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we expect to continue to make the necessary investments to enable us to execute our strategy to increase our market penetration geographically and enter into new markets by expanding our customer base of distributors , large installers , oems and strategic partners . we currently offer solutions targeting the residential and commercial markets in the u.s. , canada , mexico , central american markets , europe , australia , new zealand , india and certain other asian markets . we expect to continue to expand the geographic reach of our product offerings and explore new sales channels in addressable markets in the future . general and administrative expense include personnel-related expenses for our executive , finance , human resources , information technology and legal organizations , facilities costs , and fees for professional services . fees for professional services consist primarily of outside legal , accounting and information technology consulting costs . enphase energy , inc. | 2020 form 10-k | 57 table of content s restructuring charges are the net charges resulting from restructuring initiatives implemented in 2018 through 2019 ( the “ 2018 plan ” ) to improve operational performance and reduce overall operating expenses . under the 2018 plan , costs included in restructuring primarily consisted of employee severance and one-time benefits , workforce reorganization charges , non-cash charges related to impairment of property and equipment , and the establishment of lease loss reserves . see note 10 . “ restructuring , ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information . other expense , net other expense , net primarily consists of interest expense and fees under our convertible notes and term loans , non-cash interest expense related to the accretion of debt discount and amortization of deferred financing costs , and non-cash charge recognized for the change in fair value of our convertible notes embedded derivative and warrants . other expense , net also includes interest income on our cash balance , accrued interest on tariffs previously paid and approved for refund , and gains or losses upon conversion of foreign currency transactions into u.s. dollars . income tax benefit ( provision ) we are subject to income taxes in the countries where we sell our products . historically , we have primarily been subject to taxation in the u.s. because we have sold the majority of our products to customers in the u.s. as we have expanded the sale of products to customers outside the u.s. , we have become subject to taxation based on the foreign statutory rates in the countries where these sales took place . as sales in foreign jurisdictions increase in the future , our effective tax rate may fluctuate accordingly . we regularly assess the ability to realize deferred tax assets based on the weight of all available evidence , including such factors as the history of recent earnings and expected future taxable income on a jurisdiction by jurisdiction basis . during the fourth quarter of fiscal year 2019 , after considering these factors , we determined that the positive evidence overcame any negative evidence , primarily due to cumulative income in recent years , and the expectation of sustained profitability in future periods and concluded that it was more likely than not that the us federal and state deferred tax assets were realizable . as a result , we released the valuation allowance against all of the u.s. federal and state deferred tax assets during the fourth quarter of fiscal year 2019. enphase energy , inc. | 2020 form 10-k | 58 table of content s summary consolidated statements of operations the following table sets forth a summary of our consolidated statements of operations for the periods presented ( in thousands ) : replace_table_token_5_th enphase energy , inc. | 2020 form 10-k | 59 table of content s results of operations in this section , we discuss the results of our operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. for a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , please refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2019. net revenues years ended december 31 , change in 2020 2019 $ % ( in thousands , except percentages ) net revenues $ 774,425 $ 624,333 $ 150,092 24 % net revenues increased by 24 % or $ 150.1 million for the year ended december 31 , 2020 , as compared to the same period in 2019 , primarily due to the 11 % increase in microinverter unit volume shipped primarily as a result of business growth in the u.s. , higher microinverter units shipped in the first quarter of 2020 as our customers took advantage of safe harbor guidance from the irs and shipments of our enphase encharge storage systems to customers in north america . we sold approximately 6.8 million microinverter units in the year ended december 31 , 2020 , as compared to approximately 6.2 million microinverter units in the same period in 2019. cost of revenues and gross profit replace_table_token_6_th cost of revenues increased by 6 % or $ 25.4 million for the year ended december 31 , 2020 , as compared to the same period in 2019 , primarily due to higher volume of microinverter units sold and shipments of our enphase encharge storage systems primarily as a result of business growth in the u.s. , as well as higher units shipped in the first quarter of 2020 as our customers took advantage of safe harbor guidance from the irs , partially offset by the $ 38.9 million in refunds approved for tariffs mentioned above and a decrease in the unit cost of our products as a result of our cost reduction efforts . story_separator_special_tag gross margin increased by 9.3 percentage points for the year ended december 31 , 2020 , as compared to the same period in 2019. the increase in gross margin was primarily attributable to the $ 38.9 million in refunds approved for tariffs mentioned above as well as our overall pricing and cost management efforts , including the transition of our contract manufacturing to mexico to mitigate tariffs . enphase energy , inc. | 2020 form 10-k | 60 table of content s research and development replace_table_token_7_th research and development expense increased by 38 % or $ 15.5 million for the year ended december 31 , 2020 , as compared to the same period in 2019. the increase was primarily due to $ 13.6 million higher personnel-related expenses and $ 2.5 million of outside consulting , engineering services and equipment associated with the innovation and development , introduction and qualification of new products , partially offset by a $ 0.6 million reduction in travel expenditure as we implemented travel restrictions prohibiting all non-essential business travel . the increase in personnel-related expenses was primarily due to hiring employees in new zealand , india and us , increasing total compensation costs . the amount of research and development expenses may fluctuate from period to period due to differing levels and stages of development activity . sales and marketing replace_table_token_8_th sales and marketing expense increased by 44 % or $ 16.2 million for the year ended december 31 , 2020 as compared to the same period in 2019. the increase was primarily due to $ 11.4 million of higher personnel-related expenses as a result of our efforts to improve customer experience by hiring additional employees to reduce the average call wait time for customers , as well as support our business growth in the u.s. and international expansion in europe , and $ 5.5 million for a combination of higher marketing expenses , professional services , advertising costs and facilities costs to enable business growth , partially offset by $ 0.7 million reduction in travel expenditure as we implemented travel restrictions prohibiting all non-essential business travel and converting where possible our in-person sales , trainings and marketing events to virtual-only due to covid-19 . general and administrative replace_table_token_9_th general and administrative expense increased 31 % or $ 11.9 million for the year ended december 31 , 2020 , as compared to the same period in 2019. the increase was primarily due to $ 7.9 million of higher personnel-related expenses , $ 2.8 million of other operational , technological and facilities costs to support scalability of our business growth and $ 1.6 million of higher legal and professional services , partially offset by $ 0.4 million reduction in travel expenditures as we implemented travel restrictions prohibiting all non-essential business travel in response to covid-19 . restructuring charges years ended december 31 , change in 2020 2019 $ % ( in thousands , except percentages ) restructuring charges $ — $ 2,599 $ ( 2,599 ) ( 100 ) % we completed our 2018 restructuring plan in 2019 , hence we incurred no restructuring expenses during the year ended december 31 , 2020. restructuring charges for 2019 primarily include $ 1.6 million in cash-based severance and related benefits and $ 1.1 million in non-cash charges for impaired assets , partially offset by a $ 0.1 million reduction in lease loss reserves due to adoption of asc 842 leases . enphase energy , inc. | 2020 form 10-k | 61 table of content s other expense , net replace_table_token_10_th * * not meaningful interest income of $ 2.2 million for the year ended december 31 , 2020 decreased , as compared to $ 2.5 million in the same period in 2019 , primarily due to significant decline in interest rates earned on cash balances , partially offset by a higher average cash balance earning interest in the year ended december 31 , 2020 compared to the same period in 2019 and approximately $ 0.6 million accrued interest on refunds for tariffs previously paid from september 24 , 2018 to march 31 , 2020 for certain microinverters that qualify for the tariff exclusion . interest expense of $ 21.0 million for the year ended december 31 , 2020 primarily includes $ 20.2 million related to the accretion of the debt discount and debt issuance cost as well as coupon interest incurred associated with our notes due 2024 and notes due 2025 , $ 0.5 million of interest expense related to long-term financing receivable recorded as debt and interest expense of $ 0.2 million related to coupon interest incurred and amortization of debt issuance costs associated with our notes due 2023. interest expense of $ 9.7 million for the year ended december 31 , 2019 primarily includes $ 4.6 million related to the coupon interest incurred , debt discount and amortization of debt issuance costs with our notes due 2024 , interest expense of $ 2.7 million related to the repayment of our term loan , interest expense of $ 1.5 million related to coupon interest incurred and amortization of debt issuance costs associated with notes due 2023 , and $ 0.9 million of interest expense related to long-term financing receivable recorded as debt . other expense , net of $ 3.8 million for the year ended december 31 , 2020 primarily related to $ 3.0 million non-cash loss on settlement of $ 43.9 million aggregate principal amount of the notes due 2024 and $ 0.5 million net loss related to foreign currency exchange and remeasurement . other expense , net of $ 5.4 million for the year ended december 31 , 2019 , primarily relates to the $ 6.0 million fees paid for the repurchase and exchange of our notes due 2023 , partially offset by $ 0.6 million net gain related to foreign currency exchange and remeasurement .
| on march 9 , 2020 , we issued $ 320.0 million aggregate principal amount of our convertible senior notes due 2025 ( the “ notes due 2025 ” ) in a private placement . the notes due 2025 are general unsecured obligations and bear interest at a rate of 0.25 % per year , payable semi-annually on march 1 and september 1 of each year , beginning on september 1 , 2020. the notes due 2025 will mature on march 1 , 2025 , unless earlier repurchased by us or converted at the option of the holders . further information relating to the notes due 2025 may be found in note 11 , “ debt , ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k and below under the section titled “ - liquidity and capital resources. ” enphase energy , inc. | 2020 form 10-k | 55 table of content s on march 26 , 2020 , the office of the united states trade representative ( the “ ustr ” ) announced certain exclusion requests related to tariffs on chinese imported microinverter products that fit the dimensions and weight limits within a section 301 tariff exclusion under u.s. note 20 ( ss ) ( 40 ) to subchapter iii of chapter 99 of the harmonized tariff schedule of the united states ( the “ tariff exclusion ” ) . the tariff exclusion applies to covered products under the china section 301 tariff actions ( “ section 301 tariffs ” ) taken by the ustr exported from china to the united states from september 24 , 2018 until august 7 , 2020. accordingly , we sought refunds totaling approximately $ 38.9 million plus approximately $ 0.6 million accrued interest on tariffs previously paid from september 24 , 2018 to march 31 , 2020 for certain microinverters that qualify for the tariff exclusion . the refund request was subject to review and approval by the u.s. customs and border protection ; therefore , we assessed that the probable loss recovery for
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in addition , as of december 31 , 2020 , we did not have any debt principal scheduled to mature through december 31 , 2021. the amount that we may borrow under our credit facility is limited by the value of the assets in our unencumbered asset pool . as of december 31 , 2020 , the value of the assets in our unencumbered asset pool was $ 1.3 billion . the investment grade credit ratings we have received provide us with access to the unsecured public bond market , which we may continue to use in the future to finance acquisition activity , repay maturing debt and fix interest rates . summary of critical accounting policies and estimates our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in accordance with gaap requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the compilation of our financial condition and results of operations and , in some cases , require management 's most difficult , subjective , and complex judgments . valuation of investment properties management reviews operational and development projects , land parcels and intangible assets for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable . this review for possible impairment requires certain assumptions , estimates , and significant judgment . impairment losses for investment properties and intangible assets are measured when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets . the evaluation of impairment is subject to certain management assumptions including projected net operating income , anticipated hold period , expected capital expenditures and the capitalization rate used to estimate the property 's residual value . impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset . our impairment review for land and development properties assumes we have the intent and the ability to complete the developments or projected uses for the land parcels . if we determine those plans will not be completed or our assumptions with respect to operating assets are not realized , an impairment loss may be appropriate . depreciation may be accelerated for a redevelopment project , including partial demolition of existing structures after the asset is assessed for impairment . operating properties will be classified as held for sale only when those properties are available for immediate sale in their present condition and for which management believes it is probable that a sale of the property will be completed within one year , among other factors . operating properties classified as held for sale are carried at the lower of cost or fair value less estimated costs to sell . depreciation and amortization are suspended during the held-for-sale period . acquisition of real estate investments upon acquisition of real estate operating properties , we estimate the fair value of acquired identifiable tangible assets and identified intangible assets and liabilities , assumed debt , and any noncontrolling interest in the acquiree at the date of acquisition , based on evaluation of information and estimates available at that date . based on these estimates , we record the estimated fair value to the applicable assets and liabilities . in making estimates of fair values , a number of sources are utilized , including information obtained as a result of pre-acquisition due diligence , marketing and leasing activities . the estimates of fair value were determined to have primarily relied upon level 2 and level 3 inputs , as defined below . 44 fair value is determined for tangible assets and intangibles , including : the fair value of the building on an as-if-vacant basis and the fair value of land determined either by comparable market data , real estate tax assessments , independent appraisals or other relevant data ; above-market and below-market in-place lease values for acquired properties , which are based on the present value ( using an interest rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over the remaining non-cancelable term of the leases . any below-market renewal options are also considered in the in-place lease values . the capitalized above-market and below-market lease values are amortized as a reduction of or addition to rental income over the term of the lease . should a tenant vacate , terminate its lease , or otherwise notify us of its intent to do so , the unamortized portion of the lease intangibles would be charged or credited to income ; the value of having a lease in place at the acquisition date . we utilize independent and internal sources for our estimates to determine the respective in-place lease values . our estimates of value are made using methods similar to those used by independent appraisers . factors we consider in our analysis include an estimate of costs to execute similar leases including tenant improvements , leasing commissions and foregone costs and rent received during the estimated lease-up period as if the space was vacant . the value of in-place leases is amortized to expense over the remaining initial terms of the respective leases ; and the fair value of any assumed financing that is determined to be above or below market terms . we utilize third party and independent sources for our estimates to determine the respective fair value of each mortgage payable . story_separator_special_tag the fair market value of each mortgage payable is amortized to interest expense over the remaining initial terms of the respective loan . we also consider whether there is any value to in-place leases that have a related customer relationship intangible value . characteristics we consider in determining these values include the nature and extent of existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality , and expectations of lease renewals , among other factors . to date , a tenant relationship has not been developed that is considered to have a current intangible value . revenue recognition as a lessor of real estate assets , the company retains substantially all of the risks and benefits of ownership and accounts for its leases as operating leases . contractual minimum base rent , percentage rent , and expense reimbursements from tenants for common area maintenance costs , insurance and real estate taxes are our principal sources of revenue . base minimum rents are recognized on a straight-line basis over the terms of the respective leases . certain lease agreements contain provisions that grant additional rents based on a tenant 's sales volume ( contingent overage rent ) . overage rent is recognized when tenants achieve the specified sales targets as defined in their lease agreements . overage rent is included in rental income in the accompanying consolidated statements of operations for the years ended december 31 , 2020 and 2019. if we determine that collectibility is probable , we recognize income from rentals based on the methodology described above . we have accounts receivable due from tenants and are subject to the risk of tenant defaults and bankruptcies that may affect the collection of outstanding receivables . these receivables are reduced for credit loss that is recognized as a reduction to rental income . we regularly evaluate the collectibility of these lease-related receivables by analyzing past due account balances and consider such facts as the credit quality of our customer , historical write-off experience , tenant credit-worthiness and current economic trends when evaluating the collectibility of rental income . although we estimate uncollectible receivables and provide for them through charges against income , actual experience may differ from those estimates . we recognize the sale of real estate when control transfers to the buyer . as part of our ongoing business strategy , we will , from time to time , sell land parcels and outlots , some of which are ground leased to tenants . 45 story_separator_special_tag when there is a full quarter of operations in both years subsequent to the acquisition date . development and redevelopment properties are included in the same property pool four full quarters after the properties have been transferred to the operating portfolio . a redevelopment property is first excluded from the same property pool when the execution of a redevelopment plan is likely and we 1 ) begin recapturing space from tenants or b ) the contemplated plan significantly impacts the operations of the property . at december 31 , 2020 , the same property pool excluded three properties in redevelopment , one recently completed development , two acquired properties , and three commercial properties . 48 the following table reflects same property noi 1 and a reconciliation to net income attributable to common shareholders for the years ended december 31 , 2020 and 2019 ( unaudited ) : replace_table_token_11_th 1 same property noi excludes ( i ) the corner , glendale town center , and hamilton crossing redevelopments , ( ii ) eddy street commons - phases ii and iii developments , ( iii ) the recently acquired eastgate crossing and nora plaza , and ( iv ) office properties . 2 excludes leases that are signed but for which tenants have not yet commenced the payment of cash rent . calculated as a weighted average based on the timing of cash rent commencement and expiration during the period . 3 includes non-cash activity across the portfolio as well as net operating income from properties not included in the same property pool including properties sold during both periods . our same property noi decreased 6.6 % in 2020 compared to 2019. this decrease was primarily due to bad debt expense of $ 12.1 million in 2020 related to certain tenants that were impacted by the covid-19 pandemic . funds from operations funds from operations ( `` ffo '' ) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance . we calculate ffo , a non-gaap financial measure , in accordance with the best practices described in the april 2002 national policy bulletin of the national association of real estate investment trusts ( `` nareit '' ) , as restated in 2018. the nareit white paper defines ffo as net income ( calculated in accordance with gaap ) , excluding depreciation and amortization related to real estate , gains and losses from the sale of certain real estate assets , gains and losses from change in control , and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity . considering the nature of our business as a real estate owner and operator , the company believes that ffo is helpful to investors in measuring our operational performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance , such as gains or losses from sales of depreciated property and 49 depreciation and amortization , which can make periodic and peer analyses of operating performance more difficult .
| 4 this redevelopment would potentially include the creation of a mixed-use ( office , retail , and multi-family ) development . 5 this property was sold in 2019. net operating income and same property net operating income we use property net operating income ( “ noi ” ) , a non-gaap financial measure , to evaluate the performance of our properties . we define noi as income from our real estate , including lease termination fees received from tenants , less our property operating expenses . noi excludes amortization of capitalized tenant improvement costs and leasing commissions and certain corporate level expenses . we believe that noi is helpful to investors as a measure of our operating performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance , such as depreciation and amortization , interest expense , and impairment , if any . we also use same property noi ( `` same property noi '' ) , a non-gaap financial measure , to evaluate the performance of our properties . same property noi excludes properties that have not been owned for the full period presented . it also excludes net gains from outlot sales , straight-line rent revenue , lease termination income in excess of lost rent , amortization of lease intangibles and significant prior period expense recoveries and adjustments , if any . when the company receives payments in excess of any accounts receivable for terminating a lease , same property noi will include such excess payments as monthly rent until the earlier of the following : the expiration of 12 months or the start date of a replacement tenant . we believe that same property noi is helpful to investors as a measure of our operating performance because it includes only the noi of properties that have been owned for the full period presented . we believe such presentation eliminates disparities in net income due to the acquisition or disposition of properties during the
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emphasizing core deposits by attracting new customers and enhancing existing customer relationships . in an effort to grow the banking franchise , the bank has enhanced direct marketing efforts to local businesses and consumers and established a stronger culture of cross-selling products to existing customers . in addition , the bank is in the process of enhancing treasury management services . this line of business provides higher balance , lower cost accounts which use more sophisticated electronic cash management services than the consumer or average small business . a comprehensive strategy has been developed to attract and retain deposits by offering enhanced technology , such as mobile and online banking , remote check deposit , positive pay , people pay and remote deposit capture , with a consistent emphasis on quality customer service . rationalizing delivery channels as customer preferences evolve . the bank currently operates seventeen community banking offices . a program is in place to evaluate all existing locations as well as digital and web-based service delivery channels . the objective is to ensure an efficient service delivery system that balances the use of technology and personal customer service . the bank also evaluates additional community banking office expansion opportunities , primarily through purchases of offices , to enhance its presence in its current market and adjacent areas . pursuing future expansion and whole-bank acquisitions , although there are no current arrangements or agreements with respect to any such acquisitions . the company intends to evaluate acquisitions of other financial institutions on an on-going basis as industry consolidation continues , strategic transactions are identified and other opportunities present themselves . critical accounting policies the company considers accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . the company considers the following to be its critical accounting policies . allowance for loan losses . the bank maintains an allowance for loan losses in an amount it believes is appropriate to absorb probable losses inherent in the portfolio at a balance sheet date . management 's periodic determination of the adequacy of the allowance is based on the size and current risk characteristics of the loan portfolio , an assessment of individual problem loans and actual loss experience , current economic events in relevant industries and other pertinent factors such as regulatory guidance and general economic conditions . however , this evaluation is inherently subjective , as it requires an estimate of the loss content for each risk rating and for each impaired loan , an estimate of the amounts and timing of expected future cash flows , and an appraisal or other estimate of the value of collateral on impaired loans and estimated losses on pools of homogenous loans based on the balance of loans in each loan category , changes in the inherent credit risk due to portfolio growth , historical loss experience and consideration of current economic trends . based on management 's estimate of the level of allowance for loan losses required , the bank records a provision for loan losses to maintain the allowance for loan losses at an appropriate level . the determination of the allowance for loan losses is based on management 's current judgments about the loan portfolio credit quality and management 's consideration of all known relevant internal and 29 external factors that affect loan collectability , as of the reporting date . management can not predict with certainty the amount of loan charge-offs that will be incurred . management does not currently determine a range of loss with respect to the allowance for loan losses . in addition , various banking regulatory agencies , as an integral part of their examination processes , periodically review the bank 's allowance for loan losses . such agencies may require that the bank recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination . accordingly , actual results could differ from those estimates . other-than-temporary impairment . in estimating other-than-temporary impairment of investment securities , securities are evaluated periodically , and at least quarterly , to determine whether a decline in their value is other than temporary . the company considers numerous factors when determining whether potential other-than-temporary impairment exists and the period over which a debt security is expected to recover . the principal factors considered are ( 1 ) the length of time and the extent to which the fair value has been less than the amortized cost basis , ( 2 ) the financial condition of the issuer ( and guarantor , if any ) and adverse conditions specifically related to the security , industry or geographic area , ( 3 ) failure of the issuer of the security to make scheduled interest or principal payments , ( 4 ) any changes to the rating of a security by a rating agency , and ( 5 ) the presence of credit enhancements , if any , including the guarantee of the federal government or any of its agencies . for debt securities , other-than-temporary impairment is considered to have occurred if ( 1 ) the company intends to sell the security , ( 2 ) it is more likely than not the company will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . in determining the present value of expected cash flows , the company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition or , for debt securities that are beneficial interests in securitized financial assets , at the current rate used to accrete the beneficial interest . story_separator_special_tag in estimating cash flows expected to be collected , the company uses available information with respect to security prepayment speeds , expected deferral rates and severity , whether subordinated interests , if any , are capable of absorbing estimated losses and the value of any underlying collateral . deferred tax assets . the company uses an estimate of future earnings to support the position that the benefit of its deferred tax assets will be realized . if future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied , the asset may not be realized and the company 's net income will be reduced . goodwill and other intangible assets . the company must assess goodwill and other intangible assets for impairment . this assessment involves estimating the fair value of its reporting units . if the fair value of the reporting unit is less than the carrying value including goodwill , the company would be required to take a charge against earnings to write down the assets to the lower value . pension plan . the bank maintains a noncontributory defined benefit pension plan covering employees whose benefits were frozen effective august 1 , 2005. no future benefits are accrued , however the plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the bank . balance sheet analysis : december 31 , 2018 and december 31 , 2017 general . the company 's total assets at december 31 , 2018 decreased slightly to $ 971.8 million from $ 972.6 million at december 31 , 2017. cash and cash equivalents . cash and cash equivalents decreased slightly to $ 16.2 million at december 31 , 2018 from $ 16.3 million at december 31 , 2017. cash from customers into deposit accounts , loan and security repayments and proceeds from borrowed funds typically increase these accounts . decreases result from customer withdrawals , new loan originations , purchases of investment securities and repayment of borrowed funds . investment securities . investment securities available for sale increased $ 4.8 million , or 7.79 % , to $ 66.2 million at december 31 , 2018 from $ 61.4 million at december 31 , 2017 when excluding equity securities which are discussed below . purchases of municipal bonds totaling $ 9.7 million and corporate 30 bonds totaling $ 2.0 million were partially offset by municipal bond sales and calls of $ 4.8 million and $ 1.3 million , respectively , during the year ended december 31 , 2018. additionally , there was a $ 762,000 decrease in the unrealized gain on investment securities during the period when excluding equity securities . equity securities . equity securities available for sale decreased $ 1.4 million , or 34.7 % , to $ 2.7 million at december 31 , 2018 from $ 4.2 million at december 31 , 2017. the $ 4.2 million was included with investment securities in the december 31 , 2017 consolidated statement of financial condition . sales of equity securities totaling $ 1.9 million were offset by purchases of $ 546,000 during the year ended december 31 , 2018. mortgage-backed securities . the bank 's mortgage-backed securities available for sale increased $ 14.2 million , or 20.9 % , to $ 81.8 million at december 31 , 2018 from $ 67.6 million at december 31 , 2017. purchases of mortgage-backed securities totaled $ 27.9 million , partially offset by repayments of $ 12.0 million during the year ended december 31 , 2018. there were no sales of mortgage-backed securities during the year ended december 31 , 2018. additionally , there was a $ 1.2 million decrease in the unrealized gain on mortgage-backed securities during the period . investment , equity and mortgage-backed securities composition . the composition of the investment , equity , and mortgage-backed securities portfolio is summarized in the following table ( dollars in thousands ) . at december 31 , 2018 and december 31 , 2017 , all of the company 's investment , equity , and mortgage-backed securities were classified as available for sale and recorded at current fair value . at december 31 , 2018 2017 amortized cost fair value amortized cost fair value municipal obligations $ 53,546 $ 53,698 $ 49,988 $ 50,777 u.s. government and agency obligations 8,368 8,270 8,334 8,340 corporate bonds 4,226 4,201 2,276 2,272 mortgage-backed securities : ginnie mae pass-through certificates 19,213 18,890 17,416 17,291 fannie mae pass-through certificates 13,952 13,620 16,078 16,145 freddie mac pass-through certificates 12,662 12,410 12,510 12,537 private pass-through certificates 25,064 24,715 14,603 14,498 collateralized mortgage obligations 12,328 12,159 7,277 7,159 equity securities 2,686 2,725 3,647
| the increase was primarily due to the increase in the average balance of interest-earning assets which included interest-earning assets acquired through the allegheny valley bank merger for the full year in 2018 . 36 additionally , the average yield on interest-earning assets increased by eleven basis points to 3.95 % for the year ended december 31 , 2018 from 3.84 % for the prior year . the average yield on all categories of interest earning assets increased from the previous year due to the rising interest rate environment . interest income on loans increased $ 5.1 million , or 18.9 % , to $ 32.0 million for the year ended december 31 , 2018 compared to $ 26.9 million for the year ended december 31 , 2017. the increase was primarily the result of an increase in the average balance of loans receivable of $ 89.8 million , or 13.8 % , to $ 740.4 million for the year ended december 31 , 2018 compared to $ 650.6 million for the prior year . the increase was due mainly to growth from the acquisition being reflected for the full year in the current period . in addition , the average yield on loans receivable increased to 4.25 % for the year ended december 31 , 2018 from 4.14 % for the prior year . the increase in the average yield was primarily attributable to adjustable rate loans resetting higher as a result of increases in general market rates as well as new loan originations being booked at higher interest rates during the year . interest income on investment and mortgage-backed securities increased by $ 759,000 , or 24.6 % , to $ 3.9 million for the year ended december 31 , 2018 from $ 3.1 million for the year ended december 31 , 2017. the increase was primarily the result of an increase in the average balance of investment and mortgage-backed securities of $ 22.1 million , or 17.9 % , to $ 146.0 million for the year ended december 31 , 2018 compared to $ 123.9 million for the prior year . the increase is due primarily to investment and mortgage-backed securities acquired being reflected for the
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for the year ended september 30 , 2018 , three customers each represented approximately 10 % - 14 % of the company 's total revenue . for the year ended september 30 , 2017 , two customers each represented approximately 11 % - 12 % of the company 's total revenue . story_separator_special_tag in fiscal 2018 compared to $ 2.0 million in fiscal 2017. costs to support saas licenses are primarily fixed costs . the cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 36 % in fiscal 2018 from 29 % in fiscal 2017. the increase is due to fixed costs to operate our cloud-based hosting model with amazon web services without a commensurate increase in license revenue . cost of managed service hosting cost of managed service hosting decreased $ 16 thousand , or 6 % , in fiscal 2018 to $ 264 thousand compared to $ 280 thousand in fiscal 2017. the cost of managed services as a percentage of managed services revenue decreased to 25 % in fiscal 2018 from 28 % in fiscal 2017. while certain costs to operate our cloud-based hosting model with amazon web services are fixed , we were able to eliminate unnecessary variable costs and optimize without a commensurate increase in costs . gross profit gross profit decreased $ 2.3 million , or 25 % , in fiscal 2018 to $ 6.8 million compared to $ 9.1 million in fiscal 2017. the decrease in fiscal 2018 is primarily attributable to the decrease in revenues , as , overall costs decreased by 25 % . operating expenses sales and marketing expenses sales and marketing expenses decreased $ 856 thousand , or 18 % , to $ 4.0 million in fiscal 2018 from $ 4.8 million in fiscal 2017. the decrease is primarily attributable to decreases in headcount and facility costs and travel related expenditures , partially offset by increases in marketing expenses . sales and marketing expense as a percentage of total revenue decreased slightly to 29 % in fiscal 2018 compared to 30 % in fiscal 2017. general and administrative expenses general and administrative expenses decreased $ 404 thousand , or 12 % , to $ 2.9 million in fiscal 2018 from $ 3.3 million in fiscal 2017. the decrease is attributable to decreases in headcount and overall administration expenses . general and administrative expense as a percentage of revenue increased to 21 % in fiscal 2018 compared to 20 % in fiscal 2017. research and development research and development expense remained constant at $ 1.6 million for both fiscal 2018 and fiscal 2017. research and development expense as a percentage of total revenue increased to 12 % in fiscal 2018 compared to 10 % for fiscal 2017. the increase as a percentage of total revenues in fiscal 2018 is a function of the decrease in total revenues in fiscal 2018 . 23 depreciation and amortization depreciation and amortization expense decreased by $ 226 thousand , or 39 % , to $ 356 thousand in fiscal 2018 from $ 582 thousand in fiscal 2017. this decrease is primarily attributable to retirement of fixed assets in relation to a reduction of office space during fiscal 2018 , as well as a reduction in capital expenditure purchases in fiscal 2018. depreciation and amortization as a percentage of total revenue decreased to 3 % in fiscal 2018 from 4 % in fiscal 2017. goodwill impairment the company elected to early adopt accounting standards update asu 2017-04 , intangibles – goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment ( “ asu 2017-04 ” ) during fiscal 2018 and performed an interim impairment test in its third fiscal quarter and an annual impairment test . an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit 's fair value . goodwill is assessed at the consolidated level as one reporting unit . the total impairment charge for fiscal 2018 was $ 4.9 million . restructuring expenses commencing in fiscal 2015 and through fiscal 2018 , the company 's management approved , committed to and initiated plans to restructure and further improve efficiencies by implementing cost reductions in line with expected decreases in revenue . the company renegotiated several office leases and relocated to smaller space , while also negotiating sub-leases for the original space . in addition , the company executed a general work-force reduction and recognized costs for severance and termination benefits . these restructuring charges and accruals require estimates and assumptions , including contractual rental commitments or lease buy-outs for vacated office space and related costs , and estimated sub-lease income . the company 's sub-lease assumptions include the rates to be charged to a sub-tenant and the timing of the sub-lease arrangement . all of the vacated lease space is currently contractually occupied by a new sub-tenant for the remaining life of the lease . in the second quarter of fiscal 2017 , the company initiated a plan to shut down its operations in india , which it expects to be completed in early fiscal 2019. in total , charges of $ 187 thousand and $ 286 thousand were recorded to restructuring expenses for fiscal 2018 and fiscal 2017 , respectively , in the consolidated statement of operations . the charges consist of the total lease expenses less sub-lease rental income , other miscellaneous lease termination costs , loss on disposal of fixed assets , and costs for severance and termination benefits . loss from operations the loss from operations was ( $ 7.0 ) million for fiscal 2018 compared to a loss from operations of ( $ 1.4 ) million for fiscal 2017 , a decrease of ( $ 5.6 ) million or 405 % for fiscal 2018. the loss from operations for fiscal 2018 included a goodwill impairment charge of $ 4.9 million . provision for income taxes we recorded an income tax benefit of $ 3 thousand for fiscal 2018 compared to an income tax expense of $ 16 thousand for fiscal 2017. story_separator_special_tag the company has net operating loss carryforwards and other deferred tax benefits , subject to the limitations discussed below , that are available to offset future taxable income . a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . the company established a valuation allowance against its net deferred tax assets , excluding the portion attributable to the alternative minimum tax at september 30 , 2018 in the amount of $ 22 thousand , and established a full valuation allowance against its net deferred tax assets at september 30 , 2017. the federal net operating loss ( nol ) carryforward of approximately $ 30 million as of september 30 , 2018 expires on various dates through 2038. internal revenue code section 382 places certain limitations on the amount of taxable income that can be offset by nol carryforwards after a change in control of a loss corporation . generally , after a change in control , a loss corporation can not deduct nol carryforwards in excess of the section 382 limitation . due to these “ change of ownership ” provisions , utilization of nol carryforwards may be subject to an annual limitation on utilization against taxable income in future periods . the company has not performed a section 382 analysis . however , if performed , section 382 may be found to limit potential future utilization of our nol carryforwards . 24 adjusted ebitda we also measure our performance based on a non-u.s. gaap ( “ generally accepted accounting principles ” ) measurement of earnings before interest , taxes , depreciation , and amortization and before inducement of debt charges , stock-based compensation expense , impairment of goodwill and intangible assets , and restructuring charges ( “ adjusted ebitda ” ) . we believe this non-u.s. gaap financial measure of adjusted ebitda is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations . adjusted ebitda , however , is not a measure of operating performance under u.s. gaap and should not be considered as an alternative or substitute for u.s. gaap profitability measures such as ( i ) income from operations and net income , or ( ii ) cash flows from operating , investing and financing activities , both as determined in accordance with u.s. gaap . adjusted ebitda as an operating performance measure has material limitations because it excludes the financial statement impact of income taxes , net interest expense , amortization of intangibles , depreciation , goodwill impairment , restructuring charges , loss on disposal of assets , other amortization and stock-based compensation , and therefore does not represent an accurate measure of profitability . as a result , adjusted ebitda should be evaluated in conjunction with net income for a complete analysis of our profitability , as net income includes the financial statement impact of these items and is the most directly comparable u.s. gaap operating performance measure to adjusted ebitda . our definition of adjusted ebitda may also differ from and therefore may not be comparable with similarly titled measures used by other companies , thereby limiting its usefulness as a comparative measure . because of the limitations that adjusted ebitda has as an analytical tool , investors should not consider it in isolation , or as a substitute for analysis of our operating results as reported under u.s. gaap . the following table reconciles net loss ( which is the most directly comparable u.s. gaap operating performance measure ) to ebitda , and ebitda to adjusted ebitda : replace_table_token_3_th adjusted ebitda was ( $ 1.0 ) million for fiscal 2018 compared with $ 122 thousand for fiscal 2017. this was primarily due to the decline in revenues . 25 liquidity and capital resources cash flows operating activities cash used in operating activities was $ 1.1 million for fiscal 2018 compared to cash used in operating activities of $ 940 thousand for fiscal 2017. this increase in use of cash was driven by the decrease in accounts receivables collections and the decrease in operating income . investing activities cash used in investing activities was $ 50 thousand for fiscal 2018 compared with $ 93 thousand for fiscal 2017. the decrease was primarily due to a reduction in purchases of capital equipment and software in fiscal 2018 than in fiscal 2017. financing activities cash provided by financing activities remained constant at $ 1.1 million for fiscal 2018 and fiscal 2017. in fiscal 2018 , we raised funds from a term note with montage capital ii . l.p. and the promissory term notes issued in september 2018. we made net payments on our bank line of credit of $ 419 thousand . at september 30 , 2018 , we had an outstanding balance under our credit line with heritage bank of commerce ( `` heritage bank '' ) of $ 2.1 million . capital resources and liquidity outlook the company has a history of net losses and the net loss for the fiscal year ended september 30 , 2018 is $ 7.2 million , which includes a charge of $ 4.9 million for goodwill impairment . cash flows used in operations was $ 1.1 million for the twelve months ended september 30 , 2018 and we expect to continue to incur negative operating cash flows for the next fiscal year . the company currently has a line of credit of up to $ 2.5 million with heritage bank , which matures on january 1 , 2020 , however , borrowing capability is based on eligible accounts receivable . at september 30 , 2018 , the company had no additional borrowing ability on the heritage bank line of credit and the balance on the line of credit was $ 2.1 million . in october 2018 , the company raised gross proceeds of $ 5.0 million in a public offering .
| subscription and perpetual licenses revenue from subscription ( saas ) and perpetual licenses decreased $ 1.2 million , or 17 % , to $ 5.6 million in fiscal 2018 from $ 6.8 million in fiscal 2017. subscription and perpetual license revenue as a percentage of total revenue decreased to 41 % in fiscal 2018 from 42 % in fiscal 2017. the decreases as a percentage of revenues is attributable to the decrease in both bridgeline unbound perpetual licenses and saas license revenues . the decline in saas licenses is partially due to attrition of customers not renewing contracts . in the fourth quarter of fiscal 2018 , we received notice from a large customer with multiple contracts that it will not be renewing one of its contracts with the company . this is expected to result in a decline in subscription license revenue commencing in the quarter ended december 31 , 2018. if we do not replace this revenue with new license revenue , the impact could be a decline in license revenue of approximately $ 375 thousand per quarter , which may also result in a negative impact on our financial condition or results of operations . this revenue could be replaced by winning new engagements , as well as strategic opportunities that we may choose to pursue . managed service hosting revenue from managed service hosting remained constant at $ 1.0 million for both fiscal 2018 and fiscal 2017. we were able to maintain renewals for hosting service contracts sold in previous periods . managed services revenue as a percentage of total revenue increased to 8 % in fiscal 2018 from 6 % in fiscal 2017. the increases as a percentage of revenue is attributable to the overall decreases in other revenue streams , primarily digital engagement services . cost of revenue total cost of revenue for the fiscal year ended september 30 , 2018 decreased $ 412 thousand , or 6 % , to $ 6.7 million from $ 7.2 million in fiscal 2017. the gross profit margin decreased to 50 % for the fiscal 2018 compared to 56 % for fiscal 2017. the decline in the gross profit margin for fiscal 2018 compared to
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, a wholesale purchase order or retail sales order ) ; the sales arrangement specifies a fixed or determinable sales price ; title and risk of ownership has passed to the customer ; no specific performance obligations remain ; product is shipped or services are provided to the customer ; collectability is reasonably assured . as such , revenue recognition generally occurs upon the shipment of goods to independent retailers or , in the case of ethan allen operated retail design centers , upon delivery to the customer . if a shipping charge is billed to customers , this is included in revenue . recorded sales provide for estimated returns and allowances . we permit our customers to return defective products and incorrect shipments , and terms we offer are standard for the industry . 18 ethan allen interiors inc. and subsidiaries impairment of long-lived assets and goodwill – goodwill and other indefinite-lived intangible assets are evaluated for impairment on an annual basis during the fourth quarter of each fiscal year , and between annual tests whenever events or circumstances indicate that the carrying value of the goodwill or other intangible asset may exceed its fair value . when testing goodwill for impairment , we may assess qualitative factors for some or all of our reporting units to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . alternatively , we may bypass this qualitative assessment for some or all of our reporting units and determine whether the carrying value exceeds the fair value using a quantitative assessment . the recoverability of long-lived assets is evaluated for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset or asset group . our assessment of recoverability determines whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset . in the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset , an impairment loss equal to the excess of the asset 's carrying value over its fair value is recorded . the long-term nature of these assets requires the estimation of cash inflows and outflows several years into the future . the fair value of our trade name , which is the company 's only indefinite-lived intangible asset other than goodwill , is valued using the relief-from-royalty method . significant factors used in trade name valuation are rates for royalties , future growth , and the discount rate . royalty rates are determined using an average of recent comparable values . future growth rates are based on market participant assumptions based on the industry in which we operate , and the discount rate is determined using the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . income taxes – income taxes are accounted for under the asset and 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 and operating loss and tax credit carryforwards . 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 . additional factors that we consider when making judgments about the deferred tax valuation include tax law changes , a recent history of cumulative losses , and variances in future projected profitability . the company evaluates , on a quarterly basis , uncertain tax positions taken or expected to be taken on tax returns for recognition , measurement , presentation , and disclosure in its financial statements . if an income tax position exceeds a 50 % probability of success upon tax audit , based solely on the technical merits of the position , the company recognizes an income tax benefit in its financial statements . the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . the liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year . we recognize interest and penalties related to income tax matters as a component of income tax expense . business insurance reserves – we have insurance programs in place to cover workers ' compensation and property/casualty claims . the insurance programs , which are funded through self-insured retention , are subject to various stop-loss limitations . we accrue estimated losses using actuarial models and assumptions based on historical loss experience . although we believe that the insurance reserves are adequate , the reserve estimates are based on historical experience , which may not be indicative of current and future losses . in addition , the actuarial calculations used to estimate insurance reserves are based on numerous assumptions , some of which are subjective . we adjust insurance reserves , as needed , in the event that future loss experience differs from historical loss patterns . other loss reserves – we have a number of other potential loss exposures incurred in the ordinary course of business such as environmental claims , product liability , litigation , tax liabilities , restructuring charges , and the recoverability of deferred income tax benefits . establishing loss reserves for these matters requires the use of estimates and judgment with regard to maximum risk exposure and ultimate liability or realization . story_separator_special_tag as a result , these estimates are often developed with our counsel , or other appropriate advisors , and are based on our current understanding of the underlying facts and circumstances . because of uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts and circumstances , additional charges related to these issues could be required in the future . 19 ethan allen interiors inc. and subsidiaries results of operations in this item 7 of this annual report , unless otherwise noted , all comparisons are from the fiscal year ended june 30 , 2018 to the prior fiscal year ended june 30 , 2017 ( $ in millions except per share amounts ) . a summary of our consolidated operations for the past three fiscal years is presented in the following table . replace_table_token_6_th a summary of changes from the preceding fiscal year are presented in the following table . replace_table_token_7_th we have completed a major transformation of our product offerings , having refreshed over 70 % of our entire product line over the past three years . during fiscal 2018 we expanded our gsa business with an award of a blanket purchase agreement for the u. s. department of state “ worldwide residential furniture program ” , and partnered with amazon to sell products through the amazon marketplace . during the fall of 2017 , we introduced passport , a focused collection of unique artisan crafted items inspired by designs from around the world , and in the spring of 2018 launched our new uptown collection , featuring a modern perspective on classic designs . during the first quarter of fiscal 2018 , we were negatively impacted by adverse weather affecting sales , manufacturing and delivery of our products . additionally , our net sales and profitability were negatively affected by first run production for both the gsa business and floor samples for our new passport collection . the gsa is now one of our ten largest customers . the high order volume from the gsa business with contractually short lead-times , together with the new product production runs further impacted production capacity which resulted in production and shipping delays to our retail customers that continued into the third quarter of fiscal 2018. beginning in march and continuing through the fourth quarter , we launched a major brand-building marketing program utilizing national television . this program targeted a broad demographic base beyond our core customer and we expect that as we continue to market to this broader base , our brand awareness will increase and ultimately drive increased revenues over time . gross margin was below the prior year primarily due to increased raw material costs , and a decrease in the retail sales mix in relation to total sales . this was partly offset by an inventory write-down of $ 6.4 million during the third quarter of fiscal 2017 , and a 4.9 % increase in wholesale sales . operating expenses increased slightly as a percentage of sales , mostly due to an increase in advertising expenses . income taxes were reduced due to the u.s. tax cuts and jobs act changes enacted in december 2017. the net result was an increase in earnings per diluted share of $ 0.03. net cash provided by operating activities along with operating cash and letters of credit under our credit facility enabled us to repurchase $ 22.0 million of our common stock under our share repurchase program , pay off the remaining $ 13.8 million of our term loan earlier than scheduled , and return $ 29.5 million in cash dividends to our shareholders . at june 30 , 2018 we had total cash and securities of $ 22.4 million , and working capital of $ 93.2 million . 20 ethan allen interiors inc. and subsidiaries the components of consolidated revenues and operating income ( loss ) by business segment are as follows ( in millions ) : replace_table_token_8_th ( 1 ) represents the change in wholesale profit contained in ethan allen operated design center inventory existing at the end of the period . a summary by business segment of annual percentage changes from the preceding fiscal years are presented in the following tables : replace_table_token_9_th replace_table_token_10_th story_separator_special_tag one location in china , bringing the china total to 82. other international dealers opened five new locations . our international net sales to independent retailers was 6.5 % of our consolidated net sales compared to 5.4 % . retail revenue from ethan allen operated design centers decreased by $ 22.8 million , or 3.6 % , to $ 603.7 million from $ 626.5 million . comparable store revenue decreased 4.6 % . year-over-year , written orders for the company operated design centers decreased 0.6 % and comparable design centers written orders decreased 2.5 % . consumer spending patterns were disrupted during the fiscal year , especially around the election cycle , and negatively impacted sales . gross profit decreased to $ 419.7 million from $ 442.2 million . the $ 22.5 million decrease in gross profit was attributable to decreases in both our retail and wholesale segment net sales and a write-down of inventory of $ 6.4 million in the third quarter of fiscal 2017. this was partly offset by a slightly higher mix of retail net sales to consolidated net sales of 79.1 % compared to the 78.9 % in the prior fiscal year , and a decrease in cost of goods sold due to the net release of intercompany profit previously held in ending inventory .
| 21 ethan allen interiors inc. and subsidiaries gross profit decreased to $ 416.0 million from $ 419.7 million . the $ 3.8 million decrease in gross profit was attributable to a $ 16.2 million decrease in our retail segment sales , a lower mix of retail net sales to consolidated net sales of 76.6 % compared to the 79.1 % in the prior fiscal year , and increased raw material costs of $ 4.7 million . these were partly offset by a fiscal 2017 write-down of inventory of $ 6.4 million , and a current fiscal year increase in wholesale net sales of $ 22.4 million . operating expenses increased $ 5.3 million or 1.5 % to $ 367.1 million or 47.9 % of net sales in fiscal 2018 from $ 361.8 million or 47.4 % of net sales in fiscal 2017. the increase in fiscal year 2018 expenses in absolute dollars and as a percent of net sales is primarily due to increased advertising costs of $ 3.6 million . operating income for the fiscal year ended june 30 , 2018 totaled $ 48.9 million , or 6.4 % of net sales , compared to $ 58.0 million , or 7.6 % of net sales , in the prior fiscal year . w holesale operating income for fiscal 2018 totaled $ 48.5 million , or 10.2 % of net sales , as compared to $ 53.5 million , or 11.8 % of net sales , in the prior year . retail operating loss was $ 1.7 million , or -0.3 % of sales , for fiscal 2018 , compared to income of $ 1.2 million , or 0.2 % of sales , for fiscal 2017 , a decrease of $ 2.9 million . the decrease in consolidated operating income was primarily attributable to increased costs of raw materials , higher advertising costs due to national television advertising in the fiscal third and fourth quarters , reduced retail sales , as well as the disruptions caused by the first production runs of the gsa contract product and new product introductions . interest
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these entities and assets were acquired for total consideration of $ 2.2 million , including $ 2.1 million in cash and $ 0.1 million in holdbacks to the sellers . divestitures from time to time , we may sell or divest certain investments or other components of our business . these divestitures may be undertaken for a number of reasons , including to generate proceeds to pay down debt ; as a result of a determination that the specified asset will provide inadequate returns to us or that the asset no longer serves a strategic purpose in connection with our business ; or if we determine the asset may be more valuable to a third-party . we will continue to look to divest certain activities and investments that no longer enhance or complement our core business if the right opportunity presents itself . in fiscal year 2014 , we and louisiana pacific corporation ( lp ) executed a purchase and sale agreement with a limited liability company formed by tenex capital partners , l.p. , pursuant to which we and lp agreed to sell our membership interests in us greenfiber llc ( greenfiber ) for total cash consideration of $ 18.0 million plus an expected working capital true up less any indebtedness and other unpaid transaction costs of greenfiber as of the closing date . the transaction was completed on december 5 , 2013 for $ 19.2 million in gross cash proceeds , including a $ 1.2 million working capital adjustment . after netting indebtedness of greenfiber and transaction costs , our 50 % of the net cash proceeds amounted to $ 3.4 million . after considering the $ 0.6 million impact of our unrealized losses relating to derivative instruments in accumulated other comprehensive income ( loss ) on our investment in greenfiber , we recorded a gain on sale of equity method investment of $ 0.6 million in the third quarter of fiscal year 2014. as a result of the sale , we and lp no longer guarantee up to $ 0.8 million in support of greenfiber 's term loan associated with an amended loan and security agreement , and are no longer committed to fund any liquidity shortfalls , if any such shortfalls exist , of greenfiber related to covenant compliance as defined in greenfiber 's amended loan and security agreement . we had previously accounted for our 50 % membership interest in greenfiber using the equity method of accounting . in the fourth quarter of fiscal year 2013 , we initiated a plan to dispose of kti biofuels , inc. ( biofuels ) , a construction and demolition material processing facility located in lewiston , maine , and as a result , the assets associated with biofuels were classified as held-for-sale and the results of operations were recorded as loss from discontinued operations . assets of the disposal group previously classified as held-for-sale , and included in discontinued operations as of april 30 , 2013 , include certain inventory along with plant and equipment . in the first quarter of fiscal year 2014 , we executed a purchase and sale agreement with reenergy lewiston llc ( reenergy ) , pursuant to which we agreed to sell certain assets of biofuels , which was located in our eastern region , to reenergy . we agreed to sell the biofuels assets for undiscounted purchase consideration of $ 2.0 million , which is being paid to us in equal quarterly installments over five years commencing november 1 , 2013 , subject to the terms of the purchase and sale agreement . we recognized a $ 0.4 million loss on disposal of discontinued operations in the first quarter of fiscal year 2014 associated with the disposition . 37 in the first quarter of fiscal year 2013 , we executed a purchase and sale agreement with the city of biddeford , maine , pursuant to which we agreed to sell the real property of maine energy to the city of biddeford , subject to satisfaction of conditions precedent and closing . we agreed to sell maine energy for undiscounted purchase consideration of $ 6.7 million , which is being paid to us in equal installments over the 21 years following the close date , subject to the terms of the purchase and sale agreement . the transaction closed in november 2012 , and we waived certain conditions precedent not satisfied at that time . in december 2012 , we closed the maine energy facility and initiated the decommissioning process in accordance with the provisions of the agreement . following the decommissioning of the maine energy facility , it was our responsibility to demolish the facility , at our cost , within twelve months of the closing date and in accordance with the terms of the purchase and sale agreement . on june 2 , 2014 , the united states environmental protection agency provided final approval of the work plans to complete the last phase of the decommissioning process . the time for completion has been consensually extended by maine energy and the city of biddeford and we expect to complete the decommissioning process within the current agreed upon time frame . we will continue to finalize estimates and obtain additional information regarding the estimated costs associated with the divestiture . due to the inherent judgments and estimates regarding the remaining costs to fulfill our obligation under the purchase and sale agreement to demolish the facility and remediate the site , recognition of a loss on divestiture , which we do not expect , or a potential gain on divestiture is possible . there were no divestitures in fiscal year 2012. results of operations the following table summarizes our revenues and operating expenses for fiscal year 2014 , 2013 and 2012 ( in millions and as a percentage of revenue ) : replace_table_token_7_th revenues we manage our solid waste operations , which include a full range of solid waste services , on a geographic basis through two regional operating segments , which we designate as the eastern and western regions . story_separator_special_tag revenues in our eastern and western regions consist primarily of fees charged to customers for solid waste collection and disposal , landfill , landfill gas-to-energy , transfer and recycling services . we derive a substantial portion of our 38 collection revenues from commercial , industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities . the majority of our residential collection services are performed on a subscription basis with individual households . landfill and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our disposal facilities and transfer stations . we also generate and sell electricity at certain of our landfill facilities . in addition , revenues from our recycling segment consist of revenues derived from municipalities and customers in the form of processing fees , tipping fees and commodity sales . organics services , ancillary operations , major customer accounts , discontinued operations , and earnings from equity method investees are included in our other reportable segment . our revenues are shown net of inter-company eliminations . the table below shows the percentages and dollars ( in millions ) of revenue attributable to services provided for fiscal years 2014 , 2013 and 2012 : replace_table_token_8_th our revenues increased $ 42.3 million , or 9.3 % , and decreased $ 12.7 million , or 2.7 % , for fiscal years 2014 and 2013 when compared to the respective prior fiscal year . the following table provides details associated with the period-to-period change in revenues ( dollars in millions ) attributable to services provided : replace_table_token_9_th 39 solid waste revenues price . the price change component in total solid waste revenues growth for fiscal year 2014 is the result of $ 2.9 million from favorable collection pricing , partially offset by $ 0.4 million from unfavorable disposal pricing associated with our landfills . the price change component in total solid waste revenues decline for fiscal year 2013 is the result of $ 2.1 million from favorable collection pricing , partially offset by $ 0.6 million from unfavorable disposal pricing , of which $ 0.4 million relates to landfills . volume . the volume change component in total solid waste revenues growth for fiscal year 2014 is the result of $ 15.1 million from disposal volume increases ( of which $ 7.3 million relates to landfills , $ 5.3 million relates to transfer stations and $ 2.5 million relates to transportation ) , $ 3.1 million from collection volume increases and $ 0.8 million from processing volume increases . the volume change component in total solid waste revenues decline for fiscal year 2013 is the result of $ 7.5 million from lower collection volumes , $ 4.1 million from lower disposal volumes associated with our landfills , partially offset by $ 1.8 million from higher processing volumes . commodity price and volume . the commodity price and volume change component in total solid waste revenues growth for fiscal year 2014 is the result of $ 2.5 million from favorable commodity pricing within power generation , partially offset by $ 1.4 million from lower power generation and processing volumes and $ 0.4 million from unfavorable commodity pricing within processing . the commodity price and volume change component in total solid waste revenues decline for fiscal year 2013 is the result of $ 1.4 million from unfavorable commodity pricing within processing and $ 1.7 million from lower power generation and processing commodity volumes , partially offset by $ 1.0 million from favorable commodity pricing within power generation . acquisitions and divestitures . the acquisitions and divestitures change component in total solid waste revenue growth for fiscal year 2014 is the result of $ 16.7 million in increased revenues from acquisitions , primarily associated with our acquisition of bbi in december 2012 , and our acquisition of four solid waste hauling operations and a transfer station in fiscal year 2014. increased revenues were partially offset by $ 7.4 million in decreased revenues associated with the maine energy divestiture . the acquisitions and divestitures change component in total solid waste revenues decline for fiscal year 2013 is the result of $ 11.5 million in increased revenues from acquisitions , primarily associated with our acquisition of bbi in december 2012 , partially offset by $ 1.5 million in decreased revenues associated with the maine energy divestiture . closed landfill . the closed landfill change component in total solid waste revenue growth for fiscal year 2014 and revenue decline for fiscal year 2013 is the result of a landfill in the eastern region that stopped accepting waste in the second quarter of fiscal year 2013 based on the attainment of its permitted capacity . the impact of the closure was limited in fiscal year 2014 as we were granted a permit in may 2013 to accept an additional 0.2 million tons of waste at this landfill . we began placing additional waste at this landfill pursuant to the permit at the end of june 2013 and ceased placing tons in april 2014 . 40 fuel and oil recovery fee . solid waste revenues in fiscal year 2014 generated by our fuel and oil recovery fee program , which is based on a fuel index , decreased when compared to the prior fiscal year as our floating rate recovery fee declined in response to lower diesel fuel index prices on which the surcharge is based . organics revenues the increase in organics revenues for fiscal years 2014 and 2013 when compared to the respective prior fiscal year is primarily the result of higher volumes . customer solutions revenues the increase in customer solutions revenues for fiscal year 2014 from the prior fiscal year is the result of $ 2.6 million from higher volumes and $ 5.3 million from the acquisition of an industrial service management business . the decrease in customer solutions revenues for fiscal year 2013 from the prior fiscal year is due to volume declines .
| this was due to unfavorable impacts related to accrued expenses and other liabilities ( which are affected primarily by cost changes such as interest , the timing of payments , and changes related to accrued final capping , closure , and post-closure costs ) , accounts receivable ( which are affected by both revenue changes and timing of payments received ) , accounts payable ( which are affected by both cost changes and timing of payments ) and prepaid expenses , inventories and other assets ( which were affected primarily by the timing of payments and expense recognition ) . this is compared to fiscal year 2013 , when our cash flows from operating activities were favorably impacted $ 0.6 million by changes in our assets and liabilities . the unfavorable change of $ 9.7 million is due to the unfavorable $ 4.3 million impact associated with the change in accounts 57 payable , the unfavorable $ 4.5 million impact associated with the change in prepaid expenses , inventories and other assets and the unfavorable $ 3.6 million impact associated with the change in accounts receivable , partially offset by the favorable $ 2.7 million impact associated with the change in accrued expenses and other liabilities . our cash flows from operating activities were favorably impacted $ 0.6 million in fiscal year 2013 by changes in our assets and liabilities . this was due to favorable impacts related to our accounts payable ( which were affected by both cost changes and timing of payments ) , prepaid expenses , inventories and other assets ( which were affected primarily by the timing of payments , expense recognition ) and accounts receivable ( which were affected by both revenue changes and timing of payments received ) . this was partially offset by the unfavorable impact related to accrued expenses and other liabilities ( which were affected primarily by cost changes such as interest , the timing of payments , and changes related to accrued final capping , closure , and post-closure costs ) . this is compared to fiscal year 2012 , when our cash flows from operating activities were favorably impacted $ 6.3 million by changes in our assets and liabilities . the unfavorable change of $ 5.7 million is largely due to the unfavorable $ 7.3 million
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our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry . we engaged in a number of acquisition and disposal transactions during the 2009 to 2011 period , which affected revenues , expenses , operating income and net income . additional information regarding material acquisitions is provided in note 4 acquisitions and information on dispositions is provided in note 10 discontinued operations in the notes to the consolidated financial statements . foreign exchange fluctuations . our financial results and competitive position are affected by fluctuations in the exchange rate between the us dollar and non-us dollars , primarily the canadian dollar . see also quantitative and qualitative disclosures about market risk foreign exchange. seasonality . historically , with some exceptions , we generate the highest quarterly revenues during the fourth quarter in each year . the fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur . story_separator_special_tag text-align : left ; font-family : serif ; font-size : 10pt ; line-height : 12pt ; font-style : italic ; font-variant : normal ; font-weight : bold ; text-transform : none ; padding-top : 5pt ; padding-right : 0pt ; padding-left : 4px ; padding-bottom : 3pt ; margin-top : 0pt ; margin-right : 0pt ; margin-left : 0pt ; margin-bottom : 0pt '' > new financing on october 23 , 2009 , the company completed a $ 300 million refinancing of its existing debt arrangements . the company issued $ 225 million of 11 % notes and obtained a new $ 75 million revolving wf credit agreement . the proceeds were used to pay off the existing fortress facility , consisting of the $ 130 million term loan , and the c $ 45 million convertible debentures . the proceeds were also used for the early payment of $ 46.0 million of deferred acquisition consideration relating to kirshenbaum bond senecal & partners llc ( kbsp ) and crispin porter & bogusky llc ( cpb ) . in connection with the repayment of its prior indebtedness , the company incurred termination fees and expenses of $ 2.0 million and wrote off deferred financing costs of $ 2.5 million . 20 effective october 5 , 2009 , mdc acquired the remaining 6 % equity interest in cpb from the minority holder . in accordance with the terms of the underlying limited liability company agreement , the estimated contingent purchase price of $ 8.5 million will be paid in future periods beginning in april 2011. following the closing of this transaction , mdc 's ownership in cpb is 100 % . results of operations for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_5_th 21 replace_table_token_6_th 22 replace_table_token_7_th year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue was $ 943.3 million for the year ended 2011 , representing an increase of $ 254.2 million , or 36.9 % , compared to revenue of $ 689.1 million for the year ended 2010. this increase relates primarily to acquisition growth of $ 132.1 million and an increase in organic revenue of $ 117.3 million . in addition , a weakening of the us dollar , primarily versus the canadian dollar during the year ended december 31 , 2011 , resulted in an increase of $ 4.8 million . operating profit for the year ended 2011 was $ 9.3 million , compared to $ 30.3 million in 2010. operating profit decreased by $ 19.6 million in the strategic marketing services , and was offset by an increase of $ 12.2 million within the performance marketing services segment . corporate operating expenses increased by $ 13.6 million in 2011. loss from continuing operations was a loss of $ 75.6 million in 2011 , compared to a loss of $ 1.4 million in 2010. this increase in loss of $ 74.2 million was primarily attributable to the decrease in operating profit of $ 21.0 million , an increase in tax expense of $ 41.9 million and an increase in net interest expense equal to $ 8.6 million . this increase in net interest expense was primarily due to the company 's outstanding 11 % notes . these amounts were impacted by an increase in foreign exchange losses from a gain of $ 0.1 million in 2010 to a loss of $ 1.7 million in 2011 , and a decrease in other income , net of $ 0.3 million and a decrease in equity in earnings of non-consolidated affiliates of $ 0.7 million . 23 marketing communications group revenues attributable to the marketing communications group , which consists of two reportable segments strategic marketing services and performance marketing services , were $ 943.3 million in the aggregate in 2011 , compared to $ 689.1 million in 2010 , representing a year-over-year increase of 36.9 % . the components of the revenue for 2011 are shown in the following table : replace_table_token_8_th the geographic mix in revenues was relatively consistent between 2011 and 2010 and is demonstrated in the following table : replace_table_token_9_th the operating profit of the marketing communications group decreased by approximately 14.0 % to $ 45.6 million in 2011 , from $ 53.0 million in 2010. the decrease in operating profit of $ 7.4 million was primarily due to an increase in acquisition related costs and estimated deferred acquisition consideration adjustments of $ 12.4 million , and increased depreciation and amortization of $ 5.6 million , due to acquisitions . these amounts were offset by $ 10.2 million of increased operating profits related to the increase in revenue and a $ 0.4 million decrease in non-cash stock based compensation , despite the company 's strategic investments in talent , new office locations , and other growth investments . story_separator_special_tag operating margins decreased to 4.8 % for 2011 compared to 7.7 % for 2010. this decrease in operating margin was primarily related to an increase in reimbursed client related direct costs ( excluding staff costs ) as a percentage of revenues from 20.3 % of revenue in 2010 to 24.3 % of revenue in 2011. this increase in reimbursed client related direct costs is due to the requirement that certain costs be included in both revenue and direct costs due to the company acting as principle versus agent for certain client contracts . in addition , margins were negatively impacted by an increase in office and general expenses as a percentage of revenue from 18.7 % in 2010 to 19.5 % in 2011 primarily due to acquisition related costs and estimated deferred acquisition consideration adjustments as a percentage of revenue of 1.5 % in 2011 compared to 0.3 % in 2010. offsetting these increases was a reduction in total staff costs as a percentage of revenues from 55.5 % in 2010 , to 53.9 % in 2011. in addition , depreciation and amortization expenses decreased as a percentage of revenue from 4.9 % in 2010 , to 4.2 % in 2011 , due to the increase in revenue in 2011. marketing communications businesses strategic marketing services revenues attributable to strategic marketing services in 2011 were $ 608.1 million , compared to $ 438.9 million in 2010. the year-over-year increase of $ 169.2 million , or 38.5 % , was attributable primarily to organic growth of $ 81.5 million or 18.6 % ; acquisition growth of $ 84.7 million or 19.3 % ; and a foreign exchange translation of $ 2.9 million due to the weakening of the us dollar compared to the canadian dollar . this organic revenue growth was driven by net new business wins . the operating profit of strategic marketing services decreased by $ 19.7 million to $ 21.3 million in 2011 from $ 41.0 million in 2010. operating margins decreased to 3.5 % in 2011 from 9.3 % in 2010. the decrease in operating profit was primarily due to an increase in acquisition related costs and estimated deferred acquisition consideration adjustments of $ 21.7 million , increased depreciation and amortization of $ 4.5 million , due to acquisitions , offset by $ 4.4 million of increased operating profits related to increased 24 revenue , and a decrease in non-cash stock based compensation of $ 2.1 million . the decrease in operating margin was primarily related to an increase in direct costs ( excluding staff costs ) as a percentage of revenues from 16.8 % of revenue in 2010 , to 22.1 % of revenue in 2011. in addition , margins were negatively impacted by an increase in office and general expenses as a percentage of revenue from 20.6 % in 2010 to 22.7 % in 2011 due to the increased acquisition related costs and estimated deferred acquisition consideration adjustments of 4.0 % in 2011 compared to 0.6 % in 2010 offset in part from the increase in revenue . offsetting these increases , total staff costs as a percentage of revenue decreased from 55.8 % in 2010 to 54.2 % in 2011 , despite the company 's investment in talent . depreciation and amortization decreased as a percentage of revenue from 4.1 % during 2010 to 3.7 % during 2011 , due to the increase in revenues . performance marketing services performance marketing services generated revenues of $ 335.2 million for 2011 , an increase of $ 85.0 million , or 34 % , compared to revenues of $ 250.2 million in 2010. the year-over-year increase was attributable primarily to acquisition growth of $ 47.4 million , organic revenue growth of $ 35.8 million , and a foreign translation increase of $ 1.8 million . this organic revenue growth was driven by net new business wins . the operating profit of performance marketing services increased by $ 12.2 million to $ 24.2 million in 2011 , from an operating profit of $ 12.0 million in 2010. operating margins improved from 4.8 % in 2010 compared to 7.2 % in 2011. the increase in operating profit was primarily due to a decrease in acquisition related costs and estimated deferred acquisition consideration adjustments of $ 9.3 million and $ 5.8 million relating to increased revenue . these increases were offset in part from increased depreciation and amortization of $ 1.2 million , due to acquisitions and increased non-cash stock based compensation of $ 1.7 million . the increase in operating margin in 2011 was due primarily to a decrease in total staff costs as a percentage of revenue from 55.0 % in 2010 to 53.2 % in 2011. office and general expenses as a percentage of revenue decreased from 15.3 % in 2010 to 13.6 % in 2011 due to a decrease in acquisition related costs and estimated deferred acquisition consideration adjustments as a percentage of revenue of a positive net adjustment of 0.3 % in 2010 to a larger positive net adjustment of 3.0 % in 2011. this decrease was offset by an increase in non-cash stock based compensation expense of $ 1.7 million . in addition , depreciation and amortization expense decreased as a percentage of revenue from 6.3 % in 2010 to 5.1 % in 2011 , due to the increased revenue . offsetting these decreases was an increase in direct costs ( excluding staff costs ) as a percentage of revenue from 26.4 % in 2010 to 28.2 % in 2011. corporate operating costs related to the company 's corporate operations increased by $ 13.6 million to $ 36.3 million in 2011 , compared to $ 22.7 million in 2010. this increase was primarily related to increased compensation and related costs of $ 9.0 million ( $ 7.6 million of which consisted of non-cash stock based compensation ) .
| summary of key transactions year ended december 31 , 2011 the company completed several key acquisitions in 2011. these acquisitions included the acquisition of a 70 % interest in concentric partners , llc ( concentric ) , a 65 % interest in laird + partners , new york llc ( laird ) , a 100 % interest in rj palmer partners llc ( rj palmer ) , a 75 % interest in trade x partners llc ( trade x ) and a 60 % interest in anomaly partners , llc ( anomaly ) . the total aggregate purchase price for these 2011 transactions was $ 76.8 million , which included closing cash payments equal to $ 40 million plus additional estimated contingent purchase payments in future years of approximately $ 36.8 million . see note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions . on april 19 , 2011 , the company and its wholly-owned subsidiaries , as guarantors , issued and sold an additional $ 55 million aggregate principal amount of 11 % notes due 2016. the additional notes were issued under the indenture governing the 11 % notes and treated as a single series with the original 11 % notes . the additional notes were sold in a private placement in reliance on exceptions from registration under the securities act of 1933 , as amended . the company received net proceeds before expenses of $ 59.6 million , which included an original issue premium of $ 6.1 million , and underwriter fees of $ 1.5 million . the company used the net proceeds of the offering to repay the outstanding balance under the company 's wf credit agreement described elsewhere herein , and for general corporate purposes . year ended december 31 , 2010 the company completed several key acquisitions in 2010. these acquisitions included the acquisition of 60 % of the equity interests in the arsenal llc ( team ) ; 75 % of the equity interests in integrated media solutions , llc ; 51 % of the
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60 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2018 were as follows ( dollars in thousands ) : replace_table_token_8_th research and development expenses increased $ 12.3 million , or 15.2 % , to $ 93.3 million for the year ended december 28 , 2019 from $ 81.0 million for the year ended december 29 , 2018 , primarily due to increases in payroll-related costs of approximately $ 8.6 million , higher information technology and systems allocations of $ 1.0 million , higher occupancy-related costs of $ 1.0 million and higher engineering project expenses of approximately $ 0.8 million . included in research and development expenses was approximately $ 8.3 million and $ 5.7 million of stock-based compensation expense for the years ended december 28 , 2019 and december 29 , 2018 , respectively . the increase in stock-based compensation expense during the year ended december 28 , 2019 was primarily due to the increase in the fair market value of our stock from the prior year that increased the value of the equity awards granted during the year . see note 18 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on our stock-based compensation programs . non-operating income . non-operating income consists primarily of interest income , interest expense and foreign exchange losses . non-operating income for fiscal years 2019 and 2018 was as follows ( dollars in thousands ) : replace_table_token_9_th non-operating income was $ 13.0 million for the year ended december 28 , 2019 , as compared to $ 5.7 million of non-operating income for the year ended december 29 , 2018 . this net increase of approximately $ 7.2 million was primarily due to approximately $ 5.7 million in higher interest income . in addition , we recognized approximately $ 0.6 million of net realized and unrealized losses on foreign currency denominated transactions during the year ended december 28 , 2019 , as compared to approximately $ 2.0 million of net realized and unrealized losses on foreign currency denominated transactions during the year ended december 29 , 2018 . provision for income taxes . our provision for income taxes for fiscal years 2019 and 2018 was as follows ( dollars in thousands ) : replace_table_token_10_th our provision for income taxes was $ 38.0 million for the year ended december 28 , 2019 compared to $ 20.2 million for the year ended december 29 , 2018 . our effective tax rate was 16.2 % for the year ended december 28 , 2019 compared to 9.5 % for the year ended december 29 , 2018 . this increase in our effective tax rate for the year ended december 28 , 2019 resulted primarily from a decrease in the amount of excess tax benefits realized from stock-based compensation pursuant to asu no . 2016-09 , compensation—stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( asu 2016-09 ) of approximately $ 6.3 million compared to the year ended december 29 , 2018 . 63 we have made no provision for u.s. income taxes or foreign withholding taxes on approximately $ 97.0 million in accumulated earnings from our foreign subsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the u.s. our effective tax rate was lower than the u.s. federal statutory rate primarily due to a portion of our earnings being generated from countries other than the u.s. , where such earnings are generally subject to lower tax rates than the u.s. , excess tax benefits from u.s. stock-based compensation and research and development tax credits . while we expect our worldwide consolidated effective tax rate will continue to be lower than the u.s. federal statutory rate , our actual future effective income tax rate will depend on various factors , including the geographic composition of our pre-tax income , the amount of excess tax benefits realized from u.s. stock-based compensation , the amount of our research and development tax credits , the deductibility of executive compensation , changes in tax laws , changes in deferred tax asset valuation allowances and the recognition and derecognition of tax benefits associated with uncertain tax positions . comparison of the year ended december 29 , 2018 to the year ended december 30 , 2017 revenue . total revenue increased $ 68.0 million , or 8.6 % , to $ 858.3 million for the year ended december 29 , 2018 , from $ 790.2 million for the year ended december 30 , 2017 .the following table details our total product revenues by the geographic area to which the products were shipped for fiscal years 2018 and 2017 ( dollars in thousands ) : replace_table_token_11_th product revenues increased $ 91.6 million , or 12.4 % , to $ 829.9 million for the year ended december 29 , 2018 from $ 738.2 million for the year ended december 30 , 2017 . this increase was primarily due to higher sales of our sensor products resulting from an increase in our installed base of circuit boards and monitors , an increase in sales of parameter licenses as well as higher sales of circuit boards , monitoring equipment and parameter licenses . included in our product revenue growth was approximately $ 4.0 million of favorable foreign exchange rate movements from the prior year period that increased the u.s. dollar translation of foreign sales that were denominated in various foreign currencies . during the year ended december 29 , 2018 , we shipped approximately 231,700 noninvasive technology boards and monitors , an increase of approximately 28,700 units , or 14.1 % , from approximately 203,000 units shipped during the year ended december 30 , 2017 . product revenue generated through our direct and distribution sales channels increased $ 73.9 million , or 11.5 % , to $ 718.6 million for the year ended december 29 , 2018 , compared to $ 644.7 million for the year ended december 30 , 2017 . story_separator_special_tag revenues from our oem channel increased $ 17.7 million , or 18.9 % , to $ 111.3 million for the year ended december 29 , 2018 as compared to $ 93.6 million for the year ended december 30 , 2017 . for the year ended december 29 , 2018 , royalty and other revenue decreased $ 23.6 million or 45.4 % , to $ 28.4 million from $ 52.0 million for the year ended december 30 , 2017 , primarily due to the completion of the majority of our contracted nre services in the prior year . in addition , medtronic was no longer required to pay sales-based royalties to us after october 6 , 2018. gross profit . gross profit consists of total revenue less cost of goods sold . our gross profit for fiscal years 2018 and 2017 was as follows ( dollars in thousands ) : replace_table_token_12_th 64 cost of goods sold increased $ 15.2 million to $ 283.4 million for the year ended december 29 , 2018 , from $ 268.2 million for the year ended december 30 , 2017 , primarily due to increased product revenue that was partially offset by improved manufacturing efficiencies and product cost reductions . product gross margins increased to 65.9 % for the year ended december 29 , 2018 from 64.2 % for the year ended december 30 , 2017 . this increase in product gross margin was primarily due to improved manufacturing efficiencies and product cost reductions . royalty and other revenue gross profit decreased by $ 20.7 million for the year ended december 29 , 2018 compared to the year ended december 30 , 2017 , primarily due to lower nre service revenue in the current year . selling , general and administrative . selling , general and administrative expenses for fiscal years 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_13_th selling , general and administrative expenses increased $ 12.4 million , or 4.5 % , to $ 285.4 million for the year ended december 29 , 2018 from $ 273.0 million for the year ended december 30 , 2017 . this net increase was primarily attributable to higher payroll-related costs of approximately $ 24.2 million , higher gpo fees and third-party commission expenses of approximately $ 2.8 million and higher charitable donations of approximately $ 2.6 million . these increased expenses were partially offset by lower legal expenses of approximately $ 2.7 million and the non-recurrence of a net charge of approximately $ 10.5 million recorded during the year ended december 30 , 2017 related to an arbitration proceeding that we initiated against a former appointed foreign agent , and a $ 2.0 million partial recovery against such charge during the year ended december 29 , 2018 . see note 21 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on the status of this arbitration proceeding . approximately $ 21.4 million and $ 13.3 million of stock-based compensation expense was included in selling , general and administrative expenses for the years ended december 29 , 2018 and december 30 , 2017 , respectively . the increase in stock-based compensation expense during the year ended december 29 , 2018 was due to both the composition of the equity awards granted and a significant increase in the fair market value of our stock from the prior year that increased the value of the equity awards granted during the year . see note 18 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on our stock-based compensation programs . research and development . research and development expenses for fiscal years 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_14_th research and development expenses increased $ 15.8 million , or 24.2 % , to $ 81.0 million for the year ended december 29 , 2018 from $ 65.2 million for the year ended december 30 , 2017 . this net increase was due primarily to increases in payroll-related costs of approximately $ 10.1 million , engineering project costs of approximately $ 0.8 million and occupancy-related costs of approximately $ 0.8 million , as well as $ 3.0 million less in allocations to cost of goods sold due to lower nre service revenue . included in research and development expenses was approximately $ 5.7 million and $ 3.6 million of stock-based compensation expense for the years ended december 29 , 2018 and december 30 , 2017 , respectively . the increase in stock-based compensation expense during the year ended december 29 , 2018 was primarily due to the increase in the fair market value of our stock from the prior year that increased the value of the equity awards granted during the year . see note 18 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on our stock-based compensation programs . 65 litigation settlement , award and or defense costs . litigation settlement , award and or defense costs for fiscal years 2018 and 2017 were as follows ( dollars in thousands ) : litigation settlement , award and or defense costs year ended december 29 , 2018 percentage of net revenues year ended december 30 , 2017 percentage of net revenues increase/ ( decrease ) percentage change $ 425 — % $ — — % $ 425 100.0 % litigation settlement , award and or defense costs was $ 0.4 million for the year ended december 29 , 2018 , as compared to zero litigation settlement , award and or defense costs for the year ended december 30 , 2017. this increase relates entirely to a settlement agreement with our former insurance carrier relating to previously advanced defense costs in connection with an employment-related arbitration award . non-operating income .
