowley , ut titanium sponge operations idling . through the fourth quarter of 2017 , where hpmc segment operating profit was 12.7 % of sales , the hpmc segment has achieved six quarters of improvement in segment operating margin of 140 basis points or greater versus the prior year quarter . segment results for 2016 included $ 5.3 million of non-recurring work stoppage and return to work costs for represented employees at two hpmc facilities . 24 hpmc segment results exclude the rowley , ut titanium sponge operations beginning with the third quarter 2016. during 2016 , we completed significant restructuring actions involving certain titanium manufacturing operations in the hpmc segment , which are excluded from segment results . these actions included the indefinite idling of the rowley , ut titanium sponge production facility , as well as the closure of a small unprofitable titanium wire production facility in frackville , pa , and the idling of certain titanium manufacturing operations in albany , or . flat rolled products replace_table_token_16_th 2018 compared to 2017 sales for the frp segment in 2018 increased 17 % compared to 2017 , to $ 1.71 billion , due to higher sales of high-value products , primarily nickel-based and specialty alloys and precision rolled strip products . sales increased in every major market including a 33 % increase in the oil & gas market , and a 30 % increase in the aerospace & defense markets . sales in the automotive market increased 18 % due primarily to greater use of high-value materials in engine compartment applications . comparative information for our flat rolled products segment revenues ( in millions ) by market , the respective percentages of overall segment revenues for the years ended 2018 and 2017 , and the percentage change in revenues by market for 2018 is as follows : replace_table_token_17_th our frp segment produces nickel-based alloys , specialty alloys , titanium and titanium-based alloys , and stainless steel , in a variety of product forms including plate , sheet , engineered strip , and precision rolled strip products . frp also provides hot-rolling conversion services , including titanium products of the uniti joint venture , and beginning in 2018 , standard stainless sheet products of the a & t stainless joint venture and carbon steel products for nlmk usa . comparative information for the flat rolled products segment 's major product categories , based on their percentages of revenue are presented in the following table .
| total revenues and segment operating profit ( loss ) of our two business segments were as follows ( in millions ) : replace_table_token_7_th business segment results in 2018 exclude a $ 15.9 million pre-tax gain on the sale of a 50 % noncontrolling interest and subsequent deconsolidation of the a & t stainless joint venture in march 2018. business segment results in 2017 exclude a $ 114.4 million pre-tax goodwill impairment charge for our titanium castings business , and a $ 37.0 million debt extinguishment charge for the early redemption of our 9.375 % senior notes due 2019 ( 2019 notes ) . business segment results in 2016 exclude $ 538.5 million in pre-tax charges for significant restructuring actions involving hpmc titanium operations and right-sizing actions across the frp business . these restructuring charges were comprised of $ 471.3 million of long-lived asset 20 impairments , primarily for the indefinitely idled rowley , ut titanium sponge production facility , $ 43.0 million of facility closure costs and related inventory revaluations , and $ 24.2 million of severance charges and other employee benefit costs . pre-tax results were profits of $ 247.7 million in 2018 , and losses of $ 86.5 million in 2017 and $ 734.0 million in 2016 . 2018 net income was $ 222.4 million , or $ 1.61 per share , compared to a 2017 net loss of $ 91.9 million , or $ ( 0.83 ) per share , and a 2016 loss of $ 640.9 million , or $ ( 5.97 ) per share . we continue to maintain valuation allowances for u.s. federal and state deferred taxes , and results in all periods include impacts from income taxes that differ from the applicable standard tax rate , primarily related to these income tax valuation allowances . we recorded a $ 4.1 million tax benefit in 2017 as a result of the u.s. federal tax law changes in december 2017 , and results in 2016 include $ 171.5 million of charges for income tax valuation allowances on deferred tax assets . comparative information for our overall revenues ( in millions ) by end market and their respective percentages of total revenues is as follows : replace_table_token_8_th comparative information for our major high-value and standard products based on their percentages of
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as of december 31 , 2018 , 91.0 % of our rentable square feet was leased , compared to 94.2 % of our consolidated rentable square feet as of december 31 , 2017 . occupancy data for our consolidated properties as of december 31 , 2018 and 2017 was as follows ( square feet in thousands ) : replace_table_token_3_th ( 1 ) based on consolidated properties we owned on december 31 , 2018 and 2017 , respectively . 2018 includes the properties acquired in the sir merger . ( 2 ) based on consolidated properties we owned on december 31 , 2018 and which we owned continuously since january 1 , 2017. excludes the properties acquired in the sir merger . ( 3 ) includes two leasable land parcels . ( 4 ) subject to changes when space is re-measured or re-configured for tenants . ( 5 ) percent leased includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any , as of the measurement date . the average effective rental rate per square foot for our consolidated properties for the years ended december 31 , 2018 and 2017 are as follows : replace_table_token_4_th ( 1 ) average effective rental rate per square foot represents total rental income during the period specified divided by the average rentable square feet leased during the period specified . excludes the properties acquired in the sir merger . ( 2 ) based on consolidated properties we owned on december 31 , 2018 and 2017 , respectively . ( 3 ) based on consolidated properties we owned on december 31 , 2018 and which we owned continuously since january 1 , 2017. during the year ended december 31 , 2018 , changes in rentable square feet leased and available for lease at our consolidated properties were as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) based on leases entered during the year ended december 31 , 2018 and an expansion of 26 rentable square feet completed at an existing property during the first quarter of 2018 . ( 2 ) rentable square feet are subject to changes when space is re-measured or re-configured for tenants . 53 excluding the properties acquired in the sir merger , leases totaling approximately 1.6 million rentable square feet expired during the year ended december 31 , 2018 . during the year ended december 31 , 2018 , excluding the properties acquired in the sir merger , we entered leases totaling 1.4 million rentable square feet , including lease renewals of 1.0 million rentable square feet . the weighted ( by rentable square feet ) average lease term for new and renewal leases entered during the year ended december 31 , 2018 was 6.8 years . during the year ended december 31 , 2018 , changes in effective rental rates per square foot achieved for new leases and lease renewals at our consolidated properties that commenced during the year ended december 31 , 2018 , when compared to prior effective rental rates per square foot in effect for the same space ( and excluding space acquired vacant ) , were as follows ( square feet in thousands ) : replace_table_token_6_th ( 1 ) excludes the properties acquired in the sir merger . ( 2 ) effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements , plus straight line rent adjustments and estimated expense reimbursements to be paid to us , and excluding lease value amortization . during the year ended december 31 , 2018 , commitments made for expenditures , such as tenant improvements and leasing costs , in connection with leasing space at our consolidated properties were as follows ( square feet and dollars in thousands , except per square foot amounts ) : replace_table_token_7_th ( 1 ) excludes the properties acquired in the sir merger . ( 2 ) includes commitments made for leasing expenditures and concessions , such as tenant improvements , leasing commissions , tenant reimbursements and free rent . during the years ended december 31 , 2018 and 2017 , amounts capitalized at our consolidated properties for tenant improvements , leasing costs , building improvements and development and redevelopment activities were as follows ( dollars in thousands ) : replace_table_token_8_th ( 1 ) excludes the properties acquired in the sir merger . ( 2 ) tenant improvements include capital expenditures used to improve tenants ' space or amounts paid directly to tenants to improve their space . ( 3 ) leasing costs include leasing related costs , such as brokerage commissions and other tenant inducements . ( 4 ) building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets . ( 5 ) development , redevelopment and other activities generally include ( i ) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property , and ( ii ) capital expenditure projects that reposition a property or result in new sources of revenue . 54 as of december 31 , 2018 , inclusive of the properties acquired in the sir merger , we have estimated unspent leasing related obligations of $ 58,380 . as of december 31 , 2018 , inclusive of properties acquired in the sir merger , we had leases at our consolidated properties totaling 3.2 million rentable square feet that were scheduled to expire during 2019. as of february 25 , 2019 , tenants with leases totaling 1.3 million rentable square feet that are scheduled to expire during 2019 have notified us that they do not plan to renew their leases upon expiration and we can not be sure as to whether other tenants may or may not renew their leases upon expiration . story_separator_special_tag based upon current market conditions and tenant negotiations for leases scheduled to expire through december 31 , 2019 , we expect that the rental rates we are likely to achieve on new or renewed leases for space under leases expiring through december 31 , 2019 will , in the aggregate and on a weighted ( by annualized revenues ) average basis , be equivalent to the rates currently being paid , thereby generally resulting in unchanged revenue from the same space . we can not be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new leases we may enter ; also , we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations . prevailing market conditions and our tenants ' needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties , and market conditions and government and other tenants ' needs are beyond our control . whenever we extend , renew or enter into new leases for our properties , we intend to seek rents which are equal to or higher than our historical rents for the same properties ; however , our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions , which are beyond our control . as shown in the table below , approximately 11.0 % of our total rented square feet and approximately 12.9 % of our total annualized rental revenues as of december 31 , 2018 are included in leases scheduled to expire by december 31 , 2019. as of december 31 , 2018 , our lease expirations by year are as follows ( dollars and square feet in thousands ) : replace_table_token_9_th ( 1 ) includes the properties acquired in the sir merger . the year of lease expiration is pursuant to current contract terms . some tenants have the right to vacate their space before the stated expirations of their leases . as of december 31 , 2018 , tenants occupying approximately 9.6 % of our consolidated rentable square feet and responsible for approximately 5.4 % of our annualized rental income as of december 31 , 2018 , currently have exercisable rights to terminate their leases before the stated terms of their leases expire . also , in 2019 , 2020 , 2021 , 2022 , 2023 , 2024 , 2025 , 2026 and 2028 , early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.4 % , 5.1 % , 1.5 % , 2.3 % , 0.3 % , 0.6 % , 1.7 % , 0.7 % and 0.8 % of our consolidated rentable square feet , respectively , and contribute an additional approximately 2.5 % , 6.2 % , 2.1 % , 2.0 % , 0.4 % , 0.8 % , 2.8 % , 0.9 % and 0.8 % of our annualized rental income , respectively , as of december 31 , 2018 . in addition , as of december 31 , 2018 , 22 of our tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets . these 22 tenants occupy approximately 6.8 % of our consolidated rentable square feet and contribute approximately 7.2 % of our annualized rental income as of december 31 , 2018 . ( 2 ) leased square feet is pursuant to leases existing as of december 31 , 2018 , and includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any . square feet measurements are subject to changes when space is re-measured or re-configured for new tenants . we generally will seek to renew or extend the terms of leases in our single tenant properties when they expire . because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants ' businesses , we believe that it is likely that these tenants will renew or extend their leases prior to when they expire . if we are unable to extend or renew our leases , it may be time consuming and expensive to relet some of these properties . we believe that current government budgetary methodology , spending priorities and the current u.s. presidential administration 's views on the size and scope of government employment have resulted in a decrease in government employment . furthermore , for the past five years , government tenants have reduced their space utilization per employee and 55 consolidated government tenants into existing government owned properties . this activity has reduced the demand for government leased space . our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations . however , efforts to reduce space utilization rates may result in our tenants exercising early termination rights under our leases , vacating our properties upon expiration of our leases in order to relocate , or renewing their leases for less space than they currently occupy . also , our government tenants ' desires to reconfigure leased office space to reduce utilization per employee may require us to spend significant amounts for tenant improvements , and tenant relocations have become more prevalent than our past experiences in instances where efforts by government tenants to reduce their space utilization require a significant reconfiguration of currently leased space .
| we use consolidated property noi to evaluate individual and company wide consolidated property level performance , and we believe that consolidated property noi provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other reits . consolidated property noi does not represent cash generated by operating activities in accordance with gaap and should not be considered an alternative to net income ( loss ) or net income ( loss ) available for common shareholders as an indicator of our operating performance or as a measure of our liquidity . this measure should be considered in conjunction with net income ( loss ) and net income ( loss ) available for common shareholders as presented in our consolidated statements of comprehensive income ( loss ) . other real estate companies and reits may calculate consolidated property noi differently than we do . ( 5 ) we calculate ffo available for common shareholders and normalized ffo available for common shareholders as shown above . ffo available for common shareholders is calculated on the basis defined by the national association of real estate investment trusts , or nareit , which is net income ( loss ) available for common shareholders calculated in accordance with gaap , plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties and the difference between ffo attributable to an equity investment and equity in earnings of sir included in discontinued operations but excluding impairment charges on and increases in the carrying value of real estate assets , any gain or loss on sale of real estate , as well as certain other adjustments currently not applicable to us . our calculation of normalized ffo available for common shareholders differs from nareit 's definition of ffo available for common shareholders because we include normalized ffo attributable to our equity investment in sir ( net of ffo attributable to our equity investment in sir )
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50 commission revenue for the year ended december 31 , 2020 grew by $ 849,321 , from $ 2,438,756 for the year ended december 31 , 2019 to $ 3,288,077 for the same period in 2020 mainly due to higher trading transaction amount incurred and more traders involved in 2020. total transaction amounts for the years ended december 31 , 2020 and 2019 were $ 9,707,549,492 ( hk $ 75,290,783,102 ) and $ 4,169,858,232 ( hk $ 32,480,693,712 ) , respectively . total active traders for the years ended december 31 , 2020 and 2019 were 199,145 and 153,400 , respectively . ( iii ) management fee revenue we charge traders a management fee to cover the costs of insurance , storage , and transportation for an artwork and trading management of artwork units , which is calculated at $ 0.0013 ( hk $ 0.01 ) per 100 artwork units per day . the management fee is recognized when the artwork is sold and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction . during the year ended december 31 , 2020 , management fee revenue increased by $ 13,349 , from $ 450,048 for the year ended december 31 , 2019 to $ 463,397 for the same period in 2020 . 51 revenue by customer type the following table presents our revenue by customer type : replace_table_token_4_th cost of revenue cost of revenue primarily includes the following : commission paid to service agents , depreciation , internet service charges , artwork insurance and artwork storage costs . replace_table_token_5_th cost of revenue for the years ended december 31 , 2020 and 2019 were $ 2,287,404 and $ 1,861,577 , respectively . the rise in the cost of revenue for the year ended december 31 , 2020 compared to the same period in 2019 was mainly due to an increase in the commissions paid to service agents by $ 637,622. this increase was driven by a higher trading transaction amounts during the year ended december 31 , 2020 as discussed above . such increase was offset by a decrease in depreciation by $ 120,748 due to some of our computer equipment and trading systems having been fully depreciated , a decline in internet service charges by $ 67,882 due to a downsizing of our office locations and a decrease of artwork storage costs by $ 25,604 as we negotiated the storage fee with the service provider . 52 gross profit gross profit was $ 2,279,818 for the year ended december 31 , 2020 , compared to $ 1,311,437 for the year ended december 31 , 2019. the increase by $ 968,381 was primarily due to an increase in commission revenue as discussed above . gross profit margin grew by 8.6 % to 49.9 % for the year ended december 31 , 2020 from 41.3 % for the year ended december 31 , 2019 , primarily due to the significant increase in commission revenue . operating expenses general and administrative expenses were $ 3,455,249 for the year ended december 31 , 2020 , compared to $ 4,662,313 for the year ended december 31 , 2019. the significant plunge in general and administrative expense by $ 1,207,064 or 25.9 % was attributed to a significant decrease in salary and welfare by $ 415,200 due to lower employee headcount and salary reduction of our executives , a decrease in consultancy fees by $ 155,470 due to lower consulting fees charged by our consultants of tianjin takung , a decrease in legal and professional fees by $ 287,992 due to reduced audit and legal fees incurred by hong kong takung , a decrease in travel and accommodation fees by $ 60,926 due to fewer overseas travel and accommodation , a fall in share-based compensation by $ 1,316 as there were no additional stock options granted , a decrease in office , insurance and rental expenses by $ 343,156 due to early lease terminations by tianjin takung and tianjin mq in july 2020 , a decrease in depreciation by $ 17,392 as some of our furniture and fixtures and computer equipment had been fully depreciated , a decrease in research and development expense by $ 28,111 and a fall in others by $ 52,824. the overall decline in general and administrative expenses was offset by an increase in non-deductible input vat expense by $ 103,931 as a result of an increase in service fees paid to tianjin takung and an increase in bad debt expense by $ 51,392 due to a write-off of rental deposit recorded by tianjin mq . the following table sets forth the main components of our general and administrative expenses for the years ended december 31 , 2020 and 2019. replace_table_token_6_th 53 the company also incurred a total of $ 390,112 and $ 301,460 in selling expenses for the years ended december 31 , 2020 and 2019 , respectively . the increase in selling expense by $ 88,652 was due to more promotion and advertising events incurred by tianjin takung during 2020. total operating expenses for the year ended december 31 , 2020 was $ 3,845,361 , a decline of $ 1,118,412 compared to $ 4,963,773 for the same period in 2019. the significant decrease was driven by the reduction in general and administrative expenses as discussed above . other income and ( expenses ) other income for the year ended december 31 , 2020 was $ 965,455 , compared to other expenses $ 367,201 for the same period in 2019. the significant increase was predominantly due to a significant increase in foreign currency exchange gain by $ 1,135,574 , arising from the appreciation of the renminbi against the us dollar . income tax expense the company 's effective tax rate varies due to its multiple jurisdictions in which the pretax book incomes or losses incur . story_separator_special_tag the company was subject to a u.s. income tax rate of 21 % , hong kong profits tax rate at 8.25 % for the first hk $ 2 million ( approximately $ 257,868 ) assessable profits and at 16.5 % for assessable profits above hk $ 2 million ( approximately $ 257,868 ) ( 16.5 % prior to january 1 , 2018 ) and prc enterprise income tax rate at 25 % . the global intangible low-taxed income ( gilti ) is a new provision introduced by the tax act . u.s. shareholders , who are domestic corporations , of controlled foreign corporations ( cfcs ) are eligible for up to an 80 % deemed paid foreign tax credit ( ftc ) and a 50 % deduction of the current year inclusion with the full amount of the section 78 gross-up subject to limitation . this new provision is effective for tax years of foreign corporations beginning after december 31 , 2017. the company has evaluated whether it has additional provision amount resulted by the gilti inclusion on current earnings and profits of its foreign controlled corporations . the company has made an accounting policy choice of treating taxes due on future u.s. inclusions in taxable amount related to gilti as a current period expense when incurred . as of december 31 , 2020 and 2019 , the company does not have any aggregated positive tested income ; and as such , does not have additional provision amount recorded for gilti tax . the coronavirus aid , relief and economy security ( cares ) act ( “ the cares act , h.r . 748 ” ) was signed into law on 27 march 2020. the cares act temporarily eliminates the 80 % taxable income limitation ( as enacted under the tax cuts and jobs act of 2017 ) for nol deductions for 2018-2020 tax years and reinstated nol carrybacks for the 2018-2020 tax years . moreover , the cares act also temporarily increases the business interest deduction limitations from 30 % to 50 % of adjusted taxable income for the 2019 and 2020 taxable year . lastly , the tax act technical correction classifies qualified improvement property as 15-year recovery period , allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the tax act at the time of enactment . the company does not anticipate a material impact on its financial statements as of december 31 , 2020 due to the recent enactment . 54 the two-tier profits tax rates system was introduced under the inland revenue ( amendment ) ( no.3 ) ordinance 2018 ( “ the ordinance ” ) of hong kong became effective for the assessment year 2018/2019 . under the two-tier profit tax rates regime , the profits tax rate for the first hk $ 2 million ( approximately $ 257,868 ) of assessable profits of a corporation will be subject to the lowered tax rate , 8.25 % while the remaining assessable profits will be subject to the legacy tax rate , 16.5 % . the ordinance only allows one entity within a group of “ connected entities ” is eligible for the two-tier tax rate benefit . an entity is a connected entity of another entity if ( 1 ) one of them has control over the other ; ( 2 ) both of them are under the control ( more than 50 % of the issued share capital ) of the same entity ; ( 3 ) in the case of the first entity being a natural person carrying on a sole proprietorship business-the other entity is the same person carrying on another sole proprietorship business . since hong kong takung , takung art holdings and hong kong mq are wholly owned and under the control of takung u.s , these entities are connected entities . under the ordinance , it is an entity 's election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return . the election is irrevocable . we elected hong kong takung to be subject to the two-tier profits tax rates . the provision for current income and deferred taxes of hong kong takung has been calculated by applying the new tax rate of 8.25 % . takung art holdings and hong kong mq still apply the original tax rate of 16.5 % for its provision for current income and deferred taxes . in accordance with the relevant tax laws and regulations of the prc , a company registered in the prc is subject to income taxes within the prc at the applicable tax rate on taxable income . all the prc subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 25 % for the year ended december 31 , 2020 and 2019. the income tax expense for the years ended december 31 , 2020 and 2019 decreased by $ 60,719 , from $ 73,269 for the year ended december 31 , 2019 to $ 12,550 for the same period in 2020. during the year ended december 31 , 2019 , we derecognized the deferred tax assets incurred by our subsidiaries in prc as they continued to incur tax loss . on the other hand , for the same period in 2020 , we recognized an uncertain tax position driven by the income tax examination for the tax years december 31 , 2016 through 2018 of takung hong kong . the tax examination has not been concluded as of our report date . besides , takung hong kong and tianjin takung incurred taxable income due to higher foreign currency exchange gain and higher service income earned , respectively , during 2020. the taxable income of takung hong kong and tianjin takung was offset by the utilization of their respective net operating loss carryforwards . our effective tax rates for the years ended december 31 , 2020 and 2019 were ( 2.1 ) % and ( 1.8 ) % , respectively .