| revenues from our oem channel increased $ 8.3 million , or 7.5 % , to $ 119.6 million for the year ended december 28 , 2019 as compared to $ 111.3 million for the year ended december 29 , 2018 . royalty and other revenue historically consisted primarily of royalties received from medtronic plc ( medtronic ) and revenue from non-recurring engineering services for a certain oem customer . for the year ended december 28 , 2019 , royalty and other revenue decreased $ 27.0 million , or 95.0 % , to $ 1.4 million from $ 28.4 million for the year ended december 29 , 2018 , primarily due to lower royalties from medtronic as a result of the expiration of their obligation to pay us sales-based royalties after october 6 , 2018. we received our final royalty payment from medtronic during the three months ended march 30 , 2019. we currently do not expect any significant royalty or other revenue in the future . gross profit . gross profit consists of total revenue less cost of goods sold . our gross profit for fiscal years 2019 and 2018 was as follows ( dollars in thousands ) : replace_table_token_6_th cost of goods sold includes labor , material , overhead and other similar costs related to the production , supply , distribution and support of our products and the rendering of non-recurring engineering ( nre ) services . cost of goods sold increased $ 25.3 million to $ 308.7 million for the year ended december 28 , 2019 , from $ 283.4 million for the year ended december 29 , 2018 , primarily due to higher product sales volume and a net increase in costs related to leased equipment pursuant to our recent adoption of asc 842 of approximately $ 5.0 million , which was partially offset by lower costs of materials , increased leverage of our fixed production costs and lower inventory valuation reserves . product gross margins increased to 67.1 % for the year ended december 28 , 2019 from 65.9 %
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personnel costs were $ 7.5 million lower primarily due to a reduction in headcount . insurance and loss reserves were $ 1.7 million lower primarily due to a reduction in premiums . fuel expense was $ 0.5 million lower primarily due to reduced flight hours . other operating expenses were $ 1.2 million lower primarily due to reduced activity , partially offset by indirect tax expense of $ 2.0 million related to the pert program in brazil in 2017 . these decreases were partially offset by an increase in repairs and maintenance expense of $ 8.5 million primarily due to a $ 2.3 million increase in power-by-the-hour ( “ pbh ” ) expense , a net reduction in vendor credits of $ 2.4 million and a $ 3.8 million increase related to the timing of repairs . the increased pbh expense was primarily due to the recognition of $ 7.1 million of credits in 2016 related to the removal of helicopters from pbh programs , partially offset by the recognition of credits and fewer flight hours in 2017 . administrative and general . administrative and general expenses were $ 5.9 million higher in 2017 primarily due to increases of $ 6.3 million in professional services fees and $ 0.7 million due to the recognition of a bad debt recovery in brazil in 2016. these increases were partially offset by a decrease of $ 0.8 million in compensation and employee costs as a result of lower headcount and a decrease of $ 0.3 million in other administrative and general costs . depreciation and amortization . depreciation and amortization expense was $ 3.6 million lower in 2017 primarily due to certain assets becoming fully depreciated and asset dispositions subsequent to 2016 and a decrease in depreciation on the company 's h225 helicopters following their impairment during 2017 , partially offset by new heavy helicopters placed in service . gains on asset dispositions , net . in 2017 , we sold or otherwise disposed of a hangar in alaska , three helicopters , capital parts and other assets for gains of $ 4.5 million . in 2016 , we sold or otherwise disposed of two hangars in alaska , nine helicopters and related equipment for gains of $ 4.8 million . loss on impairment . we recorded a loss on impairment of $ 117.0 million in 2017 related to a decline in the value of our h225 helicopters . operating income ( loss ) . operating loss as a percentage of revenues was 58 % in 2017 compared to 2 % in 2016. excluding gains on asset dispositions , operating loss as a percentage of revenues was 61 % in 2017 compared to 3 % in 2016. the increase in operating loss as a percentage of revenues in 2017 was primarily due to the loss on impairment and increased professional services fees and repairs and maintenance expenses as described above . interest expense . interest expense was $ 0.6 million lower in 2017 primarily due to lower outstanding debt balances and the resumption of the capitalization of interest on certain helicopter deposits in 2017 compared to the expensing of interest on these deposits in 2016 due to the refund of helicopter deposits . this was partially offset by $ 0.8 million of additional accrued interest resulting from the correction of immaterial accounting errors . gain on debt extinguishment . gain on debt extinguishment was $ 0.5 million in 2016 due to the repurchase of $ 5.0 million of our 7.750 % senior notes . income tax benefit . income tax benefit was $ 119.3 million higher in 2017 primarily due to approximately $ 70.0 million related to the impact of the tax act , as well as the tax impact of the impairment of our h225 helicopters , capital parts and inventory during 2017. equity earnings . equity earnings , net of tax , were $ 0.3 million higher in 2017 primarily due to higher earnings at our dart holding company ltd. ( “ dart ” ) joint venture . liquidity and capital resources our ongoing liquidity requirements arise primarily from working capital needs , meeting our capital commitments ( including the purchase of helicopters and other equipment ) and the repayment of debt obligations . in addition , we may use our liquidity to fund acquisitions or to make other investments . sources of liquidity are cash balances , cash flows from operations and borrowings under our revolving credit facility , and , from time to time , we may secure additional liquidity through the issuance of equity or debt , as well as the sale of assets . 39 summary of cash flows replace_table_token_7_th operating activities the components of cash flows provided by operating activities during the years ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_8_th operating income before depreciation and gains on asset dispositions and impairments , net was $ 45.5 million higher for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the recognition of $ 42.0 million of litigation settlement proceeds in the current year and a $ 15.9 million decrease in operating expenses related to personnel reductions , decreased repairs and maintenance expenses and the absence of certain other operating expenses incurred in the prior year . the litigation settlement proceeds and the decrease in operating expenses were partially offset by a $ 9.6 million decrease in revenues and a $ 3.0 million increase in administrative and general expenses . operating income before depreciation and gains on asset dispositions and impairments , net was $ 19.7 million lower for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due to a $ 15.9 million decrease in revenues resulting from reduced utilization of our helicopter fleet and dry-leasing contracts that ended during and subsequent to 2016 and a $ 5.9 million increase in story_separator_special_tag personnel costs were $ 7.5 million lower primarily due to a reduction in headcount . insurance and loss reserves were $ 1.7 million lower primarily due to a reduction in premiums . fuel expense was $ 0.5 million lower primarily due to reduced flight hours . other operating expenses were $ 1.2 million lower primarily due to reduced activity , partially offset by indirect tax expense of $ 2.0 million related to the pert program in brazil in 2017 . these decreases were partially offset by an increase in repairs and maintenance expense of $ 8.5 million primarily due to a $ 2.3 million increase in power-by-the-hour ( “ pbh ” ) expense , a net reduction in vendor credits of $ 2.4 million and a $ 3.8 million increase related to the timing of repairs . the increased pbh expense was primarily due to the recognition of $ 7.1 million of credits in 2016 related to the removal of helicopters from pbh programs , partially offset by the recognition of credits and fewer flight hours in 2017 . administrative and general . administrative and general expenses were $ 5.9 million higher in 2017 primarily due to increases of $ 6.3 million in professional services fees and $ 0.7 million due to the recognition of a bad debt recovery in brazil in 2016. these increases were partially offset by a decrease of $ 0.8 million in compensation and employee costs as a result of lower headcount and a decrease of $ 0.3 million in other administrative and general costs . depreciation and amortization . depreciation and amortization expense was $ 3.6 million lower in 2017 primarily due to certain assets becoming fully depreciated and asset dispositions subsequent to 2016 and a decrease in depreciation on the company 's h225 helicopters following their impairment during 2017 , partially offset by new heavy helicopters placed in service . gains on asset dispositions , net . in 2017 , we sold or otherwise disposed of a hangar in alaska , three helicopters , capital parts and other assets for gains of $ 4.5 million . in 2016 , we sold or otherwise disposed of two hangars in alaska , nine helicopters and related equipment for gains of $ 4.8 million . loss on impairment . we recorded a loss on impairment of $ 117.0 million in 2017 related to a decline in the value of our h225 helicopters . operating income ( loss ) . operating loss as a percentage of revenues was 58 % in 2017 compared to 2 % in 2016. excluding gains on asset dispositions , operating loss as a percentage of revenues was 61 % in 2017 compared to 3 % in 2016. the increase in operating loss as a percentage of revenues in 2017 was primarily due to the loss on impairment and increased professional services fees and repairs and maintenance expenses as described above . interest expense . interest expense was $ 0.6 million lower in 2017 primarily due to lower outstanding debt balances and the resumption of the capitalization of interest on certain helicopter deposits in 2017 compared to the expensing of interest on these deposits in 2016 due to the refund of helicopter deposits . this was partially offset by $ 0.8 million of additional accrued interest resulting from the correction of immaterial accounting errors . gain on debt extinguishment . gain on debt extinguishment was $ 0.5 million in 2016 due to the repurchase of $ 5.0 million of our 7.750 % senior notes . income tax benefit . income tax benefit was $ 119.3 million higher in 2017 primarily due to approximately $ 70.0 million related to the impact of the tax act , as well as the tax impact of the impairment of our h225 helicopters , capital parts and inventory during 2017. equity earnings . equity earnings , net of tax , were $ 0.3 million higher in 2017 primarily due to higher earnings at our dart holding company ltd. ( “ dart ” ) joint venture . liquidity and capital resources our ongoing liquidity requirements arise primarily from working capital needs , meeting our capital commitments ( including the purchase of helicopters and other equipment ) and the repayment of debt obligations . in addition , we may use our liquidity to fund acquisitions or to make other investments . sources of liquidity are cash balances , cash flows from operations and borrowings under our revolving credit facility , and , from time to time , we may secure additional liquidity through the issuance of equity or debt , as well as the sale of assets . 39 summary of cash flows replace_table_token_7_th operating activities the components of cash flows provided by operating activities during the years ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_8_th operating income before depreciation and gains on asset dispositions and impairments , net was $ 45.5 million higher for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to the recognition of $ 42.0 million of litigation settlement proceeds in the current year and a $ 15.9 million decrease in operating expenses related to personnel reductions , decreased repairs and maintenance expenses and the absence of certain other operating expenses incurred in the prior year . the litigation settlement proceeds and the decrease in operating expenses were partially offset by a $ 9.6 million decrease in revenues and a $ 3.0 million increase in administrative and general expenses . operating income before depreciation and gains on asset dispositions and impairments , net was $ 19.7 million lower for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due to a $ 15.9 million decrease in revenues resulting from reduced utilization of our helicopter fleet and dry-leasing contracts that ended during and subsequent to 2016 and a $ 5.9 million increase in
| operating revenues in colombia were $ 0.7 million lower primarily due to a short-term offshore contract in the prior year . revenues from dry-leasing activities were $ 4.9 million lower in the current year primarily due to $ 4.0 million of lease return charges on helicopters returned to the company upon the conclusion of lease contracts in the prior year and contracts that have ended . these decreases were partially offset by the recognition of a bankruptcy settlement during the current year . operating revenues from emergency response services were $ 1.8 million lower primarily due to a $ 1.4 million reduction related to the end of air medical contracts during the prior year and a $ 0.4 million reduction related to fewer search and rescue ( “ sar ” ) subscribers in the current year . operating revenues from flightseeing activities were $ 5.1 million lower due to the sale of the company 's flightseeing assets in the current year . operating expenses . operating expenses were $ 15.9 million lower in the current year . personnel costs were $ 7.1 million lower primarily due to a reduction in headcount . repairs and maintenance expenses were $ 5.7 million lower primarily due to a $ 5.1 million decrease related to the timing of repairs , a $ 0.9 million net increase in vendor credits , and a $ 0.4 million credit related to the return of leased-in helicopters in the current year , partially offset by a $ 0.6 million increase in power-by-the-hour ( “ pbh ” ) expense . other operating expenses were $ 5.4 million lower primarily due to accounting for a tax special regularization program ( “ pert ” ) in brazil in the prior year , the absence of costs related to flightseeing activities , and the reversal of previously reserved deposits following a favorable decision on brazilian customs and tax disputes in the current year . these decreases were partially offset by an increase in fuel expense of $ 2.3 million primarily due to a higher average fuel
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the company carefully reviewed all rules and regulations of the government orders and determined it met the requirements of an essential business to remain open . the company had the majority of its staff begin working remotely in mid-march , with only essential personnel continue working at the manufacturing and production facilities and currently remains in arizona 's phase i of reopening . this situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently . while the disruption is currently expected to be temporary , there is uncertainty around the duration . the ultimate impact of the pandemic on the company 's results of operations , financial position , liquidity or capital resources can not be reasonably estimated at this time . to date , the covid-19 restrictions have resulted in reduced customer shipments and customer system installations . these recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur . to date , there have been no order cancellations ; rather , there have only been delays in when orders ship or installations occur and all delayed orders remain in backlog . although not a material component of our company , a significant adverse change in the business climate could continue to affect the value of the company 's long-term investment in tec , including the long-term note receivable from tec . any future impact can not be reasonably estimated at this time . the company is no longer investing in certificates of deposits as a precautionary measure to increase its liquid cash position and preserve financial flexibility considering uncertainty in the u.s. and global markets resulting from covid-19 . additionally , the company 's stock repurchase program was suspended as a result of interim rulings for public-company recipients of a ppp loan under the cares act . the stock repurchase suspension will remain in effect for the duration of the outstanding ppp loan . results of operations for the years ended december 31 , 2020 and december 31 , 2019 revenues . revenues were $ 19,087,631 for the year ended december 31 , 2020 compared to $ 18,711,923 for the same period in 2019 , representing an increase of $ 375,708 or 2.0 % . the increase was the result of slight increases in sales of simulators , step sales , accessories , curriculum and training , and recurring extended warranty revenue in 2020. cost of sales . cost of sales were $ 7,187,210 for the year ended december 31 , 2020 compared to $ 8,998,232 for the same period in 2019 , representing a decrease of $ 1,811,022 , or 20.1 % . the year-over-year reduction was due to decreases in material costs , service and warranty costs , and travel expenses for both new and existing customers . in addition , the decrease in cost was a result of an increase in step sales where the cost of equipment is reclassified to property and equipment and amortized over the life of the equipment . gross profit . gross profit was $ 11,900,421 for the year ended december 31 , 2020 compared to $ 9,713,691 for the same period in 2019 , representing an increase of $ 2,186,730 , or 22.5 % . the gross profit margin was 62.3 % for the year ended december 31 , 2020 and 51.9 % for the same period in 2019. the increase in gross profit was primarily due to differences in the quantity and type of simulator systems , type of accessories and variety of services sold , combined with a decrease in cost of sales . 22 operating expenses . net operating expense was $ 10,674,109 for the year ended december 31 , 2020 compared to $ 9,451,373 for the same period in 2019 , representing an increase of $ 1,222,736 , or 12.9 % . during the year ended december 31 , 2020 , there was a $ 346,477 allowance for bad debt on accounts and note receivable and a one-time $ 840,000 impairment loss recorded as general and administrative expense on the statement of operations . for the year ended december 31 , 2019 , there was a $ 119,750 allowance for bad debt on accounts and note receivable and a $ 280,000 impairment loss recorded as general and administrative expenses on the statement of operations . additionally , the year-over-year increase in general and administrative was due to an increase in salaries and benefits , research and development , and facility expenses , partially offset by a decrease in tradeshow and travel related costs . income from operations . income from operations was $ 1,226,312 for the year ended december 31 , 2020 compared to $ 262,318 for the same period in 2019 , representing an increase of $ 963,994 , or 367.4 % , resulting from a decrease in cost of sales partially offset by an increase in operating expenses . income tax expense . income tax expense ( benefit ) was ( $ 218,800 ) for the year ended december 31 , 2020 compared to $ 446,725 for the same period in 2019 , representing a decrease in expense of $ 665,525 , or -148.9 % . the decrease resulted from a true-up of our deferred tax asset and temporary timing differences in deferred revenue , reserves , depreciation and amortization , and net operating loss carryforward , offset by an adjustment for taxes prepaid and refunded from prior year tax overpayments . other income ( expense ) . other income net of other expense was $ 13,035 for the year ended december 31 , 2020 compared to $ 109,130 for the same period in 2019 , representing a decrease of $ 96,095 , or 88.1 % , primarily resulting from a decrease in interest income . net income ( loss ) . story_separator_special_tag net income was $ 1,478,403 for the year ended december 31 , 2020 compared to net loss of $ 75,277 for the same period in 2019 , representing an increase of $ 1,553,680 , or 2,063.9 % , related to each respective section discussed above . adjusted earnings before interest , taxes , depreciation and amortization ( aebitda ) . explanation and use of non-gaap financial measures : earnings ( loss ) before interest , income taxes , depreciation and amortization and before other non-operating costs and income ( “ ebitda ” ) and adjusted ebitda are non-gaap measures . adjusted ebitda also includes non-cash stock option expense , impairment expense and bad debt expense . other companies may calculate adjusted ebitda differently . the company calculates its adjusted ebitda to eliminate the impact of certain items it does not consider to be indicative of its performance and its ongoing operations . adjusted ebitda is presented herein because management believes the presentation of adjusted ebitda provides useful information to the company 's investors regarding the company 's financial condition and results of operations and because adjusted ebitda is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in the company 's industry , several of which present ebitda and a form of adjusted ebitda when reporting their results . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under u.s. gaap . adjusted ebitda should not be considered as an alternative for net income , cash flows from operating activities and other income or cash flow statement data prepared in accordance with u.s. gaap or as a measure of profitability or liquidity . a reconciliation of net income to adjusted ebitda is provided in the following table : replace_table_token_1_th 23 liquidity and capital resources . liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements . the company had $ 6,841,985 and $ 1,415,091 cash and cash equivalents as of december 31 , 2020 and 2019 , respectively . the company also held certificates of deposits with maturities less than 12 months , which are recorded as short-term investments , totaling $ 0.00 and $ 1,915,000 as of december 31 , 2020 and 2019 , respectively . working capital was $ 10,269,397 and $ 7,173,280 as of december 31 , 2020 and 2019 , respectively . net cash provided by operating activities was $ 2,245,637 for the year ended december 31 , 2020 and net cash used in operating activities was $ 1,914,296 for the year ended december 31 , 2019. net cash provided by operating activities for the year ended december 31 , 2020 resulted primarily from a decrease in accounts receivable , increases in accounts payable and deferred revenue offset by increases in inventory and unbilled revenue , as well as other changes in operating assets and liabilities . operating activities in 2019 consisted of changes in working capital with significant cash used for increased accounts receivable and unbilled revenue offset by deferred revenue . net cash provided by investing activities was $ 1,852,993 for the year ended december 31 , 2020 and $ 1,181,110 for the year ended december 31 , 2019. investing activities in 2020 consisted of redemptions of certificates of deposits , purchase of intangible assets , and reclassification of inventory to property and equipment . investing activities in 2019 consisted of reclassification of inventory to , and sales of property and equipment , purchase of intangible assets , and purchase and redemption of certificates of deposit . net cash provided by financing activities was $ 1,328,263 for the year ended december 31 , 2020 and net cash used in financing activities was $ 352,104 for the year ended december 31 , 2019. financing activities in 2020 consisted primarily of the proceeds received from the ppp promissory note . financing activities in 2019 consisted of repurchase of stock options , purchase of treasury stock and repayment of the note payable for the machine shop . backlog the company defines bookings as the total of newly signed contracts and purchase orders received in a defined time period . the company received bookings totaling $ 5.5 million for the three months ended december 31 , 2020. the company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not started , or are uncompleted performance objectives , and can not be recognized as revenue until delivered in a future quarter . backlog also includes extended warranty agreements and step agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement . as of december 31 , 2020 , the company 's backlog was $ 14.6 million . management estimates the majority of the new bookings received in the fourth quarter of 2020 will be converted to revenue in 2021. management 's estimate for the conversion of backlog is based on current contract delivery dates , however , contract terms and install dates are subject to modification and are routinely changed at the request of the customer or due to factors outside the company 's control . cash requirements our management believes that our current capital resources will be adequate to continue operating our company and maintaining our current business strategy for more than 12 months from the filing of this annual report . we are , however , open to raising additional funds from the capital markets , at a fair valuation , to purchase a business or assets , expand our production capacity , expand our product and services , to enhance our sales and marketing efforts and effectiveness , and to aggressively take advantage of market opportunities . there can be no assurance , however , that additional financing will be available to us when needed or , if available , that it can be obtained on commercially reasonable terms .
| virtra 's driver training simulator provides an extensive and realistic range of training environments that allow for initial driver familiarization and orientation to advanced concepts , high-risk pursuits and defensive driving drills . we also are engaged in licensing our technology to that 's eatertainment corp. ( “ tec ” ) , a developer and operator of a combined dining and entertainment concept centered on an indoor shooting experience . mitchell saltz , who was a member of our board of directors until his passing in october 2020 , was the former chairman of the board and majority stockholder of tec . accordingly , until october 2020 , tec was a related party . business strategy we have four main customer groups , namely , law enforcement , military , educational ( includes colleges and police academies ) and civilian . these are very different markets and require different sales and marketing programs as well as personnel . our focus is to expand the market share and scope of our training simulators sales to these identified customer groups by pursuing the following key growth strategies : ● build our core business . our goal is to profitably grow our market share by continuing to develop , produce and market the most effective simulators possible . through disciplined growth in our business , we have achieved a solid balance sheet by increasing our working capital and limiting our bank debt . we plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we invest in potential growth . ● increase total addressable market . we plan to increase the size of our total addressable market . this effort will focus on new marketing and new product and or service offerings for the purpose of widening the number of types of customers who might consider our products or services uniquely compelling . ● broaden product offerings . since formation in 1993 , our company has had a proud tradition of innovation in the field of simulation and virtual reality . we plan to release revolutionary new products and services
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we will need to generate significant revenues to achieve sustained profitability and we may never do so . collaborations we have entered into a number of collaborations for the research , development and commercialization of deuterated compounds . to date , our collaborations have provided us with significant funding for both our specific development programs and our dce platform . our collaborators also have applied their considerable scientific , development , regulatory and commercial capabilities to the development of our compounds . in addition , in some instances , where we develop and seek to collaborate with respect to deuterated analogs of marketed drugs or of drug candidates that are more advanced in clinical trials , our collaborators may be eligible for an expedited development or regulatory pathway by relying on previous clinical data regarding their corresponding non-deuterated compound . we believe that our collaborations have contributed to our ability to progress our product candidates and build our dce platform . we have established the following key collaborations , which are discussed further in note 12 in the consolidated financial statements appearing elsewhere in this annual report on form 10-k. avanir in february 2012 , we entered into a development and license agreement with avanir under which we granted avanir an exclusive worldwide license to develop , manufacture and commercialize deuterated dextromethorphan analogs , including d 6 -dextromethorphan , or deudextromethorphan . avanir is currently focused on developing avp-786 , which is a combination of deudextromethorphan and an ultra- low dose of quinidine , for the treatment of neurologic and psychiatric disorders . in january 2015 , avanir was acquired by otsuka pharmaceutical co. , ltd. and it is now a wholly owned subsidiary of otsuka america , inc. under the agreement , we received a non-refundable upfront payment of $ 2.0 million and have received milestone payments of $ 6.0 million . we have the potential to earn up to $ 162.0 million in additional development , regulatory and sales-based milestone payments , of which $ 21.5 million in development and regulatory milestone payments are associated with the first indication . the next anticipated milestone payments that we may be entitled to receive are $ 5.0 million upon acceptance for filing of a nda , $ 3.0 million upon acceptance for filing of a maa , and $ 1.5 million upon acceptance for filing of a nda by the ministry of health , labour , and welfare , or mhlw , related to avp-786 . avanir also is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20 % on net sales of licensed products on a country-by-country basis . celgene in april 2013 , we entered into a master development and license agreement with celgene , which is primarily focused on the research , development and commercialization of specified deuterated compounds targeting inflammation or cancer . while the collaboration has the potential to encompass multiple programs , it is initially focused on one program , ctp-730 , which is deuterated apremilast . we were responsible for conducting and funding research and early development activities for the ctp-730 program pursuant to mutually agreed upon development plans . this included the completion of single and multiple ascending dose phase 1 clinical trials . celgene is responsible for any development of ctp-730 beyond the completed phase 1 clinical trials . if celgene exercises its rights with respect to any additional program and pays us the applicable exercise fee , we are responsible for conducting research and development activities at our own expense pursuant to mutually agreed upon development plans until the completion of the first phase 1 clinical trial , which will be defined in each development plan on a program-by-program basis . in addition , if celgene exercises its rights with respect to the option program and pays us the applicable exercise fee , we are responsible for seeking to generate a deuterated compound for clinical development in the selected option program at our own expense . under the agreement , we received a non-refundable upfront payment of $ 35.0 million and received an $ 8.0 million development milestone in october 2015 upon completion of clinical evaluation for ctp-730 . in addition , we have the potential to earn up to $ 312.5 million in additional development , regulatory and sales-based milestone payments with respect to 58 ctp-730 . the next milestone that we may be entitled to receive is $ 15.0 million upon the first dosing in a phase 3 clinical trial or , if earlier , acceptance for filing a new drug application , or nda , related to ctp-730 . if celgene exercises its rights under any additional program , we may be eligible for milestone payments for each additional program . in addition , with respect to each program , celgene is required to pay us royalties on worldwide net sales of each licensed product at defined percentages ranging from the mid-single digits to low double digits below 20 % . jazz pharmaceuticals in february 2013 , we entered into a development and license agreement with jazz pharmaceuticals to research , develop and commercialize products containing a deuterated sodium oxybate analog , or d-sxb . jazz pharmaceuticals is initially focused on developing one analog , designated as jzp-386 for the treatment of narcolepsy . under the terms of the agreement , we granted jazz pharmaceuticals an exclusive , worldwide , royalty-bearing license under intellectual property controlled by us to develop , manufacture and commercialize d-sxb products including , but not limited to , jzp-386 . we , together with jazz pharmaceuticals , have conducted certain development activities for phase 1 clinical trials with respect to jzp-386 pursuant to an agreed upon development plan . we were responsible under the development plan for conducting the phase 1 clinical trials with respect to jzp-386 . thereafter , our obligations to conduct further development activities are subject to mutual agreement . jazz pharmaceuticals has assumed all manufacturing and development responsibilities relating to jzp-386 . story_separator_special_tag under the agreement , we received a non-refundable upfront payment of $ 4.0 million and are eligible to earn an aggregate of up to $ 113.0 million in development , regulatory and sales-based milestone payments . the next milestone payment that we may be entitled to receive is $ 4.0 million related to initiation of the first phase 2 clinical trial of jzp-386 . in addition , jazz pharmaceuticals is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20 % on worldwide net sales of licensed products . asset purchase agreement on march 3 , 2017 , we entered into an asset purchase agreement with vertex pursuant to which we sold and assigned ctp-656 and other cystic fibrosis assets of the company to vertex . on july 25 , 2017 , the transaction contemplated by the asset purchase agreement closed , and vertex paid us $ 160 million in cash consideration with $ 16 million to be held in escrow , as described in note 14 in the consolidated financial statements appearing elsewhere in this annual report on form 10-k. additionally , upon the achievement of certain milestone events , vertex has agreed to pay us an aggregate of up to $ 90 million . of this amount , $ 50 million will become payable to us upon receipt of fda marketing approval for a combination treatment regimen containing ctp-656 , now known as vx-561 , for patients with cystic fibrosis , and $ 40 million will become payable to us upon completion of a pricing and reimbursement agreement in the first of the united kingdom , germany or france with respect to a combination treatment regimen containing ctp-656 for patients with cystic fibrosis . patent assignment agreement in september 2011 , we entered into a patent assignment agreement with auspex pharmaceuticals , inc. , or auspex , pursuant to which we assigned to auspex a u.s. patent application relating to deuterated pirfenidone analogs as described in note 13 in the consolidated financial statements appearing elsewhere in this annual report on form 10-k. among other things , the patent assignment agreement provides that if auspex is acquired in a change in control transaction at any time while it , or any of its affiliates , own certain patents or patent applications related to deuterated pirfenidone , we will receive within a specified period following the closing of the transaction 1.44 % of any proceeds payable as consideration for the change in control transaction , including any amounts paid to stockholders and certain equity holders of auspex . any such change in control payment to us is credited to auspex as a deduction against certain future payments that may become due under the agreement , such that auspex will not be required to make further payments to us until the aggregate amount of such payments otherwise due exceeds the amount of the change in control payment . pursuant to the agreement , we became eligible to receive a one-time payment of $ 50.2 million , which was received in june 2015 , due to teva pharmaceutical industries ltd. 's acquisition of auspex in may 2015 . 59 financial operations overview revenue we have not generated any revenue from the sales of products . all of our revenue to date has been generated through collaboration , license and research arrangements with collaborators and nonprofit organizations for the development and commercialization of product candidates , a patent assignment agreement , and an asset sale . the terms of these agreements may include one or more of the following types of payments : non-refundable license fees , payments for research and development activities , payments based upon the achievement of specified milestones , payment of license exercise or option fees relating to product candidates and royalties on any net product sales . to date , we have received non-refundable upfront payments , several milestone payments , payments for research and development services provided to our collaborators , a change in control payment pursuant to a patent assignment agreement , and a payment for the sale of an asset . however , we have not yet earned any license exercise or option fees , sales-based milestone payments or royalty revenue as a result of product sales . in the future , we will seek to generate revenue from a combination of product sales and milestone payments and royalties on product sales in connection with our current collaborations with avanir , celgene , and jazz pharmaceuticals , our asset sale with vertex , or other collaborations we may enter into . research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , including salary , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials ; the cost of acquiring , developing and manufacturing clinical trial materials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; platform-related lab expenses , which includes costs related to synthesis , analysis and in vitro and in vivo characterization of deuterated compounds to support the selection and progression of potential product candidates ; expenses related to consultants and advisors ; and costs associated with nonclinical activities and regulatory operations . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis . these external costs include fees paid to investigators , consultants , central laboratories and contract research organizations in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials .
| research and development expenses the following table summarizes our external research and development expenses , by program , for the years ended december 31 , 2017 and 2016 , with our internal research expenses separately classified by category . because avanir is conducting the clinical development of avp-786 at its expense , we made no investment in the program during these periods . external research and development expenses related to ctp-692 were immaterial during the fiscal year ended december 31 , 2017 . 67 replace_table_token_5_th research and development expenses were $ 30.2 million for the year ended december 31 , 2017 , compared to $ 37.0 million for the prior year period , a decrease of $ 6.8 million . this decrease was primarily due to a decrease of $ 6.5 million and $ 1.3 million in direct external expenses associated with ctp-656 and ctp-543 , respectively . the decrease in ctp-656 expenses in 2017 was attributable to costs incurred related to the phase 1 clinical testing and phase 2 manufacturing activities during the year ended december 31 , 2016 , compared to costs incurred related to the phase 2 clinical testing through july 2017 when the sale of ctp-656 to vertex under the asset purchase agreement closed . the decrease in ctp-543 external expenses was driven by the timing to initiate the phase 2a clinical trial . the decrease in external costs for other programs of $ 0.2 million was due to decreased consulting expenses for outsourced research development . the increase in employee and contractor-related expenses was primarily attributable to increased non-cash stock-based compensation expenses . general and administrative expenses general and administrative expenses were $ 21.0 million for the year ended december 31 , 2017 , compared to $ 14.4 million for the prior year . the increase of $ 6.6 million was attributable to a $ 4.1 million increase in consulting and professional fees associated with the ctp-656 asset purchase
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where a valuation allowance was established through purchase accounting for acquired deferred tax assets , any future change will be credited or charged to income tax expense . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . in the ordinary course of our business , there are transactions and calculations for which the ultimate tax determination is uncertain . in spite of our belief that we have appropriate support for all the positions taken on our tax returns , we acknowledge that certain positions may be successfully challenged by the taxing authorities . we determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions . although we believe our recorded tax assets and liabilities are reasonable , tax laws and regulations are subject to interpretation and inherent uncertainty ; therefore , our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions . although we believe these estimates and assumptions are reasonable , the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities . new accounting pronouncements in december 2011 , fasb issued accounting standards update ( `` asu '' ) 2011-11 , balance sheet - offsetting . this guidance requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments . the standard is effective for us as of january 1 , 2013 and will not materially impact our financial statement disclosures . in september 2011 , the fasb issued asu 2011-08 , `` testing goodwill for impairment . '' this guidance provides the option to evaluate prescribed qualitative factors to determine whether a calculated goodwill impairment test is necessary . the standard is effective for us as of january 1 , 2012 and will not materially impact on our financial condition , results of operations , or financial statement disclosures . 18 in may 2011 , fasb issued accounting standards update ( `` asu '' ) 2011-05 , comprehensive income : presentation of comprehensive income , to allow an entity the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . asu 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders ' equity . the amendments do not change the guidance regarding the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income . the amendments should be applied retrospectively , and is effective for fiscal years and interim periods within those years , beginning after december 15 , 2011. early adoption is permitted . the adoption is not expected to have a material impact on the company 's results of operations , financial position or cash flows . in may 2011 , the fasb issued asu 2011-04 , fair value measurement : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss . this asu represents the converged guidance of the fasb and the iasb ( the `` boards '' ) on fair value measurement , and results in common requirements for measuring fair value and for disclosing information about fair value measurements , including a consistent meaning of the term `` fair value . '' these amendments change some of the terminology used to describe many of the existing requirements in u.s. gaap for measuring fair value and for disclosing information about fair value measurements . the amendments should be applied prospectively , and they are effective during interim and annual periods beginning after december 15 , 2011. early application by public entities is not permitted . the adoption is not expected to have a material impact on the company 's results of operations , financial position or cash flows . management does not believe there would be a material effect on the accompanying financial statements had any other recently issued but not yet effective accounting standards been adopted in the current period . recent events change in officers and directors on january 20 , 2012 , the board of directors of the company elected mario barton , john bianco and d. bruce veness to serve as directors of the company . the board also elected john bianco to serve as the president and chief executive officer , lisa bischof to serve as treasurer and chief financial officer and bruce veness to serve as secretary and chief operating officer . ( a ) resignation of officers on the closing date , mario barton resigned as our president , treasurer , secretary , chief executive officer and chief financial officer . the resignation was not the result of any disagreement with us on any matter relating to our operations , policies or practices . ( b ) appointment of directors and officers the following persons were appointed as to the positions listed by their name in the table below at closing : name age position john l. bianco 61 president/ceo and director mario barton 62 director d. bruce veness 60 corporate secretary/coo and director lisa bischof 43 treasurer/cfo 19 off balance sheet arrangements as of december 31 , 2011 , we had no material off-balance sheet arrangements . in the ordinary course of business , we enter into agreements with third parties that include indemnification provisions which , in our judgment , are normal story_separator_special_tag where a valuation allowance was established through purchase accounting for acquired deferred tax assets , any future change will be credited or charged to income tax expense . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . in the ordinary course of our business , there are transactions and calculations for which the ultimate tax determination is uncertain . in spite of our belief that we have appropriate support for all the positions taken on our tax returns , we acknowledge that certain positions may be successfully challenged by the taxing authorities . we determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions . although we believe our recorded tax assets and liabilities are reasonable , tax laws and regulations are subject to interpretation and inherent uncertainty ; therefore , our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions . although we believe these estimates and assumptions are reasonable , the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities . new accounting pronouncements in december 2011 , fasb issued accounting standards update ( `` asu '' ) 2011-11 , balance sheet - offsetting . this guidance requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments . the standard is effective for us as of january 1 , 2013 and will not materially impact our financial statement disclosures . in september 2011 , the fasb issued asu 2011-08 , `` testing goodwill for impairment . '' this guidance provides the option to evaluate prescribed qualitative factors to determine whether a calculated goodwill impairment test is necessary . the standard is effective for us as of january 1 , 2012 and will not materially impact on our financial condition , results of operations , or financial statement disclosures . 18 in may 2011 , fasb issued accounting standards update ( `` asu '' ) 2011-05 , comprehensive income : presentation of comprehensive income , to allow an entity the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in both choices , an entity is required to present each component of net income along with total net income , each component of other comprehensive income along with a total for other comprehensive income , and a total amount for comprehensive income . asu 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders ' equity . the amendments do not change the guidance regarding the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income . the amendments should be applied retrospectively , and is effective for fiscal years and interim periods within those years , beginning after december 15 , 2011. early adoption is permitted . the adoption is not expected to have a material impact on the company 's results of operations , financial position or cash flows . in may 2011 , the fasb issued asu 2011-04 , fair value measurement : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss . this asu represents the converged guidance of the fasb and the iasb ( the `` boards '' ) on fair value measurement , and results in common requirements for measuring fair value and for disclosing information about fair value measurements , including a consistent meaning of the term `` fair value . '' these amendments change some of the terminology used to describe many of the existing requirements in u.s. gaap for measuring fair value and for disclosing information about fair value measurements . the amendments should be applied prospectively , and they are effective during interim and annual periods beginning after december 15 , 2011. early application by public entities is not permitted . the adoption is not expected to have a material impact on the company 's results of operations , financial position or cash flows . management does not believe there would be a material effect on the accompanying financial statements had any other recently issued but not yet effective accounting standards been adopted in the current period . recent events change in officers and directors on january 20 , 2012 , the board of directors of the company elected mario barton , john bianco and d. bruce veness to serve as directors of the company . the board also elected john bianco to serve as the president and chief executive officer , lisa bischof to serve as treasurer and chief financial officer and bruce veness to serve as secretary and chief operating officer . ( a ) resignation of officers on the closing date , mario barton resigned as our president , treasurer , secretary , chief executive officer and chief financial officer . the resignation was not the result of any disagreement with us on any matter relating to our operations , policies or practices . ( b ) appointment of directors and officers the following persons were appointed as to the positions listed by their name in the table below at closing : name age position john l. bianco 61 president/ceo and director mario barton 62 director d. bruce veness 60 corporate secretary/coo and director lisa bischof 43 treasurer/cfo 19 off balance sheet arrangements as of december 31 , 2011 , we had no material off-balance sheet arrangements . in the ordinary course of business , we enter into agreements with third parties that include indemnification provisions which , in our judgment , are normal
| interest income : the company had no interest income to report . net loss : net loss was $ 112,868 for the year ended december 31 , 2011 compared to a profit of $ 62,324 for the year ended december 31 , 2011 mainly due to the increase in cost of good sold and operating expenses described above . liquidity and capital resources as of december 31 , 2011 , we had net current liabilities of $ 874,230 compared to $ 954,291 as of december 31 , 2010. our balance of cash and cash equivalents at december 31 , 2011 was $ 13,005 compared to $ 64,194 at december 31 , 2010. operational cash flow we had operating cash outflows in the year ended december 30 , 2011 of $ 51,189 , and $ 53,692 in the year ended december 30 , 2010. our primary uses of cash have been for marketing expenses , employee compensation , product development and working capital . all cash we receive has been expended in the furtherance of growing assets . financing cash flows we may not have sufficient resources to fully develop any new products or technologies or expand our inventory levels unless we are able to raise additional financing . we can make no assurances these required funds will be available on favorable terms , if at all . if additional capital is raised through the sale of equity or convertible debt securities , the issuance of such securities would result in dilution to our existing stockholders . additionally , these conditions may increase costs to raise capital and or result in further dilution . our failure to raise capital when needed would adversely affect our business , financial condition and results of operations , and could force us to reduce or cease our operations . we believe that we will be able to meet the costs of growth and public reporting with funds generated from operations and additional amounts generated through
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our product development and commercialization efforts are in their early stages , and we can not make estimates of the costs or the time that our development efforts will take to complete , or the timing and amount of revenues related to the sale of our tests or our diagnostic services and revenues related to our license agreements . the risk of completion of any program is high because of the many uncertainties involved in bringing new diagnostic products to market including the long duration of clinical testing , the specific performance of proposed products under stringent clinical trial protocols and or clia requirements , 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 financial reporting release no . 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements . our accounting policies are described in item 8. financial statements—note 2 basis of presentation and summary of significant accounting policies in this annual report on form 10-k . 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 expenses during the reporting period . actual results could differ from those estimates . we believe that the following discussion represents our critical accounting policies . revenue recognition historically , our revenues have been generated from royalty , license and milestones related to agreements we have with other healthcare companies , medical laboratories and biotechnology partners . we also have revenues from our diagnostic services and clinical research services . we recognize revenues when persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed or determinable , and collection is reasonably assured . 41 milestone , royalty and license revenues we license and sublicense our patent rights to healthcare companies , medical laboratories and biotechnology partners . these agreements may involve multiple elements such as license fees , royalties and milestone payments . revenue is recognized when the criteria described above have been met as well as the following : up-front nonrefundable license fees pursuant to agreements under which we have no continuing performance obligations are recognized as revenues on the effective date of the agreement and when collection is reasonably assured . minimum royalties are recognized as earned , and royalties are earned based on the licensee 's use . the company is unable to predict licensee 's sales and thus revenue is recognized upon receipt of notification from licensee and payment when collection is assured . notification is generally one quarter in arrears . milestone payments are recognized when both the milestone is achieved and the related payment is received . diagnostic service revenue diagnostic service revenue , which consists of fees for clinical laboratory tests may come from several sources , including commercial third-party payors , such as insurance companies and health maintenance organizations , government payors , such as medicare and medicaid in the u.s. , patient self-pay and , in some cases , from hospitals or referring laboratories who , in turn , bill third-party payors for testing . diagnostic service revenue will be recognized when the criteria described above has been met as well as upon cash collection until we can reliably estimate the amount that will be ultimately collected for our ldts , at which time we will recognize revenues on an accrual basis . clinical research services revenue revenue from clinical research services consists primarily of revenue from the sale of urine and blood collection supplies under agreements with our clinical research and business development partners . revenue is recognized when supplies are delivered . derivative financial instruments—warrants our derivative financial instruments — warrants liabilities are related to warrants issued in connection with financing transactions and are therefore not designated as hedging instruments . all derivatives are recorded on our consolidated balance sheet at fair value in accordance with current accounting guidelines for such complex financial instruments . we have issued common stock warrants in connection with the execution of certain equity financings . such warrants are classified as derivative liabilities under the provisions of the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 815 , derivatives and hedging ( “ asc 815 ” ) and are recorded at their fair market value as of each reporting period . such warrants do not meet the exemption that a contract should not be considered a derivative instrument if it is ( 1 ) indexed to its own stock and ( 2 ) classified in stockholders ' equity . changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “ gain ( loss ) from change in fair value of derivative financial instruments — warrants. ” the fair value of warrants is determined using the black-scholes option-pricing model using assumptions regarding volatility of our common stock price , remaining life of the warrant , and risk-free interest rates at each period end . therefore we use model-derived valuations where inputs are observable in active markets to determine the fair value and accordingly classify such warrants in level 3 per asc topic 820 , fair value measurements and disclosures ( “ asc 820 ” ) . at december 31 , 2016 and 2015 , the fair value of such warrants was $ 834,940 and $ 3,297,077 , respectively , and was recorded as a liability under the caption “ derivative financial instruments — warrants ” on the consolidated balance sheet . story_separator_special_tag 42 cost of revenue cost of revenue represents the cost of materials , personnel costs and costs associated with processing specimens including pathological review , quality control analyses , and delivery charges necessary to render an individualized test result . costs associated with performing tests are recorded as the tests are processed . however , the revenue on diagnostic services is recognized on a cash collection basis resulting in costs incurred before the collection of related revenue . research and development research and development expense , which includes expenditures in connection with an in-house research and development laboratory , salaries and staff costs , application and filing for regulatory approval of proposed products , regulatory and scientific consulting fees and clinical samples , as well as clinical collaborators and insurance , are accounted for in accordance with fasb asc topic 730-10-55-2 , research and development . also , as prescribed by this guidance , patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense . we are providing the following summary of our research and development expense to supplement the more detailed discussions under “ results of operations ” below . costs are not allocated to projects as the majority of the costs relate to employees and facilities costs and we do not track employees ' hours by project or allocate facilities costs on a project basis . replace_table_token_3_th while certain of our research and development costs may have future benefits , our policy of expensing all research and development expenditures is predicated on the fact that we have no history of successful commercialization of molecular diagnostic products to base any estimate of the number of future periods that would be benefited . fasb asc topic 730 , research and development requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized . as the related goods are delivered or the services are performed , or when the goods or services are no longer expected to be provided , the deferred amounts are recognized as an expense . stock-based compensation we rely heavily on incentive compensation in the form of stock options and restricted stock units ( “ rsus ” ) to recruit , retain and motivate directors , executive officers , employees and consultants . incentive compensation in the form of stock options , rsus and warrants is designed to provide long-term incentives , develop and maintain an ownership stake and conserve cash . stock-based compensation expense related to stock options for employees and directors is recognized in the consolidated statement of operations based on estimated amounts , including the grant date fair value and the expected service period . we estimate the grant date fair value using a black-scholes model . stock-based compensation recorded in our consolidated statement of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures . we recognize the value of the awards on a straight-line basis over the awards ' requisite service periods . the requisite service period is generally the time over which our stock-based awards vest . compensation expense for rsus is measured at the grant date and recognized ratably over the vesting period in the consolidated statement of operations . the fair value of rsus is determined based on the closing market price of the company 's common stock on the grant date . we account for equity instruments granted to non-employees in accordance with fasb asc topic 505-50 “ equity-based payment to non-employees ” , where the value of the stock-based compensation is based upon the measurement date as determined at either : ( 1 ) the date at which a performance commitment is reached , or ( 2 ) the date at which the necessary performance to earn the equity instruments is complete . accordingly , the fair value of these options is being “ marked to market ” quarterly until the measurement date is determined . 43 fair value of financial instruments financial instruments consist of cash and cash equivalents , short- term investments , accounts receivable , accounts payable , debt and derivative liabilities . we have adopted asc 820 for financial assets and liabilities that are required to be measured at fair value and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis . these financial instruments are stated at their respective historical carrying amounts , which approximate fair value due to their short term nature as they reflect current market interest rates . debt is stated at its respective historical carrying amounts , which approximate fair value as balances reflect current market interest rates . asc 820 provides that the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : level 1 — quoted prices for identical instruments in active markets . level 2 — quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . level 3 — instruments where significant value drivers are unobservable to third parties . off-balance sheet arrangements as of december 31 , 2016 , we did not have any off-balance sheet arrangements as described by item 303 ( a ) ( 4 ) of regulation s-k. recent accounting pronouncements see item 8. financial statements—note 2 basis of presentation and summary of significant accounting policies in this annual report on form 10-k for a discussion of recent accounting pronouncements .
| in addition , we expect revenue from clinical research services to fluctuate based on timing of delivery of supplies under agreements . cost of revenues our total cost of revenues was $ 1,730,512 in the year ended december 31 , 2016 , as compared to $ 629,191 in the year ended december 31 , 2015 . cost of revenues mainly relates to the costs of our diagnostic service revenues and these costs are recognized at the completion of testing . due to revenue being recognized when cash is received , costs incurred in one period may relate to revenue recognized in a later period . gross margins are negative as we begin to build test volume to cover costs associated with running our diagnostic tests as well as inefficiencies in realizing capacity-related issues . the increase in cost of revenues in the year ended december 31 , 2016 compared to the prior year is primarily due to an increase in the volume of tests processed of approximately 1,715 partially offset by a decreased average cost per test of approximately $ 900. research and development expenses research and development expenses consisted of the following : replace_table_token_5_th research and development expenses increase d by $ 4,412,773 to $ 15,006,642 for the year ended december 31 , 2016 from $ 10,593,869 for the year ended december 31 , 2015 . the increase in our costs is primarily due to an increase in the average number of our internal research and development personnel and increased consulting and outside services . we utilize clinical studies to provide data that supports our technology for the monitoring of responsiveness to therapy and the status of diseases . the number of samples processed in connection with our research and development clinical studies increased for the year ended december 31 , 2016 as compared to the prior year . we were party to thirty active collaborations or studies during the year ended december 31 , 2016 ; while during the year ended december 31 ,
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23 the company operates with significant operating and financial leverage . significant portions of the company 's manufacturing , selling , general and administrative expenses are fixed costs that neither increase nor decrease proportionately with sales . in addition , a significant portion of the company 's interest expense is fixed . there can be no assurance that the company will be able to reduce its fixed costs in response to a decline in its net sales . as a result , a decline in the company 's net sales could result in a higher percentage decline in its income from operations . also , the company 's gross margins and gross margin percentages may not be comparable to other companies as some companies include all of the costs of their distribution network in cost of sales whereas the company includes the operating costs of its supply centers in selling , general and administrative expenses . the company seeks to distinguish itself from other suppliers of residential building products and to sustain its profitability through a business strategy focused on increasing sales at existing supply centers , selectively expanding its supply center network , increasing sales through independent specialty distributor customers , developing innovative new products , expanding sales of third party manufactured products through its supply center network , and driving operational excellence by reducing costs and increasing customer service levels . the company continually analyzes new and existing markets for the selection of new supply center locations . the company is a wholly owned subsidiary of amh ii , which is controlled by affiliates of investcorp and harvest partners . amh and amh ii do not have material assets or operations other than a direct or indirect ownership of the membership interest of associated materials . the company operates on a 52/53 week fiscal year that ends on the saturday closest to december 31st . the company 's 2008 , 2007 , and 2006 fiscal years ended on january 3 , 2009 , december 29 , 2007 , and december 30 , 2006 , respectively . the fiscal year ended january 3 , 2009 included 53 weeks of operations , with the additional week recorded in the fourth quarter of fiscal 2008. the additional week did not have a significant impact on the results of operations due to its timing and the seasonality of the business . the fiscal years ended december 29 , 2007 and december 30 , 2006 included 52 weeks of operations . story_separator_special_tag administrative expense for the 2007 fiscal year includes $ 0.7 million of separation costs related to the resignation of the company 's former chief operating officer , $ 1.2 million of transaction costs relating to an unsuccessful bid for an acquisition target and $ 1.0 million of tax restructuring costs . excluding these items , selling , general and administrative expense for the fiscal year ended january 3 , 2009 increased $ 5.0 million compared to the 2007 fiscal year . the increase in selling , general and administrative expense was due primarily to increased bad debt expense of $ 4.7 million and increased building and truck lease expenses of $ 2.1 million in the company 's supply center network , partially offset by decreases in ebitda-based incentive compensation programs of $ 3.0 million . income from operations was $ 61.0 million for the fiscal year ended january 3 , 2009 compared to $ 96.2 million for the 2007 fiscal year . 26 interest expense of $ 70.8 million for the year ended january 3 , 2009 and $ 69.7 million for the year ended december 29 , 2007 consisted primarily of accretion of $ 45.4 million and $ 40.7 million on the 11 1/4 % notes , respectively , interest expense on the 9 3/4 % notes , the company 's prior credit facility , the new abl facility , and amortization of deferred financing costs in 2008. the increase in interest expense was due to the incremental accretion on the 11 1/4 % notes and the write-off of $ 1.3 million of deferred financing costs offset by lower overall borrowings under the credit facilities and decreased interest rates during 2008. the income tax provision for the year ended january 3 , 2009 reflects an effective income tax rate of ( 499.0 ) % compared to an effective income tax rate of 41.1 % for the 2007 fiscal year . the decrease in the effective income tax rate in 2008 is primarily due to a valuation allowance provided against certain deferred tax assets during 2008. this valuation allowance was recorded based upon the review of historical earnings , trends , forecasted earnings and current economic conditions . the company incurred a net loss was $ 69.1 million for the year ended january 3 , 2009 compared to net income of $ 15.8 million for the year ended december 29 , 2007. ebitda was $ 81.9 million for the fiscal year ended january 3 , 2009 compared to ebitda of $ 118.5 million for the fiscal year ended december 29 , 2007. for the fiscal year ended january 3 , 2009 , adjusted ebitda was $ 86.9 million compared to adjusted ebitda of $ 121.8 million for the 2007 fiscal year . adjusted ebitda for the 2008 fiscal year excludes manufacturing restructuring costs of $ 2.6 million , loss upon the disposal of assets other than by sale of $ 1.8 million and $ 0.5 million of amortization related to prepaid management fees . adjusted ebitda for the 2007 fiscal year excludes separation costs of $ 0.7 million related to the resignation of the company 's former chief operating officer , $ 1.2 million of transaction costs relating to an unsuccessful bid for an acquisition target , $ 1.0 million of tax restructuring costs and $ 0.5 million of amortization related to prepaid management fees . story_separator_special_tag year ended december 29 , 2007 compared to year ended december 30 , 2006 net sales decreased 3.7 % to $ 1,204.1 million for the year ended december 29 , 2007 compared to $ 1,250.1 million for the 2006 fiscal year primarily due to lower sales volumes in the company 's vinyl siding operations , partially offset by growth in third party manufactured product sales from expanded product offerings and the benefit from a stronger canadian dollar . compared to the 2006 fiscal year , vinyl window unit volumes were relatively unchanged , while vinyl siding unit volumes decreased by 13 % , which was comprised of a decrease in u.s. vinyl siding unit volumes of 18 % due to the negative economic factors surrounding the u.s. housing market , partially offset by an increase in canadian vinyl siding unit volumes of 9 % due to a strong economy in the western provinces during the period . gross profit for the fiscal year ended december 29 , 2007 was $ 304.2 million , or 25.3 % of net sales , compared to gross profit of $ 302.3 million , or 24.2 % of net sales , for the 2006 fiscal year . the increase in gross profit as a percentage of net sales was primarily a result of the net favorable impact of selling prices versus commodity costs , the company 's cost reduction initiatives and procurement savings , as well as the benefit from the stronger canadian dollar . selling , general and administrative expense increased to $ 208.0 million , or 17.3 % of net sales , for the fiscal year ended december 29 , 2007 versus $ 203.8 million , or 16.3 % of net sales , for the 2006 fiscal year . selling , general and administrative expense for the fiscal year ended december 29 , 2007 includes $ 0.7 million of separation costs related to the resignation of the company 's former chief operating officer , $ 1.2 million of transaction costs relating to an unsuccessful bid for an acquisition target , and $ 1.0 million of tax restructuring costs , while selling , general and administrative expense for the fiscal year ended december 30 , 2006 includes $ 2.1 million of separation costs related to the resignation of the company 's former chief executive officer . excluding these costs , selling , general and administrative expense for the fiscal year ended december 29 , 2007 increased $ 3.4 million compared to the 2006 fiscal year . the increase in selling , general and administrative expense was due primarily to increased consulting expenses of $ 4.1 million associated with the company 's cost reduction initiatives in its manufacturing operations , increased marketing expenses of $ 1.0 million , increased building and truck lease expenses in the company 's supply center network of $ 1.4 million , and the translation impact on canadian expenses of $ 2.0 million , offset partially by cost savings associated with headcount reductions implemented in the prior year of $ 2.9 million , along with decreases in ebitda-based incentive compensation programs of $ 1.2 million . income from operations was $ 96.2 million for the fiscal year ended december 29 , 2007 compared to $ 95.1 million for the 2006 fiscal year . 27 the company implemented headcount reductions in the fourth quarter of 2006 in response to difficult market conditions . also , the company identified cost savings opportunities in its procurement function , particularly for raw materials and third party manufactured products , labor efficiency projects within its window operations and additional savings opportunities within its logistics network . as a result of these initiatives , the company achieved over $ 20 million of cost savings during the year ended december 29 , 2007 , of which $ 2.9 million , representing a portion of the headcount reductions , is included in selling , general and administrative expense , with the remaining savings included in cost of sales . interest expense of $ 69.7 million for the year ended december 29 , 2007 and $ 70.0 million for the year ended december 30 , 2006 consisted primarily of accretion of $ 40.7 million and $ 36.5 million on the 11 1/4 % notes , respectively , interest expense on the 9 3/4 % notes , term loan and revolving loans under the company 's prior credit facility and amortization of deferred financing costs . the decrease in interest expense was due to lower overall borrowings on the term loan under the prior credit facility , offset by incremental accretion on the 11 1/4 % notes . the income tax provision for the year ended december 29 , 2007 reflects an effective income tax rate of 41.1 % compared to an effective income tax rate of 69.2 % for the 2006 fiscal year . the decrease in the effective income tax rate in 2007 is primarily due to a reduction in state income taxes from the company 's ability to fully deduct the accretion on the 11 1/4 % notes as a result of its conversion to a limited liability company , an improved ability to utilize foreign tax credits to offset the taxes due on earnings from the company 's canadian subsidiary and a benefit from the settlement of uncertain tax positions during 2007. net income was $ 15.8 million for the year ended december 29 , 2007 compared to net income of $ 8.0 million for the year ended december 30 , 2006. ebitda was $ 118.5 million for the fiscal year ended december 29 , 2007 compared to ebitda of $ 118.0 million for the fiscal year ended december 30 , 2006. for the fiscal year ended december 29 , 2007 , adjusted ebitda was $ 121.8 million compared to adjusted ebitda of $ 123.9 million for the 2006 fiscal year .
| ( ii ) during the first quarter of 2008 , the company committed to , and subsequently completed , relocating a portion of its vinyl siding production from ennis , texas to its vinyl manufacturing facilities in west salem , ohio and burlington , ontario . in addition , during 2008 , the company transitioned the majority of distribution of its u.s. vinyl siding products to a center located in ashtabula , ohio and committed to a plan to discontinue use of its warehouse facility adjacent to its ennis , texas vinyl manufacturing facility . for the fiscal year ended january 3 , 2009 , the amount represents asset impairment costs , costs incurred to relocate manufacturing equipment , costs associated with the transition of distribution operations , and inventory markdown costs . the inventory markdown costs of $ 0.9 million are included in cost of sales in the statement of operations . 25 ( iii ) as part of the company 's ongoing efforts to improve its internal controls , the company enhanced its controls surrounding the physical verification of property , plant and equipment during the second quarter of 2008. the amount recorded represents the loss upon disposal of assets other than by sale as a result of executing these enhanced controls . ( iv ) represents legal and accounting fees incurred in connection with an unsuccessful bid for an acquisition target . ( v ) represents legal and accounting fees incurred in connection with a tax restructuring project to reduce amh ii 's consolidated income tax obligations . ( vi ) for the fiscal year ended december 29 , 2007 , amount represents separation costs , including payroll taxes , related to the resignation of mr. deighton , former chief operating officer of the company . for the fiscal year ended december 30 , 2006 , amount represents separation costs , including payroll taxes and benefits , related to the resignation of mr. caporale , former chairman , president and chief executive officer of the company by mutual agreement with the board of directors . ( vii ) based on current and projected operating results for its vinyl fencing and railing product lines ,
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we establish our selling price based on a pass-through of our product supply , transportation , handling , storage , and capital costs plus an acceptable margin . the margin we realize in our wholesale liquids business is substantially less on a per gallon basis than the margin we realize in our retail propane business . weather conditions and gasoline blending can have a significant impact on the demand for propane and butane , and sales volumes and prices are typically higher during the colder months of the year . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of our fiscal year . the following table summarizes the range of low and high propane spot prices per gallon at conway , kansas , and mt . belvieu , texas , two of our main pricing hubs , for the periods indicated and the prices at period end : replace_table_token_9_th the following table summarizes the range of low and high butane spot prices per gallon at mt . belvieu , texas for the periods indicated and the prices at period end : replace_table_token_10_th we believe volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . our liquids segment generated an operating loss of $ 93.1 million during the year ended march 31 , 2018 , which included a goodwill impairment charge of $ 116.9 million related to our salt dome storage facility joint venture in utah ( see 57 note 6 to our consolidated financial statements included in this annual report ) . our liquids segment generated operating income of $ 43.3 million during the year ended march 31 , 2017 . retail propane our retail propane segment is a “ cost-plus ” business that sells propane , distillates , equipment and supplies to end users consisting of residential , agricultural , commercial , and industrial customers and to certain resellers in 21 states and the district of columbia . our retail propane segment purchases the majority of its propane from our liquids segment . see note 15 to our consolidated financial statements included in this annual report for a discussion of the sale of a portion of our retail propane segment . our retail propane segment generates margins based on the difference between the wholesale cost of a product and the selling price of the product in the retail markets . these margins fluctuate over time due to supply and demand conditions . weather conditions can have a significant impact on our sales volumes and prices , as a large portion of our sales are to residential customers who purchase propane and distillates for home heating purposes . a significant factor affecting the profitability of our retail propane segment is our ability to maintain our product margin . product margin is the difference between our sales prices and our total product costs , including transportation and storage . we monitor wholesale propane prices daily and adjust our retail prices accordingly . we believe volatility in commodity prices will continue , and our ability to adjust to and manage this volatility may impact our financial results . the retail propane business is both weather-sensitive and subject to seasonal volume variations due to propane 's primary use as a heating source in residential and commercial buildings and for agricultural purposes . consequently , our revenues , operating profits , and operating cash flows are typically lower in the first and second quarters of our fiscal year . our retail propane segment generated operating income of $ 155.6 million during the year ended march 31 , 2018 , which included a gain of $ 89.3 million on the sale of a portion of our retail propane segment . our retail propane segment generated operating income of $ 49.3 million during the year ended march 31 , 2017 . refined products and renewables our refined products and renewables segment conducts gasoline , diesel , ethanol , and biodiesel marketing operations , purchase s refined petroleum and renewable products primarily in the gulf coast , southeast and midwest regions of the united states and schedule s them for delivery at various locations throughout the country . in addition , in certain storage locations , our refined products and renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties . we sell our products to commercial and industrial end users , independent retailers , distributors , marketers , government entities , and other wholesalers of refined petroleum products . we sell our products at terminals owned by third parties . the following table summarizes the range of low and high gulf coast gasoline spot prices per barrel using nymex gasoline prompt-month futures for the periods indicated and the prices at period end : replace_table_token_11_th the following table summarizes the range of low and high diesel spot prices per barrel using nymex ulsd prompt-month futures for the periods indicated and the prices at period end : replace_table_token_12_th our refined products and renewables segment generated operating income of $ 56.7 million during the year ended march 31 , 2018 . our refined products and renewables segment generated operating income of $ 222.5 million during the year 58 ended march 31 , 2017 , which included a gain of $ 104.1 million on the sale of all of the transmontaigne partners l.p. ( “ tlp ” ) common units we owned during the year ended march 31 , 2017 . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ended march 31 , 2018 , prices for refined products increased . gulf coast prices , on which our sales contracts are based , increased less than the new york harbor prices , on which our futures contracts are based , which had an unfavorable impact on our cost of sales . story_separator_special_tag based on historical experience , we generally expect the spreads between gulf coast and new york harbor prices to be more consistent over the course of a contract year than during any individual quarter within the year , and that we should expect more volatility in cost of sales among quarters within a fiscal year than we would expect during a full fiscal year . seasonality seasonality impacts our liquids , retail propane and refined products and renewables segments . a large portion of our retail propane business is in the residential market where propane is used primarily for home heating purposes . consequently , for our liquids and retail propane businesses , revenues , operating profits and operating cash flows are generated mostly in the third and fourth quarters of our fiscal year . the seasonal motor fuel blend during the third quarter of our fiscal year impacts the value of our gasoline inventory in our refined products and renewables business and also represents a period when we build inventory into our system . we borrow under our revolving credit facility to supplement our operating cash flows during the periods in which we are building inventory . see “ – liquidity , sources of capital and capital resource activities – cash flows . ” recent developments transactions during the three months ended march 31 , 2018 repurchases of senior unsecured notes during the three months ended march 31 , 2018 , we repurchased $ 7.4 million of the 2019 notes ( as defined herein ) , $ 40.6 million of the 2023 notes ( as defined herein ) and $ 23.4 million of the 2025 notes ( as defined herein ) . see note 8 to our consolidated financial statements included in this annual report for further discussion on the repurchases . 60 credit agreement on march 6 , 2018 , we amended our credit agreement . in the amendment , the lenders consented to , subject to the consummation of the initial sawtooth disposition , release each sawtooth entity from its guaranty and other obligations under the loan documents . in return , the partnership agreed to use the net proceeds of each sawtooth disposition to pay down existing indebtedness no later than five business days after the consummation of such sawtooth disposition . subsequent events on may 24 , 2018 , we amended our credit agreement to , among other things , modify our interest coverage ratio financial covenant for periods beginning march 31 , 2018 and thereafter and to add a total leverage indebtedness ratio covenant , to be measured beginning march 31 , 2019. additionally , the amendment specifies that , should our leverage ratio be greater than 4.00 to 1 with respect to the quarter ended september 30 , 2018 , commitments under our expansion capital facility will be decreased , immediately and permanently by $ 100.0 million . see note 8 to our consolidated financial statements included in this annual report for a further description of our credit agreement . acquisitions as discussed below , we completed numerous acquisitions during the years ended march 31 , 2018 and 2017 . these acquisitions impact the comparability of our results of operations between our current and prior fiscal years . during the year ended march 31 , 2018 , in our water solutions segment , we acquired the remaining 50 % ownership interest in ngl solids solutions , llc , and in our retail propane segment , we acquired seven retail propane businesses and certain assets from an equity method investee . see note 4 and note 13 to our consolidated financial statements included in this annual report for a further discussion . during the year ended march 31 , 2017 , we acquired : three water solutions facilities ; the remaining 25 % ownership interest in three water solutions facilities ; an additional 24.5 % interest in ngl water pipelines , llc ; the remaining 65 % ownership interest in grassland water solutions , llc ( “ grassland ” ) , in which we subsequently sold 100 % of our interest ; four retail propane businesses ; and certain natural gas liquids facilities . subsequent events see note 17 to our consolidated financial statements included in this annual report for a further discussion of the acquisitions that occurred subsequent to march 31 , 2018 . dispositions sale of a portion of retail propane business on march 30 , 2018 , we sold a portion of our retail propane segment to dcc lpg for net proceeds of $ 212.4 million in cash at closing , and recorded a gain on disposal of $ 89.3 million during the year ended march 31 , 2018. the retail propane businesses subject to this transaction consisted of our operations across the mid-continent and western portions of the united states , including three of the seven retail propane businesses we acquired during the year ended march 31 , 2018. we retained our retail propane businesses located in the eastern , mid-atlantic and southeastern sections of the united states . see note 15 to our consolidated financial statements included in this annual report for a further discussion . 61 as this sale transaction did not represent a strategic shift that will have a major effect on our operations or financial results , operations related to this portion of our retail propane segment have not been classified as discontinued operations . sawtooth joint venture on march 30 , 2018 , we completed the transaction to form a joint venture with magnum liquids , llc , a portfolio company of haddington ventures llc , along with magnum development , llc and other haddington-sponsored investment entities ( collectively “ magnum ” ) t o focus on the storage of natural gas liquids and refined products by combining our sawtooth salt dome storage facility with magnum 's refined products rights and adjacent leasehold .
| in addition , we are 59 able to better utilize our storage assets when contango markets justify storing barrels . beginning in february 2018 , crude oil markets have shifted to being flat to backwardated , a condition in which forward crude oil prices are lower than spot prices . when markets are backwardated , falling prices typically have an unfavorable impact on our margins . our opportunity to generate revenues in our water solutions business is based on the level of production of natural gas and crude oil in the areas where our facilities are located . as described above , crude oil prices declined sharply since july 2014 but have increased since march 31 , 2016. also , drilling rigs and production have increased since march 31 , 2016 , particularly in the permian and dj basins which has positively impacted the volumes of our water solutions business ( during the three months ended march 31 , 2018 we processed 761,000 barrels of wastewater per day , compared to 536,000 barrels of wastewater per day during the three months ended march 31 , 2017 ) . a portion of the revenues in our water solutions business is generated from the sale of hydrocarbons that we recover when processing wastewater . these recovered hydrocarbon revenues have increased due primarily to an increase in the volume of wastewater processed , an increase in the amount of hydrocarbons per barrel of wastewater processed and an increase in crude oil prices , which have resulted in higher per-barrel revenues for our water solutions business . an important element of our refined products and renewables segment relates to the marketing of refined products in the southeast and east coast regions . we purchase product in the gulf coast , transport the product on third party pipelines , and sell the product at terminals owned by third parties . most of the contracts with these customers are one year in duration , with pricing indexed to prices in the gulf coast at the date
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for these tenant-funded tenant improvements , we record the amount funded or reimbursed by tenants as deferred revenue , which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises . during the years ended december 31 , 2014 , 2013 , and 2012 , we capitalized $ 49.8 million , $ 15.1 million and $ 24.0 million , respectively , of tenant-funded tenant improvements . the increasing trend from 2013 to 2014 is related to the completion of development and redevelopment projects in 2014. leases at our development properties generally have higher tenant-funded tenant improvements . we expect the trend to continue as we stabilize projects currently under development . for the years ended december 31 , 2014 , 2013 , and 2012 , we also recognized $ 11.0 million , $ 10.7 million and $ 9.1 million , respectively , of noncash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenant improvements . when we conclude that we are not the owner and the tenant is the owner of tenant improvements for accounting purposes , we record our contribution towards those improvements as a lease incentive , which is amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease , and rental revenue recognition begins when the tenant takes possession of or controls the space . our determination as to whether we are or the tenant is the owner of tenant improvements for accounting purposes is made on a lease-by-lease basis and has a significant impact on the amount of noncash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenant improvements , and can also have a significant effect on the timing of commencement of revenue recognition . 48 tenant reimbursement revenue reimbursements from tenants consist of amounts due from tenants for common area maintenance , real estate taxes , and other recoverable costs , including capital expenditures . calculating tenant reimbursement revenue requires an in-depth analysis of the complex terms of each underlying lease . examples of judgments and estimates used when determining the amounts recoverable include : estimating the final expenses , net of accruals , that are recoverable ; estimating the fixed and variable components of operating expenses for each building ; conforming recoverable expense pools to those used in establishing the base year or base allowance for the applicable underlying lease ; and concluding whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease . during the year , we accrue estimated tenant reimbursement revenue in the period in which the tenant reimbursable costs are incurred based on our best estimate of the amounts to be recovered . throughout the year , we perform analyses to properly match tenant reimbursement revenue with reimbursable costs incurred to date . additionally , during the fourth quarter of each year , we perform preliminary reconciliations and accrue additional tenant reimbursement revenue or refunds . subsequent to year end , we perform final detailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant for any cumulative annual adjustments in the first and second quarters of each year for the previous year 's activity . our historical experience for the years ended december 31 , 2013 and 2012 has been that our final reconciliation and billing process resulted in final amounts that approximated the total annual tenant reimbursement revenues recognized . allowances for uncollectible current tenant receivables and deferred rent receivables tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent receivables . current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses , property taxes , and other costs recoverable from tenants . deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement . as of december 31 , 2014 and 2013 , current receivables were carried net of an allowance for uncollectible tenant receivables amount of $ 2.0 million and $ 2.1 million , respectively , for each period and deferred rent receivables were carried net of an allowance for deferred rent of $ 2.0 million and $ 2.1 million , respectively . management 's determination of the adequacy of the allowance for uncollectible tenant receivables and the allowance for deferred rent receivables is performed using a methodology that incorporates a specific identification analysis and an aging analysis and includes an overall evaluation of our historical loss trends and the current economic and business environment . this determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made , including the creditworthiness of specific tenants , specific industry trends and conditions , and general economic trends and conditions . since these factors are beyond our control , actual results can differ from our estimates , and such differences could be material . with respect to the allowance for uncollectible tenant receivables , the specific identification methodology analysis relies on factors such as the age and nature of the receivables , the payment history and financial condition of the tenant , our assessment of the tenant 's ability to meet its lease obligations , and the status of negotiations of any disputes with the tenant . with respect to the allowance for deferred rent receivables , given the longer-term nature of these receivables , the specific identification methodology analysis evaluates each of our significant tenants and any tenants on our internal watchlist and relies on factors such as each tenant 's financial condition and its ability to meet its lease obligations . we evaluate our reserve levels quarterly based on changes in the financial condition of tenants and our assessment of the tenant 's ability to meet its lease obligations , overall economic conditions , and the current business environment . story_separator_special_tag 49 for the years ended december 31 , 2014 , 2013 and 2012 , we recorded a total provision for bad debts for both current tenant receivables and deferred rent receivables of approximately 0.0 % , 0.1 % and 0.0 % , respectively , of rental revenue . our historical experience has been that actual write-offs of current tenant receivables and deferred rent receivables has approximated the provision for bad debts recorded for the years ended december 31 , 2014 , 2013 and 2012 . in the event our estimates were not accurate and we had to change our allowances by 1 % of revenue from continuing operations , the potential impact to our net income available to common stockholders would be approximately $ 5.2 million , $ 4.7 million and $ 3.8 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . acquisitions we record the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date . we assess and consider fair value based on estimated cash flow projections that utilize available market information and discount and or capitalization rates that we deem appropriate . estimates of future cash flows are based on a number of factors including historical operating results , known and anticipated trends , and market and economic conditions . the acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to : land and improvements , buildings and improvements , construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases , including tenant improvements , leasing costs , value of above-market and below-market operating leases and ground leases , acquired in-place lease values and tenant relationships , if any . the fair value of land is derived from comparable sales of land within the same submarket and or region . the fair value of buildings and improvements , tenant improvements , and leasing costs are based upon current market replacement costs and other relevant market rate information . the fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value ( calculated using a market discount rate ) of the difference between ( i ) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and ( ii ) management 's estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewal options , if applicable , for below-market operating leases . the amounts recorded for above-market operating leases are included in deferred leasing costs and acquisition-related intangible assets , net on the balance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases . the amounts recorded for below-market operating leases are included in deferred revenue and acquisition-related liabilities , net on the balance sheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed rate renewal options , if applicable . our below-market operating leases generally do not include fixed rate or below-market renewal options . if a lease were to be terminated or if termination were determined to be likely prior to its contractual expiration ( for example resulting from bankruptcy ) , amortization of the related above-market or below-market lease intangible would be accelerated . the fair value of acquired in-place leases is derived based on management 's assessment of lost revenue and costs incurred for the period required to lease the “ assumed vacant ” property to the occupancy level when purchased . this fair value is based on a variety of considerations including , but not necessarily limited to : ( 1 ) the value associated with avoiding the cost of originating the acquired in-place leases ; ( 2 ) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period ; and ( 3 ) the value associated with lost rental revenue from existing leases during the assumed lease-up period . factors considered by us in performing these analyses include an estimate of the carrying costs during the expected lease-up periods , current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on current market demand at market rates . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . the amount recorded for acquired in-place leases is included in deferred leasing costs and acquisition-related intangible assets , net on the balance sheet and amortized as an increase to depreciation and amortization expense over the remaining term of the applicable leases . if a lease were to be terminated or if termination were determined to 50 be likely prior to its contractual expiration ( for example resulting from bankruptcy ) , amortization of the related unamortized in-place lease intangible would be accelerated . the determination of the fair value of any debt assumed in connection with a property acquisition is estimated by discounting the future cash flows using interest rates available for the issuance of debt with similar terms and remaining maturities . the determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of acquisitions requires us to make significant judgments and assumptions about the numerous inputs discussed above .
| during the fourth quarter of 2014 , we commenced development of the heights at del mar , an approximately 73,000 square-foot office project located in san diego 's del mar submarket . as of december 31 , 2014 , the company had six development projects under construction , three of which are 100 % preleased . these six projects aggregate approximately 1.7 million square feet of space , and the company estimates its total investment in these projects will be approximately $ 1.0 billion . the total estimated investment includes lease commissions and excludes tenant improvement overages . scheduled completion dates range from 2015 to 2016. see “ —factors that may influence future operations—completed , in-process and future development pipeline ” for additional information . redevelopment . during 2014 , we stabilized our one redevelopment property , 360 third street , in the south of market area ( “ soma ” ) submarket of san francisco , california , that was in lease-up at december 31 , 2013 . this project had a total investment of approximately $ 188.2 million and was 99.2 % occupied as of december 31 , 2014 . operating property acquisitions . we remain a disciplined buyer of office properties and development opportunities and continue to focus on value-add opportunities in west coast markets populated by knowledge and creative based tenants in a variety of industries , including technology , media , healthcare , entertainment and professional services . during 2014 , we acquired one office building in greater seattle and four office buildings in the sunnyvale submarket of san francisco , comprising approximately 408,000 rentable square feet in two separate transactions for a total purchase price of approximately $ 206.6 million ( see note 3 “ acquisitions ” to our consolidated financial statements included in this report for more information ) . as of december 31 , 2014 , these properties were 100 % leased . capital recycling program . we have continued to utilize our capital recycling program to provide additional capital to fund potential acquisitions , finance development and redevelopment expenditures , potentially repay long-term debt and for
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during 2013 , the corporation continued to focus on achieving its corporate objectives , which included the following : net income per share growth - diluted net income per share increased $ 0.03 , or 3.8 % , in comparison to 2012 due to a decrease in weighted average diluted shares outstanding as a result of the corporation 's repurchase of 8.0 million shares in 2013 and an increase in net income . net income increased $ 2.0 million , or 1.2 % , in comparison to 2012. this increase was driven largely by a $ 53.5 million decrease in the provision for credit losses and a $ 6.5 million reduction in income tax expense , partially offset by a $ 17.1 million decrease in net interest income , a $ 28.7 million decrease in non-interest income , mainly in mortgage banking income , and a $ 12.1 million increase in non-interest expenses , most notably a $ 9.3 million increase in salaries and employee benefits . quality loan growth and net interest margin management - average loans increased $ 610.0 million , or 5.1 % , in comparison to 2012 , with notable increases in commercial mortgages , commercial loans , home equity loans and residential mortgages . the corporation 's loan growth occurred throughout most of its markets . during 2013 , growth in average loans partially mitigated the negative impact of the decline in net interest margin , from 3.76 % in 2012 to 3.50 % in 2013. net interest margin compression resulted from the decline in yields on interest-earning assets outpacing the decline in the cost of interest-bearing liabilities . net interest margin compression slowed as the year progressed , and the corporation anticipates that this trend will continue in 2014. asset quality improvement - overall asset quality improved in 2013 , with decreases in non-performing loans , net charge- offs and overall delinquency levels resulting in a 56.9 % decrease in the provision for credit losses . core deposit growth - average demand and savings deposit accounts increased $ 669.0 million , or 7.7 % , in comparison to 2012. as a result , the corporation was able to fund its loan growth with lower cost core deposits as opposed to higher cost time deposits , while also executing its customer relationship banking strategy . return on average assets and return on average equity improvement - return on average assets improves when net income increases at a higher rate than average assets . in 2013 , return on average assets decreased two basis points in comparison to 2012 , due to a 3.4 % increase in average assets , which exceeded the 1.2 % increase in net income . as noted above , average asset growth was largely attributable to the 5.1 % increase in average loans . the increases in average balances are expected to have a positive impact on future earnings . in 2013 , return on average equity increased nine basis points , or 1.2 % , in comparison to 2012. this increase resulted from the growth in net income exceeding a 0.1 % increase in average shareholders ' equity . during 2013 , capital was deployed for organic growth , and 8.0 million shares were repurchased for a total cost of $ 90.9 million . as of december 31 , 2013 , the corporation had a share repurchase program in place , pursuant to which an additional 4.0 million shares , or approximately 2.1 % of outstanding shares , could be repurchased . during the first quarter of 2014 , the corporation repurchased 4.0 million shares under this repurchase plan at an average cost of $ 12.45 per share , completing this repurchase program on february 19 , 2014. enhance compliance and risk management infrastructure - the time and expense associated with regulatory compliance and risk management efforts continues to increase . virtually every aspect of the corporation 's operations is subject to 30 extensive regulation and , in recent years , a combination of financial reform legislation and heightened scrutiny by banking regulators has significantly increased expectations regarding what constitutes an effective risk and compliance management infrastructure . to keep pace with these expectations , over the past two years , the corporation has invested considerable resources in initiatives designed to strengthen its risk management framework and regulatory compliance programs . among the areas that the corporation continues to focus substantial resources on to improve its compliance functions are the requirements under the flood disaster protection act , the bank secrecy act , the patriot act and related anti-money laundering regulations . although the corporation has made progress in continuing to build-out its risk and compliance management infrastructures , the pace at which it has progressed may not be consistent with current regulatory expectations . as a result , the corporation believes that there is an increasing risk that it , or one or more of its bank subsidiaries , may become subject to regulatory enforcement action in addition to the civil monetary penalties recently imposed against three of its banking subsidiaries . any such enforcement action by the corporation 's banking regulators would likely require that it accelerate its efforts to resolve identified deficiencies and improve its compliance functions and to undertake additional remedial actions , and could also involve the imposition of material restrictions on the corporation 's activities or the assessment of fines or penalties against the corporation or one or more of its bank subsidiaries . management has accelerated its efforts to resolve identified deficiencies and enhance the corporation 's compliance and risk management functions , and this work will continue . although management is not able to predict the outcome of these matters , costs associated with these efforts , including additional expenses for salaries and benefits , outside professional services , such as consulting and legal , and for enhancing or acquiring systems to strengthen and support the corporation 's regulatory compliance and risk management infrastructures , could materially affect results of operations in future periods . expense management - non-interest expenses increased $ 12.1 million , or 2.7 story_separator_special_tag % , in comparison to 2012 , driven largely by regulatory compliance and risk management efforts , as discussed above , and a core processing system conversion . the expense categories with the most notable increases were salaries and employee benefits , other outside services , data processing , software expense and professional fees . these increases were somewhat mitigated by a $ 3.8 million decrease in other real estate owned ( oreo ) and repossession expenses , reflecting the improvement in asset quality . during 2013 , the corporation successfully completed its conversion to a new core processing system . the core processing system is used to maintain customer account records , reflect account transactions and activity , and support customer relationship management for substantially all deposit and loan customers . total implementation costs specifically associated with this conversion were approximately $ 3.5 million and $ 975,000 , respectively , during 2013 and 2012. the corporation expects that data processing and software expenses will increase as a result of the conversion and continued investments in its information technology infrastructure . to mitigate the increases in expenses associated with investments in technology and the build out of its risk management and compliance infrastructure , the corporation has implemented a series of initiatives intended to reduce non-interest expenses by approximately $ 8 million annually . these initiatives include the consolidation of 13 branches in early 2014 , which will result in the transfer of deposits , employees and other branch resources to existing branch locations . approximately $ 2 million of expenses , consisting of lease termination costs and the write-off of leasehold improvements , will be incurred in 2014 to complete the branch consolidation . ongoing estimated annual expense reductions associated with the branch consolidations will be approximately $ 3 million . other initiatives include the streamlining of subsidiary bank management structures and certain changes to employee benefits plans . these initiatives will result in one-time gains , net of charges , of $ 2.7 million in 2014. ongoing estimated annual expense reductions associated with these initiatives will be approximately $ 5 million in 2014 . 31 critical accounting policies the following is a summary of those accounting policies that the corporation considers to be most important to the presentation of its financial condition and results of operations , as they require management 's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain . see additional information regarding these critical accounting policies in note a , `` summary of significant accounting policies , '' in the notes to the consolidated financial statements . allowance for credit losses - the allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments . the allowance for loan losses represents management 's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans . the reserve for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet . the corporation 's allowance for loan losses includes : 1 ) specific allowances allocated to impaired loans evaluated for impairment under the financial accounting standards board 's accounting standards codification ( fasb asc ) section 310-10-35 ; and 2 ) allowances calculated for pools of loans evaluated for impairment under fasb asc subtopic 450-20. management 's estimate of incurred losses in the loan portfolio is based on a methodology that includes the following critical judgments : the ability to identify potential problem loans in a timely manner . for commercial loans , commercial mortgages and construction loans to commercial borrowers , an internal risk rating process is used . the corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans . the migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology for these loans , which bases the probability of default on this migration . assigning risk ratings involves judgment . risk ratings are initially assigned to loans by loan officers and are reviewed on a regular basis by credit administration staff . the corporation 's loan review officers provide an independent assessment of risk rating accuracy . ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff , or if specific loan review activities identify a deterioration or an improvement in the loan . the corporation does not assign internal risk ratings for residential mortgages , home equity loans , residential mortgages , consumer loans , lease receivables , and construction loans to individuals secured by residential real estate , as these portfolios consist of a larger number of loans with smaller balances . instead , these portfolios are evaluated for risk through the monitoring of delinquency status . proper collateral valuation of impaired loans evaluated for impairment under fasb asc section 310-10-35. substantially all of the corporation 's impaired loans to borrowers with total outstanding loan balances greater than $ 1.0 million are measured based on the estimated fair value of each loan 's collateral . collateral could be in the form of real estate , in the case of impaired commercial mortgages and construction loans , or business assets , such as accounts receivable or inventory , in the case of commercial loans . commercial loans may also be secured by real property . for loans secured by real estate , estimated fair values are determined primarily through appraisals performed by certified third-party appraisers , discounted to arrive at expected sale prices , net of estimated selling costs . when a real estate secured loan becomes impaired , a decision is made regarding whether an updated appraisal of the real estate is necessary .
| average investment securities decreased $ 8.7 million , or 0.3 % , in comparison to 2012. the average yield on investment securities decreased 52 basis points , or 16.7 % , to 2.60 % in 2013 from 3.12 % in 2012 , as the reinvestment of cash flows and purchases of mortgage-backed securities and collateralized mortgage obligations were made at yields that were lower than the overall portfolio yield . the decrease in the investment portfolio yield was partially mitigated by a $ 2.1 million decrease in net amortization of investment securities premiums , which had a 7 basis point positive impact on the overall change in the portfolio yield . average loans and average fte yields , by type , are summarized in the following table : replace_table_token_12_th 37 the $ 374.6 million , or 4.6 % , increase in commercial loans and commercial mortgages was attributable to both new and existing customers . the $ 129.5 million , or 8.1 % , increase in home equity loans was a result of certain promotions , while the $ 126.2 million , or 10.6 % , increase in residential mortgages was due to the corporation retaining certain 15-year fixed rate residential mortgages in portfolio in the second half of 2012. the average yield on loans during 2013 of 4.39 % represented a 42 basis point , or 8.7 % , decrease in comparison to 2012. the decrease in average yields on loans was attributable to repayments of higher-yielding loans , increased refinancing activity , the renegotiation of certain existing loans to commercial borrowers to eliminate interest rate floors and new loan production at rates lower than the overall portfolio yield . interest expense decreased $ 20.7 million , or 20.0 % , to $ 82.5 million in 2013 from $ 103.2 million in 2012. interest expense decreased $ 13.2 million due to a 20 basis point , or 21.7 % , decrease in the average cost of total interest-bearing liabilities . while total interest-bearing liabilities increased $ 142.4 million , or 1.3 % , the change in the overall funding mix resulted in an additional $ 7.5
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replace_table_token_5_th ( 1 ) “ industrial other ” represents industrial end-markets that include the following sectors : agriculture , power generation , mining , marine , aerospace , construction and military/defense , none of which are greater than 3 % of total net sales , and industrial sales through the distribution channel . ( 2 ) “ other ” represents end-markets that include the following sectors : heavy and medium truck , metals recycling , and oil country tubular goods , none of which are greater than 2 % of total net sales . key indicators for our market include the u.s. light vehicle production seasonally adjusted annual rate , oil and gas rig count activity , u.s. footage drilled , and industrial production for agriculture and construction markets , distribution and mining and oil field machinery products . in addition , we closely monitor the purchasing managers ' index , which is a leading indicator for our overall business . impact of raw material prices and lifo in the ordinary course of business , we are exposed to the volatility of the costs of our raw materials . whenever possible , we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing process . we utilize a raw material surcharge mechanism that is designed to mitigate the impact of increases or decreases in raw material costs , although generally with a lag effect . this timing effect can result in raw material spread whereby costs can be over- or under-recovered in certain periods . while the surcharge generally protects gross profit , it has the effect of diluting gross margin as a percent of sales . we value some of our inventory utilizing the lifo inventory valuation method . changes in the cost of raw materials and production activities are recognized in cost of products sold in the current period even though these materials and other costs may have been incurred in different periods at significantly different values due to the length of time of our production cycle . in a period of rising raw material prices , cost of products sold recognized under lifo is generally higher than the cash costs incurred to acquire the inventory sold . conversely , in a period of declining raw material prices , cost of products sold recognized under lifo is generally lower than cash costs incurred to acquire the inventory sold . in periods of rising inventories and deflating raw material prices , the likely result will be a positive impact to net income . conversely , in periods of rising inventories and increasing raw materials prices , the likely result will be a negative impact to net income . 22 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > selling , general and administrative ( sg & a ) expenses for the year ended december 31 , 2016 decreased $ 3.6 million , or 3 % , compared to the year ended december 31 , 2015 , due primarily to $ 15 million of realized savings from the initiative discussed above , partially offset by approximately $ 11 million of mark-to-market expense related to our pension and other postretirement benefit plans . impairment and restructuring charges during 2015 , we approved and implemented a cost reduction plan that resulted in the reduction of our salaried and hourly headcount . as a result , we recognized restructuring charges consisting of severance , benefits and other associated expenses of $ 0.3 million and $ 5.6 million for the years ended december 31 , 2016 and 2015 , respectively . refer to note 14 - restructuring charges in the notes to the consolidated financial statements for details . during the year ended december 31 , 2015 , we recorded impairment charges of $ 0.9 million related to discontinued use of certain assets . no impairment charges were recorded for the year ended december 31 , 2016 . interest expense replace_table_token_7_th interest expense for the year ended december 31 , 2016 of $ 11.4 million was an increase of $ 8.0 million , compared to $ 3.4 million interest expense for the year ended december 31 , 2015 . the increase was primarily due to the issuance of the 6.00 % convertible senior notes due in 2021 ( convertible notes ) in may 2016. refer to note 6 - financing arrangements in the notes to the consolidated financial statements for additional information . benefit for income taxes replace_table_token_8_th the decrease in the effective tax rate in the year ended december 31 , 2016 compared to the year ended december 31 , 2015 is due primarily to valuation allowances recorded in 2016 against our deferred tax assets . refer to note 12- for additional information . year ended december 31 , 2015 compared to year ended december 31 , 2014 on december 31 , 2016 , we voluntarily changed our accounting principle for recognizing actuarial gains and losses and expected returns on plan assets for our defined benefit pension and other postretirement benefit plans . refer to note 1 - company and basis of presentation in the notes to the consolidated financial statements for additional information . we have applied the change in accounting principle retrospectively to periods covered in this report , and the amounts below reflect this change . 24 replace_table_token_9_th the table above presents net sales , adjusted to exclude raw material surcharges , which represents a financial measure that has not been determined in accordance with u.s. gaap . we believe presenting net sales adjusted to exclude raw material surcharges provides additional insight into key drivers of net sales such as base prices and product mix . net sales net sales for the year ended december 31 , 2015 were $ 1,106.2 million , a decrease of $ 568.0 million , or 34 % , compared to the year ended december 31 , 2014 . excluding surcharges , net sales decreased $ 341.7 million , or 27 % . story_separator_special_tag the decrease was primarily due to an approximately 50 % decrease in ship tons in the energy end market and related distribution channel and a 5 % decrease in ship tons in the industrial end market as a result of lower demand for energy and related industrial products . gross profit gross profit for the year ended december 31 , 2015 was $ 46.2 million , a decrease of $ 154.9 million , or 77 % , compared to the year ended december 31 , 2014 . the decrease was driven primarily by higher manufacturing costs of approximately $ 138 million , lower volume of approximately $ 93 million , raw material spread of approximately $ 54 million , price/mix of approximately $ 21 million and an inventory revaluation charge of approximately $ 8 million , partially offset by mark-to-market income related to our pension and other postretirement benefit plans of approximately $ 115 million and higher lifo income of $ 42 million . as discussed previously , ship tons decreased for the year ended december 31 , 2015 compared to the same period in 2014 as a result of lower customer demand in the energy and industrial end markets . manufacturing costs were unfavorable due primarily to melt utilization declining from approximately 72 % for the year ended december 31 , 2014 to approximately 49 % for the year ended december 31 , 2015 . the unfavorable raw material spread was driven by timing associated with our customer surcharge mechanism as discussed above . our surcharge mechanism is designed to mitigate the impact of increases or decreases in raw material costs , although generally with a lag effect . this timing effect can result in raw material costs being over- or under-recovered in certain periods . while the surcharge generally protects gross profit , it had the effect of diluting gross margin as a percent of sales . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses for the year ended december 31 , 2015 decreased $ 23.8 million , or 18.5 % , compared to the year ended december 31 , 2014 due primarily to lower variable pay and mark-to-market expense related to our pension and other postretirement benefit plans , offset by the fact that the first half of 2014 did not include costs required to operate on a stand-alone basis . impairment and restructuring charges during 2015 we approved and implemented a cost reduction plan that resulted in the reduction of our salaried and hourly headcount . as a result , we recognized restructuring charges consisting of severance , benefits and other associated expenses of $ 5.6 million for the year ended december 31 , 2015 . refer to note 14 - restructuring charges in the notes to the consolidated financial statements for details . no restructuring charges were recorded for the year ended december 31 , 2014 . 25 during the years ended december 31 , 2015 and 2014 , we recorded impairment charges of $ 0.9 million and $ 1.2 million , respectively . ( benefit ) provision for income taxes replace_table_token_10_th the increase in the effective tax rate in the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was due primarily to the loss of a tax benefit associated with the u.s. manufacturing deduction . non-gaap financial measures net sales , excluding surcharges the table below presents net sales by end market sector , adjusted to exclude raw material surcharges , which represents a financial measure that is not in accordance with u.s. gaap . we believe presenting net sales by end market sector adjusted to exclude raw material surcharges provides additional insight into key drivers of net sales such as base price and product mix . 26 replace_table_token_11_th the balance sheet the following discussion is a comparison of the consolidated balance sheets as of december 31 , 2016 and 2015 : replace_table_token_12_th refer to the liquidity and capital resources section in this management 's discussion and analysis of financial condition and results of operations for a discussion of the decrease in cash and cash equivalents . accounts receivable , net increased $ 10.7 million and inventories , net decreased $ 9.7 million as of december 31 , 2016 compared to december 31 , 2015 due primarily to 10 % higher shipments in the fourth quarter of 2016 as compared to the fourth quarter of 2015 . inventories also decreased from efforts to reduce inventory to align with anticipated sales volumes . deferred charges and prepaid expenses decreased $ 8.6 million due primarily to the receipt of tax refunds . replace_table_token_13_th property , plant and equipment , net decreased $ 27.4 million from december 31 , 2015 . the decrease was primarily due to depreciation expense of $ 68.0 million , partially offset by capital expenditures of $ 41.3 million . replace_table_token_14_th pension assets decreased $ 14.5 million from december 31 , 2015 primarily driven by a decrease in the discount rate to 4.17 % as of december 31 , 2016 , compared to 4.67 % as of december 31 , 2015 . refer to note 8 - retirement and postretirement benefit plans in the notes to the consolidated financial statements for additional information . intangible assets , net decreased $ 5.6 million from december 31 , 2015 . the decrease was primarily due to amortization expense of $ 6.9 million , partially offset by capitalized software expenditures of $ 1.4 million . replace_table_token_15_th 27 current liabilities as of december 31 , 2016 , increased $ 26.5 million from december 31 , 2015 due to higher accounts payable of approximately $ 37.5 million , partially from extended payment terms , offset by lower capital spending , lower benefit accruals , and lower restructuring accruals . in may 2016 , the company issued $ 86.3 million in convertible notes . see the liquidity and capital resources section and note 6 - financing arrangements in the notes to the consolidated financial statements for additional information regarding the convertible notes .
| the decrease was driven primarily by mark-to-market expense related to our pension and other postretirement benefit plans of approximately $ 75 million , price/mix of approximately $ 36 million , lower lifo income of approximately $ 28 million and lower volume of approximately $ 24 million , partially offset by raw material spread of approximately $ 51 million and lower manufacturing costs of approximately $ 45 million . as discussed previously , ship tons decreased for the year ended december 31 , 2016 compared to the same period in 2015 as a result of lower customer demand from weak commodity markets . the favorable raw material spread was driven by timing associated with our customer surcharge mechanism as discussed above and below . we have approximately 2 million tons of annual melt capacity . the amount of actual melt produced as a percentage of the capacity defines our melt utilization . melt utilization is a key performance indicator for our business and is influenced by customer demand and inventory levels . we believe that production levels of approximately 50 % melt utilization will generate breakeven earnings before interest taxes depreciation and amortization ( ebitda ) results in normalized scrap markets . many factors can influence the level at which melt utilization will generate breakeven results . the primary factors are product volume and mix , product price and cost structure . melt utilization declined from approximately 49 % for the year ended december 31 , 2015 to approximately 46 % for the year ended december 31 , 2016 . weakness in commodity markets , declining rig counts and high inventory levels in the distribution supply chain resulted in lower customer demand and therefore lower production volumes . in order to align our cost structure with market demand and continue to manage our breakeven levels to offset potential headwinds from product mix and price , in the 23 second half of 2015 we implemented a $ 75 million cost reduction initiative . those actions , which included
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the company recognizes revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim . uncertainties inherent in the performance of contracts include labor availability and productivity , material costs , change order scope and pricing , software modification and customer acceptance issues . the reliability of these cost estimates is critical to the company 's revenue recognition as a significant change in the estimates can cause the company 's revenue and related margins to change significantly from the amounts estimated in the early stages of the project . as the company recognizes revenue under the percentage-of-completion method , it provides an accrual for estimated future warranty costs based on historical and projected claims experience . the company 's long-term contracts generally provide for a one-year warranty on parts , labor and any bug fixes as it relates to software embedded in the systems . the company 's system design contracts do not normally provide for “ post customer support service ” ( pcs ) in terms of software upgrades , software enhancements or telephone support . in order to obtain pcs , the customers normally must purchase a separate contract . such pcs arrangements are generally for a one-year period renewable annually and include customer support , unspecified software upgrades , and maintenance releases . the company recognizes revenue from these contracts ratably over the life of the agreements . revenue from the sale of software licenses which do not require significant modifications or customization for the company 's modeling tools are recognized when the license agreement is signed , the license fee is fixed and determinable , delivery has occurred , and collection is considered probable . revenue for contracts with multiple elements is recognized in accordance with asc 605-25 revenue recognition- multiple element arrangements . revenue from certain consulting contracts is recognized on a time-and-material basis . for time-and-material type contracts , revenue is recognized based on hours incurred at a contracted labor rate plus expenses . 37 capitalization of computer software development costs . in accordance with u.s. generally accepted accounting principles , the company capitalizes computer software development costs incurred after technological feasibility has been established , but prior to the release of the software product for sale to customers . once the product is available to be sold , the company amortizes the costs , on a straight line method , over the three year estimated useful life of the product . as of december 31 , 2011 , the company has net capitalized software development costs of $ 1.8 million . on an annual basis , and more frequently as conditions indicate , the company assesses the recovery of the unamortized software development costs by estimating the net undiscounted cash flows expected to be generated by the sale of the product . if the undiscounted cash flows are not sufficient to recover the unamortized software costs the company will write-down the investment to its estimated fair value based on future discounted cash flows . the excess of any unamortized computer software costs over the related net realizable value is written down and charged to operations . significant changes in the sales projections could result in an impairment with respect to the capitalized software that is reported on the company 's consolidated balance sheet . valuation of contingent consideration for business acquisitions . acquisitions may include contingent consideration payments based on future financial measures of an acquired company . contingent consideration is required to be recognized at fair value as of the acquisition date . we estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement . we believe our estimates and assumptions are reasonable ; however , there is significant judgment involved . at each reporting date , the contingent consideration obligation will be revalued to estimated fair value and changes in fair value subsequent to the acquisition will be reflected in income or expense in the consolidated statements of operations , and could cause a material impact to our operating results . changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates , changes in the timing and amount of revenue and or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria . deferred income tax valuation allowance . deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements . management makes a regular assessment of the realizability of the company 's deferred tax assets . in making this assessment , management considers whether it is more likely than not that some 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 and projected future taxable income of the company in making this assessment . a valuation allowance is recorded to reduce the total deferred income tax asset to its realizable value . as of december 31 , 2011 , the company 's largest deferred tax asset of $ 4.9 million primarily relates to a u.s. net operating loss carryforward of $ 13.2 million which expires in various amounts between 2017 and 2030. the amount of u.s. loss carryforward which can be used by the company each year is limited due to changes in the company 's ownership which occurred in 2003. thus , a portion of the company 's loss carryforward may expire unutilized . we believe that the company will achieve profitable operations in future years that will enable the company to recover the benefit of its net deferred tax assets . story_separator_special_tag however , other than a portion of the net deferred tax assets that are related to the company 's indian subsidiary , the recovery of the net deferred tax assets could not be substantiated by currently available objective evidence . accordingly , the company has established an $ 6.9 million valuation allowance for its net deferred tax assets . 38 story_separator_special_tag style= '' text-indent : 0pt ; margin-left : 0pt ; margin-right : 0pt '' > business development and marketing costs increased from $ 4.2 million for the year ended december 31 , 2010 to $ 5.6 million in the year ended december 31 , 2011. during the first quarter of 2011 , the company underwent an internal reorganization whereby a number of operational personnel were reallocated to business development activities on a full time basis . tas and envision incurred approximately $ 764,000 of business development and marketing costs for the twelve months ended december 31 , 2011 , compared to $ 216,000 incurred by tas for the twelve months ended december 31 , 2010. also contributing to the increase in business development costs in 2011 was the hiring of a business development manager in the united kingdom in may 2010. bidding and proposal costs , which are the costs of operations personnel assisting with the preparation of contract proposals totaled $ 1.5 million for the year ended december 31 , 2011 , an $ 84,000 increase from the prior year . ¨ the company 's general and administrative expenses totaled $ 6.0 million and $ 6.8 million for the years ended december 31 , 2011 and 2010 , respectively . the decrease of $ 800,000 is primarily attributable to the following : o the change in the fair value of contingent consideration related to the tas and envision acquisitions resulted in a gain of $ 322,000 for the year ended december 31 , 2011 , as compared to a loss of $ 147,000 for the year ended december 31 , 2010. o the company incurred approximately $ 206,000 of expenses related to acquisition efforts for the year ended december 31 , 2011. these acquisition costs were composed of legal , travel , due diligence , valuation and audit expenses . the company incurred $ 710,000 of acquisition related costs in 2010 . 40 ¨ gross spending on software product development ( “ development ” ) expenses , for the twelve months ended december 31 , 2011 totaled $ 1.8 million , as compared to $ 1.6 million for the twelve months ended december 31 , 2010. the company capitalized $ 838,000 and $ 903,000 for the twelve months ended december 31 , 2011 and 2010 , respectively . net development spending increased from $ 663,000 for the twelve months ended december 31 , 2010 to $ 1.0 million for the twelve months ended december 31 , 2011. o the company created a 3d visualization team in january 2011 to develop 3d technology to add to our training programs . the company incurred $ 300,000 of costs related to this effort for the twelve months ended december 31 , 2011. o spending on other software product development totaled $ 1.5 million for the twelve months ended december 31 , 2011. for the twelve months ended december 31 , 2010 , development expense totaled $ 1.6 million . the company 's development expenses were mainly related to advancements on a new configuration management system which is a central data warehouse that supports various forms of data on a simulator , new feature enhancements to our jade platform and advancements to our maap hd severe accident platform . envision incurred $ 90,000 of development expense for the twelve months ended december 31 , 2011. depreciation . depreciation expense totaled $ 497,000 and $ 579,000 for the years ended december 31 , 2011 and 2010 , respectively . in 2007 , the company had purchased approximately $ 400,000 of computers and furniture for a training center at strathclyde university in the uk and a demonstration center at its sykesville headquarters . these items were fully depreciated at the end of 2010. amortization of definite-lived intangible assets . amortization expense related to definite-lived intangible assets totaled $ 948,000 and $ 102,000 for the years ended december 31 , 2011 and 2010 , respectively . amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets , except for contractual customer relationships and contract backlog , which are recognized in proportion to the related projected revenue streams . as part of the company 's acquisition of tas in 2010 , the company recorded intangible assets totaling approximately $ 740,000 with estimated lives of one to ten years . the company also recorded intangible assets of $ 1.5 million with estimated lives of three to eight years as part of the envision acquisition . operating income ( loss ) . the company had operating income of $ 2.2 million ( 4.3 % of revenue ) in the year ended december 31 , 2011 , as compared with an operating loss of $ 1.2 million ( 2.6 % of revenue ) for the year ended december 31 , 2010. the variances were due to the factors outlined above . 41 interest income , net . the company 's interest income , net totaled $ 131,000 and $ 19,000 for the years ended december 31 , 2011 and 2010 , respectively . at december 31 , 2011 , the company had a revolving credit agreement for a revolving line of credit with susquehanna which is scheduled to expire on november 1 , 2013. the credit facility enables the company to borrow funds to support working capital needs and to collateralize letters of credit which will be issued as performance bonds . the line of credit , which is in the principal amount of up to $ 7.5 million , bears interest at a rate equal to the wall street journal prime rate of interest , floating with a floor of 4 ½ % .
| in addition , revenue generated from various contracts that the company has received from a german customer increased by approximately $ 2.1 million for the year ended december 31 , 2011 as compared december 31 , 2010. furthermore , in 2011 , the company received a $ 2.9 million change order on its contract to provide a full scope agr replacement simulator with a british utility which increased the total contract value from $ 4.7 million to $ 7.6 million . this change order order resulted in a $ 2.5 million increase in revenue recognized on this contract from the year ended december 31 , 2010 , as compared to the year ended december 31 , 2011 . 39 at december 31 , 2011 , the company 's backlog was $ 51.5 million , of which $ 5.8 million related to the slovakia contract . the company 's backlog decreased 7.9 % from december 31 , 2010 when the company 's backlog totaled $ 55.9 million . gross profit . gross profit totaled $ 16.3 million for the year ended december 31 , 2011 versus $ 11.1 million for the year ended december 31 , 2010. as a percentage of revenue , gross profit increased from 23.6 % for the twelve months ended december 31 , 2010 to 32.0 % for the twelve months ended december 31 , 2011. the increase in gross margin reflects the following items . the company has a contract to provide a full scope agr replacement simulator with a british utility . in 2010 , disagreements arose with the customer over the extent and composition of the simulator testing procedures , the scope of certain plant systems being included in the simulator and the project schedule . these issues were resolved with the customer in early 2011 ; however , the resolution significantly increased the company 's costs to complete the contract . in the fourth quarter 2010 , the company revised its estimates to complete the project and recorded a $ 1.2 million loss on the project . negotiations with the
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our operating strategy will continue to evolve to market changes , and we can not provide any assurances that our strategies will continue to be successful . 33 the following table summarizes our results of operation for the years ended december 31 , 2017 and 2016 . replace_table_token_4_th ( 1 ) non-gaap financial measure . 34 results of operations by segment replace_table_token_5_th west in our west segment , for the year ended december 31 , 2017 , our income before income tax increased by $ 14.6 million to $ 14.6 million . we acquired the entirety of our operations in our west segment in conjunction with our acquisitions of ucp and sundquist homes as discussed above . since completing these acquisitions , we delivered 398 new homes with an average price of $ 529.4 thousand and generated $ 210.7 million in home sales revenues in our west segment . mountain in our mountain segment , for the year ended december 31 , 2017 , our income before income tax increased by $ 9.1 million to $ 75.7 million , as compared to $ 66.6 million for the same period in 2016. this increase is related to an increase in the number of homes delivered and an increase in the average selling price of those homes in 2017 . texas in our texas segment , for the year ended december 31 , 2017 , our income before income tax increased by $ 8.3 million to $ 11.0 million as compared $ 2.7 million for the same period in 2016. this increase is primarily related to an increase in the number of homes delivered in 2017 . southeast in our southeast segment , for the year ended december 31 , 2017 , our income before income tax decreased by $ 1.5 million to $ 29.7 million , as compared to $ 31.1 million for the same period in 2016. the number of homes delivered , home sales revenue and average selling price all increased in our southeast segment year over year . however , as we have recently started operations in north carolina , our selling , general and administrative expenses have increased without a corresponding increase in revenues . financial services our indirect wholly-owned subsidiaries , inspire home loans inc. and parkway title , llc , which provide mortgage services and title services , respectively , to our home buyers have been identified as our financial services segment . we began providing mortgage services to our customers during the second quarter of 2017. substantially all of the loans we originate are sold in the secondary market within a short period of time after origination , generally within 30 days . during the year ended december 31 , 2017 , we originated and closed 550 loans with a total principal amount of $ 172.2 million . corporate during the year ended december 31 , 2017 , our corporate segment generated losses of $ 48 . 0 million , as compared to losses of $ 27.3 million for the same period in 2016. the increase in expenses during the year ended december 31 , 2017 was primarily attributed to the following : ( 1 ) an increase of $ 9.4 million in acquisition expenses , ( 2 ) an increase of $ 11.6 million in compensation related expenses , including non-cash expenses for share based payments and an increase in the number of employees a fter our acquisition of ucp and 35 sundquist homes , ( 3 ) an increase of $ 3.4 million in information technology related expen ses , and ( 4 ) an increase of $ 1 . 0 million in advertising costs , partially offset by an increase in equity in income from unconsolidated subsidiaries . homebuilding gross margin homebuilding gross margin represents home sales revenue less cost of home sales revenues . our homebuilding gross margin percentage , which represents homebuilding gross margin divided by home sales revenues , decreased for the year ended december 31 , 2017 to 17.9 % , as compared to 19.7 % for the year ended december 31 , 2016. the decrease is primarily driven by purchase accounting for acquired work in process inventory . in the following table , we calculate our gross margins adjusting for interest in cost of sales , and purchase price accounting for acquired work in process inventory . see “ critical accounting policies ” below and footnote 3 ( business combinations ) of our c onsolidated f inancial s tatements for additional discussion regarding our methodology for estimating the fair value of acquired work in process inventory . ( dollars in thousands ) replace_table_token_6_th ( 1 ) this non-gaap financial measure should not be used as a substitute for the company 's operating results in accordance with gaap . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . excluding interest in cost of home sales and purchase price accounting , our adjusted homebuilding gross margin percentage was 21.4 % for the year ended december 31 , 2017 , as compared to 21.7 % for the year ended december 31 , 2016. we believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our gross margins to previous periods and our competitors . story_separator_special_tag selling , general and administrative expense replace_table_token_7_th our selling , general and administrative costs increased $ 54.1 million for the year ended december 31 , 2017 as compared to 2016. the increase was primarily attributa ble to the following : ( 1 ) an increase of $ 12.1 million in commission exp ense resulting from a 44 % increase in home sales revenues , ( 2 ) an increase of $ 26.2 million in compensation related expenses , including incentive compensation as a result of higher head count to support our growth , ( 3 ) an increase of $ 4.7 million in advertising expenses , ( 4 ) an increase of $ 2.0 36 million in information technology expenses , and ( 5 ) a net increase of $ 9.0 million related to individually insignificant changes in other expenses , including rent , insurance , depreciation and legal . other income ( expense ) for the year ended december 31 , 2017 , other income ( expense ) increased to $ 2.9 million from $ 1.6 million for the same period in 2016. the increase was related to increases in interest income and forfeited deposits . equity in income from unconsolidated subsidiaries as of december 31 , 2017 , our investment in wjh was $ 28.2 million and we recognized $ 12.2 million and $ 0.2 million of equity in income of unconsolidated subsidiaries during the years ended december 31 , 2017 and 2016 , respectively . our investment in wjh was made in november 2016 , and as such there were limited earnings during 2016. wjh had 1,742 home deliveries with an average sales price of $ 148.2 thousand during the year ended december 31 , 2017 . income tax expense our income tax expense for the year ended december 31 , 2017 was $ 33.9 million , as compared to $ 23.6 million for the year ended december 31 , 2016. our income tax expense for the year ended december 31 , 2017 results in an effective tax rate of 40.2 % , as compared to an effective tax rate of 32.3 % for the year ended december 31 , 2016. our effective tax rate is driven by our blended federal and state statutory rate of 37 . 8 % . our blended federal and state statutory tax rate is reflective of the states in which we operate , including nevada , texas and washington which generally do not have corporate income tax . as a result of the tax cuts and jobs act signed into law on december 22 , 2017 , we recorded a provisional remeasurement of our deferred tax assets totaling $ 2.8 million . our blended federal and state statutory tax rate is partially offset by benefits from additional deductions for domestic production activities in 2017 . segment assets ( dollars in thousands ) replace_table_token_8_th replace_table_token_9_th of our total lots owned and controlled as of december 31 , 2017 , 51.2 % were owned and 48.8 % were controlled , as compared to 47.3 % owned and 52.7 % controlled as of december 31 , 2016. total assets increased by $ 727.5 million , or 72.2 % , to $ 1.7 billion at december 31 , 2017 , as compared to $ 1.0 billion at december 31 , 2016. the increase is related to the increase in assets from our acquisitions of ucp and sundquist homes , as well as the increased investments in all of our operating segments . 37 other homebuilding operating data replace_table_token_10_th net new home contracts ( new home contracts net of cancellations ) for the year ended december 31 , 2017 increased by 954 homes , or 33.4 % , to 3,814 , as compared to 2,860 for the year ended december 31 , 2016. the increase in our net new home contracts was driven by an increase in our absorption rates as well as our acquisition s of ucp and sundquist homes . our overall monthly “ absorption rate ” ( the rate at which home orders are contracted , net of cancelations ) for the years ended december 31 , 2017 and 2016 by segment are included in the table below : replace_table_token_11_th our absorption rate increased by 18.5 % to 3.2 per month during the year ended december 31 , 2017 , as compared to 2.7 per month during the same period in 2016. the increase in absorption rate is attributable to the strong homebuilding environment as a result of positive economic trends across our markets . replace_table_token_12_th our selling communities increased by 30 communities to 119 communities at december 31 , 2017 , as compared to 89 communities at december 31 , 201 6 . the increase is attributable to our acquisitions of ucp and sundquist homes , as well as organic growth in our existing markets . replace_table_token_13_th 38 backlog reflects the number of homes , net of cancellations experienced during the period , for which we have entered into a sales contract with a customer but for which we have not yet delivered the home . at december 31 , 2017 , we had 1,320 homes in backlog with a total value of $ 572.9 million , which represents an increase of 76.2 % and 89.2 % , respectively , as compared to 749 homes in backlog with a total value of $ 302.8 million at december 31 , 2016. the increase in backlog and backlog value is primarily attributable to our acquisition s of ucp and sundquist homes as well as the increase in our absorption rates . the increase in average sales price of homes in backlog is driven by increases in most of our markets as a result of pricing strength due to positive market trends .
| corporate our corporate segment generated $ 27.3 million in loss during the year ended december 31 , 2016 as compared to a loss of $ 17.0 million for the same period in 2015. the increase in expenses was primarily attributed to the following : ( 1 ) an increase of $ 4.1 million in compensation related expenses , including non-cash expenses for share based payments , ( 2 ) an increase of $ 1.6 million in legal and insurance costs , and ( 3 ) and an increase of $ 1.0 million in information technology related expenses . homebuilding gross margin homebuilding gross margin represents home sales revenue less cost of home sales revenues . our homebuilding gross margin percentage , which represents homebuilding gross margin divided by home sales revenues , decreased for the year ended december 31 , 2016 to 19.7 % , as compared to 20.2 % for the year ended december 31 , 2015. the decrease is primarily driven by higher interest expense in cost of sales as a result of higher debt balances outstanding in 2016 as compared to 2015. in the following table , we calculate our gross margins adjusting for interest in cost of sales , and purchase price accounting for acquired work in process inventory . see “ critical accounting policies ” below and footnote 3 ( business combinations ) of our c onsolidated f inancial s tatements for additional discussion regarding our methodology for estimating the fair value of acquired work in process inventory . 42 replace_table_token_17_th ( 1 ) this non-gaap financial measure should not be used as a substitute for the company 's operating results in accordance with gaap . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . excluding interest in cost of home sales and purchase price accounting , our adjusted homebuilding gross margin percentage was 21.7 % for the year ended december 31 , 2016 , as compared to 21.9 % for the year ended december 31 , 2015. the nominal decrease in adjusted gross margin is attributed to a wider geographic mix of home deliveries in 2016 as compared to 2015. we believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our gross margins to previous periods and our competitors . selling , general and administrative expense replace_table_token_18_th our selling ,
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accordingly , the revenues and expenses associated with this business are presented as a component of income ( loss ) from continuing operations in our consolidated statements of operations for the years ended december 31 , 2018 and 2017 and the cash flows associated with this business are presented as a component of cash flows from continuing operations in our consolidated statements of cash flows for the years ended december 31 , 2018 and 2017 through the sale date . the fair value of the consideration received as a result of the imfs divestment approximated the carrying value of imfs and , therefore , during the third quarter of 2018 , we recorded an insignificant loss in connection with the imfs divestment to other ( income ) expense , net . our imfs business represented approximately $ 20.2 million and $ 22.3 million of total revenues for the years ended december 2018 and 2017 , respectively . our imfs business represented approximately $ 1.6 million and $ 2.1 million of total income ( loss ) from continuing operations for the years ended december 31 , 2018 and 2017 , respectively . revenues for the year ended december 31 , 2018 reflect the impact of the adoption of asu 2014-09 whereas revenues for the year ended december 31 , 2017 do not . 31 c. russia and ukraine divestment see note 13 to notes to consolidated financial statements included in this annual report for details regarding the divestment of our records and information management operations in russia and ukraine to osg records management ( europe ) limited ( “ osg ” ) . in connection with the divestment , we became a holder of 25 % of the equity interest in osg . on january 9 , 2020 , we acquired the remaining 75 % equity interest in osg . see note 15 to notes to consolidated financial statements included in this annual report for additional information on the acquisition of osg . significant acquisition costs our significant acquisition costs represent operating expenditures associated with ( 1 ) our acquisition of recall that we completed on may 2 , 2016 ( the `` recall transaction '' ) , including : ( i ) advisory and professional fees to complete the recall transaction ; ( ii ) costs associated with the divestments ( as defined in note 13 to notes to consolidated financial statements included in this annual report ) required in connection with receipt of regulatory approvals ( including transitional services ) ; and ( iii ) costs to integrate recall with our existing operations , including moving , severance , facility upgrade , reit integration and system upgrade costs , as well as certain costs associated with our shared service center initiative for our finance , human resources and information technology functions ; and ( 2 ) the advisory and professional fees to complete the iodc transaction ( collectively , `` significant acquisition costs '' ) . total acquisition and integration expenditures associated with the recall transaction and the iodc transaction were approximately $ 403.8 million , the substantial majority of which was incurred prior to the end of 2018. from january 1 , 2015 through december 31 , 2019 , we incurred cumulative operating and capital expenditures associated with the recall transaction and the iodc transaction of $ 327.8 million of significant acquisition costs and $ 76.0 million of capital expenditures . immaterial restatement in june 2019 , we received a notification of assessment from tax and customs authorities in the netherlands related to a vat liability of approximately 16.8 million euros primarily related to the years ending december 31 , 2018 and 2017. we have established a reserve for this matter based upon our estimate of the amount of loss that is both probable and estimable , including interest and penalties , and have reflected this reserve through an immaterial restatement of our consolidated financial statements . as a result , certain line items in our consolidated statements of operations for the years ended december 31 , 2018 and 2017 have been restated to reflect the immaterial restatement . see note 2.y . to notes to consolidated financial statements included in this annual report for additional information regarding the effect of the immaterial restatement on certain line items in our consolidated statements of operations for the years ended december 31 , 2018 and 2017. adoption of asu 2014-09 , revenue from contracts with customers in may 2014 , the financial accounting standards board ( `` fasb '' ) issued asu 2014-09. we adopted asu 2014-09 as of january 1 , 2018 using the modified retrospective method for all of our customer contracts , whereby the cumulative effect of applying asu 2014-09 is recognized at the date of initial application . see note 2.l . to notes to consolidated financial statements included in this annual report for information on the impact to opening balance of ( distributions in excess of earnings ) earnings in excess of distributions on our consolidated balance sheets . as a result of the adoption of asu 2014-09 , adjusted ebitda for the year ended december 31 , 2018 increased by approximately $ 25.3 million , compared to the prior year period . the adoption of asu 2014-09 did not have a material impact on adjusted eps , ffo ( nareit ) or ffo ( normalized ) for the year ended december 31 , 2018 compared to the prior year period . the revenues for the year ended december 31 , 2018 reflect a net $ 14.2 million , reclassification of certain components of storage rental revenues to service revenues associated with the adoption of asu 2014-09 . story_separator_special_tag 32 changes impacting comparability with prior year in 2019 , we made the following changes which impacted the results of fiscal years 2018 and 2017 and the accompanying management discussion and analysis that was presented in previous filings : ( i ) as a result of the changes associated with project summit , in the fourth quarter of 2019 , we created a newly formed global rim business reportable operating segment , which is comprised of the majority of our former north american records and information management business , north american data management business , western european business and other international business reportable operating segments ; ( ii ) in the first quarter of 2019 , we began to present gains on sale of real estate as a component of operating income in the line item ( gain ) loss on disposal/write-down of property , plant and equipment , gross of tax ( with any tax impact presented within provision ( benefit ) for income taxes ) ; and ( iii ) in the fourth quarter of 2019 , we began to present significant acquisition costs as its own line item within operating expenses in our consolidated statements of operations , rather than as components of selling , general and administrative expenses and cost of sales . as a result of these changes , we have included management discussion and analysis of 2018 compared to 2017 for these three items under the `` segment analysis '' , `` gain on disposal/write-down of property , plant and equipment , net '' and `` significant acquisition costs '' sections in this item 7. all other management discussion and analysis related to 2018 and 2017 has been excluded , as there have been no material changes to what was included in previous filings . see `` item 7. management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2018 for a comparison of 2018 to 2017. general our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value-added taxes . storage rental revenues , which are considered a key driver of financial performance for the storage and information management services industry , consist primarily of recurring periodic rental charges related to the storage of materials or data ( generally on a per unit basis ) that are typically retained by customers for many years , technology escrow services that protect and manage source code and revenues associated with our data center operations . service revenues include charges for related service activities , the most significant of which include : ( 1 ) the handling of records , including the addition of new records , temporary removal of records from storage , refiling of removed records and courier operations , consisting primarily of the pickup and delivery of records upon customer request ; ( 2 ) destruction services , consisting primarily of secure shredding of sensitive documents and the subsequent sale of shredded paper for recycling , the price of which can fluctuate from period to period , and customer termination and permanent removal fees ; ( 3 ) other services , including the scanning , imaging and document conversion services of active and inactive records and project revenues ; and ( 4 ) consulting services . our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active . while customers continue to store their records and tapes with us , they are less likely than they have been in the past to retrieve records for research and other purposes , thereby reducing service activity levels . cost of sales ( excluding depreciation and amortization ) consists primarily of wages and benefits for field personnel , facility occupancy costs ( including rent and utilities ) , transportation expenses ( including vehicle leases and fuel ) , other product cost of sales and other equipment costs and supplies . of these , wages and benefits and facility occupancy costs are the most significant . selling , general and administrative expenses consist primarily of wages and benefits for management , administrative , it , sales , account management and marketing personnel , as well as expenses related to communications and data processing , travel , professional fees , bad debts , training , office equipment and supplies . trends in facility occupancy costs are impacted by the total number of facilities we occupy , the mix of properties we own versus properties we occupy under leases , fluctuations in per square foot occupancy costs , and the levels of utilization of these properties . trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , workforce productivity and variability in costs associated with medical insurance and workers ' compensation . the expansion of our international businesses has impacted the major cost of sales components and selling , general and administrative expenses . our international operations are more labor intensive relative to revenue than our operations in north america and , therefore , labor costs are a higher percentage of international operational revenue . in addition , the overhead structure of our expanding international operations has generally not achieved the same level of overhead leverage as our north american operations , which may result in an increase in selling , general and administrative expenses as a percentage of consolidated revenue as our international operations become a larger percentage of our consolidated results . our depreciation and amortization charges result primarily from depreciation related to storage systems , which include racking structures , buildings , building and leasehold improvements and computer systems hardware and software . amortization relates primarily to customer relationship intangible assets , contract fulfillment costs and data center lease-based intangible assets . both depreciation and amortization are impacted by the timing of acquisitions .
| excluding the impact of acquisitions/divestitures , our global rim business segment net volumes as of december 31 , 2019 were relatively steady compared to the ending volume as of december 31 , 2018. including the impact of acquisitions/divestitures , our global rim business segment net volumes as of december 31 , 2019 increased by 0.4 % over the ending volume at december 31 , 2018. organic storage rental revenue growth in our global data center business segment was 5.3 % compared to the prior year period , primarily related to a $ 5.4 million lease modification fee that benefited organic storage rental revenue growth for the segment by 2.5 % . foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rate for the year ended december 31 , 2019 by 2.1 % , compared to the prior year period . service revenues in the year ended december 31 , 2019 , the decrease in reported consolidated service revenues was driven by unfavorable fluctuations in foreign currency exchange rates and negative organic service revenue growth , partially offset by the favorable impact of acquisitions/divestitures . foreign currency exchange rate fluctuations decreased our reported service revenue growth rate in the year ended december 31 , 2019 by 2.3 % , compared to the prior year period . in the year ended december 31 , 2019 , organic service revenue growth was negative 1.0 % compared to the prior year period , primarily driven by continued declines in recycled paper prices , lower destructions and reduced retrieval/re-file and related transportation activity , partially offset by growth in our secure shredding revenue and increased project activity in our global rim business segment . the net impact of acquisitions/divestitures contributed 1.9 % to the reported service revenue growth rates in the year ended december 31 , 2019 , compared to the prior year period . 47 total revenues for the reasons stated above , our reported consolidated revenues increased $ 36.8 million , or 0.9 % , to $ 4,262.6 million for the year ended december
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depreciation and amortization are computed using the straight-line method over the estimated useful lives of 40 years for buildings , and over the remaining terms of any intangible asset contracts and the respective tenant leases , which may include bargain renewal options . the impact of these estimates , including estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and subsequent depreciation or amortization expense . for more information , refer to note 1 , organization and summary of significant accounting policies - real estate of the notes to the consolidated financial statements . impairment we review our investment in real estate , including any related intangible assets , for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable . these changes in circumstances include , but are not limited to , changes in occupancy , rental rates , tenant sales , net operating income , geographic location , real estate values and expected holding period . the viability of all projects under construction or development , including those owned by unconsolidated joint ventures , is regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project or an individual component of the project , is no longer considered to have value , the related capitalized costs are charged against operations . impairment provisions resulting from any event or change in circumstances , including changes in our intentions or our analysis of varying scenarios , could be material to our consolidated financial statements . we recognize an impairment of an investment in real estate when the estimated discounted or undiscounted cash flow is less than the net carrying value of the property . if it is determined that an investment in real estate is impaired , then the carrying value is reduced to the estimated fair value as determined by cash flow models and discount rates or comparable sales in accordance with our fair value measurement policy . refer to note 1 organization and summary of significant accounting policies - accounting for the impairment of long-lived assets for further information regarding impairment provisions . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 3.9 million , or 12.7 % , from 2014 primarily due to our 2015 and 2014 acquisitions . real estate tax expense in 2015 increased $ 7.3 million , or 23.1 % , from 2014 , primarily due to our 2015 and 2014 acquisitions . depreciation and amortization expense in 2015 increased $ 8.3 million , or 10.2 % , from 2014 . the increase was primarily related to a $ 14.8 million increase from our acquisitions in 2015 and 2014 , new development completion and other capital activities offset by a decrease of $ 6.5 million related to sold properties and accelerated depreciation for demolition of certain centers undergoing redevelopment in 2014 . 29 general and administrative expense in 2015 decreased $ 1.6 million , or 7.4 % , from 2014. the decrease was primarily due to lower costs associated with our long-term incentive plans which are based on our stock price performance relative to a group of our peers and the reversal of share based and long-term compensation expense related to the previous chief financial officer offset in part by a one-time award to our new chief financial officer . impairment provisions of $ 2.5 million recorded in 2015 related to developable land that was subsequently sold in the second quarter of 2015. in 2014 our impairment provisions totaled $ 27.9 million . refer to note 1 organization and summary of significant accounting policies - accounting for the impairment of long-lived assets of the notes to the consolidated financial statements for further information related to impairment provisions . gain on sale of real estate was $ 17.6 million in 2015 . in the comparable period in 2014 we had a gain of $ 10.9 million . refer to note 4 of the notes to the consolidated financial statements for further detail on dispositions . earnings from unconsolidated joint ventures in 2015 increased $ 17.6 million from 2014 . the increase was primarily related to our proportionate share of gains totaling $ 16.5 million generated by the sale of ten properties owned by two of our joint ventures . in addition , in 2014 we recorded accelerated depreciation expense as a result of the demolition of a portion of centers for redevelopment and additional proceeds related to the 2011 sale of a joint venture property . refer to note 7 of the notes to the consolidated financial statements for additional information regarding our unconsolidated joint venture sales activity . interest expense and amortization of deferred financing fees increased in 2015 by $ 7.0 million , or 20 % from 2014 , primarily due to the issuance of new senior unsecured notes and higher average loan balances on our credit facility . gain on remeasurement of unconsolidated joint ventures in 2015 was $ 7.9 million , triggered by our acquisition of our partner 's equity interest in seven properties . the gain on remeasurement represents the difference between the carrying value and the fair value of our previously held equity investment in the properties . in 2014 , we recognized a similar gain of $ 0.1 million . gain on extinguishment of debt of approximately $ 1.4 million in 2015 was related to the write-off of debt premiums associated with two mortgages that were repaid compared to a loss of $ 0.9 million in 2014 related to write-off of deferred financing costs associated with the early payoff of unsecured term loan debt . liquidity and capital resources the majority of our cash is generated from operations and is dependent on the rents that we are able to charge and collect from our tenants . story_separator_special_tag the principal uses of our liquidity and capital resources are for operations , developments , redevelopments , including expansion and renovation programs , acquisitions and debt repayment . in addition , we make quarterly dividend payments in accordance with reit requirements for distributing the substantial majority of our taxable income on an annual basis . we anticipate that the combination of cash on hand , cash from operations , availability under our credit facilities , additional financings , equity offerings and the sale of existing properties will satisfy our expected working capital requirements through at least the next 12 months . although we believe that the combination of factors discussed above will provide sufficient liquidity , no such assurance can be given . at december 31 , 2016 and 2015 , we had $ 14.7 million and $ 15.4 million , respectively , in cash and cash equivalents and restricted cash . restricted cash was comprised primarily of funds held in escrow by lenders to pay real estate taxes , insurance premiums and certain capital expenditures , in addition to deposits on future acquisitions . short-term liquidity requirements our short-term liquidity needs are met primarily from rental income and expense recoveries and consist primarily of funds necessary to pay operating expenses associated with our properties , interest and scheduled principal payments on our debt , quarterly dividend payments ( including distributions to op unit holders ) and capital expenditures related to tenant improvements and redevelopment activities , as well as general corporate expenses . we believe that our cash on hand , retained cash flow from operations along with , availability under our revolving credit facility , issuance of equity , as well as other debt and equity alternatives is sufficient to meet these obligations . as of december 31 , 2016 we had $ 263.5 million available to be drawn on our $ 350.0 million unsecured revolving credit facility subject to our compliance with certain covenants . we will continue to pursue the strategy of selling mature properties or non-core assets that no longer meet our investment criteria . our ability to obtain acceptable selling prices and satisfactory terms and financing will impact the timing of future sales . we anticipate using net proceeds from the sale of properties to reduce outstanding debt and support current and future growth initiatives . 30 we continually search for investment opportunities that may require additional capital and or liquidity . as of december 31 , 2016 , we had one proposed property acquisition under contract and one property disposition under contract , subject to due diligence contingencies . long-term liquidity requirements our long-term liquidity needs consist primarily of funds necessary to pay indebtedness at maturity , potential acquisitions of properties , redevelopment of existing properties , the development of land and non-recurring capital expenditures . the following is a summary of our cash flow activities : replace_table_token_14_th operating activities we anticipate that cash on hand , operating cash flows , borrowings under our revolving credit facility , issuance of equity , as well as other debt and equity alternatives , will provide the necessary capital that we require to operate . net cash flow provided by operating activities increased $ 11.9 million in 2016 compared to 2015 primarily due to the following : operating income , adjusted for non-cash activity , increased $ 3.0 million ; net accounts receivable decreased $ 8.6 million ; accounts payable , accrued expenses and other liabilities , and other assets decreased approximately $ 1.5 million ; long-term and share-based compensation expense increased $ 1.9 million ; and net interest expense increased approximately $ 2.3 million due to the composition between senior unsecured notes and mortgage debt , as well as a higher average balances of our term loan and revolving credit facility . investing activities net cash from investing activities increased $ 162.1 million compared to 2015 primarily due to : acquisitions of real estate decreased $ 139.9 million ; development and capital improvements to real estate increased $ 11.1 million ; net proceeds from the sale of real estate increased $ 45.0 million ; and distributions from sales of joint venture properties decreased $ 12.8 million ; and restricted cash increased $ 1.0 million . financing activities cash flows used in financing activities were $ 127.9 million as compared to cash flows provided by financing activities of $ 46.5 million in 2015 . this difference of $ 174.4 million is primarily explained by : net proceeds from common share issuances decreased $ 17.3 million ; an increase in cash dividends to common shareholders of $ 3.7 million due an increase in our per share quarterly dividend payment ; and a decrease in cash paid for op unit redemptions of $ 2.3 million ; offset in part by a decrease in net borrowings of $ 157.2 million including debt extinguishment costs and deferred financing costs . as of december 31 , 2016 , $ 263.5 million was available to be drawn on our $ 350.0 million unsecured revolving credit facility subject to our compliance with certain covenants . it is anticipated that additional funds borrowed under our credit facilities will be used for general corporate purposes , including working capital , capital expenditures , the repayment of indebtedness or other corporate activities . for further information on the credit facilities and other debt , refer to note 8 of notes to the consolidated financial statements . 31 dividends and equity we currently qualify , and intend to continue to qualify in the future , as a reit under the code . as a reit , we must distribute to our shareholders at least 90 % of our reit taxable income annually , excluding net capital gain . distributions paid are at the discretion of our board and depend on our actual net income available to common shareholders , cash flow , financial condition , capital requirements , restrictions in financing arrangements , the annual distribution requirements under reit provisions of the code and such other factors as our board deems relevant .
| general and administrative expense in 2016 increased $ 2.0 million , or 9.8 % , from 2015. the increase was primarily due to increased costs associated with our long-term incentive plans , including increased stock compensation in 2016 related to a one-time award to our current chief financial officer in december 2015. by way of contrast , general and administration expense in 2015 included a reversal of expense attributable to the resignation of our former chief financial officer . impairment provisions of $ 1.0 million recorded in 2016 related to developable land held for sale triggered by unforeseen increases in development costs and changes in the associated sales price assumptions . in 2015 our impairment provisions totaled $ 2.5 million related to our plan to sell certain land parcels that we had previously intended to develop . refer to note 1 organization and summary of significant accounting policies - accounting for the impairment of long-lived assets of the notes to the consolidated financial statements for further information related to impairment provisions . gain on sale of real estate was $ 35.8 million in 2016 . in the comparable period in 2015 we had a gain of $ 17.6 million . refer to note 4 of the notes to the consolidated financial statements for further detail on dispositions . 28 earnings from unconsolidated joint ventures in 2016 decreased $ 17.2 million from 2015 . the decrease was primarily due to the reduced level of properties in unconsolidated joint ventures following sales in 2015. interest expense and amortization of deferred financing fees increased in 2016 by $ 2.3 million , or 5.5 % from 2015 , primarily due to changes in the composition between senior unsecured notes and mortgage debt , as well as higher average balances on our term loan and revolving credit facility . gain on remeasurement of unconsolidated joint ventures in 2016 was $ 0.2 million , primarily due to the reduced level
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changes in the fair value of those transactions are marked to market and reported in the consolidated statements of income , resulting in earnings volatility because the economic offset to certain of the positions are generally not marked to market . as a consequence , nee 's net income reflects only the movement in one part of economically-linked transactions . for example , a gain ( loss ) in the non-qualifying hedge category for certain energy derivatives is offset by decreases ( increases ) in the fair value of related physical asset positions in the portfolio or contracts , which are not marked to market under gaap . for this reason , nee 's management views results expressed excluding the impact of the non-qualifying hedges as a meaningful measure of current period performance . the second category , referred to as trading activities , which is included in adjusted earnings , represents the net unrealized effect of actively traded positions entered into to take advantage of expected market price movements and all other commodity hedging activities . in 2016 , nee discontinued hedge accounting for its interest rate and foreign currency derivative instruments , which could result in increased volatility in the non-qualifying hedge category . at fpl , substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled , and , upon settlement , any gains or losses are passed through the fuel clause . see note 3 . 36 2017 summary net income attributable to nee for 2017 was higher than 2016 by $ 2,466 million , or $ 5.13 per share , assuming dilution , due to higher results at fpl , neer and corporate and other , including the favorable impacts of tax reform . fpl 's increase in net income in 2017 was primarily driven by continued investments in plant in service and other property and increased retail rate base under the 2016 rate agreement , partly offset by the net impact of storm restoration costs due to hurricane irma discussed below . neer 's results increased in 2017 primarily reflecting the impacts of tax reform , earnings from new investments and the non-qualifying hedge activity , partly offset by the duane arnold impairment charge and the absence of 2016 gains from the sale of natural gas generation facilities . in 2017 , neer added approximately 355 mw of new wind generating capacity , 1,596 mw of wind repowering generating capacity and 200 mw of solar generating capacity in the u.s. , completed the sale of 80 mw of solar generating capacity and increased its backlog of contracted renewable development projects . corporate and other 's results in 2017 increased primarily reflecting the gain on sale of the fiber-optic telecommunications business , partly offset by non-qualifying hedge activity . nee and its subsidiaries require funds to support and grow their businesses . these funds are primarily provided by cash flow from operations , borrowings or issuances of short- and long-term debt and proceeds from differential membership investors and , from time to time , issuances of equity securities . see liquidity and capital resources - liquidity . story_separator_special_tag of the facility 's capacity and energy for a purchase price of approximately $ 521 million . fpl will recover the purchase price related to the indiantown and cedar bay generation facilities and the associated income tax gross-up on cedar bay as regulatory assets which are being amortized over approximately nine years . see note 1 - rate regulation for further discussion . other items impacting fpl 's consolidated statements of income fuel , purchased power and interchange expense fuel , purchased power and interchange expense increased $ 245 million and decreased $ 979 million during 2017 and 2016 , respectively . the increase for 2017 primarily relates to approximately $ 314 million of higher fuel and energy prices , partly offset by a decrease of $ 103 million in capacity fees related in part to the indiantown generation facility long-term purchased power agreement after fpl assumed ownership of the indiantown generation facility . the decrease in 2016 primarily relates to approximately $ 453 million of lower fuel and energy prices and $ 27 million related to lower energy sales . in addition , fpl recognized approximately $ 49 million and $ 220 million of deferred retail fuel costs in 2017 and 2015 , respectively , compared to the deferral of $ 11 million of retail fuel costs in 2016. the decrease in 2016 also reflects lower capacity fees of approximately $ 267 million related in part to the termination of the cedar bay generation facility long-term purchased power agreement after fpl assumed ownership of the cedar bay generation facility . 38 storm restoration costs in december 2017 , following the enactment of tax reform , fpl determined that it would not seek recovery of hurricane irma storm restoration costs through a surcharge from customers and , as a result , the regulatory asset associated with hurricane irma was written off . as allowed under the 2016 rate agreement , fpl used available reserve amortization to offset nearly all of the expense , and plans to partially restore the reserve amortization through tax savings generated during the term of the 2016 rate agreement . see note 1 - securitized storm-recovery costs , storm fund and storm reserve . depreciation and amortization expense the major components of fpl 's depreciation and amortization expense are as follows : replace_table_token_10_th depreciation expense decreased $ 718 million and increased $ 75 million during 2017 and 2016 , respectively . the decrease in 2017 primarily reflects approximately $ 1,237 million of higher reserve amortization , partly offset by higher depreciation recovered under base rates due to higher rates as a result of the 2016 rate agreement , higher storm-recovery cost amortization related to the recovery of restoration costs from hurricanes that impacted fpl 's service territory in 2016 and higher plant in service balances . story_separator_special_tag the reserve amortization , or reversal of such amortization , reflects adjustments to accrued asset removal costs provided under the 2016 and 2012 rate agreements in order to achieve the targeted regulatory roe . reserve amortization is recorded as a reduction to ( or when reversed as an increase to ) accrued asset removal costs which is reflected in noncurrent regulatory liabilities on the consolidated balance sheets . at december 31 , 2017 , no amounts remain in accrued asset removal costs related to reserve amortization . the increase in depreciation and amortization expense in 2016 primarily relates to higher amortization of a regulatory asset associated with the september 2015 acquisition of the cedar bay generation facility and higher depreciation related to higher plant in service balances , partly offset by the absence of 2015 amortization expenses associated with analog meters . taxes other than income taxes and other taxe s other than income taxes and other increased $ 103 million in 2017 primarily due to higher franchise and revenue taxes , neither of which impacts net income , as well as higher property taxes reflecting growth in plant in service balances . 39 neer : results of operations neer owns , develops , constructs , manages and operates electric generation facilities in wholesale energy markets primarily in the u.s. , as well as in canada and spain . neer also provides full energy and capacity requirements services , engages in power and gas marketing and trading activities and invests in natural gas , natural gas liquids and oil production and pipeline infrastructure assets . neer 's net income less net income attributable to noncontrolling interests for 2017 , 2016 and 2015 was $ 2,963 million , $ 1,125 million and $ 1,092 million , respectively , resulting in an increase in 2017 of $ 1,838 million and an increase in 2016 of $ 33 million . the primary drivers , on an after-tax basis , of these changes are in the following table . replace_table_token_11_th ( a ) reflects after-tax project contributions , including ptcs , itcs and deferred income taxes and other benefits associated with convertible itcs for wind and solar projects , as applicable , ( see note 1 - electric plant , depreciation and amortization , - income taxes and - sale of differential membership interests and note 5 ) , as well as income tax benefits related to the canadian tax restructuring , but excludes allocation of interest expense or corporate general and administrative expenses . results from projects and pipelines are included in new investments during the first twelve months of operation or ownership . project results are included in existing assets and pipeline results are included in gas infrastructure beginning with the thirteenth month of operation or ownership . ( b ) excludes allocation of interest expense and corporate general and administrative expenses . ( c ) includes differential membership interest costs . excludes unrealized mark-to-market gains and losses related to interest rate derivative contracts , which are included in change in non-qualifying hedge activity . ( d ) see overview - adjusted earnings for additional information . new investments in 2017 , results from new investments increased primarily due to : higher earnings of approximately $ 316 million , including the net effect of deferred income taxes and other benefits associated with itcs and convertible itcs , related to the addition of approximately 1,818 mw of wind generating capacity and 1,378 mw of solar generating capacity during or after 2016 , and higher earnings of approximately $ 44 million related to additional investments in natural gas pipeline projects . in 2016 , results from new investments increased primarily due to : higher earnings of approximately $ 223 million , including deferred income tax and other benefits associated with itcs and convertible itcs , related to the addition of approximately 2,819 mw of wind generating capacity and 1,226 mw of solar generating capacity during or after 2015 , and higher earnings of approximately $ 70 million related to the acquisition of the texas pipelines in october 2015 and additional investments in other natural gas pipeline projects . 40 existing assets in 2017 , results from neer 's existing asset portfolio decreased primarily due to : lower results from wind and solar assets of approximately $ 36 million primarily reflecting an increase in the amount of earnings attributable to noncontrolling interest and the absence of 2016 income tax benefits related to the canadian tax restructuring , offset in part by lower depreciation related to the change in useful lives of certain wind assets ( see note 1 - electric plant , depreciation and amortization ) , and lower results of approximately $ 27 million related to the sale of certain natural gas generation facilities ( see note 1 - assets and liabilities associated with assets held for sale ) . in 2016 , results from neer 's existing asset portfolio decreased primarily due to : lower results from wind and solar assets of approximately $ 40 million primarily due to lower state tax credits , the roll off of ptcs on certain wind projects after ten years of production ( ptc roll off ) , higher project o & m expenses and an increase in the amount of earnings attributable to noncontrolling interest , offset in part by higher wind generation and income tax benefits related to the canadian tax restructuring , and lower results of $ 6 million related to the sale of certain natural gas generation facilities ( see note 1 - assets and liabilities associated with assets held for sale ) . gas infrastructure the decrease in gas infrastructure results in 2016 is primarily due to increased depreciation expense reflecting higher depletion rates as well as lower commodity prices .
| fpl restored power to approximately 50 % of its affected customers within one day and to approximately 95 % of affected customers within seven days . in december 2017 , following the enactment of tax reform , fpl used available reserve amortization to offset nearly all of the write-off of hurricane irma storm restoration costs , and fpl plans to partially restore the reserve amortization through tax savings generated during the term of the 2016 rate agreement . see note 1 - securitized storm-recovery costs , storm fund and storm reserve . the use of reserve amortization was permitted under the 2012 rate agreement and continues during the term of the 2016 rate agreement . see item 1. business - fpl - fpl regulation - fpl rate regulation - base rates for additional information on the 2016 and 2012 rate agreements . in order to earn a targeted regulatory roe , subject to limitations associated with the 2016 and 2012 rate agreements , reserve amortization is calculated using a trailing thirteen-month average of retail rate base and capital structure in conjunction with the trailing twelve months regulatory retail base net operating income , which primarily includes the retail base portion of base and other revenues , net of o & m , depreciation and amortization , interest and tax expenses . in general , the net impact of these income statement line items must be adjusted , in part , by reserve amortization to earn the targeted regulatory roe . in certain periods , reserve amortization is reversed so as not to exceed the targeted regulatory roe . the drivers of fpl ' s net income not reflected in the reserve amortization calculation typically include wholesale and transmission service revenues and expenses , cost recovery clause revenues and expenses , afudc - equity and revenue and costs not recoverable from retail customers by the fpsc . in 2017 and 2016 , fpl recorded reserve amortization of $ 1,250 million and $ 13 million ,
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because of the numerous risks and uncertainties affecting product sales and our ongoing commercialization and product development efforts , we are unable to predict with any certainty whether we will be able to increase sales of our products or the timing or amount of ongoing expenditures we will be required to incur . accordingly , even if we are able to increase sales of our products , we may not become profitable . as a result , we anticipate that we will need additional funding to support our continuing operations and pursue our growth strategy . until such time as we are able to generate sufficient sales from our products , we expect to finance our operations through equity offerings , debt financings or other capital sources , which may include collaborations or license agreements with other companies or other strategic transactions . we may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms or at all . if we fail to raise capital or enter into such agreements as and when needed , we will be unable to execute our growth strategy and may be forced to reduce or terminate some or all of our operations . we believe that the net proceeds from our ipo , together with our existing cash , availability under our revolving credit facility ( as defined below ) and cash generated from expected future commercial sales , will be sufficient to fund our operating expenses and capital expenditure requirements through 2022. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . impact of covid-19 we are closely monitoring the impact of the covid-19 pandemic on our business . in march 2020 , the world health organization declared covid-19 a global pandemic and recommended various containment and mitigation measures worldwide . since that time , the number of procedures performed using our products has decreased significantly , as governmental authorities in the united states have recommended , and in certain cases required , that elective , specialty and other non-emergency procedures and appointments be suspended or canceled in order to avoid patient exposure to medical environments and the risk of potential infection with covid-19 , and to focus limited resources and personnel capacity on the treatment of covid-19 patients . as a result , beginning in march 2020 , a significant number of procedures using our products have been postponed or cancelled , which has negatively impacted sales of our products . these measures and challenges will likely continue for the duration of the pandemic , which is uncertain , and will likely continue to reduce our net sales and negatively impact our business , financial condition and results of operations while the pandemic continues . in addition , numerous state and local jurisdictions , including those where our facilities are located , have imposed , and others in the future may impose or re-impose , “ shelter-in-place ” orders , quarantines , executive orders and similar government orders and restrictions for their residents to control the spread of covid-19 . such orders or restrictions have resulted in reduced operations at our manufacturing facilities , travel restrictions and cancellation of events , and have restricted the ability of our sales representatives and those of our commercial partners and independent sales agents to attend procedures in which our products are used , among other effects , thereby significantly and negatively impacting our operations . the extent to which the covid-19 pandemic impacts our future financial condition and results of operations will depend on future events and developments , which are highly uncertain and can not be predicted , including the severity and spread of the disease and the effectiveness of actions to contain the disease or treat its impact , among others . as new information regarding covid-19 continues to emerge , it is difficult to predict the degree to which this disease will ultimately have on our business . components of our results of operations net sales we recognize revenue on the sale of our core products and our non-core products . with respect to our core products , cangaroo and our cardiovascular products are sold to hospitals and other healthcare facilities primarily through our direct sales force , commercial partners or independent sales agents . our orthopedic/spinal repair products are sold through commercial partners . our soft tissue reconstruction product simpliderm is sold directly to hospitals and other healthcare facilities through direct sales and independent sales agents . our contract manufacturing products are sold directly to corporate customers . gross to net sales adjustments include sales returns and prompt payment and volume discounts . 94 expenses in recent years , we have incurred significant costs in the operation of our business . we expect our expenses to continue to increase for the foreseeable future as we grow our sales and marketing organization , expand our product development and clinical activities and increase our administrative infrastructure . as a result , we will need to generate significant net sales in order to achieve profitability . below is a breakdown of our main expense categories and the related expenses incurred in each category : costs of goods sold our cost of goods sold relate to purchased raw materials and the processing and conversion costs of such raw materials consisting primarily of salaries and benefits , supplies , quality control testing and the manufacturing overhead incurred at our processing facilities in richmond , california and roswell , georgia . both facilities have additional capacity , which if utilized , would further leverage our fixed overhead . cost of goods sold also includes the amortization of intangibles generated from the cormatrix acquisition in 2017. sales and marketing expenses sales and marketing expenses are primarily related to our direct sales force , consisting of salaries , commission compensation , fringe benefits , meals and other expenses . story_separator_special_tag auto and travel costs have also historically contributed to sales and marketing expenses , albeit to a lesser extent due to the covid-19 pandemic . outside of our direct sales force , we incur significant expenses relating to commissions to our cangaroo commercial partners and independent sales agents . additionally , this expense category includes distribution costs as well as market research , trade show attendance , advertising and public relations and customer service expenses . we expect sales and marketing expenses to grow commensurate with sales increases , and to an even larger degree in the near-term due to a continued focus on growing our direct sales force and increasing marketing activities , particularly with respect to our cangaroo and simpliderm product lines . general and administrative expenses general and administrative ( “ g & a ” ) expenses consist of compensation , consulting , legal , human resources , information technology , accounting , insurance and general business expenses . we expect our g & a expenses to increase as a result of operating as a public company , especially as a result of hiring additional personnel and incurring greater director and officer insurance premiums , greater investor and public relations costs , and additional costs associated with accounting , legal , tax-related and other services associated with maintaining compliance with exchange listing and sec requirements . research and development expenses research and development ( “ r & d ” ) expenses consist primarily of salaries and fringe benefits , laboratory supplies , clinical trials and outside service costs . our product development efforts primarily relate to new offerings in support of the orthopedic/spinal repair market and activities associated with the development of a cangaroo envelope with anti-infective properties . we also conduct clinical trials to validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts . 95 story_separator_special_tag this annual report for further discussion . other ( income ) expense , net was income of approximately $ 1.9 million in the year ended december 31 , 2019 and related primarily to gain on the revaluation of our long-term revenue interest obligation ( the “ revenue interest obligation ” ) to ligand pharmaceuticals ( “ ligand ” ) assumed in connection with the cormatrix acquisition . see note 10 to the consolidated financial statements included elsewhere in this annual report for further discussion . accretion of series a preferred stock accretion of series a preferred stock was $ 3.5 million in the year ended december 31 , 2020 and $ 0 in the year ended december 31 , 2019. the accretion of series a preferred stock relates to $ 3.5 million of deemed dividends related to the sale of the convertible preferred stock in september 2020 below its fair value . see note 12 to the consolidated financial statements included elsewhere in this annual report for additional information . non-gaap financial measures this annual report presents our gross margin , excluding intangible asset amortization , for the years ended december 31 , 2020 and 2019. we calculate gross margin , excluding intangible asset amortization , as gross profit , excluding amortization expense relating to intangible assets we acquired in the cormatrix acquisition , divided by net sales . gross margin , excluding intangible asset amortization , is a supplemental measure of our performance , is not defined by or presented in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , has limitations as an analytical tool and should not be considered in isolation or as an alternative to our gaap gross margin , gross profit or any other financial performance measure presented in accordance with gaap . we present gross margin , excluding intangible asset amortization , because we believe that it provides meaningful supplemental information regarding our operating performance by removing the impact of amortization expense , which is not indicative of our overall operating performance . we believe this provides our management and investors with useful information to facilitate period-to-period comparisons of our operating results . our management uses this metric in assessing the health of our business and our operating performance , and we believe investors ' understanding of our operating performance is similarly enhanced by our presentation of this metric . although we use gross margin , excluding intangible asset amortization , as described above , this metric has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with gaap . in addition , other companies , including companies in our industry , may use other measures to evaluate their performance , which could reduce the usefulness of this non-gaap financial measure as a tool for comparison . the following table presents a reconciliation of our gross margin , excluding intangible asset amortization , for the years ended december 31 , 2020 and 2019 to the most directly comparable gaap financial measure , which is our gaap gross margin ( in thousands ) . replace_table_token_2_th 98 seasonality historically , we have experienced seasonality in our first and fourth quarters , and we expect this trend to continue . we have experienced and may in the future experience higher sales in the fourth quarter as a result of hospitals in the united states increasing their purchases of our products to coincide with the end of their budget cycles . satisfaction of patient deductibles throughout the course of the year also results in increased sales later in the year , once patients have paid their annual insurance deductibles in full , which reduces their out-of-pocket costs . conversely , our first quarter generally has lower sales than the preceding fourth quarter as patient deductibles are re-established with the new year , which increases their out-of-pocket costs . liquidity and capital resources as of december 31 , 2020 , we had cash and restricted cash of approximately $ 39.5 million and availability under our revolving credit facility of $ 1.5 million .
| 96 cost of goods sold cost of goods sold decreased $ 1.0 million , or 4.4 % , to $ 22.1 million in the year ended december 31 , 2020 compared to $ 23.1 million in the year ended december 31 , 2019 , and included , in each case , $ 3.4 million of intangible asset amortization expenses . gross margin was 48.2 % , in the year ended december 31 , 2020 compared to 46.1 % in the year ended december 31 , 2019. gross margin , excluding intangible asset amortization , was 56.1 % , in the year ended december 31 , 2020 compared to 54.0 % in the year ended december 31 , 2019. the decrease in cost of goods sold and related improvement in gross margin in the year ended december 31 , 2020 was due to product mix and inventory write-downs in the year ended december 31 , 2019 , due to excessive or expiring product , caused largely by the launch of simpliderm which reduced demand for certain other dermis inventory . operating expenses sales and marketing sales and marketing expenses increased $ 0.6 million , or 4.2 % , to $ 16.8 million in the year ended december 31 , 2020 compared to $ 16.2 million in the year ended december 31 , 2019. as a percentage of sales , sales and marketing expenses rose to 39.5 % in the year ended december 31 , 2020 from 37.7 % in the year ended december 31 , 2019. the increase was primarily due to an increase in the number of personnel in our direct sales force which enabled us to cover new territories , as well as additions to our marketing and hospital contracting functions . collectively , these personnel additions increased expenses in the year ended december 31 , 2020 by approximately $ 1.0 million which was partially offset by declines in salesperson travel costs due to hospital restrictions caused by the covid-19 pandemic . general and administrative g & a expenses increased $ 3.6 million , or 37.6 % , to $ 13.2 million in the
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% in fiscal year 2016 compared to 19.7 % in the prior year . adjusted gross margins improved 250 basis points from the prior year driven primarily from a more profitable sales mix and lower product costs in the basics segment , coupled with higher direct-to-consumer sales in the branded segment . excluding the expenses associated with the manufacturing initiative , gross margins as a percentage of sales increased by 480 basis points compared to the prior fiscal year . our basics gross margins expanded by 380 basis points from fiscal year 2015 to 2016 , to 15.5 % . gross margins in the branded segment declined by 60 basis points to 33.6 % in fiscal year 2016 from the prior year . our gross margins may not be comparable to other companies because some companies include costs related to their distribution network in cost of goods sold and we exclude them from gross profit and include them in selling , general and administrative expenses . fiscal year 2016 selling , general and administrative expenses were $ 76.6 million , or 18.0 % of sales , compared to $ 81.1 million , or 18.1 % of sales , in fiscal year 2015. the decrease in selling , general and administrative expenses is primarily due to lower selling costs and efficiency improvements in our distribution facilities , partially offset by higher incentive compensation costs resulting from our improved operating results in fiscal year 2016 from the prior year . the change in fair value of contingent consideration is the remeasurement of the contingent consideration related to the acquisition of salt life . based upon the operating results and future projections as of the remeasurement , a $ 0.6 million reduction in contingent consideration was recorded , principally from the reduced remaining time in the measurement period . 19 other income includes our income from our honduran joint venture , along with sublease income . other income decreased slightly to $ 0.6 million in fiscal year 2016 from $ 0.7 million in fiscal year 2015. fiscal year 2016 operating income was $ 16.3 million compared to $ 16.1 million in fiscal year 2015. fiscal year 2016 adjusted operating income was $ 19.2 million , or 4.5 % of sales , an $ 8.6 million , or 81.9 % , increase over the prior year adjusted operating income of $ 10.5 million . operating income in fiscal year 2016 was $ 22.3 million in the basics segment and $ 6.9 million in the branded segment offset by unallocated general corporate costs of $ 12.9 million , compared to $ 13.1 million in the basics segment and $ 12.4 million in the branded segment offset by unallocated corporate costs of $ 9.4 million . interest expense for fiscal year 2016 decreased $ 0.7 million to $ 5.3 million compared to $ 6.0 million in fiscal year 2015. the decrease is due primarily to the lower average debt levels in fiscal year 2016 compared to the prior year , coupled with slightly lower interest rates on our u.s. credit facility . our fiscal year 2016 effective income tax rate was 18.8 % compared to 19.9 % in the prior fiscal year . we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the united states . net income in fiscal year 2016 was $ 9.0 million , or $ 1.12 per diluted share , compared with net income in the prior year of $ 8.1 million , or $ 1.00 per diluted share . adjusted earnings per diluted share were $ 1.41 , a 147.4 % increase from the prior year 's $ 0.57 adjusted earnings per diluted share . non-gaap financial measures we provide all information required in accordance with generally accepted accounting principles ( “ gaap ” ) , but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only gaap financial measures . in an effort to provide investors with additional information regarding the company 's results , we also provide non-gaap information that management believes is useful to investors . we discuss adjusted net sales , adjusted gross margins , adjusted operating income and adjusted earnings per diluted share as performance measures because management uses these measures in evaluating the company 's underlying performance on a consistent basis across periods . we also believe these measures are frequently used by securities analysts , investors and other interested parties in the evaluation of the company 's ongoing performance . these non-gaap measures have limitations as analytical tools , and securities analysts , investors and other interested parties should not consider any of these non-gaap measures in isolation or as a substitute for analysis of the company 's results as reported under gaap . these non-gaap measures may not be comparable to similarly titled measures used by other companies . the table below reconciles net sales , gross profit , gross margins , operating income and earnings per diluted share to the adjusted net sales , adjusted gross margins , adjusted operating income and adjusted earnings per diluted share ( in thousands , except per share amounts ) : 20 replace_table_token_4_th liquidity and capital resources credit facility and other financial obligations on may 10 , 2016 , we amended our u.s. revolving credit facility and entered into a fifth amended and restated credit agreement ( the `` amended credit agreement '' ) with wells fargo bank , national association ( `` wells fargo '' ) , as administrative agent , the sole lead arranger and the sole book runner , and the financial institutions named therein as lenders , which are wells fargo , pnc bank , national association and regions bank . our subsidiaries , m.j. soffe , llc , junkfood clothing company , salt life , llc , and art gun , llc ( together with the company , the `` companies '' ) , are co-borrowers under the amended credit agreement . story_separator_special_tag the amended credit agreement was subsequently amended on november 27 , 2017. for further information refer to item 9b . other information . the amended credit agreement allows us to borrow up to $ 145 million ( subject to borrowing base limitations ) , including a maximum of $ 25 million in letters of credit . provided that no event of default exists , we have the option to increase the maximum credit to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the administrative agent 's ability to secure additional commitments and customary closing conditions . the credit facility matures on may 10 , 2021. at september 30 , 2017 , we had $ 74.6 million outstanding under our u.s. revolving credit facility at an average interest rate of 2.9 % , and had the ability to borrow an additional $ 37.5 million . for further information regarding our u.s. asset-based secured credit facility , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . in august 2013 , we acquired salt life and issued two promissory notes in the aggregate principal amount of $ 22.0 million , which included a one-time installment of $ 9.0 million that was paid as required on september 30 , 2014 , and quarterly installments commencing on march 31 , 2015 , with the final installment due on june 30 , 2019. the promissory notes are zero-interest notes and state that interest will be imputed as required under section 1274 of the internal revenue code . we have imputed interest at 1.92 % and 3.62 % on the promissory notes that matured on june 30 , 2016 , and will mature on june 30 , 2019 , respectively . at september 30 , 2017 , the discounted value of the promissory note was $ 5.3 million . refer to note 9 - long term debt to the consolidated financial statements for further information on these promissory notes . we have loan agreements with banco ficohsa , a honduran bank . this credit facility is secured by a first-priority lien on the assets of our honduran operations and the loans are not guaranteed by our u.s. entities . as of september 30 , 2017 , we had a total of $ 12.9 million 21 outstanding on these loans . for further information regarding our honduran loans , refer to note 9 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . our primary cash needs are for working capital and capital expenditures , as well as to fund share repurchases under our stock repurchase program . in addition , we may use cash to pay dividends in the future . derivative instruments from time to time we may use derivative instruments to manage our exposure to interest rates . these financial instruments are not used for trading or speculation purposes . when we enter into a derivative instrument , we determine whether hedge accounting can be applied . where hedge accounting can be applied , a hedge relationship is designated as either a fair value hedge or cash flow hedge . the hedge is documented at inception , detailing the particular risk objective and strategy considered for undertaking the hedge . the documentation identifies the specific asset or liability being hedged , the risk being hedged , the type of derivative used and how effectiveness of the hedge will be assessed . during fiscal years 2017 , 2016 , and 2015 , these interest rate swap agreements had minimal ineffectiveness and were considered highly-effective hedges . changes in the derivatives ' fair values are deferred and are recorded as a component of accumulated other comprehensive income ( “ aoci ” ) , net of income taxes , until the underlying transaction is recorded . when the hedged item affects income , gains or losses are reclassified from aoci to the consolidated statements of operations as interest income/expense . any ineffectiveness in our hedging relationships is recognized immediately in the consolidated statement of operations . the changes in fair value of the interest rate swap agreements resulted in aoci gains , net of taxes , of $ 0.1 million and $ 0.3 million for the years ended september 30 , 2017 , and october 1 , 2016 , respectively , and an aoci loss , net of taxes , of $ 0.2 million for the year ended october 3 , 2015. operating cash flows cash provided by operating activities in fiscal year 2017 was $ 13.9 million compared to $ 2.2 million for fiscal year 2016. the increase of cash provided is primarily related to increased earnings combined with increased collections from our customers compared to our prior fiscal year . investing cash flows cash provided by investing activities in fiscal year 2017 was $ 18.9 million compared to $ 10.8 million used in investing activities in fiscal year 2016. capital expenditures during fiscal year 2017 were $ 7.9 million and primarily related to machinery and equipment , along with investments in our direct-to-consumer initiatives and information technology systems . during fiscal year 2017 , investing cash flows also included $ 26.0 million in proceeds received from the sale of our junkfood business . see note 3 — divestitures , for further information on this transaction . in fiscal year 2016 , we used $ 12.3 million in cash for capital expenditures , including expenditures for the expansion of our textile operations to decrease reliance on purchased fabric and allow us to better leverage our internal operations . we expect to spend approximately $ 13 million in capital expenditures in fiscal year 2018 , primarily on manufacturing equipment along with information technology and direct-to-consumer investments .
| gross margins in the branded segment improved to 33.2 % in fiscal year 2017 and , excluding the results of the since-divested junkfood business , improved 90 basis points over the prior year to 34.6 % . operating income in the branded segment was $ 3.9 million in fiscal year 2017 compared to $ 6.9 million in the prior year due mainly to the junkfood divestiture . basics segment net sales in our basics segment increased by 1.1 % to $ 280.3 million from prior year sales of $ 277.1 million . strong private label growth drove the increase , with our funtees business exceeding $ 100 million in revenue , a record for that business . gross margins in the basics segment improved 30 basis points from the prior year due primarily to sales of higher margin fashion basics products . operating income increased by $ 1.9 million to $ 24.2 million , or 8.6 % of sales , compared to $ 22.3 million , or 8.0 % of sales , in the prior year due to increased sales and a more favorable product mix . quarterly financial data for information regarding quarterly financial data , refer to note 17 - quarterly financial information ( unaudited ) to the consolidated financial statements , which information is incorporated herein by reference . fiscal year 2017 versus fiscal year 2016 net sales for fiscal year 2017 were $ 385.1 million compared with prior year sales of $ 425.2 million . when adjusted to exclude sales in the since-divested junkfood business , sales were $ 369.4 million in fiscal year 2017 compared to $ 374.8 million in the prior year , a decline of 1.4 % . our direct-to-consumer and ecommerce sales represented 6.8 % of total revenues for the 2017 fiscal year compared to 5.3 % of revenues in the prior year . while gross margins improved in both the branded and basics segments , overall gross margins declined to 21.0 % from the lower mix of branded sales resulting from the divestiture of junkfood . our gross margins
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after replacing some of the coal fired boilers with gas boilers , we started using natural gas in december 2016 , which accounted for approximately 0.88 % of total sales in december 2016. the monthly energy cost ( electricity and coal ) as a percentage of total monthly sales of our main paper products for the 24 months ended december 31 , 2016 , are summarized as follows : gross profit gross profit for the year ended december 31 , 2016 was $ 25,531,883 ( 18.95 % of the total revenue ) , representing a decrease of $ 2,328,722 , or 8.36 % , from the gross profit of $ 27,860,605 ( 20.59 % of the total revenue ) for the year ended december 31 , 2015. the decrease was mainly attributable to ( i ) the increase of material purchase price of cmp and ( ii ) the deprecation of rmb against us dollar . the decrease was partially offset by an increase in the quantity of cmp and tissue paper products produced and sold . corrugating medium paper , offset printing paper and tissue paper products gross profit for offset printing paper , cmp and tissue paper products for the year ended december 31 , 2016 was $ 25,918,026 , a decrease of $ 2,186,217 , or 7.78 % , from the gross profit of $ 28,104,243 for the year ended december 31 , 2015. the decrease was mainly the result of the factors discussed above . 32 the overall gross profit margin for offset printing paper , cmp and tissue paper products decreased by 1.50 % percentage points , from 20.83 % for the year ended december 31 , 2015 , to 19.33 % for the year ended december 31 , 2016. gross profit margin for regular cmp for the year ended december 31 , 2016 was 17.14 % , or 2.95 percentage point lower , as compared to gross profit margin of 20.09 % for the year ended december 31 , 2015. such decrease was mainly the result of the factors discussed above . gross profit margin for light-weight cmp for the year ended december 31 , 2016 was 25.47 % , or 4.86 percentage points lower , as compared to gross profit margin of 30.33 % for the year ended december 31 , 2015. the decrease was primarily the result of the increase in the material purchase price in the year ended december 31 , 2016. gross profit margin for offset printing paper was 22.73 % for the year ended december 31 , 2016 , an increase of 4.14 percentage points , as compared to 18.59 % for the year ended december 31 , 2015 as a result of introduction of a new material of less purchase price since july 2016. gross profit margin for tissue paper products for the year ended december 31 , 2016 was 11.80 % . monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2016 are as follows : digital photo paper loss for digital photo paper for the year ended december 31 , 2016 was $ 386,143 , representing a gross margin of -58.74 % compared with a loss of $ 243,638 , representing a gross margin of -64.80 % , for year ended december 31 , 2015. in june 2016 , we suspended the production of digital photo paper due to low market demand for our products . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2016 were $ 12,401,858 , an increase of $ 2,738,023 , or 28.33 % , from $ 9,663,835 in 2015. the increase was mainly due to ( i ) the increase in the depreciation expenses for our temporarily idle property , plant and equipment at the new tissue paper plant in our wei county industrial park and ( ii ) 1,133,916 shares of common stock granted under our compensatory incentive plans in the year ended december 31 , 2016 , valued at $ 1,417,395. income from operations operating income for the year ended december 31 , 2016 was $ 12,951,719 , a decrease of $ 5,245,051 , or 28.82 % , from $ 18,196,770 in 2015. the decrease was primarily caused by the decrease in gross profit for regular cmp and light-weight cmp and an increase in selling , general and administrative expenses as discussed above . other income and expenses interest expense for the year ended december 31 , 2016 decreased by $ 536,377 , from $ 3,157,524 in the year ended december 31 , 2015 , to $ 2,621,147. the company had short-term and long-term interest-bearing loans , related party loans and leasing obligations that aggregated $ 28,766,346 as of december 31 , 2016 , as compared to $ 42,972,122 as of december 31 , 2015. the interest incurred during the year ended december 31 , 2016 and 2015 , were $ 53,535 and $ 154,930 ( a portion of interest related to the sale-leaseback arrangement with china national foreign trade financial & leasing co. , ltd “ cnftfl ” ) , respectively , and were capitalized as soft-cost of construction-in-progress . 33 net income as a result of the above , net income was $ 7,312,976 for the year ended december 31 , 2016 , representing a decrease of $ 4,229,229 , or 36.64 % , from net income of $ 11,542,205 in 2015. accounts receivable net accounts receivable increased by $ 1,990,040 , or 104.50 % , to $ 3,894,436 as of december 31 , 2016 , as compared with $ 1,904,396 as of december 31 , 2015. we usually collect accounts receivable within 30 days of delivery and completion of sales . inventories inventories consist of raw materials ( accounting for 78.00 % of total value of inventory as of december 31 , 2016 ) and finished goods . story_separator_special_tag as of december 31 , 2016 , the recorded value of inventory decreased by 38.82 % , to $ 5,632,030 from $ 9,205,420 as of december 31 , 2015. as of december 31 , 2016 , the inventory of recycled paper board , which is the main raw material for the production of cmp , was $ 3,337,649 , approximately $ 1,078,603 , or 24.42 % , lower than the balance as of december 31 , 2015. due to heavy haze in northern china , the government temporarily restricted our production volume in november 2016. as a result of above and due to the rising price of recycled paper board during november and december 2016 , we reduced the inventory level of recycled paper board at the end of 2016. the ending inventory of recycled white scrap paper was nil , approximately $ 1,880,323 , or 100.00 % , lower than the balance as of december 31 , 2015. the decrease was mainly due to the introduction of recycled scrap binding margin , a new raw material used as a substitute for recycled white scrap paper in july 2016. the ending inventory of tissue base paper was $ 87,641 , approximately $ 6,572 , or 8.11 % higher than the balance as of december 31 , 2015. the ending inventory of finished goods was $ 1,238,807 , approximately $ 920,101 , or 42.62 % , lower than the balance as of december 31 , 2015. there was temporary production suspension from december 14 , 2015 to december 29 , 2015 , which led to higher than typical inventory quantities of finished goods , including cmp and offset printing paper , at december 31 , 2015. a summary of changes in major inventory items is as follows : replace_table_token_8_th accounts payable and notes payable accounts payable and notes payable was $ 2,722,270 as of december 31 , 2016 , a decrease of 11,390,955 , or 80.71 % , from $ 14,113,225 as of december 31 , 2015. accounts payable was $ 559,952 and $ 253,425 as of december 31 , 2016 and december 31 , 2015 , respectively . we have been relying on the bank acceptance notes issued under our credit facilities with bank of hebei and commercial bank of the city of zhangjiakou ( the “ cbcz bank ” ) to make the majority of our raw materials payments to our vendors . our notes payable to bank of hebei and cbcz bank were $ 2,162,318 and $ 13,859,800 as of december 31 , 2016 and december 31 , 2015 , respectively . we have paid off bank acceptance notes of $ 5,766,181 in january 2016 , $ 7,207,727 in april 2016 and $ 922,589 in august 2016. we also acquired additional bank acceptance notes of $ 2,162,318 from bank of hebei in august 2016 , which we expect to pay off upon maturity on february 1 , 2017. liquidity and capital resources overview as of december 31 , 2016 , we had a net working capital deficit of $ 6,108,269 , a decrease of $ 7,785,685 , from the net working capital deficit of $ 13,893,954 at december 31 , 2015. total current assets as of december 31 , 2016 amounted to $ 14,477,322. substantially all cash and cash equivalents are cash deposits in bank accounts . restricted cash of $ 2,162,318 was included in our current assets as of december 31 , 2016. restricted cash is deposited at the bank of hebei for purpose of securing the bank acceptance notes from the bank . the acceptance notes are due and payable on february 1 , 2017 , and the company anticipates renewing such notes upon the maturity on substantially similar terms . 34 our current liabilities decreased after we paid off the bank acceptance notes issued by the bank of hebei , which were due during the year ended december 31 , 2016. current liabilities as of december 31 , 2016 totaled $ 20,585,591 , a decrease of $ 19,652,356 , from the december 31 , 2015 balance of $ 40,237,947. our current liabilities included the current portion of the capital lease payable in the amount of $ 8,786,528. we use bank acceptance notes , which are typically 6-to-12 month notes , to guarantee the payments to our vendors . notes payable was $ 2,162,318 as of december 31 , 2016 , representing a decrease of $ 11,697,482 , or 84.40 % , from $ 13,859,800 as of december 31 , 2015. most of our current short-term bank loans are either revolving or term loans . we expect to renew these loans with the banks on similar terms at or before maturity . all of our short-term loans ( with the exception of the notes payable , which carry no interest but require a deposit equal to a portion of the credit facilities at the issuing banks ) have interest-only monthly payments , with a balloon payment for the entire principal amount upon maturity of the loan . the long term loans from the credit union require quarterly interest payments , with one large balloon payment upon maturity . we entered into a three-year sale-leaseback financing agreement with cnftfl on june 16 , 2013 , which provides for a three-year full amortization schedule with periodic principal payments every six months . essentially all proceeds of the sale-leaseback were used to finance the construction of the wei county tissue paper expansion project . in july 2015 , we entered into a new agreement with cnftfl , which amended and restated the 2013 cnftfl lease financing agreement . pursuant to the 2015 cnftfl lease financing agreement , we are required to make interest payments every quarter and principal payments every six months until june 21 , 2017. these payments range from approximately $ 0.1 million to approximately $ 3.5 million ( see “ financing with sale-leaseback ” below for more details. ) .