| $ 3,066,000 ) , 1 piece of yixing purple clay with a listing value of $ 128,934 ( hk $ 1,000,000 ) and 7 pieces of sports culture with listing values from $ 128,934 ( hk $ 1,000,000 ) to $ 257,868 ( hk $ 2,000,000 ) . we listed a total of 10 pieces of artwork in 2020. the listing fees ranged from 22.83 % to 25 % of the listing value of the paintings and calligraphies . the total listing value of artwork during 2020 was $ 3,481,221 ( hk $ 27,000,000 ) . as of december 31 , 2019 , a total of 285 sets of artwork were listed for trade on our platform —comprising 60 sets of paintings and calligraphies from famous chinese , russian and mongolian artists ranging in listing value from $ 127,630 ( hk $ 1,000,000 ) to $ 1,531,569 ( hk $ 12,000,000 ) , 35 pieces of jewelry ranging in listing value from $ 25,526 ( hk $ 200,000 ) to $ 1,276,307 ( hk $ 10,000,000 ) , 134 pieces of precious stones ranging in listing value from $ 12,763 ( hk $ 100,000 ) to $ 765,785 ( hk $ 6,000,000 ) , 29 pieces of amber ranging in listing value from $ 63,815 ( hk $ 500,000 ) to $ 1,021,046 ( hk $ 8,000,000 ) , 4 pieces of antique mammoth ivory carving ranging in listing value from $ 127,630 ( hk $ 1,000,000 ) to $ 255,262 ( hk $ 2,000,000 ) , 2 pieces of porcelain pastel paintings ranging in listing value from $ 102,105 ( hk $ 800,000 ) to $ 229,735 ( hk $ 1,800,000 ) , 7 pieces of porcelain in listing value from $ 38,289 ( hk $ 300,000 ) to $ 382,892 ( hk $ 3,000,000 ) , 6 sets of unit+ product with listing values from $ 127,630 ( hk $ 1,000,000 ) to $ 391,316 ( hk $ 3,066,000 ) , 1 piece of yixing purple clay with a listing value of $ 127,630 ( hk $ 1,000,000 ) and 7 pieces of sports culture with listing values from $ 127,630 ( hk $ 1,000,000 ) to $ 255,262 ( hk $ 2,000,000 ) . we listed
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additionally , lenvima was approved in the united states , european union ( eu ) , japan and china for the treatment of certain patients with hepatocellular carcinoma . the fda and ec also approved two new hiv-1 medicines : delstrigo , a once-daily fixed-dose combination tablet of doravirine , lamivudine and tenofovir disoproxil fumarate ; and pifeltro ( doravirine ) , a new non-nucleoside reverse transcriptase inhibitor to be administered in combination with other antiretroviral medicines . merck continues to invest in its pipeline , with an emphasis on being a leader in immuno-oncology and expanding in other areas such as vaccines and hospital acute care . in addition to the recent regulatory approvals discussed above , the company has continued to advance its late-stage pipeline with several regulatory submissions . keytruda is under review in the united states in combination with axitinib , a tyrosine kinase inhibitor , for the first-line treatment of patients with advanced renal cell carcinoma for which it has been granted priority review by the fda ; in the eu for the first-line treatment of certain patients with metastatic squamous nsclc ; in the united states and in the eu as monotherapy for the first-line treatment of certain patients with locally advanced or metastatic nsclc ; in the united states as monotherapy for the treatment of certain patients with advanced small-cell lung cancer ( sclc ) ; and in the united states as monotherapy or in combination with chemotherapy for the first-line treatment of certain patients with recurrent or metastatic hnscc for which it has been granted priority review by the fda . additionally , mk-7655a , the combination of relebactam and imipenem/cilastatin , has been accepted for priority review by the fda for the treatment of complicated urinary tract infections and complicated intra-abdominal infections caused by certain susceptible gram-negative bacteria in adults with limited or no alternative therapies available . merck has also started the submission of a rolling biologics license application ( bla ) to the fda for v920 , an investigational ebola zaire disease vaccine candidate . the company 's phase 3 oncology programs include keytruda in the therapeutic areas of breast , cervical , colorectal , esophageal , gastric , hepatocellular , mesothelioma , nasopharyngeal , ovarian , renal and small-cell lung cancers ; lynparza for pancreatic and prostate cancer ; and lenvima in combination with keytruda for endometrial cancer . additionally , the company has candidates in phase 3 clinical development in several other therapeutic areas , including v114 , an investigational polyvalent conjugate vaccine for the prevention of pneumococcal disease that received breakthrough therapy designation from the fda for the prevention of invasive pneumococcal disease caused by the vaccine serotypes in pediatric patients 6 weeks to 18 years of age ; mk-7264 , gefapixant , a selective , non-narcotic , orally-administered p2x3-receptor agonist being developed for the treatment of refractory , chronic cough ; and mk-1242 , vericiguat , an investigational treatment for heart failure being developed in a collaboration ( see “ research and development ” below ) . the company is allocating resources to effectively support its commercial opportunities in the near term while making the necessary investments to support long-term growth . research and development expenses in 2018 reflect higher clinical development spending and investment in discovery and early drug development . 37 in october 2018 , merck 's board of directors approved a 15 % increase to the company 's quarterly dividend , raising it to $ 0.55 per share from $ 0.48 per share on the company 's outstanding common stock . also in october 2018 , merck 's board of directors approved a $ 10 billion share repurchase program and the company entered into $ 5 billion of accelerated share repurchase ( asr ) agreements . during 2018 , the company returned $ 14.3 billion to shareholders through dividends and share repurchases . earnings per common share assuming dilution attributable to common shareholders ( eps ) for 2018 were $ 2.32 compared with $ 0.87 in 2017 . eps in both years reflect the impact of acquisition and divestiture-related costs , as well as restructuring costs and certain other items . certain other items in 2018 include a charge related to the formation of the collaboration with eisai and in 2017 include a provisional net tax charge related to the enactment of u.s. tax legislation and a charge related to the formation of a collaboration with astrazeneca . non-gaap eps , which exclude these items , were $ 4.34 in 2018 and $ 3.98 in 2017 ( see “ non-gaap income and non-gaap eps ” below ) . pricing global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide . in the united states , pricing pressure continues on many of the company 's products . changes to the u.s. health care system as part of health care reform , as well as increased purchasing power of entities that negotiate on behalf of medicare , medicaid , and private sector beneficiaries , have contributed to pricing pressure . in several international markets , government-mandated pricing actions have reduced prices of generic and patented drugs . in addition , the company 's revenue performance in 2018 was negatively affected by other cost-reduction measures taken by governments and other third-parties to lower health care costs . the company anticipates all of these actions will continue to negatively affect revenue performance in 2019 . cyber-attack on june 27 , 2017 , the company experienced a network cyber-attack that led to a disruption of its worldwide operations , including manufacturing , research and sales operations . due to a backlog of orders for certain products as a result of the cyber-attack , the company was unable to fulfill orders for certain products in certain markets , which had an unfavorable effect on sales in 2018 and 2017 of approximately $ 150 million and $ 260 million , respectively . story_separator_special_tag in addition , the company recorded manufacturing-related expenses , primarily unfavorable manufacturing variances , in cost of sales , as well as expenses related to remediation efforts in selling , general and administrative expenses and research and development expenses , which aggregated approximately $ 285 million in 2017 , net of insurance recoveries of approximately $ 45 million . costs in 2018 were immaterial . as referenced above , the company has insurance coverage insuring against costs resulting from cyber-attacks and has received insurance proceeds . however , there are disputes with certain of the insurers about the availability of some of the insurance coverage for claims related to this incident . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in november 2018 , the fda approved keytruda for the treatment of patients with hepatocellular carcinoma who have been previously treated with sorafenib based on data from the keynote-224 trial . in december 2018 , the fda approved keytruda for the treatment of adult and pediatric patients with recurrent locally advanced or metastatic merkel cell carcinoma , based on the results of the cancer immunotherapy trials network 's citn-09/keynote-017 trial . also in december 2018 , the ec approved keytruda for the adjuvant treatment of adults with stage iii melanoma and lymph node involvement who have undergone complete resection . keytruda was approved for this indication by the fda in february 2019. these approvals were based on data from the pivotal phase 3 eortc1325/keynote-054 trial , conducted in collaboration with the european organisation for research and treatment of cancer . global sales of keytruda were $ 7.2 billion in 2018 , $ 3.8 billion in 2017 and $ 1.4 billion in 2016 . the year-over-year increases were driven by volume growth as the company continues to launch keytruda with multiple new indications globally . sales in the united states continue to build across the multiple approved indications , in particular for the treatment of nsclc reflecting both the continued adoption of keytruda in the first-line setting as monotherapy for patients with metastatic nsclc whose tumors have high pd-l1 expression , as well as the uptake of keytruda in combination with pemetrexed and carboplatin , a commonly used chemotherapy regimen , for the first-line treatment of metastatic nonsquamous nsclc with or without pd-l1 expression . other indications contributing to sales growth include hnscc , bladder , and melanoma . recently approved indications , including squamous nsclc and msi-h cancer , also contributed to growth in 2018. sales growth in international markets reflects continued uptake for the treatment of nsclc as the company has secured reimbursement in most major markets . sales growth in international markets in 2018 also includes contributions from the more recently approved indications as described above , including for the treatment of hnscc , bladder cancer and in combination with chemotherapy for the treatment of nsclc in the eu , multiple new indications in japan , and for the treatment of melanoma in china . in january 2017 , merck entered into a settlement and license agreement to resolve worldwide patent infringement litigation related to keytruda . pursuant to the settlement , the company will pay royalties of 6.5 % on net sales of keytruda in 2017 through 2023 ; and 2.5 % on net sales of keytruda in 2024 through 2026. global sales of emend , for the prevention of chemotherapy-induced and post-operative nausea and vomiting , were $ 522 million in 2018 , a decline of 6 % compared with 2017 including a 1 % favorable effect from foreign exchange . the decline primarily reflects lower demand in the united states due to competition . worldwide sales of emend were $ 556 million in 2017 , an increase of 1 % compared with 2016. the patent that provided u.s. market exclusivity for emend expired in 2015 and the patent that provides market exclusivity in most major european markets will expire in may 2019. the patent that provides u.s. market exclusivity for emend for injection expires in september 2019 and the patent that provides market exclusivity in major european markets expires in february 2020 ( although six-month pediatric exclusivity may extend this date ) . the company anticipates that sales of emend in these markets will decline significantly after these patent expiries . lynparza , an oral poly ( adp-ribose ) polymerase ( parp ) inhibitor being developed as part of a collaboration with astrazeneca entered into in july 2017 ( see note 4 to the consolidated financial statements ) , is currently approved for certain types of ovarian and breast cancer . merck recorded alliance revenue of $ 187 million in 2018 and $ 20 million in 2017 related to lynparza . the revenue increase reflects the approval of new indications , as well as a full year of activity in 2018. in january 2018 , the fda approved lynparza for use in patients with brca -mutated , human epidermal growth factor receptor 2 ( her2 ) -negative metastatic breast cancer who have been previously treated with chemotherapy , 40 triggering a $ 70 million capitalized milestone payment from merck to astrazeneca . lynparza was also approved in japan in july 2018 for use in patients with unresectable or recurrent brca -mutated , her2-negative breast cancer who have received prior chemotherapy . additionally , lynparza was approved for use as a maintenance therapy in patients with platinum-sensitive relapsed ovarian cancer , regardless of brca mutation status in japan in january 2018 and in the eu in may 2018. in december 2018 , the fda approved lynparza for use as maintenance treatment of adult patients with deleterious or suspected deleterious germline or somatic brca -mutated advanced epithelial ovarian , fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based chemotherapy based on the results of the solo-1 clinical trial , triggering a $ 70 million capitalized milestone payment from merck to astrazeneca .