| cmp amounted to $ 94,625,241 ( 70.57 % of the total offset printing paper , cmp and tissue paper products revenues ) for the year ended december 31 , 2016 , representing a decrease of $ 2,260,516 , or 2.33 % , from $ 96,885,757 in 2015. we sold 278,223 tonnes of cmp in the year ended december 31 , 2016 as compared to 268,222 tonnes in 2015 , representing a 3.73 % increase in quantity sold . asp for regular cmp dropped from $ 360/tonne in 2015 to $ 338/tonne in 2016 , representing a 6.11 % decrease . asp in rmb for regular cmp in 2015 and 2016 was rmb2,247 and rmb2,249 , respectively , representing a 0.09 % increase . therefore , the decrease in asp in usd was the result of the depreciation of rmb against usd in 2016. the quantity of regular cmp sold increased by 6,080 tonnes , from 224,302 tonnes in year 2015 to 230,382 tonnes in 2016. asp for light-weight cmp dropped from $ 367/tonne in 2015 to $ 350/tonne in 2016 , representing a $ 4.63 % decrease . asp in rmb for light-weight cmp in 2015 and 2016 was rmb2,288 and rmb2,327 , respectively , representing a 1.70 % increase . the quantity of light-weight cmp sold increased by 3,921 tonnes , from 43,920 tonnes in 2015 , to 47,841 tonnes in 2016. the government has been requiring outdated paper facilities to close since 2010 and is expected to continue to force the closure of outdated facilities in the next few years . we estimate that the asps for cmp and other packaging paper will remain relatively stable for 2017 as outdated paper facilities being eliminated , and the paper industry will witness increased competition and higher standards for environmental protection measures . our pm6 production line , which produces regular cmp , has a designated capacity of 360,000 tonnes /year . the utilization rates for 2016 and 2015 were 63.61 % and 62.31 % , respectively , representing an increase of
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27 during the fourth quarter of 2015 , the company reclassified revenues and expenses previously classified as commercial/industrial into a new segment called ranch operations . ranch operations is comprised of grazing leases , game management , and other ancillary services supporting the ranch . this management 's discussion and analysis of financial condition and results of operations provides a narrative discussion of our results of operations . it contains the results of operations for each operating segment of the business and is followed by a discussion of our financial position . it is useful to read the business segment information in conjunction with note 16 ( operating segments and related information ) of the notes to consolidated financial statements . critical accounting policies the preparation of our consolidated financial statements in accordance with generally accepted accounting principles , or gaap , requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we consider an accounting estimate to be critical if : ( 1 ) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made , and ( 2 ) changes in the estimates that are likely to occur from period to period , or use of different estimates that we reasonably could have used in the current period , would have a material impact on our financial condition or results of operations . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , impairment of long-lived assets , capitalization of costs , profit recognition related to land sales , stock compensation , our future ability to utilize deferred tax assets , and defined benefit retirement plans . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying 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 . management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors and the audit committee has reviewed the foregoing disclosure . in addition , there are other items within our financial statements that require estimation , but are not deemed critical as defined above . changes in estimates used in these and other items could have a material impact on our financial statements . see also note 1 ( summary of significant accounting policies ) of the notes to consolidated financial statements , which discusses accounting policies that we have selected from acceptable alternatives . we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements : revenue recognition – the company 's revenue is primarily derived from lease revenue from our rental portfolio , royalty revenue from mineral leases , sales of farm crops , sales of water , and land sales . revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over the initial term of the related lease unless there is a considerable risk as to collectability . the financial terms of leases are contractually defined . lease revenue is not accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy . royalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices . our royalty arrangements generally require payment on a monthly basis with the payment based on the previous month 's activity . we accrue monthly royalty revenues based upon estimates and adjust to actual as we receive payments . from time to time the company sells easements over its land . the easements are either in the form of rights of access granted for such things as utility corridors or are in the form of conservation easements that generally require the company to divest its rights to commercially develop a portion of its land , but do not result in a change in ownership of the land or restrict the company from continuing other revenue generating activities on the land . sales of conservation easements are accounted for in accordance with staff accounting bulletin topic 13 - revenue recognition , or sab topic 13. since conservation easements generally do not impose any significant continuing performance obligations on the company , revenue from conservation easement sales have been recognized when the four criteria outlined in sab topic 13 have been met , which generally occurs in the period the sale has closed and consideration has been received . in recognizing revenue from land sales , the company follows the provisions in accounting standards codification 976 , or asc 976 , “ real estate – retail land ” to record these sales . asc 976 provides specific sales recognition criteria to determine when land sales revenue can be recorded . for example , asc 976 requires a land sale to be consummated with a sufficient down payment of at least 20 % to 25 % of the sales price depending upon the type and timeframe for development of the property sold , and that any receivable from the sale can not be subject to future subordination . in addition , the seller can not retain any material continuing involvement in the property sold or be required to develop the property in the future . 28 at the time farm crops are harvested , contracted , and delivered to buyers and revenues can be estimated , revenues are recognized and any related inventoried costs are expensed , which traditionally occurs during the third and fourth quarters of each year . it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . story_separator_special_tag orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price will be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred . allocation of costs related to land sales and leases – when we sell or lease land within one of our real estate developments , currently trcc , and we have not completed all infrastructure development related to the total project , we follow asc 976 to determine the appropriate costs of sales for the sold land and the timing of recognition of the sale . in the calculation of cost of sales or allocations to leased land , we use estimates and forecasts to determine total costs at completion of the development project . these estimates of final development costs can change as conditions in the market and costs of construction change . in preparing these estimates , we use internal budgets , forecasts , and engineering reports to help us estimate future costs related to infrastructure that has not been completed . these estimates become more accurate as the development proceeds forward , due to historical cost numbers and to the continued refinement of the development plan . these estimates are updated periodically throughout the year so that , at the ultimate completion of development , all costs have been allocated . any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to complete development . if , however , this estimate decreases , net profits as well as liquidity will improve . we believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even more significant as we continue to move forward as a real estate development company . the estimates used are very susceptible to change from period to period , due to the fact that they require management to make assumptions about costs of construction , absorption of product , and timing of project completion , and changes to these estimates could have a material impact on the recognition of profits from the sale of land within our developments . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . we currently operate in five segments , commercial/industrial real estate development , resort/residential real estate development , mineral resources , farming , and ranch operations . at this time , there are no assets within any of our segments that we believe are in danger of being impaired due to market conditions . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings . management 's assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in the past due to changes in prices , absorption , production and costs and are expected to continue to do so in the future as market conditions change . 29 in estimating future prices , absorption , production , and costs , we use our internal forecasts and business plans .
| the percentage rent calculation was modified to exclude the greenhouse gas assessment taxes that are collected by the tenant and passed on to the state of california and in connection therewith the company issued the tenant a one-time credit of $ 467,000 in 2014. in addition , we recognized an additional $ 215,000 and $ 412,000 in property management fees and common area maintenance fee reimbursements , respectively , from our joint venture properties , most noticeably the outlets at tejon , which opened in august 2014. lastly , in 2015 we placed into service a land lease with carl 's jr and operating leases with pieology and starbucks at trcc east , contributing an additional $ 428,000 in lease revenues . in 2015 , we recognized $ 225,000 in additional landscaping revenues on services rendered to new and existing tenants . the 2015 improvements were partially offset by two non-recurring revenue streams occurring in 2014. in 2014 , we sold land to our ta/petro unconsolidated joint venture partner of which $ 458,000 was recognized during 2014 with the remaining $ 687,000 deferred until the time we exit the joint venture or the joint venture is terminated . additionally , in 2014 , we recognized $ 587,000 in additional development fees from the development of the outlets at tejon . 31 commercial/industrial real estate segment expenses were $ 6,694,000 during 2015 , a decrease of $ 512,000 , or 7 % , compared to the same period in 2014 , primarily due to a $ 591,000 decrease in tejon-castac water district , or tcwd , fixed water assessments during 2015. tcwd decreased water assessment taxes as a result of an increase in tcwd water sales to parties outside of the district , which provided additional funds to tcwd . the decrease in commercial/industrial expenses was partially offset by a $ 173,000 increase in landscape maintenance costs resulting from a full year of operations from the outlets at
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the remaining rights of the limited partner interests are limited , however , and do not include the ability to replace the general partner or to approve the sale , purchase or refinancing of the op 's assets . 58 we have no direct employees . we have retained american realty capital advisors v , llc ( the `` advisor '' ) to manage our affairs on a day-to-day basis . american realty capital properties v , llc ( the `` property manager '' ) serves as our property manager . realty capital securities , llc ( the `` dealer manager '' ) served as the dealer manager of our ipo . the advisor and the property manager are wholly owned subsidiaries of , and the dealer manager is under common control with , the sponsor , as a result of which , they are related parties of ours . each has received and or may receive compensation , fees and other expense reimbursements for services related to our ipo and the investment and management of our assets . such entities have received or may receive , as applicable , fees during the offering , acquisition , operational and liquidation stages . during the second quarter of 2014 , we announced that we engaged j.p. morgan securities llc and rcs capital , the investment banking division of the dealer manager , as financial advisors to assist us in evaluating potential strategic alternatives . significant accounting estimates and critical accounting policies set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and critical accounting policies include : offering and related costs offering and related costs include all expenses incurred in connection with our ipo . offering costs ( other than selling commissions and the dealer manager fee ) include costs that may be paid by the advisor , the dealer manager or their affiliates on our behalf . these costs include but are not limited to ( i ) legal , accounting , printing , mailing , and filing fees ; ( ii ) escrow related fees ; ( iii ) reimbursement of the dealer manager for amounts it may pay to reimburse itemized and detailed due diligence expenses of broker-dealers ; and ( iv ) reimbursement to the advisor for the salaries of its employees and other costs in connection with preparing supplemental sales materials and related offering activities . we are obligated to reimburse the advisor or its affiliates , as applicable , for organization and offering costs paid by them on our behalf , provided that the advisor is obligated to reimburse us to the extent organization and offering costs ( excluding selling commissions and the dealer manager fee ) incurred by us in its offering exceed 2.0 % of gross offering proceeds from the ipo . as a result , these costs are only our liability to the extent selling commissions , the dealer manager fees and other organization and offering costs do not exceed 12.0 % of the gross proceeds determined at the end of the ipo . as of the end of our ipo , offering costs were less than 12.0 % of the gross proceeds received in the ipo . revenue recognition our revenues , which are derived primarily from rental income , include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease . since many of our leases provide for rental increases at specified intervals , straight-line basis accounting requires us to record a receivable , and include in revenues , unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease . when we acquire a property , the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation . we defer the revenue related to lease payments received from tenants in advance of their due dates . we own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant 's sales upon the achievement of certain sales thresholds or other targets which may be monthly , quarterly or annual targets . as the lessor to the aforementioned leases , we defer the recognition of contingent rental income , until the specified target that triggered the contingent rental income is achieved , or until such sales upon which percentage rent is based are known . contingent rental income is included in rental income on the consolidated statements of operations and comprehensive income ( loss ) . we continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . if a receivable is deemed uncollectible , we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive income ( loss ) . cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive income ( loss ) in the period the related costs are incurred , as applicable . real estate investments investments in real estate are recorded at cost . improvements and replacements are capitalized when they extend the useful life of the asset . costs of repairs and maintenance are expensed as incurred . story_separator_special_tag 59 we evaluate the inputs , processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition . if an acquisition qualifies as a business combination , the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive income ( loss ) . if an acquisition qualifies as an asset acquisition , the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets . in business combinations , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values . tangible assets may include land , land improvements , buildings , fixtures and tenant improvements . intangible assets may include the value of in-place leases and above- and below- market leases . in addition , any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values . the fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant , and the “ as-if-vacant ” value is then allocated to the tangible assets based on the fair value of the tangible assets . the fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods , current market conditions , as well as costs to execute similar leases . the fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease , measured over the remaining term of the lease , including any below-market fixed rate renewal options for below-market leases . in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above or below-market interest rates . in allocating non-controlling interests , amounts are recorded based on the fair value of units issued at the date of acquisition , as determined by the terms of the applicable agreement . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including real estate valuations , prepared by independent valuation firms . we also consider information and other factors including : market conditions , the industry that the tenant operates in , characteristics of the real estate , i.e . : location , size , demographics , value and comparative rental rates , tenant credit profile , store profitability and the importance of the location of the real estate to the operations of the tenant 's business . we are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the consolidated statements of operations and comprehensive income ( loss ) at the lesser of carrying amount or fair value less estimated selling costs for all periods presented to the extent the disposal of a component represents a strategic shift that has or will have a major effect on our operations and financial results . properties that are intended to be sold are to be designated as `` held for sale '' on the consolidated balance sheets when they meet specific criteria to be presented as held for sale . properties are no longer depreciated when they are classified as held for sale . depreciation and amortization we are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis . these assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate investments , we would depreciate these investments over fewer years , resulting in more depreciation expense and lower net income on an annual basis . depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings , 15 years for land improvements , five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests . capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases . capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods . capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases . capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods . the value of in-place leases , exclusive of the value of above-market and below-market in-place leases , is amortized to expense over the remaining periods of the respective leases . assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages . 60 impairment of long-lived assets when circumstances indicate the carrying value of a property may not be recoverable , we review the property for impairment . this review is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value , as well as the effects of leasing demand , competition and other factors .
| rental income for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 was driven by our operation of 239 properties with an aggregate base purchase price of $ 1.1 billion , comprising 7.5 million rentable square feet that were 100.0 % leased on a weighted-average basis as of december 31 , 2013 . operating expense reimbursements operating expense reimbursement revenue increased $ 9.8 million to $ 12.2 million for the year ended december 31 , 2014 , compared to $ 2.4 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 . pursuant to certain of our lease agreements , tenants are required to reimburse us for certain property operating expenses , in addition to base rent , whereas under certain other lease agreements , the tenants are directly responsible for all operating costs of the respective properties . this increase in operating expense reimbursements was driven by our operation of 463 properties as of december 31 , 2014 , compared to our operation of 239 properties as of december 31 , 2013 . property operating expense property operating expense increased $ 10.7 million to $ 13.5 million for the year ended december 31 , 2014 , compared to $ 2.8 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 . these costs primarily related to ground lease rent , real estate taxes , insurance and other property operating costs on our properties . the increase in property operating expense was driven by our operation of 463 properties as of december 31 , 2014 , compared to our operation of 239 properties as of december 31 , 2013 . acquisition and transaction related expense acquisition and transaction related expense decreased $ 4.3 million to $ 22.6 million for the year ended december 31 , 2014 , compared to $ 26.9 million for the period from january 22 , 2013 ( date of inception ) to december 31 , 2013 . these expenses related primarily to acquisition fees , legal
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in march 2018 , the fda granted breakthrough therapy designation , or btd , to enfortumab vedotin for patients with locally advanced or metastatic urothelial cancer who were previously treated with a checkpoint inhibitor . in july 2018 , we completed enrollment in the first cohort of ev-201 of approximately 120 patients who previously received both platinum chemotherapy and a pd-1 or pd-l1 inhibitor . we expect to report top-line data from this cohort in the first quarter of 2019. we believe that positive data in this cohort could support potential registration under the fda 's accelerated approval pathway . in july 2018 , we and astellas initiated a global , randomized phase 3 trial , called ev-301 , for patients with metastatic urothelial cancer who previously received both platinum chemotherapy and a pd-1 or pd-l1 inhibitor . ev-301 is intended to support global regulatory applications for potential approvals and potentially serve as a confirmatory trial in the u.s. if we are able to obtain accelerated approval based on data from the ev-201 trial . we and astellas are also conducting a phase 1b trial of enfortumab vedotin , called ev-103 , in combination with either pembrolizumab or other anticancer agents as first- or second-line treatment for patients with locally advanced or metastatic urothelial cancer . in march 2018 , we obtained global rights to tucatinib , an oral tki targeting her2 , a growth factor receptor overexpressed in many cancers , through the acquisition of cascadian therapeutics , inc. , or the cascadian acquisition . tucatinib is currently being evaluated as part of a combination regimen in a global randomized ( 2:1 ) pivotal phase 2 trial , called her2climb , comparing tucatinib vs. placebo , each in combination with capecitabine and trastuzumab . the trial is enrolling patients with her2-positive metastatic breast cancer who have been previously treated with trastuzumab , pertuzumab ( perjeta® ) and ado-trastuzumab emtansine , or t-dm1 , ( kadcyla® ) , including patients with or without brain metastases . we achieved enrollment of 480 patients in the trial to enable analysis of the primary endpoint of pfs , with top-line data expected to be reported in 2019. in addition , we are continuing enrollment in her2climb up to 600 patients to support the analyses of key secondary endpoints , including overall survival , or os , as well as pfs in patients with brain metastases . we anticipate completing enrollment of the additional patients in mid-2019 . in collaboration with genmab a/s , or genmab , we are developing tisotumab vedotin , which is an adc targeting tissue factor , or tf . in june 2018 , we initiated a pivotal phase 2 trial , called the innovatv 204 trial , evaluating single-agent tisotumab vedotin for patients with recurrent and or metastatic cervical cancer who have relapsed or progressed after standard of care treatment . the trial is intended to support potential registration under the fda 's accelerated approval pathway . we expect to complete enrollment in innovatv 204 by mid-2019 . in july 2018 , we initiated a phase 2 clinical trial , called innovatv 207 , for patients with other solid tumors including colorectal , non-small cell lung , pancreatic or head and neck cancers . the trial is intended to inform a potential future broad development program . we are also conducting a phase 2 clinical trial , called innovatv 208 , for patients with platinum-resistant ovarian cancer . we are also developing ladiratuzumab vedotin , an adc targeting liv-1 , which is currently being evaluated in phase 1 and phase 2 clinical trials both as monotherapy and in combination with other agents for patients with metastatic triple-negative breast cancer . 67 our early-stage clinical pipeline includes sgn-cd48a , which utilizes our adc technology , sea-bcma , a monoclonal antibody utilizing our sugar-engineered antibody , or sea , technology , and sgn-2ff , which is a novel small molecule . in addition , we have multiple preclinical and research-stage programs that employ our proprietary technologies . we have collaborations for our adc technology with a number of biotechnology and pharmaceutical companies , including abbvie biotechnology ltd. , or abbvie ; bayer pharma ag , or bayer ; celldex therapeutics , inc. , or celldex ; genentech , inc. , a member of the roche group , or genentech ; glaxosmithkline llc , or gsk ; and progenics pharmaceuticals inc. , or progenics . of these collaborators , gsk and abbvie each have adcs using our technology in late-stage clinical trials , and in december 2018 roche submitted regulatory applications in the u.s. and the european union , or eu , for approval of polatuzumab vedotin , an adc that uses our technology , to treat patients with relapsed or refractory diffuse large b-cell lymphoma , or dlbcl . in addition , we have a collaboration with unum therapeutics , inc. , or unum , to develop and commercialize novel antibody-coupled t-cell receptor , or actr , therapies incorporating our antibodies for the treatment of cancer . unum is conducting a phase 1 trial evaluating unum 's actr087 drug candidate in combination with sea-bcma in patients with relapsed/refractory multiple myeloma . in 2018 , we entered into a research collaboration agreement with pieris pharmaceuticals , inc. and pieris pharmaceuticals ag , or together , pieris , to develop novel potential treatments of cancer based on bispecifics incorporating our proprietary antibodies and pieris ' proprietary technology designed to stimulate an antibody-directed immune response against solid tumors and blood cancers . outlook our ongoing research , development , manufacturing and commercial activities will require substantial amounts of capital and may not ultimately be successful . we expect that we will incur substantial expenses , primarily as a result of activities related to the commercialization of adcetris and the continued development of adcetris , enfortumab vedotin , tucatinib , and tisotumab vedotin . story_separator_special_tag enfortumab vedotin , tucatinib , tisotumab vedotin , and our other product candidates will require significant further development , financial resources and personnel to pursue and obtain regulatory approval and to develop them into commercially viable products , if at all . our other product candidates are in relatively early stages of development . in addition , we may pursue new operations or continue the expansion of our existing operations , including with respect to our plans to build a commercial infrastructure in europe and to otherwise continue to expand our operations internationally . our commitment of resources to the continuing development , regulatory and commercialization activities for adcetris , the research , continued development and manufacturing of our product candidates , and the anticipated expansion of our pipeline and operations will likely require us to raise substantial amounts of additional capital , and our operating expenses may fluctuate as a result of such activities . we may also incur significant milestone payment obligations to certain of our licensors as our product candidates progress through clinical trials towards potential commercialization . we recognize revenue from adcetris product sales in the u.s. and canada . our future adcetris product sales are difficult to accurately predict from period to period and are dependent on the incidence flow of patients eligible for treatment with adcetris . in this regard , our product sales have varied , and may continue to vary , significantly from period to period and may be affected by a variety of factors . such factors include the approval of adcetris in additional indications , the extent to which coverage and reimbursement for adcetris is available from government and other third-party payors , competition , the incidence rate of new patients in adcetris ' approved indications , customer ordering patterns , physicians ' perception and adoption of adcetris , the overall level of demand for adcetris , and the duration of therapy for patients receiving adcetris . in particular : obtaining and maintaining appropriate coverage and reimbursement for adcetris is increasingly challenging due to , among other things , the attention being paid to healthcare cost containment and other austerity measures in the u.s. and worldwide , as well as increasing legislative and enforcement interest in the u.s. with respect to pharmaceutical drug pricing practices . we anticipate that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for adcetris . we also anticipate that congress , state legislatures , and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare delivery system , any of which could negatively affect our revenue or sales of adcetris or any future approved products . 68 the competition adcetris faces from competing therapies is intensifying , and we anticipate that we will continue to face increasing competition in the future as new companies enter our market and scientific developments surrounding biosimilars and other cancer therapies continue to accelerate . while we expect continued growth in adcetris sales in 2019 as compared to 2018 , for the above and other reasons , we expect that our ability to grow adcetris sales , if at all , will depend primarily on our ability to establish or demonstrate in the medical community the value of adcetris and its potential advantages compared to existing and future therapeutics in the frontline hodgkin lymphoma indication and the frontline ptcl indication , and the extent to which physicians make prescribing decisions with respect to adcetris in these indications . further , our ability to grow adcetris sales will be affected by our ability to continue to expand adcetris ' utilization across all labeled indications of use . in addition , takeda may be unable to obtain regulatory approvals of adcetris in the echelon-1 treatment setting in its territories ( other than in japan where adcetris is approved in combination with avd as a frontline treatment option for cd30-positive hodgkin lymphoma patients ) , and of adcetris in the echelon-2 treatment setting in its territories , which also would limit their sales of , and the commercial potential of , adcetris . we expect that amounts earned from our collaboration agreements , including royalties , will continue to be an important source of our revenues and cash flows . these revenues will be impacted by future development funding and the achievement of development , clinical and commercial success by our collaborators under our existing collaboration and license agreements , including our adcetris collaboration with takeda , as well as by entering into potential new collaboration and license agreements . our results of operations may vary substantially from year to year and from quarter to quarter and , as a result , we believe that period to period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > we have entered into a medicaid drug rebate agreement , or mdra , with the centers for medicare & medicaid services . this agreement provides for a rebate based on covered purchases of adcetris . medicaid rebates are invoiced to us by the various state medicaid programs . we estimate medicaid rebates using the most-likely-amount approach , based on a variety of factors , including our experience to-date . we have also completed a federal supply schedule , or fss , agreement under which certain u.s. government purchasers receive a discount on eligible purchases of adcetris . in addition , we have entered into a pharmaceutical pricing agreement with the secretary of health and human services , which enables certain entities that qualify for government pricing under the public health services act , or phs , to receive discounts on their qualified purchases of adcetris .
| this primarily reflected increased investment in our pipeline of preclinical and clinical-stage programs , increased drug supply to takeda , and higher staffing costs to support our continued growth . net loss for the year ended december 31 , 2017 of $ 125.5 million was favorably impacted by a gain of $ 33.8 million resulting from the change in the fair value of an immunomedics warrant derivative and an income tax benefit of $ 33.4 million related to the change in the fair value of our immunomedics common stock holding , which was offset by an income tax provision of $ 33.4 million in other comprehensive income . as of december 31 , 2018 , we had $ 459.9 million in cash , cash equivalents and investments and $ 1.3 billion in total stockholders ' equity . comparability in march 2018 , we acquired cascadian for $ 10.00 per share in cash , or approximately $ 614.1 million . cascadian was included in our results of operations as of the acquisition date . accordingly , the results discussed below were impacted by the timing of this acquisition . for additional information on the cascadian acquisition , refer to note 4 of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. 69 we adopted accounting standards codification topic 606—revenue from contracts with customers , or topic 606 , on january 1 , 2018 , resulting in a change to our accounting policy for revenue recognition . we used the modified retrospective method and recognized the cumulative effect of initially applying topic 606 as an adjustment to decrease the opening accumulated deficit at january 1 , 2018. accordingly , comparative information has not been adjusted and continues to be reported under previous accounting standards.for additional information on topic 606 , refer to note 3 of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. we adopted accounting standards
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we entered into the servier collaboration agreement in january 2017 in io and entered into the aska option agreement in february 2017 for prs-080 in japan and other asian countries . in may 2017 , we entered into an alliance with astrazeneca to treat respiratory diseases and in february 2018 we entered into the seattle genetics collaboration agreement in io . since inception , we have devoted nearly all of our efforts and resources to our research and development activities and have incurred significant net losses . for the years ended december 31 , 2018 and 2017 , we reported net loss of $ 26.8 million and $ 17.6 million , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 147.1 million . we expect to continue incurring substantial losses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . our operating expenses are comprised of research and development expenses and general and administrative expenses . we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the fiscal years ended december 31 , 2018 and 2017 were from license and collaboration agreements with our partners . a significant portion of our operations are conducted in countries other than the united states . since we conduct our business in us dollars , our main exposure , if any , results from changes in the exchange rates between the euro and the us dollar . at each period end , we remeasure assets and liabilities to the functional currency of that entity ( for example , us dollar payables recorded by pieris gmbh ) . remeasurement gains and losses are recorded in the statement of operations line item other income ( expense ) , net . all assets and liabilities denominated in euros are translated into us dollars at the exchange rate on the balance sheet date . revenues and expenses are translated at the weighted average rate during the period . equity transactions are 79 translated using historical exchange rates . all adjustments resulting from translating foreign currency financial statements into us dollars are included in accumulated other comprehensive loss . key financial terms and metrics the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . revenues we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the last two years have been primarily from the license and collaboration agreements with astrazeneca , servier , and seattle genetics . the revenues from astrazeneca , servier and seattle genetics have been comprised primarily of upfront payments , research and development services , and milestone payments . we recognized revenues from upfront payments under these agreements based on multiple-element arrangement guidance as we have determined that the licenses to which the payments related did not have standalone value . research service revenue is recognized when the costs are incurred and the services have been performed . for revenues from research , development , and commercial milestone payments , if the milestones are deemed substantive and the milestone payments are nonrefundable , such amounts are recognized entirely upon successful accomplishment of the milestones , assuming all other revenue recognition criteria are met . milestones that are not considered substantive are accounted for as contingent revenue and will be recognized when achieved to the extent we have no remaining performance obligations under the arrangement . we expect our revenues for the next several years to consist of upfront payments , research funding and milestone payments from strategic collaborations we currently have or may establish in the future . research and development expenses the process of researching and developing drugs for human use is lengthy , unpredictable , and subject to many risks . we expect to continue incurring substantial expenses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . we are unable , with any certainty , to estimate either the costs or the timelines in which those expenses will be incurred . our current development plans focus on the following activities : our io programs , currently comprised of prs-343 , prs-344 , and multiple additional proprietary and partnered programs , and prs-060 . these programs consume a large proportion of our current , as well as projected , resources . our research and development costs include costs that are directly attributable to the creation of certain of our anticalin drug candidates and are comprised of : internal recurring costs , such as personnel-related costs ( salaries , employee benefits , equity compensation , and other costs ) , materials and supplies , facilities and maintenance costs ; and fees paid to external parties who provide us with contract services , such as preclinical testing , manufacturing and related testing , and clinical trial activities . general and administrative expenses general and administrative expenses consist primarily of salaries , employee benefits , equity compensation , and other personnel-related costs associated with executive , administrative and other support staff . other significant general and administrative expenses include the costs associated with professional fees for accounting , auditing , insurance costs , consulting and legal services . story_separator_special_tag public offering of our common stock in which we sold 6,325,000 shares of common stock , including the exercise in full by the underwriters of their option to purchase an additional 825,000 shares of common stock , to the public at a price of $ 8.00 per share . story_separator_special_tag the offering was completed under the shelf registration statement that was filed on form s-3 and declared effective by the sec on august 3 , 2016. net proceeds of the underwritten public offering , after deducting the underwriting discounts and commissions , were $ 47.6 million , excluding our offering expenses of approximately $ 0.4 million . we have several research and development programs underway in varying stages of development and we expect they will continue to require increasing amounts of cash for development , conducting clinical trials , and testing and manufacturing of product material . we expect cash necessary to fund operations will increase significantly over the next several years as we continue to conduct these activities necessary to pursue governmental regulatory approval of our io programs , including prs-343 and prs-344 , prs-060 , and our other product candidates . the following table provides a summary of operating , investing , and financing cash flows for the years ended december 31 , 2018 and 2017 respectively ( in thousands ) : replace_table_token_3_th net cash used in operating activities of $ 1.1 million for the year ended december 31 , 2018 is comprised principally of operating expenses of $ 50.6 million , net of non-cash items , offset by aggregate receipts of $ 50.9 million from astrazeneca , servier , and seattle genetics and an increase in net working capital of $ 0.4 million . net cash provided by operating activities of $ 49.8 million for the year ended december 31 , 2017 is comprised principally of operating expenses of $ 39.3 million , net of non-cash items , offset by aggregate receipts of $ 85.7 million from astrazeneca , servier , aska , and roche and an increase in net working capital of $ 2.5 million . net cash used in investing activities for the year ended december 31 , 2018 decreased by $ 37.0 million compared to the prior year due mainly to lower purchases of investments . net cash provided by financing activities increased by $ 44.4 million for the year ended december 31 , 2018 due primarily to proceeds from the underwritten public offering in february 2018 , partially offset by lower proceeds from the exercise of warrants and stock options . we expect that our existing cash , cash equivalents , and investments will enable us to fund our operational and capital expenditure requirements for at least 12 months from the issuance date of these financial statements . any requirements for additional capital will depend on many factors , including the following : the scope , rate of progress , results and cost of our clinical studies , preclinical testing and other related activities ; the cost of manufacturing clinical supplies , and establishing commercial supplies , of our drug candidates and any products that we may develop ; the number and characteristics of drug candidates that we pursue ; the cost , timing and outcomes of regulatory approvals ; 83 the cost and timing of establishing sales , marketing and distribution capabilities ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the timing , receipt and amount of sales , profit sharing or royalties , if any , from our potential products ; the cost of preparing , filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; and the extent to which we acquire or invest in businesses , products or technologies , although we currently have no commitments or agreements relating to any of these types of transactions . due to the often-volatile nature of the financial markets , equity and debt financing ( s ) may be difficult to obtain . in addition , any unfavorable development or delay in the progress of our core clinical-stage programs including prs-343 and prs-060 could have a material adverse impact on our ability to raise additional capital . we may seek to raise any necessary additional capital through a combination of private or public equity offerings , debt financings , collaborations , strategic alliances , licensing arrangements and other marketing and distribution arrangements . to the extent that we raise additional capital through marketing and distribution arrangements or other collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our drug candidates , future revenue streams , research programs or product candidates or to grant licenses on terms that may not be favorable to us . if we raise additional capital through private or public equity offerings , the ownership interest of our existing stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders ' rights . if we raise additional capital through debt financing , we may be subject to covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . contractual obligations leases we lease office and laboratory space in freising , germany as well as office space in boston , massachusetts . in freising , we lease office and laboratory space under four agreements , including three leases for space on three floors of the same building and a letter agreement for additional conference room space within the building . we can terminate two of the lease agreements at the end of any quarter with eight months ' notice . the other lease agreement will terminate on january 31 , 2020 and the letter agreement will terminate on december 31 , 2019. in august 2015 , we entered into the sublease to lease approximately 3,950 square feet in boston , massachusetts . the sublease expires on february 27 , 2022 or such earlier date pursuant to the termination provisions of the sublease . on october 24 , 2018 , pieris gmbh entered into the lease agreement with hallbergmoos grundvermögen gmbh pursuant to which pieris gmbh has agreed to lease office and laboratory space located in hallbergmoos , germany .
| research and development expenses the following table provides a comparison of the research and development expenses for our drug candidates by therapeutic designation for the years ended december 31 , 2018 and 2017 ( in thousands ) : 81 replace_table_token_2_th the $ 8.6 million increase in our immuno-oncology program spending period-over-period is due primarily to an increase in clinical trials costs for prs-343 and an increase in drug product manufacturing primarily for prs-344 . additionally , 2018 costs included an increase in pre-clinical and lab supply costs for other proprietary and partnered io programs . finally , license fees on partnered io programs increased in 2018 due to license fees owed to tum for the seattle genetics arrangement signed in 2018 along with additional license fees anticipated due to an amended license agreement ; the $ 3.5 million increase for our respiratory programs period-over-period is due primarily to increases to our ongoing clinical and cmc costs , primarily for prs-060 and higher license fee payments to tum for an anticipated revised license agreement ; the $ 0.9 million decrease for our anemia program , prs-080 , period-over-period is mainly due to lower clinical costs related to the phase 2a study in the second half of 2018 ; the $ 8.0 million increase in other research and development activities is mainly due to increases in personnel expenses , including payroll , bonus and stock compensation . additionally , preclinical and general lab supply expenses were higher given the increased activities to support further development of our platform technology and other early stage discovery programs . general and administrative expenses general and administrative expenses were $ 18.4 million for the fiscal year ended december 31 , 2018 as compared to $ 17.6 million for the fiscal year ended december 31 , 2017 . the period-over-period increase is due to increased headcount in our general and administrative functions to support an expanding business which resulted in higher personnel costs , including payroll , bonus and stock compensation . this was partially offset by lower professional services due to transaction fees incurred in 2017 for our astrazeneca agreements . non-operating income ( expense ) , net our non-operating income was
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net cash provided by operating activities 2017 vs. 2016 — net cash provided by operating activities decreased in 2017 as compared to 2016 , primarily due to the lease termination income received in connection with the sale of a property during 2016 , our receipt of asset management fees and structuring revenue in shares of common stock of certain of the managed programs rather than cash during 2017 ( note 3 ) , and a decrease in operating cash flow as a result of property dispositions during 2016 and 2017. these decreases were partially offset by an increase in operating cash flow generated from properties acquired during 2016 and 2017 , a decrease in interest expense , and lower general and administrative expenses in 2017 . 2016 vs. 2015 — net cash provided by operating activities increased in 2016 as compared to 2015 , primarily due to the lease termination income received in connection with the sale of a property during 2016 , an increase in operating cash flow generated from properties we acquired during 2015 and 2016 , and higher distributions of available cash received from the managed reits . these increases were partially offset by a decrease in structuring revenue received in cash from the managed programs due to lower investment volume during 2016. w. p. carey 2017 10-k – 36 affo 2017 vs. 2016 — affo increased in 2017 as compared to 2016 , primarily due to lower interest expense , lower general and administrative expenses , higher asset management revenue , and higher earnings from our equity interests in the managed programs , partially offset by lower structuring revenue due to lower investment volume for the managed programs during 2017 and lower lease revenues , as well as the lease termination income received in connection with the sale of a property in 2016 . 2016 vs. 2015 — affo increased in 2016 as compared to 2015 , primarily due to lower general and administrative expenses , higher asset management revenue , and lower interest expense , partially offset by lower structuring revenue due to lower investment volume for the managed programs during 2016. portfolio overview we intend to continue to acquire a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets . we expect to make these investments both domestically and internationally . portfolio information is provided on a pro rata basis , unless otherwise noted below , to better illustrate the economic impact of our various net-leased jointly owned investments . see terms and definitions below for a description of pro rata amounts . portfolio summary replace_table_token_4_th replace_table_token_5_th ( a ) at both december 31 , 2017 and 2016 , operating properties consisted of two hotel properties with an average occupancy of 82.7 % for 2017 . during 2016 , we sold our remaining self-storage property . at december 31 , 2015 , operating properties consisted of two hotel properties and one self-storage property . ( b ) we sold all of our investments in malaysia and thailand during 2017 ( note 16 ) . ( c ) in 2017 , we reclassified certain line items in our consolidated balance sheets . as a result , net investments in real estate as of december 31 , 2016 and 2015 has been revised to conform to the current period presentation ( note 2 ) . w. p. carey 2017 10-k – 37 ( d ) both the consolidated and pro rata amounts for 2017 include the issuance of 500.0 million of 2.25 % senior notes in january 2017 , as well as the amendment and restatement of our senior unsecured credit facility in february 2017 , which increased our borrowing capacity under that facility by approximately $ 100.0 million ( note 10 ) . both the consolidated and pro rata amounts for 2016 include the issuance of $ 350.0 million of 4.25 % senior notes in september 2016. the consolidated amount for 2016 includes the refinancing of a non-recourse mortgage loan for $ 34.6 million , while the pro rata amount for 2016 includes our proportionate share of that refinancing of $ 17.6 million . amount for 2015 represents the exercise of the accordion feature under our then-existing senior unsecured credit facility in january 2015 , which increased our borrowing capacity under our unsecured revolving credit facility by $ 500.0 million , and the issuances of 500.0 million of 2.0 % senior notes and $ 450.0 million of 4.0 % senior notes in january 2015 . ( e ) amounts are the same on both a consolidated and pro rata basis . ( f ) amount for 2017 excludes a commitment for $ 3.6 million of building improvements in connection with an acquisition ( note 4 ) . amount for 2016 excludes an aggregate commitment for $ 128.1 million of build-to-suit financing ( note 4 ) . amount for 2016 also excludes $ 1.9 million for land acquired in connection with build-to-suit or expansion projects ( note 4 ) . amount for 2015 includes acquisition-related costs for investments that were considered to be business combinations , which were required to be expensed in the consolidated financial statements . we did not complete any investments that were considered to be business combinations during 2017 or 2016 . ( g ) amount for 2017 includes projects that were partially completed in 2016 . ( h ) many of our lease agreements include contractual increases indexed to changes in the cpi or similar indices in the jurisdictions in which the properties are located . net-leased portfolio the tables below represent information about our net-leased portfolio at december 31 , 2017 on a pro rata basis and , accordingly , exclude all operating properties . see terms and definitions below for a description of pro rata amounts and abr . story_separator_special_tag top ten tenants by abr ( dollars in thousands ) tenant/lease guarantor property type tenant industry location number of properties abr abr percent weighted-average lease term ( years ) hellweg die profi-baumärkte gmbh & co. kg ( a ) retail retail stores germany 53 $ 36,375 5.3 % 16.2 u-haul moving partners inc. and mercury partners , lp self storage cargo transportation , consumer services united states 78 31,853 4.7 % 6.3 state of andalucia ( a ) office sovereign and public finance spain 70 29,163 4.3 % 17.0 pendragon plc ( a ) retail retail stores , consumer services united kingdom 70 22,266 3.3 % 12.3 marriott corporation hotel hotel , gaming and leisure united states 18 20,065 2.9 % 5.9 forterra building products ( a ) ( b ) industrial construction and building united states and canada 49 17,496 2.6 % 18.3 obi group ( a ) office , retail retail stores poland 18 16,565 2.4 % 6.4 true value company warehouse retail stores united states 7 15,680 2.3 % 5.0 uti holdings , inc. education facility consumer services united states 5 14,484 2.1 % 4.2 abc group inc. ( c ) industrial , office , warehouse automotive canada , mexico , and united states 14 14,110 2.1 % 18.9 total 382 $ 218,057 32.0 % 11.5 ( a ) abr amounts are subject to fluctuations in foreign currency exchange rates . ( b ) of the 49 properties leased to forterra building products , 44 are located in the united states and five are located in canada . ( c ) of the 14 properties leased to abc group inc. , six are located in canada , four are located in mexico , and four are located in the united states , subject to three master leases all denominated in u.s. dollars . w. p. carey 2017 10-k – 38 portfolio diversification by geography ( in thousands , except percentages ) replace_table_token_6_th w. p. carey 2017 10-k – 39 portfolio diversification by property type ( in thousands , except percentages ) replace_table_token_7_th ( a ) includes square footage for any vacant properties . ( b ) other properties within south include assets in alabama , louisiana , arkansas , mississippi , and oklahoma . other properties within east include assets in kentucky , south carolina , maryland , new hampshire , and west virginia . other properties within west include assets in utah , washington , nevada , oregon , new mexico , wyoming , alaska , and montana . other properties within midwest include assets in missouri , kansas , wisconsin , nebraska , iowa , south dakota , and north dakota . ( c ) includes assets in norway , hungary , austria , mexico , sweden , belgium , and japan . ( d ) includes abr from tenants with the following property types : education facility , hotel , theater , fitness facility , and net-lease student housing . w. p. carey 2017 10-k – 40 portfolio diversification by tenant industry ( in thousands , except percentages ) replace_table_token_8_th ( a ) includes automotive dealerships . ( b ) includes abr from tenants in the following industries : insurance , electricity , media : broadcasting and subscription , forest products and paper , and environmental industries . also includes square footage for vacant properties . w. p. carey 2017 10-k – 41 lease expirations ( in thousands , except percentages and number of leases ) replace_table_token_9_th ( a ) assumes tenants do not exercise any renewal options . ( b ) one month-to-month lease with abr of $ 0.1 million is included in 2018 abr . ( c ) includes abr of $ 12.3 million from a tenant ( the new york times company ) that exercised its option in january 2018 to repurchase the property it is leasing from a jointly owned investment with our affiliate , cpa:17 – global , in which we have a 45 % equity interest and which is consolidated by cpa:17 – global . the repurchase is expected to be completed in december 2019 , but there can be no assurance that such repurchase will be completed ( note 19 ) . terms and definitions pro rata metrics —the portfolio information above contains certain metrics prepared under the pro rata consolidation method . we refer to these metrics as pro rata metrics . we have a number of investments , usually with our affiliates , in which our economic ownership is less than 100 % . under the full consolidation method , we report 100 % of the assets , liabilities , revenues , and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary , even if our ownership is less than 100 % . also , for all other jointly owned investments , which we do not control , we report our net investment and our net income or loss from that investment . under the pro rata consolidation method , we present our proportionate share , based on our economic ownership of these jointly owned investments , of the portfolio metrics of those investments . multiplying each of our jointly owned investments ' financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals , as applicable , may not accurately depict the legal and economic implications of holding an ownership interest of less than 100 % in our jointly owned investments . abr — abr represents contractual minimum annualized base rent for our net-leased properties and reflects exchange rates as of december 31 , 2017 . if there is a rent abatement , we annualize the first monthly contractual base rent following the free rent period . abr is not applicable to operating properties . w. p. carey 2017 10-k – 42 results of operations we operate in two reportable segments : owned real estate and investment management .
| during the year ended december 31 , 2016 , we issued 1,249,836 shares of common stock under our prior atm program at a weighted-average price of $ 68.52 per share for net proceeds of $ 84.1 million . as of december 31 , 2017 , $ 376.6 million remained available for issuance under our current atm program ( note 13 ) . senior unsecured credit facility our senior unsecured credit facility is more fully described in note 10 . a summary of our senior unsecured credit facility is provided below ( in thousands ) : replace_table_token_17_th ( a ) amounts as of december 31 , 2017 were comprised of our amended term loan of 236.3 million , which we drew down in full in february 2017 , and our delayed draw term loan of 88.7 million , which we drew down in full in june 2017 , and reflected the exchange rate of the euro at that date . ( b ) outstanding balance excludes unamortized discount of $ 1.2 million at december 31 , 2017 . outstanding balance also excludes unamortized deferred financing costs of $ 0.2 million and less than $ 0.1 million at december 31 , 2017 and 2016 , respectively . our cash resources can be used for working capital needs and other commitments and may be used for future investments . cash requirements during the next 12 months , we expect that our cash requirements will include payments to acquire new investments , funding capital commitments such as construction projects , paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control , making scheduled interest payments on the unsecured senior notes , scheduled mortgage loan principal payments , including mortgage balloon payments on our mortgage loan obligations , and prepayments of certain of our mortgage loan obligations , as well as other normal recurring operating expenses . we expect to fund future investments , construction commitments , any capital expenditures on existing properties , scheduled debt maturities on non-recourse mortgage loans , and any loans to certain of the managed programs ( note 3
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loans receivable , net increased by $ 187.5 million , or 18.4 % , to $ 1.208 billion at december 31 , 2014 from $ 1.020 billion at december 31 , 2013. the increase resulted primarily from a $ 187.0 million increase in real estate mortgages comprising commercial and multi-family , construction and participation loans with other financ ial institutions along with an increase of $ 7.0 million in residential real estate loans , partially offset by a $ 2.5 million decrease in commercial business loans and commercial lines of credit , a $ 3.1 million decrease in home equity and home equity lines of credit and a $ 1.8 million increase in the allowance for loan losses . during the third quarter of 2014 , the company sold $ 10.4 million in a bulk sale of impaired loans in which a loss of $ 4.0 million was incurred . as of december 31 , 2014 , the allowance for loan losses was $ 16.2 million , or 82.4 % , of non-performing loans and 1.3 2 % of gross loans . as a result of the loans acquired in the business combination transactions being recorded at their fair value , the balances in the allowance for loan losses that were on the balance sheets of the former pamrapo bancorp , inc. , and allegiance community bank are precluded from being reported in the allowance balance previously discussed , consistent with generally accepted accounting principles . deposit liabilities increased by $ 60.0 million , or 6.2 % , to $ 1.029 billion at december 31 , 2014 from $ 968.7 million at december 31 , 2013. the increase resulted primarily from a $ 31.8 million increase in certificates of deposit , an increase of $ 19.6 million in savings and club deposits and a $ 25.9 million increase in non-interest bearing deposits , partly offset by a decrease of $ 17.4 million in money market interest bearing deposits . the increase in certificates of deposit primarily was the result of additional cdars deposits of $ 51.7 million . recognizing this shift in the mix of our deposits , the attraction and retention of non-interest bearing commercial deposits , and longer dated maturity deposits remains a focus of our retail deposit gathering philosophy . during 2014 , the federal open market committee ( fomc ) has continued its accommodative monetary policy . this extended environment of historically low short term market rates has resulted in continuing parallel low retail deposit account yields , directly decreasing interest expense . short -term borrowings increased by $ 8.0 million , or 44.4 % , to $ 26.0 million at december 31 , 2014 from $ 18.0 million at december 31 , 2013. long-term borrowings increased by $ 23.0 million , or 20.9 % , to $ 133.0 million at december 31 , 2014 from $ 110.0 million at december 31 , 2013. the pu rpose of the borrowings reflected the use of long term and short term federal home loan bank advances to augment deposits as the company 's funding source for originating loans and investing in gse investment securities . stockholders ' equity increased by $ 2.2 million , or 2.2 % , to $ 102.3 million at december 31 , 2014 from $ 100.1 million at december 31 , 2013. the increase in stockholders ' equity was primarily attributable to net income of $ 7.6 million , and an increase of $ 770,000 in preferred stock outstanding partly offset by cash dividends paid during 2014 totaling $ 4.4 million on outstanding common shares of stock and $ 800,000 on outstanding shares of preferred stock . the company accrued a dividend payable for the fourth quarter on the preferred shares for $ 201,000 which will be paid in the first quarter of 2015. as of december 31 , 2014 , the bank 's tier 1 , tier 1 risk-based and total risk based capital ratios were 8.33 % , 10.48 % and 11.73 % respectively . 32 analysis of net interest income net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them , respectively . the following tables set forth balance sheets , average yields and costs , and certain other information for the years indicated . all average balances are daily average balances . the yields set forth below include the effect of deferred fees , discounts and premiums , which are included in interest income . replace_table_token_21_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 33 analysis of net interest income ( continued ) replace_table_token_22_th _ ( 1 ) excludes allowance for loan losses . ( 2 ) includes federal home loan bank of new york stock . ( 3 ) interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 34 rate/volume analysis the table below sets forth certain information regarding changes in our interest income and interest expense for the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( i ) changes in average volume ( changes in average volume multiplied by old rate ) ; ( ii ) changes in rate ( change in rate multiplied by old average volume ) ; ( iii ) changes due to combined changes in rate and volume ; and ( iv ) the net change . story_separator_special_tag replace_table_token_23_th 35 results of operations for the years ended december 31 , 2014 and 2013 net income was $ 7.6 million for the year ended december 31 , 2014 , compared with $ 9.4 million for the year ended december 31 , 2013. net income decreased due to higher non-interest expense , partially offset by increases in net interest income and non-interest income for the year ended december 31 , 2014 , as compared with the year ended december 31 , 2013. net interest income increased by $ 3.1 million , or 6.6 % , to $ 49.9 million for the year ended december 31 , 2014 from $ 46.8 million for the year ended december 31 , 2013. the increase in net interest income resulted primarily from an increase in the average balance of interest earning assets of $ 61.6 million , or 5.3 % , to $ 1.215 billion for the year ended december 31 , 2014 from $ 1.153 billion for year ended december 31 , 2013 , partly offset by a decrease in the average yield on interest earning assets of one basis point to 4.96 % for the year ended december 31 , 2014 from 4.97 % for the year ended december 31 , 2013. the average balance of interest-bearing liabilities increased by $ 39.8 million , or 4.0 % , to $ 1.014 billion for the year ended december 31 , 2014 from $ 974.7 million for the year ended december 31 , 2013 , while the average cost of interest bearing liabilities decreased by seven basis points to 1.02 % for year ended december 31 , 2014 from 1.09 % for the year ended december 31 , 2013. net interest margin was 4.11 % for the year ended december 31 , 2014 , and 4.06 % for the year ended december 31 , 2013. interest income on loans receivable increased by $ 4.3 million , or 8.1 % , to $ 57.9 million for the year ended december 31 , 2014 from $ 53.6 million for the year ended december 31 , 2013. the increase was primarily attributable to an increase in the average balance of loans receivable of $ 135.8 million , or 13.9 % , to $ 1.117 billion for the year ended december 31 , 2014 from $ 980.8 million for the year ended december 31 , 2013 , partially offset by a decrease in the average yield on loans receivable to 5.18 % for the year ended december 31 , 2014 from 5.46 % for the year ended december 31 , 2013 . the increase in the average balance of loans receivable was the result of our comprehensive loan growth strategy . the decrease in average yield reflects the competitive price environment prevalent in the company 's primary market area on loan facilities as well as the repricing downward of certain variable rate loans . interest income on securities decreased by $ 1.5 million , or 39.7 % , to $ 2.3 million for the year ended december 31 , 2014 from $ 3.8 million for the year ended december 31 , 2013. this decrease was primarily due to a decrease in the average balance of securities of $ 67.0 million or 47.7 % to $ 73.4 million for the year ended december 31 , 2014 from $ 140.4 million for the year ended december 31 , 2013 , partly offset by an increase in the average yield of securities to 3.11 % for the year ended december 31 , 2014 from 2.70 % for the year ended december 31 , 2014 . investment securities classified as held-to-maturity , which totaled $ 114.2 million at december 31 , 2013 , were sold in the third quarter of 2014 , except for approximately $ 9.8 million of such securities which were re-designated to available for sale securities . interest income on other interest-earning assets increased by $ 3,000 , or 5.8 % , to $ 55,000 for the year ended december 31 , 2014 from $ 52,000 for the year ended december 31 , 2013. this increase was primarily due to an increase of the average yield on other interest-earning assets to 0.22 % for the year ended december 31 , 2014 from 0.16 % for the year ended december 31 , 2013 , partly offset by a decrease of $ 7.3 million , or 22.7 % , in the average balance of other interest-earning assets to $ 24.7 million for the year ended december 31 , 2014 from $ 32.0 million for the year ended december 31 , 2013 .. the somewhat static nature of the average yield on other interest-earning assets reflects the current philosophy by the fomc of keeping short term interest rates at historically low lev els for the last several years . total interest expense decreased by $ 273,000 , or 2.6 % , to $ 10.3 million for the year ended december 31 , 2014 from $ 10.6 million for the year ended december 31 , 2013. the decrease resulted primarily from a decrease in the cost of interest-bearing liabilities of seven basis points to 1.02 % for the year ended december 31 , 2014 from 1.09 % for the year ended december 31 , 2013 , partly offset by a increase in the average balance of interest bearing liabilities of $ 39.8 million , or 4.1 % , to $ 1.015 billion for the year ended december 31 , 2014 from $ 974.7 million for the year ended december 31 , 2013. the decrease in the average cost of interest bearing liabilities reflects the company 's reaction to the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products . the provision for loan losses totaled $ 2.80 million and $ 2.75 million for the years ended december 31 , 2014 and 2013 , respectively .
| factors that could have a material adverse effect on the operations of the company and its subsidiaries include , but are not limited to , changes in market interest rates , general economic conditions , legislation , and regulation ; changes in monetary and fiscal policies of the united states government , including policies of the united states treasury and federal reserve board ; changes in the quality or composition of the loan or investment portfolios ; changes in deposit flows , competition , and demand for financial services , loans , deposits and investment products in the company 's local markets ; changes in accounting principles and guidelines ; war or terrorist activities ; and other economic , competitive , governmental , regulatory , geopolitical and technological factors affecting the company 's operations , pricing and services . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this discussion . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . except as required by applicable law or regulation , the company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made . 30 critical accounting policies critical accounting policies are those accounting policies that can have a significant impact on the company 's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management 's judgment . because of the uncertainty inherent in such estimates , actual results may differ from these estimates . below are those policies applied in preparing the company 's consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional accounting policies , see note 2 of “ notes to consolidated financial statements. ” allowance for loan losses loans receivable are presented net of an allowance for loan losses and net deferred loan fees . in determining the appropriate level of the allowance , management considers a combination of factors , such as economic and industry trends , real estate market conditions , size and type of loans in portfolio , nature and value of collateral held , borrowers ' financial strength and credit ratings , and prepayment and default history . the calculation of the appropriate allowance for loan
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in the event that future oem production rate increases occur at a slower rate or take longer than the company is currently assuming , the company expect s that the growth in inventory and other cash flow impacts associated with production would decrease . however , while any prolonged delays in planned oem production rate increases could mitigate the impact on our liquidity , it could significantly increase the overall expected costs to manufacture our products , which would reduce operating margins and or increase abnormal production costs in the future . additionally , the declines in global air travel are expected to result in reduced demand for mro services and uncertainty exists related to the length of time until air travel returns to historical levels . from fiscal 2014 through fiscal 2020 , our aerospace structures business unit had been performing design , development and initial manufacturing on several new programs , including the global 7500 , the embraer second generation e-jet ( `` e2-jets '' ) and more recently , the gulfstream g500/g600 programs . historically , low-rate production commences during flight testing , followed by an increase to full-rate production , assuming that successful testing and certification are achieved . while work progressed on these development programs , we have experienced difficulties in achieving estimated cost targets particularly in the areas of engineering and estimated recurring costs which resulted in forward losses . additionally , from fiscal 2015 to fiscal 2019 , our aerospace structures business unit experienced operating and forward losses on its production of the boeing 747-8 fuselage for boeing , gulfstream g280 wing for israel aerospace industries , ltd ( `` iai '' ) and gulfstream g650 wing for gulfstream . further discussion is included below regarding the significant developments of each program . boeing 737 max the boeing 737 max program represents approximately 5 % of revenue for the fiscal year ended march 31 , 2020. the temporary suspension of 737 max production by boeing in january 2020 and subsequent temporary suspension of production operations in the puget sound area as a result of the covid-19 crisis in march 2020 , had minimal unfavorable effect on our results through march 31 , 2020. boeing has since resumed production operations during the week of april 20 , 2020 and updated the delivery rate assumptions . boeing 's assumptions include the return of 737 max aircraft production during the second calendar quarter of 2020 as timing and conditions of return to service and covid-19 impacts are better understood ; as well as the timing of regulatory approvals will enable 737 max deliveries to resume during the third calendar quarter of 2020. boeing has stated it has approximately 450 airplanes in inventory at march 31 , 2020 , and has also assumed that the majority of 737 max airplanes produced during the grounding and included within inventory will be delivered during the first year after the resumption of deliveries , although at a slower pace than our previous assumptions due to covid-19 . the slower production and delivery rate ramp-ups reflect commercial airline industry uncertainty due to the impact of covid-19 . based on the above assumption , triumph expects to see declines in revenue across both of its operating segments in its fiscal 2021. a resurgence of covid-19 that results in additional delays or shut downs could further exacerbate this expectation . boeing 747-8 as disclosed during fiscal 2016 , boeing announced a rate reduction to the 747-8 program , which lowered production to one plane every two months . the impact of the rate reduction resulted in additional forward loss during the fiscal year ended march 31 , 2016. in march 2017 , the company settled several outstanding change orders and open pricing on a number of its programs with boeing . the agreement included pricing settlements , advanced payments , delivery schedule adjustments and the opportunity to extend the mutual relationship on future programs . the agreement also provided for continued build ahead on the 747-8 program through the end of the existing contract , resulting in a reduction to the previously recognized forward losses on the 747-8 program . as of march 31 , 2020 , triumph 's production on this program has substantially completed from its hawthorne , ca facility , with the remaining production from its grand prairie , tx , facility expected to complete in late fiscal 2021. facility exit plans are underway at both locations and are expected to result in additional cost to exit of approximately $ 20.0 million through mid-fiscal 2022 and result in projected cash uses . g280 we acquired both the g280 and g650 wing programs in fiscal 2015 and received proceeds for $ 160.0 million as both contracts were operating at a loss . while operations have improved on the g650 since acquisition as noted further below , the cost profile of the g280 wing program has continued to result in forward loss charges , including $ 29.1 million in the fiscal year ended march 31 , 2019 . 25 in april 2019 , the company and iai reached an agreement to transition the manufacture of the g280 wing to iai . the two companies have developed detailed transition plans to enable a transition of work . our contract with iai will terminate upon completion of the transition of work . our forward loss recognized in the fiscal year ended march 31 , 2019 , noted above includes the cost to transition , which is estimated to be completed in mid-fiscal 2021 and include projected cash uses . changes to the forward loss associated with this program were immaterial in the year ended march 31 , 2020. in may 2020 , the company reached a letter of intent to the accelerated transfer of the g280 wing program to israel aerospace industries and korean aerospace industries by mid-2020 at which point the leased tulsa factory will be closed . story_separator_special_tag g650 in the first quarter of fiscal 2019 , the company reached an agreement with gulfstream to optimize the supply chain on the company 's g650 work scope . the g650 wing box and wing completion work , which had been co-produced across three facilities at both companies , are being consolidated into gulfstream 's facilities in savannah , georgia . the company completed the manufacturing of its final wing box in july 2019. the company anticipates reaching an agreement to sell its remaining g650 wing supply chain activity and engineering services to gulfstream , although the continued impact of covid-19 could impact the timing and terms thereof . this transaction is expected to close in the first half of fiscal 2021. e2-jets under our contract with embraer , we had the exclusive right to design , develop and manufacture the center fuselage section iii , rear fuselage section and various tail section components ( rudder and elevator ) for the e2-jets over the initial 600 ship sets . the contract provided for funding on a fixed amount of nonrecurring costs , to be paid over a specified number of production units . higher than expected spending on the e2-jets program resulted in a near break-even estimated profit margin percentage , with additional potential future cost pressures as well as opportunities for improved performance . risks related to additional engineering on the retained component manufacturing as well as the recurring cost profile remain on this program . during the fiscal year ended march 31 , 2018 , the company reached an agreement with aerospace technologies of korea inc. ( `` astk '' ) to optimize the supply chain under our portion of the e2 program . under this agreement , astk will build and transport fuselage shipsets to embraer and establish a facility in brazil to manage stock and repairs locally . at the time , the company maintained its role as the supply chain integrator on the program . in april 2019 , we announced an agreement to assign our contract with embraer for the manufacture of structural components for their program to astk . under this agreement , we will remain a supplier to astk for the rudder and elevator components . we completed the assignment of our contract during fiscal year 2020 and recognized a gain of approximately $ 10.0 million included in our aerospace structures operating income . t-7 red hawk in september 2017 , the company reached an agreement with boeing to supply the wing , vertical tail and horizontal tail structures for the new t-7 red hawk , originally known as the boeing t-x , for the u.s. air force . in september 2018 , the u.s. air force awarded the contract to boeing . in fiscal 2020 , the company continued supply chain analysis in support of boeing 's preliminary design . risks related to development and recurring productions costs are possible and could result in future forward losses . although none of the development or production programs noted above individually are expected to have a material impact on our net revenues , they do have the potential , either individually or in the aggregate , to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision . absent any such loss provisions , we do not anticipate that any of these programs will significantly dilute our future consolidated margins , although a prolonged impact of covid-19 could result in changes in expectations . during the fiscal year ended march 31 , 2019 , the company divested of a number of its assets and operations , including ( i ) selling all of the shares of triumph structures - east texas , inc. and all of the shares of triumph structures - los angeles , inc. and triumph processing , inc. ( collectively , the `` long & large '' ) , ( ii ) transitioning the responsibility for the bombardier global 7500 ( `` global 7500 '' ) wing program manufacturing operations of aerospace structures to bombardier , ( iii ) selling all of the shares of triumph fabrications - san diego , inc. and triumph fabrications - ft. worth , inc. ( together , `` fabrications '' ) , ( iv ) selling all of the shares of triumph structures – kansas city , inc. , triumph structures – wichita , inc. , triumph gear systems – toronto , ulc and triumph northwest ( the triumph group operations , inc. ) ( together , `` machining '' ) , and ( v ) selling all of the shares of triumph aviation services - naas division , inc. ( `` naas '' ) . collectively , these transactions are referred to as the `` fiscal 2019 divestitures '' . the company recognized combined net losses of $ 235.3 million associated with the fiscal 2019 divestitures , which are presented on the accompanying consolidated statements of operations within loss on divestitures . with the exception of naas , the operating results for the fiscal 2019 divestitures are included in aerospace structures ( `` fiscal 2019 aerospace structures divestitures '' ) through the respective dates of divestiture . the operating results for naas are included in systems & support through the date of divestiture . 26 during fiscal 2018 , the company sold all of the shares of ( i ) triumph processing - embee division , inc. ( `` embee '' ) and ( ii ) triumph structures - long island ( `` ts-li '' ) , ( collectively , the `` fiscal 2018 divestitures '' ) for total cash proceeds of $ 74.5 million and a combined loss of $ 28.3 million presented on the accompanying consolidated statements of operations as loss on divestitures and is included in corporate . the operating results of embee were included in systems & support and the operating results of ts-li were included in aerospace structures , respectively , through their dates of disposal .
| organic gross margin for the fiscal year ended march 31 , 2020 , was 20.8 % compared with 17.6 % for the fiscal year ended march 31 , 2019. the gross margin for the fiscal year ended march 31 , 2020 , increased compared with the prior year period due to the nonrecurring forward loss provisions from the adoption of asu 2017-07. gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts of $ 22.8 million . the unfavorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $ 43.4 million and gross unfavorable adjustments of $ 66.2 million . gross margins for fiscal 2019 included net unfavorable cumulative catch-up adjustments of $ 68.7 million . 29 segment operating income increased by $ 134.5 million , or 276.3 % , to $ 183.2 million for the fiscal year ended march 31 , 2020 , from $ 48.7 million for the fiscal year ended march 31 , 2019 . organic segment operating income increased by $ 45.1 million , or 31.7 % , primarily due to the increased margins above as well as decreases in administrative compensation cost of $ 13.7 million and research and development of $ 8.5 million , were partially offset by a $ 66.1 million goodwill impairment charge under systems & support . the fiscal 201 9 divestitures and fiscal 20 20 divestitures contributed $ 89.4 million in increased operating income in the current year primarily due to incurring operating losses of the fiscal year ended march 31 , 2019. corporate operations incurred expenses of $ 125.3 million for the fiscal year ended march 31 , 2020 , as compared with $ 323.4 million for the fiscal year ended march 31 , 2019. the corporate expenses included decreased loss on sale of assets and businesses of $ 168.3 million , decreased compensation cost of $ 12.3 million , with additional benefit from the legal judgment gain of $ 9.3 million . interest expense and other increased by $ 7.5 million , or 6.6 % , to $ 122.1 million for the fiscal year ended march 31 , 2020 , compared with $ 114.6 million for the fiscal year ended march 31 , 2019 , due to higher interest rates
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other income and expense 2016 compared to 2015 in 2016 , the company sold its corporate headquarters , land , building and certain fixtures and equipment to a third party at a purchase price of $ 4,053,000. the sale resulted in a gain of approximately $ 1,943,000 and generated approximately $ 1,809,000 in net cash after expenses and mortgage payoffs . interest expense for the year ended december 31 , 2016 , decreased to $ 30,000 compared to $ 99,000 in the 2015 period as a result of the lower average debt levels following the sale of the facility in early 2016. for the year ended december 31 , 2016 , the company recorded investment income of approximately $ 122,000 compared to $ 82,000 in the 2015 period . income taxes no income tax benefit was recorded on the loss for the year ended december 31 , 2016 , as management of the company was unable to determine that it was more likely than not that such benefit would be realized . at december 31 , 2016 , the company had a net operating loss carry forwards for income tax purposes of approximately $ 109 million , expiring through 2035. as of december 31 , 2016 , the company 's subsidiary has net operating loss carry forwards of approximately $ 22 million for federal and state tax purposes , which are available to offset future taxable income , if any , expiring through 2035. as of december 31 , 2016 , the company 's subsidiary has a capital loss carry forward of approximately $ 1.1 million for federal and state tax purposes , which are available to offset future capital gains , if any , expiring through december 2020. utilization of the subsidiaries ' net operating losses are subject to certain limitations under section 382 of the internal revenue coe of 1986 , as amended , and other limitations under state tax laws . liquidity and capital resources at december 31 , 2016 , the company had working capital of $ 12,688,000 , which included cash , cash equivalents and short-term investments of $ 13,037,000. the company reported a net loss of $ 4,273,000 during the year ended december 31 , 2016 , which included $ 1,320,000 in non-cash expenses including , stock-based compensation totaling $ 546,000 , depreciation and amortization totaling $ 239,000 and patent impairments of $ 535,000. these amounts were net of the gain on sale of the facility of $ 1,943,000 and amortization of deferred revenue totaling $ 97,000. effective january 14 , 2017 , we adopted a plan to exit this acquired business and commenced a significant reduction in the workforce . the decision to adopt this plan was made following an evaluation by the company 's board of directors in january 2017 , of the estimated results of operations projected during the near to mid-term period for bdi , including consideration of product development required and updated sales forecasts , and estimated additional cash resources required . we are reviewing possible strategic alternatives relative to the business to maximize shareholder value . the company 's continuing evaluation following adoption of the plan , estimates that it will incur charges to operations in early 2017 of approximately , $ 2.7 million , consisting of 1 ) write-down of tangible and intangible assets estimated at approximately $ 2.2 million , and 2 ) wind-down , severance and transaction expenses estimated at approximately $ 500,000. currently , the company is focused on pursuit of a strategic transaction with a new partner following adoption of the plan to exit the bdi business . bioptix is also attempting to locate a partner or partners for the bdi business or assets , and locating a partner or other third-party interested in advancing development and or commercial activities of the bioptix appendicitis portfolio . we also continue the relationship with ceva santé animale s.a. as they advance on developing the company 's licensed animal health assets . 17 we expect to continue to incur losses from operations for the near-term and these losses could be significant as we incur professional and other associated expenses in connection with exiting the bdi business , strategic evaluation expenses , appendicitis portfolio related expenses , and public company and administrative related expenses . we believe that our current working capital position will be sufficient to meet our estimated cash needs through the first quarter of 2018 , subject to any possible strategic transactions . we may pursue potential additional financing opportunities ; however , there can be no assurance that we will be able to obtain sufficient additional financing on terms acceptable to us , if at all . we are closely monitoring our cash balances , cash needs and expense levels . the accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result in our possible inability to continue as a going concern . in july 2012 , the company entered into an exclusive license agreement with ceva santé animale s.a. , under which the company granted the licensee an exclusive royalty-bearing license , until december 31 , 2028 , to the company 's intellectual property and other assets , including patent rights and know-how , relating to recombinant single chain reproductive hormone technology for use in non-human mammals ( the `` company 's animal health assets '' ) . story_separator_special_tag the license agreement is subject to termination by the licensee ( a ) for convenience on 180 days prior written notice , ( b ) in the licensee 's discretion in the event of a sale or other disposal of the company 's animal health assets , ( c ) in the licensee 's discretion upon a change in control of the company , ( d ) for a material breach of the license agreement by the company , or ( e ) in the licensee 's discretion , if the company becomes insolvent . the license agreement is also terminable by the company if there is a material breach of the license agreement by the licensee , or if the licensee challenges the company 's ownership of designated intellectual property . the license agreement includes a sublicense of the technology licensed to the company by wu . under the terms of the wu license agreement , a portion of license fees and royalties bioptix receives from sublicensing agreements will be paid to wu . the obligation for such license fees due to wu is included in accrued expenses at december 31 , 2016. under the license agreement as of december 31 , 2016 , the following future milestone payments are provided , assuming future milestones are successfully achieved : ● milestone payments , totaling up to a potential of $ 1.1 million in the aggregate , based on the satisfactory conclusion of milestones as defined in the license agreement ; ● potential for milestone payments of up to an additional $ 2 million for development and receipt of regulatory approval for additional licensed products ; and ● royalties , at low double digit rates , based on sales of licensed products . the company periodically enters into generally short-term consulting and development agreements . such commitments at any point in time may be significant but the agreements typically contain cancellation provisions . prior to the february 2016 sale of our corporate headquarters , we had a permanent mortgage on our land and building that was refinanced in may 2013. the mortgage was held by a commercial bank and included a portion guaranteed by the u. s. small business administration . the loan was collateralized by the real property and the sba portion was also personally guaranteed by a former officer of the company . the commercial bank loan terms included a payment schedule based on a fifteen year amortization , with a balloon maturity at five years . the commercial bank portion had an interest rate fixed at 3.95 % , and the sba portion bore interest at the rate of 5.86 % . the commercial bank portion of the loan required total monthly payments of approximately $ 11,700 , which included approximately $ 4,000 per month in interest . the sba portion of the loan required total monthly payments of approximately $ 9,000 through july 2023 , which included approximately $ 3,500 per month in interest and fees in 2015. on february 25 , 2016 , we completed the sale of our corporate headquarters , land and building , to a third party at a purchase price of $ 4,053,000. the sale generated approximately $ 1.8 million in net cash after expenses and payoff of the mortgages described above . as part of the sale , we leased back space in the building under a month-to-month lease that provides storage space . due to market conditions potentially affecting all industries and the economy as a whole , management has placed increased emphasis on monitoring the risks associated with the current environment , particularly the investment parameters of the short term investments , the recoverability of current assets , the fair value of assets , and the company 's liquidity . at this point in time , there has not been a material impact on the company 's assets and liquidity . management will continue to monitor the risks associated with the current environment and their impact on the company 's results . 18 operating activities net cash consumed by operating activities was $ 5,520,000 during the year ended december 31 , 2016. cash was consumed by the loss of $ 4,273,000 , less non-cash expenses of $ 1,320,000 for stock-based compensation , depreciation and amortization , and impairment of patent costs , offset by the gain on sale of property and equipment of $ 1,943,000 and amortization of license fees totaling $ 97,000. decreases in prepaid and other current assets of $ 259,000 provided cash , primarily related to routine changes in operating activities . there was a $ 760,000 decrease in accounts payable and accrued expenses in the year ended december 31 , 2016 , primarily due to the payment of 2015 accrued incentives in early 2016 , and a reduction in overall expenses due to the wind-down of the appendicitis activities . net cash consumed by operating activities was $ 6,869,000 during the year ended december 31 , 2015. cash was consumed by the loss of $ 8,758,000 , less net non-cash expenses of $ 1,143,000 for stock-based compensation and depreciation and amortization totaling $ 254,000 , patent impairments of $ 188,000 , offset by the amortization of license fee totaling $ 97,000 and gain from sale of equipment totaling $ 8,000 . increases in prepaid and other current assets of $ 388,000 used cash , primarily related to routine changes in operating activities . there was an $ 180,000 increase in accounts payable and accrued expenses in the year ended december 31 , 2015 , primarily due to strategic evaluations activities . accrued compensation decreased by $ 160,000 , primarily due to reduction in staff .
| while management believes that the estimated potential market for an appendicitis test continues to be significant , to date bioptix has been unable to locate a new strategic target , a partner or other third-party interested in advancing development and commercial activities of the bioptix appendicitis portfolio . the capitalized costs on the company 's balance sheet , totaling approximately $ 508,000 , as of december 31 , 2015 for the acute appendicitis patents have been deemed 100 % impaired as of december 31 , 2016. sales and cost of sales 2016 compared to 2015 sales of approximately $ 9,000 were recorded for the year ended december 31 , 2016 as compared to $ 101,000 in the 2015 period . sales in 2016 related to consumable product sales from the company 's subsidiary and in 2015 related to sales of the appy 1 system products which were made to customers for initial stocking orders in the eu under commercial development agreements . three european-based distributors accounted for 100 % of the 2015 sales , and individually represented 52 % , 26 % and 22 % , respectively , of such sales . cost of sales totaled $ 3,000 for the year ended december 31 , 2016 , related to consumable product sales from the company 's subsidiary compared to $ 31,000 in the 2015 period , related to sales of the appy 1 system products . as a percentage of sales , gross profit was 68 % in the 2016 period as compared to gross profit of 70 % in the 2015 period . in july 2012 , the company entered into an exclusive license agreement with ceva santé animale s.a. under which the company granted the licensee an exclusive royalty-bearing license to the company 's intellectual property and other assets , including patent rights and know-how , relating to recombinant single chain reproductive hormone technology for use in non-human mammals ( company 's animal health assets ) . the net total payments received under this agreement were recorded
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this technology enables us to offer our consumer services customers attractively priced voice and messaging services and other features around the world on a variety of devices . our consumer services strategy is focused on the continued penetration of our core north american markets , where we will continue to provide value in international long distance and target under-served ethnic segments . international long distance . as a part of our strategy , our primary focus in our domestic markets is serving the under-served ethnic segments in the united states with international calling needs . the markets for international long distance allow us to leverage our voip network by providing customers a low-cost and feature-rich alternative to services offered by telecom , cable , and international calling card providers . with our vonage world product , we have successfully grown our international calling customer base in multiple ethnic markets . to increase the visibility of our long distance plans , we have shifted an increasing portion of our marketing budget from broad national 27 vonage annual report 2015 advertising as we target attractive segments of the international long distance market . we have inside sales channels where customers can subscribe to our services on-line or through our toll-free number , as well as a retail distribution channel through regional and national retailers . for both our north american and international customers we provide mobile capability through our patented vonage extensions mobile app . our mobile applications enable consumer services customers to make and receive phone calls on their mobile devices from anywhere they have a wi-fi or cellular data connection . our customers have found value in our ability to deliver high-quality voice solutions coupled with useful features and services . we generate revenue through the acquisition and retention of consumer services customers . we are focused on optimizing the consumer services business by increasing profitability to improve the strong cash flows of the business . our focus on operations during the past five years has led to a significantly improved cost structure . we have implemented operational efficiencies throughout our business and have substantially reduced domestic and international termination costs per minute , as well as customer care costs . we achieved these structural costs reductions while concurrently delivering significantly improved network call quality and customer service performance . these improvements in customer experience have contributed to the stabilization in churn over recent periods . during 2015 , we continued our disciplined focus on marketing efficiency by shifting customer acquisition spend to our higher performing channels , improving the quality of customers we acquire and driving lower churn , all of which drive higher customer life-time value . this focus has led to a reallocation of certain marketing spend to direct response and digital platforms and away from our assisted selling channel , which utilized direct face-to-face selling across multiple retail chains and community and event venues . the result of these initiatives has been to create a strong cash flow business which provides financial stability , as well as cost synergies and structural advantages to our business serving the ucaas business market . services outside of the united states . we currently have operations in the united states , united kingdom , and canada and believe that our low-cost internet based communications platform enables us to cost effectively deliver voice and messaging services to other locations throughout the world . in december 2014 we announced plans to exit the brazilian market for residential telephony services and wind down our joint venture operations in the country . the company completed this process at the end of the first quarter of 2015. this decision underscores the company 's focus on providing ucaas solutions to domestic consumer services and smb , medium and large enterprise customers , which offer higher investment return opportunities . trends in our industry a number of trends in our industry have a significant effect on our results of operations and are important to an understanding of our financial statements . competitive landscape . we face intense competition from traditional telephone companies , wireless companies , cable companies , and alternative communication providers . most traditional wireline and wireless telephone service providers and cable companies are substantially larger and better capitalized than we are and have the advantage of a large existing customer base . in addition , because our competitors provide other services , they often choose to offer voip services or other voice services as part of a bundle that includes other products , such as video , high speed internet access , and wireless telephone service , which we do not offer . in addition , such competitors may in the future require new customers or existing customers making changes to their service to purchase voice services when purchasing high speed internet access . further , as wireless providers offer more minutes at lower prices , better coverage , and companion landline alternative services , their services have become more attractive to households as a replacement for wireline service . we also compete against alternative communication providers , such as magicjack , skype , and google voice . some of these service providers have chosen to sacrifice telephony revenue in order to gain market share and have offered their services at low prices or for free . as we continue to introduce applications that integrate different forms of voice and messaging services over multiple devices , we are facing competition from emerging competitors focused on similar integration , as well as from alternative voice communication providers . in addition , our competitors have partnered and may in the future partner with other competitors to offer products and services , leveraging their collective competitive positions . we also are subject to the risk of future disruptive technologies . story_separator_special_tag in connection with our emphasis on the international long distance market in the united states , we face competition from low-cost international calling cards and voip providers in addition to traditional telephone companies , cable companies , and wireless companies , each of which may implement promotional pricing targeting international long distance callers . broadband adoption . the number of united states households with broadband internet access has grown significantly . on march 16 , 2010 , the federal communications commission ( “ fcc ” ) released its national broadband plan , which seeks , through supporting broadband deployment and programs , to encourage broadband adoption for the approximately 100 million united states residents who do not have broadband at home . we expect the trend of greater broadband adoption to continue . we benefit from this trend because our service requires a broadband internet connection and our potential addressable market increases as broadband adoption increases . regulation . our business has developed in a relatively lightly regulated environment . the united states and other countries , however , are examining how voip services should be regulated . a november 2010 order by the fcc that permits states to impose state universal service fund obligations on voip service , discussed in note 6 to our financial statements , is an example of efforts by regulators to determine how voip service fits into the telecommunications regulatory landscape . in addition to regulatory matters that directly address voip , a number of other regulatory initiatives could impact our business . one such regulatory initiative is net neutrality . in december 2010 , the fcc adopted a revised set of net neutrality rules for broadband internet service providers . these rules made it more difficult for broadband internet service providers to block or discriminate against vonage service . on january 14 , 2014 , the d.c. circuit court of appeals vacated a significant portion of the 2010 rules . on may 15 , 2014 , the fcc issued a notice of proposed rulemaking ( nprm ) proposing new net neutrality rules . after public response to the nprm , the fcc adopted new neutrality rules on february 26 , 2015. several parties have filed appeals which are pending at the d.c. circuit court of appeals . oral arguments at the d.c. circuit court of appeals were held on december 4 , 2015. see also the discussion under `` regulation '' in note 10 to our financial statements for a discussion of regulatory issues that impact us . key operating data through our acquisitions of vocalocity , telesphere , simple signal , and icore , our business has substantially evolved in recent quarters , with business customers now accounting for a substantial and growing portion of overall revenues . to reflect this evolution , we have made certain changes to our key operating data and income statement presentation to provide greater visibility into the operating metrics of the business . the key changes to the income statement include the combination of sales and marketing expenses into a new sales and marketing caption , separated from selling , general , and administrative expenses . a new line item entitled engineering and development has also been created , reflecting the cost of developing new products and technologies and supporting our service platforms . the remaining selling , general and administrative expenses after the above reclassifications have been renamed general and administrative expenses . the reclassifications have been reflected in all periods presented and had no impact on net earnings previously reported . 28 vonage annual report 2015 the table below includes key operating data that our management uses to measure the growth and operating performance of the consumer focused portion of our business : replace_table_token_6_th revenues . consumer revenues represents revenue from our consumer customers including revenues from our legacy business customers using vonage voip products . average monthly revenues per subscriber line . average monthly revenues per subscriber line for a particular period is calculated by dividing our revenues for that period by the simple average number of subscriber lines for the period , and dividing the result by the number of months in the period . the simple average number of subscriber lines for the period is the number of subscriber lines on the first day of the period , plus the number of subscriber lines on the last day of the period , divided by two . our average monthly revenues per subscriber line decreased from $ 28.64 for 2014 to $ 27.58 for 2015 due to the “ $ 10 dollars a month for the first year ” pricing structure implemented in 2015 and lower ild pay-per-use revenue . subscriber lines . our subscriber lines include , as of a particular date , all paid subscriber lines from which a customer can make an outbound telephone call on that date . our subscriber lines include fax lines , including fax lines bundled with subscriber lines in our small office home office calling plans and soft phones , but do not include our virtual phone numbers and toll free numbers , which only allow inbound telephone calls to customers . subscriber lines decreased from 2,144,681 as of december 31 , 2014 to 1,940,825 as of december 31 , 2015 , reflecting planned actions to enhance the profitability of the assisted sales channel by eliminating lower performing locations and restructuring the pricing offers , and to shift investment to our business market . in addition , beginning october 1 , 2014 , the company no longer charges for second line mobile extensions provided to customers , which resulted in a decrease in subscriber lines of 78,949. future period subscriber line metrics will continue to reflect the reduction in paid subscriber lines resulting from this benefit to customers . customer churn . customer churn is calculated by dividing the number of customers that have terminated during a period by the simple average number of customers in a given period .
| to grow our revenue , we continue to make investments in growth initiatives , marketing , application development , network quality and expansion , and customer care . although we believe we will achieve consistent profitability in the future , we ultimately may not be successful and we may not achieve consistent profitability . we believe that cash flow from operations and cash on hand will fund our operations for at least the next twelve months . acquisition of icore icore was acquired on august 31 , 2015 for $ 92,000 cash consideration , increased by $ 689 of working capital excess as of the closing date , resulting in a total acquisition cost of $ 92,689. we financed the transaction with $ 10,689 of cash and $ 82,000 from our 2015 revolving credit facility . acquisition of simple signal simple signal was acquired on april 1 , 2015 for $ 25,250 , reduced by $ 198 of working capital shortfall as of the closing date and increased by $ 526 for the increase in value of the 1,111 shares of vonage common stock from the signing date to the closing date , resulting in a total acquisition cost of $ 25,578. we financed the transaction by borrowing $ 20,000 from our 2014 revolving credit facility . acquisition of telesphere telesphere was acquired on december 15 , 2014 for $ 114,000 , adjusted for $ 676 of excess cash as of the closing date , a reduction for closing working capital of $ 105 , and the decrease in value of the 6,825 shares of vonage common stock from the signing date to the closing date of $ 241 , resulting in a total acquisition cost of $ 114,330. we financed the transaction through $ 24,603 of cash ( of which $ 3,610 was paid in january 2015 ) and $ 67,000 from our 2014 revolving credit facility . acquisition of vocalocity vocalocity was acquired on november 15 , 2013 for $ 130,000 , adjusted for $ 2,869 of excess cash as of the closing date and
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we aim to expand our immunopulse® pipeline beyond the delivery of plasmid-dna encoding for cytokines to include other molecules that may be critical to key pathways associated with tumor immune subversion . performance outlook we expect to use our available working capital in the near term primarily for the advancement of our existing and planned clinical programs , including primarily the initiation of the pisces study and , to a lesser extent , the continuation of our other clinical trials and studies described above . we anticipate our spending on clinical programs and the development of our next-generation electroporation device for our immunopulse® il-12 platform will increase in the next 12 months , primarily in support of the pisces study , while our spending on research and development programs will decrease due to our focus on the pisces study . we anticipate that general and administrative costs will remain relatively flat in the next 12 months . see “ results of operations ” below for more information . liquidity and going concern we recorded a net loss of $ 21.4 million and $ 26.9 million for our fiscal years ended july 31 , 2017 and 2016 , respectively , and from inception through july 31 , 2017 , we have incurred an aggregate net loss of approximately $ 94.9 million . we have generated no revenue since our inception and we do not expect to generate revenue from our operations in the near term . further , based on our current rate of cash consumption and expectations regarding future expenses , we expect our cash on-hand , after taking into account the expected aggregate net proceeds from our october 2017 equity offerings ( described further below ) will be sufficient to support our operations to the third calendar quarter of 2018 , and we do not currently have any commitments for future capital . as a result of these conditions , there is substantial doubt about our ability to continue as a going concern . see “ liquidity and capital resources ” below for more information . 39 story_separator_special_tag 10pt times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > income tax provision we recorded an income tax provision of $ 1,391 in the year ended july 31 , 2017 , comprised of minimum state taxes , as we have calculated a net tax loss in 2017. at july 31 , 2017 , we had federal and california income tax net operating loss carryforwards of approximately $ 77.6 million and $ 72.5 million , respectively . in addition , we had federal and california research and development tax credit carryforwards of approximately $ 1.2 million and $ 1.3 million , respectively . we also have california hiring credits of approximately $ 9,300. the federal net operating loss and research tax credit carryforwards and california net operating loss carryforwards will begin to expire in 2027 unless previously utilized . the california research and development credit carryforwards will carry forward indefinitely until utilized . we also have foreign net operating loss carryforwards in australia of $ 0.6 million . we have not recorded a benefit from our net operating loss or research credit carryforwards because we believe that it is uncertain that we will have sufficient income from future operations to realize the carryforwards prior to their expiration . accordingly , we have established a 100 % valuation allowance against the deferred tax asset arising from the carryforwards . liquidity and capital resources going concern our consolidated financial statements included in this report have been prepared on the going concern basis of accounting , which assumes we will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business . we have sustained substantial losses of $ 21.4 million and $ 26.9 million for the years ended july 31 , 2017 and 2016 , respectively , and cumulative losses since inception of $ 94.9 million . in addition , as of july 31 , 2017 , we had cash and cash equivalents of approximately $ 11.4 million and , as of that date , we estimated its cash requirements for the following 12 months to be approximately $ 21.0 million . based on our current rate of cash consumption and expectations regarding future expenses , as well as our lack of any revenue-generating activities or firm commitments for future capital , we estimate we will need additional capital by the third calendar quarter of 2018 and our prospects for obtaining that capital are uncertain . we may seek to pursue debt or equity financings or alternative sources of funding to raise additional capital , but no such capital may be available when needed , on acceptable terms or at all . as a result of our historical losses and financial condition , there is substantial doubt about our ability to continue as a going concern . 41 working capital the following table and subsequent discussion summarize our working capital as of each of the periods presented : replace_table_token_3_th current assets current assets as of july 31 , 2017 decreased to $ 12.5 million , from $ 29.4 million as of july 31 , 2016. this decrease was primarily due to our use of cash to fund our operations during the fiscal year . current liabilities current liabilities as of july 31 , 2017 decreased to $ 3.4 million , from $ 3.5 million as of july 31 , 2016. this decrease was primarily due to a decrease in accrued compensation resulting from reduced personnel costs during the fiscal year . story_separator_special_tag cash flow cash used in operating activities net cash used in operating activities for our fiscal year ended july 31 , 2017 was $ 17.3 million , as compared to $ 17.8 million for our fiscal year ended july 31 , 2016. we recorded a net loss of $ 21.4 million and $ 26.9 million in our fiscal year ended july 31 , 2017 and 2016 , respectively , which included non-cash charges for stock-based compensation and depreciation expense of $ 4.4 million and $ 6.5 million for the respective periods . the $ 0.5 million decrease in cash used by operating activities between periods was primarily due to a change in working capital due to the timing of liability payments and the utilization of prepaid assets . cash used in investing activities net cash used in investing activities for our fiscal year ended july 31 , 2017 was $ 22,000 , as compared to $ 1.6 million for our fiscal year ended july 31 , 2016. the $ 1.5 million decrease in cash used for investing activities between periods was primarily due to our acquisition of property and equipment for our corporate headquarters and laboratory facility that occurred in our fiscal year ended july 31 , 2016 and did not recur in our subsequent fiscal year . cash provided by financing activities net cash provided by financing activities was $ 64,000 for our fiscal year ended july 31 , 2017 , as compared to $ 16.1 million for our fiscal year ended july 31 , 2016. the $ 16.0 million decrease in cash provided by financing activities between periods was primarily due to proceeds we received from our sale of common stock and warrants in two equity offerings in our fiscal year ended july 31 , 2016 that did not recur in our subsequent fiscal year ( see “ —sources of capital — may 2016 offering ” and “ —sources of capital — november 2015 offering ” below ) . uses of cash and cash requirements our primary uses of cash have been to finance clinical and research and development activities focused on the identification and discovery new potential product candidates , the development of innovative and proprietary medical approaches for the treatment of cancer , and the design and advancement of pre-clinical and clinical trials and studies related to our pipeline of product candidates . we have also used our capital resources on general and administrative activities , including building and strengthening our corporate infrastructure , programs and procedures to enable compliance with applicable federal , state and local laws and regulations . 42 our primary objectives for the next 12 months are to continue the advancement of our pisces study and , to a lesser extent , our other ongoing clinical trials and studies , and to continue our research and development activities for our next-generation electroporation device and drug discovery efforts . in addition , we expect to pursue capital-raising transactions , which could include equity or debt financings , in the near term to fund our existing and planned operations and acquire and develop additional assets and technology consistent with our business objectives as opportunities arise . we currently estimate our operating expenses and working capital requirements for the fiscal year ending july 31 , 2018 to be approximately $ 21.0 million , although we may modify or deviate from this estimate and it is likely that our actual operating expenses and working capital requirements will vary from our estimate . sources of capital we have not generated any revenue since our inception , and we do not anticipate generating meaningful , or any , revenue in the near term . historically , we have raised the majority of the funding for our business through offerings of our common stock and warrants to purchase our common stock . although we are exploring other ways of funding our operations that involve less dilution to our existing stockholders , including , among others , technology licensing or other collaboration arrangements , debt financings or grants , we have not successfully established or raised any funds through any of these types of arrangements , and we may need to continue to seek funding for our operations through additional dilutive public or private equity financings . if we issue equity or convertible debt securities to raise additional funds , our existing stockholders would experience further dilution , and the new equity or debt securities may have rights , preferences and privileges senior to those of our existing stockholders . if we incur debt , our fixed payment obligations , liabilities and leverage relative to our equity capitalization would increase , which could increase the cost of future capital . further , the terms of any debt securities we issue or borrowings we incur , if available , could impose significant restrictions on our operations , such as limitations on our ability to incur additional debt or issue additional equity or other operating restrictions that could adversely affect our ability to conduct our business , and any such debt could be secured by any or all of our assets pledged as collateral . additionally , we may incur substantial costs in pursuing future capital , including investment banking , legal and accounting fees , printing and distribution expenses and other costs . moreover , equity or debt financings or any other source of capital may not be available to us when needed or at all , or , if available , may not be available on commercially reasonable terms . weak economic and capital market conditions generally or uncertain conditions in our industry could increase the challenges we face in raising capital for our operations . in recent periods , the capital and financial markets for early and development-stage biotechnology and life science company stocks have been volatile and uncertain .