| the increase primarily reflects growth in keytruda , gardasil/gardasil 9 , januvia , janumet and atozet , as well as higher sales of animal health products . sales growth was partially offset by lower sales of zepatier , remicade , zetia , vytorin , and products within the diversified brands franchise . international sales represented 57 % of total sales in both 2018 and 2017 . worldwide sales were $ 40.1 billion in 2017 , an increase of 1 % compared with 2016. sales growth in 2017 was driven primarily by higher sales of keytruda , zepatier and bridion . additionally , sales in 2017 benefited from the december 31 , 2016 termination of spmsd , which marketed vaccines in most major european markets . in 2017 , merck began recording vaccine sales in the markets that were previously part of the spmsd joint venture resulting in incremental vaccine sales of approximately $ 400 million during 2017. higher sales of pneumovax 23 , adempas , and animal health products also contributed to revenue growth in 2017. these increases were largely offset by the effects of generic competition for certain products including zetia , which lost u.s. market exclusivity in december 2016 , vytorin , which lost u.s. market exclusivity in april 2017 , cubicin due to u.s. patent expiration in june 2016 , and cancidas , which lost eu patent protection in april 2017. revenue growth was also offset by continued biosimilar competition for remicade and ongoing generic erosion for products including singulair and nasonex . collectively , the sales decline attributable to the above products affected by generic and biosimilar competition was $ 3.3 billion in 2017. lower sales of other products within the diversified brands franchise , as well as lower combined sales of the diabetes franchise of januvia and janumet , and declines in sales of isentress/isentress hd also partially offset revenue growth . additionally , sales in 2017
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for the full year ended december 31 , 2017 , applebee 's domestic same-restaurant sales decreased 5.3 % , which was a 200 basis-point improvement over the decrease of 7.3 % realized through the first nine months of 2017. the decrease in domestic same-restaurant sales for the full year 2017 was primarily due to a decline in customer traffic , along with a smaller decrease in average customer check . for the full year 2017 , applebee 's performance trailed that of the casual dining segment . the casual dining segment 's decrease in same-restaurant sales was smaller than applebee 's and was due to a decline in traffic that was partially offset by an increase in average check . as reported by black box , the decrease in customer traffic the casual dining segment experienced for the full year 2017 was smaller than the applebee 's decrease in customer traffic , and the casual dining segment experienced an increase in average customer check for the full year 2017 compared to applebee 's decrease in average customer check . we believe the differential between applebee 's performance for the full year 2017 and that of the casual dining segment is due in large part to unsuccessful tactical initiatives previously implemented by applebee 's that have since been addressed and to the inconsistent quality of operations across the applebee 's system . we engaged third-party consultants during the first half of 2017 to assess the continued decline in applebee 's traffic and same-restaurant sales and to provide actionable recommendations to stabilize the decline and to assist with franchisee health initiatives . these recommendations were implemented and , in large part , drove the positive sales in the fourth quarter of 2017. we incurred approximately $ 8.6 million of costs related to these stabilization initiatives in 2017 . 34 ihop 's domestic same-restaurant sales decreased 0.4 % for the three months ended december 31 , 2017 . the decline in the fourth quarter of 2017 was due to a decrease in customer traffic that was partially offset by an increase in average customer check . ihop customer traffic has declined for nine consecutive quarters , however , the percentage decrease in the fourth quarter of 2017 was the smallest since the first quarter of 2016. we believe the improvement in ihop 's domestic same-restaurant sales in the fourth quarter of 2017 compared to the third quarter of 2017 was due to successful limited-time promotions along with the roll-out of our new “ ihop ' n go ” mobile ordering technology . for the full year ended december 31 , 2017 , ihop 's domestic same-restaurant sales decreased 1.9 % . the decrease for the full year 2017 also was due to a decrease in customer traffic that was partially offset by an increase in average customer check . ihop 's performance for both the fourth quarter and full year of 2017 lagged that of the family dining segment of the restaurant industry . based on data from black box , during the fourth quarter of 2017 , the family dining segment had an increase in same-restaurant sales due primarily to an increase in average check that was larger than ihop 's , offset by a decrease in traffic that was also larger than ihop 's . for the full-year 2017 , the family dining segment experienced a smaller decrease in same-restaurant sales than ihop , due primarily to a smaller decrease in traffic than ihop experienced . in the short term , a decline in customer traffic at either brand may be offset by an increase in average customer check resulting from an increase in menu prices , a favorable change in product sales mix , or a combination thereof . a sustained decline in same-restaurant customer traffic that can not be offset by an increase in average customer check could have an adverse effect on our business , results of operations and financial condition , due to , among other things , reduced royalty revenues , higher bad debt expense resulting from the failure or inability of franchisees to pay amounts owed to us when due , and a possible decline in the number of franchise restaurants because of reduced restaurant development or restaurant closures . net franchise restaurant development the total number of applebee 's franchise restaurants open at december 31 , 2017 declined 4 % from the number open at december 31 , 2016 as franchisees opened 19 new restaurants but closed 99 restaurants . restaurant closures can occur for a variety of reasons that may differ for each restaurant and for each franchisee . closures generally fall into one of two categories : restaurants in older locations whose retail , residential and traffic demographics have changed unfavorably over time , and restaurants with non-viable unit economics . the majority of applebee 's restaurant closures in 2017 were due to these factors . while 18 of the restaurants were closed by a single franchisee , no other franchisee had more than 10 restaurant closures . ihop franchisees and area licensees opened 77 restaurants in 2017 and closed 23 restaurants , resulting in net development of 54 restaurants , the highest net development since 2009. the opening of 77 restaurants was the highest annual total of franchise restaurant openings for ihop since the current business model was adopted in 2004. we believe the ihop closures were primarily due to natural attrition as the total number of closures in 2017 was only slightly higher than the average annual closure rate of 21 restaurants per year over the three previous years . internationally , franchisees of both brands opened 37 restaurants and closed 22 , for net development of 15 restaurants . this international activity is included in the total activity for each brand cited above . 35 the following tables summarize applebee 's and ihop restaurant development and franchising activity over the past three years : replace_table_token_11_th 36 replace_table_token_12_th ( a ) during the twelve months ending december 31 , 2017 , nine company-operated restaurants were refranchised and one was permanently closed . story_separator_special_tag during 2018 , we expect applebee 's franchisees to develop between 10 and 15 new restaurants globally , the majority of which are expected to be international openings . ihop franchisees are projected to develop between 85 and 100 new ihop restaurants globally , the majority of which are expected to be domestic openings . we anticipate the closing of between 60 and 80 applebee 's restaurants in 2018 as part of the continuation of a system-wide analysis to optimize the health of the franchisee system . we expect to close between 30 and 40 ihop restaurants in 2018. the actual number of openings may differ from both our expectations and development commitments . historically , the actual number of restaurants developed in a particular year has been less than the total number committed to be developed due to various factors , including economic conditions and franchisee noncompliance with development agreements . the timing of new restaurant openings also may be affected by various factors including weather-related and other construction delays , difficulties in obtaining timely regulatory approvals and the impact of currency fluctuations on our international franchisees . the actual number of closures also may differ from our expectations . our franchisees are independent businesses and decisions to close restaurants can be impacted by numerous factors in addition to changes in applebee 's domestic same-restaurant sales that are outside of our control , including but not limited to , franchisees ' agreements with landlords and lenders . 37 consolidated results of operations - fiscal 2017 , 2016 and 2015 significant known events , trends or uncertainties impacting or expected to impact comparisons of reported or future results applebee 's has experienced a decline in system-wide sales over the past two years that was primarily due to a decrease in customer traffic . this decline in sales at our franchisees ' restaurants has adversely impacted the financial health of some of the franchisees and the timely payment of amounts they owe us for royalty payments and advertising fund contributions . the non-timely payments are primarily concentrated amongst four franchisees . two franchisees representing approximately 13 % of applebee 's 2017 domestic system-wide sales are exhibiting a higher level of financial difficulty than the other franchisees . these franchisee health issues , in turn , had an adverse impact on our 2017 financial results as follows : ( i ) our bad debt expense increased $ 11.5 million ; ( ii ) we contributed $ 9.5 million to the applebee 's naf to mitigate both the decline in franchisee contributions that are based on a percentage of restaurant sales and the non-timely payment by certain franchisees ; and ( iii ) there was a decrease of $ 6.2 million in royalty revenue due to uncertainty as to its collectibility . we engaged third-party consultants during the first half of 2017 to assess the continued decline in applebee 's traffic and same-restaurant sales and to provide actionable recommendations to stabilize the decline and to assist with franchisee health initiatives . these recommendations were implemented and , in large part , drove the positive sales in the fourth quarter of 2017. we incurred approximately $ 8.6 million of costs related to these stabilization initiatives in 2017. throughout 2017 we addressed franchisee financial health through a collaborative effort between ourselves , a third-party advisor and franchisee representatives . we have considered various forms of assistance to franchisees , such as restaurant closures , assessing franchisee debt arrangements , temporary forbearance on payment obligations , extensions of credit and other support programs . to date , the assistance provided primarily has been the approved closures of non-viable restaurants and waiver of related termination fees , as well as loans to certain franchisees . applebee 's restaurant closures during 2017 reduced our royalty revenue by approximately $ 4.1 million . any additional assistance to franchisees may entail incremental costs . virtually all domestic applebee 's franchisees have entered into an amendment to their franchise agreements that will increase their contribution to the applebee 's naf by 0.25 % to 3.50 % of their gross sales and decrease their minimum local promotional expenditures to 0.25 % of their gross sales for the period from january 1 , 2018 to december 31 , 2019. such franchisees have also agreed to an incremental temporary increase in the advertising contribution rate , subject to certain contingencies . we will contribute an additional $ 30 million to the applebee 's naf during the first six months of 2018. while we are encouraged by the improvement in applebee 's same-restaurant sales and customer traffic during the fourth quarter of 2017 , there can be no assurance that this favorable trend will continue or to what extent any improvement in same-restaurant sales and customer traffic might mitigate the franchisee health issues discussed above . until such mitigation occurs , we may , in the future , continue to experience relatively high charges for bad debt as a percentage of revenue or be unable to recognize all of the royalty revenue to which we are entitled . events impacting comparability of financial information impairment of applebee 's goodwill and tradename we performed an interim quantitative test for impairment of applebee 's goodwill and indefinite-lived intangible assets in the third quarter of 2017. as a result of performing the interim quantitative test , we recognized an impairment of applebee 's goodwill of $ 358.2 million and an impairment of applebee 's tradename of $ 173.4 million . see additional discussion of these impairments under the heading “ financial review - impairment of goodwill and intangible assets. ” tax cuts and jobs act the tax cuts and jobs act ( the “ tax act ” ) enacted in december 2017 lowered the federal statutory corporate tax rate from 35 % to 21 % , beginning in 2018. in accordance with u.s. gaap , we revalued our net deferred tax liability as of december 31 , 2017 , based on a u.s. federal tax rate of 21 percent . this revaluation reduced our 2017 net loss by $ 77.5
| an additional $ 8.3 million of the total decline was due to a 5.3 % decrease in applebee 's domestic same-restaurant sales ; we generated cash provided by operating activities of approximately $ 66 million and adjusted free cash flow ( cash provided by operating activities , plus receipts from notes and equipment contract receivables , less additions to property and equipment ) of approximately $ 63 million in 2017 ; we returned nearly $ 80 million to our stockholders , comprised of $ 69.8 million in cash dividends and $ 10.0 million in the form of stock repurchases ; ihop franchisees opened 77 new restaurants worldwide , with net development of 54 restaurants . the opening of 77 restaurants was the highest annual total of franchise restaurant openings for ihop since the current business model was adopted in 2004. applebee 's franchisees closed 99 restaurants worldwide , with a net reduction of 80 restaurants . taken together , the total number of our restaurants declined by less than 1 % from last year 's total ; and ihop franchisees remodeled 320 domestic restaurants in 2017 under our new rise n ' shine design . a total of 620 restaurants have been remodeled since the rise n ' shine design was announced in late 2015. key performance indicators an overview of our key performance indicators for the year ended december 31 , 2017 is as follows : replace_table_token_5_th ( 1 ) franchise and area license restaurant openings , net of closings replace_table_token_6_th income before income taxes for the year ended december 31 , 2017 decreased $ 578.5 million compared to the year ended december 31 , 2016. the primary reasons for the decline are summarized as follows : replace_table_token_7_th 31 our effective tax rate ( “ etr ” ) of 22 % for the year ended december 31 , 2017 was significantly different than both the federal statutory rate of 35 % and the etr of 36 % for the year ended december 31 , 2016. the 2017 effective tax rate of 22.3 % applied to pretax book loss was lower than the statutory federal tax rate of 35 % primarily due to the non-deductibility of the impairment of applebee 's goodwill for federal income tax purposes , which was partially offset by the income tax benefit resulted from the
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the restructuring expenses included severance benefits of $ 9.8 million , exit costs of $ 1.1 million and impairment charges of $ 10.1 million . in the second quarter of 2019 , the company began to evaluate strategic alternatives for one of its businesses in the hst segment . prior to making a final decision on the options that were presented for this business , the business was informed in the third quarter of 2019 of the loss of its largest customer . as a result , the company accelerated its restructuring activities for this business and a decision was made to wind down the business over time , requiring a $ 9.7 million impairment charge . in addition , in the fourth quarter of 2019 , the company completed the consolidation of one of its facilities into the optics center of excellence in rochester , new york , which resulted in a $ 0.4 million impairment charge . operating income of $ 579.0 million in 2019 increased from $ 569.1 million in 2018 , and operating margin of 23.2 % in 2019 was up 30 basis points from 22.9 % in 2018 . both operating income and operating margin increased compared to 2018 primarily due to price capture , productivity initiatives and tighter cost controls in 2019 , partially offset by inflation and sales mix . other ( income ) expense - net changed by $ 5.7 million , from income of $ 4.0 million in 2018 to expense of $ 1.8 million in 2019 mainly due to foreign currency transaction gains in 2018 that did not repeat in 2019 . interest expense increased to $ 44.3 million in 2019 from $ 44.1 million in 2018 . the increase was primarily due to interest on debt assumed in the velcora acquisition , which has been subsequently retired . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes decreased to $ 107.4 million in 2019 compared to $ 118.4 million in 2018 . the effective tax rate decreased to 20.2 % in 2019 compared to 22.4 % in 2018 due to an increase in the excess tax benefits related to share-based compensation , a partial change in the assertion of permanent reinvestment of certain foreign tax earnings in 2018 , and the mix of global pre-tax income among jurisdictions . net income for the year of $ 425.5 million increased from $ 410.6 million in 2018 . diluted earnings per share in 2019 of $ 5.56 increased $ 0.27 from $ 5.29 in 2018 . fluid & metering technologies segment replace_table_token_14_th sales of $ 957.0 million increased $ 5.5 million , or 1 % , in 2019 compared with 2018 . this increase reflected a 2 % increase in organic sales , partially offset by a 1 % unfavorable impact from foreign currency translation . in 2019 , sales were flat domestically and up 1 % internationally . sales to customers outside the u.s. were approximately 43 % of total segment sales in both 2019 and 2018 . sales within our valves platform increased compared to 2018 due to strength in the chemical end market . sales within our pumps platform increased compared to 2018 due to strength in the north american industrial market in the first half of the year and lease automated custody transfer ( “ lact ” ) product growth . sales within our energy platform increased slightly compared to 2018 due to market demand stability , despite lower capital investment as a result of declines in fuel prices . sales within our water platform were flat compared to 2018 as municipal markets remained fairly consistent . sales within our agriculture platform decreased compared to 2018 due to challenging market conditions from geopolitical uncertainty and depressed commodity prices . operating income and operating margin of $ 285.3 million and 29.8 % , respectively , were higher than the $ 275.1 million and 28.9 % , respectively , recorded in 2018 , primarily due to increased volume , price capture and productivity initiatives . health & science technologies segment replace_table_token_15_th 20 sales of $ 914.4 million increased $ 18.0 million , or 2 % , in 2019 compared with 2018 . this increase reflected a 1 % increase in organic sales and a 2 % increase from acquisitions ( velcora - july 2019 and fli - july 2018 ) , partially offset by a 1 % unfavorable impact from foreign currency translation . in 2019 , sales increased 5 % domestically and were flat internationally . sales to customers outside the u.s. were approximately 55 % of total segment sales in 2019 compared with 56 % in 2018 . sales in our gast platform increased compared to 2018 due to strong demand related to our targeted growth initiatives . sales within our scientific fluidics & optics platform increased compared to 2018 due to new product introductions and strong demand across our end markets primarily in vitro diagnostics ( “ ivd ” ) and biotechnology . sales within our sealing solutions platform were flat compared to 2018 due to the velcora acquisition , offset by weakness in the semiconductor and industrial markets . sales within our material processing technologies platform decreased compared to 2018 due to project timing . sales within our micropump platform decreased compared to 2018 due to end market demand volatility . operating income and operating margin of $ 200.2 million and 21.9 % , respectively , in 2019 were down from $ 205.7 million and 22.9 % , respectively , in 2018 , primarily due to the impairment charges and the fair value inventory step-up charge , partially offset by price capture and tighter cost controls in 2019. fire & safety/diversified products segment replace_table_token_16_th sales of $ 626.8 million decreased $ 10.3 million , or 2 % , in 2019 compared with 2018 . this decrease reflected flat organic sales and a 2 % unfavorable impact from foreign currency translation . story_separator_special_tag in 2019 , sales increased 2 % domestically and decreased 5 % internationally . sales to customers outside the u.s. were approximately 52 % of total segment sales in 2019 compared with 53 % in 2018 . sales within our dispensing platform decreased compared to 2018 due to the timing of large projects in 2018 that did not reoccur in 2019. sales in our band-it platform increased compared to 2018 due to strength in transportation markets , partially offset by weakness in the industrial end market . sales within our fire & safety platform increased compared to 2018 primarily due to oem and distribution strength as well as strong demand for new product introductions . operating income of $ 165.3 million and operating margin of 26.4 % , respectively , were lower than the $ 168.6 million and 26.5 % , respectively , in 2018 , primarily due to volume declines and sales mix in the dispensing platform . liquidity and capital resources operating activities cash flows from operating activities increased $ 48.7 million , or 10.2 % , to $ 528.1 million in 2019 , primarily due to higher earnings and favorable operating working capital , partially offset by lower income taxes payable and lower incentive compensation . at december 31 , 2019 , working capital was $ 903.6 million and the company 's current ratio was 3.5 to 1. at december 31 , 2019 , the company 's cash and cash equivalents totaled $ 632.6 million , of which $ 350.9 million was held outside of the united states . investing activities cash flows used in investing activities increased $ 55.6 million to $ 137.0 million in 2019 , primarily due to $ 87.2 million spent on the acquisition of velcora in 2019 compared to $ 20.2 million spent on the acquisition of fli in 2018 , partially offset by lower capital expenditures in 2019 and $ 4.0 million spent on the purchase of intellectual property assets from phantom in 2018. cash flows from operations were more than adequate to fund capital expenditures of $ 50.9 million and $ 56.1 million in 2019 and 2018 , respectively . capital expenditures were generally for machinery and equipment that supported growth , improved productivity , tooling , business system technology , replacement of equipment and investments in new facilities . management believes that the company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term . 21 financing activities cash flows used in financing activities decreased $ 62.4 million to $ 227.6 million in 2019 , primarily as a result of lower share repurchases in 2019 , partially offset by higher debt repayments due to the repayment of debt assumed in the velcora acquisition and higher dividends paid in 2019. on june 13 , 2016 , the company completed a private placement of a $ 100 million aggregate principal amount of 3.20 % senior notes due june 13 , 2023 and a $ 100 million aggregate principal amount of 3.37 % senior notes due june 13 , 2025 ( collectively , the “ notes ” ) pursuant to a note purchase agreement , dated june 13 , 2016 ( the “ purchase agreement ” ) . each series of notes bears interest at the stated amount per annum , which is payable semi-annually in arrears on each june 13 th and december 13 th . the notes are unsecured obligations of the company and rank pari passu in right of payment with all of the company 's other unsecured , unsubordinated debt . the company may at any time prepay all , or any portion of the notes ; provided that such portion is greater than 5 % of the aggregate principal amount of the notes then outstanding . in the event of a prepayment , the company will pay an amount equal to par plus accrued interest plus a make-whole amount . in addition , the company may repurchase the notes by making an offer to all holders of the notes , subject to certain conditions . on may 31 , 2019 , the company entered into a credit agreement ( the “ credit agreement ” ) along with certain of its subsidiaries , as borrowers ( the “ borrowers ” ) , bank of america , n.a. , as administrative agent , swing line lender and an issuer of letters of credit , with other agents party thereto . the credit agreement consists of a revolving credit facility ( the “ revolving facility ” ) , which is an $ 800.0 million unsecured , multi-currency bank credit facility expiring on may 30 , 2024. the credit agreement replaced the company 's prior five-year , $ 700 million credit agreement , dated as of june 23 , 2015 , which was due to expire in june 2020. at december 31 , 2019 , there was no balance outstanding under the revolving facility and $ 8.5 million of outstanding letters of credit , resulting in a net available borrowing capacity under the revolving facility of $ 791.5 million . borrowings under the revolving facility bear interest , at either an alternate base rate or adjusted libor plus , in each case , an applicable margin . such applicable margin is based on the better of the company 's senior , unsecured , long-term debt rating or the company 's applicable leverage ratio . interest is payable ( a ) in the case of base rate loans , quarterly , and ( b ) in the case of libor loans , on the last day of the applicable interest period selected , or every three months from the effective date of such interest period for interest periods exceeding three months . the company may request increases in the lending commitments under the credit agreement , but the aggregate lending commitments pursuant to such increases may not exceed $ 400 million .
| the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature , size and number of transactions from period to period and between the company and its peers . performance in 2019 compared with 2018 ( in thousands ) 2019 2018 change net sales $ 2,494,573 $ 2,483,666 — operating income 579,003 569,088 2 % sales in 2019 were $ 2.5 billion , which was flat compared with last year . this reflects a 1 % increase in organic sales and a 1 % increase from acquisitions ( velcora - july 2019 and fli - july 2018 ) , offset by a 2 % unfavorable impact from foreign currency translation . sales to customers outside the u.s. represented approximately 50 % of total sales in 2019 compared with 51 % in 2018 . in 2019 , fluid & metering technologies contributed 38 % of sales and 44 % of total segment operating income ; health & science technologies contributed 37 % of sales and 31 % of total segment operating income ; and fire & safety/diversified products contributed 25 % of sales and 25 % of total segment operating income . gross profit of $ 1.1 billion in 2019 increased $ 7.1 million , or 1 % , from 2018 , while gross margin increased 10 basis points to 45.1 % in 2019 from 45.0 % in 2018 . the increase in gross profit and margin is primarily a due to price capture and productivity initiatives , partially offset by a fair value inventory step-up charge , inflation and higher engineering costs . selling , general and administrative ( “ sg & a ” ) expenses decreased to $ 525.0 million in 2019 from $ 536.7 million in 2018 . the $ 11.7 million decrease is primarily due to lower variable compensation expenses and tighter cost controls in 2019 as well as a stamp
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related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . in june 2009 , the financial accounting standards board ( “ fasb ” ) completed its accounting guidance codification project . the fasb accounting standards codification ( “ asc ” ) became effective for the company 's financial statements issued subsequent to june 30 , 2009 and is the single source of authoritative accounting principles recognized by the fasb to be applied by nongovernmental entities in the preparation of financial statements in conformity with gaap . as of the effective date , we no longer refer to the authoritative guidance dictating its accounting methodologies under the previous accounting standards hierarchy . instead , we refer to the asc codification as the sole source of authoritative literature . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . arrangements that are not controlled through voting or similar rights are accounted for as a variable interest entity ( vie ) , in accordance with the provisions and guidance of asc topic 810 “ consolidation ” , whereby we have determined that we are a primary beneficiary of the vie and meet certain criteria of a sole general partner or managing member as identified in accordance with emerging issues task force ( “ eitf ” ) issue 04-5 , investor 's accounting for an investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability , the obligation to absorb expected losses or residual returns of the entity , or have voting rights that are not proportional to their economic interests . the primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks , authorizes certain capital transactions , or makes operating decisions that materially affect the entity 's financial results . all significant intercompany balances and transactions have been eliminated in consolidation . in determining whether we are the primary beneficiary of a vie , we consider qualitative and quantitative factors , including , but not limited to : the amount and characteristics of our investment ; the obligation or likelihood for us or other investors to provide financial support ; our and the other investors ' ability to control or significantly influence key decisions for the vie ; and the similarity with and significance to the business activities of us and the other investors . significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these vies and general market conditions . as of december 31 , 2014 , iot is not the primary beneficiary of a vie . for entities in which we have less than a controlling financial interest or entities where it is not deemed to be the primary beneficiary , the entities are accounted for using the equity method of accounting . accordingly , the company 's share of the net earnings or losses of these entities is included in consolidated net income . iot 's investment in eton square was accounted for under the equity method . real estate upon acquisitions of real estate , we assess the fair value of acquired tangible and intangible assets , including land , buildings , tenant improvements , “ above-market ” and “ below-market ” leases , origination costs , acquired in-place leases , other identified intangible assets and assumed liabilities in accordance with asc topic 805 “ business combinations ” , and allocate the purchase price to the acquired assets and assumed liabilities , including land at appraised value and buildings at replacement cost . we assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates , as well as available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known and anticipated trends , and market and economic conditions . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . we also consider an allocation of purchase price of other acquired intangibles , including acquired in-place leases that may have a customer relationship intangible value , including ( but not limited to ) the nature and extent of the existing relationship with the tenants , the tenants ' credit quality and expectations of lease renewals . based on our acquisitions to date , our allocation to customer relationship intangible assets has been immaterial . 12 we record acquired “ above-market ” and “ below-market ” leases at their fair values ( using a discount rate which reflects the risks associated with the leases acquired ) equal to the difference between ( 1 ) the contractual amounts to be paid pursuant to each in-place lease and ( 2 ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases . other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . story_separator_special_tag in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . sales to our parent , tci , have previously been reflected at the fair value sales price . upon discussion with the sec and in review of the guidance pursuant to asc 250-10-45-22 to 24 , we have adjusted those asset sales , in the previous years , to reflect a sales price equal to the cost basis in the asset at the time of the sale . the related party payables from tci were reduced for the lower asset price . depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other project costs incurred during the period of development . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . asc topic 360 “ property , plant and equipment ” requires that qualifying assets and liabilities and the results of operations that have been sold , or otherwise qualify as “ held for sale , ” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the company will not have significant continuing involvement following the sale . the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by our board of directors , or a committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . included in discontinued operations , in accordance with asc 805 “ business combinations ” , we recognize rental revenue of acquired in-place “ above- ” and “ below-market ” leases at their fair values over the terms of the respective leases , as applicable . 13 revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc topic 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the gain recognition and accounts for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the sales criteria are met . non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable we record interest income as earned in accordance with the terms of the related loan agreements .
| there was no income generated from this segment for the twelve months ended december 31 , 2014 and december 31 , 2013. expenses property operating expenses were $ 50,000 for the twelve months ended december 31 , 2014. this represents a decrease of $ 37,000 , as compared to the prior period property operating expenses of $ 87,000. this decrease was primarily due to a decrease in professional services . general and administrative expenses were $ 573,000 for the twelve months ended december 31 , 2014. this represents a decrease of $ 161,000 , as compared to the prior period general and administrative expenses of $ 734,000. this decrease was primarily due to a decrease in legal fees and professional fees . net income fee was $ 203,000 for the twelve months ended december 31 , 2014. this represents a decrease of $ 492,000 , as compared to the prior period net income fee of $ 695,000. the net income fee paid to pillar is calculated at the rate of 7.5 % of net income . the net income decreased from last year due to the $ 5.8 million discount recognized for the company 's portion of the mercer/travelers land mortgage note buyout in 2013. advisory fees were $ 692,000 for the twelve months ended december 31 , 2014. this represents a decrease of $ 138,000 , as compared to the prior period advisory fees of $ 830,000. advisory fees are computed based on a gross asset fee of 0.0625 % per month ( 0.75 % per annum ) of the average of the gross asset value . 15 other income ( expense ) interest income was $ 4.7 million for the twelve months ended december 31 , 2014. this represents a decrease of $ 2.4 million in the current year , as compared to interest income of $ 7.1 million in the prior period . this decrease was primarily due to the recognition of uncollectible interest in the prior period on two of the uhf notes receivable . we also received less interest on the receivable from our advisor .
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a debenture account has been established with a financial institution for the deposit of 25 % of the net funds the company receives from licensing its intellectual property . as of march 8 , 2012 , the debenture account has a balance of $ 63,000 . 20 the 2011 class a debentures may be converted into shares of common stock at the option of the holder . upon conversion , the holder will be entitled to receive the number of shares of common stock that equal to two hundred percent ( 200 % ) of the face amount of the 2011 class a debentures , together with accrued and unpaid interest , divided by the conversion price , which is the weighted average price for the five-day trading period preceding the 2011 class a debenture investment . any 2011 class a debentures that are outstanding on the maturity date that have not been repaid from the debenture account will be repaid by the issuance of shares of common stock at the conversion price . as of march 8 , 2012 , there is $ 1,675,000 principal amount of 2011 class a debentures outstanding that are convertible into approximately 18,475,827 shares of common stock . the 2011 class a debenture investors also received common stock purchase warrants , designated by the company as class a warrants , which expire on december 31 , 2016. as of march 8 , 2012 , there were class a warrants outstanding to purchase an aggregate of 18,475,827 shares of common stock at exercise prices ranging between $ 0.063 and $ 0.109. the 2011 class b debentures may be converted into shares of common stock at the option of the holder . upon conversion , the holder will be entitled to receive the number of shares of common stock that equal to two hundred percent ( 200 % ) of the face amount of the 2011 class b debentures , together with accrued and unpaid interest , divided by the conversion price , which is the weighted average price for the five-day trading period preceding the 2011 class b debenture investment , however the conversion price shall not be less than ten cents per share at any time and the conversion price shall not be more than ten cents per share for investments made prior to october 1 , 2011. any 2011 class b debentures that are outstanding on the maturity date that have not been repaid from the debenture account will be repaid by the issuance of shares of common stock at the conversion price . as of march 8 , 2012 , there is $ 896,161 principal amount of 2011 class b debentures outstanding that are convertible into approximately 17,923,227 shares of common stock . the investors in 2011 class b debentures also received common stock purchase warrants , designated by the company as class b warrants , which expire on december 31 , 2016. as of march 8 , 2012 , there were class b warrants outstanding to purchase an aggregate of 8,961,614 shares of common stock at exercise prices of $ 0.10 . 2012 debenture financing on february 17 , 2012 , the company issued ( i ) convertible debentures in the aggregate principal amount of $ 500,000 ( the “ 2012 debentures ” ) and ( ii ) series c warrants ( the “ 2012 warrants ” ) to purchase shares of common stock to certain investors ( the “ 2012 investors ” ) for aggregate cash proceeds of $ 180,000 and the exchange of $ 320,000 in previously issued promissory notes . there were four investors , who are all directors of the company . the 2012 debentures accrue interest at an annual rate of 8 % , which will be paid quarterly exclusively from the debenture account . principal on the 2012 debentures will be paid quarterly , on a pro rata basis with all 2012 debentures , as the debenture account permits , but only after all accrued interest has been paid . the debenture account is a bank account established with a financial institution for the deposit of 25 % of any funds the company receives from any judgment or settlement in any patent infringement cases involving united states patent number 7,822,816. the 2012 debentures mature on december 31 , 2019 , to the extent not previously repaid . any 2012 debentures that are outstanding on the maturity date that have not been repaid from the debenture account will be repaid by the issuance of such number of shares of common stock equal to the outstanding principal and or accrued interest divided by the volume weighted average price per share of the company 's common stock for the three trading days prior to the maturity date ( the “ 2012 conversion price ” ) . the 2012 investors have the right , at any time after december 31 , 2017 , to require the 2012 debentures to be repaid in full by cash from the debenture account , and to the extent such cash is not available , by shares of common stock at the 2012 conversion price . the company has the right , at any time after december 31 , 2018 , to require the 2012 debentures to be repaid in full by cash , shares of common stock at the 2012 conversion price , or a combination of cash and shares of common stock . 21 the 2012 warrants are exercisable at an exercise price of $ 0.10 per share until the earlier of december 31 , 2019 or when the investor no longer holds any 2012 debentures . the 2012 warrants are also exercisable on a cashless basis at any time . the number of shares of common stock issuable upon exercise of the 2012 warrants is equal to 50 % of the then outstanding principal amount of the 2012 debenture held by such 2012 investor divided by the 2012 conversion price . story_separator_special_tag other during the third quarter of 2011 , the company borrowed an additional $ 100,000 on its $ 200,000 line of credit agreement with a financial institution which was guaranteed by two directors . the line of credit agreement , which bears interest at the greater of 6 % or prime rate plus 1.0 % ( 4.25 % at december 31 , 2011 ) , was to mature on september 30 , 2011. the line of credit agreement was renewed through september 30 , 2012 with a $ 100,000 credit limit . the renewed line bears interest at the greater of 5.75 % or prime rate plus 1.0 % ( 4.25 % at december 31 , 2011 ) . one of the guarantors invested $ 100,000 in the 2011 debentures and did not renew his guarantee of the renewal line so that investment was used to retire outstanding principal on the line . in april 2011 , the company placed $ 50,000 in promissory notes with a shareholder who is a qualified investor . the notes were unsecured and provided for accrued interest of prime plus 3 % ( 6.25 % as of september 30 , 2011 ) payable on maturity at september 30 , 2011. on september 8 , 2011 , the company placed an additional $ 54,000 promissory note with the same shareholder . that note was secured by the unencumbered 75 % of license fees on licensed products secondary to the security interest of a financial institution and provided for accrued interest at 12 % payable on maturity at september 30 , 2011. accrued interest of $ 1,178 at september 30 , 2011 was paid on october 20 , 2011. on october 1 , 2011 , the company combined the shareholder loans into one promissory note for $ 104,000 , which matures on december 31 , 2012 and carries the same terms as the september 8 , 2011 note . the company has agreed to apply ten percent ( 10 % ) of the net proceeds from license fees on licensed products to the reduction of principal . the company lacks growth capital and anticipates that approximately $ 1.5 million in additional investment capital will be required during the next 12 months to sustain its current operations and business plan . the funds are expected to be raised from operating revenues , intellectual property license fees , exercise of warrants held by current investors , and the sale of equity and or debt securities . there is no assurance that capital in any form will be available to us and , if available , on terms and conditions that are acceptable . if we are unable to obtain sufficient funds , we will not be able to implement our growth strategy . to lower our required cash expenditures for the calendar year 2011 , the company issued 17,467,516 shares of common stock in the to vendors and 3,924,685 shares of common stock to directors and employees for compensation for services . sources and uses of cash replace_table_token_4_th operating activities : net cash outflow from operating activities during the year ended december 31 , 2011 was $ 1,365,000 which was a decrease in use of cash of $ 111,000 from $ 1,475,000 net cash outflow from operating activities during the year ended december 31 , 2010. less cash was used in operating activities as a result of issuing common stock , in lieu of cash , for advisory services . investing activities : net cash used in investing activities during the year ended december 31 , 2011 was $ 613,000 , which was an increase of $ 624,000 from $ 11,000 net cash provided by investing activities during the year ended december 31 , 2010. the increase is primarily due to $ 211,000 increase in investment in capitalized software development costs and the $ 417,000 net proceeds received in 2010 from the sale of digiticket . the company invested $ 578,244 in reformxt capitalized development costs from 2005 through 2008 and commenced amortizing the product over a 36 month period in december 2008 which concluded in december 2011 with $ 578,244 and $ 393,527 accumulated amortization as of december 31 , 2011 and 2010 respectively . the company netted the fully amortized costs in december 2011. the company invested $ 84,944 in reformxt iphone capitalized development costs between december 2008 and october 2009. the iphone capitalized costs are being amortized over a 36 month period commencing november 2010 with $ 33,034 in accumulated amortization as of december 31 , 2011. the company invested $ 232,302 and $ 217,228 in 2011 and 2010 for insight powered by reformxt product capitalized development and expects to continue investing in these products in 2012. the reformxt for blackberry and android costs are being capitalized separately with ongoing investment expected in 2012. the company invested $ 32,283 and $ 91,183 in 2011 and 2010 for capitalized development costs for the blackberry platform and invested $ 165,144 in 2011 for capitalized development costs for the android platform . reformxt and powered by reformxt products , rebranded as illumesentral in q4 2011 , have contributed less than 6 % of annual revenue in 2011. the company began investing in an e-marketplace growth strategy , code named mobiz , in november 2008 and continued developing the strategy through 2010 , capitalizing a total of $ 337,059. mobiz is centered on the aggregation of all mobile software , hardware , accessories and services in cooperation with our partners , and marketing those using new web-based methods . due to the general downturn in the national economy , the partner companies involved in developing mobiz became unable to help finance its completion . consequently , the company chose to temporarily cease continued development 2010 while it focused on launching the illume mobile division .