| during our fiscal year ending july 31 , 2016 , of our $ 14.7 million of research and development expenses , we incurred , exclusive of personnel costs , engineering costs of $ 2.8 million , clinical study costs of $ 3.1 million and research and development expenses ( previously referred to as discovery research costs ) of $ 3.8 million . the $ 2.8 million decrease in research and development expenses in the fiscal year ended july 31 , 2017 as compared to our fiscal year ended july 31 , 2016 was primarily the result of a $ 1.8 million decrease in the costs of our research and development programs caused by our refocusing of resources to our higher priority clinical programs , a $ 1.0 million decrease in personnel costs due to reduced headcount , and a $ 0.6 million decrease in clinical trial expenses due to the refocusing of resources from our existing trials to the planned pisces study , partially offset by a $ 0.6 million increase in our engineering and product development costs related primarily to the development of our next-generation electroporation device for our immunopulse® il-12 platform . we expect research and development to continue to account for a significant portion of our total expenses in the future as we continue to develop our pipeline of product candidates and electroporation devices . 40 general and administrative our general and administrative expenses include expenses related to our executive , accounting and finance , compliance , information technology , legal , facilities , human resource , administrative and corporate communications activities . these expenses consist primarily of salaries , benefits , stock-based compensation costs , independent auditor costs , legal fees , consultant costs , travel and insurance costs , and public company expenses , such as transfer agent fees and listing fees in connection with the listing of our common stock on the nasdaq capital market . during our fiscal year ended july 31 , 2017 , of our $ 9.5 million of general and administrative expenses , we incurred $ 2.8 million in personnel costs , $ 2.5 million in stock-based compensation , $ 1.2 million in investor relations costs , $ 0.7 million in legal
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the it staffing services segment had higher general and administrative expenses in 2020 of $ 0.9 million due to higher stock-based compensation expense , event costs ( incurred pre-covid-19 in january and february 2020 ) and outside services expense , partially offset by lower travel expense . other income / ( expense ) components in 2020 , other income / ( expense ) consisted of interest expense of ( $ 866,000 ) and foreign exchange gains of $ 96,000. in 2019 , other income / ( expense ) consisted of interest expense of ( $ 1.8 million ) and foreign exchange gains of $ 11,000. the decline in interest expense was due to lower average outstanding borrowings resulting from debt repayments made during the year and a lower effective interest rate . net foreign exchange gains in 2020 and 2019 largely reflected exchange rate variations between the indian rupee and the canadian dollar compared to the u.s. dollar . 31 income tax expense income tax expense for 2020 was $ 2.8 million and represented an effective tax rate on pre-tax income of 21.9 % compared to $ 4.1 million in 2019 , which represented an effective tax rate on pre-tax income of 26.8 % . the lower 2020 effective tax rate was largely due to excess tax benefits related to the exercise of stock options and the vesting of restricted shares . 2019 compared to 2018 revenues revenues for the year ended december 31 , 2019 totaled $ 193.6 million , compared to $ 177.2 million for the year ended december 31 , 2018. this 9 % increase in revenues reflected revenue growth of 12 % in our data and analytics services segment and approximately 9 % revenue growth in our it staffing services segment . in our data and analytics services segment , new service- offerings helped drive 2019 revenues , particularly during the second half of the year . revenue growth in our it staffing services segment reflected a 65-consultant expansion of our billable consultant-base and a higher average bill rate . utilization in 2019 was slightly below 2018 levels due to more downtime related to the fourth quarter holiday season . our average it staffing bill rate for 2019 increased to $ 74.97 per hour in 2019 from $ 73.01 per hour in 2018 an increase of about 3 % . this bill rate increase was reflective of the types of skill sets that we deployed on new assignments during 2019. in 2019 and 2018 , we had one client that exceeded 10 % of total revenues ( cgi = 11.3 % and 12.8 % , respectively ) . our top ten clients represented 45 % of total revenues in 2019 compared to 47 % of total revenues in 2018. gross margin gross profit increased to $ 48.0 million in 2019 compared to $ 42.5 million in 2018. gross profit as a percentage of revenue totaled 24.8 % in 2019 compared to 24.0 % in 2018. the increase in gross profit dollars reflected higher revenues in 2019. the improvement in our gross margin percentage reflected margin expansion in both of our business segments . in our data and analytics services segment , gross margins increased by 270-basis points to 46.7 % , due to lower bench costs and higher margins on new assignments secured during the year . in our it staffing services segment , gross margins increased by 40-basis points to 21.3 % largely due to higher margins on digital technology assignments . selling , general and administrative ( s , g & a ) expenses s , g & a expenses in 2019 totaled $ 31.0 million and represented 16.0 % of total revenues , compared to $ 30.9 million or 17.4 % of revenues in 2018. when excluding acquisition transaction expenses ; the revaluation of contingent consideration ; goodwill impairment ; and the amortization of acquired intangible assets , adjusted s , g & a expenses related to operations , as a percentage of revenues was 17.8 % in 2019 versus 16.7 % in 2018. the increase in adjusted s , g & a as a percentage of revenues was largely due to investments made to our data and analytics services segment 's sales and delivery organizations and higher recruitment and general & administrative expenses in our it staffing services business . fluctuations within s , g & a expense components during 2019 compared to 2018 included the following : sales expense increased by $ 0.7 million compared to the previous year . the entire increase related to investments made to our data and analytic services business during the year . it staffing sales expenses were flat compared to 2018 , with higher commission expenses offset by lower headcount . operations expense increased by $ 2.1 million compared to 2018. approximately $ 0.7 million was related to investments made to our data and analytics services segment in the areas of delivery and analytics . the increased expense in our it staffing services business in 2019 totaled $ 1.4 million and was due to staff expansion at our offshore recruitment center , higher recruiter commissions , an increase in h1-b processing fees , and higher facility expenses . 32 amortization of acquired intangible assets was $ 2.7 million in 2019 versus $ 2.8 million in 2018. the slight decline was related to certain intangibles from our 2015 acquisition becoming fully amortized . acquisition transaction expenses were negative $ 0.1 million in both 2019 and 2018 and related to a reversal of investment banking fees due to acquisition related contingent consideration not being earned . the revaluation of a contingent consideration liability , net of goodwill impairment charges was a $ 6.1 million credit to s , g & a expenses in 2019 compared to a $ 1.4 million credit to s , g & a expense in 2018. this was driven by the difference between short-term results , which impacted the attainment of contingent consideration , and long-term forecasts and assumptions used in assessing goodwill impairment . story_separator_special_tag general & administrative expenses increased by $ 2.1 million in 2019 compared to 2018. our data and analytics services segment was responsible for $ 0.7 million of this increase which include higher executive leadership compensation expense and stock-based compensation expenses in 2019 versus 2018. our it staffing services segment had higher general and administrative expenses in 2019 of $ 1.4 million due to higher compensation expense , system support costs , depreciation expense and higher travel and event expenses . other income / ( expense ) components in 2019 , other income / ( expense ) consisted of interest expense of ( $ 1.8 million ) and foreign exchange gains of $ 11,000. in 2018 , other income / ( expense ) consisted of interest expense of ( $ 2.2 million ) and foreign exchange losses of ( $ 40,000 ) . the decline in interest expense was due to lower average outstanding borrowings resulting from debt repayments made during the year and a lower effective interest rate . net foreign exchange gains / ( losses ) in 2019 and 2018 largely reflected exchange rate variations between the indian rupee and the canadian dollar compared to the u.s. dollar . income tax expense income tax expense for 2019 was $ 4.1 million and represented an effective tax rate on pre-tax income of 26.8 % compared to $ 2.7 million in 2018 , which represented an effective tax rate on pre-tax income of 28.9 % . the 2019 effective tax rate was lower than 2018 because 2018 income tax expense included u.s. tax reform transition taxes . liquidity and capital resources financial conditions and liquidity at december 31 , 2020 , we had outstanding bank debt , net of cash balances on hand , of $ 9.8 million and approximately $ 22 million of borrowing capacity under our existing credit facility . during 2020 , our outstanding bank debt , net of cash balances on hand , declined by approximately $ 13 million , despite $ 10 million of term-loan borrowings to support our amberleaf acquisition . this reduction in debt was reflective of net cash flows provided by operating activities . reductions in operating working capital levels provided $ 7.3 million of cash , of which $ 4.6 million was related to the covid-19 payroll tax deferment program . ( see note 8 for further details ) . historically , we have funded our business needs with cash generation from operating activities . in the data and analytics services and it staffing services industries , investment in operating working capital levels ( defined as current assets excluding cash and cash equivalents minus current liabilities , excluding short-term borrowings ) is a significant use of cash . controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash preservation . our accounts receivable days sales outstanding measurement ( dso ) was 60-days at year-end 2020 and 55-days at year-end 2019. the higher dso measurement in 2020 reflected some cash conversion disruptions due to the covid-19 pandemic . 33 cash provided by operating activities , our cash and cash equivalent balances on hand at december 31 , 2020 and current availability under our existing credit facility are expected to be adequate to fund our business needs over the next 12 months , absent any acquisition-related activities . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_6_th operating activities cash provided by ( used in ) operating activities for the years ended december 31 , 2020 , 2019 and 2018 totaled $ 21.2 million , $ 16.1 million , and ( $ 0.5 million ) , respectively . in 2020 , cash flows from operating activities included net income of $ 9.9 million , non-cash charges of $ 4.0 million and reductions in operating working capital of $ 7.3 million . in 2019 , cash flows from operating activities included net income of $ 11.1 million , non-cash charges of ( $ 0.1 million ) and reductions in operating working capital of $ 5.1 million . in 2018 , cash flows from operating activities included net income of $ 6.7 million and non-cash charges of $ 2.7 million , offset by an increase in operating working capital of ( $ 9.9 million ) . the 2020 reduction in operating working capital was due to lower accounts receivable , reflecting revenue declines in the second half of the year and $ 4.6 million related to the covid-19 payroll tax deferment program . the 2019 decline in operating working capital was reflective of the resolution of cash conversion disruptions related to our 2018 cloud-based erp platform implementation . we would expect operating working capital levels to increase should revenue grow in 2021. accordingly , an increase in operating working capital would result in a reduction in cash generated from operating activities . we believe dso 's will remain at current levels or improve modestly during 2021. additionally , the $ 4.6 million payroll tax deferment will be required to be repaid , $ 2.3 million in 2021 and $ 2.3 million in 2022 , which will negatively impact cash flows from operations in those years . investing activities cash ( used in ) investing activities for the years ended december 31 , 2020 , 2019 and 2018 totaled ( $ 9.6 million ) , ( $ 0.9 million ) , and ( $ 1.1 million ) , respectively . in 2020 , cash ( used in ) investing activities related to the acquisition of amberleaf of ( $ 9.3 million ) and capital expenditures of ( $ 0.3 million ) . in 2019 , cash ( used in ) investing activities included capital expenditures of ( $ 1.0 million ) , partially offset by $ 0.1 million of recoveries of non-current deposits ( office lease deposits ) . in 2018 , cash ( used in ) investing activities included capital expenditures of ( $ 0.8 million ) and increases in non-current deposits of ( $ 0.3 million ) .
| our average it staffing bill rate for 2020 increased to $ 76.60 per hour compared to $ 74.97 per hour in 2019 an increase of about 2 % . this bill rate increase was primarily the result of our continued focus on advanced technology skill-sets . in both 2020 and 2019 , we had one client that exceeded 10 % of total revenues ( cgi = 15.0 % and 11.3 % , respectively ) . our top ten clients represented 47 % of total revenues in 2020 compared to 45 % of total revenues in 2019. gross margin gross profit increased to $ 51.5 million in 2020 compared to $ 48.0 million in 2019. gross profit as a percentage of revenue totaled 26.6 % in 2020 compared to 24.8 % in 2019. the improvement in our gross margin 30 percentage reflected margin expansion in both of our business segments . in our data and analytics services segment , gross margins increased by 380-basis points to a record 50.5 % . this increase was due to higher-valued assignments , improved utilization and very little reimbursable travel expense revenues due to the pandemic ( pass-through revenues with no gross margin content ) . gross margins in our it staffing services segment were 22.1 % in 2020 compared to 21.3 % in 2019. this 80-basis point improvement was largely due to better margins on new assignments and reflected our continued focus on advanced technology skill-sets . selling , general and administrative ( s , g & a ) expenses s , g & a expenses in 2020 totaled $ 38.1 million and represented 19.6 % of total revenues , compared to $ 31.0 million or 16.0 % of revenues in 2019. when excluding acquisition transaction expenses ; the revaluation of contingent consideration ; goodwill impairment ; and the amortization of acquired intangible assets , adjusted s , g & a expenses related to operations , as a percentage of revenues was 17.9 % in 2020 versus 17.8 % in 2019. the slight increase in s , g & a as a percentage of revenues excluding these items was largely due to investments made to our data and analytics services segment , including expenses related to the integration of
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as of the date of this report , zion has completed all of the acquisition , processing and interpretation of the 3-d data and has incorporated its expanded knowledge base into the drilling of our current mj-02 exploratory well ( see further details below ) . the geology team is continuing on a larger interpretation of 3d areas , along with potential exploration locations in the western portion of the new megiddo license 428 area . the mj02 drilling plan , which anticipates approximately five ( 5 ) months to drill and test the well , was approved by the ministry of energy on july 29 , 2020. the ministry of energy also requested the approvals of the building planning commission which zion obtained in late q2 2020. on march 12 , 2020 , zion entered into a purchase and sale agreement with central european drilling kft , a hungarian corporation , to purchase an onshore oil and gas drilling rig , drilling pipe , related equipment and spare parts for a purchase price of $ 5.6 million in cash , subject to acceptance testing and potential downward adjustment . we remitted to the seller $ 250,000 on february 6 , 2020 as earnest money towards the purchase price . the closing anticipated by the agreement took place on march 12 , 2020 by the seller 's execution and delivery of a bill of sale to us . on march 13 , 2020 , the seller retained the earnest money deposit , and the company remitted $ 4,350,000 to the seller towards the purchase price and $ 1,000,000 ( the “ holdback amount ” ) was deposited in escrow with american stock transfer and trust company llc . i-35 drilling rig & associated equipment 31 december 2020 replace_table_token_3_th ( 1 ) these are the initial cash payments for the purchase of the i-35 drilling rig in early 2020 ( 2 ) capitalized costs include inspection , quarantine , labor , transportation , insurance , and other costs required to place the i-35 drilling rig in service initially , per gaap . 27 on january 6 , 2021 , zion completed its acceptance testing of the i-35 drilling rig and the holdback amount was remitted to central european drilling on january 8 , 2021. zion 's ability to fully undertake all of these aforementioned activities was subject to its raising the needed capital through the issuance of our securities , and we anticipate we will continue to need to raise funds through the issuance of equity securities ( or securities convertible into or exchangeable for equity securities ) . no assurance can be provided that we will be successful in raising the needed equity on favorable terms ( or at all ) . our executive offices are located at 12655 n central expressway , suite 1000 , dallas , texas 75243 , and our telephone number is ( 214 ) 221-4610. our field office in israel is located at 9 halamish street , north industrial park , caesarea 3088900 , and the telephone number is +972-4-623-8500 . principal components of our cost structure our operating and other expenses primarily consist of the following : ● impairment of unproved oil and gas properties : impairment expense is recognized if a determination is made that a well will not be commercially productive . the amounts include amounts paid in respect of the drilling operations as well as geological and geophysical costs and various amounts that were paid to israeli regulatory authorities . ● general and administrative expenses : overhead , including payroll and benefits for our corporate staff , costs of managing our exploratory operations , audit and other professional fees , and legal compliance is included in general and administrative expenses . general and administrative expenses also include non-cash stock-based compensation expense , investor relations related expenses , lease and insurance and related expenses . ● depreciation , depletion , amortization and accretion : the systematic expensing of the capital costs incurred to explore for natural gas and oil represents a principal component of our cost structure . as a full cost company , we capitalize all costs associated with our exploration , and apportion these costs to each unit of production , if any , through depreciation , depletion and amortization expense . as we have yet to have production , the costs of abandoned wells are written off immediately versus being included in this amortization pool . 28 going concern basis since we have limited capital resources , no revenue to date and a loss from operations , our consolidated financial statements have been prepared on a going concern basis , which contemplates realization of assets and liquidation of liabilities in the ordinary course of business . the appropriateness of using the going concern basis is dependent upon our ability to obtain additional financing or equity capital and , ultimately , to achieve profitable operations . therefore , there is substantial doubt about our ability to continue as a going concern . the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty . critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expense during the reporting period . we have identified the accounting principles which we believe are most critical to the reported financial status by considering accounting policies that involve the most complex of subjective decisions or assessment . impairment of oil and gas properties we follow the full-cost method of accounting for oil and gas properties . story_separator_special_tag accordingly , all costs associated with acquisition , exploration and development of oil and gas reserves , including directly related overhead costs , are capitalized . all capitalized costs of oil and gas properties , including the estimated future costs to develop proved reserves , are amortized on the unit-of-production method using estimates of proved reserves . investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs . if the results of an assessment indicate that the properties are impaired , the amount of the impairment is included in income from continuing operations before income taxes , and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method . our oil and gas properties represent an investment in unproved properties . these costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired . all costs excluded are reviewed at least quarterly to determine if impairment has occurred . the amount of any impairment is charged to expense since a reserve base has not yet been established . a further impairment requiring a charge to expense may be indicated through evaluation of drilling results , relinquishing drilling rights or other information . abandonment of properties is accounted for as adjustments to capitalized costs . the net capitalized costs are subject to a “ ceiling test ” which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions , plus the lower of cost or fair market value of unproved properties . the recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically recoverable reserves , together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations . during the fourth quarter of 2018 , the company testing protocol was concluded at the mj # 1 well . the test results confirmed that the mj # 1 well did not contain hydrocarbons in commercial quantities in the zones tested . as a result , in the year ended december 31 , 2019 , the company recorded a non-cash impairment charge to its unproved oil and gas properties of $ 30,906,000. during the year ended december 31 , 2020 , the company did not record any post-impairment charges . the company recorded a post-impairment charge of $ 314,000 for the year ended december 31 , 2019 ( see note 4 ) . following the impairment charge noted above , the total net book value of our unproved oil and gas properties under the full cost method is $ 15,526,000 at december 31 , 2020. currency utilized although our oil & gas properties and our principal operations are in israel , we report all our transactions in united states dollars . certain dollar amounts in the consolidated financial statements may represent the dollar equivalent of other currencies . valuation of deferred taxes we record a valuation allowance to reduce our deferred tax asset to the amount that we believe is likely to be realized in the future . in assessing the need for the valuation allowance , we have considered not only future taxable income but also feasible and prudent tax planning strategies . in the event that we were to determine that it would be likely that we would , in the future , realize our deferred tax assets in excess of the net recorded amount , an adjustment to the deferred tax asset would be made . in the period that such a determination was made , the adjustment to the deferred tax asset would produce an increase in our net income . 29 asset retirement obligation we record a liability for asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of the related long lived assets . fair value considerations we follow asc 820 , “ fair value measurements and disclosures , ” as amended by financial accounting standards board ( fasb ) financial staff position ( fsp ) no . 157 and related guidance . those provisions relate to the company 's financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities . asc 820 defines fair value , expands related disclosure requirements , and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures . fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date , assuming the transaction occurs in the principal or most advantageous market for that asset or liability . there are three levels of inputs to fair value measurements - level 1 , meaning the use of quoted prices for identical instruments in active markets ; level 2 , meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable ; and level 3 , meaning the use of unobservable inputs . we use level 1 inputs for fair value measurements whenever there is an active market , with actual quotes , market prices , and observable inputs on the measurement date . we use level 2 inputs for fair value measurements whenever there are quoted prices for similar securities in an active market or quoted prices for identical securities in an inactive market . we use observable market data whenever available . we use level 3 inputs in the binomial model used for the valuation of the derivative liability .
| impairment of unproved oil and gas properties expenses during the year ended december 31 , 2020 was $ 0 compared to $ 314,000 for the year ended december 31 , 2019. the decrease in impairment of unproved oil and gas properties expenses in 2020 compared to 2019 is attributable to the impairment charge of $ 314,000 recorded during the year ended december 31 , 2019 related to the mj1 well . loss ( gain ) on derivative liability . loss ( gain ) on derivative liability during the year ended december 31 , 2020 was $ 302,000 compared to ( $ 216,000 ) for the year ended december 31 , 2019. an embedded derivative is contained within the valuation of zion 's $ 100 convertible bond offering which closed in march 2016. the increase in the loss on derivative liability during the year ended december 31 , 2020 compared to the gain on derivative liability during the year ended december 31 , 2019 is primarily due to the increase in the share price of our common stock that occurred during the year ended december 31 , 2020. other expense , net . other expense , net for the year ended december 31 , 2020 was $ 440,000 compared to $ 387,000 for the year ended december 31 , 2019. the increase in other expense , net during the year ended december 31 , 2020 compared to 2019 is primarily attributable to exchange rate differences associated with the fluctuating exchange rates of the new israeli shekels ( “ nis ” ) with the u.s. dollar ( “ usd ” ) and to financial expenses related to the company 's convertible bonds . net loss . net loss for the year ended december 31 , 2020 was $ 6,996,000 compared to $ 6,693,000 for the year ended december 31 , 2019. the primary driver of the higher net loss in 2020 was due to loss on derivative liability during the year ended december 31 , 2020 . 31 liquidity and capital resources liquidity is a measure of a company 's ability to meet potential cash requirements . as discussed above , we have historically met our capital requirements through the issuance of common stock as
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in order to use the content , our customers must pay appropriate copyright fees and our services ensure that we have obtained the necessary permissions from the owners of the published content so that our customers ' use of the content complies with applicable copyright laws . we also help these customers to maximize the information resources they already own . our services alleviate the need for our customers to develop internal systems or contact multiple publishers in order to obtain the required information . our publisher solutions include technology solutions and reprint management services , whereby we are responsible for all aspects of reprint and eprint production for a publisher , from taking orders to final delivery . this service eliminates the need for the publishers to establish a dedicated reprints sales force or arrange for delivery of reprinted materials . 11 critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and accompanying notes , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . ( a ) revenue recognition the company 's primary source of revenue is from information and printing services . the company recognizes revenue when the sales process is deemed complete and associated revenue has been earned . the company 's policy is to recognize revenue when services have been performed , risk of loss and title to the product transfers to the customer , the selling price is fixed and determinable and collectibility is reasonably assured . the company recognizes revenues from printing services when services have been rendered and accepted by the customer while revenues from the re-use of published articles and rights management services are recognized upon shipment or electronic delivery to the customer . ( b ) stock-based compensation the company periodically issues stock options and warrants to employees and non-employees in capital raising transactions , for services and for financing costs . the company accounts for share-based payments under the guidance as set forth in the share-based payment topic of the fasb accounting standards codification , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , officers , directors , and consultants , including employee stock options based on estimated fair values . the company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the company 's statements of operations . the company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance whereas the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) the date at which the necessary performance to earn the equity instruments is complete . stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , as necessary , in subsequent periods if actual forfeitures differ from those estimates . ( c ) goodwill and intangible assets as required by the fasb , management performs impairment tests of goodwill and indefinite-lived intangible assets whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred . also , management performs impairment testing of goodwill and indefinite-lived intangible assets at least annually . in accordance with guidance of the fasb , management tests goodwill for impairment at the reporting unit level . the company has only three reporting units . at the time of goodwill impairment testing , management determines fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved with its reporting unit . if the calculated fair value is less than the current carrying value , impairment of the company may exist . the use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value . the key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates , growth rates , cash flow projections and terminal value rates . in accordance with guidance of the fasb , the company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . if the carrying value of an asset exceeds its undiscounted cash flows , the company writes down the carrying value of the intangible asset to its fair value in the period identified . if the carrying value of assets is determined not to be recoverable , the company records an impairment loss equal to the excess of the carrying value over the fair value of the assets . story_separator_special_tag the company 's estimate of fair value is based on the best information available , in the absence of quoted market prices . the company generally calculates fair value as the present value of estimated future cash flows that the company expects to generate from the asset using a discounted cash flow income approach as described above . if the estimate of an intangible asset 's remaining useful life is changed , the company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . 12 ( d ) recently issued accounting pronouncements in may 2011 , the fasb issued accounting standards update ( asu ) no . 2011-4 , which amends the fair value measurements topic of the accounting standards codification ( asc ) to help achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrs . asu no . 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting . the asu is effective for interim and annual periods beginning after december 15 , 2011. the company will adopt the asu as required . the asu will affect the company 's fair value disclosures , but will not affect the company 's results of operations , financial condition or liquidity . in june 2011 , the fasb issued asu no . 2011-5 , which amends the comprehensive income topic of the asc . the asu eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders ' equity , and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements . asu no . 2011-5 is effective for interim and annual periods beginning after december 15 , 2011. the company will adopt the asu as required . it will have no effect on the company 's results of operations , financial condition or liquidity . other recent accounting pronouncements issued by the fasb ( including its emerging issues task force ) , the aicpa , and the securities exchange commission ( the `` sec '' ) did not or are not believed by management to have a material impact on the company 's present or future consolidated financial statements . segment reporting as of june 30 , 2011 , the company had two reportable business segments : us operations and taag . taag operates in france and is currently not fully integrated with the us operations . each operating segment offers some unique products , however , as described above some of the services provided are interdependent and reprints desk uses taag to print orders placed by reprints desk customers . information related to these operating segments , net of eliminations , is as follows : replace_table_token_2_th 13 story_separator_special_tag amortization our depreciation and amortization expense increased from $ 206,616 for the year ended june 30 , 2010 , to $ 673,881 during the year ended june 30 , 2011 , an increase of $ 467,265 or 226 % . our depreciation and amortization expense was primarily attributable to depreciation on printing equipment as well as amortization on software and intellectual property licenses and depreciation on computer equipment which supports our order processing systems . we expect depreciation expense to increase substantially during fiscal 2012 as a result of depreciation of printing equipment at taag . interest expense interest expense was $ 6,919 for the year ended june 30 , 2010 , and $ 144,069 for the year ended june 30 , 2011 , an increase of $ 137,150. this interest expense was primarily attributable to the interest paid on a credit line with silicon valley bank which provides a $ 3 million credit line secured by all of the assets of the company . we expect to continue to incur significant interest costs during the 2012 fiscal year as we continue to utilize the credit line . interest income interest income was $ 4,169 for the year ended june 30 , 2010 , and decreased to $ 3,230 for the year ended june 30 , 2011 , a decrease of $ 939 or 23 % . other income the company earned $ 5,415 in other income during the year ended june 30 , 2010 , and $ 13,481 during the year ended june 30 , 2011 , an increase of $ 8,066 or 149 % . this income represents income we receive from publishers and customers for miscellaneous services as well as income from recycled paper . net loss we had a net loss of $ 307,193 for the year ended june 30 , 2010 compared to a net loss of $ 5,407,606 for the year ended june 30 , 2011. approximately $ 1,418,000 of the loss is attributable to expenses related to warrant and option grants issued to the company 's consultants , directors and employees . we expect to continue to incur smaller losses for the next 12 months as we reduce our losses on our publisher agreements and reduce our stock based compensation expenses . liquidity and capital resources since our inception , we have funded our operations primarily through private sales of equity securities and the exercise of warrants , which have provided aggregate net cash proceeds to date of approximately $ 10,350,000 , of which $ 5,250,000 was raised in the fiscal year ended june 30 , 2011. as of june 30 , 2011 , we had cash and cash equivalents of $ 2,868,260 , compared to $ 1,852,231 as of june 30 , 2010. this increase is primarily attributable to cash received from the sale of common shares and warrants for $ 2,784,032 , exercise of warrants of $ 2,484,187 and advances under our credit line of $ 1,436,233 offset by an increase in accounts receivable of $ 167,479 as well as the
| this accounting treatment results in higher amortized costs in the early periods of the agreements . for the year ended june 30 , 2011 , we recorded approximately $ 3,447,283 in revenue under the cpgps while amortizing approximately $ 4,375,000 of costs , which caused our cost of goods sold to increase significantly relative to the revenue levels and therefore significantly reducing our gross margin . had we been able to amortize these expenses as a percentage of our revenue based on our revenue projections over the life of the contracts , we would have recorded approximately $ 2,903,000 in amortized costs for the period , a difference of $ 1,472,000 for the year . operating expenses general and administrative our general and administrative expenses increased 119 % from $ 3,590,933 for the year ended june 30 , 2010 to $ 7,870,454 for the year ended june 30 , 2011. these expenses were $ 1,311,963 for taag , $ 3,975,513 for the us operations segment and $ 2,582,978 for the corporate segment . these expenses include reprints ' administrative salary costs , which were $ 1,943,935 in the 2010 fiscal year and $ 2,137,332 in the 2011 fiscal year , an increase of $ 193,337 or 10 % . these costs also include $ 494,156 and $ 344,443 for the years ended june 30 , 2011 and 2010 , respectively , paid to our information technology staff who work primarily on new products and enhancements to existing projects as well as $ 215,296 of offering costs that were expensed in june 2011 , $ 1,175,748 related to warrant grants to consultants , $ 120,978 for amortization of warrants granted to our independent directors and $ 291,024 in costs related to the acquisition of taag . we do not expect this level of expense to continue in the 2012 fiscal year and are making efforts to reduce our administrative costs . we also incurred investor relations expenses totaling $ 140,819 during the 2011 fiscal year compared
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in january 2021 , we were notified by our contract manufacturing organization , or cmo , that the manufacture of our cgmp material for the cue-102 drug candidate would be delayed by approximately six weeks due to the invocation of the defense production act , or dpa , which gives priority to the manufacture of vaccines and other drug products used to prevent or treat covid-19 . the delay in the manufacturing of our cue-102 cgmp batch impacted the expected filing date of the cue-102 ind that was planned for the fourth quarter of 2021. the cue-102 ind is now expected to be filed in the first quarter of 2022 based on the revised cue-102 cgmp manufacturing date provided by our cmo . 79 plan of operation our technology is in the development phase . we believe that our licensed platforms have the potential for creating a diverse pipeline of drug product candidates addressing multiple medical indications . we intend to maximize the value and probability of commercialization of our immuno-stat drug product candidates by focusing on research , testing , optimization , conducting pilot studies , performing early stage clinical development and potentially partnering for more extensive , later stages of clinical development , as well as seeking extensive patent protection and intellectual property development . since we are a development-stage company , the majority of our business activities to date and our planned future activities will be devoted to furthering research and development . a fundamental part of our corporate development strategy is to establish one or more strategic partnerships with leading pharmaceutical or biotechnology organizations that will allow us to more fully exploit the potential of our technology platform , such as those described below under the headings “ collaboration agreement with merck ” and “ collaboration with lg chem ” . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or u.s. gaap . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , and the reported revenue and expenses during the reported periods . we evaluate these estimates and judgments , including those described below , on an ongoing basis . we base our estimates on historical experience , known trends and events , contractual milestones and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying 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 . while the company 's significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing elsewhere in this form 10-k , we believe that the estimates , assumptions and judgments involved in the following accounting policies may have the greatest potential impact on the financial statements , so we consider these to be our critical accounting policies and estimates . there were no material changes to our critical accounting policies and estimates as of december 31 , 2020. revenue recognition we follow the provisions of accounting standards codification , or asc , 606 , revenue from contracts with customers . we generate revenue solely through collaboration arrangements with strategic partners for the development and commercialization of drug product candidates . the core principle of asc 606 is that an entity should recognize revenue to depict the transfer of promised goods and or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and or services . to determine the appropriate amount of revenue to be recognized for arrangements that we determine are within the scope of asc 606 , we perform the following steps : ( i ) identify the contract ( s ) with the customer , ( ii ) identify the performance obligations in the contract , ( iii ) determine the transaction price , ( iv ) allocate the transaction price to the performance obligations in the contract and ( v ) recognize revenue when ( or as ) each performance obligation is satisfied . we recognize collaboration revenue under certain of our license or collaboration agreements that are within the scope of asc 606. our contracts with customers typically include promises related to licenses to intellectual property and research and development services . if the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenue from non-refundable , up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license . for licenses that are bundled with other promises , we utilize judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable , up-front fees . accordingly , the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products . we measure the transaction price based on the amount of consideration to which we expect to be entitled in exchange for transferring the promised goods and or services to the customer . we utilize the “ most likely amount ” method to estimate the amount of variable consideration , to predict the amount of consideration to which we will be entitled for our two open contracts . story_separator_special_tag amounts of variable consideration are included in the transaction price to the extent that it is probable 80 that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . at the inception of each arrangement that includes development and regulatory milestone payments , we evaluate whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method . currently , we have one contract with an option to acquire additional goods and or services in the form of additional research and development services for additional drug product candidates . research and development costs research and development expenses consist primarily of compensation costs , fees paid to consultants , outside service providers and organizations ( including research institutes at universities ) , facility costs , and development and clinical trial costs with respect to our drug product candidates . research and development expenses incurred under contracts are expensed ratably over the life of the underlying contracts , unless the achievement of milestones , the completion of contracted work , or other information indicates that a different pattern of expense recognition is more appropriate . other research and development expenses are charged to operations as incurred . payments made pursuant to research and development contracts are initially recorded as research and development contract advances in our balance sheet and then charged to research and development expenses in our consolidated statements of operations and comprehensive loss as those contract services are performed . expenses incurred under research and development contracts in excess of amounts advanced are recorded as research and development contract liabilities in our balance sheet , with a corresponding charge to research and development expenses in our consolidated statements of operations and comprehensive loss . nonrefundable advance payments for future research and development activities pursuant to an executory contractual arrangement are recorded as advances as described above . nonrefundable advance payments are recognized as an expense as the related services are performed . we evaluate whether we expect the services to be rendered at each quarter end and year end reporting date . if we do not expect the services to be rendered , the advance payment is charged to expense . to the extent that a nonrefundable advance payment is for contracted services to be performed within 12 months from the reporting date , such advance is included in current assets ; otherwise , such advance is included in non-current assets . we evaluate the status of our research and development agreements and contracts , and the carrying amount of the related assets and liabilities , at each quarter end and year end reporting date , and adjusts the carrying amounts and their classification on the balance sheet as appropriate . stock-based compensation we periodically issue stock-based awards to officers , directors , employees , scientific and clinical advisory board members , non-employees and consultants for services rendered . such issuances vest and expire according to terms established at the issuance date . stock-based payments to officers , directors , members of our scientific and clinical advisory board , non-employees and outside consultants and employees , including grants of employee stock options , are recognized in the financial statements based on their grant date fair values . stock option grants , which are generally time-vested , are measured at the grant date fair value and charged to operations on a straight-line basis over the service period , which generally approximates the vesting term . we also grant performance-based awards periodically to our officers . we recognize compensation costs related to performance awards over the requisite service period if and when we conclude that it is probable that the performance condition will be achieved . the fair value of stock options and restricted stock units is determined utilizing the black-scholes option-pricing model , which is affected by several variables , including the risk-free interest rate , the expected dividend yield , the life of the equity award , the exercise price of the stock option as compared to the fair value of the common stock on the grant date , and the estimated volatility of the common stock over the term of the equity award . the risk-free interest rate is based on the u.s. treasury yield curve in effect at the time of grant . until we have established a trading history for our common stock that approximates the expected term of the options , estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry . the expected dividend yield is based on the current yield at the grant date ; we have never declared or paid dividends and have no plans to do so for the foreseeable future . as permitted by staff accounting bulletin no . 107 , due to our lack of history and option activity , we utilize the simplified method to estimate the expected term of options at the date of grant . the fair value of common stock is determined by reference to either recent or anticipated cash transactions involving the sale of our common stock . 81 we recognize the fair value of stock-based compensation in general and administrative expenses and in research and development expenses in our consolidated statements of operations and comprehensive loss , depending on the type of services provided by the recipient of the equity award . we issue new shares of common stock to satisfy stock option exercises . income taxes we account for income taxes under an asset and liability approach for financial accounting and reporting for income taxes . accordingly , we recognize deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities .
| this decrease was due to a revised estimate of our progress under the lg chem agreement during the year ended december 31 , 2020 , which resulted in a decrease to collaboration revenue of approximately $ 47,000 during the fourth quarter of 2020. upon the preclinical candidate selection of a02 allele pursuant to the lg chem agreement , we reimbursed lg chem final costs of approximately $ 68,000 related to the termination of the a24 allele funding . we also recorded a decrease to collaboration revenue of approximately $ 79,000 during the fourth quarter of 2020 related to the merck amendment , which extended the term and revised budgeted costs for an additional year through december 31 , 2021 . 85 general and administrative general and administrative expenses totaled approximately $ 14,651,000 and $ 12,740,000 for the years ended december 31 , 2020 and 2019 , respectively . this increase of approximately $ 1,911,000 was due primarily to higher stock-based compensation related to executive management and legal fees offset by a decrease in travel expenses as the covid-19 pandemic continued to hamper business travel throughout 2020. we expect our general and administrative expenses to increase as we continue to expand our operations . general and administrative expenses for the year ended december 31 , 2020 included expenses related to employee and board compensation of $ 3,875,000 , professional and consulting fees of $ 4,483,000 , rent of $ 1,082,000 , insurance of $ 256,000 , stock-based compensation of $ 4,094,000 , investor relations of $ 275,000 , travel of $ 31,000 , depreciation and amortization of $ 97,000 , and other expenses of $ 458,000. general and administrative expenses for the year ended december 31 , 2019 included expenses related to employee and board compensation of approximately $ 3,547,000 , professional and consulting fees of $ 4,663,000 , rent of $ 965,000 , insurance of $ 448,000 , stock-based compensation of $ 2,109,000 , investor relations of $ 200,000 , travel of $ 179,000 , depreciation and amortization of $ 115,000 ,
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management expects that alj could be impacted in the near term by lower volumes in several parts of its business , resulting in lower revenue and profit . while the impact of covid-19 on alj 's future financial position , results of operations and cash flows can not be estimated with certainty , such impact could be significantly negative . the extent to which covid-19 impacts alj 's operations will depend on future developments , which are highly uncertain , including , among others , the duration of the outbreak , new information that may emerge concerning the severity of covid-19 and the actions , especially those taken by governmental authorities , to contain the pandemic or treat its impact . as events are rapidly changing , additional impacts may arise that are not known at this time . see “ part i , item 1a , risk factors - risks related to our businesses generally - a widespread health crisis , such as the covid-19 pandemic , may adversely affect our business , results of operations and financial condition , for an additional discussion of risk related to covid-19. ” revision of previously reported financial information during the first quarter of our current fiscal year , we identified and reclassified certain expenses between cost of revenue and selling , general , and administrative expenses . for additional details , see “ part iv , item 15. exhibits , financial statement schedules – note 1. organization and basis of presentation. ” accordingly , we have revised previously issued financial statements contained in this annual report on form 10-k to reflect the revisions in the corresponding periods . management 's discussion and analysis included herein is based on the revised financial results for the year ended september 30 , 2019 . 26 story_separator_special_tag fiscal 2020 was $ 13.0 million , an increase of $ 0.2 million , or 1.9 % , compared to $ 12.7 million for fiscal 2019. the increase was attributable to leasehold improvements for new call center buildouts and capital equipment purchased to support new and expanded contracts , somewhat offset by fully depreciated and amortized assets . faneuil expects future depreciation and amortization expense to increase as faneuil continues to invest in its customers , which includes opening new call centers . because certain faneuil contracts require capital investments such as lease buildouts , faneuil depreciation and amortization expense is impacted by the timing of new contracts and the completion of existing contracts . carpets depreciation and amortization carpets depreciation and amortization expense for fiscal 2020 was $ 0.6 million , a decrease of $ 0.2 million , or 27.4 % , compared to $ 0.8 million for fiscal 2019. the decrease was a result of certain intangible assets being fully amortized during fiscal 2019. phoenix depreciation and amortization phoenix depreciation and amortization expense consists primarily of amortization of acquisition-related intangible assets . depreciation and amortization expense was consistent at $ 2.2 million and $ 2.3 million for both fiscal 2020 and fiscal 2019 , respectively . impairment of goodwill as a result of the decline in alj 's market capitalization , downward economic pressure , declines in actual and forecasted results of operations , including the estimated effects of covid-19 , management determined that it was more likely than not that the fair value of goodwill for all three reporting units was below each reporting unit 's respective carrying amount . as such , management performed an impairment test as of march 31 , 2020 , based on discounted cash flows , which were derived from internal forecasts and more cautious economic expectations for all three reporting units . as a result of the test , alj recognized a non-cash impairment of goodwill totaling $ 59.0 million during fiscal 2020. impairment of intangible assets during fiscal 2019 , faneuil recorded an impairment of intangible assets of $ 0.7 million to write off the remaining carrying value of certain intangible assets related to the cmo business acquisition in may 2017. during the fourth quarter of fiscal 2019 , certain conditions came to light , largely regarding the lack of profitability related to one customer contract , which indicated that the carrying value of the asset may not be fully recoverable . as such , management performed an impairment test based on a comparison of the undiscounted cash flows expected to be generated by the asset , to the recorded value of the asset and concluded that the associated cash flows did not support any of the carrying value of the intangible asset and faneuil recorded a full impairment charge . interest expense interest expense was consistent at $ 10.5 million and $ 10.6 million for fiscal 2020 and fiscal 2019 , respectively . interest expense was impacted by the additional amortization of loan amendment fees and increased weighted-average outstanding balance on our line of credit , offset by a lower weighted-average interest rate and a lower average outstanding balance on our term loans . 30 interest from legal settlement during fiscal 2020 , faneuil received a onetime $ 1.5 million settlement , of which $ 0.2 million was attributable to interest . see “ part iv , item 15. exhibits , financial statement schedules – note 9. commitments and contingencies. ” income taxes our benefit from income taxes was $ 2.0 million for fiscal 2020 compared to a provision for income taxes of $ 10.0 million for fiscal 2019. fiscal 2020 reflected a $ 1.9 million alternative minimum tax refund partly offset by state income taxes . fiscal 2019 reflected a non-cash deferred income tax expense of $ 9.7 million , the majority of which was to reduce the net value of our nol carryforward deferred tax assets . the remaining provision for income taxes during fiscal 2019 was a result of generating state taxable income . story_separator_special_tag segment adjusted ebitda replace_table_token_13_th faneuil segment adjusted ebitda faneuil segment adjusted ebitda for fiscal 2020 was $ 11.2 million compared to segment adjusted ebitda of $ 8.8 million for fiscal 2019. faneuil segment adjusted ebitda increase for fiscal 2020 was driven by the ramp-up of new state unemployment contracts , and the completion of certain deliverables related to the implementation of new contracts . such increase was somewhat offset by operational inefficiencies from the start of production of new contracts , increased medical claims , increased reserves for workers ' compensation claims , and higher rent expense for new call centers . carpets segment adjusted ebitda carpets segment adjusted ebitda loss for fiscal 2020 was ( $ 0.1 ) million compared to segment adjusted ebitda of $ 1.6 million for fiscal 2019. carpets segment adjusted ebitda for fiscal 2020 was impacted by lower volumes and fewer upgrades to higher margin products by builder customers . phoenix segment adjusted ebitda phoenix segment adjusted ebitda for fiscal 2020 was $ 16.7 million compared to segment adjusted ebitda of $ 20.5 million for fiscal 2019. phoenix segment adjusted ebitda for fiscal 2020 was impacted by lower component sales primarily related to education and a $ 0.3 million bad debt allowance for a customer bankruptcy . although production labor decreased in response to the decreased volumes , such decrease in production labor did not keep pace with the decreased volumes . alj segment adjusted ebitda alj segment adjusted ebitda loss for fiscal 2020 was ( $ 3.9 ) million compared to segment adjusted ebitda loss of ( $ 3.2 ) million for fiscal 2019. alj segment adjusted ebitda loss for the year ended september 30 , 2020 was impacted by increased legal fees for general corporate matters , including increased corporate governance to manage the impact of covid-19 , and the change from stock compensation , which does not impact adjusted ebitda , to cash compensation , which does impact adjusted ebitda , for our chief executive officer . segment adjusted ebitda is not considered a non-gaap measure because we include segment adjusted ebitda in our segment disclosures in accordance with the accounting standards codification topic 280 – segment reporting . see “ part iv , item 15. exhibits , financial statements schedules – note 13. reportable segments and geographic information. ” 31 seasonality faneuil faneuil experiences seasonality within its various lines of business . for example , during the end of the calendar year through the end of the first calendar quarter , faneuil generally experiences higher revenue attributable to its healthcare customers as the customer contact centers increase operations during the open enrollment periods of the healthcare exchanges . faneuil revenue from its healthcare customers generally decreases during the remaining portion of the year after the open enrollment period . seasonality is less pronounced with faneuil customers in the transportation industry , though there is typically some volume increase during the summer months . carpets carpets generally experiences seasonality within the home building business as the number of houses sold during the winter months is typically lower than during other times of the year . conversely , the number of houses sold and delivered during the remaining portion of the year increases in comparison . phoenix there is seasonality to the phoenix business . education book component sales ( school and college ) traditionally peak in the first and second quarters of the calendar year . other book components sales traditionally peak in the third quarter of the calendar year . book sales also traditionally peak in the third quarter of the calendar year . the fourth quarter of the calendar year has traditionally been the weakest quarter . these seasonal factors are not significant . liquidity and capital resources our principal sources of liquidity have been cash provided by operations and borrowings under various debt arrangements . at september 30 , 2020 , our principal sources of liquidity included cash and cash equivalents of $ 6.1 million and an available borrowing capacity of $ 14.6 million on our line of credit . our principal uses of cash have been for acquisitions and to pay down debt . we anticipate that our principal uses of cash will continue to be to acquire businesses and pay down our debt . global financial and credit markets have been volatile in recent years , and future adverse conditions of these markets could negatively affect our ability to secure funds or raise capital at a reasonable cost or at all . for additional discussion of our various debt arrangements see contractual obligations below . in summary , our cash flows for each period were as follows : replace_table_token_14_th we recognized a net loss of $ 67.7 million for fiscal 2020 , and generated cash from operating activities of $ 12.9 million , offset by cash used for investing and financing activities of $ 9.5 million and $ 1.8 million , respectively . we recognized a net loss of $ 16.0 million for fiscal 2019 , and generated cash from operating activities of $ 24.6 million , offset by cash used for investing and financing activities of $ 21.4 million and $ 0.6 million , respectively . 32 operating activities cash provided by operating activities of $ 12.9 million during fiscal 2020 was the result of our $ 67.7 million net loss , $ 83.8 million addback of net non-cash expenses , and $ 3.2 million of net cash used for changes in operating assets and liabilities . the most significant components of net non-cash expenses include the impairment of goodwill of $ 59.0 million , depreciation and amortization expense of $ 20.3 million , $ 1.4 million provision for bad debts and obsolete inventory , $ 1.1 million change in fair value of contingent consideration , and $ 1.1 million interest expense accreted to term loans , partly offset by $ 1.8 million deferred income taxes .
| cost of revenue replace_table_token_10_th faneuil cost of revenue faneuil cost of revenue for fiscal 2020 was $ 203.4 million , an increase of $ 39.5 million , or 24.1 % , compared to cost of revenue of $ 163.9 million for fiscal 2019. the absolute dollar increase in cost of revenue was a direct result of the increased net revenue . during fiscal 2020 , as compared to fiscal 2019 , faneuil cost of revenue as a percentage of segment net revenue decreased to 82.3 % from 83.3 % as a result of the mix of customer contracts and timing of ramp-up costs related to new contracts . carpets cost of revenue carpets cost of revenue for fiscal 2020 was $ 31.5 million , a decrease of $ 6.7 million , or 17.5 % , compared to cost of revenue of $ 38.2 million for fiscal 2019. the absolute dollar decrease in cost of revenue was a direct result of decreased net revenue . during fiscal 2020 as compared to fiscal 2019 , cost of revenue as a percentage of segment net revenue increased to 80.6 % from 78.0 % in the normal course of business . phoenix cost of revenue phoenix cost of revenue for fiscal 2020 was $ 79.1 million , a decrease of $ 2.7 million , or 3.3 % compared to cost of revenue of $ 81.8 million for fiscal 2019. the absolute dollar decrease in cost of revenue was a direct result of decreased net revenue . during fiscal 2020 , as compared to fiscal 2019 , phoenix cost of revenue as a percentage of segment net revenue increased to 76.8 % from 74.9 % , respectively . phoenix experiences normal fluctuations to cost of revenue as a percentage of segment net revenue as a result of changes to the mix of products sold . additionally , certain costs do not fluctuate directly with net revenue . 28 selling , general , and administrative expense replace_table_token_11_th faneuil selling , general , and administrative expense faneuil selling , general , and administrative expense for fiscal 2020 was
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strategic review of government information technology ( it ) and technical services businesses information systems & global solutions divestiture on january 26 , 2016 we entered into definitive agreements to separate and combine our information systems & global solutions ( is & gs ) business segment with leidos holdings , inc. ( leidos ) in a tax-efficient reverse morris trust transaction anticipated to unlock approximately $ 5.0 billion in estimated enterprise value for our stockholders , including a $ 1.8 billion one-time special cash payment to us . we intend to use the net proceeds of the transaction to repay debt , pay dividends or repurchase our stock . additionally , our stockholders will receive approximately 50.5 percent of the outstanding equity of leidos on a fully diluted basis ( approximately 77 million shares ) with an estimated value of $ 3.2 billion based on leidos ' stock price on the date of announcement . however , the actual value of the stock to be received by our stockholders will depend on the value of such shares at the time of closing of the transaction and our stockholders may receive more or less than the anticipated value . at our election , the distribution may be effected by means of a pro rata dividend in a spin-off transaction or in an exchange offer for outstanding lockheed martin shares in a split-off transaction . the transaction structure , which is subject to market conditions , is currently contemplated to be a split-off transaction resulting in a decrease in our outstanding common shares and a significant book gain at closing . in a split-off transaction , only those stockholders that elect to participate will receive leidos shares in the merger transaction , provided , that , if the exchange offer is not fully subscribed , lockheed martin will spin-off the remaining shares to be converted into leidos stock in the merger pro rata . subsequent to the program realignment described below , our is & gs business segment represents the government it and technical services businesses that were under strategic review . the transaction is expected to close in the third or fourth quarter of 2016. until closing , is & gs will operate as a business segment and financial results for the is & gs business segment will be reported in our continuing operations . program realignment during the fourth quarter of 2015 , we realigned certain programs among our business segments in connection with the strategic review of our government it and technical services businesses . as part of the realignment : command , control , communications , computers , intelligence , surveillance and reconnaissance ( c4isr ) and government cyber programs were transferred from the is & gs business segment to the mst business segment ; energy solutions programs were transferred from the is & gs business segment to the mfc business segment ; space ground station programs were transferred from the is & gs business segment to space systems business segment ; and technical services programs were transferred from the mfc business segment to the is & gs business segment . subsequent to the program realignment , the government it and technical services businesses that were under strategic review are now aligned under the is & gs business segment . the program realignment did not impact our consolidated results of operations . the amounts , discussion and presentation of our business segment financial results for all periods presented reflect this realignment . 29 other acquisitions in addition to the previously described acquisition of sikorsky in 2015 , we had the following significant acquisition related activity in each of the prior two years : in 2014 , we paid $ 898 million for acquisitions of businesses and investments in affiliates , net of cash acquired , primarily related to the following acquisitions : systems made simple a provider of health information technology solutions , which is included in our is & gs business segment ; zeta associates , inc. a designer of systems that enable collection , processing , safeguarding and dissemination of information for intelligence and defense communities , which is included in our space systems business segment ; and industrial defender a provider of cybersecurity solutions for control systems in the oil and gas , utility and chemical industries , which is included in our is & gs business segment . in 2013 , we paid $ 269 million for acquisitions of businesses and investments in affiliates , net of cash acquired , primarily related to the acquisition of amor group , a united kingdom-based company specializing in information technology , civil government services and the energy market . amor group is included in our is & gs business segment . for additional information , see note 3 acquisitions and divestitures of our consolidated financial statements . industry considerations u.s. government funding constraints the u.s. government , our principal customer , continues to face significant fiscal and economic challenges such as financial deficits , budget uncertainty , increasing debt levels , and an economy with restrained growth . to address these challenges , the u.s. government continues to focus on discretionary spending , entitlement programs , taxes , and other initiatives to stimulate the economy , create jobs , and reduce the deficit . in doing so , the administration and congress must balance decisions regarding defense , homeland security and other federal spending priorities in a constrained fiscal environment largely imposed by the budget control act of 2011 ( budget control act ) . the budget control act established limits on discretionary spending , which provided for reductions to planned defense spending of $ 487 billion over a 10 year period that began with gfy 2012 ( a u.s. government fiscal year starts on october 1 and ends on september 30 ) . story_separator_special_tag the budget control act also provided for additional automatic spending reductions , known as sequestration , which went into effect on march 1 , 2013 , that would have reduced planned defense spending by an additional $ 500 billion over a nine-year period that began in gfy 2013. on november 2 , 2015 , the president signed into law the bipartisan budget act of 2015 ( bba 2015 ) . bba 2015 raises the limit on the government 's debt until march 2017 and raises the sequester caps imposed by the budget control act by $ 80 billion , split equally between defense and non-defense spending over the next two years ( $ 50 billion in gfy 2016 and $ 30 billion in gfy 2017 ) . on december 18 , 2015 , the president signed into law the consolidated appropriations act of 2016 , funding the government through september 30 , 2016 and on february 9 , 2016 , the president submitted a budget proposal for gfy 2017 , consistent with bba 2015 funding levels . bba 2015 includes discretionary funding for dod of approximately $ 580 billion in gfy 2016 and $ 583 billion in gfy 2017. this funding includes a base budget for the dod of approximately $ 521 billion in gfy 2016 and $ 524 billion in gfy 2017. bba 2015 also provides approximately $ 59 billion for dod overseas contingency operations ( oco ) spending in each of gfy 2016 and gfy 2017. the bipartisan budget act of 2013 ( bba 2013 ) passed by congress in december 2013 alleviated some budget cuts that would have otherwise been instituted through sequestration in gfy 2014 and gfy 2015. together , bba 2013 and bba 2015 ( collectively , the bipartisan budget acts ) increased discretionary spending limits through gfy 2017. however , the bipartisan budget acts retained sequestration cuts for gfys 2018 through 2021 , including the across-the-board spending reduction methodology provided for in the budget control act . as a result , there remains uncertainty regarding how , or if , sequestration cuts will be applied in gfy 2018 and beyond . dod and other agencies may have significantly less flexibility in how to apply budget cuts in future years . while the defense budget sustained the largest single reductions under the budget control act , other civil agencies and programs have also been impacted by significant spending reductions . in light of the budget control act and deficit reduction pressures , it is likely that discretionary spending by the u.s. government will remain constrained for a number of years . additionally , if an annual appropriations bill is not enacted for gfy 2017 or beyond , the u.s. government may operate under a continuing resolution , restricting new contract or program starts and 30 government shutdowns could arise . we anticipate there will continue to be significant debate within the u.s. government over defense spending throughout the budget appropriations process for gfy 2017 and beyond . the outcome of these debates could have long-term consequences for our industry and company as described below . however , we continue to believe that our portfolio of products and services will continue to be well supported in a strategically focused allocation of budget resources . potential impacts of budget reductions while recent budget actions provide a more measured and strategic approach to addressing the u.s. government 's fiscal challenges , sequestration remains a long-term concern . if not further modified , sequestration could have significant negative impacts on our industry and company in future periods . there may be disruption of ongoing programs , impacts to our supply chain , contractual actions ( including partial or complete terminations ) , potential facilities closures , and thousands of personnel reductions across the industry that will severely impact advanced manufacturing operations and engineering expertise , and accelerate the loss of skills and knowledge . sequestration , or other budgetary cuts in lieu of sequestration , could have a material negative effect on our company . despite the continued uncertainty surrounding u.s. government budgets , we have sought to align our businesses with what we believe are the most critical national priorities and mission areas . additionally , we are seeking to lessen our dependence on contracts with the u.s. government by focusing on expanding into adjacent markets close to our core capabilities and growing international sales but we may not be successful in this strategy . the possibility remains , however , that our programs could be materially reduced , extended , or terminated as a result of the u.s. government 's continuing assessment of priorities , changes in government priorities , or budget reductions , including sequestration ( particularly in those circumstances where sequestration is implemented across-the-board without regard to national priorities ) . additionally , decreases in production volume associated with budget cuts , including sequestration , will increase unit costs making our products less affordable for both our u.s. and international customers . in particular , if sequestration level spending cuts are reinstated in gfy 2018 , we may experience significant rescheduling or termination activity with our supplier base . such activity could result in claims from our suppliers , which may include the amount established in any settlement agreements , the costs of evaluating the supplier settlement proposals , and the costs of negotiating settlement agreements . budget cuts , including sequestration , could result in restructuring charges , impairment of assets , including goodwill , or other charges . we expect costs associated with claims from our suppliers and restructuring charges will be recovered from our customers . generally , we expect that the impact of budget reductions on our operating results will lag in certain of our businesses with longer cycles such as our aeronautics and space systems business segments , and our products businesses within our mfc and mst business segments , due to our production contract backlog . however , our businesses with smaller , short-term contracts are the most susceptible to the impacts of budget reductions , such as our is & gs business segment .
| the following discussion of material changes in our consolidated net sales should be read in tandem with the subsequent discussion of changes in our consolidated cost of sales and our business segment results of operations because changes in our sales are typically accompanied by a corresponding change in our cost of sales due to the nature of the percentage-of-completion method . 33 product sales our product sales represent 78 % of our total sales in 2015 and 79 % of our total sales in 2014. product sales decreased $ 211 million , or 1 % , in 2015 as compared to 2014. lower product sales of about $ 290 million at space systems , approximately $ 250 million at mfc and approximately $ 110 million at is & gs were offset by higher product sales of about $ 320 million at mst and approximately $ 120 million at aeronautics . the decrease in product sales at space systems was attributable to lower volume for government satellite programs ( primarily advanced extremely high frequency ( aehf ) . product sales at mfc decreased due to lower volume on air and missile defense systems programs ( primarily pac-3 ) . the decline in product sales at is & gs was a result of key program completions , lower customer funding levels and increased competition , coupled with the fragmentation of existing large contracts into multiple smaller contracts that are awarded primarily on the basis of price . the increase in product sales at mst was primarily attributable to product sales from sikorsky , which we acquired in the fourth quarter of 2015. product sales at aeronautics increased primarily due to higher volume on f-35 production contracts , as well as increased deliveries on our c-5 program ; partially offset by fewer aircraft deliveries for our c-130 and f-16 programs and lower sustainment activities on our f-22 program . our product sales represent 79 % of our total sales in both 2014 and 2013 .
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if we determine the professional services do not have stand-alone value , we treat the transaction as a single element , the subscription services and professional services revenue is deferred until the customer commences use of the subscription services , and recognized over the remaining term of the arrangement . maintenance and support . maintenance and support revenue includes post-implementation customer support provided to our customers who purchased perpetual software licenses and the right to unspecified software updates and enhancements on a when-and-if-available basis . we recognize revenue from maintenance and support arrangements ratably over the period in which the services are provided . license . we derive our license revenue from the sale of perpetual licenses . license revenue is recognized either upon software delivery or together with the professional services over time using the percentage-of-completion method or completed contract method . professional services . professional services revenues are generally recognized as the services are rendered for time and material contracts , or on a proportional performance basis for fixed price contracts . the majority of our professional services contracts are on a time and materials basis . for our subscription services that include professional services , we evaluate the nature and scope to determine whether the professional services have stand-alone value . professional services deemed to have stand-alone value are accounted for separately from subscription services and typically recognized as the services are performed . if we determine the professional services do not have stand-alone value , we treat the transaction as a single element , the professional services revenue is deferred until the customer commences use of the subscription services , and the professional services revenue is recognized over the remaining term of the arrangement . cost of revenue cost of subscription . cost of subscription includes those costs related to supporting our subscription services , principally ( a ) personnel costs , which include our employees , third-party contractors and noncash share-based compensation expense , ( b ) expenses related to operating our cloud infrastructure , ( c ) amortization of capitalized software for internal use , and ( d ) an allocation of depreciation , amortization of intangibles , facilities and information technology ( `` it '' ) support costs , including data center costs , and other costs incurred in providing subscription services to our customers . cost of maintenance and support . cost of maintenance and support consists largely of personnel related expenses and an allocation of depreciation , amortization of intangibles , facilities and it support costs and other costs incurred in providing maintenance and support services to our customers . cost of license . cost of license consists of third-party fees for our licensed software and an allocation of the amortization of intangibles . 30 cost of services . cost of services includes those costs related to professional services and implementation of our solutions , principally ( a ) personnel costs , which include our employees and employee benefits , third-party contractors and noncash share-based compensation expense , ( b ) billable and non-billable travel , ( c ) amortization of capitalized software for internal use , and ( d ) an allocation of depreciation , facilities and it support costs and other costs incurred in providing professional services to our customers . cost of providing professional services may vary from quarter to quarter depending on a number of factors , including the amount of professional services required to implement and configure our solutions . operating expenses selling and marketing . selling and marketing expenses principally consist of ( a ) personnel costs , which include our employees and employee benefits , third-party contractors , sales commissions related to selling and marketing personnel and noncash share-based compensation expense ( b ) sales and marketing programs such as lead generation programs , company awareness programs , conferences , hosting and participation in industry trade shows , and other sales and marketing programs , ( c ) travel and other out-of-pocket expenses , ( d ) amortization expenses associated with acquired intangible assets , and ( e ) an allocation of depreciation , facilities and it support costs and other costs . general and administrative . general and administrative expenses consist primarily of expenditures for executive , accounting and finance , legal , it and human resources support functions . general and administrative expenses principally consist of ( a ) personnel costs , which include our employees and employee benefits , third-party contractors and noncash share-based compensation expense , ( b ) travel and other out-of-pocket expenses , ( c ) accounting , legal and other professional fees , and ( d ) an allocation of depreciation , facilities and it support costs and other costs . research and development . research and development expenses principally consist of ( a ) personnel costs , which include our employees and employee benefits and third-party contractors , which are comprised of software developers , scientists and product managers working on enhancements of existing solutions , the development of new solutions , scientific research , quality assurance and testing and noncash share-based compensation expense and ( b ) an allocation of depreciation , facilities and it support costs and other costs . results of operations comparison of year ended december 31 , 2017 with year ended december 31 , 2016 revenue : replace_table_token_6_th subscription revenue . subscription revenue increased primarily due to an increase in the number of subscriptions purchased by new and existing customers , with the total number of customers generating subscription revenue increasing by 36 % for the year ended december 31 , 2017 . the increase in subscription revenue also included $ 3.3 million from our acquisition of vayant . we expect our subscription revenue will continue to increase as we focus on subscription-based sales and phase out license offerings . we continued to invest in customer programs and initiatives which helped keep our attrition rate fairly consistent as compared to the prior year . story_separator_special_tag our ability to maintain consistent customer attrition rates will play a role in our ability to continue to grow our subscription revenue . maintenance and support . the modest increase in maintenance and support revenue was principally a result of the timing of certain cash collections . while , we continued to invest in customer programs and initiatives which helped keep our attrition rate consistent as compared to the prior year , we expect that over time , our plan to sell fewer licenses and more cloud-based solutions will result in a decrease in our maintenance and support as existing customers migrate from our on-premise solutions to 31 our cloud solutions . we also expect to increase our focus on migrating our legacy on-premises software customers to our latest cloud solutions in 2018 , which if successful , would further decrease maintenance revenue . license revenue . license revenue decreased primarily due to the completion of several large perpetual license projects related to agreements executed prior to our cloud transition , and our strategy to sell fewer licenses and more subscription services , resulting in lower future license revenue and higher subscription services revenue . services revenue . services revenue declined primarily as a result of large customer implementations completed in 2016 and fewer similar large implementations completed in 2017. the decrease was also due to lower levels of professional services required on our new subscription sales as well as on certain subscription contracts where subscription and services revenue is deferred until the customer commences use of the subscription because the professional services were deemed to not have stand-alone value . services revenue varies from period to period depending on different factors , including the level of professional services required to implement our solutions , the timing of services revenue recognition on certain subscription contracts and any additional professional services requested by our customers during a particular period . cost of revenue and gross profit . replace_table_token_7_th cost of subscription . cost of subscription increased primarily as a result of a $ 9.7 million increase in infrastructure cost to support our current and anticipated subscription customer base , and includes $ 2.5 million related to the acquisition of vayant . the remaining increase of $ 0.8 million was related to personnel cost to support our subscription customer base , which included $ 0.2 million related to the vayant acquisition . our subscription gross profit percentage was 54 % for each of the years ended december 31 , 2017 and 2016 . cost of maintenance and support . the cost of maintenance and support declined primarily due to a decrease in personnel cost mainly due to efficiencies in employee related costs . maintenance and support gross profit percentages for the years ended december 31 , 2017 and 2016 , were 83 % and 80 % , respectively . cost of license . cost of license consists of third-party fees for licensed software and remained relatively consistent year-over-year . license gross profit percentages for the years ended december 31 , 2017 and 2016 , were 95 % and 98 % , respectively . cost of services . the decrease in cost of services was generally commensurate with our decline in services revenue , and was primarily attributable to decreases in both personnel cost for our software implementations of $ 2.7 million , and in overhead expenses of $ 0.6 million . services gross profit percentages for the years ended december 31 , 2017 and 2016 , were 14 % and 8 % , respectively . services gross profit percentages vary period to period depending on different factors , including the level of professional services required to implement our solutions , our effective man-day rates and the utilization of our professional services personnel . we plan to add additional employees in our professional services organization to support our anticipated growth in the number of customers purchasing our subscription services . gross profit . the increase in overall gross profit for the year ended december 31 , 2017 was principally attributable to an increase of 10 % in total revenue as compared to the same period in 2016 . 32 operating expenses : replace_table_token_8_th selling and marketing . our personnel cost increased by $ 2.1 million primarily due to our continued investments in sales and marketing as we focus on adding new customers and increasing penetration within our existing customer base . this was partially offset by a decrease of $ 1.2 million in severance expense associated with the change in employment status of our former chief operating officer in july 2016. in addition , there was an increase of $ 3.2 million in non-personnel cost , which included $ 1.1 million intangible amortization related to our acquisition of vayant , an increase of $ 0.8 million for sales and marketing events , an increase of $ 0.7 million in travel expenses , an increase of $ 0.5 million of recruiting expense , and an increase of $ 0.1 million for facility and other overhead expense . general and administrative expenses . the increase in general and administrative expenses was primarily attributable to an increase of $ 2.1 million in noncash share-based compensation expense and $ 0.7 million of personnel and other general and administrative costs related to our acquisition of vayant . this increase was partially offset by a decrease of $ 0.4 million in our use of contract labor , a decrease of $ 0.4 million in other overhead expenses , and a decrease of $ 0.2 million in bad debt expense . research and development expenses . personnel cost increased $ 3.4 million , which included $ 1.0 million related to our acquisition of vayant . personnel cost increased primarily due to our continued investment in headcount to develop new and improve existing technologies , partially offset by an $ 1.5 million increase in capitalized internal-use software development costs . the remaining increase of $ 1.3 million was attributable to non-personnel cost and related overhead expenses associated with higher personnel cost . acquisition-related expenses .
| vayant is a cloud software company that provides advanced shopping , merchandising and inspirational travel solutions . the acquisition of vayant strengthens our modern commerce solutions for the travel industry and positions us to deliver greater value to our travel customers through an end-to-end offer optimization solution designed to help travel companies deliver personalized offers and expanded choices that drive loyalty and growth . acquisitions are an element of our long-term corporate strategy . we believe future acquisitions could strengthen our competitive position , enhance the products and services that we can offer to customers , expand our customer base , grow our revenues and increase our overall value . financing activities in june 2017 , we issued $ 106.3 million in aggregate principal amount of 2.0 % convertible senior notes due june 1 , 2047 , unless repurchased , redeemed or converted in accordance with their terms prior to such date . interest is payable semiannually in arrears on june 1 and december 1 of each year , commencing on december 1 , 2017 . 28 backlog backlog represents deferred revenue on our consolidated balance sheet together with expected future billings that are contractually committed under our existing agreements that we have not yet been able , contractually , to invoice . deferred revenue consists of billings made and payments received in advance of revenue recognition for our services pursuant to contractual commitments under our existing customer agreements , and does not represent the total contract value of existing multi-year agreements . to the extent future invoicing is determined to be certain , we consider that future invoicing to be included in our non-cancelable backlog . as of december 31 , 2017 , we had backlog of approximately $ 275.6 million , as compared to backlog of approximately $ 215.4 million as of december 31 , 2016 . approximately $ 154.7 million of our backlog as of december 31 , 2017 was not reasonably expected to be recognized as revenue during fiscal year 2018. we have aligned our backlog definition with the concepts and
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on october 31 , 2017 , we acquired the remaining 75 % interest in slc pipeline and the remaining 50 % interest in frontier aspen from subsidiaries of plains , for total consideration of $ 250 million . prior to this acquisition , we held noncontrolling interests of 25 % of slc pipeline and 50 % of frontier aspen . as a result of the acquisitions , slc pipeline and frontier aspen are wholly-owned subsidiaries of hep . this acquisition was accounted for as a business combination achieved in stages with the consideration allocated to the acquisition date fair value of assets and liabilities acquired . the preexisting equity interests in slc pipeline and frontier aspen were remeasured at acquisition date fair value since we will have a controlling interest , and we recognized a gain on the remeasurement in the fourth quarter of 2017 of $ 36.3 million . slc pipeline is the owner of a 95-mile crude pipeline that transports crude oil into the salt lake city area from the utah terminal of the frontier pipeline and from wahsatch station . frontier aspen is the owner of a 289-mile crude pipeline from casper , wyoming to frontier station , utah that supplies canadian and rocky mountain crudes to salt lake city area refiners through a connection to the slc pipeline . agreements with hfc and delek we serve hfc 's refineries under long-term pipeline , terminal , tankage and refinery processing unit throughput agreements expiring from 2019 to 2036. under these agreements , hfc agrees to transport , store , and process throughput volumes of refined product , crude oil and feedstocks on our pipelines , terminal , tankage , loading rack facilities and refinery processing units that result in minimum annual payments to us . these minimum annual payments or revenues are subject to annual rate adjustments on july 1st each year based on the ppi or the ferc index . as of december 31 , 2017 , these agreements with hfc require minimum annualized payments to us of $ 324 million . if hfc fails to meet its minimum volume commitments under the agreements in any quarter , it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter . under certain of the agreements , a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met . we have a pipelines and terminals agreement with delek expiring in 2020 under which delek has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that is also subject to annual tariff rate adjustments . we also have a capacity lease agreement under which we lease delek space on our orla to el paso pipeline for the shipment of refined product . the terms under this lease agreement expire beginning in 2018 through 2022. as of december 31 , 2017 , these agreements with delek require minimum annualized payments to us of $ 33 million . a significant reduction in revenues under these agreements could have a material adverse effect on our results of operations . under certain provisions of an omnibus agreement that we have with hfc ( “ omnibus agreement ” ) , we pay hfc an annual administrative fee ( $ 2.5 million in 2017 ) , for the provision by hfc or its affiliates of various general and administrative services to us . this fee does not include the salaries of personnel employed by hfc who perform services for us on behalf of hls or the cost of their employee benefits , which are separately charged to us by hfc . we also reimburse hfc and its affiliates for direct expenses they incur on our behalf . under hls 's secondment agreement with hfc , certain employees of hfc are seconded to hls to provide operational and maintenance services for certain of our processing , refining , pipeline and tankage assets , and hls reimburses hfc for its prorated portion of the wages , benefits , and other costs of these employees for our benefit . we have a long-term strategic relationship with hfc . our current growth plan is to continue to pursue purchases of logistic and other assets at hfc 's existing refining locations in new mexico , utah , oklahoma , kansas and wyoming . we also expect to work with hfc on logistic asset acquisitions in conjunction with hfc 's refinery acquisition strategies . furthermore , we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues . - 45 - story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > operations ( exclusive of depreciation and amortization ) expense for the year ended december 31 , 2017 , increased by $ 13.6 million compared to the year ended december 31 , 2016 . the increase is primarily due to operating expenses for the woods cross refinery processing units acquired in the fourth quarter of 2016. depreciation and amortization depreciation and amortization for the year ended december 31 , 2017 , increased by $ 8.9 million compared to the year ended december 31 , 2016 . the increase is mainly due to depreciation from the woods cross refinery processing units acquired in the fourth quarter of 2016. general and administrative general and administrative costs for the year ended december 31 , 2017 , increased by $ 1.8 million compared to the year ended december 31 , 2016 , mainly due to higher legal and consulting costs offset by decreased employee compensation . story_separator_special_tag equity in earnings of equity method investments see the summary chart below for a description of our equity in earnings of equity method investments : replace_table_token_12_th slc pipeline and frontier aspen equity earnings for the year ended december 31 , 2017 , reflect the ten months before we purchased their remaining interests on october 31 , 2017. slc pipeline and frontier aspen operations for the two months of november and december 2017 , are included in hep 's consolidated results . interest expense interest expense for the year ended december 31 , 2017 , totaled $ 58.4 million , an increase of $ 5.9 million compared to the year ended december 31 , 2016 . the increase is primarily due to the issuance of new 6 % senior notes in july 2016. our aggregate effective interest rate was 4.4 % and 4.7 % for the years ended december 31 , 2017 and 2016 , respectively . state income tax we recorded state income tax expense of $ 249,000 and $ 285,000 for the years ended december 31 , 2017 and 2016 , respectively . all state income tax expense is solely attributable to the texas margin tax . - 50 - results of operations— year ended december 31 , 2016 compared with year ended december 31 , 2015 summary net income attributable to the partners for the year ended december 31 , 2016 , was $ 158.2 million , a $ 21.0 million increase compared to the year ended december 31 , 2015. the increase in earnings is primarily due to the newly constructed and acquired woods cross refinery processing units and recent acquisitions including interests in the osage and cheyenne pipelines , the tulsa crude tanks acquired in the first quarter of 2016 , and the el dorado refinery process units dropped down in the fourth quarter of 2015 as well as increased earnings from our 75 % interest in the unev products pipeline , offset by higher interest expense associated with our private placement of $ 400 million in aggregate principal amount of 6 % senior unsecured notes due in 2024 , which we issued in july and the proceeds of which were used to partially fund our woods cross processing units acquisition . our major shippers are obligated to make deficiency payments to us if they do not meet their minimum volume shipping obligations . revenues for the year ended december 31 , 2016 , include the recognition of $ 10.0 million of prior shortfalls billed to shippers in 2016 and 2015. as of december 31 , 2016 , deferred revenue on our consolidated balance sheet related to shortfalls billed was $ 5.6 million . such deferred revenue will be recognized in earnings either as ( a ) payment for shipments in excess of guaranteed levels , if and to the extent the pipeline system will have the necessary capacity for shipments in excess of guaranteed levels , or ( b ) when shipping rights expire unused over the contractual make-up period . revenues revenues for the year ended december 31 , 2016 , were $ 402.0 million , a $ 43.2 million increase compared to the same period of 2015. the revenue increase was primarily due to the woods cross processing units acquired in the fourth quarter of 2016 , the el dorado processing units acquired in the fourth quarter of 2015 , higher unev pipeline revenues , and revenues from the tulsa crude tanks acquired in the first quarter of 2016. revenues from our refined product pipelines were $ 135.3 million , an increase of $ 3.0 million , primarily due to increased revenue from the unev pipeline of $ 4.0 million offset by ppi driven tariff rates decreases . shipments averaged 204.0 mbpd compared to 197.6 mbpd for the year ended december 31 , 2015 , largely due to higher volumes on our unev pipeline . revenues from our intermediate pipelines were $ 27.0 million , a decrease of $ 1.9 million , on shipments averaging 137.4 mbpd compared to 142.5 mbpd for the year ended december 31 , 2015. the decrease in revenue is mainly due to lower volumes from pipelines servicing hfc 's navajo refinery and a $ 0.7 million decrease in previously deferred revenue realized . revenues from our crude pipelines were $ 70.3 million , an increase of $ 3.3 million , on shipments averaging 277.2 mbpd compared to 291.5 mbpd for the year ended december 31 , 2015. revenues increased largely due to an increase in deferred revenue recognized and to a surcharge on our beeson expansion . volumes were lower due to lower throughput at hfc 's navajo refinery . revenues from terminal , tankage and loading rack fees were $ 136.4 million , an increase of $ 8.8 million compared to the year ended december 31 , 2015. this increase is due principally to increased revenues from the el dorado tanks and the newly acquired tulsa crude tanks . refined products and crude terminalled in our facilities increased to an average of 485.8 mbpd compared to 469.7 mbpd for the year ended december 31 , 2015 , largely due to the inclusion of volumes from our tulsa crude tanks acquired in the first quarter of 2016 and our el dorado crude tanks acquired late in the first quarter of 2015 , offset by the transfer of the el paso terminal to hfc in the first quarter of 2016. revenues from refinery processing units were $ 33.0 million , an increase of $ 30.1 million on throughputs averaging 51.8 mbpd compared to 6.8 mbpd for 2015. this increase in revenue is primarily due to the woods cross refinery processing units acquired in the fourth quarter of 2016 and an increase in revenue from the el dorado refinery units acquired late in 2015. operations expense operations ( exclusive of depreciation and amortization ) expense for the year ended december 31 , 2016 , increased by $ 18.4 million compared to the year ended december 31 , 2015. the increase is mainly due to operating expenses from the newly constructed and acquired
| ebitda should not be considered as an alternative to net income attributable to holly energy partners or operating income , as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for compliance with financial covenants . see our calculation of ebitda under item 6 , “ selected financial data. ” ( 3 ) distributable cash flow is not a calculation based upon gaap . however , the amounts included in the calculation are derived from amounts presented in our consolidated financial statements , with the general exception of maintenance capital expenditures . distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . distributable cash flow is not necessarily comparable to similarly titled measures of other companies . distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance . it is also used by management for internal analysis and for our performance units . we believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating . see our calculation of distributable cash flow under item 6 , “ selected financial data. ” results of operations — year ended december 31 , 2017 compared with year ended december 31 , 2016 summary net income attributable to the partners for the year ended december 31 , 2017 , was $ 195.0 million , a $ 36.8 million increase compared to the year ended december 31 , 2016 . the increase in earnings is primarily due to ( a ) the woods cross processing units acquired in the fourth quarter of 2016 , ( b ) the gain recognized on the acquisition of
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the notes , including any accrued but unpaid interest , were convertible at the option of each noteholder : ( a ) upon the closing of any equity financing that occurred during the term of the notes , into the securities offered in the financing to other investors at a 5 % discount to the price per share paid by other investors in the financing ; and ( b ) upon the maturity date of the notes , into the company 's common stock at the volume weighted average closing price of the common stock for the five trading days prior to such conversion . 15 on february 28 , 2015 , the company entered into amendments to the convertible promissory notes issued on december 1 , 2014. the amendments extended the maturity dates of the convertible promissory notes to april 1 , 2015. the amendments were approved by the company 's audit committee . on march 11 , 2015 , the convertible promissory notes and accrued interest were converted into equity as part of the 2015 securities purchase agreement . on march 11 , 2015 , the company entered into a 2015 securities purchase agreement ( the `` 2015 securities purchase agreement '' ) with battery ventures ix , l.p. and battery investment partners ix , llc ( collectively , `` battery '' ) , new enterprise associates 14 , limited partnership ( `` nea '' ) , joel ackerman , chief executive officer and a director of the company ( `` ackerman '' ) , dr. ronnie morris , president and a director of the company ( `` morris '' ) , daniel mendelson , a director of the company ( `` mendelson '' ) and certain other investors ( collectively with battery , nea , ackerman , morris and mendelson , the `` investors '' ) , for the sale to the investors of units , each unit consisting of one share of the company 's common stock , par value $ 0.001 per share ( the `` common stock '' ) and a warrant to buy 0.55 shares of common stock at $ 0.48 per share ( the `` warrants '' ) , at a purchase price of $ 0.40 per unit , for an aggregate of $ 14,000,000. the warrants expire five years after the closing date . ackerman and morris converted convertible promissory notes dated december 1 , 2014 in the principal amounts of $ 1 million each , plus accrued interest , into the units at a 5 % discount , pursuant to the terms of the convertible promissory notes . the investors have the right to require the company to repurchase the purchased shares ( the `` put option '' ) for cash for $ 0.40 per share upon a change of control or sale or exclusive license of substantially all of the company 's assets only if approved by the company 's board of directors . the put option will terminate upon the achievement of certain financial and other milestones . the investors have certain participation rights with respect to future financings of the company . the company covenanted to register the resale of the shares of common stock to be issued to the investors and the shares of common stock issuable upon exercise of the warrants pursuant to a 2015 amended and restated registration rights agreement , to pay certain liquidated damages if the company fails to file such registration statement by a certain deadline , and to have it declared effective by a certain deadline or keep it effective for a certain period of time . the issuance of the shares of common stock resulted in the company issuing an additional 1,865,853 shares of common stock to investors who purchased shares of common stock pursuant to a securities purchase agreement dated as of march 24 , 2011 ( the `` 2011 securities purchase agreement '' ) due to contractual antidilution provisions in that 2011 securities purchase agreement . the company also amended and restated the 2011 securities purchase agreement to eliminate these antidilution provisions going forward , and conform aspects of the put option in that 2011 securities purchase agreement to terms of the put option in the 2015 securities purchase agreement . the company also issued an additional 1,583,335 warrants to its investors under the 2011 warrant agreements under the securities purchase agreement and had its investors agree on certain amendments of the warrants to eliminate the antidilution rights for future transactions , by extending the term of the warrants by one year , and revising the exercise price to $ 0.40. the company and its investors have amended and restated its securities purchase agreement dated january 28 , 2013 ( the `` 2013 securities purchase agreement '' ) to conform aspects of the put option in that 2013 securities purchase agreement to the put option in the 2015 securities purchase agreement . the company issued an additional 1,209,001 warrants to investors under the 2013 warrant agreements under the securities purchase agreement and had its investors agree on certain amendments of the se warrants issued in connection with the 2013 securities purchase agreement to eliminate the antidilution rights for future transactions , by extending the term of the warrant by one year , revising the exercise price to $ 0.40 . cash flows the following discussion relates to the major components of our cash flows : cash flows from operating activities net cash used in operating activities was $ 9.6 million and $ 3.4 million for the years ended april 30 , 2015 and 2014 , respectively . the increase of $ 6.2 million cash used in operations relates to a decrease in revenues in conjunction with increase in costs for business expansion . 16 cash flows from investing activities cash used in investing activities was $ 114,000 and $ 234,000 for the years ended april 30 , 2015 and 2014 , respectively . story_separator_special_tag these cash flows relate to the purchase of property and equipment . cash flows from financing activities net cash provided by financing activities was $ 13.2 million and $ 21,000 for the years ended april 30 , 2015 and 2014 , respectively . these cash flows in 2015 primarily relate to the private placement of common stock and warrants that occurred on march 13 , 2015 , which is explained more in liquidity and capital resources section , and the exercise of stock options and warrants . critical accounting policies we believe that of our significant accounting policies ( refer to the notes to consolidated financial statements contained in item 15 of this annual report ) , the following may involve a higher degree of judgment and complexity : general our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states or gaap . the preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of contingent assets and liabilities . significant estimates of the company include , among other things , accounts receivable realization , revenue recognition ( replacement of licensed tumors ) , valuation allowance for deferred tax assets , valuation of goodwill , and stock compensation and warrant assumptions . we have not identified any estimates that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty . we base our estimates on historical experience , our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . actual amounts could differ significantly from amounts previously estimated . revenue recognition the company derives revenue from its pos and tos businesses . personalized oncology solutions assist physicians by providing information to help guide the development of personalized treatment plans for their patients using our core offerings , including testing oncology drugs and drug combinations on personalized tumorgrafts , and through other products . translational oncology solutions offer a preclinical tumorgraft platform to pharmaceutical and biotechnology companies using proprietary tumorgraft studies , which the company believes may be predictive of how drugs may perform in clinical settings . the company recognizes revenue when the following four basic criteria are met : ( i ) a contract has been entered into with its customers ; ( ii ) delivery has occurred or services rendered to its customers ; ( iii ) the fee is fixed and determinable as noted in the contract ; and ( iv ) collectability is reasonably assured . the company utilizes a proportional performance revenue recognition model for its tos business , under which it recognizes revenue as performance occurs , based on the relative outputs of the performance that have occurred up to that point in time under the respective agreement , typically the delivery of reports to its customers documenting the results of testing protocols . when a pos or tos arrangement involves multiple elements , the items included in the arrangement ( deliverables ) are evaluated to determine whether they represent separate units of accounting . we perform this evaluation at the inception of an arrangement and as each item in the arrangement is delivered . generally , we account for a deliverable ( or a group of deliverables ) separately if : ( i ) the delivered item ( s ) has standalone value to the customer , and ( ii ) we have given the customer a general right of return relative to the delivered item ( s ) and the delivery or performance of the undelivered item ( s ) or service ( s ) is probable and substantially in our control . revenue on multiple element arrangements is recognized using a proportional method for each separately identified element . all revenue from contracts determined not to have separate units of accounting is recognized based on consideration of the most substantive delivery factor of all the elements in the contract or if there is no predominant deliverable upon delivery of the final element of the arrangement . during the third quarter of fiscal year 2014 we entered into a contract that may require the replacement of licensed tumors in the event that certain contractual terms have not been satisfied . due to such requirements we have estimated an amount of licensed tumors that may need to be replaced , and we have deferred this revenue until all provisions of the agreement have been met . there was $ 258,000 of deferred revenue as of april 30 , 2015 relating to our estimate of replacement of licensed tumors . 17 share-based payments we typically recognize expense for share-based payments based on the fair value of awards on the date of grant . we use the black-scholes option pricing model to estimate fair value . the option pricing model requires us to estimate certain key assumptions such as expected life , volatility , risk free interest rates , and dividend yield to determine the fair value of share-based awards . these assumptions are based on historical information and management judgment . we expense share-based payments over the period that the awards are expected to vest , net of estimated forfeitures . if actual forfeitures differ from management 's estimates , compensation expense is adjusted . we report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options ( excess tax benefits ) as financing cash flows when the cash tax benefit is received .