| the resulting gross profit for 2011 of $ 857,000 was up $ 538,000 , or 169 % , over the gross profit for 2010 of $ 319,000. gross profit margins were 51 % and 50 % for 2011 and 2010 , respectively . operating , selling , general and administrative expenses : operating expenses include direct division operating expenses , marketing and sales expenses , general and administrative expenses and depreciation and amortization expenses operating expenses increased by $ 1,127,000 , or 56 % , in 2011 to $ 3,123,000 from $ 1,996,000 in 2010. depreciation and amortization expense decreased in 2011 by $ 6,000 from $ 249,000 in 2010 to $ 243,000. public relations and investor relations services increased in 2011 by $ 548,000 , or 460 % , to $ 667,000 from $ 119,000 in 2010 and were paid in 2011 using restricted stock valued at $ 509,000 and $ 158,000 in cash compared to the use of $ 23,000 in restricted stock and $ 96,000 in cash in 2010. the company incurred $ 185,000 in corporation promotion costs in 2011 , primarily due to $ 166,000 in accrued expenses related to a corporate branding and marketing initiative which began in june 2011. occupancy expenses were $ 76,000 lower in 2010 due to shared occupancy expenses with digiticket , a division which was sold to private investors in february 2010 but continued sharing office facilities until august 2010. the company grew from 17 employees at the end of 2010 to 35 employees at the end of 2011 resulting in $ 199,000 in additional salaries and benefits . loss from operations : loss from operations for 2011 of $ 2,266,000 was up $ 589,000 or 35 % from the loss from operations in 2010 of $ 1,677,000 primarily due to increased public relations and investor relations services of $ 548,000 , of which $ 509,000 was paid in stock in lieu of cash . 19 other income and expense : total other expenses
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this results in greater card-not-present fraud ( e.g. , fraud at ecommerce sites ) . single euro payments area ( sepa ) . the sepa , primarily focused on the european economic community and the u.k. , is designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions . the transition to sepa payment mechanisms will drive more volume to these systems with the potential to cause banks to review the capabilities of the systems supporting these payments . our retail payments and real-time payments solutions facilitate key functions that help banks and financial intermediaries address these mandated regulations . european payment service directive ( psd2 ) . psd2 , which was ratified by the european parliament in 2015 , will force member states to implement new payments regulation by 2018. the xs2a provision effectively creates a new market opportunity where banks in european union member countries must provide open api standards to customer data , thus allowing authorized third-party providers to enter the market . financial institution consolidation . consolidation continues on a national and international basis , as financial institutions seek to add market share and increase overall efficiency . such consolidations have increased , and may continue to increase , in their number , size , and market impact as a result of recent economic conditions affecting the banking and financial industries . there are several potential negative effects of increased consolidation activity . continuing consolidation of financial institutions may result in a smaller number of existing and potential customers for our products and services . consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products . additionally , if a non-customer and a customer combine and the combined entity decides to forego future use of our products , our revenue would decline . conversely , we could benefit from the combination of a non-customer and a customer when the combined entity continues use of our products and , as a larger combined entity , increases its demand for our products and services . we tend to focus on larger financial institutions as customers , often resulting in our solutions being the solutions that survive in the consolidated entity . global vendor sourcing . global and regional banks , financial intermediaries , merchants , and corporates are aiming to reduce the costs in supplier management by picking suppliers who can service them across all their geographies instead of allowing each country operation to choose suppliers independently . our global footprint from both a customer and a delivery perspective enable us to be successful in this global sourced market . however , projects in these environments tend to be more complex and therefore of higher risk . electronic payments convergence . as electronic payment volumes grow and pressures to lower overall cost per transaction increase , banks and financial intermediaries are seeking methods to consolidate their payments processing across the enterprise . we believe that the strategy of using service-oriented architectures to allow for re-use of common electronic payment functions , such as authentication , authorization , routing and settlement , will become more common . using these techniques , banks and financial intermediaries will be able to reduce costs , increase overall service levels , enable one-to-one marketing in multiple bank channels , leverage volumes for improved pricing and liquidity , and manage enterprise risk . our product strategy is , in part , focused on this trend , by creating integrated payment functions that can be re-used by multiple bank channels , across both the consumer and wholesale bank . while this trend presents an opportunity for us , it may also expand the competition from third-party electronic payment technology and service providers specializing in other forms of electronic payments . many of these providers are larger than us and have significantly greater financial , technical and marketing resources . 27 mobile banking and payments . there is a growing demand for the ability to carry out banking services or make payments using a mobile phone . recent statistics from javelin strategy & research , a subsidiary of greenwich associates , show that 50 % of adults in the united states use their phone for mobile banking . the use of phones for mobile banking is expected to grow to 81 % in 2020. our customers have been making use of existing products to deploy mobile banking , mobile payments , and mobile commerce solutions for their customers in many countries . in addition , aci has invested in mobile products of our own and via partnerships to support mobile functionality in the marketplace . electronic bill payment and presentment . ebpp encompasses all facets of bill payment , including biller direct , where customers initiate payments on biller websites , the consolidator model , where customers initiate payments on a financial institution 's website , and walk-in bill payment , as one might find in a convenience store . the ebpp market continues to grow as consumers move away from traditional forms of paper-based payments . according to aite group , the percentage of online payments made on biller sites grew from 62 % in 2010 to 73 % in 2016. the biller-direct solutions are seeing strong growth as billers migrate these services to outsourcers , such as aci , from legacy systems built in house . we believe that ebpp remains ripe for outsourcing , as a significant amount of biller-direct transactions are still processed in house . as billers seek to manage costs and improve efficiency , we believe that they will continue to look to third-party ebpp vendors that can offer a complete solution for their billing needs . the banking , financial services , and payment industries have come under increased scrutiny from federal , state , and foreign lawmakers and regulators in response to the crises in the financial markets and the global recession . story_separator_special_tag in particular , the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) , which was signed into law july 21 , 2010 , represents a comprehensive overhaul of the u.s. financial services industry and requires the implementation of many regulations that have a direct impact on our customers and potential customers . this is not limited to the united states . in april 2014 , the european commission voted to adopt a number of amendments with regards to the payment services directive , placing further pressure on industry incumbents . these regulatory changes may create both opportunities and challenges for us . the application of the new regulations on our customers could create an opportunity for us to market our product capabilities and the flexibility of our solutions to assist our customers in addressing these regulations . at the same time , these regulatory changes may have an adverse impact on our operations and our financial results as we adjust our activities in light of increased compliance costs and customer requirements . it is currently too difficult to predict the long-term extent to which the dodd-frank act , payment services directive or the resulting regulations will impact our business and the businesses of our current and potential customers . several other factors related to our business may have a significant impact on our operating results from year to year . for example , the accounting rules governing the timing of revenue recognition in the software industry are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction . factors such as maturity of the software product licensed , payment terms , creditworthiness of the customer , and timing of delivery or acceptance of our products often cause revenues related to sales generated in one period to be deferred and recognized in later periods . for arrangements in which services revenue is deferred , related direct and incremental costs may also be deferred . additionally , while the majority of our contracts are denominated in the u.s. dollar , a substantial portion of our sales are made , and some of our expenses are incurred , in the local currency of countries other than the united states . fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period . we continue to seek ways to grow through organic sources , partnerships , alliances , and acquisitions . we continually look for potential acquisitions designed to improve our solutions ' breadth or provide access to new markets . as part of our acquisition strategy , we seek acquisition candidates that are strategic , capable of being integrated into our operating environment and financially accretive to our financial performance . divestiture community financial services on march 3 , 2016 , we completed the sale of our cfs related assets and liabilities to fiserv for $ 200.0 million . the sale of cfs , which was not strategic to our long-term strategy , is part of the company 's ongoing efforts to expand as a provider of software products and saas-based and platform-based solutions facilitating real-time electronic and ecommerce payments for large banks , financial intermediaries , merchants , and corporates worldwide . the sale included employee agreements and customer contracts as well as technology assets and intellectual property . for the year-ended december 31 , 2016 , we recognized a net after-tax gain of $ 93.4 million on sale of assets to fiserv . backlog included in backlog estimates are all software license fees , maintenance fees and services fees ( including saas and platform ) specified in executed contracts , as well as revenues from assumed contract renewals to the extent that we believe recognition of the related revenue will occur within the corresponding backlog period . we have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates . 28 our 60-month backlog estimate represents expected revenues from existing customers using the following key assumptions : maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term . license , facilities management , and saas and platform arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences . non-recurring license arrangements are assumed to renew as recurring revenue streams . foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts stated in currencies other than the u.s. dollar . our pricing policies and practices are assumed to remain constant over the 60-month backlog period . in computing our 60-month backlog estimate , the following items are specifically not taken into account : anticipated increases in transaction , account , or processing volumes in customer systems . optional annual uplifts or inflationary increases in recurring fees . services engagements , other than facilities management and saas and platform engagements , are not assumed to renew over the 60-month backlog period . the potential impact of merger activity within our markets and or customers . we review our customer renewal experience on an annual basis . the impact of this review and subsequent update may result in a revision to the renewal assumptions used in computing the 60-month and 12-month backlog estimates . in the event a revision to renewal assumptions is determined to be necessary , prior periods will be adjusted for comparability purposes . the following table sets forth our 60-month backlog estimate , by reportable segment , as of december 31 , 2017 , september 30 , 2017 , june 30 , 2017 , march 31 , 2017 , and december 31 , 2016 ( in millions ) . dollar amounts reflect foreign currency exchange rates as of each period end .
| 31 saas and platform revenue increased $ 14.3 million , or 3 % , during the year-ended december 31 , 2017 , as compared to the same period in 2016. the cfs divestiture resulted in a $ 13.5 million decrease in saas and platform revenue during the year-ended december 31 , 2017. the impact of foreign currencies on saas and platform revenue during the year-ended december 31 , 2017 was neutral . excluding the impact of cfs , total saas and platform revenue for year-ended december 31 , 2017 , increased $ 27.8 million , or 7 % , compared to the same period in 2016 , which is primarily attributable to new customers adopting our saas and platform-based offerings and existing customers adding new functionality or increasing transaction volumes . license revenue customers purchase the right to license aci software for the term of their agreement which is generally 60 months . within these agreements are specified capacity limits typically based on customer transaction volume . aci employs measurement tools that monitor the number of transactions processed by customers and if contractually specified limits are exceeded , additional fees are charged for the overage . capacity overages may occur at varying times throughout the term of the agreement depending on the product , the size of the customer , and the significance of customer transaction volume growth . depending on specific circumstances , multiple overages or no overages may occur during the term of the agreement . initial license revenue initial license revenue includes license and capacity revenues that do not recur on a monthly or quarterly basis . included in initial license revenue are license and capacity fees that are recognizable at the inception of the agreement and license and capacity fees that are recognizable at interim points during the term of the agreement , including those that are recognizable annually due to negotiated customer payment terms . initial license revenue increased $ 11.8 million , or 6 % , during the year-ended december 31 , 2017 , as compared to
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the company 's international footprint provides our customers with flexibility within the company to manufacture in china , mexico , vietnam or the u.s. we believe this strategy will continue to serve the company well as its customers continuously evaluate their supply chain strategies . the company believes that the u.s. election results continue to drive a more positive attitude regarding the economy for calendar 2017 and at this time it expects the positive trend to continue . there has been some short-term volatility with the company 's customers compared to three months ago . the company does expect additional new customers to add to its revenue base in fiscal year 2018. the upturn in the economic outlook has created some additional challenges . the company is seeing some shortages in the component marketplace that could affect its ability to meet our customers ' backlog . in all cases , the customer is working with the company to address the issue with the supplier of the component . margin pressures continue and the company believes the additional revenue will assist it in managing those pressures . critical accounting policies : management estimates and uncertainties - the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods , the allowance for doubtful accounts , reserves for inventory , lower of cost or market adjustment for inventory , contingen t consideration , deferred taxes , uncertain tax positions , valuation allowance for deferred taxes and valuation of goodwill and long-lived assets . actual results could materially differ from these estimates . revenue recognition - revenues from sales of the company 's electronic manufacturing services business are recognized when the finished good product is shipped to the customer . in general , and except for consignment inventory , it is the company 's policy to recognize reve nue and related costs when the finished goods have been shipped from its facilities , which is also the same point in time that title passes under the terms of the purchase order and control passes to the customer . finished goods inventory for certain customers is shipped from the company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer 's own facility . upon the customer 's request for finished goods inventory , the inventory is shipped to the customer if the inventory was stored off-site , or transferred from the segregated part of the cust omer 's facility for consumption or use by the customer . the company recognizes 22 revenue upon such shipment or transfer . the company does not earn a fee for such arrangements . the company from time to time may ship finished goods from its facilities , which is also the same point in time that title passes under the terms of the purchase order , and invoice the customer at the end of the calendar month . this is done only in special circumstances to accommodate a specific customer . further , from time to time customers request the company hold finished goods after they have been invoiced to consolidate finished goods for shipping purposes . the company generally provides a warranty for workmanship , unless the assembly was designed by the company , in which case it warrants assembly/design . the company does not have any installation , acceptance or sales incentives ( although the company has negotiated longer warranty terms in certain instances ) . the company assembles and tests assemblies based on customers ' specifications . historically , the amount of returns for workmanship issues has been de minimis under the company 's standard or extended warranties . inventories - cost is determined by an average cost method and the company allocates labor and overhead to work-in-process and finished goods . in the event of an inventory write-down , the company records expense to state the inventory at lower of cost or market . the company establishes inventory reserves for valuation , shrinkage , and excess and obsolete inventory . the company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss . the company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions . for convenience , the company records these inventory reserves against the inventory cost through a contra asset rather than through a new cost basis . upon a subsequent sale or disposal of the impaired inventory , the corresponding reserve is relieved to ensure the cost basis of the inventory reflects any reductions . a ctual results differing from these estimates could significantly affect the company 's inventories and cost of products sold as the inventory is sold or otherwise relieved . goodwill - goodwill represents the purchase price in excess of the fair value of assets acquired in business combinations . financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 350 , “ intangibles – goodwill and other , ” requires the company to assess goodwill and other indefinite-lived intangible assets for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment . t he company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value . story_separator_special_tag if , after assessing the totality of events and circumstances , the company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value , then the company is not required to take further action . however , if the company concludes otherwise , then it is required to perform a quantitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value . if the fair value is less than its carrying value , a second step of the test is required to determine if recorded goodwill is impaired . the company also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to performing the quantitative impairment test . the company will be able to resume performing the qualitative assessment in any subsequent period . the company performed its annual goodwill impairment test as of february 1 , 201 7 and determined no impairment existed as of that date . the step one analysis was performed using a combination of a market approach and an income approach based on a discounted cash flow approach . intangible assets - intangible assets are comprised of finite life intangible assets including patents , trade names , backlog , non-compete agreements , and customer relationships . finite life intangible assets are amortized on a straight line basis over their estimated useful lives of 5 years for patents , 20 years for trade names , 1 year for backlog and 7 years for non-compete agreements except for customer relationships which are amortized on an accelerated basis over their estimated useful life of 15 years . impairment of long-lived assets - the company reviews long-lived assets , including amortizable intangible assets , for impairment . property , machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment . if events or changes in circumstances occur that indicate possible impairment , the company first performs an impairment review based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities . this analysis requires management judgment with respect to changes in technology , the continued success of product lines , and future volume , 23 revenue and expense growth rates . if the carrying value exceeds the undiscounted cash flows , the company records an impairment , if any , for the difference between the estimated fair value of the asset group and its carrying value . the company further conducts annual reviews for idle and underutilized equipment , and reviews business plans for possible impairment . as of april 3 0 , 201 7 , there were no indicators of possible impairment of long-lived assets . income tax - the company 's income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the u.s. and several foreign jurisdictions . significant judgments and estimates by management are required in determining the consolidated income tax expense assessment . deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bas i s of assets and liabilities , and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse . in evaluating the company 's ability to recover its deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company begins with historical results and changes in accounting policies , and incorporates assumptions including the amount of future state , federal and foreign pre-tax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment and estimates by management about the forecasts of future taxable income and are consistent with the plans and estimates the company uses to manage the underlying businesses . in evaluating the objective evidence that historical results provide , the company considers three years of cumulative operating income and or loss . valuation allowances are established when necessary to reduce deferred income tax assets to an amount more likely than not to be realized . the calculation of the company 's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations . changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future . management is not aware of any such changes that would have a material effect on the company 's results of operations , cash flows or financial position . a tax benefit from an uncertain tax position may only be recognized when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes , based on the technical merits . the company adjusts its tax liabilities when its judgment changes as a result of the evaluation of new information not previously available . due to the complexity of some of these uncertainties , the ultimate resolution may result in a payment that is materially different from its current estimate of the tax liabilities . these differences will be reflected as increases or decreases to income tax expense in the period in which they are determined . reclassifications - certain reclassifications have been made to the previously reported 201 6 financial statements to conform to the 201 7 presentation .
| the decrease in the foregoing gross profit was partially offset by approximately $ 780,000 resulting from a change in estimate related to the inventory reserve . margin pressures continue from both customers and vendors and will likely continue in fiscal year 201 8 . selling and administrative expenses de creased in fiscal year 201 7 to $ 20,774,729 , or 8.2 % of net sales compared to $ 21 , 194 , 211 , or 8 . 3 % of net sales , in fiscal year 201 6 . the de crease in selling and administrative dollars was attributable to sales salaries , professional fees and bonus expense . the de crease in the foregoing selling and administrative expenses were partially offset by a n in crease in purchasing salaries , accounting professional fees and commissions . selling and administrative expenses decrease d as a percent of net sales due to a de crease in total selling and administrative dollars in fiscal year 201 7 compared to the prior year . other income increased in fiscal year 2017 to $ 376,338 compared to $ 165,864 in the prior fiscal year . during fiscal year 2017 the company recorded an insurance recovery gain in the amount of $ 276,967 to other income related to a claim in excess of book value for replacement machinery and equipment destroyed in a fire at one of its plants . interest expense , net , in creased to $ 1,135,853 in fiscal year 201 7 compared to $ 1 ,004,988 in fiscal year 201 6 . interest expense in creased primarily due to the in creased borrowings under the company 's banking arrangements and mortgage obligations . interest expense for fiscal year 201 8 may increase if interest rates or borrowings , or both , increase during fiscal year 201 8 . in fiscal year 201 7 , income tax expense
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as of december 31 , 2015 , emc held 81.3 % of our outstanding common stock and 97.5 % of the combined voting power of our outstanding common stock , including 43 million shares of our class a common stock and all of our class b common stock . on october 12 , 2015 , dell inc. ( “ dell ” ) , denali holding inc. ( “ denali ” ) and emc entered into a definitive merger agreement under which denali has agreed to acquire emc . under the terms of the agreement , we will continue to operate as a publicly traded company . upon closing of the transaction , a portion of the merger consideration that emc shareholders will receive will include shares of class v common stock that will be registered with the securities and exchange commission and issued by denali . pursuant to the terms of the agreement , it is expected that approximately 0.111 shares of class v common stock will be issued by denali for each emc share . denali has also disclosed that the class v common stock will be a publicly traded tracking stock that , upon issuance , is intended to track the performance of an approximately 53 % economic interest in our business . the closing of the transactions contemplated by the merger agreement is subject to approval of the emc shareholders as well as various regulatory approvals . story_separator_special_tag style= '' line-height:120 % ; padding-top:8px ; text-indent:24px ; font-size:10pt ; '' > gsa settlement during the second quarter of 2015 , we reached an agreement with the department of justice ( “ doj ” ) and the general services administration ( “ gsa ” ) to pay $ 76 million to resolve allegations that our government sales practices between 2006 and 2013 had violated the federal false claims act . the settlement was paid and recorded as a reduction of our total revenues during the year ended december 31 , 2015 . 35 unearned revenues our unearned revenues as of december 31 , 2015 and 2014 were as follows ( table in millions ) : replace_table_token_6_th unearned license revenues are generally recognized upon delivery of existing or future products or services , or are otherwise recognized ratably over the term of the arrangement . future products include , in some cases , emerging products that are offered as part of product promotions where the purchaser of an existing product is entitled to receive the future product at no additional charge . to the extent the future product has not been delivered and vendor-specific objective evidence ( “ vsoe ” ) of fair value can not be established , the revenue for the entire order is deferred until such time as all product delivery obligations have been fulfilled . in the event the arrangement does not include professional services , unearned license revenues may also be recognized ratably , if the customer is granted the right to receive unspecified future products or vsoe of fair value on the software maintenance element of the arrangement does not exist . unearned software maintenance revenues are attributable to our maintenance contracts and are generally recognized ratably over the contract period . the weighted-average remaining term at december 31 , 2015 was approximately two years . unearned professional services revenues result primarily from prepaid professional services , including training , and are generally recognized as the services are delivered . unearned license and software maintenance revenues will fluctuate based upon a variety of factors including sales volume , the timing of both product promotion offers and delivery of the future products offered , and the amount of arrangements sold with ratable revenue recognition . additionally , the amount of unearned revenues derived from transactions denominated in a foreign currency is impacted by fluctuations in the foreign currencies in which we invoice . the decline of unearned license revenues as of december 31 , 2015 , compared to december 31 , 2014 , was the result of our license revenues exceeding our license sales during 2015. cost of license revenues , cost of services revenues and operating expenses our cost of services revenues and operating expenses were primarily impacted by increasing headcount , net of realignment activities discussed below . headcount during the year ended december 31 , 2015 and 2014 continued to increase . the increased headcount has resulted in higher cash-based employee-related expenses across most of our income statement expense categories when compared to the same period in 2014 and 2013 , respectively , and we expect this trend to continue . in calculating the impact of foreign currency fluctuations on cost of license revenues , cost of services revenues and operating expenses , we converted expenses recognized during the current period derived from non-u.s. dollar based transactions into u.s. dollars using the exchange rates that were effective in the comparable prior year period and compared the calculated amount to the amount , as reported , in the comparable prior year period . cost of license revenues our cost of license revenues principally consists of the cost of fulfillment of our software , royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets . the cost of fulfillment of our software includes it development efforts , personnel costs and related overhead associated with the physical and electronic delivery of our software products . our cost of license revenues during the years ended december 31 , 2015 , 2014 and 2013 were as follows ( dollars in millions ) : replace_table_token_7_th cost of license revenues decreased in 2015 compared to 2014 primarily due to a decrease in royalty costs of $ 6 million . 36 cost of license revenues decreased in 2014 compared to 2013 primarily due to a decrease of $ 34 million in amortization of capitalized software development costs , which was partially offset by an increase of $ 17 million in amortization of intangible assets . story_separator_special_tag no amortization expenses was recorded during the years ended december 31 , 2015 and 2014 , as all previously capitalized software development costs had been fully amortized as of december 31 , 2013. we do not expect significant amortization of capitalized software development costs in future years as the costs incurred subsequent to technological feasibility are not expected to be material . cost of services revenues our cost of services revenues primarily includes the costs of personnel and related overhead to physically and electronically deliver technical support for our products and to provide professional services . additionally , our costs of services revenues included depreciation on equipment supporting our service offerings . our cost of services revenues during the years ended december 31 , 2015 , 2014 and 2013 were as follows ( dollars in millions ) : replace_table_token_8_th cost of services revenues increased in 2015 compared to 2014. the increase was primarily due to growth in cash-based employee-related expenses of $ 96 million , due to incremental growth in headcount , and an increase in equipment , depreciation and facilities-related costs of $ 42 million . additionally , third-party professional services costs increased $ 23 million due to an increase in demand for technical support and services . these increases were partially offset by the favorable impact of $ 47 million resulting from fluctuations in the exchange rate between the u.s. dollar and the foreign currencies in which we incur expenses . cost of services revenues increased in 2014 compared to 2013 primarily driven by the investment and growth in our saas and professional services offerings , which led to higher costs . the increase included growth in cash-based employee-related expenses of $ 124 million due to incremental growth in headcount , both organic and through acquisitions , and an increase in technical support costs of $ 21 million . additionally , increases of $ 25 million in equipment and depreciation costs also contributed to the increases in cost of services revenues . the increase in 2014 was partially offset by a decrease of $ 10 million in operating expenses related to pivotal . research and development expenses our research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . our research and development expenses during the years ended december 31 , 2015 , 2014 and 2013 were as follows ( dollars in millions ) : replace_table_token_9_th research and development expenses increased in 2015 compared to 2014. the increase was primarily due to growth in cash-based employee-related expenses of $ 90 million , driven by incremental growth in headcount . in addition , facilities-related costs increased $ 7 million . these increases were partially offset by a decrease in stock-based compensation of $ 18 million , primarily as a result of certain awards becoming fully vested in 2014 , and the favorable impact of $ 16 million resulting from fluctuations in the exchange rate between the u.s. dollar and the foreign currencies in which we incur expenses . 37 research and development expenses increased in 2014 compared to 2013. the increase was primarily due to growth in cash-based employee-related expenses of $ 125 million and increases in stock-based compensation of $ 17 million , driven by incremental growth in headcount , both organic and through acquisitions . equipment and depreciation expenses increased by $ 27 million in 2014. the increase in 2014 was partially offset by a decrease of $ 15 million in research and development expenses related to pivotal . sales and marketing expenses our sales and marketing expenses include personnel costs , sales commissions and related overhead associated with the sale and marketing of our license and services offerings , as well as the cost of product launches . sales commissions are generally earned and expensed when a firm order is received from the customer . sales and marketing expenses also include the net impact from the expenses incurred and fees generated by certain marketing initiatives , such as our annual vmworld u.s. and vmworld europe conferences . our sales and marketing expenses during the years ended december 31 , 2015 , 2014 and 2013 were as follows ( dollars in millions ) : replace_table_token_10_th sales and marketing expenses increased in 2015 compared to 2014. the increase was primarily driven by growth in cash-based employee-related expenses of $ 158 million , due to incremental growth in headcount , and higher commission expense resulting from increased sales volume . in addition , equipment , depreciation and facilities-related costs increased $ 24 million . costs incurred for marketing programs and related initiatives increased $ 20 million , and costs incurred for contractors increased $ 19 million . these increases were partially offset by the favorable impact of $ 109 million from fluctuations in the exchange rate between the u.s. dollar and the foreign currencies in which we incur expenses . sales and marketing expenses increased in 2014 compared to 2013 primarily driven by growth in cash-based employee-related expenses of $ 240 million and an increase in stock-based compensation expense of $ 29 million due to incremental growth in headcount , both organic and through acquisitions . costs incurred for travel and marketing programs also increased by $ 48 million in 2014 compared 2013. the increase in expenses in 2014 was partially offset by a decrease of $ 10 million in sales and marketing expenses related to pivotal . general and administrative expenses our general and administrative expenses include personnel and related overhead costs to support the overall business . these expenses include the costs associated with our finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives .
| foreign currency fluctuations had a greater impact on our revenue growth during 2015 as compared to 2014. foreign currency fluctuations did not have a material impact when comparing license and total revenue growth in 2014 to 2013 , and as a result , have been excluded from the table above . hybrid cloud , including vcan and vcloud air , and our saas offerings , including our airwatch mobile solutions , increased to greater than 6 % of our total revenues during the year ended december 31 , 2015 and experienced significant growth as compared to 2014. vcan revenues are generally included in license revenues and our saas revenues , including vcloud air and our airwatch mobile solutions , are included in both license and services revenues . while license and total sales increased during 2015 compared to 2014 , the growth rate of our license sales was at a lower rate than we had expected . we believe the continued macroeconomic weakness in brazil , russia and china was a contributing factor . while we are seeing strong growth across our portfolio of emerging products , our compute products are reaching maturity and the sales of these products are expected to represent a decreasing percentage of our total business going forward . taking this into account , we expect our total revenue growth in 2016 to slow as sales growth transitions to our emerging products . license revenues license revenues increased 5 % in 2015 and 14 % in 2014. our license revenues increased primarily as a result of increased sales of our emerging product offerings , including nsx , airwatch mobile solutions , and vsphere with operations management ( “ vsom ” ) , as well as revenues from our hybrid cloud offerings . license revenues during 2015 also benefited as a result of declines in unearned license revenues . our license revenue growth rate during 2015 has been negatively impacted by certain factors including lower license sales of our core compute products , changes in the value of the u.s. dollar against the foreign currencies in which we invoice , and increased growth derived from our hybrid
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ggp transactions on july 12 , 2017 , the company completed two transactions with ggp for gross consideration of $ 247.6 million whereby the company ( i ) sold to ggp the company 's jv interests in eight of the 12 assets in the ggp i jv for $ 190.1 million and recorded a gain of $ 43.7 million which is included in gain on sale of interest in unconsolidated joint venture within the consolidated statements of operations ; and ( ii ) contributed five wholly owned properties to the ggp ii jv and sold a 50 % interest in the new jv properties to ggp for $ 57.5 million and recorded a gain of $ 11.5 million which is included in gain on sale of real estate within the consolidated statements of operations . as a result of the transactions , the company reduced amounts outstanding under its mortgage loans and future funding facility by $ 50.6 million and received approximately $ 171.6 million of additional cash proceeds before closing costs , which it has used to fund the company 's redevelopment pipeline and for general corporate purposes . simon transaction on november 3 , 2017 , the company sold to simon the its 50 % jv interests in five of the ten assets in the simon jv for $ 68.0 million and recorded a gain of $ 16.6 million which is included in gain on sale of interest in unconsolidated joint venture within the consolidated statements of operations . net proceeds from the sale have been used to fund the company 's redevelopment pipeline and for general corporate purposes . story_separator_special_tag compensation , professional fees , office expenses and overhead expenses . for the year ended december 31 , 2017 , the company incurred general and administrative expenses of $ 27.9 million compared to general and administrative expenses of $ 17.5 million for the prior year period . the $ 10.4 million increase was driven primarily by ( i ) increased compensation expense of $ 5.5 million related to equity awards with performance-based vesting and ( ii ) an increase in personnel . compensation expense for equity awards with performance-based vesting is based on the fair value of the common shares at the date of the grant and is recognized , at the date the achievement of performance criteria is deemed probable , an amount equal to that which would have been recognized ratably from the date of the grant through the date the achievement of performance criteria is deemed probable , and then ratably from the date the achievement of performance criteria is deemed probable through the remainder of the vesting period . interest expense for the year ended december 31 , 2017 , the company incurred $ 70.1 million of interest expense ( net of amounts capitalized ) as compared to interest expense of $ 63.6 million for the prior year period . the increase in interest expense in was driven by higher average borrowings under the future funding facility and unsecured term loan , as well as higher average libor rates . unrealized loss on interest rate cap for the year ended december 31 , 2017 , the company recorded a loss of $ 0.7 million compared to a loss of less than $ 1.4 million for the year ended december 31 , 2016 . - 46 - comparison of the year ended december 31 , 2016 to the period from july 7 , 2015 ( date operations com menced ) to december 31 , 2015 rental income for the year ended december 31 , 2016 , t he company recognized total rental income of $ 186.4 million as compared to $ 86.6 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. the $ 99.8 million increase was primarily due to additional days in the reporting period , new rents from completed redevelopments and the annual increase in base rent under the master lease , offset by reduced base rent under the master lease as a result of recapture activity initiated by the company . in addition , the company recorded $ 5.3 million of termination fee income as a result of the termination of the master lease at 17 properties by sears holdings in the year ended december 31 , 2016. rental income attributable to sears holdings was $ 133.2 million ( excluding termination fee income of $ 5.3 million and straight-line rental income of $ 9.9 million ) , or 79.5 % of total rental income earned in the period . for the prior year period , the comparable rental income attributable to sears holdings was $ 64.8 million , or approximately 83.5 % of total rental income earned in the period . rental income attributable to third-party tenants was $ 34.3 million ( excluding straight-line rental income of $ 3.0 million ) , or 20.5 % of total rental income earned in the period . for the prior year period , the comparable rental income attributable to third-party tenants was $ 12.9 million , or approximately 16.5 % of total rental income earned in the period . straight-line rent was $ 12.9 million as compared to $ 8.3 million for the prior year period . the increase in straight-line rent was primarily due additional days in the reporting period , offset by the amortization of accrued rental revenues related to the straight-line method of reporting that are deemed uncollectable as result of recapture and termination activity under the master lease . on an annual basis , and taking into account all signed leases , including those which have not yet commenced rental payments , rental income attributable to third-party tenants would have represented approximately 36.1 % of total annual base rental income as of december 31 , 2016 as compared to 24.0 % as of december 31 , 2015. tenant reimbursements and property operating expenses pursuant to the provisions of the master lease and many third-party leases , the company is entitled to be reimbursed for certain property related expenses . story_separator_special_tag for the year ended december 31 , 2016 , the company recorded tenant reimbursement income of $ 62.3 million , compared to property operating expenses and real estate tax expense aggregating $ 65.2 million . for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015 , the company recorded tenant reimbursement income of $ 26.9 million , compared to property operating expenses and real estate tax expense aggregating $ 28.7 million . the increase in both tenant reimbursement income and property operating expenses was primarily due to additional days in the reporting period . depreciation and amortization expenses depreciation and amortization expenses consist of depreciation of real property , depreciation of furniture , fixtures and equipment , and amortization of certain lease intangible assets . for the year ended december 31 , 2016 , the company incurred depreciation and amortization expenses of $ 177.1 million as compared to depreciation and amortization expenses of $ 65.9 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. the increase of $ 111.2 million was primarily due to additional days in the reporting period , as well as approximately $ 40.4 million of accelerated amortization related to certain lease intangible assets . accelerated amortization results from the recapture of space from , or the termination of space by , sears holdings . such recaptures and terminations are deemed lease modifications and require related lease intangibles to be amortized over the shorter of the shortened lease term or the remaining useful life of the asset . general and administrative expenses general and administrative expenses consist of personnel costs , including stock-based compensation , professional fees , office expenses , including information technology , and other overhead expenses . - 47 - for the year ended december 31 , 2016 , the company incurred general an d administrative expenses of $ 17.5 million compared to general and administrative expenses of $ 10.0 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. the increase in general and administrative expenses was primaril y due to additional days in the reporting period and the hiring of additional personnel , offset by reduced up-front personnel costs related to the hiring of certain employees . the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015 in cluded $ 1.9 million of such up-front personnel costs . litigation charge in october 2016 , an agreement-in-principle was reached to settle a legal action to which we were a party , which agreement ultimately was reflected in a definitive stipulation and agreement of settlement , compromise and release executed on february 8 , 2017. the defendants , including the company , denied the claims asserted and entered into the settlement solely to avoid the burden , expense , distraction , and inherent risk in and of litigation . the company , having determined that a liability was both probable and estimable , recorded a charge of $ 19.0 million , representing the company 's share of the settlement as contemplated , during the year ended december 31 , 2016. on may 9 , 2017 , the delaware court of chancery entered a final order and judgment approving the settlement . pursuant to the settlement , ( a ) the defendants and the d & o insurers for the individual members of the sears holdings ' board of directors paid $ 40.0 million , of which seritage paid $ 19.0 million , and ( b ) all defendants received customary releases . acquisition-related expenses the company incurred acquisition-related expenses , primarily remaining legal fees , of less than $ 0.1 million during the year ended december 31 , 2016 as compared to acquisition-related expenses of $ 18.4 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. these costs consisted of due diligence , legal , consulting and other similar expenses related to the transaction . interest expense for the year ended december 31 , 2016 , the company incurred $ 63.6 million of interest expense ( net of amounts capitalized ) as compared to interest expense of $ 30.5 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. amortization of debt issuance costs was approximately $ 5.4 million for the year ended december 31 , 2016 and $ 2.7 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. the increase in interest expense was driven primarily by additional days in the reporting period , as well as higher average borrowings under the future funding facility and higher average libor rates . unrealized loss on interest rate cap for the year ended december 31 , 2016 , the company recorded an unrealized loss of $ 1.4 million related to the change in fair value of the interest rate cap associated with its mortgage loan as compared to an unrealized loss of $ 2.9 million for the period from july 7 , 2015 ( date operations commenced ) to december 31 , 2015. as of december 31 , 2016 , the interest rate cap had a fair value of approximately $ 0.7 million as compared to $ 2.1 million at december 31 , 2015. liquidity and capital resources property rental income is our primary source of cash and is dependent on a number of factors , including occupancy levels and rental rates , as well as our tenants ' ability to pay rent . our primary uses of cash include payment of operating expenses , debt service , reinvestment in and redevelopment of properties , and distributions to shareholders and unitholders .