| the decline in gross margin is attributed to the decline in core pos revenue and a fixed component to the cost of sales . non-core revenue , which has lower cost of sale and higher margins , declined , contributing to lower overall margins . 14 cost of translational oncology solutions tos cost of sales were $ 4.9 million and $ 3.5 million for the years ended april 30 , 2015 and 2014 , respectively , an increase of $ 1.4 million , or 38.7 % . for the years ended april 30 , 2015 and 2014 , gross margins for tos were 32 % and 63 % , respectively . the increase in tos cost of sales is mainly due to an increase in tos studies , the revenue of which will be recognized upon study completion . research and development research and development expense was $ 4.8 million and $ 2.3 million for the years ended april 30 , 2015 and 2014 , respectively , an increase of $ 2.5 million or 114 % . the increase is largely due to investment in characterizing the tumorbank . sales and marketing sales and marketing expense was $ 4.3 million and $ 3.2 million for the years ended april 30 , 2015 and 2014 , respectively , an increase of $ 1.1 million , or 35.8 % . the increase was due to the expansion of the tos sales force offset by reduced sales and marketing expense for pos . general and administrative general and administrative expense was $ 5.3 million and $ 6.1 million for the years ended april 30 , 2015 and 2014 , respectively , a decrease of $ 0.8 million , or 12.8 % . other income/ ( expense ) other income/ ( expense ) consists of the change in the fair value of warrants that were accounted for as liabilities and are described further below and in note 6 to the accompanying consolidated financial statements , a modification charge due to the extinguishment of the liability as stated in the amended 2011 and 2013 warrant agreements both of which are described
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we define a low “ hassle factor ” as tier 3 unrestricted , tier 3 single step edit , or tier 3 with a simple pa requiring , for example , only the prior use of an over-the-counter or generic ins - although we acknowledge that any step edit or pa involves a level of burden for physicians and patients that could negatively impact xhance utilization . our initial goal was for 75 % of commercially insured lives to have access to xhance in a tier 3 formulary position with a “ low hassle factor '' by the end of 2018. while at approximately 60 % `` low hassle factor '' at december 31 , 2018 we did not meet this goal , it remains an important concept for us as we seek to expand overall coverage for xhance . we have also contracted with the centers for medicare and medicaid services for coverage of certain government insured lives and continue to expand xhance market access for other government-insured populations . as noted above , we have in place a co-pay assistance program for patients covered by commercial insurers and plan to continue to analyze affordability issues and assess patient affordability programs to appropriately support patient access to xhance for government insured patients . infrastructure . we continue to develop our internal capabilities in a manner commensurate with having become a fully integrated and publicly traded commercial-stage specialty pharmaceutical company . we have implemented an enterprise resource planning system to expand our operational and commercial finance capabilities . we have also implemented a robust healthcare compliance program to guide our staff 's and our partners ' compliance with rules and regulations regarding pharmaceutical sales . in managing our growth , we have remained focused on fostering our one mission culture . 86 xhance prescriptions . based on third-party prescription data as well as data from preferred pharmacy network partners , the total estimated number of xhance prescriptions in the second quarter , third quarter and fourth quarter 2018 were 8,611 , 9,427 , and 14,106 , respectively , which represents 50 % growth for prescriptions when comparing fourth quarter to third quarter . the ins market increased approximately 11 % from third quarter to fourth quarter of 2018 based on third-party prescription data . estimated xhance prescriptions in december 2018 and january 2019 were 4,570 and 6,292 , respectively , which represents 38 % month-over-month growth . the ins market increased approximately 5 % from december 2018 to january 2019 based on third-party prescription data . in addition , xhance prescriptions for the 4-week periods ended january 25 and february 22 , 2019 were 5,156 and 7,186 , respectively , which represents period-over-period growth of 39 % . the ins market decreased approximately 1 % from the 4-week period ended january 25 to the 4-week period ended february 22 based on third-party prescription data . xhance prescribing may be subject to a seasonal effect historically observed in the ins market in which market volume generally peaks in the second quarter and declines in the third quarter of each calendar year . although the underlying disease that we are treating is chronic and causes symptoms year-round , we believe the variation in patient flow through the offices of relevant specialists , and seasonality in disease flare-ups , may have an impact on the number of patients that present themselves and who are therefore available for prescribing a new medication like xhance . we also believe the annual resetting of patient healthcare insurance plan deductibles may have a negative impact on demand for xhance . based on our limited commercial history , we are unable to estimate the extent to which ins market seasonality and deductible resets may affect xhance . xhance development update in addition to xhance 's existing indication for the treatment of nasal polyps , in order to broaden our u.s. market opportunity we initiated a clinical research program in pursuit of a follow-on indication for the treatment of chronic sinusitis in the u.s. the program will comprise two phase 3b clinical trials , the first of which was initiated in the fourth quarter of 2018. we expect to initiate the second trial in 2019. financial operations overview the following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items . net product revenues sales of xhance generated $ 7.1 million in net product revenues for the year ended december 31 , 2018 . in accordance with gaap , we determine net product revenues for xhance , with specific assumptions for variable consideration components including but not limited to trade discounts and allowances , co-pay assistance programs and payor rebates . based on available xhance prescription data purchased from third parties and data from our pharmacy network , our average net revenues per prescription for the fourth quarter of 2018 was approximately $ 214 , which is favorable compared to our average net product revenues per prescription of approximately $ 202 and $ 148 in the third and second quarters of 2018 , respectively . the 6 % improvement in the average net revenue per prescription in the fourth quarter vs. the third quarter of 2018 is primarily attributable to lower rates of utilization of our patient affordability programs . we calculate average net product revenues per prescription by dividing net product revenues for the quarter by the estimated number of xhance prescriptions dispensed during the quarter . as a result , average net product revenues per prescription is subject to variability . that variability is impacted by factors that do not necessarily reflect a change in the price that is paid for an individual unit of xhance , including but not limited to ordering patterns and inventory levels for our wholesale customers and preferred pharmacy network partners , patient utilization rates of affordability programs and the proportion of patients acquiring xhance through an insurance benefit . story_separator_special_tag there is also the potential for variability that results from changes in estimation methodology by the third parties that we rely upon to provide prescription data which may lead to revisions of historical estimates of prescription volumes and our calculated average revenue per prescription . based on data available to date , we expect first quarter 2019 net revenue per prescription to be between $ 155 - $ 175. this decrease from the fourth quarter 2018 is a consequence of the reset of many patient insurance deductibles in january . as a result of this annual reset , we expect greater copay support to be provided by us under our assistance programs which are designed to support continued volume growth . for the remainder of 2019 , we believe average net revenue per prescription will improve and we expect that the full-year 2019 average net 87 revenue per prescription will be between $ 185 - $ 205. factors supporting this expected growth include patients meeting their out-of-pocket expense thresholds , expected improvements in insurance coverage and an increase in the proportion of prescription refills . costs of product sales costs of product sales includes the cost of inventory sold , which includes direct and indirect manufacturing and supply chain costs . research and development expense prior to the fda approval of xhance in september 2017 , research and development expense consisted primarily of costs incurred in connection with the development and pursuit of regulatory approval for xhance for the treatment of nasal polyps . post-fda approval of xhance , research and development expense consists primarily of expenses incurred to prepare for , initiate and conduct our planned clinical trials , ongoing research efforts of new products and device improvements . we expense research and development costs as incurred . these expenses include : ▪ personnel expenses , including salaries , benefits and stock-based compensation expense ; ▪ costs of funding clinical development performed by third parties , including pursuant to agreements with contract research organizations ( cros ) , as well as investigative sites and consultants that conduct or support our nonclinical studies and clinical trials ; ▪ expenses associated with the continued development of our eds devices ; ▪ expenses related to the continued development of our product sample portfolio ; ▪ expenses incurred under agreements with contract manufacturing organizations ( cmos ) , including manufacturing scale-up expenses prior to regulatory approval of products for commercial sale and the cost of acquiring and manufacturing preclinical study and clinical trial materials ; ▪ consultant fees and expenses associated with outsourced professional scientific development services ; ▪ expenses for regulatory activities , including filing fees paid to regulatory agencies and costs incurred to compile and respond to filings with the fda prior to regulatory approval of products for commercial sale ; ▪ costs incurred to maintain , expand and protect our patent portfolio as it relates to product candidates in development ; and ▪ allocated expenses for facility costs , including rent , utilities , depreciation and maintenance . certain regulatory , patent and pre-commercialization expenses that were previously classified as research and development expenses ( prior to the fda approval of xhance in september 2017 ) have been classified as selling , general and administrative expenses if incurred post approval of xhance to the extent that these expenses support the commercialization of xhance . we typically use our employee , consultant and infrastructure resources across our research and development programs . although we track certain outsourced development costs by product candidate , we do not allocate personnel costs or other internal costs to specific product candidates . we plan to incur research and development expenses for the foreseeable future as we expect to continue the development of xhance for the treatment of chronic sinusitis and our other product candidates . at this time , due to the inherently unpredictable nature of preclinical and clinical development , including rate of subject enrollment , number of subject required , and trial duration , and the early stage of our other product candidates , we are unable to estimate with any certainty the costs we will incur and the timelines we will require in our continued development efforts . selling , general and administrative expense general and administrative expense consists primarily of personnel expenses , including salaries , benefits and stock-based compensation expense , for employees in executive , finance , accounting , business development , legal and human resource functions . general and administrative expense also includes corporate facility costs , including rent , utilities , depreciation and maintenance , not otherwise included in research and development expense , as well as regulatory fees and professional fees for legal , patent , accounting and other consulting services . 88 early sales and marketing related expenses included expenses related to building brand awareness through advertising and the deployment of our nurse educator team , training and deploying our contract sales force and securing market access for xhance as well as salaries and related benefits for employees focused on such efforts . current and expected commercial investments include our sales team and supporting promotional materials , digital promotion , peer to peer education , congresses / conventions , samples , and marketing activities such as direct to patient / direct to consumer initiatives . selling , general and administrative expenses increased in 2018 as compared to 2017 as a result of an expanded infrastructure and an increased headcount to support the commercial launch of xhance . we also incurred higher corporate infrastructure costs in 2018 as compared to 2017 including , but not limited to , accounting , legal , human resources , consulting and investor relations expenses , and increased director and officer insurance premiums associated with operating as a public company . interest ( income ) expense interest ( income ) expense consists of interest earned on our cash and cash equivalents held with institutional banks and interest expense related to our long-term debt and amounts amortized and accrued under our convertible notes that were converted into preferred stock in march 2017.
| selling general and administrative expense selling , general and administrative expenses were $ 95.6 million and $ 31.7 million for the years ended december 31 , 2018 and 2017 , respectively . the $ 63.9 million increase was due primarily to : 93 ▪ a $ 37.3 million increase in sales and marketing expenses related to our preparation for and support of the commercial launch of xhance in the u.s. for the treatment of nasal polyps , of which : ◦ $ 22.2 million related to the deployment of our contract sales force and our nurse educator team ; ◦ $ 15.1 million related primarily to marketing expenses for xhance ; ▪ a $ 12.4 million increase in payroll-related expenses due to increases in headcount ; ▪ a $ 6.5 million increase in regulatory and medical affairs expenses , including payroll-related and administrative expenses , as a result of a shift in departmental focus from research and development to commercialization activities as a result of the fda approval of xhance in september 2017 ; ▪ a $ 1.6 million increase in facilities expense , professional fees and consultancy expenses to support our expanding infrastructure to prepare for and support the commercial launch of xhance and operate as a public company ; and ▪ a $ 3.7 million increase in stock-based compensation expense . interest ( income ) expense , net interest expense , net , was $ 6.8 million and $ 0.6 million for the years ended december 31 , 2018 and 2017 , respectively . the increase in interest expense , net , for the year ended december 31 , 2018 was related to $ 9.2 million in interest expense on our long-term debt which was issued in december 2017 , offset by $ 2.5 million in interest income . interest income increased $ 2.2 million during the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 as a result of higher cash balances . interest expense for the year ended december 31 , 2017 was related to our convertible
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2015 form 10-k 34 over the next three years , we expect to increase our subscription base and customer value , which we believe will help drive billings growth . during the transition , revenue , deferred revenue , operating margin , and earnings per share will be affected as more revenue is recognized ratably rather than up front and as new offerings bring a wider variety of price points . for fiscal 2015 , our billings increased 18 % , as compared to the prior fiscal year . the difference between our 10 % year-over-year growth in revenue and our 18 % year-over-year growth in billings represents 8 percentage points from the increase in deferred revenue , primarily driven by an increase in subscription billings over the past fiscal year and the business model transition . at january 31 , 2015 and january 31 , 2014 , our total subscriptions were 2.23 million and 1.85 million , respectively . subscription additions were led by maintenance subscriptions and benefited from promotional activity driving upgrades and maintenance renewals . for the past three years , suites have been an important growth area to our overall strategy . as our customers in all industries adopt our design suites , we believe they will experience an increase in their productivity and the value of their design data . for fiscal 2015 , revenue from suites increased 17 % , as compared to the prior fiscal year . as a percentage of revenue , suites increased to 36 % in fiscal 2015 as compared to 34 % in fiscal 2014 . another key element of our growth strategy is increasing our global penetration . much of the growth in the world 's construction and manufacturing is happening in emerging economies . further , emerging economies face many of the challenges that our design technology can help address , including infrastructure build-out and innovative design and manufacturing . in fiscal 2015 , revenue from emerging economies increased 14 % as compared to fiscal 2014 and represented 15 % of net revenue for both fiscal 2015 and fiscal 2014 . while we continue to believe there are long-term growth opportunities in emerging economies , conducting business in these countries presents significant challenges , including economic volatility , geopolitical risk , local competition , limited intellectual property protection , poorly developed business infrastructure , scarcity of talent , software piracy , and different purchase patterns as compared to the developed world . today , complex challenges such as globalization , urbanization , and sustainable design are driving our customers to new levels of performance and competitiveness , and we are committed to helping them address those challenges and take advantage of new opportunities . to achieve these goals , we are capitalizing on two of our strongest competitive advantages : our ability to bring advanced technology to mainstream markets , and the breadth and depth of our product portfolio . we bring powerful new design capabilities to volume markets . our products are designed to be easy-to-learn and use , and to provide customers with a low cost of deployment , a low total cost of access to our software offerings , and a rapid return on investment . in addition , our software architecture allows for extensibility and integration with other products . the breadth of our technology and product line gives us a unique competitive advantage , because it allows our customers to address a wide variety of problems in ways that transcend industry and disciplinary boundaries . this is particularly important in helping our customers address the complex challenges mentioned above . we also believe that our technological leadership and global brand recognition have positioned us well for long-term growth and industry leadership . in addition to the competitive advantages afforded by our technology , our large global network of distributors , resellers , third-party developers , customers , educational institutions , educators , and students is a key competitive advantage . this network of partners and relationships provides us with a broad and deep reach into volume markets around the world . our distributor and reseller network is extensive and provides our customers with the resources to purchase , deploy , learn , and support our products quickly and easily . we have a significant number of registered third-party developers who create products that work well with our products and extend them for a variety of specialized applications . autodesk is committed to helping fuel a lifelong passion for design in students of all ages . in fiscal 2014 , we initiated a new program offering free educational licenses of autodesk software worldwide to students , educators , and educational institutions . targeting both the secondary and postsecondary school markets , we collaborate with educators , institutions and partners that encourage design learning and further science , technology , engineering , digital arts , and math ( steam ) education initiatives . our intention is to make autodesk software the ubiquitous design software of choice for those poised to become the next generation of professional users . our strategy includes improving our product functionality and expanding our product offerings through internal development as well as through the acquisition of products , technology , and businesses . acquisitions often increase the speed at which we can deliver product functionality to our customers ; however , they entail cost and integration challenges and may , in certain instances , negatively impact our operating margins . we continually review these trade-offs in making decisions 2015 form 10-k 35 regarding acquisitions . we currently anticipate that we will continue to acquire products , technology , and businesses as compelling opportunities become available . story_separator_special_tag our strategy depends upon a number of assumptions to successfully make the transition toward new cloud and mobile platforms , including the related technology and business model shifts ; making our technology available to mainstream markets ; leveraging our large global network of distributors , resellers , third-party developers , customers , educational institutions , and students ; improving the performance and functionality of our products ; and adequately protecting our intellectual property . if the outcome of any of these assumptions differs from our expectations , we may not be able to implement our strategy , which could potentially adversely affect our business . for further discussion regarding these and related risks see part i , item 1a , “ risk factors . ” critical accounting policies and estimates our consolidated financial statements are prepared in conformity with u.s. generally accepted accounting principles . in preparing our consolidated financial statements , we make assumptions , judgments , and estimates that can have a significant impact on amounts reported in our consolidated financial statements . we base our assumptions , judgments , and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . we regularly reevaluate our assumptions , judgments , and estimates . our significant accounting policies are described in note 1 , “ business and summary of significant accounting policies , ” in the notes to consolidated financial statements . we believe that of all our significant accounting policies , the following policies involve a higher degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and collection is probable . however , determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . for multiple element arrangements containing only software and software-related elements , we allocate the sales price among each of the deliverables using the residual method , under which revenue is allocated to undelivered elements based on our vendor-specific objective evidence ( “ vsoe ” ) of fair value . vsoe is the price charged when an element is sold separately or a price set by management with the relevant authority . if we do not have vsoe of an undelivered software license , we defer revenue recognition on the entire sales arrangement until all elements for which we do not have vsoe are delivered . if we do not have vsoe for undelivered maintenance or services , the revenue for the arrangement is recognized over the longest contractual service period in the arrangement . we are required to exercise judgment in determining whether vsoe exists for each undelivered element based on whether our pricing for these elements is sufficiently consistent . for multiple elements arrangements involving non-software elements , including cloud subscription services , our revenue recognition policy is based upon the accounting guidance contained in asc 605 , revenue recognition . for these arrangements , we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements . we then further allocate consideration within the software group to the respective elements within that group using the residual method as described above . we exercise judgment and use estimates in connection with the determination of the amount of revenue to be recognized in each accounting period . we allocate the total arrangement consideration among the various elements based on a selling price hierarchy . the selling price for a deliverable is based on its vsoe if available , third-party evidence ( `` tpe '' ) if vsoe is not available , or the best estimated selling price ( `` besp '' ) if neither vsoe nor tpe is available . besp represents the price at which autodesk would transact for the deliverable if it were sold regularly on a standalone basis . to establish besp for those elements for which neither vsoe nor tpe are available , we perform a quantitative analysis of pricing data points for historical standalone transactions involving such elements for a twelve-month period . as part of this analysis , we monitor and evaluate the besp against actual pricing to ensure that it continues to represent a reasonable estimate of the standalone selling price , considering several other external and internal factors including , but not limited to , pricing and discounting practices , contractually stated prices , the geographies in which we offer our products and services , and the type of customer ( i.e . distributor , value-added reseller , and direct end user , among others ) . we analyze besp at least annually or on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices . 2015 form 10-k 36 our assessment of likelihood of collection is also a critical factor in determining the timing of revenue recognition . if we do not believe that collection is probable , the revenue will be deferred until the earlier of when collection is deemed probable or payment is received . our indirect channel model includes both a two-tiered distribution structure , where distributors sell to resellers , and a one-tiered structure where autodesk sells directly to resellers . our product license revenue from distributors and resellers are generally recognized at the time title to our product passes to the distributor , in a two-tiered structure , or reseller , in a one-tiered structure , provided all other criteria for revenue recognition are met .
| this increase is primarily due to a 17 % increase in revenue from consulting , partially offset by a 65 % decrease in revenue from our education products as a result of our strategic transition to offer free educational licenses of autodesk software to students , educators , and institutions . backlog related to current software license product orders that had not shipped at the end of the fiscal year increased by $ 20.7 million from $ 19.7 million at january 31 , 2014 to $ 40.4 million at january 31 , 2015 . backlog from current software license product orders that we have not yet shipped consists of orders for currently available licensed software products from customers with approved credit status . subscription revenue our subscription revenue consists of three components : ( 1 ) maintenance revenue from our software products ; ( 2 ) maintenance revenue from our term-based desktop subscription and enterprise offerings ; and ( 3 ) revenue from our cloud service offerings . our maintenance program provides our customers of software products with a cost effective and predictable budgetary option to obtain the productivity benefits of our new releases and enhancements when and if released during the term of their contracts . under our maintenance program , customers are eligible to receive unspecified upgrades when and if available , downloadable training courses , and online support . we recognize maintenance revenue ratably over the term of the maintenance agreement , which is generally between one and three years . revenue for our cloud service offerings is recognized ratably over the contract term commencing with the date our service is made available to customers and all other revenue recognition criteria have been satisfied . subscription revenue increased 15 % during fiscal 2015 as compared to fiscal 2014 primarily due to a 15 % increase in commercial maintenance revenue . the 15 % increase in commercial maintenance revenue was due to a 9 % increase from net revenue per maintenance seat and a 6 % increase from commercial enrollment during the corresponding maintenance contract term .
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in addition , we conducted business with a former subsidiary , incuron , which will pay us a 2 % royalty on future commercialization , licensing , or sale of certain technology we sold to incuron . see item 1 , `` business `` for more information on our product candidates and our strategic partnerships . recent developments 38 as previously reported , on august 6 , 2018 , the company entered into a series of transactions with gpi , a corporation formed by the company for the purpose of creating a joint venture between the company and everon that would be focused on developing anti-aging medications and would seek investment capital from third parties . on august 6 , 2018 , the company entered into a license agreement with gpi ( the `` license agreement '' ) pursuant to which the company licensed to gpi , on an exclusive basis , the right to develop , manufacture , commercialize , and sell products utilizing the company 's intellectual property underlying the company 's entolimod drug candidate , solely in the field of use related to the prevention or treatment of any disease , disorder or frailty in humans caused by aging . simultaneous with its entry into the license agreement , the company also entered into an assignment agreement ( the `` assignment agreement '' ) with gpi , under which the company assigned certain intellectual property underlying its gp532 product candidate and its entolimod vaccine product candidate and gpi licensed back to the company , on an exclusive , irrevocable basis , the right to develop , manufacture , commercialize , and sell products relating to the assigned intellectual property for use as a medical countermeasure to treat acute radiation exposure or as a cancer treatment . as consideration for the licenses granted to gpi under the license agreement and the assignment of the intellectual property to gpi under the assignment agreement , gpi issued to the company 1,000 shares of gpi 's common stock . contemporaneously with the company 's entry into the license agreement and assignment agreement , everon contributed certain of its intellectual property related to the potential development of treatments that address serious medical needs associated with human aging to gpi , also in exchange for 1,000 shares of gpi 's common stock . as a result of each of the company 's and everon 's receipt of 1,000 shares of gpi 's common stock , each of the company and everon became the owner of 50 % of all of the outstanding capital stock of gpi . subsequent to the intellectual property transfers described above , the company , gpi and everon entered into agreements with a third-party investor for the purpose of providing gpi with capital . on august 10 , 2018 , gpi , norma , the company and everon entered into a certain simple agreement for future equity ( the `` safe '' ) . under the safe , gpi granted norma the right to purchase shares of gpi 's capital stock in exchange for the payment of up to $ 30,000,000 , of which $ 10,500,000 was paid shortly after the execution of the safe and the remainder may be paid , if at all , in tranches over time . norma may exercise its right to purchase shares of gpi 's capital stock upon the occurrence of certain events , or otherwise may alternatively be paid an amount equal to its investment amount ( plus accrued interest , in certain cases ) . under the safe , the parties agreed that gpi 's board of directors ( the `` gpi board '' ) will consist of four members , two of whom will be selected by norma , one of whom will be selected by the company and one of whom will be selected by everon . the safe also provides that the parties will agree that a quorum of the gpi board will require that at least one of the directors selected by norma be present . additionally , the safe sets forth a number of actions that gpi will be prohibited from taking without the unanimous consent of all of the members of the gpi board and sets forth other matters that must be approved by a majority of the members of the gpi board . the company and everon have each guaranteed , to the extent of their powers as stockholders of gpi , the due and punctual performance by gpi of all of its obligations under the safe . in connection with the execution of the safe , the company , everon , gpi and norma entered into a director designation agreement , dated as of august 10 , 2018 , pursuant to which the parties made certain commitments as to voting and transfer of their shares of gpi and gpi 's governance . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( `` gaap `` ) . the preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenues , and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses , income taxes , stock-based compensation , investments , and in-process r & d . story_separator_special_tag we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable , collectability is reasonably assured , contractual obligations have been satisfied and title and risk of loss have been transferred to the customer . we generate our revenue from two different types of contractual arrangements : ( i ) cost-reimbursable grants and contracts and ( ii ) fixed-price grants and contracts . costs consist primarily of actual internal labor charges , subcontractor and 39 material costs incurred , plus an allocation of fringe benefits , overhead and general and administrative expenses ( `` g & a `` ) , and applicable fees , if any , based on the terms of the contract . revenues on cost-reimbursable grants and contracts are recognized in an amount equal to the costs incurred during the period , plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the grant or contract . revenues on fixed-price grants and contracts are recognized using a percentage-of-completion method , which uses assumptions and estimates , as appropriate . these assumptions and estimates are developed in coordination with the principal investigator performing the work under the fixed-price grant or contract to determine levels of accomplishments throughout the life of the grant or contract . stock-based compensation we expense all share-based awards to employees and consultants , including grants of stock options and shares , based on their estimated fair value at the date of grant . costs of all share-based payments are recognized over the requisite service period that an employee or consultant must provide to earn the award ( i.e. , the vesting period ) and allocated to the functional operating expense associated with that employee or consultant . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , short-term investments , accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments . common stock warrants , which are classified as liabilities , are recorded at their fair market value as of each reporting period . the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : level 1 – quoted prices for identical instruments in active markets . level 2 – quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . level 3 – instruments where significant value drivers are unobservable to third parties . we use the black-scholes model to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in level 3. the black-scholes model utilizes inputs consisting of : ( i ) the closing price of our common stock ; ( ii ) the expected remaining life of the warrants ; ( iii ) the expected volatility using a weighted-average of historical volatilities of cbli and a group of comparable companies ; and ( iv ) the risk-free market rate . as of december 31 , 2018 , we held approximately $ 0.1 million in accrued expenses classified as level 3 securities for warrants to purchase common stock . income taxes determining the consolidated provision for income tax expense , deferred tax assets and liabilities and related valuation allowance , if any , involves judgment . on an on-going basis , we evaluate whether a valuation allowance is needed to reduce our deferred income tax assets to an amount that is more likely than not to be realized . the evaluation process includes assessing historical and current results in addition to future expected results . upon determining that we would be able to realize our deferred tax assets , an adjustment to the deferred tax valuation allowance would increase income in the period we make such determination . research and development expenses r & d costs are expensed as incurred . advance payments are deferred and expensed as performance occurs . r & d costs include the cost of our personnel ( which consists of salaries and incentive and stock-based compensation ) , out-of-pocket preclinical and 40 clinical trial costs usually associated with contract research organizations , drug product manufacturing and formulation , and a pro-rata share of facilities expense and other overhead items .
| we have also received $ 7.3 million in net proceeds from the issuance of long-term debt instruments ; dod and the barda have funded grants and contracts totaling $ 60.4 million for the development of entolimod for its biodefense indication ; the russian federation has funded a series of contracts totaling $ 17.3 million , based on the exchange rates in effect on the date of funding . these contracts include requirements for us to contribute matching funds , which we have satisfied with both the value of developed intellectual property at the time of award , incurred development expenses and future expenses ; we have been awarded $ 4.0 million in grants and contracts not described above , all of which has been recognized at december 31 , 2018 ; 42 incuron was formed to develop and commercialize the curaxins product line , including its lead oncology drug candidate cbl0137 . in 2015 , we sold our ownership interest for approximately $ 4.0 million and retained a 2 % royalty interest in the cbl0137 technology ; and panacela was formed to develop and commercialize preclinical compounds , which were transferred to panacela through assignment and lease agreements . rusnano contributed $ 9.0 million to panacela and cbli contributed $ 3.0 million plus intellectual property to panacela . as of the date of this filing , cbli owns 67.57 % of panacela . we have incurred cumulative net losses and expect to incur additional losses related to our r & d activities . we do not have commercial products and have limited capital resources . as of december 31 , 2018 , we had $ 4.1 million in cash , cash equivalents and short-term investments which , along with the active government contracts described above , are expected to fund our projected operating requirements and allow us to fund our operating plan , in each case ,
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we continue to focus our sales and marketing efforts to increase our share of the existing market for our products as well as expand the market for and application of our products , especially utilizing high efficiency and green technology . key operational factors chemical business facility reliability consistent , reliable and safe operations at our chemical plants are critical to our financial performance and results of operations . unplanned downtime of the plants typically result in lost contribution margin , increased maintenance expense and decreased inventory for sale . the financial impact of planned downtime , including turnarounds maintenance , is mitigated through a diligent planning process that takes into the market , the availability of resources to perform the needed maintenance , feedstock logistics and other factors . our cherokee and pryor facilities have historically undergone a facility turnaround every year . in the third quarter of 2014 , our cherokee facility underwent an extended turnaround replacing certain end-of-life equipment and performing additional maintenance required to move to a two-year turnaround cycle . the extended turnaround lasted 42 days and incurred approximately $ 5 million in maintenance expenses . going forward , we anticipate that turnarounds at our cherokee facility typically will be performed every two years , expecting to last 25 to 30 days . turnarounds at our pryor facility currently are performed every year , and typically last between 20 to 25 days . we are currently anticipating a turnaround at our pryor facility in june or july of 2015. at our el dorado facility , since we are able to perform turnaround projects on individual plants without shutting down the entire facility , the impact of lost production is not significant . upon completion of the new ammonia plant at our el dorado facility , that facility will begin with annual turnarounds that will typically last between 20 to 25 days . all turnarounds result in lost fixed overhead absorption and additional maintenance costs , which costs are expensed as incurred . 23 prepay contracts we use forward sales of our fertilizer products to optimize our asset utilization , planning process and production scheduling . these sales are made by offering customers the opportunity to purchase product on a forward basis at prices and delivery dates that we propose . we use this program to varying degrees during the year depending on market conditions and depending on our view as to whether price environments will be increasing or decreasing . fixing the selling prices of our products months in advance of their ultimate delivery to customers typically causes our reported selling prices and margins to differ from spot market prices and margins available at the time of shipment . climate control business product orders , sales and ending backlog our climate control business 2014 total bookings were $ 278 million , the highest level since 2008 ( $ 306 million ) . despite the loss of carrier 's heat pump contracts discussed below , our commercial bookings increased 12 % over 2013 , whereas our residential product bookings declined 7 % . excluding carrier heat pump activity , commercial and residential bookings increased 18 % and 15 % , respectively . our backlog significantly improved in 2014 over 2013 due to increased orders for our larger custom air handlers and hydronic fan coils . the following table shows information relating to our product order intake level , net sales and backlog of confirmed customer product orders of our climate control business : replace_table_token_8_th ( 1 ) our product order level consists of confirmed purchase orders from customers that have been accepted and received credit approval . our backlog consists of confirmed customer orders for product to be shipped at a future date . historically , we have not experienced significant cancellations relating to our backlog of confirmed customer product orders , and we typically expect to ship substantially all of these orders within the next twelve months . however , the december 31 , 2014 backlog includes two orders totaling approximately $ 6.9 million expected to ship from twelve to eighteen months . it is possible that some of our customers could cancel a portion of our backlog or extend the shipment terms . product orders and backlog , as reported , generally do not include amounts relating to shipping and handling charges , service orders or service contract orders . in addition , product orders and backlog , as reported , exclude contracts related to our construction business due to the relative size of individual projects and , in some cases , extended timeframe for completion beyond a twelve-month period . for january 2015 , our new orders received were approximately $ 24.8 million and our backlog was approximately $ 71.7 million at january 31 , 2015. operational excellence activities we are in the second year of our operational excellence initiatives to become a world class company in terms of safety , quality , delivery and cost . we believe world class performance will benefit our climate control business through a high level of customer satisfaction , enhanced employee engagement , faster growth and improved margins . during the past two years , we completed value analysis/value engineering activities that are part of our operational excellence initiatives at each of our companies within our climate control business . in addition , we have laid the foundation for the continuous improvement culture desired in our organization . in 2014 , we completed more than 15 rapid improvement events and improvement projects across our climate control business . the rie 's covered areas throughout our entire value streams ; improving our response time to customer quote requests , improving material delivery to our production lines , creating flow on our assembly lines , implementing kitting operations within sheet metal fabrication to reduce material outages on our assembly lines , improving our communication and scheduling on quick cycle orders and improving our engineering design and delivery process for special feature requests from our customers . story_separator_special_tag 24 in addition , we implemented daily improvement activities and root cause analysis/problem solving methods . we also have completed our second year of value stream analysis ( vsa ) and management alignment ( ma ) activities , which we believe sets the stage for additional improvements in 2015 and future years . certain heat pump contracts in november 2013 , carrier advised one of our subsidiaries , cm , that heat pump contracts would not be renewed between cm , as the manufacturer , and carrier , as the purchaser . these contracts expired on may 11 , 2014. during 2014 , 2013 and 2012 , net sales pursuant to these heat pump contracts represented approximately $ 15 million , $ 32 million and $ 36 million , respectively . despite the loss of the carrier heat pump contracts , we expect our climate control business to report improved sales in 2015 due from higher sales of our lsb branded climate control products through new product introductions and forecast growth in the commercial and institutional construction markets . results of operations the following results of operations should be read in conjunction with our consolidated financial statements for the years ended december 31 , 2014 , 2013 , and 2012 and accompanying notes and the discussions under overview and liquidity and capital resources included in this md & a . we present the following information about our results of operations for our two core business segments : the chemical business and the climate control business . the business operation classified as other primarily sells industrial machinery and related components to machine tool dealers and end users . net sales by business segment include net sales to unaffiliated customers as reported in the consolidated financial statements . intersegment net sales are not significant . gross profit by business segment represents net sales less cost of sales . in addition , our chief operating decision makers use operating income by business segment for purposes of making decisions that include resource allocations and performance evaluations . operating income by business segment represents gross profit by business segment less sg & a incurred by each business segment plus other income and other expense earned/incurred by each business segment before general corporate expenses . general corporate expenses consist of sg & a , other income and other expense that are not allocated to one of our business segments . 25 the following table contains certain information about our continuing operations in different business segments for each of the three years ended december 31 : replace_table_token_9_th 26 year ended december 31 , 2014 compared to year ended december 31 , 2013 chemical business the following table contains certain information about our net sales , gross profit and operating income in our chemical segment for 2014 and 2013 : replace_table_token_10_th ( 1 ) as a percentage of net sales net sales - chemical our chemical business sales in the agricultural markets primarily were at the spot market price in effect at the time of sale or at a negotiated future price . most of our chemical business sales in the industrial and mining markets were pursuant to sales contracts and or pricing arrangements on terms that include the cost of raw material feedstock as a pass through component in the sales price . our 2014 production and sales volumes were higher in all three of our primary markets due to consistent customer demand and improved on-stream production rates at the el dorado , pryor and cherokee facilities , partially offset by an extended turnaround in the third quarter and the approximately 30 days of downtime in the fourth quarter to complete certain unplanned maintenance at our cherokee facility . agricultural products comprised approximately 47 % and 44 % of the chemical business ' net sales for 2014 and 2013 , respectively . agricultural products sales increased in 2014 as more product was available to sell resulting from the increased on-stream rates of our facilities partially offset by lower average selling prices for nitrogen fertilizers . compared to 2013 , the 2014 average agricultural products selling prices per ton were lower by 8 % , 5 % , and 10 % for ammonia , uan and an , respectively . the decrease in selling prices for the nitrogen fertilizers was due largely to record exports of urea from china combined with lower commodity prices . industrial acids and other chemical products sales increased in 2014 as a result of more product available to sell due to the improved on-stream rates of our chemical facilities . mining products sales increased in 2014 primarily as a result of more product available to sell due to the improved on-stream rates of our chemical facilities . other products relates to natural gas sales from our working interests in certain natural gas properties acquired in 2012 and 2013 by a subsidiary within our chemical business . the increase in natural gas sales is primarily due to higher production volume as these properties are developed partially offset by lower net selling prices . 27 gross profit - chemical our gross profit increased $ 20.4 million in 2014 as compared to 2013. excluding business interruption insurance recoveries of $ 22.9 million and $ 28.6 million in 2014 and 2013 , respectively , and $ 4.5 million of precious metals recovery in 2013 , the increase in gross profit was $ 30.6 million . the increase of $ 30.6 million was due to the higher sales level resulting in improved fixed overhead absorption made possible by the improved on-stream production rates of our chemical facilities . the improved gross profit was partially offset by a decline in the margin per ton of nitrogen fertilizers due to lower selling prices and higher feedstock costs . natural gas feedstock cost increased approximately 12 % partially offset by a 7 % decrease in ammonia feedstock costs , while an prices decreased 10 % and uan selling prices decreased 5 % , negatively affecting gross profit margins on our nitrogen fertilizer sales .
| 20 key industry factors chemical business supply and demand agricultural the price at which our agricultural products are ultimately sold depends on numerous factors , including the supply and demand for nitrogen fertilizers which , in turn , depends upon , among other factors , world grain demand and production levels , the cost and availability of transportation , storage , weather conditions , competitive pricing and the availability of imports . an expansion or upgrade of competitors ' facilities , international political and economic developments and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics . these factors can impact , among other things , the level of inventories in the market , resulting in price volatility and product margins . as reported in green markets and based upon the january usda release of its 2014 crop production summary and the wasde report dated february 10 , 2015 , for the 2014/2015 corn season , production is estimated at 14.2 billion bushels or 351 million metric tons , 3 % above the prior season . additionally , the average u. s. yield is estimated at a record 171.0 bushels per acre compared to 158.1 bushels per acre in the prior season . wasde also estimated the ending u.s. corn stocks to be 47.7 million metric tons compared to 31.3 million metric tons last season . due to the expectation of the abundant supply , corn prices are low relative to pricing over the last three years ; most recently reported at $ 3.65 per bushel . the number of acres planted will drive nitrogen fertilizer consumption and demand which likely will drive ammonia , uan and urea prices . current wasde estimates are for 88-89 million acres of corn to be planted in 2015 compared to approximately 91 million planted in 2014. however with fewer acres , farmers will expect better yields requiring increased nitrogen fertilizers . notwithstanding the current conditions , the fundamentals continue to be positive for nitrogen fertilizer products we produce and sell and gross margins still continue to be favorable , with the exception of an produced at the el dorado facility from purchased ammonia , which is one of the reasons for the current construction project of an ammonia plant
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story_separator_special_tag in 2014 , we increased our equity interest in credit information bureau ( india ) limited ( “ cibil ” ) from 27.5 % to 55.0 % . this additional purchase gave us control and resulted in our consolidation of cibil . cibil 's results of operations , which are not material , are included as part of our international segment in our consolidated statements of income since may 21 , 2014 , the date we obtained control . effective january 1 , 2014 , we acquired the remaining 30 % equity interest in our guatemala subsidiary , trans union guatemala , s.a. ( transunion guatemala ) from the minority shareholders . as a result of this acquisition , the company no longer records net income attributable to noncontrolling interests for this subsidiary . on december 16 , 2013 , we acquired a 100 % ownership interest in certain assets of tlo , llc ( `` tlo '' ) . tlo provides data solutions for due diligence , threat assessment , identity authentication , fraud prevention , and debt recovery . the results of operations of tlo , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on september 4 , 2013 , we acquired a 100 % ownership interest in e-scan data systems , inc. ( `` escan '' ) . escan provides data solutions for hospitals and healthcare providers to efficiently capture uncompensated care costs in their revenue management cycle programs . the results of operations of escan , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on march 1 , 2013 , we acquired an 80 % ownership interest in data solutions serviços de informática ltda . ( “ zipcode ” ) . zipcode provides data enrichment and registry information solutions for companies in brazil 's information management , financial services , marketing and telecommunications industries . the results of operations of zipcode , which are not material , have been included as part of our international segment in our consolidated statements of income since the date of the acquisition . on may 29 , 2012 , we acquired an 85 % ownership interest in credit reference bureau ( holdings ) limited ( “ crb ” ) . during the third quarter of 2013 , we acquired the remaining 15 % ownership interest . crb operates collections and credit bureau businesses and has locations in eight african countries , giving us a strategic presence in seven new african countries . the results of operations of crb , which are not material , have been included as part of our international segment in our consolidated statements of income since the date of acquisition . 39 key components of our results of operations revenue we derive our usis segment revenue from three operating platforms : online data services , marketing services and decision services . online data services encompass services delivered in real-time using both credit and public record datasets . we also provide online reports that link public record datasets for qualified businesses seeking to locate consumers , specific assets or investigate relationships among consumers , businesses and locations . collectively , the reports , characteristics and scores , with variations tailored for specific industries , form the basis of online data services . we also provide online services to help businesses manage fraud and authenticate a consumer 's identity when they initiate a new business relationship . additionally , we provide data to businesses to help them satisfy “ know your customer ” compliance requirements and to confirm an individual 's identity . marketing services help our customers develop marketing lists of prospects via direct mail , web and mobile . our databases are used by our customers to contact individuals to extend firm offers of credit or insurance . we provide portfolio review services , which are periodic reviews of our customers ' existing accounts , to help our customers develop cross-selling offers to their existing customers and monitor and manage risk in their existing consumer portfolios . we also provide trigger services which are daily notifications of changes to a consumer profile . decision services , our software-as-a-service offerings , includes a number of platforms that help businesses interpret data and predictive model results and apply their customer-specific criteria to facilitate real-time automated decisions at the time of customer interaction . our customers use decision services to evaluate business risks and opportunities , including those associated with new consumer credit and checking accounts , insurance applications , account collection , patient registrations and apartment rental requests . we report our international segment revenue in two categories : developed markets and emerging markets . our developed markets are canada and hong kong . our emerging markets include africa , latin america , asia pacific and india . in 2014 , we reclassified puerto rico to emerging markets to align it with the rest of the latin america region . prior years ' revenue has been reclassified accordingly . consumer interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft . services in this segment include credit reports and scores , credit monitoring , fraud protection and resolution and financial management . our products are provided through user friendly online and mobile interfaces and supported by educational content and customer support . cost of services costs of services include data acquisition and royalty fees , costs related to our databases and software applications , consumer and call center support costs , hardware and software maintenance costs , telecommunication expenses and occupancy costs associated with the facilities where these functions are performed . selling , general and administrative selling , general and administrative expenses include personnel-related costs for sales , administrative and management employees , costs for professional and consulting services , advertising and occupancy and facilities expense of these functions . story_separator_special_tag non-operating income and expense non-operating income and expense includes interest expense , interest income , earnings from equity-method investments , dividends from cost-method investments , expenses related to successful and unsuccessful business acquisitions , loan fees , debt refinancing expenses , certain acquisition-related gains and losses and other non-operating income and expenses . results of operations—twelve months ended december 31 , 2014 , 2013 and 2012 as a result of the 2012 change in control transaction , the historical financial statements and information are presented on a successor and predecessor basis . the historical financial information for transunion intermediate reflects the consolidated results of transunion intermediate and its subsidiaries prior to the 2012 change in control transaction ( the “ predecessor ” ) . the historical financial information for transunion reflects the stand-alone results of its operations from its date of inception and the consolidated results of transunion intermediate and its subsidiaries after april 30 , 2012 ( the “ successor ” ) . the 2012 change in control transaction was accounted for using the acquisition method of accounting in accordance with accounting standards codification ( “ asc ” ) 805 , business combinations . the guidance prescribes that the basis of the assets acquired and liabilities assumed be recorded at fair value to reflect the purchase price . periods after the 2012 change in control transaction are not comparable to prior periods due primarily to the additional amortization of intangibles resulting from the fair value adjustments of the assets acquired and liabilities assumed and interest expense resulting from the additional debt 40 incurred to finance the transaction . in addition , the predecessor incurred significant stock-based compensation expense and acquisition costs related to the 2012 change in control transaction . to facilitate comparability of 2013 to 2012 , we present below the combination of transunion consolidated results from the date of inception , february 15 , 2012 , through december 31 , 2012 , transunion intermediate consolidated results for the four months ended april 30 , 2012 , and certain pro forma adjustments that give effect to the 2012 change in control transaction as if it occurred on january 1 , 2012 ( pro forma results for the year ended december 31 , 2012 ) , and compare those pro forma results with the consolidated transunion 2013 results . we present the 2012 information in this format to assist readers in understanding and assessing the trends and significant changes in our results of operations on a comparable basis to 2013. we believe this presentation is appropriate because it provides a more meaningful comparison and more relevant analysis of our results of operations for 2013 compared with 2012 , than a presentation of historical 2013 results for transunion compared with historical 2012 results of transunion from the date of inception through december 31 , 2012 , and a separate comparison of historical 2013 results for transunion compared with historical 2012 results of transunion intermediate for the four months ended april 30 , 2012 , would provide . the following table sets forth our historical results of operations for the periods indicated below : 41 replace_table_token_4_th nm : not meaningful 42 ( 1 ) the depreciation and amortization , interest expense and income tax expense pro forma adjustments above give effect to the 2012 change in control transaction as if it had occurred on january 1 , 2012 . ( 2 ) estimated tax impact of pro forma adjustments at 38 % . key performance measures management , including our chief operating decision maker , evaluates the financial performance of our businesses based on a variety of key indicators . these indicators include the non-gaap measure adjusted ebitda and the gaap measures revenue , cash provided by operating activities and cash paid for capital expenditures . in order to more closely align the definition of adjusted ebitda to the definition we use as a supplemental measure of our operating performance as well as the compensation measure under our incentive plan , we have included additional adjustments to our previously defined adjusted ebitda . such additional adjustments consist of expenses for mergers and acquisitions integration , business optimization , our technology transformation project , operating expense tax matters , consulting study fees related to our strategic initiatives and other expenses . all periods have been presented in the table below under our new definition of adjusted ebitda . for the twelve months ended december 31 , 2014 , 2013 and 2012 , these key indicators were as follows : replace_table_token_5_th nm : not meaningful 1. adjusted ebitda is defined as net income ( loss ) attributable to the company before net interest expense , income tax provision ( benefit ) , depreciation and amortization and other adjustments noted in the table above . we present 43 adjusted ebitda as a supplemental measure of our operating performance because it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . also , adjusted ebitda is a measure frequently used by securities analysts , investors and other interested parties in their evaluation of the operating performance of companies similar to ours . in addition , our board of directors and executive management team use adjusted ebitda as a compensation measure under our incentive plan . furthermore , under the credit agreement governing our senior secured credit facility and the indentures governing our senior notes , our ability to engage in activities such as incurring additional indebtedness , making investments and paying dividends is tied to a ratio based on adjusted ebitda . see “ management 's discussion and analysis of financial condition and results of operations - liquidity and capital resources - debt. ” adjusted ebitda does not reflect our capital expenditures , interest , income tax , depreciation , amortization , stock-based compensation and certain other income and expense . other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure .
| as economies in emerging markets continue to develop and mature , we believe there will continue to be favorable socio-economic trends , such as an increase in the size of the middle class and a significant increase in the use of financial services by under-served and under-banked customers . demand for consumer solutions is rising with higher consumer awareness of the importance and usage of their credit information , increased risk of identity theft due to data breaches and more readily available free credit information . the increasing number and complexity of regulations , including new capital requirements and the dodd-frank act , make operations for businesses more challenging . effects of inflation we do not believe that inflation has had a material effect on our business , results of operations or financial condition . 2012 change in control transaction transunion was formed on february 15 , 2012 , as a vehicle to acquire transunion intermediate on april 30 , 2012. in connection with the 2012 change in control transaction , the company recognized significant stock-based compensation expense in 2012 due to the accelerated vesting of outstanding options and a significant increase in depreciation and amortization expense as a result of the step-up in basis to fair value of the assets and liabilities of the company following the 2012 change in control transaction . see the notes to our consolidated financial statements included in this report and the operating expense discussion below for additional information . 38 recent developments during the fourth quarter of 2014 , the company borrowed $ 50.0 million against the senior secured revolving line of credit to partially fund acquisitions as discussed under “ -recent acquisitions and partnerships ” below . on april 9 , 2014 , the company refinanced and amended its senior secured credit facility . the refinancing resulted in an increase of the outstanding term loan from $ 1,120.5 million to $ 1,900.0 million . the excess proceeds were used to redeem entire $ 645.0 million outstanding balance of the 11.375 % senior notes ( the “ 11.375 % senior notes ” ) issued by transunion financing corp and trans union llc including unpaid accrued
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for 2018 , $ 9 million of costs are included in corporate and other 's net income ; the balance is included in neer . for 2017 , the costs relate to corporate and other . see note 1 - acquisition-related . ( f ) see note 1 - disposal of businesses/assets for a discussion of the sale of the fiber-optic telecommunications business . ( g ) approximately $ 246 million of the impairment charge is included in neer 's net income ; the balance is included in corporate and other . see note 5 - nonrecurring fair value measurements . nee segregates into two categories unrealized mark-to-market gains and losses and timing impacts related to derivative transactions . the first category , referred to as non-qualifying hedges , represents certain energy derivative , interest rate derivative and foreign currency transactions entered into as economic hedges , which do not meet the requirements for hedge accounting , or for which hedge accounting treatment is not elected or has been discontinued . changes in the fair value of those transactions are marked to market and reported in the consolidated statements of income , resulting in earnings volatility because the economic offset to certain of the positions are generally not marked to market . as a consequence , nee 's net income reflects only the movement in one part of economically-linked transactions . for example , a gain ( loss ) in the non-qualifying hedge category for certain energy derivatives is offset by decreases ( increases ) in the fair value of related physical asset positions in the portfolio or contracts , which are not marked to market under gaap . for this reason , nee 's management views results expressed excluding the impact of the non-qualifying hedges as a meaningful measure of current period performance . the second category , referred to as trading activities , which is included in adjusted earnings , represents the net unrealized effect of actively traded positions entered into to take advantage of expected market price movements and all other commodity hedging activities . at fpl , substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled , and , upon settlement , any gains or losses are passed through the fuel clause . see note 4 . 36 2019 story_separator_special_tag $ 210 million related to retail base rate increases associated with the okeechobee clean energy center and the 2019 addition of new solar generation . in 2019 , retail base revenues were also impacted by a decrease of 0.3 % in the average usage per retail customer and an increase of 2.0 % in the average number of customer accounts . although the weather in 2019 was favorable when compared to 2018 , usage per retail customer decreased slightly . see note 1 - rate regulation . cost recovery clauses revenues from fuel and other cost recovery clauses and pass-through costs , such as franchise fees , revenue taxes and storm-related surcharges , are largely a pass-through of costs . such revenues also include a return on investment allowed to be recovered through the cost recovery clauses on certain assets , primarily related to certain solar and environmental projects and the unamortized balance of the regulatory asset associated with fpl 's acquisition of certain generation facilities . see item 1. business - fpl - fpl regulation - fpl electric rate regulation - cost recovery clauses . underrecovery or overrecovery of cost recovery clause and other pass-through costs ( deferred clause and franchise expenses and revenues ) can significantly affect nee 's and fpl 's operating cash flows . the 2019 net overrecovery impacting nee and fpl 's operating cash flows was approximately $ 188 million . storm-related revenues decreased in 2019 primarily as a result of the conclusion of the storm-recovery bond surcharge in the third quarter of 2019. see note 9 - fpl . in 2019 and 2018 , cost recovery clauses contributed approximately $ 117 million and $ 113 million , respectively , to fpl 's net income . other items impacting fpl 's consolidated statements of income storm restoration costs in december 2019 , fpl determined that it would not seek recovery of hurricane dorian storm restoration costs through a surcharge from customers and instead recorded such costs as storm restoration costs in nee 's and fpl 's consolidated statements of income . see note 1 - storm fund , storm reserve and storm cost recovery . depreciation and amortization expense the major components of fpl 's depreciation and amortization expense are as follows : replace_table_token_10_th 38 depreciation expense decreased $ 109 million during 2019 primarily reflecting a lower reversal of reserve amortization in 2019 compared to 2018 and lower storm-recovery cost amortization primarily as a result of the final payment of the storm-recovery bonds in the third quarter 2019 ( see note 9 - fpl ) . reserve amortization , or reversal of such amortization , reflects adjustments to accrued asset removal costs provided under the 2016 rate agreement in order to achieve the targeted regulatory roe . reserve amortization is recorded as a reduction to ( or when reversed as an increase to ) accrued asset removal costs which is reflected in noncurrent regulatory liabilities on the consolidated balance sheets . at december 31 , 2019 , approximately $ 893 million remains in accrued asset removal costs related to reserve amortization . the decreases in depreciation and amortization expense during 2019 were partly offset by increased depreciation related to higher plant in service balances . neer : results of operations neer owns , develops , constructs , manages and operates electric generation facilities in wholesale energy markets primarily in the u.s. , as well as in canada . neer also provides full energy and capacity requirements services , engages in power and gas marketing and trading activities , owns and operates rate-regulated transmission facilities and transmission lines and invests in natural gas , natural gas liquids and oil production and pipeline infrastructure assets . story_separator_special_tag neer 's net income less net loss attributable to noncontrolling interests for 2019 and 2018 was $ 1,807 million and $ 4,704 million , respectively , resulting in a de crease in 2019 of $ 2,897 million . the primary drivers , on an after-tax basis , of the change are in the following table . replace_table_token_11_th ( a ) reflects after-tax project contributions , including the net effect of deferred income taxes and other benefits associated with ptcs and itcs for wind and solar projects , as applicable ( see note 1 - income taxes and - sales of differential membership interests and note 6 ) , but excludes allocation of interest expense or corporate general and administrative expenses . results from projects and pipelines are included in new investments during the first twelve months of operation or ownership . project results are included in existing assets and pipeline results are included in gas infrastructure beginning with the thirteenth month of operation or ownership . ( b ) excludes allocation of interest expense and corporate general and administrative expenses . ( c ) includes differential membership interest costs . excludes unrealized mark-to-market gains and losses related to interest rate derivative contracts , which are included in change in non-qualifying hedge activity . ( d ) see overview - adjusted earnings for additional information . new investments in 2019 , results from new investments increased primarily due to higher earnings , including the net effect of deferred income taxes and other benefits associated with ptcs and itcs , related to the addition of wind and solar generating projects during or after 2018. other factors supplemental to the primary drivers of the changes in neer 's net income less net loss attributable to noncontrolling interests discussed above , the discussion below describes changes in certain line items set forth in nee 's consolidated statements of income as they relate to neer . operating revenues operating revenues for 2019 increased $ 655 million primarily due to : favorable unrealized mark-to-market activity of $ 295 million from non-qualifying hedges , revenues from new investments of $ 232 million , higher revenues of $ 198 million from the customer supply and proprietary power and gas trading business , and higher revenues of $ 122 million from the gas infrastructure business , 39 partly offset by , lower revenues from existing assets of $ 226 million primarily related to the absence of revenues of certain wind and solar facilities sold to nep in december 2018 and june 2019 and lower wind resource as compared to 2018. operating expenses - net operating expenses - net for 2019 increased $ 19 million primarily due to : higher fuel and depreciation expense of $ 150 million primarily related to the customer supply and proprietary power and gas trading and gas infrastructure businesses , higher operating expenses associated with new investments of approximately $ 137 million , and an impairment charge of approximately $ 72 million in 2019 related to the decision to no longer move forward with the construction of a wind facility ( see note 1 - construction activity ) , partly offset by , higher net gains on the disposal of businesses/assets of $ 320 million , primarily related to the gain recognized on the sale of ownership interests in wind and solar projects to nep ( see note 1 - disposal of businesses/assets ) . interest expense neer 's interest expense for 2019 increased $ 278 million primarily reflecting unfavorable impacts of approximately $ 251 million related to changes in the fair value of interest rate derivative instruments and higher borrowing costs to support growth in the business . equity in earnings of equity method investees lower earnings from equity method investees in 2019 primarily reflects equity in losses of nep primarily related to unfavorable impacts related to changes in the fair value of interest rate derivative instruments and the absence of approximately $ 150 million related to a 2018 favorable adjustment at nep to the differential membership interests due to the decrease in the federal corporate income tax rate . the decrease was partly offset by increased equity in earnings of other equity method investees . gain on nep deconsolidation the nep deconsolidation resulted in a gain of approximately $ 3.9 billion ( $ 3.0 billion after tax ) in nee 's consolidated statements of income during 2018. see note 1 - nextera energy partners , lp . change in unrealized gains ( losses ) on equity securities held in neer 's nuclear decommissioning funds - net changes in the fair value of equity securities in neer 's nuclear decommissioning funds , primarily equity securities in neer 's special use funds , relate to favorable market conditions in 2019 compared to 2018. tax credits , benefits and expenses ptcs from wind projects and itcs from solar and certain wind projects are reflected in neer 's earnings . ptcs are recognized as wind energy is generated and sold based on a per kwh rate prescribed in applicable federal and state statutes , and were approximately $ 75 million and $ 88 million in 2019 and 2018 , respectively . itcs totaled approximately $ 199 million and $ 131 million in 2019 and 2018 , respectively . a portion of the ptcs and itcs have been allocated to investors in connection with sales of differential membership interests . ptcs and itcs can significantly affect the effective income tax rate depending on the amount of pretax income . the amount of ptcs recognized can be significantly affected by wind generation and by ptc roll off . see note 6. net loss attributable to noncontrolling interests net loss attributable to noncontrolling interests primarily represents the activity related to the sales of differential membership interests .
| results of operations net income attributable to nee for 2019 was $ 3.77 billion compared to $ 6.64 billion in 2018 . in 2019 , net income attributable to nee declined primarily due to lower results at neer and corporate and other , partly offset by higher results at fpl and the addition of results from gulf power . the comparison of the results of operations for the years ended december 31 , 2018 and 2017 are included in management 's discussion in nee 's and fpl 's annual report on form 10-k for the year ended december 31 , 2018. in june 2019 , subsidiaries within the neer segment sold ownership interests in three wind generation facilities and three solar generation facilities with a total net generating capacity of approximately 611 mw to a subsidiary of nep . see note 1 - disposal of businesses/assets . in july 2019 , a wholly owned subsidiary of neet acquired the outstanding membership interests of an entity that indirectly owns trans bay , which owns and operates a 53-mile , high-voltage direct current underwater transmission cable system in california . see note 8 - trans bay cable , llc . nee 's effective income tax rates for the years ended december 31 , 2019 and 2018 were approximately 12 % and 21 % , respectively . the decrease in the rate primarily reflects the amortization of deferred regulatory credits , primarily at fpl , the impact of higher tax credits , an adjustment related to differential membership interests and lower pre-tax income . see note 6. fpl : results of operations fpl obtains its operating revenues primarily from the sale of electricity to retail customers at rates established by the fpsc through base rates and cost recovery clause mechanisms . fpl 's net income for 2019 and 2018 was $ 2,334 million and $ 2,171 million , respectively , representing an increase of $ 163 million . the increase was primarily driven by higher earnings from investments in plant in service and other property . such investments grew fpl 's average
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these forward-looking statements are only estimates or predictions . no assurances can be given regarding the achievement of future results , as actual results may differ materially as a result of risks facing our company , and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events . these risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue . all written and oral forward-looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements . given these uncertainties , we caution investors not to unduly rely on our forward-looking statements . we do not undertake any obligation to review or confirm analysts ' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events , except as required by applicable law or regulation . business overview & recent developments on march 5 , 2016 , the chinese state council issued “ opinions on carrying out consistency evaluations of the quality and efficacy of generic drugs ” ( the “ opinions ” ) . the opinions define the object of evaluations and establish deadlines , determine selection criteria for reference drugs , call for a rational selection of evaluation methods , and identify pharmaceutical manufacturers as the principle generic drug consistency evaluation , and set forth corresponding incentives . subsequently , the cfda issued “ comments from the general office of the state council on the consistency evaluations of the efficacy and quality of generic drugs ” in may 2016 , in order to further elaborate on assessment processes and related technical rules . consistency evaluations apply to the majority of our current existing marketed and pipeline products . in this environment , the management has assessed each pipeline product based on the adjusted cfda approval criteria and clinical trial requirements , as well as the estimated additional investment for consistency evaluation , and potential return of investment once launched into the market ; and decided to terminate the progress of certain pipeline products . performing consistency evaluations will become our core task in the near future in order to have our pipeline products receive the final registration approval , therefore , it will have a significant impact on our operations as well as our industrial structure . 53 under the requirements of the consistency evaluation policy , the company actively evaluated the technical difficulty , investment demand , time requirement , and investment return rate of all applicable marketed products and pipeline products . we also actively promoted the compliance process for some key products in 2017. increasing our sales remains our top priority . through the continued implementation of sales promotion , the company realized sales increases in the fourth quarter of 2017 compared to the previous quarter . management will continue to vigorously promote sales by actively participating in the recent opening of the new provincial drug tender and participation in drug exhibitions . in order to support our existing products package we remain focused on pipeline development . we have experienced delays in obtaining approval for certain products in our pipeline because of revisions of and enhancements to cfda approval criteria and processes . these revisions have resulted in additional supplemental materials and trials , higher costs , and longer approval times for certain applications . the detailed implementation rules of consistency evaluations are still being introduced , and our decision making with respect to further development of our pipeline products has been adversely impacted by those uncertainties . in light of this uncertainty , management has suspended the development of our pipeline products in 2017. the following list sets forth the current status of our main pipeline products : ● antibiotic combination - we are currently in phase ii of clinical trials , due to increased regulatory requests for clinical review . ● rosuvastatin - rosuvastatin is a generic form of crestor , a drug for the treatment of high blood cholesterol levels . clinical trials for this generic drug were completed in the fourth quarter of 2010. we have submitted an application for production approval and are supplementing consistency evaluation experiments pursuant to the opinions . 54 ● heart disease drug - we developed an oral solution for the treatment of coronary heart disease in our new product pipeline . this product comes with a patented traditional chinese medicine ( “ tcm ” ) formula . we have completed phase iii clinical trials and are supplementing clinical trials pursuant to the updated criteria . ● alzheimer 's disease drug - we developed a drug for the treatment of alzheimer 's disease and are supplementing consistency evaluation experiments pursuant to the opinions . market trends consumer demand for medicine is relatively rigid and stable and is generally unaffected by seasonal business cycles . we have noticed that the growth rates of the pharmaceutical manufacturing industry have been higher than gdp growth rates in china . according to the study “ deepening the reform of china 's medical and healthcare system and building a value-based quality service delivery system ” published by the world bank , if china maintains its existing healthcare system , total health expenditures will increase from 5.5 % of gdp in 2014 to over 9 % of gdp in 2035 , with an average annual growth rate of 8.4 % . story_separator_special_tag the rapid development of the pharmaceutical industry in china has been driven by the continuous growth of total healthcare costs , the establishment and improvement of the universal health-care insurance system , increases in medical expenditures per capita , the aging population , and changes in the disease spectrum ; however , development has been negatively impacted by factors like health-care insurance cost controls and price pressure in drug tenders in recent years . the central committee political bureau of the communist party of china approved the “ healthy china 2030 plan ” in august 2016 , which proposed to reduce personal hygiene spending to approximately 28 % of total healthcare expenditures by 2020 , and 25 % of total healthcare expenditures by 2030. in order to achieve the objectives of the above-mentioned healthy china 2030 plan in the context of an aging population and an improving universal health-care insurance system , we believe that the hygiene spending proportion of total fiscal expenditures will increase and that net annual health-care insurance expenditures will increase as well . we anticipate that the use of generic drugs as a cost-effective medical solution will be further promoted as a way to reduce the payment pressures of health-care insurance . as a generic drug company we are presented with a huge domestic market , and through further upgrades , especially in compliance with consistency evaluations , we could meet european and american production standards , enabling us to export products to overseas markets 55 in august 2015 , the state council promulgated the “ opinions on therefore and examination of the approval system for the reform of drugs and medical devices ” , which was the prelude to the reform of the drug examination and approval system , the reform of the drug registration system , consistency evaluations of generic drugs , and enhanced drug listing licensing systems , among other reforms in china . the cfda has also subsequently introduced a number of specific measures and technical details related to various areas of the above-mentioned reforms . these policies may change the existing competitive landscape , development methods , and operating patterns and rules of the pharmaceutical industry and may have a significant impact on the strategic choices and future development models of chinese pharmaceutical companies . in addition , the office of the state council issued the “ pilot plan for marketing authorization holders ” on may 24 , 2016 , allowing eligible drug research and development institutions and scientific researcher to become marketing authorization holders ( “ mah ” ) by obtaining drug marketing authorization and drug approval numbers from the state council . this policy uses a management model of separating drug marketing authorization and drug production licenses , thereby allowing a mah to produce pharmaceuticals itself or to consign production to other pharmaceutical manufacturers . this policy not only transitions our production practices to meet european and united states standards by separating drug approval and production qualifications , and therefore changing the existing model of bundling drug approval numbers to pharmaceutical manufacturers in china , but also serves as a supplement to the ongoing consistency evaluations policy . given that a certain failure rate must be demonstrated by mah applicants for their consistency evaluations , an applicant that passes the evaluations could consign production to an applicant who failed to optimize capacity , save on fixed costs , and reduce capital expenditures . in general , demand for pharmaceutical products is still experiencing steady growth in china . the ongoing generic drug consistency evaluations and reform of china 's drug production registration and review policies will have major effects on the future development of our industry and may change its business patterns . we will continue to actively adapt to state policy guidance and further evaluate market conditions for our current existing products , pipeline products , and competition in the market in order to optimize our development strategy . results of operations for the fiscal year ended december 31 , 2017 revenue revenue decreased by 15.2 % to $ 13.2 million for the year ended december 31 , 2017 , as compared to $ 15.6 million for the year ended december 31 , 2016. this decrease was mainly due to the negative impact around health-care insurance cost-control as well as policies for reducing the proportion of drug cost to total health-care spending . 56 set forth below are our revenues by product category in millions ( usd ) for the years ended december 31 , 2017 and 2016 : replace_table_token_3_th the most significant revenue decrease in terms of dollar amount was in our anti-viral/infection & respiratory ” product category , which generated $ 8.1 million in sales revenue in 2017 compared to $ 10.3 million a year ago , a decrease of $ 2.2 million . this decrease was mainly due to the sales decrease of our cefaclor dispersible tablets in this category , which was a result of drug pricing control policies , as well as market fluctuation . sales in the “ cns cerebral & cardio vascular ” category decreased by $ 0.7 million to $ 2.1 million in 2017 compared to $ 2.7 million in 2016 , which decrease was mainly due to a drop in sales of ozagrel , primarily the result of volatility in market demand . our “ digestive diseases ” category generated $ 0.7 million of sales in 2017 , compared to $ 0.8 million in 2016. our “ other ” product category sales increased by $ 0.6 million to $ 2.4 million in 2017 from $ 1.8 million in 2016 , mainly due to the increase in sales of vitamin b6 , caused by market volatility .
| the amount of net accounts receivable that were past due ( or the amount of accounts receivable that were more than 90 days old ) was $ 1.6 million and $ 3.9 million as of december 31 , 2017 and 2016 , respectively . the following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of december 31 , 2017 and 2016 : replace_table_token_5_th our bad debt allowance estimate is currently 10 % of accounts receivable that are less than 365 days old , 70 % of accounts receivable that are between 365 days and 720 days old , and 100 % of accounts receivable that are greater than 720 days old . 59 we recognize bad debt expenses per actual write-offs as well as changes of allowance for doubtful accounts . to the extent that our current allowance for doubtful accounts is higher than that of the previous period , we recognize a bad debt expense for the difference during the current period , and when the current allowance is lower than that of the previous period , we recognize a bad debt benefit for the difference . the allowance for doubtful accounts was $ 18.2 million and $ 15.7 million as of december 31 , 2017 and december 31 , 2016 , respectively . the changes in the allowances for doubtful accounts during the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_6_th impairment of intangible assets our impairments for the year ended december 31 , 2017 were $ 13.6 million , compared to $ 4.0 million in 2016. as a pharmaceutical company , we have been focusing on the development and maintenance of our intangible assets , mainly in the form of medical formulas . because of recently implemented government policies such as consistency evaluations , our management made certain assessments regarding the impairment of our intangible assets as of december 31 , 2017 and december 31 , 2016 respectively , and identified
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20 arm securities held by capstead are backed by mortgage loans that have coupon interest rates that adjust at least ann ually to more current interest rates or begin doing so after an initial fixed-rate period . these coupon interest rate adjustments are usually subject to periodic and lifetime limits , or caps , on the amount of such adjustments during any single interest ra te adjustment period and over the contractual term of the underlying loans . after the initial fixed-rate period , if applicable , the coupon interest rates of mortgage loans underlying the company 's arm securities typically adjust either ( a ) annually based on specified margins over the one-year london interbank offered rate ( “ libor ” ) or the one-year constant maturity u.s. treasury note rate ( “ cmt ” ) , ( b ) semiannually based on specified margins over six-month libor , or ( c ) monthly based on specified margins ov er indices such as one-month libor , the eleventh district federal reserve bank cost of funds index , or over a rolling twelve month average of the one-year cmt index . after consideration of any applicable initial fixed-rate periods , at december 31 , 2017 approximately 90 % , 5 % and 3 % of the company 's arm securities were backed by mortgage loans that reset annually , semi-annually and monthly , respectively , while approximately 2 % reset every five years . approximately 84 % of the company 's current-reset arm securities have reached an initial coupon reset date , while none of its longer-to-reset arm securities have reached an initial coupon reset date . additionally , at december 31 , 2017 approximately 5 % of the company 's arm securities were backed by interest-only loans , with remaining interest-only payment periods averaging 26 months . all percentages are based on averages of the characteristics of mortgage loans underlying each security and calculated using unpaid principal balances as of the indicated date . secured borrowings capstead has traditionally financed its residential mortgage investments by leveraging its long-term investment capital consisting primarily of borrowings under repurchase arrangements with commercial banks and other financial institutions . repurchase arrangements entered into by the company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings . the company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments . the terms and conditions of secured borrowings are negotiated on a transaction-by-transaction basis when each such borrowing is initiated or renewed . none of the company 's counterparties are obligated to renew or otherwise enter into new borrowings at the conclusion of existing borrowings . collateral requirements in excess of amounts borrowed ( referred to as “ haircuts ” ) averaged 4.6 percent and ranged from 3.0 to 5.0 percent of the fair value of pledged residential mortgage pass-through securities at december 31 , 2017. after considering haircuts and related interest receivable on the collateral , as well as interest payable on these borrowings , the company had $ 672 million of capital at risk with its lending counterparties at december 31 , 2017. the company did not have capital at risk with any single counterparty exceeding 5 % of total stockholders ' equity at december 31 , 2017. secured borrowing rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings . interest may be paid monthly or at the termination of a borrowing at which time the company may enter into a new borrowing at prevailing haircuts and rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty . when the fair value of pledged securities declines due to changes in market conditions or the publishing of monthly security pay-down factors , lenders typically require the company to post additional securities as collateral , pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements , referred to as margin calls . conversely , if collateral fair values increase , lenders are required to release collateral back to the company pursuant to company-issued margin calls . as of december 31 , 2017 the company 's secured borrowings totaled $ 12.33 billion with 22 counter-parties at average rates of 1.60 % , before the effects of currently-paying interest rate swap agreements held as cash flow hedges and 1.46 % including the effects of these derivatives . to help mitigate exposure to 21 rising short-term interest rates , the company uses pay- fixed , receive-variable interest rate swap agreements with two- and three-year interest payment terms supplemented with longer-maturity secured borrowings , when available at attractive rates and terms . at year-end the company held $ 8.05 billion notional a mount of portfolio financing-related interest rate swap agreements with contract expirations occurring at various dates through the fourth quarter of 2020 and a weighted average expiration of 12 months . after consideration of all portfolio financing-related swap positions entered into as of year-end , the company 's residential mortgage investments and secured borrowings had estimated durations at december 31 , 2017 of 11¾ and 8¼ months , respectively , for a net duration gap of approximately 3½ months – see “ interest rate risk ” for further information about the company 's sensitivity to changes in market interest rates . the company intends to continue to manage interest rate risk associated with holding and financing its residential mortgage investments by utilizing suitable derivative financial instruments such as interest rate swap agreements as well as longer-maturity secured borrowings , if available at attractive rates and terms . off-balance sheet arrangements and contractual obligations as of december 31 , 2017 , capstead did not have any off-balance sheet arrangements . story_separator_special_tag the company 's contractual obligations at december 31 , 2017 were as follows ( in thousands ) : replace_table_token_7_th * secured borrowings include an interest component based on contractual rates in effect at year-end . unsecured borrowings include an interest component based on market interest rate expectations as of year-end . obligations under interest rate swap agreements are net of variable-rate payments owed to the company under the agreements ' terms that are based on market interest rate expectations as of year-end . utilization of long-term investment capital and potential liquidity capstead 's investment strategy involves managing an appropriately leveraged portfolio of arm agency securities that management believes can produce attractive risk-adjusted returns over the long term , while reducing , but not eliminating , sensitivity to changes in interest rates . the potential liquidity inherent in the company 's unencumbered residential mortgage investments is as important as the actual level of cash and cash equivalents carried on the balance sheet because secured borrowings generally can be increased or decreased on a daily basis to meet cash flow requirements and otherwise manage capital resources efficiently . potential liquidity is affected by , among other factors : current portfolio leverage levels , changes in market value of assets pledged and interest rate swap agreements held for hedging purposes as determined by lending and swap counterparties , mortgage prepayment levels , collateral requirements of lending and swap counterparties , and general conditions in the commercial banking and mortgage finance industries . 22 as of december 31 , 2017 t he company 's utilization of its long-term investment capital and its estimated potential liquidity were as follows in comparison with december 31 , 2016 ( in thousands ) : replace_table_token_8_th ( a ) investments are stated at balance sheet carrying amounts , which generally reflect estimated fair value as of the indicated dates . ( b ) potential liquidity is based on maximum amounts of borrowings available under existing uncommitted financing arrangements considering management 's estimate of the fair value of residential mortgage investments held as of the indicated dates adjusted for other sources of liquidity such as cash and cash equivalents . ( c ) cash collateral receivable from swap counterparties is presented net of cash collateral payable to swap counterparties , if applicable , and the fair value of interest rate swap positions as of the indicated date . in order to efficiently manage its liquidity and capital resources , capstead attempts to maintain sufficient liquidity reserves to fund borrowing and interest rate swap margin calls under stressed market conditions , including margin calls resulting from monthly principal payments ( remitted to the company 20 to 45 days after any given month-end ) , as well as reasonably possible declines in the market value of pledged assets and swap positions . should market conditions deteriorate , management may reduce portfolio leverage and increase liquidity by raising new equity capital , selling mortgage securities and or curtailing the replacement of portfolio runoff . additionally , the company routinely does business with a large number of lending counterparties , which bolsters financial flexibility to address challenging market conditions and limits exposure to any individual counterparty . future levels of portfolio leverage will be dependent on many factors , including the size and composition of the company 's investment portfolio ( see “ liquidity and capital resources ” ) . management believes current portfolio leverage levels represent an appropriate use of leverage under current market conditions for a portfolio consisting of seasoned , short-duration arm agency securities . 23 supplemental analysis of quarterly financing spreads quarterly financing spreads and mortgage prepayment rates were as follows for the indicated periods : replace_table_token_9_th ( a ) all interest-earning assets include residential mortgage investments , overnight investments and cash collateral receivable from interest rate swap counterparties . all interest-paying liabilities include unsecured borrowings and cash collateral payable to interest rate swap counterparties . ( b ) cash yields are based on the cash component of interest income . investment premium amortization is determined using the interest method which incorporates actual and anticipated future mortgage prepayments . both are expressed as a percentage calculated on average amortized cost basis for the indicated periods . ( c ) unhedged borrowing rates represent average rates on secured borrowings , before consideration of related currently-paying interest rate swap agreements . hedged borrowing rates represent the average fixed-rate payments made on currently-paying interest rate swap agreements held for portfolio hedging purposes adjusted for differences between libor-based variable-rate payments received on these swaps and unhedged borrowing rates , as well as the effects of any recognized hedge ineffectiveness . average fixed-rate swap payments were 1.19 % , 1.08 % , 1.02 % and 0.89 % during the fourth , third , second and first quarters of 2017 , respectively . during 2017 and 2016 , fixed-rate swap payments averaged 1.04 % and 0.74 % while variable-rate payment adjustments averaged 0.05 % and 0.20 % on average notional amounts outstanding , respectively . 24 cash yields continue to benefit from higher coupon interest rates as mortgage loans underlying t he company 's current-reset arm securities reset to higher rates based on higher prevailing six- and 12-month interest rate indices . the majority of these loans reset annually based on margins over 12-month libor , which increased 42 basis points in 2017 to 2.11 % at december 31 , 2017. increases in these indices were driven largely by market expectations regarding federal reserve interest rate policy . the federal reserve open market committee orchestrated four 25 basis point federal funds rate increases bet ween december 2017 and december 2016 and is expected to continue raising rates in 2018. based on where the underlying indices were at december 31 , 2017 and on further increases subsequent to year-end , cash yields are expected to continue trending higher in 2018. portfolio yield adjustments for investment premium amortization are primarily driven by mortgage prepayment and investment premium levels .