| for the prior year period , the comparable rental income attributable to sears holdings was $ 133.2 million , or approximately 79.5 % of total rental income earned in the period . rental income attributable to third-party tenants was $ 41.4 million ( excluding straight-line rental income of $ 2.9 million ) , or 26.8 % of total rental income earned in the period . for the prior year period , the comparable rental income attributable to third-party tenants was $ 34.3 million , or approximately 20.5 % of total rental income earned in the period . - 45 - straight-line rent was $ 3.7 million as compared to $ 12.9 million for the prior year period . the reduction in straight-line rent was primarily due to reduced rental income under the master lease and the amortization of accrued rental revenues related to the straight-line method of reporting that are deemed uncol lectable as result of recapture and termination activity under the master lease . on an annual basis , and taking into account all signed leases , including those which have not yet commenced rental payments , rental income attributable to third-party tenants would have represented approximately 52.2 % of total annual base rental income as of december 31 , 2017 as compared to 36.1 % as of december 31 , 2016. tenant reimbursements and property operating expenses pursuant to the provisions of the master lease and many third-party leases , the company is entitled to be reimbursed for certain property related expenses . for the years ended december 31 , 2017 and december 31 , 2016 , the company recorded tenant reimbursement income of $ 62.5 million and $ 62.3 million , respectively , compared to property operating expenses and real estate tax expense aggregating of $ 65.3 million and $ 65.2 million , respectively . depreciation and amortization expenses depreciation and amortization expenses consist of depreciation of real property , depreciation of furniture , fixtures and equipment , and amortization of certain lease intangible assets . for the
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this is due to the current year higher volume of production and product sales resulting in proportionately greater absorption of fixed factory overhead , therefore these fixed costs were proportionately lower versus production and sales volume , which resulted in the low gpm on product sales in the prior year . in the service and system integration segment , the overall gpm was 18 % for the year ended september 30 , 2013 versus 16 % for the prior year . product gpm in the segment increased to 15 % from 14 % when comparing the year ended september 30 , 2013 to the year ended september 30 , 2012 , while the segment 's service gpm also increased from 24 % to 27 % . the increase in the product gpm was due to smaller deal size and more favorable product mix in fiscal year 2013 versus fiscal 2012 , while the increase in service gpm was due primarily to higher utilization of in-house service engineers in providing billable services in germany , and higher third-party maintenance revenue for the current fiscal year versus the prior year . 19 engineering and development expenses the following table details our engineering and development expenses by operating segment for the year ended september 30 , 2013 and 2012 : replace_table_token_10_th the $ 0.1 million increase in engineering and development expenses displayed above was due to higher engineering consulting expenditures in connection with the development of the next generation of multicomputer products in the systems segment . selling , general and administrative the following table details our selling , general and administrative ( “ sg & a ” ) expense by operating segment for the year s ended september 30 , 2013 and 2012 : replace_table_token_11_th sg & a expenses increased in the service and system integration segment by approximately $ 1.7 million when comparing the fiscal year ended september 30 , 2013 versus the prior year . this increase was due primarily to higher commissions and other incentive compensation expense which increased by approximately $ 0.7 million , due to the higher gross profit , and operating profit in the segment , higher salary expenses for additional headcount and promotions of approximately $ 0.9 million . the decrease in sg & a expense in the systems segment was due in large part to a non-recurring reduction in the cash surrender value of officer life insurance of approximately $ 0.9 million , related to a policy on our former chief executive , who died in fiscal 2012. in addition , retirement expense was lower by approximately $ 0.4 million and bonus expense was lower by approximately $ 0.5 million the year ended september 30 , 2013 , versus the prior year . the reductions in expenses were partially offset by higher legal expenses of approximately $ 0.3 million in connection with a proxy challenge during the year ended september 30 , 2013 . proceeds from officer life insurance settlement in fiscal year 2012 , we recognized approximately $ 2.1 million for the settlement from a life insurance policy for our former chief executive officer , who died during fiscal 2012. no such settlements occurred during for the fiscal year ended september 30 , 2013 . 20 other income/expenses the following table details our other income/expenses for the year s ended september 30 , 2013 and 2012 : replace_table_token_12_th other income ( expense ) , net , for the year s ended september 30 , 2013 and 2012 was not significant nor was the change from the prior year to the current year . income taxes the company recorded an income tax expense of approximately $ 0.3 million , which reflected an effective tax expense rate of 47 % for the year ended september 30 , 2013 , compared to income tax benefit of approximately $ 1.7 million for the year ended september 30 , 2012 , which reflected an effective tax benefit rate of 36 % . as of september 30 , 2013 , management assessed the positive and negative evidence in the u.s operations , and estimated we will have sufficient future taxable income to utilize the existing deferred tax assets . significant objective positive evidence included the cumulative profits that we realized over the most recent years . this evidence enhances our ability to consider other subjective evidence such as our projections for future growth . other factors we considered are the likelihood for continued royalty income in future years , and our expectation that the service and systems integration segment will continue to be profitable in future years . on the basis of this evaluation , as of september 30 , 2013 , we have concluded that our us deferred tax asset is more likely than not to be realized . it should be noted however , that the amount of the deferred tax asset realized could be adjusted in future years , if estimates of taxable income during the carryforward periods are reduced , or if objective negative evidence such as cumulative losses is present . we realized a tax benefit for the year ended september 30 , 2012 , despite the fact that we had positive earnings before taxes for the year . this was because we reversed the u.s. valuation allowance of $ 3.0 million on our deferred tax assets , which had been accumulated over the past several years , resulting in this overall tax benefit . the recording and ultimate reversal of valuation allowances for our deferred tax asset requires significant judgment associated with past and projected performance . in assessing the realizability of deferred tax assets , we consider our taxable future earnings and the expected timing of the reversal of temporary differences . story_separator_special_tag in prior years , we recorded a valuation allowance which reduced the gross deferred tax asset to an amount that we believed was more likely than not to be realized because our inability to project future profitability beyond fiscal year 2012 in the u.s. and cumulative losses incurred in recent years in the united kingdom represented sufficient negative evidence to record a valuation allowance against certain deferred tax assets . we continue to maintain a full valuation allowance against our united kingdom deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards . to the extent that actual experience deviates from our assumptions , our projections would be affected and hence our assessment of realizability of our deferred tax assets may change . liquidity and capital resources our primary source of liquidity is our cash and cash equivalents , which decreased by approximately $ 1.9 million to $ 18.6 million as of september 30 , 2013 from $ 20.5 million as of september 30 , 2012 . at september 30 , 2013 , cash equivalents consisted of money market funds which totaled $ 3.5 million . significant sources of cash for the year ended september 30 , 2013 included net income of approximately $ 0.4 million , depreciation and amortization of approximately $ 0.4 million , decrease in officer life insurance settlement receivable of 21 approximately $ 2.2 million , a decrease in inventories of approximately $ 1.4 million , and a decrease in other assets of approximately $ 0.3 million . significant uses of cash included a decrease in accounts payable and accrued expenses of approximately $ 3.3 million , payment of dividends of approximately $ 1.4 million , an increase in accounts receivable of approximately $ 1.1 million and purchases of property and equipment of $ 0.9 million . cash held by our foreign subsidiaries located in germany and the united kingdom totaled approximately $ 6.6 million as of september 30 , 2013 and $ 9.8 million as of september 30 , 2012 . this cash is included in our total cash and cash equivalents reported above . we consider this cash to be permanently reinvested into these foreign locations because repatriating it would result in unfavorable tax consequences . consequently , it is not available for activities that would require it to be repatriated to the u.s. if cash generated from operations is insufficient to satisfy working capital requirements , we may need to access funds through bank loans or other means . there is no assurance that we will be able to raise any such capital on terms acceptable to us , on a timely basis or at all . if we are unable to secure additional financing , we may not be able to complete development or enhancement of products , take advantage of future opportunities , respond to competition or continue to effectively operate our business . based on our current plans and business conditions , management believes that the company 's available cash and cash equivalents , the cash generated from operations and availability on our lines of credit will be sufficient to provide for the company 's working capital and capital expenditure requirements for the foreseeable future . 22 critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates , including those related to uncollectible receivables , inventory valuation , goodwill and intangibles , income taxes , deferred compensation , revenue recognition , retirement plans , restructuring costs and contingencies . we base our estimates on historical performance and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 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 ; valuation allowances , specifically the allowance for doubtful accounts and net deferred tax asset valuation allowance ; inventory valuation ; intangibles ; and pension and retirement plans . revenue recognition the company recognizes product revenue from customers at the time of transfer of title and risk of loss which is generally at the time of shipment , provided that persuasive evidence of an arrangement exists , the price is fixed or determinable and collectability of sales proceeds is reasonably assured . we include freight billed to our customers as sales and the related freight costs as cost of sales . the company reduces revenue for estimated customer returns . the company recognizes revenue from software licenses when persuasive evidence of an arrangement exists , delivery of the product has occurred and the fee is fixed or determinable and collectability is probable , in accordance with financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` fasc '' ) section 985-605-25 software - revenue recognition ( `` fasc 985-605-25 '' ) . when delivery of services accompany software sales , and vendor specific objective evidence does not exist , and the only undelivered element is services that do not involve significant modification , or customization , of software , then the entire fee is recognized as the services are performed . if no pattern of performance is discernible , the fee is recognized straight line over the service period .
| the increase in revenues of $ 2.8 million resulted from strong growth in revenues from our service and system integration segment partially offset by a decrease in revenues from our systems segment . revenues in the service and system integration segment increase d by approximately $ 7.0 million from $ 73.7 million the year ended september 30 , 2012 to $ 80.6 million for the year ended september 30 , 2013 , while systems segment revenue decrease d from $ 11.1 million for fiscal 2012 to $ 7.0 million for fiscal 2013 for a decrease of approximately $ 4.1 million . in the service and system integration segment we experienced growth in both product and service revenues . product revenues for the segment increase d by $ 5.0 million , which was a 9 % increase from $ 55.4 million in fiscal 2012 to $ 60.4 million in fiscal 2013 . service revenue in the segment increase d by $ 2.0 million which was an 11 % increase from $ 18.3 million in fiscal 2012 to $ 20.3 million in fiscal 2013 . the product revenue increase was derived in large part from our u.s. operation , where product sales increased by approximately $ 14.1 million . the increase in services revenues was due substantially to an increase in the german division , where service revenue increase d by approximately $ 1.2 million and an increase in the us division of approximately $ 0.7 million . in germany , the increase was driven by service sales to new customers of approximately $ 0.8 million and favorable foreign exchange of approximately $ 0.2 million . in the us division , the increase in service revenues was from higher third party maintenance revenue . the revenue decrease in the systems segment was largely the result of lower royalty revenues which were $ 6.4 million for fiscal 2012 versus $ 0.8 million in fiscal 2013 . royalty revenues are particularly
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domestic revenues increased by 10.0 % to $ 516.0 million in fiscal 2009 compared to $ 469.1 million in fiscal 2008. international revenues decreased from $ 169.6 million in fiscal 2008 to $ 149.9 million in fiscal 2009 , primarily as the result of changes in the british pound sterling-to-u.s. dollar exchange rate . the increase in consolidated revenues was primarily due to an increased sales effort and strong market demand in fiscal 2008 and the first half of fiscal 2009. gross profit in fiscal 2009 increased by approximately $ 18.6 million compared to fiscal 2008 as a result of our ability to absorb our fixed costs and improved pricing as a result of strong market activity . electrical power products our electrical power products business segment recorded revenues of $ 637.9 million in fiscal 2009 , compared to $ 611.5 million in fiscal 2008. in fiscal 2009 , revenues from public and private utilities were approximately $ 154.3 million compared to $ 171.8 million in fiscal 2008. revenues from commercial and industrial customers 19 totaled $ 432.5 million in fiscal 2009 , an increase of $ 32.5 million compared to fiscal 2008. municipal and transit projects generated revenues of $ 51.1 million in fiscal 2009 compared to $ 39.7 million in fiscal 2008. business segment gross profit , as a percentage of revenues , was 20.9 % in fiscal 2009 compared to 19.3 % in fiscal 2008. the increase in gross profit as a percentage of revenues was attributable to efficiencies resulting from an increase in production volume and improved pricing as a result of strong market activity . process control systems in fiscal 2009 , our process control systems business segment recorded revenues of $ 28.0 million , up from $ 27.2 million in fiscal 2008. business segment gross profit increased as a percentage of revenues , to 40.8 % for fiscal 2009 , compared to 30.2 % for fiscal 2008. this increase resulted from a favorable mix of jobs and increased efficiencies through regionalization of operations . revenues and gross profit benefited in fiscal 2009 by approximately $ 3.5 million and $ 2.8 million , respectively , due to a mediated settlement related to a previously completed contract that was in dispute for several years . for additional information related to our business segments , see note n of notes to consolidated financial statements . consolidated selling , general and administrative expenses consolidated selling , general and administrative expenses decreased to 12.0 % of revenues in fiscal 2009 compared to 12.6 % of revenues in fiscal 2008. selling , general and administrative expenses decreased to $ 80.0 million in fiscal 2009 compared to $ 80.4 million in fiscal 2008. this decrease was primarily a result of decreased commissions and incentive compensation . selling , general and administrative expenses as a percentage of revenues decreased primarily due to our ability to leverage our existing infrastructure to support our increased production volume , along with the timing of commissions related to new orders . interest income and expense interest expense was $ 1.1 million in fiscal 2009 , a decrease of approximately $ 1.8 million compared to fiscal 2008. the decrease in interest expense was primarily due to lower interest rates and the lower amounts outstanding under our credit facility during fiscal 2009. interest income was $ 0.1 million in fiscal 2009 compared to $ 0.4 million in fiscal 2008. this decrease resulted from lower interest rates being earned on amounts invested . income tax provision our provision for income taxes reflects an effective tax rate on earnings before income taxes of 34.2 % in fiscal 2009 compared to 35.3 % in fiscal 2008. the decrease in the effective tax rate resulted primarily from an agreement reached with the taxing authorities in the united kingdom resulting in a reduction in tax expense of approximately $ 568,000 related to foreign tax credits from previous years . net income attributable to powell industries , inc. in fiscal 2009 , we recorded net income of $ 39.7 million , or $ 3.43 per diluted share , compared to $ 25.8 million , or $ 2.26 per diluted share , in fiscal 2008. we generated higher revenues and improved gross profits for the company as a whole , while leveraging our existing infrastructure to support our increased production volume . as previously discussed , net income in fiscal 2009 included the benefit of the $ 3.5 million mediated settlement , reduced by legal and other expenses of approximately $ 0.7 million , net of tax , related to a previously completed contract that was in dispute for several years . 20 backlog the order backlog at september 30 , 2009 , was $ 365.8 million , compared to $ 518.6 million at september 30 , 2008. new orders placed during fiscal 2009 totaled $ 511.2 million compared to $ 705.4 million in fiscal 2008. our decline in backlog was due to the amount of projects completed being greater than the amount of orders received . liquidity and capital resources cash and cash equivalents increased to approximately $ 115.4 million at september 30 , 2010 , as a result of cash flow provided by operations of approximately $ 64.1 million for fiscal 2010. the approximately $ 64.1 million of cash flow from operations resulted from net income and our continued efforts to manage inventory and billings to customers . as of september 30 , 2010 , current assets exceeded current liabilities by 2.6 times and our debt to total capitalization ratio was 2.4 % . at september 30 , 2010 , we had cash and cash equivalents of $ 115.4 million , compared to $ 97.4 million at september 30 , 2009. we have a $ 58.5 million revolving credit facility in the u.s. and an additional £4.0 million ( approximately $ 6.3 million ) revolving credit facility in the united kingdom , both of which expire in december 2012. as of september 30 , 2010 , there were no amounts borrowed under these lines of credit . story_separator_special_tag we also have a $ 19.4 million revolving credit facility and a $ 2.4 million single advance term loan in canada . at september 30 , 2010 , there was no balance outstanding under the canadian revolving credit facility or the canadian term loan . total long-term debt and capital lease obligations , including current maturities , totaled $ 6.9 million at september 30 , 2010 , compared to $ 9.5 million at september 30 , 2009. letters of credit outstanding were $ 15.2 million and $ 17.6 million at september 30 , 2010 and 2009 , respectively , which reduce our availability under our credit facilities . amounts available under the u.s. revolving credit facility and the revolving credit facility in the united kingdom were approximately $ 43.3 million and $ 6.3 million , respectively , at september 30 , 2010. amounts available under the canadian revolving credit facility were approximately $ 14.4 million at september 30 , 2010. for further information regarding our debt , see notes h and l of notes to consolidated financial statements . operating activities during fiscal 2010 , cash provided by operating activities was approximately $ 64.1 million . cash flow from operations is primarily influenced by demand for our products and services and is impacted as our progress payment terms with our customers are matched with the payment terms with our suppliers . during fiscal 2009 , cash provided by operating activities was approximately $ 127.0 million . the increase in fiscal 2009 cash flow from operations resulted primarily from net income and our increased efforts to manage inventory and billings to customers . during fiscal 2008 , cash used in operating activities was approximately $ 5.2 million . cash flow from operations was negatively impacted as accounts receivable and inventories increased due to higher volume as a result of demand for our products and services . investing activities investments in property , plant and equipment during fiscal 2010 totaled approximately $ 4.4 million compared to $ 8.1 million and $ 3.4 million in fiscal 2009 and 2008 , respectively . during fiscal 2010 , we acquired powell canada for approximately $ 23.4 million . additionally , approximately $ 0.6 million was paid to acquire the noncontrolling interest related to our joint venture in singapore ( powell asia ) , which has been strategically realigned from an operating entity to a sales and marketing function within powell . our capital expenditures in fiscal 2009 related primarily to the expansion of one of our operating facilities and for upgrades to our enterprise resource planning system ( erp system ) . there were no material proceeds from the sale of fixed assets in fiscal 2010 , 2009 or 2008. proceeds from the sale of fixed assets in fiscal 2009 were primarily from the sale of idled manufacturing facilities and equipment . financing activities net cash used in financing activities was approximately $ 19.4 million in fiscal 2010 , as we paid down our canadian revolving line of credit and term loan from the cash flow provided by our operating activities . net cash 21 used in financing activities was approximately $ 30.4 million in fiscal 2009 because we paid down our u.s. and u.k. revolving lines of credit and the term loan from the cash flow provided by our operating activities . net cash provided by financing activities was approximately $ 13.8 million in fiscal 2008. the primary source of cash in financing activities in fiscal 2008 was due to borrowings on the u.s. revolving line of credit and proceeds from the exercise of stock options , which were used to fund operations and capital expenditures . contractual and other obligations at september 30 , 2010 , our long-term contractual obligations were limited to debt and leases . the table below details our commitments by type of obligation , including interest if applicable , and the period that the payment will become due ( in thousands ) . replace_table_token_4_th as of september 30 , 2010 , the total unrecognized tax benefit related to uncertain tax positions was approximately $ 0.8 million . we estimate that none of this will be paid within the next 12 months . however , we believe that it is reasonably possible that within the next 12 months unrecognized tax benefits will remain unchanged due to the expiration of certain statutes of limitations . we are unable to make reasonably reliable estimates regarding the timing of future cash outflows , if any , associated with the remaining unrecognized tax benefits . other commercial commitments we are contingently liable for secured and unsecured letters of credit of $ 18.2 million as of september 30 , 2010 , of which $ 15.2 million reduces our borrowing capacity . the following table reflects potential cash outflows that may result from a contingent event related to our letters of credit ( in thousands ) : replace_table_token_5_th we also had performance and maintenance bonds totaling approximately $ 185.3 million that were outstanding at september 30 , 2010. performance and maintenance bonds are used to guarantee contract performance to our customers . outlook we participate in large capital-intensive projects in the oil and gas , petrochemical , utility and transportation markets , which can take several years to plan and execute . once our customers begin the construction phase , projects are typically completed . our record revenues in fiscal 2009 were driven by the large number and size of capital projects that were planned and initiated over the previous two years . 22 however , our backlog of orders going into our fiscal year 2011 ( fiscal 2011 ) is approximately $ 282.3 million , a decrease of $ 83.5 million from the beginning backlog of orders going into fiscal 2010. throughout the second half of fiscal 2009 and continuing into fiscal 2010 , customer inquiries and requests for proposal activity decreased and an increasing number of our customers cancelled or delayed the start of new capital projects .