| book value ( total stockholders ' equity , less liquidation preferences for outstanding shares of preferred stock , divided by outstanding shares of common stock ) declined 5.5 % , or $ 0.60 per share to $ 10.25 per share . this change in book value , combined with $ 0.80 per share in common dividends declared , produced an economic return ( change in book value per share of common stock plus common stock dividends divided by beginning book value per share ) to capstead common stockholders of 1.84 % in 2017. capstead 's residential mortgage investments increased $ 138 million to end the year at $ 13.45 billion . secured borrowings increased $ 186 million to $ 12.33 billion . portfolio leverage ( secured borrowings divided by long-term investment capital ) increased to 9.22 to one at december 31 , 2017 from 9.02 to one at december 31 , 2016. management believes current portfolio leverage levels represent an appropriate use of leverage under current market conditions for a portfolio consisting of seasoned , short-duration arm agency securities . capstead reported net income of $ 80 million or $ 0.65 per diluted common share in 2017. this compares to 2016 earnings of $ 83 million or $ 0.70 per diluted common share . earnings in 2017 benefited by $ 20 million as a result of higher cash yields compared to 2016 and $ 7 million in lower compensation-related accruals between the two periods , while being negatively impacted by higher borrowing costs of $ 31 million due largely to federal reserve actions to increase short-term interest rates . cash yields are expected to continue trending higher as coupon interest rates on mortgage loans underlying the currently-resetting portion of the portfolio reset higher based on higher prevailing six- and 12-month interest rate indices . investment premium amortization can be expected to have less of an effect on portfolio yields in 2018 given recently higher longer-term interest rates . borrowing rates in 2018 will continue increasing to the extent the federal reserve
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as of december 31 , 2016 , 30 of the 42 committed wells were in line and producing , eight wells were drilled and awaiting completion and four wells were in process of being drilled . on march 31 , 2016 , we completed an exchange offer and consent solicitation related to our 8.875 % senior notes due 2020 ( the “ 2020 notes ” ) and 6.25 % senior notes due 2022 ( the “ 2022 notes ” and , together with the 2020 notes , the “ existing notes ” ) . we offered to exchange ( the “ exchange ” ) any and all of the existing notes held by eligible holders for up to ( i ) $ 675.0 million aggregate principal amount of our new senior secured second lien notes ( the “ new notes ” ) and ( ii ) an aggregate of 10.1 million shares of our common stock ( the “ shares ” ) . we accounted for these transactions as troubled debt restructurings . as a result of the exchange , the future undiscounted cash flows of the new notes are greater than the net carrying value of the existing notes . as such , no gain has been recognized within our gaap basis financial statements and a new effective interest rate has been established . see note 11 , income taxes , to our consolidated financial statements , for information regarding the tax treatment and impact of the exchange for federal and state income tax purposes . in exchange for $ 324.0 million in aggregate principal amount of the 2020 notes , representing approximately 92.6 % of the outstanding aggregate principal amount of the 2020 notes , and $ 309.1 million in aggregate principal amount of the 2022 notes , representing approximately 95.1 % of the outstanding aggregate principal amount of the 2022 notes , we issued ( i ) $ 633.2 million aggregate principal amount of new notes and ( ii ) issued an aggregate of 8.4 million shares . an additional $ 0.5 million aggregate principal amount of new notes were issued to holders who were ineligible to accept the shares . in addition , upon closing we paid in cash accrued and unpaid interest on the existing notes accepted in the exchange from the applicable last interest payment date totaling approximately $ 12.8 million . the new notes bear interest at a rate of 1.0 % per annum for the first three semi-annual interest payments after issuance and 8.0 % per annum thereafter , commencing with the payment due april 1 , 2018 , payable in cash . interest payments are due on april 1 and october 1 of each year , beginning october 1 , 2016 and ending on october 1 , 2020. in connection with the exchange , we incurred approximately $ 9.0 million in third party debt issuance costs in the year ended december 31 , 2016. these costs were recorded as debt exchange expense in statement of operations . on may 20 , 2016 , we entered into a purchase and sale agreement ( “ psa ” ) with diversified oil and gas , llc ( “ dog ” ) . pursuant to the psa , dog purchased all of our conventional operated oil and gas-related properties and related pipeline assets located in pennsylvania and assumed all future abandonment liability associated with the assets . closing occurred on may 20 , 2016 , with an effective date for the transaction of may 1 , 2016. we received proceeds at closing of approximately $ 0.1 million . included in the sale were approximately 300 wells , pipelines and support equipment . the sale of well properties generated approximately $ 4.6 million of gain in the second quarter of 2016 , due to the elimination of our future abandonment liability associated with wells and pipelines sold to dog . the gain , which is included in gain on disposal of assets on our consolidated statement of operations , is reported net of approximately $ 0.2 million of uncollectible accounts receivable written off in conjunction with the sale . on june 14 , 2016 , we , through our wholly owned subsidiaries , penntex resources illinois , llc , rex energy i , llc , rex 49 energy iv , llc , rex energy marketing , llc , r. e. ventures holdings , llc , and rex energy operating corp. ( collectively , “ rex ” ) , entered into a purchase and sale agreement ( the “ agreement ” ) with campbell development group , llc ( “ campbell ” ) . pursuant to the agreement , campbell agreed to purchase , subject to certain parameters and provisions for adjustment customary for transactions of this type , all of rex 's oil and gas-related properties and assets , both operated and non-operated , in the illinois basin on an as-is , where-is basis . closing occurred on august 18 , 2016 , with an effective date for the transaction of july 1 , 2016. we received a purchase deposit of $ 2.5 million from campbell in june 2016 and received additional proceeds of approximately $ 38.0 million during the third and fourth quarters . an addendum executed in conjunction with the agreement allows for rex to receive from campbell potential additional proceeds of up $ 9.0 million , in installments of $ 0.9 million per quarter , ending with the quarter ending june 30 , 2019. for the proceeds to become payable by campbell in any of the eleven individual quarters , the average spot price of west texas intermediate ( “ wti ” ) as published by the new york mercantile exchange must be in excess of the amount shown in the table below for the applicable quarter : replace_table_token_15_th included in the sale were approximately 76,000 net acres in illinois , indiana and kentucky and production of approximately 1,700 net barrels per day . the sale transaction resulted in a full divestiture of our illinois basin assets , and an exit from our illinois basin operations . story_separator_special_tag as of december 31 , 2016 , the illinois basin assets became classified as “ held for sale ” , and our assets and operations in the illinois basin are reported as discontinued operations . during the second , third and fourth quarters of 2016 , we entered into privately negotiated debt-to-equity exchanges with certain holders of our existing notes as well as holders of our new notes in exchange for unrestricted shares of our common stock . these exchanges resulted in the retirement of $ 28.7 million of our existing notes , and $ 2.2 million of our new notes , in exchange for the issuance of a total of approximately 6.7 million shares of unrestricted common stock . the exchanged notes were subsequently cancelled , resulting in a gain to the company of approximately $ 24.6 million , presented as gain on extinguishment of debt in our consolidated statement of operations for the year ended december 31 , 2016. during the third quarter of 2016 , we entered into a privately negotiated debt-to-equity exchange with a single holder of our new notes in exchange for unrestricted shares of our common stock . this exchange resulted in the retirement of $ 43.5 million of our new notes in exchange for the issuance of approximately 16.8 million shares of unrestricted common stock . the transaction was accounted for as troubled debt restructuring . the exchange resulted in a deferred gain of $ 32.5 million , which will be amortized over the life of the new notes through a change to the effective interest rate . during 2016 , 12,113 shares of series a preferred stock were converted into approximately 9.3 million shares of common stock pursuant to the terms of the series a preferred stock , and through negotiated exchanges with certain holders of the series a preferred stock . these exchanges are recorded within equity , and do not affect our net loss from continuing operations . see note 12 , earnings per common share , to our consolidated financial statements , for additional information regarding the effect of the preferred stock conversions on net income ( loss ) attributable to common shareholders . in 2015 , we grew our daily production by 30.3 % year-over-year to 183.8 mmcfe/day . the increase in production is primarily due to our successes in the appalachian basin , particularly our marcellus shale exploration and development in butler county , pennsylvania and our utica shale exploration and development in ohio . we drilled 34.0 gross ( 23.0 net ) operated wells within the appalachian basin , targeting primarily the marcellus and utica shales , including 28.0 gross ( 17.0 net ) operated wells in butler county , pennsylvania and six gross ( six net ) operated wells in ohio . during 2015 , we had a drilling success rate of 100.0 % . our estimated proved reserves decreased in 2015 by 49.1 % from 1,336.8 bcfe at december 31 , 2014 to 680.4 bcfe at december 31 , 2015 , primarily as a result of the deterioration of the commodity price environment . as of december 31 , 2015 , we had approximately 383,500 gross ( 319,700 net ) acres in the appalachian basin , of which 299,000 gross ( 272,200 net ) acres we believe to be prospective for the liquids-rich portion of the marcellus and utica shales . 50 in july 2015 , we sold water solutions , an entity of which we owned a 60 % interest , to american water works company , inc. for total consideration of approximately $ 130.0 million , inclusive of cash and debt . we received net proceeds of approximately $ 66.8 million , resulting in a gain of approximately $ 57.8 million . we utilized the proceeds from this transaction to help fund development within our core exploration and production areas . in march 2015 , we entered into a joint venture agreement with an affiliate of arclight to jointly develop 32 specifically designated wells in our butler county , pennsylvania operated area . we expect to receive consideration for the transaction of approximately $ 67.0 million , with $ 16.6 million received at closing . as of december 31 , 2015 , arclight had paid approximately $ 42.9 million for their interest in wells that have been drilled or are in the process of being drilled . in 2014 , we grew our daily production by 76.4 % year-over-year to 141.1 mmcfe/day . the increase in production is primarily due to our successes in the appalachian basin , particularly our marcellus shale exploration and development in butler county , pennsylvania and our utica shale exploration and development in ohio . we drilled 51.0 gross ( 37.6 net ) operated wells within the appalachian basin , targeting primarily the marcellus and utica shales , including 38.0 gross ( 26.6 net ) operated wells in butler county , pennsylvania and 12.0 gross ( 10.6 net ) operated wells in ohio . with a drilling success rate of 100.0 % in 2014 , we increased proved reserves by 57.3 % from 849.9 bcfe at december 31 , 2013 to 1,336.8 bcfe at december 31 , 2014. as of december 31 , 2014 , we had approximately 407,200 gross ( 339,500 net ) acres in the appalachian basin , of which 324,300 gross ( 295,200 net ) acres are believed to be prospective for the liquids-rich portion of the marcellus and utica shales . in july 2014 , we issued a $ 325.0 million aggregate principal amount of the 2022 notes in a private offering at an issue price of 100.0 % . the 2022 notes are due to mature on august 1 , 2022. the net proceeds of the 2022 senior notes , after discounts and expenses , were approximately $ 318.8 million . in august 2014 , we completed a registered offering of 16,100 shares of the series a preferred stock that are represented by 1,610,000 depositary shares . the net proceeds of the offering were approximately $ 155.0 million , after deducting underwriting discounts , commissions and other offering expenses .
| average realized price received for natural gas , condensate and ngls during 2016 , after the effect of derivative activities , was $ 2.40 per mcfe , a decrease of 16.7 % , or $ 0.48 per mcfe , from 2015. this decrease was primarily due to a decrease in natural gas prices and a decrease in derivative settlements during the year . the average price for natural gas , after the effect of derivative activities , decreased 14.1 % , or $ 0.36 per mcf , to $ 2.23 per mcf . the average price for condensate , after the effect of derivative activities , decreased 35.3 % , or $ 22.71 per barrel , to $ 41.64 per barrel . the average price for c3+ ngls , after the effect of derivative activities , decreased 4.1 % , or $ 0.87 per barrel , to $ 20.44 per barrel . the average price for ethane , after the effect of derivative activities , increased 17.6 % or $ 1.17 per barrel , to $ 7.80 per barrel . our derivative activities effectively increased net realized prices by $ 0.46 per mcfe in 2016 and $ 0.82 per mcfe in 2015. our realized sales price for natural gas differed from the average henry hub nymex pricing by approximately $ 0.91 per mcf during 2016 primarily due to basis differentials in the northeastern united states , which were partially offset by sales on the texas eastern pipeline receiving m3 pricing , a new york area index . we have been able to stabilize the impact of basis differentials to an extent by utilizing basis swaps in our derivatives program . in addition , we have been targeting sales points outside of the northeastern united states and have executed capacity agreements to transport natural gas volumes to the midwest and the gulf coast . transportation of 100,000 mcf per day to the gulf coast began during the fourth quarter of 2016. the volumes to the gulf coast are expected to increase to 130,000 mcf per day beginning in the second quarter of 2017. production volumes for 2016 increased 6.5 % , or 4.4 bcfe , from 2015 primarily due to the success of our marcellus and utica shale horizontal drilling activities in the liquids-rich portions of our acreage holdings . natural gas production
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our significant accounting policies are more fully described under the heading “ summary of significant accounting policies ” in note 2 to our consolidated financial statements contained elsewhere herein . revenue recognition we recognize revenue when evidence of an arrangement exists , title has passed ( generally upon shipment ) or services have been rendered , the selling price is fixed or determinable and collectability is reasonably assured . revenue from product sales to customers is recognized when delivery has occurred . all costs related to product sales are recognized at time of delivery . we do not provide for rights of return to customers on our product sales and therefore we do not record a provision for returns . maintenance and service support contract revenues are included in product revenue and are recognized ratably over the service contract term . revenue is recognized as it is earned in limited instances where we rent console medical devices to customers on a month-to-month basis or for a longer specified period of time . other service revenues are recognized as the services are performed . in-process research and development in-process research and development , or ipr & d , assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects . ipr & d assets represent the fair value assigned to technologies that we acquire , which at the time of acquisition have not reached technological feasibility and have no alternative future use . during the period that ipr & d assets are considered indefinite-lived , they are tested for impairment on an annual basis , or more frequently if we become aware of any events occurring or changes in circumstances that indicate that the fair value of the ipr & d assets are less than their carrying amounts . if and when development is complete , which generally occurs when we have regulatory approval and are able to commercialize products associated with the ipr & d assets , these assets are then deemed definite-lived and the value of the assets at that time are amortized moving forward based on their estimated useful lives . if development is terminated or abandoned , we may have a full or partial impairment charge related to the ipr & d assets , calculated as the excess of carrying value of the ipr & d assets over fair value . contingent consideration contingent consideration is recorded as a liability and measured at fair value using a discounted cash flow model utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones . significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of these milestones could result in a significantly higher or lower fair value of the liability . the fair value of the contingent consideration at each reporting date is updated by reflecting the changes in fair value reflected in our statement of operations . we have a liability of $ 7.6 million of contingent consideration at march 31 , 2016 related to $ 15.0 million in potential milestone payments , related to the ecp acquisition . income taxes our provision for income taxes is composed of a current and a deferred portion . the current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year . the deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and net operating loss carryforwards using expected tax rates in effect in the years during which the differences are expected to reverse . we regularly assess our ability to realize our deferred tax assets . assessing the realization of deferred tax assets requires significant management judgment . we consider whether a valuation allowance is needed on our deferred tax assets by evaluating all positive and negative evidence relative to our ability to recover deferred tax assets , including future reversals of existing taxable temporary differences , projected future taxable income , tax planning strategies and recent financial results . we determined that there was sufficient positive evidence that most of our federal , state and certain foreign deferred tax assets were more likely than not recoverable as of march 31 , 2015. our conclusion was primarily driven by the receipt of pma approval for our impella 2.5 product in march 2015 , our history of profits in recent years and our expectation of continuing future profitability . accordingly , we recorded a $ 101.5 million reversal of the valuation allowance during the year ended march 31 , 2015 , primarily related to the company expecting to be able to use nol carryforwards in the future in the u.s. and germany . 36 as of march 31 , 2016 and 2015 , respectively , the remaining $ 2.4 million and $ 2.9 million valuation allowance represents deferred tax assets primarily related to nol carryforwards in certain foreign jurisdict ions . based on the review of all available evidence , we recorded a valuation allowance to reduce these deferred tax assets to the amount that is more likely than not to be realizable as of march 31 , 2016 and 2015. recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 . “ summary of significant accounting policies ” to our consolidated financial statements in this report . story_separator_special_tag story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:12pt ; text-indent:4.54 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > total revenue for fiscal 2015 increased by $ 46.7 million , or 25 % , to $ 230.3 million from $ 183.6 million for fiscal 2014. the increase in total revenue was primarily due to higher impella revenue due mainly to greater utilization of our products in the u.s. impella product revenue for fiscal 2015 increased by $ 45.7 million , or 27 % , to $ 212.7 million from $ 167.0 million for fiscal 2014. most of our increase in impella revenue was from disposable catheter sales in the u.s. , as we focus on increasing utilization of our disposable catheter products through continued investment in our field organization and physician training programs . service and other revenue for fiscal 2015 increased by $ 2.9 million , or 27 % , to $ 13.8 million from $ 10.9 million for fiscal 2014. the increase in service revenue was primarily due to an increase in preventative maintenance service contracts , as we expand the use of our impella aic consoles to additional sites . other product revenue for fiscal 2015 decreased by $ 1.9 million , or 35 % , to $ 3.5 million from $ 5.4 million for fiscal 2014. the decrease in other revenue was due to a decline in ab5000 disposable sales . we also had no sales of bvs 5000 in fiscal 2015 and we are no longer actively producing or selling that product . 39 costs and expenses cost of product revenue cost of product revenue for fiscal 2015 increased by $ 2.6 million , or 7 % , to $ 39.9 million from $ 37.3 million for fiscal 2014. gross margin was 83 % for fiscal 2015 and 80 % for fiscal 2014. the increase in cost of product revenues was related to increased impella demand and higher production volume and costs to support growing demand for our impella products . gross margin was impacted favorably by higher manufacturing production volume , fewer shipments of aic consoles , improved efficiencies in manufacturing production and a favorable euro in the second half of fiscal 2015 research and development expenses research and development expenses for fiscal 2015 increased by $ 5.3 million , or 17 % , to $ 36.0 million from $ 30.7 million in fiscal 2014. the increase in research and development expenses was primarily due to operating expenses associated with the ecp business in berlin that we acquired in july 2014 and a $ 1.5 million up-front license payment made in april 2014 for optical sensor technology . selling , general and administrative expenses selling , general and administrative expenses for fiscal 2015 increased by $ 18.4 million , or 17 % , to $ 125.7 million from $ 107.3 million in fiscal 2014. the increase in selling , general and administrative expenses was primarily due to the hiring of additional u.s. field sales and clinical personnel , increased spending on marketing initiatives as we continue to educate physicians on the benefits of hemodynamic support , higher stock-based compensation expense , higher excise taxes associated with the medical device tax in the u.s. and legal and professional expenses related to the ecp acquisition . these amounts were partially offset by lower legal expenses during fiscal 2015. income tax provision we recorded an income tax benefit of $ 84.9 million in fiscal 2015 compared to an income tax expense of $ 1.2 million in fiscal 2014. the income tax benefit in fiscal 2015 was comprised of an $ 87.1 million deferred tax benefit primarily due to the release of our valuation allowance on certain of our deferred tax assets in the quarter ended march 31 , 2015 , partially offset by a current income tax provision of $ 2.2 million in u.s and germany . the income tax provision for fiscal 2014 was comprised of income taxes in germany and income taxes related to the deferred tax liability associated with tax deductible goodwill . net income during fiscal 2015 , we recognized net income of $ 113.7 million , or $ 2.80 per basic share and $ 2.65 per diluted share , compared to $ 7.4 million , or $ 0.19 per basic share and $ 0.18 per diluted share for fiscal 2014. our net income for fiscal 2015 included an income tax benefit of $ 84.9 million , primarily due to the release of our valuation allowance on certain of our deferred tax assets . the increase in net income in fiscal 2015 was also due to higher impella product revenue in the u.s. and europe . liquidity and capital resources at march 31 , 2016 , our total cash , cash equivalents , and short and long-term marketable securities totaled $ 213.1 million , an increase of $ 67.1 million compared to $ 146.0 million at march 31 , 2015. the increase in our cash , cash equivalents , and short and long-term marketable securities was due primarily to positive cash flows from operations in fiscal 2016. following is a summary of our cash flow activities : replace_table_token_8_th 40 cash provided by operating activities for the year ended march 31 , 2016 , cash provided by operating activities consisted of net income of $ 38.1 million , adjustments for non-cash items of $ 54.2 million and cash used in working capital of $ 15.6 million . our net income for fiscal 2016 was driven primarily to higher impella product revenue due to greater utilization of our impella products in the u.s. and europe , partially offset by the increase in income tax provision for fiscal 2016. adjustments for non-cash items consisted primarily of $ 29.1 million of stock-based compensation expense , a $ 22.3 million change in deferred tax provision and $ 3.3 million of depreciation and amortization of property , plant and equipment .
| for our impella 2.5 , impella cp , impella 5.0 and impella ld heart pumps to provide treatment for ongoing cardiogenic shock , continued utilization for high risk pci procedures , continue our controlled launch of impella rp in the u.s. and our expansion efforts in europe , particularly germany . service and other revenue for fiscal 2016 increased by $ 2.8 million , or 20 % , to $ 16.6 million from $ 13.8 million for fiscal 2015. the increase in service revenue was primarily due to an increase in preventative maintenance service contracts . we have expanded the use of our impella aic consoles to additional sites and placed more consoles at existing higher using sites . many customers are entering into maintenance service contracts as these aic consoles are being delivered . other product revenue for fiscal 2016 decreased by $ 0.7 million , or 20 % , to $ 2.8 million from $ 3.5 million for fiscal 2015. most of the decrease was due to lower ab sales in the u.s. we expect that ab5000 revenue will continue to decline in fiscal 2017 as we focus our sales efforts in the surgical suite on impella 5.0 , impella ld and impella rp and we focus more of our attention on the cath lab . costs and expenses cost of product revenue cost of product revenue for fiscal 2016 increased by $ 10.5 million , or 26 % , to $ 50.4 million from $ 39.9 million for fiscal 2015. gross margin was 85 % for fiscal 2016 and 83 % for fiscal 2015. the increase in cost of product revenues was related to increased demand for impella products and higher production volume and costs to support growing demand for our impella products . gross margin has been impacted favorably in fiscal 2016 by higher manufacturing production volume , fewer shipments of impella aic consoles , improved efficiencies in manufacturing production and favorable foreign currency impact of lower euro as much of our manufacturing is performed
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27 in 2011 , discharge growth of 5.2 % coupled with a 3.0 % increase in net patient revenue per discharge generated 8.3 % growth in net patient revenue from our hospitals compared to 2010. this revenue growth combined with continued disciplined expense management resulted in a $ 55.5 million , or 18.8 % , increase in operating earnings ( as defined in note 23 , quarterly data ( unaudited ) , to the accompanying consolidated financial statements ) in 2011 compared to 2010. net cash provided by operating activities was $ 342.7 million in 2011 compared to $ 331.0 million in 2010. net cash provided by operating activities in 2011 included cash payments associated with our capital structure enhancements ( as discussed below and in note 8 , long-term debt , to the accompanying consolidated financial statements ) and a settlement discussed in note 21 , settlements , to the accompanying consolidated financial statements . net cash provided by operating activities in 2010 included an unwind fee of $ 6.9 million associated with the termination of interest rate swaps . see the “ results of operations ” and “ liquidity and capital resources ” sections of this item for additional information . during 2011 , we reduced total debt by approximately $ 257 million and continued our capital structure enhancements . these reductions and enhancements included the march 2011 additional public offering of our 7.25 % senior notes due 2018 and our 7.75 % senior notes due 2022 , the amendment and restatement of our existing credit agreement in may 2011 , and the redemptions in june and september 2011 of all of our 10.75 % senior notes due 2016. as a result of these actions , our leverage ratio is within our target range , and we believe our debt capital is appropriately structured , in terms of liquidity and maturity profile . see the `` liquidity and capital resources '' section of this item and note 8 , long-term debt , to the accompanying consolidated financial statements . we believe the demand for inpatient rehabilitative healthcare services will continue to increase as the u.s. population ages , and we believe this market factor aligns with our strengths in , and focus on , inpatient rehabilitative care . unlike many of our competitors that may offer inpatient rehabilitation as one of many non-core services , inpatient rehabilitation is our core business . we also believe we can address the demand for inpatient rehabilitative services in markets where we currently do not have a presence by constructing or opportunistically acquiring new hospitals . for additional discussion of our strategy and business outlook , see the “ business outlook ” section below . reclassifications as discussed more fully in note 18 , assets and liabilities in and results of discontinued operations , we sold five of our six ltchs and closed the remaining ltch during 2011. accordingly , we reclassified our consolidated balance sheet as of december 31 , 2010 to present the assets and liabilities of all six of our ltchs in discontinued operations . we also reclassified our consolidated statements of operations and consolidated statements of cash flows for 2010 and 2009 to include these facilities and their results of operations as discontinued operations . certain immaterial amounts have been reclassified to conform to the current year presentation . in our consolidated balance sheet as of december 31 , 2010 , we reclassified internal-use software totaling $ 9.7 million from property and equipment , net to intangible assets , net . this reclassification had no impact on total current assets or total assets . see note 6 , goodwill and other intangible assets , to the accompanying consolidated financial statements . litigation by and against former independent auditor as discussed in note 22 , contingencies and other commitments , to the accompanying consolidated financial statements , the arbitration process continues in the pursuit of our claims against ernst & young llp and the defense of their claims against us . the rules of the american arbitration association require that all aspects of the arbitration remain confidential . since the beginning of the arbitration in july 2010 and through december 31 , 2011 , there have been approximately 20 weeks of hearings , generally in four-day blocks of time . going forward , the arbitrators have scheduled approximately nine additional weeks through july 2012. despite scheduling issues and the fact the arbitration is taking longer than expected , we remain confident in our claims and are committed to aggressively and diligently pursuing them to conclusion . stock repurchase authorization as previously reported and as discussed in more detail below , there are numerous deficit reduction initiatives with medicare payment reduction proposals being discussed in washington . primarily as a result of these proposals , the price of our common stock has experienced increased volatility over the past several months . in consideration of the above and other factors ( including , but not limited to , the reduction in our financial leverage and our strong cash flows from operations ) , in october 2011 , our board of directors authorized the repurchase of up to $ 125 28 million of our common stock . the repurchase authorization does not require the repurchase of a specific number of shares , has an indefinite term , and is subject to termination by our board of directors . subject to certain terms and conditions , including a maximum price per share and compliance with federal and state securities and other laws , the repurchases may be made from time to time in open market transactions , privately negotiated transactions , or other transactions , including trades under a plan established in accordance with rule 10b5-1 under the securities exchange act of 1934 , as amended . repurchases under this authorization , if any , are expected to be funded using cash on hand and availability under our revolving credit facility . story_separator_special_tag our board of directors also granted discretion to management to opportunistically repurchase from time to time , subject to similar conditions , warrants issued pursuant to the warrant agreement , dated as of january 16 , 2004 , with wells fargo bank northwester , n.a. , as warrant agent . likewise , this authority does not require the purchase of a specific number of warrants , has an indefinite term , and is subject to termination by our board of directors . see note 20 , earnings per common share , to the accompanying consolidated financial statements for additional information regarding these warrants . there was no activity under the company 's stock repurchase authorization during 2011. key challenges over the past few years , we have focused on strengthening our balance sheet , growing organically ( i.e. , growing our core business through means other than acquisitions ) , and pursuing acquisitions of competitor inpatient rehabilitation facilities ( “ irfs ” ) . we believe continued growth in our adjusted ebitda and our strong cash flows from operations will allow us to invest in growth opportunities and continue to invest in our core business . we will also consider opportunistic repurchases of our common stock , dividends , and , if warranted , further reductions to our long-term debt ( subject to changes in our operating environment ) . as we continue to execute our business plan , the following are some of the challenges we face : reduced medicare reimbursement . on august 2 , 2011 , president obama signed into law the budget control act of 2011 , provisions of which will result in an automatic 2 % reduction of medicare program payments for all healthcare providers upon executive order of the president in january 2013. we currently estimate this automatic reduction , known as `` sequestration , '' will result in a net decrease in our net operating revenues of approximately $ 32 million annually beginning in 2013. there also continue to be a number of efforts in both the united states senate and the house of representatives to address the federal spending deficit by , at least in part , reducing medicare spending . we can not predict what alternative or additional deficit reduction initiatives or medicare payment reductions , if any , will ultimately be enacted into law , or the effect any such initiatives or reductions will have on us . if enacted , such initiatives or reductions would likely be challenging for all providers , would likely have the effect of limiting medicare beneficiaries ' access to healthcare services , and could have an adverse impact on our financial position , results of operations , and cash flows . however , we believe the steps we have taken to reduce our debt and corresponding interest expense obligations coupled with our efficient cost structure should allow us to adjust to or mitigate , at least partially , any potential initiative or payment reductions more easily than many other inpatient rehabilitation providers . changes to our operating environment resulting from healthcare reform . on march 23 , 2010 , president obama signed the patient protection and affordable care act ( the “ ppaca ” ) into law . on march 30 , 2010 , president obama signed into law the health care and education reconciliation act of 2010 , which amended the ppaca ( together , the “ 2010 healthcare reform laws ” ) . the 2010 healthcare reform laws remain subject to continuing congressional , regulatory , and legal scrutiny , and many aspects of their implementation are still uncertain or subject to judicial challenge . we can not predict the outcome of any legislation or litigation related to the 2010 healthcare reform laws , but we have been , and will continue to be , actively engaged in the legislative process to attempt to ensure any healthcare laws adopted or amended promote our goal of high-quality , cost-effective care . it should also be noted that in november 2011 , the supreme court of the united states agreed to hear arguments in the first half of 2012 on , among other issues , the constitutionality of various provisions of the 2010 healthcare reform laws . however , we can not predict the ultimate outcome of the supreme court ruling . many provisions within the 2010 healthcare reform laws have impacted or could in the future impact our business , including : ( 1 ) reducing annual market basket updates to providers , including annual productivity adjustment reductions as of october 1 , 2011 ; ( 2 ) the possible combining , or “ bundling , ” of reimbursement for a medicare beneficiary 's episode of care at some point in the future ; ( 3 ) implementing a voluntary program for accountable care organizations ( “ acos ” ) ; ( 4 ) creating an independent payment advisory board ; and ( 5 ) modifying employer-sponsored healthcare insurance plans . 29 most notably for us , these laws include a reduction in annual market basket updates to hospitals . in accordance with medicare laws and statutes , the united states centers for medicare and medicaid services ( `` cms '' ) makes annual adjustments to medicare reimbursement rates by what is commonly known as a market basket update . the reductions in our annual market basket updates began on april 1 , 2010 and continue through 2019 for each cms fiscal year , which for us begins october 1 , as follows : replace_table_token_10_th in addition , beginning on october 1 , 2011 , the 2010 healthcare reform laws require the market basket update to be reduced by a productivity adjustment on an annual basis . the productivity adjustments equal the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity . the productivity adjustment effective from october 1 , 2011 to september 30 , 2012 is a decrease to the market basket update of 1.0 % .
| excluding these proceeds , the net increase in net cash used in investing activities year over year would have resulted from increased purchases of property and equipment in 2011 offset by the acquisition of two inpatient rehabilitation hospitals and net settlements on interest rate swaps during 2010. purchases of property and equipment increased in 2011 primarily due to our purchase of leased properties associated with two of our inpatient rehabilitation hospitals . financing activities . the increase in net cash used in financing activities during 2011 compared to 2010 resulted from the debt-related transactions discussed above and in note 8 , long-term debt , to the accompanying consolidated financial statements . net debt payments , including debt issue costs , were approximately $ 271 million during 2011 compared to approximately $ 183 million of net debt payments during 2010 . 2010 compared to 2009 operating activities . net cash provided by operating activities for the year ended december 31 , 2009 included $ 73.8 million in net cash proceeds related to the ubs settlement and the receipt of $ 63.7 million in income tax refunds associated with prior periods . net cash provided by operating activities for the year ended december 31 , 2010 included $ 13.5 million in 45 income tax refunds associated with prior periods . see note 21 , settlements , and note 19 , income taxes , to the accompanying consolidated financial statements . excluding these amounts , the increase in net cash provided by operating activitie s from 2009 to 2010 resulted from the increase in our net operating revenues , effective expense management , and the timing of interest and payroll-related payments . investing activities . net cash used in investing activities decreased from 2009 to 2010. during 2010 , a reduction in restricted cash and the receipt of proceeds from the sale of our hospital in baton rouge , louisiana were offset by the use of $ 34.1 million related to business acquisitions and net purchases of restricted investments . during 2010 , we negotiated with certain of our external partners to release restrictions placed on
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( 1 ) sales volumes represent production nar adjusted for inventory changes and losses . non-gaap measures operating netback , ebitda , adjusted ebitda and funds flow from continuing operations are non-gaap measures which do not have any standardized meaning prescribed under gaap . investors are cautioned that these measures should not be construed as alternatives to net income or loss or other measures of financial performance as determined in accordance with gaap . our method of calculating these measures may differ from other companies and , accordingly , may not be comparable to similar measures used by other companies . ( 2 ) operating netback as presented is oil and gas sales net of royalties and operating and transportation expenses . management believes that netback is a useful supplemental measure for management and investors to analyze operating performance and provide an indication of the results generated by our principal business activities prior to the consideration of other income and expenses . ( 3 ) ebitda , as presented , is net income or loss adjusted for loss from discontinued operations , net of income taxes , depletion , depreciation and accretion ( “ dd & a ” ) expenses , asset impairment and income tax recovery or expense . adjusted ebitda is ebitda adjusted for foreign exchange gains . management uses these financial measures to analyze performance and income or loss generated by our principal business activities prior to the consideration of how non-cash items affect that income or loss , and believes that these financial measures are also useful supplemental information for investors to analyze performance and our financial results . a reconciliation from net income or loss to ebitda and adjusted ebitda is as follows : replace_table_token_13_th ( 4 ) funds flow from continuing operations , as presented , is net income or loss adjusted for loss from discontinued operations , net of income taxes , dd & a expenses , asset impairment , deferred tax recovery or expense , non-cash stock-based compensation , financial instrument loss , unrealized foreign exchange gains , cash settlement of foreign currency derivatives , other gains and losses and equity tax . during the three months ended september 30 , 2015 , our new management changed our method of calculating funds flow from continuing operations to be more consistent with our peers . funds flow from continuing operations is no longer net of cash settlement of asset retirement obligation . additionally , foreign exchange losses on cash and cash equivalents have been excluded from funds flow . comparative information has been reclassified to be calculated on a consistent basis . management uses this financial measure to analyze performance and income or loss generated by our principal business activities prior to the consideration of how non-cash items affect that income or loss , and believes that this financial measure is also useful supplemental information for investors to analyze performance and our financial results . a reconciliation from net income or loss to funds flow from continuing operations is as follows : 52 replace_table_token_14_th ( 5 ) in 2013 , capital expenditures are net of proceeds of $ 54.0 million relating to termination of a farm-in agreement in brazil ; and $ 1.5 million relating to the sale of our working interest of a block in colombia . business environment outlook our revenues are significantly affected by the continuing fluctuations in oil prices and pipeline disruptions in colombia . oil prices are volatile and unpredictable and are influenced by concerns about the quantity of world supply and demand , market competition between large suppliers to the market for market share , political influences , financial markets and the impact of the worldwide economy on oil supply and demand growth . we believe that our current operations and 2016 capital expenditure program can be funded from cash flow from existing operations and cash on hand . should our operating cash flow decline due to unforeseen events , including additional pipeline delivery restrictions in colombia or continued downturn in oil and gas prices , we would consider financing our capital expenditure program with borrowings under our revolving credit facility , proceeds from the disposition of assets or capital markets transactions , or a combination thereof , or we would consider reducing our capital expenditure program . given the current economic environment and unstable conditions in the middle east , north africa , and eastern europe and the current over supply of oil in world markets , the oil price environment is unpredictable and unstable . we are unable to determine the impact , if any , these events may have on oil prices and demand . the timing and execution of our capital expenditure program are also affected by the availability of services from third party oil field contractors and our ability to obtain , sustain or renew necessary government licenses and permits on a timely basis to conduct exploration and development activities . any delay may affect our ability to execute our capital expenditure program . the credit markets , including the high yield bond market and other debt markets that provide capital to oil and gas companies have experienced adverse conditions . we have not been materially impacted by these conditions ; however , continuing volatility in oil prices may continue to contribute to these adverse conditions , which could increase costs associated with renewing or issuing debt or affect our ability to access those markets . our future growth and acquisitions may depend on our ability to raise additional funds through equity and debt markets . should we be required to raise debt or equity financing to fund capital expenditures or other acquisition and development opportunities , such funding may be affected by the market value of shares of our common stock . the current low and volatile oil price has had a negative impact on the value of shares of our common stock . story_separator_special_tag also , raising funds by issuing shares or other equity securities would further dilute our existing shareholders , and this dilution would be exacerbated by a decline in our share price . any securities we issue may have rights , preferences and privileges that are senior to our existing equity securities . borrowing money may also involve further pledging of some or all of our assets , may require compliance with debt covenants and will expose us to interest rate risk . depending on the currency used to borrow money , we may also be exposed to further foreign exchange risk . our ability to borrow money and the interest rate we pay for any money we borrow will be affected by market conditions and we can not predict what price we may pay for any borrowed money . 53 for over 40 years , the colombian government has been engaged in a conflict with two main marxist guerrilla groups : the revolutionary armed forces of colombia ( `` farc '' ) and the national liberation army ( `` eln '' ) . both of these groups have been designated as terrorist organizations by the united states and the european union . another threat comes from criminal gangs formed from the former members of the united self-defense forces of colombia militia , a paramilitary group that originally sprouted up to combat farc and eln , which the colombian government successfully dissolved . we operate principally in the putumayo basin in colombia . pipelines have been primary targets because such pipelines can not be adequately secured due to the sheer length of such pipelines and the remoteness of the areas in which the pipelines are laid . the cenit s.a-operated trans-andean oil pipeline ( the `` ota pipeline ” ) which transports oil from the putumayo region and which is one of our export routes , has been targeted by these guerrilla groups . in 2015 , the ota pipeline was shutdown for approximately 213 days , which included 117 days as a result of a landslide . while peace talks continue between the colombian government and the farc , peace process negotiations between the government and farc may not generate the intended outcome for both parties , though the colombian government has stated that a resolution is expected to be reached during the first quarter of 2016. the impact of such a peace process is not determinable on our operations . continuing attempts by the colombian government to reduce or prevent guerrilla activity may not be successful and guerrilla activity may continue to disrupt our operations in the future . our efforts to increase security measures may not be successful and there can also be no assurance that we can maintain the safety of our or our contractors ' field personnel and bogota head office personnel or operations in colombia or that this violence will not continue to adversely affect our operations in the future and cause significant loss . 54 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , from $ 82.74 per boe for 2014 primarily due to lower benchmark oil prices . average brent oil prices for the year ended december 31 , 2015 , were $ 52.35 per bbl compared with $ 99.02 per bbl in 2014 . wti oil prices for the year ended december 31 , 2015 , were $ 48.78 per bbl compared with $ 93.00 per bbl in 2014 . during periods of ota pipeline disruptions we have multiple transportation alternatives . each transportation route has varying effects on realized prices and transportation costs . during the year ended december 31 , 2015 , 62 % of our oil and gas volumes sold in colombia were through alternative transportation routes alternatives compared with 52 % in 2014 . oil and gas sales for the year ended december 31 , 2014 , decrease d to $ 559.4 million from $ 647.0 million in 2013 as a result of the combined effect of decrease d sales and realized prices . average realized prices decrease d by 10 % to $ 82.74 per boe for the year ended december 31 , 2014 , from $ 92.13 per boe for 2013 . average brent oil prices for the year ended december 31 , 2014 , were $ 99.02 per bbl compared with $ 108.64 per bbl in 2013 . wti oil prices for the year ended december 31 , 2014 , were $ 93.00 per bbl compared with $ 97.97 per bbl in 2013 . additionally , beginning july 1 , 2014 , the port operations fee component of the ota pipeline pricing structure increased by $ 2.94 per bbl resulting in a reduction of realized oil prices by this amount on sales delivered through the ota pipeline . during the year ended december 31 , 2014 , 52 % of our oil and gas volumes sold in colombia were through alternative transportation routes alternatives compared with 64 % in 2013. transportation expenses for the year ended december 31 , 2015 , were $ 40.2 million , or $ 6.03 per boe , compared with $ 24.2 million , or $ 3.58 per boe , in 2014 . on a per boe basis , transportation expenses increase d by 68 % . the increase in transportation expenses per boe was primarily due to the alternative transportation routes used during periods of ota pipeline disruptions . during 2015 , we used new alternative transportation routes which carried higher transportation costs , but higher realized prices compared with other customers . transportation expenses for the year ended december 31 , 2014 , were $ 24.2 million , or $ 3.58 per boe , compared with $ 18.9 million , or $ 2.70 per boe , in 2013 . on a per boe basis , transportation expenses increase d by 33 % .
| in brazil , our operations in the tiê field were suspended by the agência nacional de petróleo gás natural e biocombustíveis ( `` anp '' ) from march 11 , 2015 , to may 15 , 2015 , due to alleged non-compliance with certain requirements regarding the health and safety management system identified during a safety and operational audit conducted by the anp in early 2015. clearance to resume production was received on may 15 , 2015. however , during the second half of 2015 , our production in brazil was limited by a temporary capacity reduction at a third party 's shipping facility due to an integrity issue with one of their oil receiving tanks . the operator of the facility has advised that it expects to have this tank repaired and operational by the end of the first quarter of 2016. oil and gas production nar for the year ended december 31 , 2014 , increase d by 1 % to 19,283 boepd compared with 19,071 boepd in 2013 . in 2014 in colombia , production from new wells in the moqueta field in the chaza block and a new well in the llanos-22 block were partially offset by the impact of well downtime for workovers and a water cut increase in the costayaco field in the chaza block . production during the year ended december 31 , 2014 , reflected approximately 180 days of ota pipeline disruptions in colombia compared with 229 days in 2013 . 57 oil and gas sales volumes for the year ended december 31 , 2015 , decrease d by 1 % to 18,260 boepd compared with 18,523 boepd in 2014 . during the year ended december 31 , 2015 , an oil inventory increase accounted for 0.4 mmbbl , or 1,229 bopd , of reduced sales compared with an oil inventory increase in 2014 which accounted for 0.3 mmbbl , or 760 bopd , reduced sales . oil inventory changes are primarily in colombia . oil and gas sales volumes for the year ended december 31 , 2014 , decrease
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in developing drug candidates , we intend to use and leverage resources available to us in both the united states and china . we intend to pursue additional financing opportunities as well as opportunities to raise capital through forms of non- or less- dilutive arrangements , such as partnerships and collaborations with organizations that have capabilities and or products that are complementary to our capabilities and products in order to continue the development of our product candidate that we intend to pursue to commercialization . however , there can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable , if at all . at december 31 , 2011 , there was substantial doubt about the company 's ability to continue as a going concern . in february 2012 ( the “ 2012 financing ” ) the company received the proceeds from a $ 10 million convertible note financing which would allow the company to have sufficient cash to meet its cash requirements at least into fiscal 2013. the conversion of the notes was subject to stockholder approval of the financings . at the company 's 2012 annual stockholders ' meeting held on april 30 , 2012 , the stockholders approved the 2012 financing transaction , and the convertible notes automatically converted into common stock on may 1 , 2012. in addition , on march 1 , 2013 , the company announced entering into an agreement with certain investors for the sale of 4,495,828 shares of common stock and 2,247,912 warrants for approximately $ 10.8 million ( see below ) . as a result of these transactions along with on-going cost containment measures , the company has sufficient resources to fund its operations at least through december 31 , 2013 , thereby removing the substantial doubt about its ability to continue as a going concern . on march 1 , 2013 , the company entered into a definitive agreement with the 2013 investors for a registered financing in the aggregate amount of approximately $ 10.8 million . in connection with the 2013 financing , we entered into a securities purchase agreement with the 2013 investors pursuant to which the company agreed to sell in a registered transaction 4,495,828 shares of the company 's common stock and warrants to purchase up to an aggregate of 2,247,912 shares of common stock . the 2013 investor warrants cover a number of shares of common stock equal to 50 % of the number of shares purchased by each investor . the 2013 investor warrants have an exercise price of $ 2.91 per share and are exercisable on or about september 4 , 2013 and expire three years after the exercisable date . the company completed the closings on the 2013 financing on march 14 , 2013 and received net proceeds of approximately $ 10.3 million . 23 on january 20 , 2012 , we entered into a convertible note and warrant purchase agreement ( the “ purchase agreement ” ) with certain accredited investors ( the “ 2012 investors ” ) , pursuant to which we issued and sold to the 2012 investors , in a private placement , subordinated mandatorily convertible promissory notes ( collectively , the “ notes ” ) with an aggregate principal amount of $ 10 million ( the “ 2012 financing ” ) . we also issued warrants ( the “ 2012 warrants ” ) to the investors to purchase an aggregate of 1,739,132 shares of the company 's common stock . the 2012 warrants cover a number of shares of common stock equal to 20 % of the principal amount of the notes purchased by each investor , divided by $ 1.15. the 2012 warrants have an exercise price of $ 1.40 per share and are exercisable on or after july 29 , 2012 and expire five years after the exercisable date . the 2012 financing was completed on february 2 , 2012. we received net proceeds of approximately $ 9.3 million . we received approval of the 2012 financing from the company 's stockholders at the 2012 annual stockholders meeting held on april 30 , 2012. on may 1 , 2012 , the notes , including accrued interest of $ 144,658 , automatically and immediately converted into 8,821,431 shares of common stock and the 2012 warrants became exercisable on or after july 29 , 2012. the notes bore an interest rate of 6 % and converted at a conversion price of $ 1.15 per share . the conversion price reflected the 10-day average closing sale price of our common stock ended on january 20 , 2012. on june 28 , 2011 , we entered into the standby equity distribution agreement ( the “ seda ” ) with ya global master spv ltd. ( “ ya global ” ) , a fund managed by yorkville advisors , llc . concurrent with the signing of the seda , we agreed to sell shares to ya global and received gross proceeds of $ 1.1 million on june 29 , 2011. the number of shares for the initial drawdown of $ 1.1 million was determined in accordance with the seda and settled in shares in equal amounts over the five weeks ended august 5 , 2011. the total number of shares issued to ya global related to the initial drawdown of $ 1.1 million , net of issuance costs of $ 155,000 , was 600,412 shares . we terminated the seda agreement on january 31 , 2012 , in connection with the closing of the 2012 financing . additional funds raised by issuing equity securities , may result in dilution to existing shareholders . critical accounting policies and the use of estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . actual results could differ materially from those estimates . story_separator_special_tag our critical accounting policies , including the items in our financial statements requiring significant estimates and judgments , are as follows : - revenue recognition - we recognize revenue in accordance with the provisions of authoritative guidance issued , whereby revenue is not recognized until it is realized or realizable and earned . revenue is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the buyer is fixed and determinable and collectibility is reasonably assured . royalty revenue – royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms , when third-party results are reliably measured and collectibility is reasonably assured . our 2012 and 2011 revenues were primarily from royalties on the sale of thalomid ® . in 2004 , certain provisions of a purchase agreement dated june 14 , 2001 by and between bioventure investments kft ( “ bioventure ” ) and the company were satisfied and , as a result , beginning in 2005 we became entitled to share in the royalty payments received by royalty pharma finance trust , successor to bioventure , on annual thalomid ® sales above a certain threshold . based on the licensing agreement royalty formula , annual royalty sharing commences when net royalties received by royalty pharma exceeds $ 15,375,000. there can be no assurance on the future trends of thalomid ® sales and the amount of revenue we will receive and record in 2013. based on the trend of thalomid ® sale figures in recent years , we expect annual sales of thalomid ® in 2013 to continue to decrease , and which could decrease to a level below the threshold amount to trigger a royalty payment to the company , which would result in a reduction in our revenues in 2013 . 24 - royalty payments , if any , are recorded as revenue when received and or when collectibility is reasonably assured . - research and development - research and development expenses consist primarily of compensation and other expenses related to research and development personnel , research collaborations , costs associated with preclinical testing and clinical trials of our product candidates , including the costs of manufacturing drug substance and drug product , regulatory maintenance costs , and facilities expenses . research and development costs are expensed as incurred . - expenses for clinical trials – expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data . we estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management . costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process . estimated clinical trial costs related to enrollment can vary based on numerous factors , including expected number of patients in trials , the number of patients that do not complete participation in a trial , and when a patient drops out of a trial . costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided . in the event of early termination of a clinical trial , we accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial . - stock-based compensation – all share-based payment transactions are recognized in the financial statements at their fair values . compensation expense associated with service , performance , market condition based stock options and other equity-based compensation is recorded in accordance with provisions of authoritative guidance . the fair value of awards whose fair values are calculated using the black-scholes option pricing model is generally being amortized on a straight-line basis over the requisite service period and is recognized based on the proportionate amount of the requisite service period that has been rendered during each reporting period . the fair value of awards with market conditions , which are valued using a binomial model , is being amortized based upon the estimated derived service period . share based awards granted to employees with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period . such an award with a performance condition will be expensed if it is probable that a performance condition will be achieved . as of december 31 , 2012 , no expense has been recorded for share awards with performance conditions . using the straight-line expense attribution method over the requisite service period , which is generally the option vesting term of two to three years , share-based compensation expense recognized in the years ended december 31 , 2012 and 2011 totaled $ 978,000 and $ 610,000 , respectively . the determination of fair value of stock-based payment awards on the date of grant using the black-scholes or binomial model is affected by our stock price , as well as the input of other subjective assumptions . these assumptions include , but are not limited to , the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards . changes in the assumptions can materially affect the fair value estimates . any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized . 25 story_separator_special_tag options granted in 2012 . - also reflected in our 2012 research and development expenses are patent costs of $ 439,000 , and facility and related expenses of $ 70,000. in 2011 , these expenses totaled $ 520,000 and $ 166,000 , respectively . patent costs during 2012 decreased primarily due to higher costs in 2011 associated with the execution of our intellectual property strategy , including maintaining our patent portfolio and expanding our patent protection internationally . the reduction in expenses in facilities and related expenses in 2012 resulted from an overall decrease in leased office space .
| at december 31 , 2012 , accumulated direct project expenses for 2me2 were $ 58,023,000 ; direct enmd-1198 project expenses totaled $ 13,259,000 ; and , since acquired , accumulated direct project expenses for enmd-2076 totaled $ 21,988,000 and for mkc-1 , accumulated project expenses totaled $ 10,194,000. our research and development expenses also include non-cash stock-based compensation totaling $ 273,000 and $ 142,000 , respectively , for 2012 and 2011. the increase in stock-based compensation expense is related to more stock options granted in 2012. the balance of our research and development expenditures includes facility costs and other departmental overhead , and expenditures related to the non-clinical support of our programs . we expect the majority of our research and development expenses in 2013 to be devoted to the development of our enmd-2076 program . we expect our enmd-2076 expenses in 2013 to increase based on the availability of additional financial resources from our 2013 financing and our clinical development plan . we will continue to conduct research on enmd-2076 in order to comply with stipulations made by the fda , as well as to increase understanding of the mechanism of action and toxicity parameters of enmd-2076 and its metabolites . completion of clinical development may take several years or more , but the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : global fda trial : clinical phase estimated completion period phase 1 1-2 years phase 2 2-3 years phase 3 2-4 years local sfda trial : clinical phase estimated completion period phase 1 1 year phase 2 2 years phase 3 2-3 years 26 the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : - the number of patients that ultimately
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in particular , the growing use of smith ideas * modeling software enabled optimal selection of bottomhole assembly components , particularly in matching drillbits to rotary steerable systems . among individual product lines , smith drillbit technologies benefited from the larger schlumberger geographical footprint , while drilling & measurements scope family * logging-while-drilling services played significant roles in enhancing performance in a number of complex , high-profile wells . in particular , china and russia saw increasing penetration of schlumberger drilling group technologies . demand for reservoir production technologies was boosted by growing deployment of the hiway * channel fracturing service in unconventional and tight reservoir applications around the world . by midyear , hiway technology had been introduced across all four geographical areas , with more than 1,200 stages pumped . the hiway service is part of the schlumberger approach that achieves more performance with less equipment and resources and this number of stages alone saved over 60,000 tons of proppant compared to conventional operations . in the fourth quarter , stages pumped grew by 50 % sequentially and operations were conducted for 35 customers . a number of small technology-based acquisitions were completed during 2011 in addition to completion of the eurasia drilling company ltd asset swap and strategic alliance announced in 2010. these included the purchase of the remaining equity interest in framo engineering as , a privately owned norwegian company specializing in the sales and manufacture of products and services related to multiphase pumps and subsea pump systems , multiphase metering systems and swivel and marine systems . schlumberger also completed the purchase of thrubit llc , a company providing openhole logging services using a unique through-the-bit deployment technique that offers a novel way of obtaining wireline logs in horizontal wells in shale plays . in ipm , schlumberger and saxon energy services merged their respective land-based rig fleets resulting in schlumberger rigs and crews operating in oman , pakistan and venezuela becoming part of saxon 's operations . under the terms of the agreement , saxon will also provide technical drilling contracting support to existing schlumberger joint ventures in saudi arabia , algeria , iraq and venezuela , ensuring availability and support to schlumberger well construction activities . as part of a stronger focus on the growing production services enhancement market , schlumberger production management was formed during the year to increase market participation and became responsible for the casabe and bokor projects that were previously managed by ipm . for 2012 , projected gross domestic product ( gdp ) growth continued to be revised downwards during the fourth quarter , and positive signs from the us and japan are offset by continued concerns over the eurozone and the potential slowing of growth in china . in spite of the political efforts to resolve the issues , the uncertainty surrounding the global financial markets is expected to continue in the coming quarters , and although the chance of a global double-dip recession remains a possibility , this is not expected to be the most likely scenario . in line with lower gdp growth , oil demand outlook has also been revised downwards during the fourth quarter although the increasing weight of the emerging economies , the weakness of non-opec supply , and a number of geopolitical concerns have supported oil prices . absent a global recession , these are not expected to weaken significantly . for natural gas worldwide , little change is expected in the behavior of the main geographical markets in 2012 compared to 2011. feedback from schlumberger customers and the findings from recently published spending surveys suggest that exploration and production investment in 2012 will be higher than that of 2011 , although the predicted levels vary . the same surveys suggest that exploration spending will continue to increase . against this backdrop schlumberger is planning for growth in 2012 , although with significant flexibility . in north america , land rig count is expected to remain flat with 2011 fourth-quarter levels , provided the ongoing drop in gas rig activity will be countered by increasing activity in liquids and liquids-rich basins . a continued recovery in the deepwater gulf of mexico is also expected , with strong demand for high-value technologies . in international markets , rig count in 2012 is expected to increase by around 10 % versus 2011 , driven by strong offshore activity in west africa , north sea and brazil , and by land activity in the middle east , north africa and western siberia . overall schlumberger remains confident that any potential reductions in activity will be short-lived due to limited spare oil capacity and to growing international demand for natural gas . further , the company believes its competitive position remains strong given its strength in the international market in terms of global footprint and contract portfolio , and given the balance that has been established between reservoir characterization , drilling and production services in north america . the following discussion and analysis of results of operations should be read in conjunction with the consolidated financial statements . 16 story_separator_special_tag revenue of $ 3.91 billion was 6 % higher sequentially . pretax operating income of $ 658 million improved 7 % sequentially . significant sequential revenue growth was recorded by m-i swaco from higher rig count on land in the us & canada ; sustained growth in deepwater activity in the us gulf of mexico ; and strong contributions in latin america . ipm activity increased significantly , mainly from projects in mexico and in iraq . drilling & measurements revenue increased on improved pricing and strong activity in the us gulf of mexico and the nigeria & gulf of guinea geomarket , although this was partially offset by weather-related activity reductions in the north sea and east asia geomarkets . in addition , geoservices and bits & advanced technologies registered robust sequential increases . sequentially , pretax operating margins were up slightly to 16.8 % . story_separator_special_tag drilling & measurements obtained increased margins from improved technology mix and service pricing but this was partly offset by the effects of weather-related activity delays and reductions . most of the other technologies exacted margin expansion following the continued successful integration and expansion of smith , geoservices and schlumberger drilling technologies . reservoir production fourth-quarter revenue of $ 3.60 billion increased 7 % over the prior quarter . pretax operating income of $ 768 million was 9 % higher sequentially . among reservoir production group technologies , completions and artificial lift posted the strongest sequential growth driven by robust product sales across all areas . well services sequential growth was seen mainly in north america land as additional fleets deployed and continued improvements in asset utilization and crew efficiency were achieved although these positive factors were partially muted by the impact of year-end seasonal effects . framo and spm also posted strong sequential increases . sequentially , fourth-quarter pretax operating margins were slightly up at 21.3 % . completions , artificial lift and well services reported improvements from strong sales . full-year 2011 results replace_table_token_6_th 19 replace_table_token_7_th ( 1 ) comprised principally of corporate expenses not allocated to the segments , interest on postretirement medical benefits , stock-based compensation costs , amortization expense associated with intangible assets recorded as a result of the acquisition of smith and certain other nonoperating items . ( 2 ) excludes interest income included in the segments ' income ( 2011 $ 3 million ; 2010 $ 7 million ) . ( 3 ) excludes interest expense included in the segments ' income ( 2011 $ 8 million ; 2010 $ 5 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . oilfield services full-year 2011 revenue of $ 37.0 billion was 39 % higher than 2010 primarily reflecting the acquisition of smith on august 27 , 2010 as well as the significantly improved activity , pricing and asset efficiency for well services technologies in north america as the market transitioned to liquid-rich plays demanding increasing service intensity in drilling and completing horizontal wells . year-on-year pretax operating margin increased 75 bps to 19.8 % largely due to the improved pricing and asset efficiency for well services technologies in north america and the resumption of higher-margin activity in the us gulf of mexico . however , the margin expansion was tempered by activity disruptions from the geopolitical unrest in north africa and in the middle east during the first quarter of 2011. reservoir characterization revenue of $ 9.93 billion was 7 % higher than the same period last year on stronger wireline activity , higher westerngeco marine and multiclient sales , and increased sis software sales . year-on-year , pretax operating margin decreased 23 bps to 24.7 % led by margin declines in wireline and testing services , largely due to the revenue mix , as well as the impact of geopolitical events which prevailed during the first quarter of 2011. the margin decline however was partially offset by a favorable westerngeco multiclient sales mix and improved marine vessel utilization . drilling revenue of $ 14.25 billion was 73 % higher than the same period last year reflecting the acquisitions of smith , in august 2010 , and geoservices , in april 2010 , partially offset by a decrease in ipm activities in mexico . the ramp-up of ipm projects in iraq also contributed to the revenue increase . year-on-year , pretax operating margin decreased 24 bps to 16.0 % largely due to the addition of the smith and geoservices activities as well as the effects of the geopolitical events . 20 reservoir production revenue of $ 12.75 billion was 41 % higher than the same period last year while pretax operating margin increased 541 bps to 20.5 % . well services revenue and margins expanded strongly in north america on higher pricing , capacity additions and improved asset utilization and efficiency as the market transitioned to liquid-rich plays . internationally , well services also posted growth on the strength of higher activity , despite the exceptional geopolitical events which prevailed during the first quarter of 2011. distribution revenue of $ 2.62 billion increased $ 1.85 billion , while pretax operating income of $ 103 million increased $ 74 million compared to last year . these increases are attributable to the fact that 2010 reflected only four months of activity following the smith acquisition . full-year 2010 results replace_table_token_8_th ( 1 ) comprised principally of corporate expenses not allocated to the segments , interest on postretirement medical benefits , stock-based compensation costs , amortization expense associated with intangible assets recorded as a result of the acquisition of smith and certain other nonoperating items . ( 2 ) excludes interest income included in the segments ' income ( 2010 $ 7 million ; 2009 $ 10 million ) . ( 3 ) excludes interest expense included in the segments ' income ( 2010 $ 5 million ; 2009 $ 33 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . 21 oilfield services full-year 2010 revenue of $ 26.67 billion was 17 % higher than 2009. this increase was largely attributable to the acquisition of smith as well as significantly higher activity and pricing for well services technologies in us land . however , these increases were partially offset by lower activity in the us gulf of mexico due to the deepwater drilling moratorium and by lower pricing and activity in europe/cis/africa . year-on-year , pretax operating margin declined 141 bps to 19.0 % primarily due to the inclusion of the acquired smith businesses as well as the reduced activity and weaker pricing in the europe/cis/africa area . these effects , however , were partially offset by the impact of the stronger activity and pricing for well services technologies in us land .
| in north america land , well services grew through capacity additions and continued improvements in asset utilization and crew efficiency . in addition , framo and schlumberger production management ( spm ) posted strong sequential increases . on a geographical basis , north america area revenue grew sequentially on increasing deepwater work in the us gulf of mexico , higher rig count and land activity in the us and canada , and significant westerngeco multiclient sales . in addition , well services reported considerable increases from additional fleet deployment and continued improvements in asset utilization and crew efficiency . in the latin america area , strong revenue was recorded in the mexico & central america geomarket from higher ipm project activities and sis software sales ; in the venezuela , trinidad & tobago geomarket from westerngeco marine seismic activities ; and in the peru , colombia & ecuador geomarket from robust artificial lift product sales . in the europe/cis/africa area , strong results were led by the angola geomarket , which saw vigorous westerngeco multiclient sales in addition to expanded presalt offshore activity for wireline , testing services & drilling & measurements ; the nigeria & gulf of guinea geomarket , which recorded robust completions product sales and higher drilling & measurements and wireline activity ; and the north africa geomarket that reported higher wireline , testing services , well services and ipm project activity . these increases , however , were reduced by lower north sea activity which was impacted by seasonal weather issues . in the middle east & asia area , strong completions and artificial lift product sales and robust sis software sales drove resultsparticularly in the india geomarket . these results were augmented by continued growth in the saudi arabia , bahrain geomarket due to the rebound of land seismic acquisition , strong rigless activity and land rig additions . the oman geomarket grew primarily on higher wireline and artificial lift activities while the iraq geomarket saw an increase in non-project services in addition to new ipm projects . pretax operating
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same-restaurant sales exclude the impact of the 53 rd week of 2020. for 2020 , same-restaurant sales compares the 52 weeks from december 30 , 2019 through december 27 , 2020 to the 52 weeks from december 31 , 2018 through december 29 , 2019. for fiscal 2021 , same restaurant sales will compare the 52 weeks from january 4 , 2021 through january 2 , 2022 to the 52 weeks from january 6 , 2020 through january 3 , 2021. this methodology is consistent with the metric used by our management for internal reporting and analysis . the table summarizing same-restaurant sales below in “ results of operations ” provides the same-restaurant sales percent changes . restaurant margin - we define restaurant margin as sales from company-operated restaurants less cost of sales divided by sales from company-operated restaurants . cost of sales includes food and paper , restaurant labor and occupancy , advertising and other operating costs . restaurant margin is influenced by factors such as price increases , the effectiveness of our advertising and marketing initiatives , featured products , product mix , fluctuations in food and labor costs , restaurant openings , remodels and closures and the level of our fixed and semi-variable costs . systemwide sales - systemwide sales is a non-gaap financial measure , which includes sales by both company-operated restaurants and franchised restaurants . franchised restaurants ' sales are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . the company 's royalty revenues are computed as percentages of sales made by wendy 's franchisees . as a result , sales by wendy 's franchisees have a direct effect on the company 's royalty revenues and profitability . average unit volumes - we calculate company-operated restaurant average unit volumes by summing the average weekly sales of all company-operated restaurants which reported sales during the week . average unit volumes exclude the impact of the 53 rd week of 2020. for 2020 , average unit volumes are calculated using the 52 weeks from december 30 , 2019 through december 27 , 2020. franchised restaurant average unit volumes is a non-gaap financial measure , which includes sales by franchised restaurants , which are reported by our franchisees and represent their revenues from sales at franchised wendy 's restaurants . the company 's consolidated financial statements do not include sales by franchised restaurants to their customers . we calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week . 36 the company calculates same-restaurant sales and systemwide sales growth on a constant currency basis . constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates . the company believes excluding the impact of foreign currency translation provides better year over year comparability . same-restaurant sales and systemwide sales exclude sales from venezuela and , beginning in the third quarter of 2018 , exclude sales from argentina due to the highly inflationary economies of those countries . the company considers economies that have had cumulative inflation in excess of 100 % over a three-year period as highly inflationary . the company believes its presentation of same-restaurant sales , restaurant margin , systemwide sales and average unit volumes provide a meaningful perspective of the underlying operating performance of the company 's current business and enables investors to better understand and evaluate the company 's historical and prospective operating performance . the company believes that these metrics are important supplemental measures of operating performance because they highlight trends in the company 's business that may not otherwise be apparent when relying solely on gaap financial measures . the company believes investors , analysts and other interested parties use these metrics in evaluating issuers and that the presentation of these measures facilitates a comparative assessment of the company 's operating performance . with respect to same-restaurant sales , systemwide sales and franchised restaurant average unit volumes , the company also believes that the data is useful in assessing consumer demand for the company 's products and the overall success of the wendy 's brand . the non-gaap financial measures discussed above do not replace the presentation of the company 's financial results in accordance with gaap . because all companies do not calculate non-gaap financial measures in the same way , these measures as used by other companies may not be consistent with the way the company calculates such measures . sales trends and covid-19 update on march 11 , 2020 , the world health organization declared the novel strain of coronavirus ( covid-19 ) a global pandemic and recommended containment and mitigation measures worldwide . we continue to monitor the dynamic nature of the covid-19 pandemic on our business , results and financial condition ; however , we can not predict the ultimate duration , scope or severity of the covid-19 pandemic or its ultimate impact on our results of operations , financial condition and prospects . in response to the pandemic , in march 2020 , wendy 's updated its brand standard to include the closure of all dining rooms except where there were specific needs , or a drive-thru or pick-up window option was not available , subject to applicable federal , state and local requirements . substantially all wendy 's restaurants continued to offer drive-thru and delivery service to our customers . during the second quarter of 2020 , the company began to implement its restaurant and dining room reopening process through a phased approach in accordance with federal , state and local requirements , with customer and team member safety as its top priority . dining rooms have been re-opening at each restaurant owner 's discretion , subject to applicable regulatory restrictions . as of january 3 , 2021 , approximately 75 % of dining rooms were open across the wendy 's system offering carryout and , in some cases , dine in services . story_separator_special_tag the covid-19 pandemic has resulted in the temporary closure of certain restaurants across the wendy 's system . as of january 3 , 2021 , systemwide temporary restaurant closures totaled 17 and 45 in the u.s. and internationally , respectively , which represents less than 1 % of all system restaurants . the following table shows same-restaurant sales for the fiscal months of january through june and the third and fourth quarters of 2020 : replace_table_token_4_th 37 ( a ) excludes the impact of the 53 rd week in 2020. as a result of the covid-19 pandemic , global systemwide same-restaurant sales began to be materially adversely impacted in the fiscal month of march , with the fiscal month of april seeing the greatest impact . the decrease in same-restaurant sales was driven by a significant decline in customer count , partially offset by an increase in average check . subsequently , global same-restaurant sales improved beginning in may , turned positive to 3.4 % growth in june and increased 6.1 % and 4.7 % during the third and fourth quarters , respectively . through the week ended february 21 , 2021 , u.s. and global systemwide same-restaurant sales increased approximately 6.0 % and 5.0 % , respectively . the improvement in same-restaurant sales since the lows seen in march and april has been primarily driven by a significant increase in customer counts since that time . breakfast launch wendy 's long-term growth opportunities include investing in accelerated global growth , which includes building upon our breakfast daypart . since the launch of breakfast across the u.s. system on march 2 , 2020 , same-restaurant sales have benefited from this new daypart , with breakfast contributing 6.2 % , 6.4 % and 6.3 % to u.s. systemwide same-restaurant sales during the second , third and fourth quarters of 2020 , respectively . the company funded $ 14.6 million of incremental advertising to support the breakfast daypart during 2020. digital wendy 's long-term growth opportunities include accelerating same-restaurant sales through continued implementation of consumer-facing digital platforms and technologies . the company has invested significant resources to focus on consumer-facing technology , including activating mobile ordering via wendy 's mobile app , launching the wendy 's rewards loyalty program and establishing delivery agreements with third-party vendors for wendy 's u.s. and canadian restaurants . the company 's digital business continues to grow and represented approximately 5 % of u.s. systemwide sales during 2020 , which is more than double the amount in 2019. operations and field realignment in september 2020 , the company initiated a plan to reallocate resources to better support the long-term growth strategies for company and franchise operations ( the “ operations and field realignment plan ” ) . the operations and field realignment plan realigns the company 's restaurant operations team , including transitioning from separate leaders of company and franchise operations to a single leader of all u.s. restaurant operations . we also expect to incur contract termination charges , including the planned closure of certain field offices . the company expects to incur total costs aggregating approximately $ 7.0 million to $ 9.0 million , of which approximately $ 6.5 million to $ 8.5 million will be cash expenditures , related to the operations and field realignment plan . costs related to the operations and field realignment plan are recorded to “ reorganization and realignment costs. ” during 2020 , the company recognized costs totaling $ 3.8 million , which primarily included severance and related employee costs and share-based compensation . the company expects to incur additional costs aggregating approximately $ 3.0 million to $ 5.0 million , comprised primarily of third-party and other costs . the company expects to recognize the majority of the remaining costs and make the majority of the remaining cash expenditures associated with the operations and field realignment plan during 2021. information technology ( “ it ” ) realignment in december 2019 , our board of directors approved a plan to realign and reinvest resources in the company 's it organization to strengthen its ability to accelerate growth ( the “ it realignment plan ” ) . the company has partnered with a third-party global it consultant on this new structure to leverage their global capabilities , which will enable a more seamless integration between its digital and corporate it assets . the it realignment plan has reduced certain employee compensation and other related costs that the company has reinvested back into it to drive additional capabilities and capacity across all of its technology platforms . additionally , in june 2020 , the company made changes to its leadership structure that included the elimination of the chief digital experience officer position and the creation of a chief information officer position , for which the company completed the hiring process in october 2020. costs related to the it realignment plan are recorded to “ reorganization and realignment costs. ” during 2020 and 2019 , the company recognized costs totaling $ 7.3 million and $ 9.1 million , respectively , which primarily included third-party and other costs and recruitment and relocation costs in 2020 and severance and related employee costs and third-party and other costs in 2019. the company does not expect to incur any material additional costs under the it realignment plan . 38 npc quality burgers , inc. ( “ npc ” ) as previously announced , npc , the company 's largest franchisee , filed for chapter 11 bankruptcy in july 2020 and commenced a process to sell all or substantially all of its assets , including its interest in approximately 393 wendy 's restaurants across eight different markets , pursuant to a court-approved auction process . on november 18 , 2020 , the company submitted a consortium bid together with a group of pre-qualified franchisees to acquire npc 's wendy 's restaurants . under the terms of the consortium bid , several existing and new franchisees would have been the ultimate purchasers of seven of the npc markets , while the company would have acquired one market .
| company-operated same-restaurant sales declined due to a decrease in customer count as a result of the covid-19 pandemic , partially offset by ( 1 ) the positive impact from the launch of breakfast and ( 2 ) higher average check . 42 replace_table_token_12_th the increase in franchise royalty revenue during 2020 was primarily due to ( 1 ) royalties earned during the 53 rd week of 2020 of approximately $ 7.8 million , ( 2 ) a 1.4 % increase in global franchise same-restaurant sales and ( 3 ) a net increase in the number of franchise restaurants in operation during 2020 compared to 2019. the increase in franchise same-restaurant sales reflects ( 1 ) the positive impact from the launch of breakfast in the u.s. and ( 2 ) higher average check , partially offset by a decrease in customer count as a result of the covid-19 pandemic . replace_table_token_13_th the decrease in franchise rental income during 2020 was primarily due to assigning certain leases to franchisees during 2019. replace_table_token_14_th the company maintains two national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for company-operated and franchised restaurants in the u.s. and canada . franchisees make contributions to the national advertising funds based on a percentage of sales of the franchised restaurants . the decrease in advertising funds revenue during 2020 was primarily due to the impact of the covid-19 pandemic . the positive impact from the launch of breakfast did not impact advertising funds revenue due to the company 's decision in march 2020 to abate national advertising fund contributions on breakfast sales for the remainder of 2020 in response to the covid-19 pandemic . the decrease in advertising funds revenue was partially offset by revenues earned during the 53 rd week of 2020 of approximately $ 6.4 million . replace_table_token_15_th the increase in cost of sales , as a percent of sales , during 2020 was primarily due to ( 1 ) a decrease in customer count , reflecting the impact of the covid-19 pandemic , ( 2 ) restaurant
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the company has secured a sublease of roughly 11 % of the facility . the table below summarizes the restructuring activity during the twelve months ended december 31 , 2020 and december 29 , 2019 : replace_table_token_1_th goodwill the company performed the annual quantitative assessment as of december 31 , 2020 , utilizing a combination of the income and market approaches . the results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded the carrying value by approximately 70.0 % . key assumptions used in the analysis were a discount rate of 13.0 % , ebitda margin of 8 % in 2021 and at least 9.5 % thereafter and a terminal growth rate of 2.5 % . future events and changing market conditions may , however , lead the company to reevaluate the assumptions that have been used to test for goodwill impairment , including key assumptions used in the expected ebitda margins , cash flows and discount rates , as well as other assumptions with respect to matters out of the company 's control , such as discount rates and market multiples of comparable companies . during the second quarter of 2019 , the company experienced a decline in market capitalization , which under applicable accounting standards , is a potential indicator of impairment . as a result , the company performed an interim quantitative assessment as of june 30 , 2019 , utilizing a combination of the income and market approaches , which were weighted evenly . the results of the quantitative analysis performed indicated the carrying value of the company exceeded the fair value of the company by $ 6.8 million and , accordingly , an impairment was recorded during the second quarter of 2019. key assumptions used in the analysis were a discount rate of 12.5 % , ebitda margin of 5.7 % for the last seven months of 2019 , 9.25 % ebitda margin for 2020 increasing to 10.0 % for 2023 , and a terminal growth rate of 2.0 % . future events and changing market conditions may , however , lead us to reevaluate the assumptions we have used to test for goodwill impairment , including key assumptions used in our expected ebitda margins and cash flows , as well as other key assumptions with respect to matters out of our control , such as discount rates and market multiple comparables . based on the results of the quantitative test , we 20 performed sensitivity analysis around the key assumptions used in the analysis , the results of which were a 50 basis point decline in ebitda margin used to determine expected future cash flows would have resulted in an additional impairment of approximately $ 12.3 million . no such further indicators of impairment were identified during the remaining two quarters of the year ended december 29 , 2019. comparison of results of operations for the twelve months ended december 31 , 2020 and december 29 , 2019 net sales twelve months ended december 31 , 2020 twelve months ended december 29 , 2019 ( in thousands ) net sales $ 120,214 $ 152,489 net sales for the twelve months ended december 31 , 2020 were approximately $ 120.2 million compared to $ 152.5 million for the twelve months ended december 29 , 2019 , representing a decrease of 21.2 % . the decrease in net sales in 2020 was primarily caused by the covid-19 pandemic , which idled our automotive customers ' facilities for several months . also contributing to the decrease in net sales was the end of certain transportation customer programs , and lost sales from facility closures . cost of sales the major components of cost of sales are raw materials purchased from third parties , direct labor and benefits , and manufacturing overhead , including facility costs , utilities , supplies , repairs and maintenance , insurance , freight costs of products shipped to customers and depreciation . replace_table_token_2_th 21 cost of sales as a percent of net sales replace_table_token_3_th the increase in cost of sales as a percentage of net sales in 2020 was attributable to lower sales , resulting in an under absorption of manufacturing overhead . the increase in direct labor and benefits as a percent of net sales during 2020 is mainly driven by labor premiums throughout the year . the company continued to provide health and other employee benefits during the covid-19 related shut downs , without employee contributions , also contributed to the increase . material cost as a percentage of net sales increased due to lower material utilization related to production moves from previously completed facility closures . selling , general and administrative expenses ( “ sg & a ” ) replace_table_token_4_th selling , general , and administrative expenses for the twelve months ended december 31 , 2020 decreased $ 1.3 million to $ 25.5 million , compared to $ 26.8 million for the twelve months ended december 29 , 2019. the decrease was driven by cost reduction activities including plant closures , reduced management and commission expenses , and lower health care costs . partially offsetting these cost savings were increased professional fees primarily related to the finance and information technology support . operating loss operating loss for the twelve months ended december 31 , 2020 was $ 6.0 million compared to an operating loss of $ 4.8 million for the twelve months ended december 29 , 2019. the increased operating loss in 2020 was primarily a result of $ 10.8 million lower gross profit . offsetting the reduced gross profit was $ 1.5 million less restructuring expenses in 2020 and the $ 6.8 million goodwill impairment charge during 2019 that did not reoccur . non-operating expense non-operating expense for the twelve months ended december 31 , 2020 was $ 3.5 million compared to $ 4.3 million for the twelve months ended december 29 , 2019. the change in non-operating expense was primarily driven by interest expense . story_separator_special_tag interest expense was approximately $ 3.6 million for the twelve months ended december 31 , 2020 , compared to 4.3 million for the twelve months ended december 29 , 2019. the decrease in interest expense is primarily driven by the lower interest rate composition of our debt compared to last year . income before income taxes as a result of the foregoing factors , loss before income taxes for the twelve months ended december 31 , 2020 was $ 9.5 million , compared to a loss of $ 9.0 million for the twelve months ended december 29 , 2019. income tax provision for the twelve months ended december 31 , 2020 , income tax benefit was $ 3.8 million , and the effective income tax rate was 40 % . the effective tax rate was higher than the statutory rate of 21.0 % primarily due to the impact of net operating loss carry backs from 2020 and 2019. for the twelve months ended december 29 , 2019 , income tax expense was less than $ 0.1 million , and the effective income tax rate was 0 % . the effective tax rate was lower than the statutory rate of 21.0 % primarily due to earnings generated in mexico and canada , which both have higher statutory income tax rates than the u.s. , and the u.s. 22 taxation of foreign earnings under the global intangible low-taxed income ( gilti ) provisions of the tax cut and jobs act , partially offset by tax credits . net loss net loss for the twelve months ended december 31 , 2020 was $ 5.7 million compared to net loss of $ 9.1 million during the twelve months ended december 29 , 2019. the decrease in net loss was primarily driven by increased income tax benefit in 2020 , goodwill impairment charges in 2019 not recurring , and lower restructuring and interest expenses . these impacts offset the $ 10.8 million reduction of gross profit , which was driven by the effects of the covid-19 pandemic on sales and production costs . liquidity and capital resources our principal sources of liquidity are cash flow from operations and borrowings under our amended and restated credit agreement from our senior lenders . our primary uses of cash are payment of vendors , payroll , operating costs , capital expenditures and debt service . as of december 31 , 2020 and december 29 , 2019 , we had a cash balance of $ 0.8 million and $ 0.7 million , respectively . our excess cash balance is swept daily and applied to reduce borrowings under our revolving line of credit , which remains available for re-borrowing , as needed , subject to compliance with the terms of the facility . as of december 31 , 2020 and december 29 , 2019 , we had $ 5.7 million and $ 6.8 million , respectively , available for borrowing under our amended and restated credit facility , subject , in each case , to borrowing base restrictions , compliance with the terms of the facility and outstanding letters of credit . assuming that we are able to agree on a waiver of defaults by our lenders and an amendment to our amended and restated credit facility which do not restrict borrowings , we believe that our sources of liquidity , including cash flow from operations , existing cash and our revolving credit facility are sufficient to meet our projected cash requirements for at least the next twelve months . in 2021 , we plan to commit to approximately $ 4.0 million in capital expenditures , primarily to add new production equipment as we expand and automate our production capabilities , upgrade existing equipment and facilities , and improve our information technology software and hardware throughout our locations . the forbearance agreement , during the forbearance period prohibits any payment to acquire illiquid assets other than ordinary course capital expenditures . we may elect to pursue additional growth opportunities that could require additional debt or equity financing . if we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities , our ability to pursue such opportunities could be materially adversely affected . dividends our payment of dividends on our common stock in the future will be determined by our board of directors in its sole discretion and will depend on business conditions , our financial condition , earnings , liquidity and capital requirements . our amended credit agreement contains financial covenants which may have the effect of precluding or limiting the amounts that we can pay as dividends . cash flow data the following table presents cash flow data for the periods indicated . replace_table_token_5_th operating activities cash provided by operating activities consists of net income adjusted for non-cash items , including depreciation and amortization ; amortization of debt issuance costs ; gain or loss on sale of assets ; gain or loss on extinguishment of debt ; gain or loss on derivative instruments ; bad debt adjustments ; stock option expense ; changes in deferred income taxes ; accrued and other liabilities ; prepaid expenses and other assets ; and the effect of working capital changes . the primary drivers of the impact covid-19 pandemic on the company 's operating results . 23 during the twelve months ended december 31 , 2020 , net cash used in operating activities was $ 1.4 million , compared to cash provided by operating activities of $ 12.0 million for the twelve months ended december 29 , 2019. net cash used by operating activities for the twelve months ended december 31 , 2020 was adversely impacted by increases in prepaid expenses and refundable taxes . overall operating cash flows decreased as a result of the impact of covid-19 pandemic on the business . the net cash provided by operating activities for the twelve months ended december 29 , 2019 was positively impacted by decreases in inventory and accounts receivable representing a renewed focus on the management of those two areas .
| we believe unique fabricating has a broader array of processes and materials utilized than any of its direct competitors , based on our product offerings . by sealing out air , noise and water intrusion , and by providing sound absorption and blocking , unique fabricating 's products improve the interior comfort of a vehicle , increasing perceived vehicle quality and the overall experience of its passengers . unique fabricating 's products perform similar functions for appliances medical and consumer off-road systems , improving thermal characteristics , reducing noise and prolonging equipment life . we primarily operate within the highly competitive and cyclical automotive parts industry . recent developments coronavirus the company 's results for the twelve months ended december 31 , 2020 were adversely affected by the covid-19 pandemic , which resulted in the idling of most of our automotive customers ' facilities beginning in mid-march 2020 and continuing until june . in response to the unprecedented uncertainty related to the impact the covid-19 pandemic is having on the global automotive industry , the company has taken actions to reduce costs and increase financial flexibility . these actions include actively managing costs , capital expenditures , and working capital . additionally , the company received a loan of approximately $ 6.0 million pursuant to the u.s. small business administration paycheck protection program under title i of 18 the coronavirus aid , relief , and economic security act . refer to note 8 , in part ii , item 8 of this annual report on form 10-k for more information on the paycheck protection program loan . due to the ongoing covid-19 outbreak with its uncertain near , mid , and longer-term impacts on the company , our customers , our suppliers , and the industries we serve , we are executing a comprehensive set of actions to prudently manage our resources while keeping our customers supplied with the products they continue to require . the company continues to follow guidelines with respect to operating during the covid-19 pandemic provided by the various governmental entities in the jurisdictions where we operate and is taking additional measures to protect our employees . our supply chain has been adversely affected by the covid-19 outbreak . throughout 2020 we
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additionally , we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year . we only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year . product sales . we recognize revenue from sales of products upon shipment or delivery when control of the product transfers to the customer , depending on the terms of each sale , and when collection is probable . in the circumstance where terms of a product sale include subjective customer acceptance criteria , revenue is deferred until we have achieved the acceptance criteria unless the customer acceptance criteria are perfunctory or inconsequential . we generally offer customers payment terms of less than one year . freight . we record shipping and handling fees that we charge to our customers as revenue and related costs as cost of goods sold . multiple performance obligations . certain agreements with customers include the sale of equipment involving multiple elements in cases where obligations in a contract are distinct and thus require separation into multiple performance obligations , revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price . the value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met . the standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service . when there is only one performance obligation associated with a contract , the entire amount of consideration is attributed to that obligation . when a contract contains multiple performance obligations the standalone selling price is first estimated using the observable price , which is generally a list price net of applicable discount or the price used to sell the good or service in similar circumstances . in circumstances when a selling price is not directly observable , we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin . the timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods . the timing of revenue recognition for each performance obligation may be dependent upon several milestones , including physical delivery of equipment , completion of site acceptance test , and in the case of after-market consumables and service deliverables , the passage of time . foreign currency our international operations are subject to certain opportunities and risks , including from foreign currency fluctuations and governmental actions . during fiscal year 2020 , we conducted business in seven countries . we closely monitor our operations in each country in which we do business and seek to adopt appropriate strategies that are responsive to changing economic and political environments . we currently conduct business in the u.s. dollar and the euro . weaknesses in one currency in which we do business are often offset by strengths in the other currency . revenues , costs , and expenses are translated at the applicable rate on the date of the transaction . translation gains and losses , if any , are calculated on accounts receivable or accounts payable outstanding at the rate applicable the end of the period . we include gains and losses resulting from foreign currency transactions in income , while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive loss when applicable . transaction gains and losses , which were included in our consolidated statement of operations , amounted to a loss of approximately $ 10 thousand and $ 0 thousand for the fiscal years ended june 30 , 2020 and 2019 , respectively . 38 warranty provision astrotech offers its customers warranties on the products that it sells . these warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment . concurrent with the sale of products , the company records a provision for estimated warranty expenses with a corresponding increase in cost of goods sold . the company periodically adjusts this provision based on historical experience and anticipated expenses . the company charges actual expenses of repairs under warranty , including parts and labor , to this provision when incurred . the current obligation for warranty provision is included in accrued expenses and other liabilities in the consolidated balance sheets , whose activity for each of the two fiscal years ended june 30 , 2020 and 2019 is summarized in the following table : replace_table_token_0_th research and development research and development costs are expensed as incurred . research and development expenses for the fiscal years ended june 30 , 2020 and 2019 were $ 3.4 million and $ 3.6 million , respectively . the reason for this decrease was reduced compensation and related expenses . net loss per common share basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period . diluted net loss per common share is the same as basic net loss per common share as the potential dilutive shares are considered to be anti-dilutive ( see note 12 to the consolidated financial statements ) . cash and cash equivalents the company considers short-term investments with original maturities of three months or less to be cash equivalents . cash equivalents are comprised primarily of operating cash accounts , money market investments , and certificates of deposit . accounts receivable the carrying value of the company 's accounts receivable , net of an allowance for doubtful accounts , represents their estimated net realizable value . story_separator_special_tag astrotech estimates an allowance for doubtful accounts based on type of customer , age of outstanding receivable , historical collection trends , and existing economic conditions . if events or changes in circumstances indicate that a specific receivable balance may be unrealizable , further consideration is given to the collectability of those balances , and the allowance is adjusted accordingly . receivable balances deemed uncollectible are written off against the allowance . the company anticipates collecting all unreserved receivables within one year . as of june 30 , 2020 and 2019 , there was no allowance for doubtful accounts deemed necessary . inventory the company computes inventory cost on a first-in , first-out basis , and inventory is valued at the lower-of-cost or net realizable value . the valuation of inventory also requires the company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality . property and equipment . net property and equipment are stated at cost . all furniture , fixtures , and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets , which is generally five years . purchased software is typically 39 depreciated over three years . leasehold improvements are amortized over the shorter of the useful life of the impr ovement or the term of the lease . repairs and maintenance are expensed when incurred . impairment of long-lived assets the company continuously evaluates its long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable . our evaluation is based on an assessment of potential indicators of impairment , such as an adverse change in the business climate that could affect the value of an asset , current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset , and a current expectation that , more likely than not , an asset will be disposed of before the end of its previously estimated useful life . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . 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 . recoverability of long-lived assets is dependent on a number of conditions , including uncertainty about future events and demand for our services . there was no impairment of long-lived assets recognized during the years ended june 30 , 2020 or 2019. fair value of financial instruments astrotech 's financial instruments consist of cash and cash equivalents , accounts receivable , accounts payable , and accrued liabilities . the company 's management believes the carrying amounts of these assets and liabilities approximates their fair value . for more information about the company 's accounting policies surrounding fair value investments , see note 6 to the consolidated financial statements . operating leases we adopted accounting standards update no . 2016-02 , “ leases ( topic 842 ) ” ( asu 2016-02 ) effective july 1 , 2019. asu 2016-02 requires that we determine , at the inception of an arrangement , whether the arrangement is or contains a lease , based on the unique facts and circumstances present . operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease . right-of-use ( “ rou ” ) assets and operating lease liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term . when determining the lease term , we include options to extend or terminate the lease when it is reasonably certain , at inception , that we will exercise that option . the interest rate implicit in lease contracts is typically not readily determinable ; accordingly , we use our incremental borrowing rate , which is the rate that would be incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment , based upon the information available at the commencement date . the lease payments used to determine our operating lease assets may include lease incentives , stated rent increases and escalation clauses linked to rates of inflation , when determinable , and are recognized in determining our rou assets . our operating leases are reflected in the operating lease , right-of-use asset ; lease liabilities , current ; and lease liabilities , non-current in our consolidated balance sheets . lease expense for minimum lease payments is recognized on a straight-line basis over the lease term . as a result of our adoption of asu 2016-02 , we no longer recognize deferred rent on the consolidated balance sheet . short-term leases , defined as leases that have a lease term of 12 months or less at the commencement date , are excluded from this treatment and are recognized on a straight-line basis over the term of the lease . variable lease payments are amounts owed by us to a lessor that are not fixed , such as reimbursement for common area maintenance costs for our facility lease ; and are expensed when incurred . financing leases , formerly referred to as capitalized leases , are treated similarly to operating leases except that the asset subject to the lease is included in the appropriate fixed asset category , rather than recorded as a right-of-use asset , and depreciated over its estimated useful life , or lease term , if shorter . stock-based compensation the company accounts for stock-based awards to employees based on the fair value of the award on the grant date .