| electrical power products our electrical power products business segment recorded revenues of $ 524.2 million in fiscal 2010 , compared to $ 637.9 million in fiscal 2009. in fiscal 2010 , revenues from public and private utilities were approximately $ 148.6 million compared to $ 154.3 million in fiscal 2009. the acquisition of powell canada contributed approximately $ 51.1 million of revenue during fiscal 2010. revenues from commercial and industrial customers totaled $ 338.0 million in fiscal 2010 , a decrease of $ 94.5 million compared to fiscal 2009. municipal and transit projects generated revenues of $ 37.6 million in fiscal 2010 compared to $ 51.1 million in fiscal 2009. business segment gross profit , as a percentage of revenues , was 25.5 % in fiscal 2010 compared to 20.9 % in fiscal 2009. this increase in gross profit as a percentage of revenues resulted from strong market demand when the projects were negotiated , reduced costs on project completion from operational efficiencies , a reduced workforce , reduced warranty costs , cancellation fees for orders that were cancelled from our backlog and the successful negotiation of change orders and the favorable negotiation of a customer claim for which the costs were previously recognized . process control systems in fiscal 2010 , our process control systems business segment recorded revenues of $ 26.5 million , a decrease from $ 28.0 million in fiscal 2009. business segment gross profit , as a percentage of revenues , decreased to 31.3 % for fiscal 2010 , compared to 40.8 % for fiscal 2009. this decrease in revenues and gross profit as a percentage of revenues is related to the mix of jobs currently in the backlog and revenues of $ 3.5 million and gross profit of $ 2.8 million in the third quarter of fiscal 2009 , resulting from a mediated settlement related to a previously completed contract that was in dispute for several years . for additional information related to our business segments , see note n of notes to consolidated financial statements . consolidated selling , general and administrative expenses consolidated selling , general and administrative expenses increased to 15.3 % of revenues in fiscal 2010 compared to 12.0 % of revenues in fiscal 2009. selling , general and administrative expenses increased to $ 84.5 million in fiscal 2010 compared to $ 80.0 million in fiscal 2009. this increase was primarily related
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the decline in asia was driven mainly by a reduction in china where our fueling solutions segment , our second largest business in china , faced significant headwinds due to the expiration of the government 's double-wall upgrade mandate that drove significant activity in prior years , as well as continued slower demand from the local national oil companies . gross profit was $ 2.5 billion for the year ended december 31 , 2020 , a decrease of $ 146.9 million , or 5.6 % , as compared to the prior year . gross profit decreased due to lower revenue as productivity initiatives including prior rightsizing programs and cost containment actions were partially offset by increased material costs and inflation and higher restructuring costs . gross profit margin expanded to 37.0 % for the year ended december 31 , 2020 compared to 36.7 % for the prior year . for further discussion related to our consolidated and segment results , see `` consolidated results of operations '' and `` segment results of operations , '' respectively , within md & a . bookings decreased 4.4 % over the prior year to $ 6.9 billion for the year ended december 31 , 2020. this included an organic bookings decline of 4.6 % , a 0.6 % decline due to dispositions , and an unfavorable impact due to foreign exchange rate of 0.2 % , partially offset by a 1.0 % increase in acquisition-related bookings . bookings declined organically in four segments primarily as a result of the global impact on customer demand from the covid-19 pandemic , and increased in our refrigeration & food equipment on the back of positive trends , most significantly in can-shaping , as well as food retail and heat exchanger markets . overall , our book-to-bill increased from the prior year to 1.04. backlog as of december 31 , 2020 was $ 1.8 billion , up from $ 1.5 billion from the prior year . the increase in backlog occurred in the third and fourth quarters of 2020 as order rates sequentially improved after a significant second quarter decline due to covid-19 . backlog as of december 31 , 2020 included $ 0.5 billion , $ 0.2 billion , $ 0.2 billion , $ 0.4 billion and $ 0.5 billion in the engineered products , fueling solutions , imaging & identification , pumps & process solutions and refrigeration & food equipment segments , respectively . see definition of bookings , organic bookings , book-to-bill and backlog within `` segment results of operations '' . during the year ended december 31 , 2020 , we executed rightsizing programs to further optimize operations . rightsizing charges of $ 51.5 million included restructuring charges of $ 44.5 million and other costs of $ 7.0 million . restructuring expense was comprised primarily of new actions executed in response to lower demand driven by covid-19 as well as continuing broad-based selling , general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation , and operational optimization and it centralization . these restructuring charges were broad-based across all segments as well as corporate , with costs incurred of $ 10.3 million in engineered products , $ 6.7 million in fueling solutions , $ 5.9 million in imaging & identification , $ 13.4 million in pumps & process solutions , $ 4.0 million in refrigeration & food equipment and $ 4.1 million at corporate . other costs were comprised primarily of charges related to the restructuring actions and asset charges , principally due to a $ 3.6 million write off of assets , partially offset by a $ 1.7 million gain on sale of assets in our refrigeration & food equipment segment . additional programs , beyond the scope of the announced programs may be implemented during 2021 with related restructuring charges . during the year ended december 31 , 2020 , we made a total of six acquisitions totaling $ 335.8 million , net of cash acquired . we acquired sys-tech solutions , inc. ( `` systech '' ) , a leading provider of product traceability , regulatory compliance and brand-protection software and solutions to pharmaceutical and consumer products manufacturers , for $ 161.8 million , net of cash acquired , to strengthen the imaging & identification segment . we acquired so . cal . soft-pak , incorporated ( `` soft-pak '' ) , a leading specialized provider of integrated back office , route management and customer relationship management software solutions to the waste and recycling fleet industry for $ 45.5 million , net of cash acquired , within the engineered products segment . we acquired em-tec gmbh ( `` em-tec '' ) , a leading designer and manufacturer of flow measurement devices that serve a wide array of medical and biopharmaceutical applications for $ 30.4 million , net of cash acquired , to expand the pumps & process solution segment . we acquired solaris laser s.a. ( `` solaris '' ) , a global manufacturer of product identification and traceability solutions for $ 18.7 million , net of cash acquired , to strengthen the imaging & identification segment . we acquired innovative control systems , inc. ( “ ics ” ) , a leading provider of car wash controllers , payment 28 terminals , point-of-sale and wash site management software solutions for $ 77.0 million , net of cash acquired , to enhance the fueling solutions segment . see note 4 — acquisitions in the consolidated financial statements in item 8 of this form 10-k for further details regarding the businesses acquired during the year . on march 6 , 2020 , we completed the sale of the chino , california branch of the ams group ( `` ams chino '' ) , a regional aftermarket refrigeration services and solutions provider based in southern california . the ams group was a wholly owned subsidiary , which was part of our refrigeration & food equipment segment . we sold the business for total consideration of $ 15.4 million and recorded a pre-tax gain on sale of $ 5.2 million . story_separator_special_tag during the year ended december 31 , 2020 , we purchased approximately 1.0 million shares of our common stock for a total cost of $ 106.3 million , or $ 108.54 per share . in november 2020 , our board of directors approved a new standing share repurchase authorization , whereby we may repurchase up to 20 million shares beginning on january 1 , 2021 through december 31 , 2023. we also continued our 65 year history of increasing our annual dividend per share and paid a total of $ 284.3 million in dividends to our shareholders . covid-19 the covid-19 pandemic disrupted the global economy and adversely impacted our business , including demand for our products across multiple end-markets as well as our supply chain and operations . our foremost focus as we respond to the pandemic has been on the health and safety of our employees . we have enhanced health and safety measures across our facilities , including modifying practices to adhere to guidance from the u.s. centers for disease control and prevention and local health and governmental authorities with respect to social distancing , physical separation , personal protective equipment and sanitization . we also restricted the number of employees permitted in common areas at any given time . we enhanced our operational excellence model by memorializing our approach to sanitized manufacturing which includes procedures for dealing with confirmed covid-19 cases , compliance auditing , and manufacturing line design . we will continue to closely monitor the risks posed by covid-19 and adjust our practices accordingly . we consider our companies to be essential suppliers to our customers and business partners as we provide products and services on which our customers and broader society rely upon daily to support crucial functions . therefore , most of our u.s. and global facilities have remained substantially operational during the outbreak with enhanced safety protocols to protect the well-being of our employees . in order to help mitigate the negative financial impact caused by the pandemic beginning late in the first quarter , we executed a number of temporary cost savings measures across the portfolio and at our corporate center , including short-term workforce rightsizing actions , adjustments to variable compensation to reflect current conditions , elimination of non-essential travel and reduction of discretionary spending . we also reduced our capital spending for the year , without deferring strategic ongoing initiatives . in addition , we initiated restructuring actions to drive longer-term cost savings and are proactively managing our working capital . over the course of 2020 , we experienced sequentially improving activity in most markets and geographies , though demand remains lower than historical averages across markets that we expect will take longer to fully recover , like our food equipment and digital textile businesses . however , given sequential improvements in bookings in a majority of our markets late in 2020 and a higher year over year backlog , we expect continued improvement in our financial results in 2021. the public health situation , global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook . we will continue to proactively respond to the situation and may take further actions that alter our business activity as may be required by governmental authorities , or that we determine are in the best interests of our employees and operations . 29 story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > for the year ended december 31 , 2019 , interest expense , net of interest income , decreased $ 0.8 million , or 0.7 % , to $ 121.3 million compared with 2018 due to the $ 350 million 5.45 % 10-year notes that were paid in march 2018 that resulted in lower outstanding long-term debt and lower interest expense compared to 2018 , partially offset by lower interest income . 31 loss on extinguishment of debt on december 4 , 2019 , the company extinguished the 300 million of 2.125 % notes due 2020 and the $ 450 million of 4.30 % notes due 2021. the company was required to pay a make whole premium to the bondholders for the early extinguishment of debt , resulting in a loss of $ 23.5 million . gain on sale of business on march 6 , 2020 , we sold ams chino within the refrigeration & food equipment segment for total consideration of $ 15.4 million which included a working capital adjustment . a gain of $ 5.2 million was recognized on this sale . the disposal did not represent a strategic shift in operations and , therefore , did not qualify for presentation as discontinued operations . there were no dispositions in the year 2019 aside from the sale of finder as described above , and no significant dispositions in 2018 aside from the spin-off of apergy , whose results are presented as discontinued operations . other income , net for the years ended december 31 , 2020 , 2019 and 2018 , other income , net was $ 11.9 million , $ 13.0 million and $ 4.4 million , respectively . for the year ended december 31 , 2020 , other income decreased compared to 2019 primarily due to decreased earnings from our equity method investments and increased foreign exchange losses resulting from the re-measurement and settlement of foreign currency denominated balances . for the year ended december 31 , 2019 , other income increased compared to 2018 primarily due to increased earnings from our equity method investments and reduction of non-operating losses from our defined benefit and post-retirement benefit plans . income taxes our businesses have a global presence with 45 % , 47 % and 52 % of our pre-tax earnings in 2020 , 2019 and 2018 , respectively , generated in foreign jurisdictions . foreign earnings are generally subject to local country tax rates that differ from the 21.0 % u.s. statutory tax rate . as a result , for our non-u.s. business locations , our effective foreign tax rate is typically lower than the u.s.
| gross profit margin expanded 30 basis points to 37.0 % as compared to the prior year due to benefits from productivity initiatives and restructuring and cost containment actions . we are managing production at our operating plants aggressively to match demand . for the year ended december 31 , 2019 , gross profit increased $ 61.4 million , or 2.4 % to $ 2.6 billion compared with 2018 , primarily due to organic volume growth , pricing actions , and productivity initiatives including the benefits of rightsizing actions and cost reduction initiatives , as well as reduced rightsizing costs , partially offset by increased material costs , due , in part , to u.s. section 232 and 301 tariff exposure . gross profit margin increased 10 basis points to 36.7 % as compared to the prior year . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2020 , decreased $ 58.1 million , or 3.6 % to $ 1.5 billion compared with 2019 , due to reduction in discretionary spend and benefits from rightsizing actions partially offset by higher restructuring costs of $ 7.7 million and a $ 3.6 million write-off of assets . as a percentage of revenue , selling , general and administrative expenses increased 70 basis points in 2020 to 23.1 % , reflecting the decrease in revenue base . selling , general and administrative expenses for the year ended december 31 , 2019 , decreased $ 117.3 million , or 6.8 % to $ 1.6 billion compared with 2018 primarily due to benefits from rightsizing actions started in 2018 and a decrease in restructuring costs of $ 23.7 million . as a percentage of revenue , selling , general and administrative expenses decreased 210 basis points in 2019 to 22.4 % , reflecting the leverage of costs on a higher revenue base and the decrease in expenses . research and development costs , including qualifying engineering costs , are expensed when incurred and amounted to $ 142.1 million , $ 141.0 million and $ 143.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . these costs as a percent of
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