| ati currently licenses the ams technology to three wholly-owned subsidiaries of astrotech , including to 1 st detect for use in the security and detection market , to aglab for use in the agriculture market , and to breathtech for use inbreath analysis . 1 st detect corporation 1 st detect , a licensee of ati for the security and detection market , has developed the tracer 1000 , the world 's first mass spectrometer ( “ ms ” ) based explosives trace detector ( “ etd ” ) certified by the european civil aviation conference ( “ ecac ” ) , designed to replace the etds used at airports , cargo facilities , secured facilities , and borders worldwide . we believe that etd customers are unsatisfied with the currently deployed etd technology , which is driven by ion mobility spectrometry ( “ ims ” ) . we believe that ims-based etds are fraught with false positives , as they often misidentify personal care products and other common household chemicals as explosives , causing unnecessary delays , frustration , and significant wasted security resources . in addition , there are hundreds of different types of explosives , but ims-based etds have a very limited threat detection library reserved only for those several explosives of largest concern . adding additional compounds to the detection library of an ims-based etd fundamentally reduces the instrument 's performance , further increasing the likelihood of false alarms . in contrast , adding additional compounds does not degrade the tracer 1000 's detection capabilities , as it has a virtually unlimited and easily expandable threat library . with terrorist threats becoming more numerous , sophisticated , and lethal , security professionals have been looking for better instrumentation , and specifically for mass spectrometry , to address the evolving threats , but mass spectrometry has long been too expensive , too cumbersome , and not practical for security applications until the launch of the tracer 1000. in order to sell the tracer 1000 to airport and cargo security customers in the european union , ecac certification is required . certain other countries also accept ecac certification . after receiving ecac certification for the tracer 1000 on february 21 , 2019 , we are now marketing to and taking orders
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the provision for income taxes increased to $ 74.8 million in 2010 from $ 55.4 million in 2009. the effective tax rate decreased to 32.2 % in 2010 from 32.8 % in 2009 , due to changes in the mix of global pre-tax income among taxing jurisdictions . net income for 2010 was $ 157.1 million , 39 % higher than the $ 113.4 million earned in 2009. diluted earnings per share in 2010 of $ 1.90 increased $ 0.50 , or 36 % , compared with last year . 15 company and business segment financial information replace_table_token_4_th ( 1 ) data includes acquisition of fitzpatrick ( november 2010 ) , periflo ( september 2010 ) , obl ( july 2010 ) , ietg ( october 2008 ) , ipek ( october 2008 ) , richter ( october 2008 ) and ads ( january 2008 ) in the fluid & metering technologies segment and ppe ( april 2010 ) , innovadyne ( november 2008 ) and semrock ( october 2008 ) in the health & science technologies segment from the date of acquisition . ( 2 ) segment net sales include intersegment sales . ( 3 ) segment operating income excludes unallocated corporate operating expenses . ( 4 ) segment operating income includes $ 30.1 million goodwill impairment charge in 2008 for fluid management . ( 5 ) excludes amortization of debt issuance expenses . 16 performance in 2009 compared with 2008 sales in 2009 of $ 1,329.7 million were 11 % lower than the $ 1,489.5 million recorded in 2008. this decrease reflects a 14 % decrease in organic sales and 2 % unfavorable foreign currency translation , partially offset by a 5 % increase from five acquisitions ( richter october 2008 , ipek october 2008 , ietg october 2008 , semrock october 2008 and innovadyne november 2008 ) . organic sales decreased in all four of the company 's reportable segments . domestic organic sales were down 13 % versus the prior year , while international organic sales were down 15 % in 2009. sales to customers outside the u.s. represented 47 % of total sales in both 2009 and 2008. in 2009 , fluid & metering technologies contributed 48 % of sales and 44 % of operating income ; health & science technologies accounted for 23 % of both sales and operating income ; dispensing equipment accounted for 9 % of sales and 7 % of operating income ; and fire & safety/diversified products represented 20 % of sales and 26 % of operating income . fluid & metering technologies sales of $ 641.1 million in 2009 decreased $ 56.6 million , or 8 % , compared with 2008. this reflects a 16 % decline in organic sales and 1 % of unfavorable foreign currency translation , partially offset by a 9 % increase for acquisitions ( richter , ipek and ietg ) . the decrease in organic growth was driven by weakness in chemical , energy , water and wastewater markets . in 2009 , organic sales declined approximately 16 % both domestically and internationally . organic sales to customers outside the u.s. were approximately 41 % of total segment sales in 2009 and 43 % in 2008. health & science technologies sales of $ 304.3 million decreased $ 27.3 million , or 8 % , in 2009 compared with 2008. this change represents a 12 % decrease in organic volume and 1 % unfavorable foreign currency translation , partially offset by a 5 % increase from the acquisitions of semrock and innovadyne . the decrease in organic sales reflected market softness across the health & science technologies businesses . in 2009 , organic sales decreased 13 % domestically and 10 % internationally . organic sales to customers outside the u.s. were approximately 40 % of total segment sales in 2009 and 38 % in 2008. dispensing equipment sales of $ 127.3 million decreased $ 36.6 million , or 22 % , in 2009 compared with the prior year . organic sales decreased 18 % , while foreign currency translation accounted for 4 % of the decrease . the decrease in organic growth was due to continued deterioration in capital spending in the european and north american markets . organic domestic sales increased 8 % compared with 2008 , while organic international sales decreased 27 % . organic sales to customers outside the u.s. were 66 % of total segment sales in 2009 , down from 73 % in 2008. fire & safety/diversified products sales of $ 262.8 million decreased $ 37.7 million , or 13 % , in 2009 compared with 2008. organic sales activity decreased 9 % , while foreign currency translation accounted for 4 % of the decrease . the decrease in organic business growth was driven by lower demand for engineered band clamping systems and lower levels of municipal spending . in 2009 , organic sales decreased 12 % domestically and 7 % internationally . organic sales to customers outside the u.s. were 55 % of total segment sales in 2009 and 53 % in 2008. gross profit of $ 522.4 million in 2009 was $ 75.0 million , or 13 % , lower than 2008. as a percent of sales , gross profit was 39.3 % in 2009 , which represented an 80 basis-point decrease from 40.1 % in 2008. the decrease in gross margin primarily reflects lower volume and product mix . sg & a expenses decreased to $ 325.5 million in 2009 from $ 343.4 million in 2008. the $ 17.9 million decrease reflects approximately $ 40.7 million for restructuring related savings and volume related expenses , partially offset by a $ 22.8 million increase for incremental costs associated with recently acquired businesses . as a percent of net sales , sg & a expenses were 24.5 % for 2009 and 23.1 % in 2008. in 2008 , the company recorded a goodwill impairment charge of $ 30.1 million . story_separator_special_tag the company concluded in accordance with asc 350 that events had occurred and circumstances had changed which required the company to perform an interim period goodwill impairment test at fluid management , a reporting unit in 2008 within the company 's dispensing equipment segment . fluid management had experienced a downturn in capital spending by its customer base and a loss of market share . the company performed an impairment test and compared the fair 17 value of the reporting unit to its carrying value . it was determined that the fair value of fluid management was less than the carrying value of the net assets . the excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill . the company 's analysis resulted in an implied fair value of goodwill of $ 21.2 million . in 2009 and 2008 , the company recorded pre-tax restructuring expenses totaling $ 12.1 million and $ 18.0 million , respectively , for employee severance related to employee reductions across various functional areas and facility closures resulting from the company 's cost savings initiatives . these initiatives included severance benefits for 478 employees in 2009 and 380 in 2008. operating income decreased $ 21.1 million , or 10 % , to $ 184.9 million in 2009 from $ 206.0 million in 2008. this decrease primarily reflects a decrease in volume , partially offset by the goodwill impairment charge in 2008 and the impact from acquisitions . operating margins in 2009 were 13.9 % of sales compared with 13.8 % recorded in 2008. in the fluid & metering technologies segment , operating income of $ 100.3 million and operating margins of 15.6 % in 2009 were down from the $ 123.8 million and 17.7 % recorded in 2008 principally due to lower sales . in the health & science technologies segment , operating income of $ 51.7 million and operating margins of 17.0 % in 2009 were down from the $ 58.3 million and 17.6 % recorded in 2008 due to lower volume . in the dispensing equipment segment , operating income of $ 15.1 million and operating margins of 11.9 % in 2009 were up from the $ 10.7 million of operating loss recorded in 2008 , due to a goodwill impairment charge in 2008 , partially offset by continued deterioration in the north american and european markets . operating income and operating margins in the fire & safety/diversified products segment of $ 59.9 million and 22.8 % , respectively , were lower than the $ 74.3 million and 24.7 % recorded in 2008 , due primarily to lower volume and unfavorable product mix . other income of $ 1.2 million in 2009 was $ 3.9 million lower than the $ 5.1 million in 2008 , due to unfavorable foreign currency translation and lower interest income . interest expense decreased to $ 17.2 million in 2009 from $ 18.9 million in 2008. the decrease was due to a lower interest rate environment , the replacement of $ 150.0 million of debt with a lower interest rate borrowing in february 2008 and the conversion of $ 350.0 million floating-rate debt into fixed-rates . the provision for income taxes decreased to $ 55.4 million in 2009 from $ 65.2 million in 2008. the effective tax rate decreased to 32.8 % in 2009 from 33.9 % in 2008 , due to changes in the mix of global pre-tax income among taxing jurisdictions . net income for 2009 was $ 113.4 million , 11 % lower than the $ 127.0 million in 2008. diluted earnings per share in 2009 of $ 1.40 decreased $ 0.13 , or 8 % , compared with 2008. liquidity and capital resources at december 31 , 2010 , working capital was $ 339.1 million and the company 's current ratio was 2.0 to 1. cash flows from operating activities decreased $ 28.1 million , or 13 % , to $ 184.5 million in 2010 , primarily due to the settlement of the forward starting interest rate contract entered into during 2010 in connection with the $ 300.0 million 4.5 % senior notes issued in december 2010. cash flows from operations were more than adequate to fund capital expenditures of $ 32.8 million and $ 25.5 million in 2010 and 2009 , respectively . capital expenditures were generally for machinery and equipment that improved productivity and tooling to support the global sourcing initiatives , although a portion was for business system technology and replacement of equipment and facilities . management believes that the company has ample capacity in its plants and equipment to meet expected needs for future growth in the intermediate term . the company acquired ppe in april 2010 for cash consideration of $ 51.3 million and the assumption of approximately $ 2.7 million in debt related items , obl in july 2010 for cash consideration of $ 15.4 million , periflo in september 2010 for cash consideration of $ 4.3 million and fitzpatrick in november 2010 for cash consideration of $ 20.3 million and the assumption of approximately $ 0.4 million in debt related items . the cash payment for ppe was financed with borrowings under the company 's credit facility , while the other acquisitions were paid with cash from operations . 18 the company maintains a $ 600.0 million unsecured domestic , multi-currency bank revolving credit facility ( credit facility ) , which expires on december 21 , 2011. at december 31 , 2010 , there was $ 27.8 million outstanding under the credit facility . the net available borrowing under the credit facility as of december 31 , 2010 , was approximately $ 572.2 million . interest is payable quarterly on the outstanding borrowings at the bank agent 's reference rate . interest on borrowings based on libor plus an applicable margin is payable on the maturity date of the borrowing , or quarterly from the effective date for borrowings exceeding three months .
| the increase in organic growth was driven by strong global growth across energy , chemical , food & pharma and water & wastewater markets . in 2010 , organic sales increased approximately 13 % domestically and 14 % internationally . organic sales to customers outside the u.s. were approximately 46 % of total segment sales in 2010 and 41 % in 2009. health & science technologies sales of $ 397.2 million increased $ 92.9 million , or 31 % , in 2010 compared with last year . this change reflects a 21 % increase in organic growth and a 10 % increase from the acquisition of ppe . the increase in organic sales reflects market strength across all health & science technologies products . in 2010 , organic sales increased 14 % domestically and 32 % internationally . organic sales to customers outside the u.s. were approximately 43 % of total segment sales in 2010 and 40 % in 2009. dispensing equipment sales of $ 125.3 million decreased $ 2.0 million , or 2 % , in 2010 compared with the prior year . this change reflects 2 % unfavorable foreign currency translation , while organic growth was flat in 2010 compared to 2009. the dispensing equipment segment experienced strength in asia and parts of eastern europe , offset by softness in north america and western europe . organic domestic sales decreased 9 % compared with 2009 , while organic international sales increased 5 % . organic sales to customers outside the u.s. were 67 % of total segment sales in 2010 and 66 % in 2009. fire & safety/diversified products sales of $ 265.5 million increased $ 2.7 million , or 1 % , in 2010 compared with 2009. organic sales activity increased 2 % , while foreign currency translation accounted for a 1 % decrease . the increase in organic business growth was driven by higher demand for engineered band clamping systems , partially offset by weakness in fire suppression . in 2010 , organic sales decreased 3 % domestically and increased 7 % 14 internationally . organic sales to customers outside the u.s. were 56 %
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to fund the smsc acquisition purchase price using a portion of our existing balance of cash , cash equivalents or short-term investments and borrowings under our credit agreement ; and our ability to collect accounts receivable . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in `` item 1a – risk factors , '' and elsewhere in this form 10-k. although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . introduction the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document , as well as with other sections of this annual report on form 10-k , including `` item 1 – business ; '' `` item 6 – selected financial data ; '' and `` item 8 – financial statements and supplementary data . '' we begin our management 's discussion and analysis of financial condition and results of operations ( md & a ) with a summary of our overall business strategy to give the reader an overview of the goals of our business and the overall direction of our business and products . this is followed by a discussion of the critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . in the next section , beginning at page 34 , we discuss our results of operations for fiscal 2012 compared to fiscal 2011 , and for fiscal 2011 compared to fiscal 2010. we then provide an analysis of changes in our balance sheet and cash flows , and discuss our financial commitments in sections titled `` liquidity and capital resources , '' `` contractual obligations '' and `` off-balance sheet arrangements . '' strategy our goal is to be a worldwide leader in providing specialized semiconductor products for a wide variety of embedded control applications . our strategic focus is on embedded control products , which include microcontrollers , high-performance linear and mixed signal devices , power management and thermal management devices , interface devices , serial eeproms , and our patented keeloq ® security devices . we provide highly cost-effective embedded control products that also offer the advantages of small size , high performance , low voltage/power operation and ease of development , enabling timely and cost-effective embedded control product integration by our customers . with our acquisition of sst in april 2010 , we added flash-ip solutions and superflash memory products to our strategic focus . we license superflash technology to foundries , integrated device manufacturers and design partners throughout the world for use in the manufacture of their advanced microcontroller products . we sell our products to a broad base of domestic and international customers across a variety of industries . the principal markets that we serve include consumer , automotive , industrial , office automation and telecommunications . our business is subject to fluctuations based on economic conditions within these markets . our manufacturing operations include wafer fabrication and assembly and test . the ownership of our manufacturing resources is an important component of our business strategy , enabling us to maintain a high level of manufacturing control resulting in us being one of the lowest cost producers in the embedded control industry . by owning our wafer fabrication facilities and our assembly and test operations , and by employing statistical process control techniques , we have been able to 29 achieve and maintain high production yields . direct control over manufacturing resources allows us to shorten our design and production cycles . this control also allows us to capture a portion of the wafer manufacturing and the assembly and test profit margin . we do outsource a portion of our manufacturing requirements to third parties . we employ proprietary design and manufacturing processes in developing our embedded control products . we believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs . while many of our competitors develop and optimize separate processes for their logic and memory product lines , we use a common process technology for both microcontroller and non-volatile memory products . this allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly . our engineers utilize advanced computer-aided design ( cad ) tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory and mixed-signal products , flash-ip systems , new development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers . we believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base . our direct sales force focuses primarily on major strategic accounts in three geographical markets : the americas , europe and asia . story_separator_special_tag we currently maintain sales and support centers in major metropolitan areas in north america , europe and asia . we believe that a strong technical service presence is essential to the continued development of the embedded control market . many of our field sales engineers ( fses ) , field application engineers ( faes ) , and sales management have technical degrees and have been previously employed in an engineering environment . we believe that the technical knowledge of our sales force is a key competitive advantage in the sale of our products . the primary mission of our fae team is to provide technical assistance to strategic accounts and to conduct periodic training sessions for fses and distributor sales teams . faes also frequently conduct technical seminars for our customers in major cities around the world , and work closely with our distributors to provide technical assistance and end-user support . critical accounting policies and estimates general our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. we review the accounting policies we use in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , business combinations , share-based compensation , inventories , income taxes , junior subordinated convertible debentures and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions . we review these estimates and judgments on an ongoing basis . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we also have other policies that we consider key accounting policies , such as our policy regarding revenue recognition to oems ; however , we do not believe these policies require us to make estimates or judgments that are as difficult or subjective as our policies described below . revenue recognition – distributors our distributors worldwide generally have broad price protection and product return rights , so we defer revenue recognition until the distributor sells the product to their customer . revenue is recognized when the distributor sells the product to an end-user , at which time the sales price becomes fixed or determinable . revenue is not recognized upon shipment to our distributors since , due to discounts from list price as well as price protection rights , the sales price is not substantially fixed or determinable at that time . at the time of shipment to these distributors , we record a trade receivable for the selling 30 price as there is a legally enforceable right to payment , relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor , and record the gross margin in deferred income on shipments to distributors on our consolidated balance sheets . deferred income on shipments to distributors effectively represents the gross margin on the sale to the distributor ; however , the amount of gross margin that we recognize in future periods could be less than the deferred margin as a result of credits granted to distributors on specifically identified products and customers to allow the distributors to earn a competitive gross margin on the sale of our products to their end customers and price protection concessions related to market pricing conditions . we sell the majority of the items in our product catalog to our distributors worldwide at a uniform list price . however , distributors resell our products to end customers at a very broad range of individually negotiated price points . the majority of our distributors ' resales require a reduction from the original list price paid . often , under these circumstances , we remit back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors ' outstanding accounts receivable balance . the credits are on a per unit basis and are not given to the distributor until they provide information to us regarding the sale to their end customer . the price reductions vary significantly based on the customer , product , quantity ordered , geographic location and other factors and discounts to a price less than our cost have historically been rare . the effect of granting these credits establishes the net selling price to our distributors for the product and results in the net revenue recognized by us when the product is sold by the distributors to their end customers . thus , a portion of the `` deferred income on shipments to distributors '' balance represents the amount of distributors ' original purchase price that will be credited back to the distributor in the future . the wide range and variability of negotiated price concessions granted to distributors does not allow us to accurately estimate the portion of the balance in the deferred income on shipments to distributors account that will be credited back to the distributors . therefore , we do not reduce deferred income on shipments to distributors or accounts receivable by anticipated future concessions ; rather , price concessions are typically recorded against deferred income on shipments to distributors and accounts receivable when incurred , which is generally at the time the distributor sells the product . at march 31 , 2012 , we had approximately $ 159.1 million of deferred revenue and $ 50.4
| there were no assets held for sale on our consolidated balance sheet for the fiscal years ended march 31 , 2012 or march 31 , 2011. liquidity and capital resources we had $ 1,787.6 million in cash , cash equivalents and short-term and long-term investments at march 31 , 2012 , an increase of $ 79.3 million from the march 31 , 2011 balance . the increase in cash , cash equivalents and short-term and long-term investments over this time period is primarily attributable to cash generated by operating activities being offset by dividend payments of $ 266.2 million during fiscal 2012. net cash provided from operating activities was $ 396.5 million for fiscal 2012 , $ 582.7 million for fiscal 2011 and $ 452.0 million for fiscal 2010. the decrease in cash flow from operations in fiscal 2012 compared to fiscal 2011 was primarily due to changes in our operating assets and liabilities and lower net income in fiscal 2012. the increase in cash flow from operations in fiscal 2011 compared to fiscal 2010 was primarily due to higher net income in fiscal 2011 partially offset by fiscal 2010 proceeds of $ 87.0 million of trading securities which were sold during that year . net cash used in investing activities was $ 256.5 million for fiscal 2012 , $ 187.9 million for fiscal 2011 and $ 195.3 million in fiscal 2010. the increase in net cash used in investing activities in fiscal 2012 compared to fiscal 2011 was primarily due to a decrease in cash related to changes in our net purchases , sales and maturities of short-term and long-term investments which offset lower capital expenditures in fiscal 2012. the decrease in net cash used in investing activities in fiscal 2011 compared to fiscal 2010 was primarily due to an increase in cash related to changes in our net purchases , sales and maturities of short-term and long-term investments being partially offset by cash used to acquire sst and
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overview the company recorded net income of $ 4.7 million for the year ended december 31 , 2014 , a 38 % increase over net income of $ 3.4 million during the year ended december 31 , 2013. pretax income increased by $ 2.2 million , or 40 % , from $ 5.6 million in 2013 to $ 7.8 million during the year ended december 31 , 2014. net interest income increased by $ 1.5 million from $ 17.9 million during 2013 to $ 19.4 million for the year ended december 31 , 2014. this increase in net interest income resulted from an increase in interest income of $ 1.7 million partially offset by an increase in interest expense of $ 159 thousand . interest on loans increased by $ 1.3 million and interest on investment securities increased by $ 353 thousand . a decrease of $ 84 thousand in interest expense on deposits was offset by an increase in interest expense on borrowings of $ 243 thousand . the provision for loan losses declined by $ 300 thousand from $ 1.4 million during 2013 to $ 1.1 million during 2014 resulting in an increase in net interest income after provision for loan losses of $ 1.8 million . during the year ended december 31 , 2014 non-interest income totaled $ 7.3 million an increase of $ 673 thousand from the year ended december 31 , 2013. the $ 673 thousand includes increases of $ 196 thousand in service charges on deposits accounts , $ 179 thousand in loan servicing income , a $ 148 thousand gain on sale of our credit card portfolio and $ 128 thousand in gains on sale of securities . non-interest expense increased by $ 275 thousand from $ 17.6 million during the twelve months ended december 31 , 2013 to $ 17.8 million during 2014. we achieved reductions is several categories of expense the largest two of which were $ 248 thousand in professional fees and $ 246 thousand in the provision for losses on oreo . the two largest increases in expense were $ 745 thousand in salary and benefits expense and $ 187 thousand in outside service fees . the provision for income taxes increased from $ 2.2 million in 2013 to $ 3.1 million during the year ended december 31 , 2014. net income allocable to common shareholders increased by $ 1.1 million from $ 3.6 million during the year ended december 31 , 2013 to $ 4.7 million during 2014. income allocable to common shareholders is calculated by adding discount on redemption of preferred stock and subtracting dividends and discount amortized on preferred stock from net income . during 2013 the company redeemed all of its outstanding preferred stock , recording a $ 565 discount on redemption . discount amortized on the preferred stock during 2013 totaled $ 347 thousand . total assets at december 31 , 2014 were $ 539 million , an increase of $ 23.1 million from $ 516 million at december 31 , 2013. an increase of $ 32.4 million in net loans and $ 0.3 million in bank owned life insurance was partially offset by decreases of $ 4.3 million in cash and due from banks , $ 23 thousand in investment securities , $ 0.9 million in premises and equipment , $ 2.9 million in oreo and $ 1.5 million in other assets . total deposits increased by $ 18.5 million from $ 449 million at december 31 , 2013 to $ 468 million at december 31 , 2014. core deposit growth remained strong in 2014 as evidenced by increases of $ 17.8 million in demand deposits and $ 12.3 million in savings accounts . time deposits declined by $ 6.3 million , much of which we attribute to migration into other types of deposits given the low rates and lack of liquidity associated with time deposits . interest-bearing transaction accounts ( now ) declined by $ 0.5 million and money market accounts declined by $ 4.8 million . total shareholders ' equity increased by $ 5.9 million from $ 30.6 million at december 31 , 2013 to $ 36.5 million at december 31 , 2014. the $ 5.9 million includes earnings during the twelve month period totaling $ 4.7 million and a decrease in net unrealized loss on investment securities of $ 1.1 million with the balance of $ 0.1 million representing stock option activity . 19 the return on average assets was 0.89 % for 2014 , up from 0.69 % for 2013. the return on average common equity was 14.0 % for 2014 , up from 12.0 % for 2013. story_separator_special_tag new roman , times , serif '' > interest on other borrowings , which during 2014 relates to repurchase agreements , totaled $ 7 thousand in 2014 and $ 57 thousand in 2013. net interest margin is net interest income expressed as a percentage of average interest-earning assets . as a result of the changes noted above , the net interest margin for 2014 increased slightly to 4.05 % , from 4.03 % for 2013 . 22 2013 compared to 2012. net interest income , on a nontax-equivalent basis , was $ 17.9 million for the year ended december 31 , 2013 , up $ 775 thousand , or 4.5 % , from $ 17.2 million for 2012. an increase of $ 1.0 million , or 5.6 % in interest income , from $ 18.4 million during 2012 to $ 19.4 million during the current year , was partially offset by an increase in interest expense of $ 260 thousand . interest and fees on loans increased by $ 747 thousand , interest on investment securities increased by $ 270 thousand and interest on deposits increased by $ 18 thousand . the increase in interest and fees on loans was related to an increase in average loan balances partially offset by a decline in yield . interest on investments securities benefited from both an increase in yield and an increase in average balance . story_separator_special_tag interest and fees on loans was $ 18.2 million during 2013 and $ 17.4 million for the year ended december 31 , 2012. the average loan balances were $ 321.2 million for 2013 , up $ 19.4 million from the $ 301.8 million for 2012. the largest areas of loan growth were in our commercial real estate and auto portfolios . we have dedicated significant resources to our loan production activities and have emphasized the need for quality and diversified growth in the portfolio . the average yields on loans were 5.66 % for 2013 down from 5.77 % for 2012. we attribute much of the decrease in yield to intense pricing competition in our service area . interest on investment securities increased by $ 270 thousand as a result of an increase in yield of 12 basis points from 1.28 % during 2012 to 1.40 % during 2013 and an increase in average balance from $ 69.7 million in 2012 to $ 82.8 million in 2013. the increase in yield incudes an increase in government sponsored agency residential mortgage backed securities as a percentage of total securities and an increase in market yields . interest income on interest-bearing deposits , which totaled $ 124 thousand in 2013 and $ 106 thousand in 2012 , mostly relates to interest on cash balances held at the federal reserve . interest expense on deposits decreased by $ 247 thousand , or 29 % , to $ 600 thousand for the twelve months ended december 31 , 2013 , down from $ 847 thousand in 2012. interest expense on time deposits declined by $ 232 thousand from $ 513 thousand at december 31 , 2012 to $ 281 thousand at december 31 , 2013. average time deposits declined by $ 10.1 million from $ 76.1 million during 2012 to $ 66.0 million for the year ended december 31 , 2013. we attribute much of this decline to migration into other types of deposits given the low rates and lack of liquidity associated with time deposits . the average rate paid on time deposits decreased from 0.67 % during 2012 to 0.43 % during the current twelve month period . this decrease primarily relates to a decline in market rates paid in the company 's service area and the maturity of higher rate time deposits . interest expense on now accounts declined by $ 21 thousand . rates paid on now accounts declined by 2 basis points from 0.13 % during 2012 to 0.11 % during 2013. average balances increased by $ 1.3 million from 2012. interest expense on money market accounts decreased by $ 9 thousand related to a decrease in rate paid on these accounts of 4 basis points from 0.21 % during 2012 to 0.17 % during 2013. average money market balances increased by $ 5.8 million from $ 42.9 million during 2012 to $ 48.7 million in 2013. interest expense on savings accounts increased by $ 15 thousand as we have experienced strong growth in this category of deposits . average savings deposits increased by $ 15.7 million from $ 68.8 million during 2012 to $ 84.5 million during 2013. the average rate paid on savings accounts during this same period declined from 19 basis points during 2012 to 17 basis points during 2013. the decline in rates paid on deposits is consistent with a decline in competitive market rates in our service area . interest expense on other interest-bearing liabilities increased by $ 507 thousand from $ 427 thousand during the twelve months ending december 31 , 2012 to $ 934 thousand during 2013. this increase was related to $ 541 thousand in interest expense on the $ 7.5 million subordinated debenture . the effective yield on the debenture was 10.4 % which was in excess of the 7.5 % rate due to amortization of a $ 75 thousand commitment fee and a discount recorded on issuance of $ 318 thousand . interest expense on junior subordinated debentures decreased by $ 31 thousand from 2012. interest expense on our outstanding note payable for 2013 totaled $ 23 thousand . interest on other borrowings , which totaled $ 57 thousand in 2013 and $ 83 thousand in 2012 , primarily relates to interest paid on repurchase agreements . 23 net interest margin is net interest income expressed as a percentage of average interest-earning assets . as a result of the changes noted above , the net interest margin for 2013 decreased 15 basis points to 4.03 % , from 4.18 % for 2012. provision for loan losses during the year ended december 31 , 2014 we recorded a provision for loan losses of $ 1.1 million , down $ 300 thousand from the $ 1.4 million provision recorded during 2013. see “ analysis of asset quality and allowance for loan losses ” for further discussion of loan quality trends and the provision for loan losses . the allowance for loan losses is maintained at a level that management believes will be appropriate to absorb inherent losses on existing loans based on an evaluation of the collectability of the loans and prior loan loss experience . the evaluations take into consideration such factors as changes in the nature and volume of the portfolio , overall portfolio quality , review of specific problem loans , and current economic conditions that may affect the borrower 's ability to repay their loan . the allowance for loan losses is based on estimates , and ultimate losses may vary from the current estimates . these estimates are reviewed periodically and , as adjustments become necessary , they are reported in earnings in the periods in which they become known . based on information currently available , management believes that the allowance for loan losses is appropriate to absorb potential risks in the portfolio . however , no assurance can be given that the company may not sustain charge-offs which are in excess of the allowance in any given period .
| ( 2 ) the rate change in net interest income represents the change in rate multiplied by the previous year 's average balance . ( 3 ) the mix change in net interest income represents the change in average balance multiplied by the change in rate . 2014 compared to 2013. net interest income is the difference between interest income and interest expense . net interest income , on a nontax-equivalent basis , was $ 19.4 million for the year ended december 31 , 2014 , up $ 1.5 million , or 8.5 % , from $ 17.9 million for 2013. an increase of $ 1.7 million , or 8.7 % in interest income , from $ 19.4 million during 2013 to $ 21.1 million during the current year , was partially offset by an increase in interest expense of $ 159 thousand . interest and fees on loans increased by $ 1.3 million , interest on investment securities increased by $ 353 thousand and interest on deposits increased by $ 13 thousand . the increase in interest and fees on loans was related to an increase in average loan balances partially offset by a decline in yield . interest on investments securities benefited from both an increase in yield and an increase in average balance . interest and fees on loans was $ 19.5 million during 2014 and $ 18.2 million for the year ended december 31 , 2013. the average loan balances were $ 353.4 million for 2014 , up $ 32.2 million from the $ 321.2 million for 2013. the following table compares loan balances by type at december 31 , 2014 and 2013. replace_table_token_8_th 21 the average yield on loans was 5.52 % for 2014 down from 5.66 % for 2013. we attribute much of the decrease in yield to price competition in our service area as well as an increase in lower yielding automobile loans as a percentage of total loans . interest on investment securities increased by
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from our inception in 2009 through december 31 , 2020 , we have received gross proceeds of $ 243.4 million from the sale of adss , ordinary shares and convertible preferred shares , including the proceeds from our initial public offering and at-the-market , or atm , offering program ; and $ 63.1 million of cash payments under our collaboration revenue arrangements , including $ 31.0 million from genentech , $ 10.3 million from astrazeneca , $ 4.1 million from oxurion , $ 15.0 million from sanofi , $ 1.7 million from ddf ; and $ 15.0 million of borrowings pursuant to our loan and security agreement , or loan agreement with hercules . in january 2021 , we received $ 2.4 million from oxurion due to a milestone achieved for the initiation of a phase ii trial of thr-149 and $ 3.0 million of proceeds under an evaluation and option agreement . we do not have any products approved for sale and have not generated any revenue from product sales . since our inception , we have incurred significant operating losses . our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates . our net losses were $ 51.0 million , $ 30.6 million and $ 21.8 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 151.6 million . these losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities , particularly as we advance the preclinical activities and clinical trials of our product candidates and , if any product candidates are approved , pursue the commercialization of such product candidates by building internal sales and marketing capabilities . we expect that our expenses and capital requirements will increase substantially if and as we : ● continue our development of our product candidates , including conducting future clinical trials of bt1718 , bt5528 and bt8009 ; ● progress the preclinical and clinical development of bt7480 , bt7455 and bt7401 ; ● seek to identify and develop additional product candidates ; ● develop the necessary processes , controls and manufacturing data to obtain marketing approval for our product candidates and to support manufacturing to commercial scale ; ● develop , maintain , expand and protect our intellectual property portfolio ; ● seek marketing approvals for our product candidates that successfully complete clinical trials , if any ; 111 ● hire and retain additional personnel , such as non-clinical , clinical , pharmacovigilance , quality assurance , regulatory affairs , manufacturing , distribution , legal , compliance , medical affairs , commercial and scientific personnel ; ● acquire or in-license other products and technologies ; ● expand our infrastructure and facilities to accommodate our growing employee base , including adding equipment and infrastructure to support our research and development ; and ● add operational , financial and management information systems and personnel , including personnel to support our research and development programs , any future commercialization efforts and our operations as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates , which we expect will take many years and is subject to significant uncertainty . we have no commercial-scale manufacturing facilities of our own , and all of our manufacturing activities have been and are planned to be contracted out to third parties . additionally , we currently utilize third-party contract research organizations , or cros , to carry out our clinical development activities . if we seek to obtain marketing approval for any of our product candidates from which we obtain promising results in clinical development , we expect to incur significant commercialization expenses as we prepare for product sales , marketing , manufacturing , and distribution . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances , charitable grants , monetization transactions or licensing arrangements . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back , or discontinue the development and commercialization of one or more of our product candidates . the covid-19 pandemic has already resulted in a significant disruption of global financial markets . if the disruption persists and deepens , whether as a result of the ongoing covid-19 pandemic or otherwise , we could experience an inability to access additional capital . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2020 , we had cash of $ 136.0 million . story_separator_special_tag we believe that our existing cash will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of filing of this annual report on form 10-k. we have based this estimate on assumptions that may prove to be wrong , and we could deplete our available capital resources sooner than we expect . see “ — liquidity and capital resources. ” components of our results of operations collaboration revenues to date , we have not generated any revenue from product sales and we do not expect to generate any revenue from product sales for the foreseeable future . our revenue primarily consists of collaboration revenue under our arrangements with our collaboration partners , including amounts that are recognized related to upfront payments , milestone payments and option exercise payments , and amounts due to us for research and development services . in the future , revenue may include additional milestone payments and option exercise payments , and royalties on any net product sales under our collaborations . we expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license , research and development services , milestone and other payments . 112 expenses research and development expenses research and development expenses consist primarily of costs incurred for our research and development activities , including our discovery efforts , and the development of our product candidates , which include : ● employee-related expenses including salaries , benefits , and share-based compensation expense ; ● expenses incurred under agreements with third parties that conduct research and development , preclinical activities , clinical activities and manufacturing on our behalf ; ● the cost of consultants ; ● the cost of lab supplies and acquiring , developing and manufacturing preclinical study materials and clinical trial materials ; ● costs related to compliance with regulatory requirements ; and ● facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , and other operating costs . research and development costs are expensed as incurred . costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as a prepaid expense or accrued research and development expenses . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . u.k. research and development tax credits and government grant funding are recorded as an offset to research and development expense . see “ —benefit from income taxes. ” our direct external research and development expenses are tracked on a program-by-program basis and consist of costs , such as fees paid to consultants , contractors and contract manufacturing organizations , or cmos , in connection with our preclinical and clinical development activities . costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program . costs incurred prior to designating a product candidate are included in other discovery and platform related expense . we do not allocate employee costs , costs associated with our discovery efforts , laboratory supplies , and facilities , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple product development programs and , as such , are not separately classified . in december 2016 , we entered into a clinical trial and license agreement with cancer research technology limited , or crtl and cancer research uk , pursuant to which the cancer research uk centre for drug development is sponsoring and funding a phase i/iia clinical trial for our product candidate , bt1718 , in patients with advanced solid tumors . cancer research uk has designed and prepared and is carrying out and sponsoring the clinical trial at its own cost . upon the completion of the phase i/iia clinical trial , we have the right to obtain a license to the results of the clinical trial upon the payment of a milestone , in cash and ordinary shares , with a combined value in the mid six digit dollar amount . if such license is not acquired , or if it is acquired and the license is terminated and we decide to abandon development of all products that deliver cytotoxic payloads to the mt1 target antigen , crtl may elect to receive an assignment and exclusive license to develop and commercialize the product on a revenue sharing basis ( in which case we will receive tiered royalties of 70 % to 90 % of the net revenue depending on the stage of development when the license is granted is less certain costs , as defined in the agreement ) . the cancer research uk agreement contains additional future milestone payments upon the achievement of development , regulatory and commercial milestones , 113 payable in cash and shares , with an aggregate total value of $ 50.9 million , as well as royalty payments based on a single digit percentage on net sales of products developed . the cancer research uk agreement can be terminated by either party upon an insolvency event , material breach of the terms of the contract , upon a change in control involving a tobacco related entity , and in certain other specified circumstances , and includes provisions that require the repayment of costs to cancer research uk upon certain termination events or change in control events .
| research and development expenses the following table summarizes our research and development expenses for the years presented : replace_table_token_5_th research and development expense increased by $ 7.6 million in the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , primarily due to increases of $ 5.8 million in direct program spend , primarily due to increased clinical and tica program development expenses offset by a $ 0.6 million decrease in other unallocated discovery and platform expense due to the timing of development activities , as well as an increase of $ 2.8 million in employee and contractor related expenses attributable to increased headcount and $ 1.3 million of incremental share-based compensation expense , offset by a $ 2.4 million increase in the research and development tax credit reimbursement due to the corresponding increase in research and development spending in the united kingdom . we begin to separately track program expenses beginning at candidate nomination and accumulate all costs incurred to support each program to date . through december 31 , 2020 , we have incurred approximately $ 13.5 million , $ 14.3 million , $ 11.1 million and $ 5.3 million of direct expenses for the development of the bt1718 , bt5528 , bt8009 and tica programs , respectively . 118 general and administrative expenses the following table summarizes our general and administrative expenses for the years presented : replace_table_token_6_th general and administrative expenses increased by $ 14.6 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , primarily due to increases of $ 8.5 million in professional and consulting fees , including $ 4.7 million of expense related to the settlement and license agreement with pepscan entered into in november 2020 as well as increased legal , human resources , and consulting costs to support operations as a public company , $ 2.1 million in share-based compensation expense ; $ 1.9 million in personnel related costs due to increases in headcount ; $ 1.8 million in other general and administrative costs , including insurance expense to support operations as a public company ; and $ 0.3 million unfavorable effect of foreign exchange rates during the year ended december 31 , 2020 as compared to the year ended december
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calvin klein royalty , advertising and other revenue , which comprised 78 % of total royalty , advertising and other revenue in 2012 , is derived across various regions under licenses and other arrangements for a broad array of products offered under our calvin klein brands . our future operating performance and financial results will be significantly impacted by the warnaco acquisition , including in regard to revenue , gross margin , operating expenses and cash flows . a substantial portion of our calvin klein licensing revenue was generated from warnaco and , therefore , our royalty , advertising and other revenue will decrease significantly ( such amount generated from warnaco was approximately $ 145 million in 2012 ) . the loss of licensing revenue 32 will also affect our gross profit on total revenue , as licensing revenue carries no cost of goods sold . in addition , the financing of the transaction has greatly impacted our capital structure , will cause our interest expense to increase , and will require us to use significant amounts of our cash to pay interest and principal . our effective tax rate will also be impacted as warnaco has significant operations in jurisdictions that are generally taxed at rates higher than our current effective tax rate . additionally , we incurred in 2012 , and expect to incur over the next four years , significant costs and charges related to the acquisition , integration and related restructuring . in 2012 , we incurred pre-tax charges of $ 42.6 million and expect to incur approximately $ 175 million to $ 200 million of additional pre-tax charges over the next four years , approximately $ 125 million of which is expected to be incurred in 2013. our segment reporting will also change as a result of the acquisition . we acquired tommy hilfiger in the second quarter of 2010. we recorded pre-tax charges in 2010 in connection with the acquisition and integration of tommy hilfiger that totaled $ 338.3 million , including : ( i ) a loss of $ 140.5 million associated with hedges against euro to united states dollar exchange rates relating to the purchase price ; ( ii ) short-lived non-cash valuation amortization charges of $ 76.8 million , which became fully amortized during 2010 ; and ( iii ) transaction , integration , restructuring and debt extinguishment costs of $ 121.0 million . we incurred pre-tax charges of $ 20.5 million and $ 69.5 million during 2012 and 2011 , respectively , in connection with the integration and the related restructuring , including product exit charges . we reacquired during the third quarter of 2011 the rights in india to the tommy hilfiger trademarks that had been subject to a perpetual license . we paid $ 25.0 million as consideration for this transaction and are required to make annual contingent purchase price payments under certain circumstances . in connection with the transaction , we were required to record an expense of $ 20.7 million in 2011 due to the settlement of an unfavorable contract as a result of a pre-existing relationship with the licensee , as the license provided favorable terms to the licensee . please see the section entitled “ liquidity and capital resources ” below for a further discussion . in the fourth quarter of 2010 , we exited our united kingdom and ireland van heusen dresswear and accessories business . we recorded pre-tax charges in connection with this exit of $ 6.6 million in 2010 , which consists principally of non-cash charges . in 2011 , we announced we would be exiting in 2012 our licensed timberland men 's wholesale sportswear and our izod women 's wholesale sportswear businesses . we incurred pre-tax charges of $ 8.1 million during 2011 in connection with these two initiatives . we amended and restated our senior secured credit facility in the first quarter of 2011. we recorded debt modification costs of $ 16.2 million in connection with this transaction . please see the section entitled “ liquidity and capital resources ” below for a further discussion . our calculations of the comparable store sales percentages throughout this discussion are based on comparable weeks and , therefore , exclude an extra week in 2012 , as our 2012 fiscal year included 53 weeks of operations . during the fourth quarter of 2012 , we changed our method of accounting for our pension and other postretirement plans . as part of this change , we elected to begin immediately recognizing actuarial gains and losses in our operating results in the year in which they occur . we have applied this change retrospectively , adjusting all prior periods . this change resulted in recording actuarial losses of $ 28.1 million , $ 76.1 million and $ 4.5 million in 2012 , 2011 and 2010 , respectively . 33 the following table summarizes our income statements in 2012 , 2011 and 2010 : replace_table_token_1_th total revenue net sales our net sales were $ 5.541 billion in 2012 , $ 5.410 billion in 2011 and $ 4.220 billion in 2010. the 2012 net sales increase of $ 130.8 million as compared to 2011 included a negative impact of approximately $ 210 million , or 4 % , of which approximately $ 110 million was due to foreign currency translation and approximately $ 100 million was attributable to the exit from the izod women 's and timberland wholesale sportswear businesses . the overall increase in 2012 as compared to 2011 was due principally to the effect of the following items : the aggregate addition of $ 154.1 million of net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . within the tommy hilfiger north america segment , net sales increased 10 % , principally driven by retail comparable store sales growth of 10 % . net sales in the tommy hilfiger international segment increased 2 % , including a negative impact of approximately $ 110 million , or 6 % , related to foreign currency translation . story_separator_special_tag european retail comparable store sales grew 11 % and the european wholesale business exhibited strong growth , but these increases were partially offset by continued weakness in japan , where we are currently in the process of strategically repositioning and investing in the brand . the addition of $ 87.1 million of net sales attributable to growth in our other ( calvin klein apparel ) segment , driven by ( i ) a 12 % increase in the north american calvin klein retail business , which was due to new store openings , store expansions and a 5 % increase in comparable store sales ; and ( ii ) a 16 % increase in the north american wholesale business . the aggregate reduction of $ 99.6 million in net sales attributable to our heritage brand wholesale dress furnishings , heritage brand wholesale sportswear and heritage brand retail segments . comparable store sales in the heritage brand retail segment were relatively flat as compared to the prior year period , while sales in the heritage brand wholesale sportswear segment decreased 13 % , due principally to the negative impact of approximately $ 100 million related to the exited sportswear businesses , partially offset by strong growth in our ongoing sportswear businesses in the second half of the year . the heritage brand wholesale dress furnishings segment experienced a 7 % decrease due primarily to a reduction in dress furnishings sales to j.c. penney . 34 the 2011 net sales increase of $ 1.190 billion as compared to 2010 net sales was due principally to the effect of the following items : the addition of $ 433.7 million and $ 267.6 million of first quarter net sales in our tommy hilfiger international and tommy hilfiger north america segments , respectively , as the acquisition of tommy hilfiger was not completed until the second quarter of 2010. the addition of $ 262.2 million and $ 116.6 million , attributable to second through fourth quarter growth in the tommy hilfiger international and tommy hilfiger north america segments , respectively . this increase was driven by low double-digit growth in the european wholesale division , combined with retail comparable store sales growth of 10 % and 14 % for our tommy hilfiger international and tommy hilfiger north america retail businesses , respectively . also contributing to the revenue increase was a net benefit of approximately $ 55 million in our tommy hilfiger international segment related to foreign currency translation . the addition of $ 85.1 million of net sales attributable to growth in our other ( calvin klein apparel ) segment , as our calvin klein retail business posted a 16 % increase in comparable store sales in 2011 and the wholesale business experienced low double-digit growth . the addition of $ 41.0 million of sales attributable to growth in our heritage brand wholesale dress furnishings segment . the addition of $ 7.9 million of sales attributable to growth in our heritage brand retail segment , due principally to a 2 % increase in retail comparable stores sales in 2011. the addition of $ 7.5 million of net sales attributable to growth in our calvin klein licensing segment . the reduction of $ 31.2 million of sales attributable to our heritage brand wholesale sportswear segment , which was driven particularly by decreases in the timberland division , which we exited in 2012 , and the izod division . royalty , advertising and other revenue royalty , advertising and other revenue was $ 502.2 million in 2012 as compared to $ 480.6 million in 2011. of the $ 21.6 million increase , $ 12.0 million was attributable to our tommy hilfiger business , due principally to strong performance in watches , footwear and eyewear and growth in asia and latin america . within the calvin klein licensing segment , global licensee royalty revenue increased 2 % , including a negative impact of 1 % related to foreign currency translation . continued global growth in women 's sportswear , dresses , footwear and handbags was partially offset by a decline in royalty revenue related to a reduction in the european calvin klein bridge and accessories business attributable , in part , to our decision to terminate warnaco 's licenses and operate the business directly , and weakness in jeans and women 's underwear in europe and the united states . royalty , advertising and other revenue was $ 480.6 million in 2011 as compared to $ 417.1 million in 2010. of this $ 63.5 million increase , $ 25.6 million was attributable to our tommy hilfiger business , due principally to the addition of first quarter royalty , advertising and other revenue , combined with second through fourth quarter increases due to growth in central and south america and asia , and strong performance in tailored apparel , fragrance and eyewear . within the calvin klein licensing segment , global licensee royalty revenue increased $ 28.1 million , or 11 % , as compared to 2010 driven by growth across virtually all product categories and regions , with jeanswear , underwear , fragrance , footwear , accessories and women 's sportswear and dresses performing particularly well . calvin klein advertising and other revenue increased $ 11.1 million to $ 108.6 million in 2011 as compared to 2010 , driven principally by the launch in the first quarter of 2011 of the global marketing campaign supporting the introduction of the new ck one lifestyle brand for jeanswear , underwear and fragrance . advertising and other revenue is generally collected and spent and , therefore , is presented as both a revenue and an expense within our income statement , with minimal net impact on earnings . impact of warnaco acquisition on future revenue revenue in 2013 will be significantly impacted by the acquisition of warnaco . we currently expect revenue in 2013 will be approximately $ 8.2 billion .
| the joint venture assumed direct control of the tommy hilfiger wholesale and retail distribution business in china from the prior licensee in 2011. we made funding payments with respect to our 45 % interest totaling $ 17.1 million during 2011. we completed a $ 30 million acquisition in 2011 from ganesha limited and ganesha brands limited , both of which are affiliates of gvm international limited ( “ gvm ” ) , of a 50 % economic interest in a company that was renamed tommy hilfiger arvind fashion private limited ( “ th india ” ) . th india was gvm 's sublicensee of the tommy hilfiger trademarks for apparel , footwear and handbags in india . as a result of the transaction , th india is now the direct licensee of the trademarks for all categories ( other than fragrance ) , operates a wholesale apparel , footwear and handbags business in connection with its license , and sublicenses the trademarks for certain other product categories in the region . we made additional payments to th india totaling $ 1.9 million and $ 1.6 million during 2012 and 2011 , respectively , to contribute our 50 % share of funding . acquisition of netherlands franchisee we acquired during the third quarter of 2012 from a former tommy hilfiger franchisee in the netherlands 100 % of the share capital of ten affiliated companies , which operate 13 tommy hilfiger stores in the netherlands . we paid $ 13.1 million as consideration for this transaction . reacquisition of tommy hilfiger tailored apparel license we entered into agreements during 2011 to reacquire from a licensee , prior to the expiration of the license , the rights to distribute tommy hilfiger brand tailored apparel in europe and acquire an outlet store from the licensee . the transfer of the rights and store ownership became effective december 31 , 2012. under these agreements , we made a payment of $ 9.6 million ( based on the applicable exchange rate in effect on the
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pursuant to the terms of the merger , which was approved by each company 's shareholders at their respective meetings held on september 21 , 2009 , each outstanding share of woodbridge 's class a common stock ( other than dissenting holders , as defined below ) automatically converted into the right to receive 3.47 shares of our class a common stock . shares otherwise issuable to us attributable to the shares of woodbridge 's class a common stock and class b common stock owned by us were canceled in connection with the merger . as a result of the merger , woodbridge holdings corporation 's separate corporate existence ceased and its class a common stock is no longer publicly traded . the merger resulted in a net increase in bfc 's shareholders ' equity of approximately $ 95.0 million , an increase in common stock and additional paid-in capital of approximately $ 303,000 and $ 94.7 million , respectively , and a corresponding decrease to noncontrolling interest of approximately $ 99.6 million . 68 under florida law , holders of woodbridge 's class a common stock who did not vote to approve the merger and properly asserted and exercised their appraisal rights with respect to their shares ( dissenting holders ) are entitled to receive a cash payment in an amount equal to the fair value of their shares ( as determined in accordance with the provisions of florida law ) in lieu of the shares of bfc 's class a common stock which they would otherwise have been entitled to receive . dissenting holders , who collectively held approximately 4.2 million shares of woodbridge 's class a common stock , have rejected woodbridge 's offer of $ 1.10 per share and requested payment for their shares based on their respective fair value estimates of woodbridge 's class a common stock . in connection with woodbridge 's offer to the dissenting holders , the company accrued a $ 4.6 million liability with a corresponding decrease to additional paid-in capital , representing in the aggregate woodbridge 's offer to the dissenting holders . woodbridge is currently in litigation with the dissenting holders , and the outcome of such litigation is uncertain . there is no assurance that the actual payment required to be made to the dissenting holders will not exceed the amount accrued . see note 3 of the notes to consolidated financial statements for additional information about the merger . acquisition of bluegreen shares - on november 16 , 2009 , we purchased approximately 7.4 million additional shares of the common stock of bluegreen for an aggregate purchase price of approximately $ 23 million . as a result of such share purchase , we increased our ownership interest in bluegreen from 29 % of bluegreen 's outstanding common stock to approximately 52 % . accordingly , we now have a controlling interest in bluegreen and , under gaap , bluegreen 's results are consolidated in our financial statements since november 16 , 2009. prior to november 16 , 2009 , the approximate 29 % equity investment in bluegreen was accounted under the equity method . see note 4 of the notes to consolidated financial statements of this report for additional information about the bluegreen share acquisition on november 16 , 2009. acquisition of bankatlantic bancorp shares - during the third quarter of 2009 , bankatlantic bancorp distributed to its shareholders 4.441 subscription rights for each share of its class a common stock and class b common stock held on august 24 , 2009. each whole subscription right entitled the holder to purchase one share of bankatlantic bancorp 's class a common stock at a purchase price of $ 2.00 per share . bfc exercised its subscription rights in the rights offering to purchase an aggregate of 14.9 million shares of bankatlantic bancorp 's class a common stock for an aggregate purchase price of $ 29.9 million . this purchase increased bfc 's ownership interest in bankatlantic bancorp by approximately 7.3 % to approximately 37.2 % and increased bfc 's voting interest by approximately 6.7 % to 66.0 % . bfc 's purchase of the 14.9 million shares of bankatlantic bancorp 's class a common stock was accounted for as an equity transaction in accordance with recently adopted fasb authoritative guidance effective on january 1 , 2009 , which provides that changes in a parent 's ownership interest which do not result in the parent losing its controlling financial interest in its subsidiary are reported as equity transactions . accordingly , bfc 's increase in bankatlantic bancorp 's ownership interest resulted in an increase to additional paid-in capital of approximately $ 7.0 million , which represents the excess carrying value of the noncontrolling interest acquired over the consideration paid . levitt and sons bankruptcy settlement - on february 20 , 2009 , the bankruptcy court entered an order confirming a plan of liquidation jointly proposed by levitt and sons and the official committee of unsecured creditors . that order also approved the settlement pursuant to the settlement agreement that was entered into with the joint committee of unsecured creditors . no appeal or rehearing of the bankruptcy court 's order was filed by any party , and the settlement was consummated on march 3 , 2009 , at which time payment was made in accordance with the terms and conditions of the settlement agreement . under cost method accounting , the cost of settlement and the related $ 52.9 million liability ( less $ 500,000 which was determined as the settlement holdback and remained as an accrual pursuant to the settlement agreement ) was recognized into income in the first quarter of 2009 , resulting in a $ 40.4 million gain on settlement of investment in subsidiary . pursuant to the settlement agreement , we agreed to share a percentage of any tax refund attributable to periods prior to the bankruptcy with the debtors estate . story_separator_special_tag in the fourth quarter of 2009 , we accrued approximately $ 10.7 million in connection with the portion of the tax refund that we will be required to pay to the debtors estate pursuant to the settlement agreement . as a result , the gain on settlement of investment in subsidiary for the year ended december 31 , 2009 was $ 29.7 million . see note 25 of the notes to consolidated financial statements for more information regarding the tax refund . 69 reclassification of discontinued operations - in december 2009 , core communities reinitiated efforts to sell two of its commercial leasing projects ( the projects ) and began soliciting bids from several potential buyers to purchase assets associated with the projects . the assets are available for immediate sale in their present condition and core determined that it is probable that it will sell the projects in 2010. due to this decision , the assets associated with the projects that are for sale have been classified as discontinued operations for all periods presented in accordance with the accounting guidance for the disposal of long-lived assets . the assets were reclassified as assets held for sale and the liabilities related to these assets were reclassified as liabilities related to assets held for sale in the audited consolidated statements of financial condition . additionally , the results of operations for the projects were reclassified to income from discontinued operations . depreciation related to these assets held for sale ceased in december 2009. the company has elected not to separate these assets in the audited consolidated statements of cash flows for the periods presented . management has reviewed the net asset value and estimated the fair market value of the assets based on the bids received related to these assets and determined that an impairment charge was necessary to write down the carrying value of the projects to their fair value less the costs to sell and , accordingly , recorded an impairment charge of approximately $ 13.6 million for the year ended december 31 , 2009. for a discussion of negotiations with respect to the projects , see core 's liquidity and capital resources . additional recent developments and related financial matters are discussed below . bfc financial corporation summary of consolidated results of operations the table below sets forth the company 's summarized results of operations ( in thousands ) : replace_table_token_12_th the company reported net income attributable to bfc of $ 25.7 million in 2009 as compared to a net loss attributable to bfc of $ 58.9 million in 2008 and a net loss of $ 30.5 million in 2007. results for the years ended december 31 , 2009 , 2008 and 2007 included an $ 11.9 million loss , $ 19.4 million of income and $ 8.8 million of income from discontinued operations , net of income tax , respectively . the results from discontinued operations related to financial results associated with ryan beck and core communities commercial leasing projects , as discussed further in note 5 of the notes to consolidated financial statements . real estate and other includes an approximately $ 183.1 million bargain purchase gain associated with bluegreen 's share acquisition on november 16 , 2009. see note 4 of the notes to consolidated financial statements . in 2009 , the company acquired additional shares of bankatlantic bancorp class a common stock . effective on january 1 , 2009 , the fasb adopted authoritative guidance which provides that changes in a parent 's ownership interest which do not result in the parent losing its controlling financial interest in its subsidiary are reported as equity transactions . accordingly , bfc 's increase in its ownership interest in bankatlantic bancorp resulted in an increase to additional paid-in capital of approximately $ 7.0 million , which represents the excess carrying value of the noncontrolling interest acquired over the consideration paid . 70 in 2008 , the company acquired additional shares of bankatlantic bancorp 's class a common stock in the open market , and in 2007 the company acquired shares of woodbridge 's class a common stock in woodbridge 's rights offerings to its shareholders , including the company . the acquisition of these shares resulted in negative goodwill ( based on the excess of fair value of acquired net assets over the purchase price of the shares ) of approximately $ 19.6 million in connection with the 2008 acquisition of shares of bankatlantic bancorp and $ 11 million in connection with the 2007 acquisition of shares of woodbridge . after ratably allocating this negative goodwill to non-current and non-financial assets , the company recognized in 2008 and 2007 an extraordinary gain , net of tax , of $ 9.1 million and $ 2.4 million , respectively . as a result of the woodbridge merger on september 21 , 2009 and the bluegreen share acquisition on november 16 , 2009 , in each case as described above , the company reorganized its reportable segments to better align its segment reporting with the current operations of its businesses . the company 's business activities currently consist of ( i ) real estate and other activities and ( ii ) financial services activities , which are reported through six segments : bfc activities , real estate operations , bluegreen resorts , bluegreen communities , bankatlantic and bankatlantic bancorp parent company . as a result of this reorganization , our bfc activities segment now includes , in addition to other activities historically included in the segment , woodbridge other operations ( which was previously a segment ) . our real estate operations segment is now comprised of what was previously identified as our land division , including the real estate business activities of woodbridge and its subsidiaries , core communities and carolina oak homes , llc ( carolina oak ) . in 2007 , the real estate operations segment also included the operations of levitt and sons , which was deconsolidated as of november 9 , 2007 in connection with the filing of its chapter 11 cases , and levitt commercial .
| the decline in interest expense during 2009 compared to 2008 reflects the historically low three month libor interest rates during 2009. the decline in interest rates was partially offset by interest accrued on the junior subordinated debentures ' deferred interest . as previously discussed , bankatlantic bancorp parent company has elected to defer the payment of interest on all of its junior subordinated debentures , commencing with the first quarter of 2009. bankatlantic bancorp is permitted under the terms of its obligations to defer interest payments for up to 20 consecutive quarterly periods . during the deferral period , interest will continue to accrue on the debentures and on the accrued interest , and bankatlantic bancorp will continue to recognize such deferred interest as interest expense in its financial statements . as a consequence , bankatlantic bancorp parent company 's junior subordinated debentures average balances increased from $ 294.2 million during 2008 to $ 300.0 million during 2009. average interest rates on junior subordinated debentures decreased from 7.14 % during the year ended december 31 , 2008 to 5.18 % during the same 2009 period due to a decrease in libor . the decline in interest expense during 2008 compared to 2007 resulted from lower average interest rates in 2008 partially offset by higher average borrowings . average interest rates on outstanding junior subordinated debentures decreased from 8.29 % during the year ended december 31 , 2007 to 7.14 % during the same 2008 period as a result of lower short-term interest rates during 2008 compared to 2007. bankatlantic bancorp parent company 's junior subordinated debentures average balances were $ 294.2 million during 2008 compared to $ 277.9 million during the same 2007 period reflecting the issuance of $ 30.9 million of junior subordinated debentures during 2007. income from unconsolidated subsidiaries during 2009 , 2008 and 2007 represents $ 0.5 million , $ 0.6 million and $ 0.7 million , respectively , of equity earnings from trusts formed to issue trust preferred securities and $ 0.6 million of equity earnings in income producing real estate joint ventures during the years ended december 31 , 2007. the business purpose of the joint ventures was
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the amendment requires lenders to measure the unpaid principal and interest they expect to recover through the loan guarantee . the loan should be removed from the lender 's asset total and added to the balance sheet as a new receivable . the amendments will become effective for annual and interim reporting periods ending after december 15 , 2014 , and is not expected to have a significant impact on the company 's consolidated financial statements . 23 critical accounting policies certain accounting policies are important to the understanding of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances , including , but without limitation , changes in interest rates , performance of the economy , financial condition of borrowers and laws and regulations . the following are the accounting policies we believe are critical . allowance for loan losses we recognize that losses will be experienced on loans and that the risk of loss will vary with , among other things , the type of loan , the creditworthiness of the borrower , general economic conditions and the quality of the collateral for the loan . we maintain an allowance for loan losses to absorb losses inherent in the loan portfolio . the allowance for loan losses represents management 's estimate of probable losses based on all available information . the allowance for loan losses is based on management 's evaluation of the collectability of the loan portfolio , including past loan loss experience , known and inherent losses , information about specific borrower situations and estimated collateral values , and current economic conditions . the loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses . the methodology for assessing the appropriateness of the allowance includes a review of historical losses , internal data including delinquencies among others , industry data , and economic conditions . as an integral part of their examination process , the federal reserve board ( “ frb ” ) and the montana division of banking will periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management . in establishing the allowance for loan losses , loss factors are applied to various pools of outstanding loans . loss factors are derived using our historical loss experience and may be adjusted for factors that affect the collectability of the portfolio as of the evaluation date . commercial business loans that are criticized are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans under fasb asc topic 310 receivables . although management believes that it uses the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations . because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . the allowance is based on information known at the time of the review . changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings . such changes could impact future results . valuation of investment securities substantially all of our investment securities are classified as available-for-sale and recorded at current fair value . unrealized gains or losses , net of deferred taxes , are reported in other comprehensive income as a separate component of shareholders ' equity . in general , fair value is based upon quoted market prices of identical assets , when available . if quoted market prices are not available , fair value is based upon valuation models that use cash flow , security structure and other observable information . where sufficient data is not available to produce a fair valuation , fair value is based on broker quotes for similar assets . broker quotes may be adjusted to ensure that financial instruments are recorded at fair value . adjustments may include unobservable parameters , among other things . no adjustments were made to any broker quotes received by us . we conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are other than temporary . in making this determination , we consider the period of time the securities were in a loss position , the percentage decline in comparison to the securities ' amortized cost , the financial condition of the issuer , if applicable , and the delinquency or default rates of underlying collateral . we consider our intent to sell the investment securities and the likelihood that we will not have to sell the investment securities before recovery of their cost basis . if impairment exists , credit related impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other comprehensive income . 24 deferred income taxes we use the asset and liability method of accounting for income taxes as prescribed in fasb asc topic 740 income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . story_separator_special_tag if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . financial condition december 31 , 2014 compared to june 30 , 2014 total assets increased $ 21.10 million , or 3.9 % , to $ 560.21 million at december 31 , 2014 from $ 539.11 million at june 30 , 2014. the loan portfolio increased $ 42.28 million or 15.4 % , to $ 316.27 million at december 31 , 2014 from $ 273.99 million at june 30 , 2014. securities available-for-sale decreased $ 27.76 million or 14.6 % , to $ 161.79 million from $ 189.55 million at june 30 , 2014. total liabilities increased by $ 18.31 million , or 3.8 % , to $ 505.71 million from $ 487.40 million at june 30 , 2014. total deposits increased $ 13.93 million or 3.3 % , to $ 440.98 million at december 31 , 2014. federal home loan bank ( “ fhlb ” ) advances and other borrowings increased $ 3.54 million or 6.9 % , to $ 54.99 million at december 31 , 2014. june 30 , 2014 compared to june 30 , 2013 total assets increased $ 28.58 million , or 5.6 % , to $ 539.11 million at june 30 , 2014 , from $ 510.53 million at june 30 , 2013. the loan portfolio increased $ 59.31 million or 27.6 % , to $ 273.99 million at june 30 , 2014. securities available-for-sale decreased $ 29.41 million or 13.4 % , to $ 189.55 million at june 30 , 2014. total liabilities increased by $ 26.10 million , or 5.7 % , to $ 487.40 million at june 30 , 2014 , from $ 461.30 million at june 30 , 2013. total deposits increased $ 9.30 million or 2.2 % , to $ 427.05 million at june 30 , 2014. fhlb advances and other borrowings increased $ 16.59 million or 47.6 % , to $ 51.45 million at june 30 , 2014. balance sheet details investment securities we maintain a portfolio of investment securities , classified as either available-for-sale ( including those accounted for under fasb asc topic 825 ) or held-to-maturity to enhance total return on investments . our investment securities include u.s. government and agency obligations , small business administration pools , municipal securities , mortgage-backed securities ( “ mbss ” ) , collateralized mortgage obligations ( “ cmos ” ) and corporate obligations , all with varying characteristics as to rate , maturity and call provisions . there were no held-to-maturity investment securities included in the investment portfolio at december 31 , 2014. all investment securities included in the investment portfolio are currently available-for-sale . eagle also has interest-bearing deposits in other banks and stock in the fhlb of seattle . 25 the following table summarizes investment securities : replace_table_token_3_th december 31 , 2014 compared to june 30 , 2014 . all categories of securities available-for-sale decreased during the period except for corporate obligations which increased slightly . net proceeds from sales of securities available-for-sale were $ 26.94 million for the six months ended december 31 , 2014. management has focused on decreasing the investment portfolio as a percentage of total assets and offsetting it with growth in the loan portfolio . june 30 , 2014 compared to june 30 , 2013. almost all categories of securities available-for-sale decreased during the period with the largest decrease in collateralized mortgage obligations of $ 14.87 million or 31.2 % . the only increase during the period was in mortgage-backed securities which increased $ 2.23 million or 8.4 % . 26 the following table sets forth information regarding the values , weighted average yields and maturities of investment securities : december 31 , 2014 one year or less one to five years five to ten years more than ten years total investment securities fair value annualized weighted average yield fair value annualized weighted average yield fair value annualized weighted average yield fair value annualized weighted average yield fair value approximate market value annualized weighted average yield ( dollars in thousands ) securities available-for-sale : u.s. government and agency $ 455 2.36 % $ - - % $ 1,950 2.07 % $ 30,776 2.13 % $ 33,181 $ 33,181 2.13 % municipal obligations - - 1,354 2.19 14,896 3.21 55,635 3.91 71,885 71,885 3.73 corporate obligations 1,002 1.98 997 1.23 4,006 1.24 - - 6,005 6,005 1.36 mbss - - - - 2,293 1.57 19,671 3.82 21,964 21,964 3.59 cmos - - 4,576 1.42 11,333 1.98 12,843 2.11 28,752 28,752 1.95 total securities available-for-sale 1,457 2.10 6,927 1.54 34,478 2.40 118,925 3.24 161,787 161,787 2.98 interest-bearing deposits 613 0.36 - - - - - - 613 613 0.36 federal funds sold - - - - - - - - - - - fhlb capital stock - - - - 1,968 1.72 - - 1,968 1,968 1.72 frb capital stock - - - - 641 6.00 - - 641 641 6.00 total $ 2,070 1.58 % $ 6,927 1.54 % $ 37,087 2.43 % $ 118,925 3.24 % $ 165,009 $ 165,009 2.97 % 27 lending activities the following table includes the composition of the bank 's loan portfolio by loan category : replace_table_token_4_th december 31 , 2014 compared to june 30
| net interest income and noninterest income are offset by provisions for loan losses , general administrative and other expenses , including salaries and employee benefits and occupancy and equipment costs , as well as by state and federal income tax expense . 21 the bank has a strong mortgage lending focus , with the majority of its loan originations in single-family residential mortgages , which has enabled it to successfully market home equity loans , as well as a wide range of shorter term consumer loans for various personal needs ( automobiles , recreational vehicles , etc. ) . in recent years we have also focused on adding commercial loans to our portfolio , both real estate and non-real estate . we have made significant progress in this initiative . as of december 31 , 2014 , commercial real estate and land loans and commercial business loans represented 36.9 % and 11.8 % of the total loan portfolio , respectively . the purpose of this diversification is to mitigate our dependence on the mortgage market , as well as to improve our ability to manage our interest rate spread . with the acquisition of the sterling branches , the investment portfolio grew substantially during fy 2013. as such , management is also focused on decreasing the investment portfolio as a percentage of total assets and offsetting this with growth in the loan portfolio . the bank 's management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio , which provides a steady source of fee income . as of december 31 , 2014 , we had mortgage servicing rights , net of $ 4.12 million compared to $ 3.76 million as of june 30 , 2014 and $ 3.19 million as of june 30 , 2013. gain on sale of loans also provides significant fee income or noninterest income in periods of high mortgage loan origination volumes . such income will be adversely affected in periods of lower
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we experienced quarterly declines in carrier revenue throughout 2008 and we expect continued disconnects from carriers and isps related to these and other factors . intercarrier compensation revenue intercarrier compensation revenue , which consists of switched access and reciprocal compensation , represented 3 % and 4 % of our total revenue for the years ended december 31 , 2008 and 2007 , respectively , and continues to decline as a percentage of total revenue due to growth in revenue from enterprise customers and 32 federal and state mandated rate reductions . intercarrier compensation revenue may fluctuate from quarter to quarter based on variations in minutes of use terminating on our network and the resolution of disputes . we believe intercarrier compensation revenue will continue to decline as a result of expected further federal and state mandated rate reductions and possible changes in the regulatory regime for intercarrier compensation . switched access revenue is compensation we receive from other carriers for the delivery of traffic between a long distance carrier 's point of presence and an end user 's premises provided through our switching facilities . switched access rates are regulated by the fcc and state public utility commissions . during the year ended december 31 , 2008 , we experienced a decline of 9 % from the year ended december 31 , 2007 in switched access revenue as a result of regulatory and contractual rate reductions . reciprocal compensation represents compensation from a lec for local exchange traffic originated on their facilities and terminated on our facilities . reciprocal compensation rates are established by interconnection agreements between the parties based on federal and state regulation and judicial rulings . revenue and customer churn increasing consolidation in the telecommunications industry has occurred in recent years , and in some cases has reduced our revenue from the customers involved . if any of our other customers are acquired , merge or experience financial difficulties , we may lose a portion of their business , which could have a significant impact on our revenue . consolidation could also result in other companies becoming more formidable competitors , which could result in pressure on our revenue growth . the consolidations of at & t inc. with sbc communications inc. and bellsouth corp. over the past several years have resulted and may continue to result in the combined company buying less local transport service from us in their local service areas , including declining revenue from at & t 's wireless unit ( formerly cingular wireless ) due to cingular 's acquisition of at & t wireless in 2004 and cingular 's acquisition by at & t in 2006. these revenue impacts have been and may continue to be partially mitigated by revenue commitments in our agreement with at & t . that agreement has been amended to extend the term through 2011 , increase the total contract value and continue their revenue commitment over the remaining contract term , in exchange for inclusion of additional existing revenue sources to satisfy the commitment and increased flexibility for at & t with respect to the timing of purchases and disconnections . the amendment could result in revenue declines from at & t in any given contract year . however , due to the provisions of the agreement and other factors , including new purchases from other customers and segments , we do not expect that the impact of these consolidations will materially affect our total revenue through the end of 2011. revenue from at & t , including at & t 's wireless unit , represented 6 % and 8 % of our total revenue for the years ended december 31 , 2008 and 2007 , respectively . monthly revenue loss from service disconnects averaged 1.2 % , 1.1 % , and 1.2 % of monthly revenue in 2006 , 2007 and 2008 , respectively . customer and service disconnects occur as part of the normal course of business and are primarily associated with industry consolidation , customer network optimization , cost cutting , business contractions , customer financial difficulties , the impact of the economic downturn , discontinuance of certain acquired products or price competition from other providers . we have experienced a concentration of churn from the acquired customer base that buys less complex services , especially smaller customers , as well as mortgage related businesses and carriers over the past year . we believe that some of the higher churn in 2008 may be the result of the economic downturn . we expect to continue to experience customer and service disconnects for these reasons and expect that higher revenue churn may continue due to the economic downturn . average monthly customer churn was 1.2 % and 1.4 % for 2007 and 2008 , respectively . the majority of this churn , which we expect to continue , came from our smaller acquired customers that are below our desired service profile . 33 pricing in 2008 , our revenue was impacted by competitive pricing pressure from other telecommunications service providers that have reduced their prices on certain products such as integrated service bundles for small customers , high capacity internet access , and inter-city and pop to pop dedicated services , especially during contract renewal intervals . we expect that this pricing pressure may continue and can not predict whether other products will be impacted . pricing of special access services we provide special access services over our own fiber facilities in competition with ilecs , and we also purchase special access and other services from ilecs to extend the reach of our network . the ilecs have argued before the fcc that the broadband services that they sell , including special access services we buy from them , should no longer be subject to regulation governing price and quality of service . if the special access services we buy from the ilecs were to be deregulated , the ilecs would have a greater ability to increase the price and reduce the service quality of special access services they sell to us . story_separator_special_tag we have advocated that the fcc should modify its special access pricing flexibility rules to return these services to price-cap regulation to protect against unreasonable price increases . the fcc is reviewing its regulation of special access pricing in a pending proceeding . in addition , the ilecs have filed numerous petitions for forbearance from regulation of their broadband special access services , including ethernet services offered as special access . the fcc has granted several of these petitions with the result that the ethernet and oc-n high capacity data services of the petitioning carriers are no longer regulated . we and several of our competitors have appealed these fcc rulings . these fcc actions did not impact the availability of the tariffed tdm special access circuits that we use for access to buildings that are not connected to our network with our fiber . we expect that the ilecs will continue to advocate deregulation of all forms of special access services , and we can not predict the outcome of the fcc 's proceedings in this regard or the impact of that outcome on our business . in 2005 , we negotiated a five-year wholesale service agreement with at & t inc. ( formerly sbc communications inc. ) under which at & t supplies us with special access and other services for end user access and transport with certain service level commitments through 2010 in sbc 's former 13 state local service territories . we have agreed to maintain certain volume levels in order to receive specified discounts and other terms and conditions , and are subject to certain penalties for early termination of the contract . after expiration of the agreement , at & t 's ability to increase its special access prices is limited by fcc imposed conditions on its merger with bellsouth until 2010. we have agreements or tariffed term and volume plans with at & t for the former bellsouth territory and with the other ilecs , which in some cases do not preclude prospective price increases . however , the ability of the ilecs to increase their special access prices is in some cases subject to regulatory constraints . other financial trends our acquisition of xspedius resulted in lower consolidated margins as a result of higher operating costs , especially network costs , in relationship to revenue in the acquired business . historically the acquired operations sold a higher proportion of services utilizing the facilities of other carriers than our previously existing operations , resulting in lower gross margins and modified ebitda margins ( modified ebitda as a percentage of revenue ) than we experienced prior to the acquisition . we have integrated the acquired operations with our operations and achieved synergies through cost reductions that have been reflected in expanding modified ebitda margins over the past seven quarters . our modified ebitda margin , which declined to 29 % following our acquisition of xspedius , improved to our pre-acquisition margin of 35 % for both the three months ended september 30 , 2008 and december 31 , 2008 reflecting revenue growth and cost synergies . we have historically experienced and expect to continue to experience fluctuations in our revenue , margins , and cash flows in the normal course of business from customer and service disconnects , the timing of sales and 34 installations , seasonality of sales and usage , customer disputes and dispute resolutions and repricing of services upon contract renewals . the current economic climate may magnify the impacts of these factors . however , we can not predict the total impact on revenue , margins , and cash flows from these items or their timing . we have undertaken several initiatives to increase revenue growth , margins and cash flows including revenue assurance and retention initiatives , cost reduction measures such as network grooming and pricing optimization intended to reduce as a percentage of revenue the overall access costs paid to carriers , enhancing back office support systems to improve operating efficiencies , and network investment initiatives to reduce the cost of equipment to increase overall capital efficiency . if our revenue growth , margins and cash flows decline in the future , we can not predict whether continued initiatives will be sufficient to maintain current financial performance . due to successful collection efforts aided by system enhancements , internal controls and our revenue recognition policies , our bad debt expense remained low at less than 1 % of our total revenue for 2008. however , customers that have experienced financial difficulties , including mortgage related businesses and our smaller acquired customers , have impacted our bad debt expense . bad debt expense increased to 1.3 % for the three months ended december 31 , 2008 compared to .8 % for the three months ended december 31 , 2007. we believe that bad debt expense could increase in 2009 as a result of customers ' financial difficulties related to the economic environment . name and branding change we amended our restated certificate of incorporation to change our corporate name from time warner telecom inc. to tw telecom inc. on march 12 , 2008. our stockholders approved the name change by written consent on september 26 , 2006. on july 1 , 2008 we began using tw telecom inc . as our name and tw telecom as our brand . we have incurred approximately $ 3.0 million in branding expenses and $ 0.6 million in branding capital expenditures for the year ended december 31 , 2008. critical accounting policies and estimates we prepare our financial statements in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions that affect reported amounts and related disclosures . we consider an accounting estimate to be critical if : it requires assumptions to be made that were uncertain at the time the estimate was made ; and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition .
| modified ebitda is not intended to replace operating income ( loss ) , net loss , cash flow and other measures of financial performance and liquidity reported in accordance with accounting principles generally accepted in the united states . rather , modified ebitda is a measure of operating performance and liquidity that investors may consider in addition to such measures . our management believes that modified ebitda is a standard measure of operating performance and liquidity that is commonly reported and widely used by analysts , investors , and other interested parties in the telecommunications industry because it eliminates many differences in financial , capitalization , and tax structures , as well as non-cash and non-operating charges to earnings . we believe that modified ebitda trends are a valuable indicator of whether our operations are able to produce sufficient operating cash flow to fund working capital needs , service debt obligations , and fund capital expenditures . we currently use modified ebitda for these purposes . modified ebitda also is used internally by our management to assess ongoing operations and is a measure used to test compliance with certain covenants of our senior notes , our revolving credit facility and our term loan . the definition of ebitda under our revolving credit facility , our term loan and our senior notes differs from the definition of modified ebitda used in this table . the definition of ebitda in our credit facility discussed below also eliminates certain non-cash losses within certain limits and certain extraordinary gains and the senior notes definition eliminates other non-cash items . however , the resulting calculation is not materially different for the periods presented . modified ebitda as used in this document may not be comparable to similarly titled measures reported by other companies due to differences in accounting policies . the reconciliation between net income ( loss ) and modified ebitda is as follows : replace_table_token_11_th ( 6 ) modified ebitda margin represents modified ebitda as a percentage of revenue . 41 year ended december 31 ,
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thus , the company is the primary beneficiary of this variable interest entity at december 31 , 2018. as such , we consolidated the assets and liabilities of the joint venture effective december 31 , 2018 and will begin consolidating the ongoing operations of the joint venture january 1 , 2019. the members are obligated to contribute capital to the gaylord rockies joint venture and generally will be entitled to distributions of cash amounts on a quarterly basis . members that do not comply with capital contribution requirements may be subject to dilution of their equity and other remedies . the gaylord rockies joint venture will pay an affiliate of the company an annual asset management fee equal to 1 % of the gross revenues of the hotel . the gaylord rockies joint venture will pay the rida member a development fee equal to 1 % of the development budget ( excluding contingency ) for certain capital expenditure projects and a capital expenditure consulting fee equal to $ 250,000 per year . the certain ares affiliates that are members of the gaylord rockies joint venture ( the “ seller affiliates ” ) have no material rights other than protection relating to tax matters as described below ; the right to receive distributions of cash in proportion to their ownership interests in the gaylord rockies joint venture ; the right to receive a payment in respect of infrastructure bonds of the hotel ; the right to approve specified fundamental actions including amendments to the joint venture agreement that would make the seller affiliates personally liable for the joint venture debt ; and the put right and tag-along rights described below . pursuant to the amended and restated joint venture agreements , the seller affiliates have a put right to require the company to purchase their joint venture interests at an appraised value during an annual window period , or under certain other circumstances , in consideration of cash or op units of the operating partnership . such op units have economic terms that are substantially similar to shares of our common stock . we anticipate the number of op units issuable to be less than one percent of the number of outstanding shares of our common stock . any op units issued by the operating partnership will be redeemable at the option of the holders thereof for cash or shares of our common stock on a one-for-one basis , subject to certain adjustments . the rida member will also have a put right at an appraised value , for cash , which will become exercisable at the earlier of five years after the closing under the purchase agreement or the date on which a certain change of control of rida occurs . the seller affiliates have the right to “ tag along ” and include their interests in rida member 's put right sale to 39 the company on the same terms . the seller affiliates also have the right to “ tag along ” and sell their interests in connection with transfers by the company or rida member that are not permitted transfers . we also entered into a tax protection agreement in connection with the december 31 , 2018 purchase of additional interests in the gaylord rockies joint venture , which will generally require us to , among other things , indemnify the seller affiliates that remain invested in the gaylord rockies joint venture , for 50 % of any income taxes incurred by them as a result of a direct or indirect sale or other disposition of the gaylord rockies joint venture , within seven years of closing , and for 100 % of any income taxes incurred by them as a result of the failure to comply with certain obligations related to nonrecourse liability allocations and debt guarantee opportunities for the purpose of protecting such parties ' tax bases . gaylord texan expansion in may 2018 , we completed construction of a $ 110 million expansion of gaylord texan that included an additional 303 guest rooms and 88,000 square feet of meeting space . the project was funded with cash on hand and borrowings under our credit facility . soundwaves at gaylord opryland in december 2018 , we opened the indoor portion of a $ 90 million investment to create a luxury indoor/outdoor waterpark adjacent to gaylord opryland , soundwaves . the project includes approximately 111,000 square feet of indoor water attractions and activities over three levels and approximately 106,000 square feet of outdoor water amenities . the project includes areas for adults , children and families , as well as dining options and bars . the outdoor portion of the project is anticipated to open in spring 2019. the project is being funded with cash on hand and borrowings under our credit facility . gaylord palms expansion we recently began construction of a $ 158 million expansion of gaylord palms , which will include an additional 303 guest rooms and 90,000 square feet of meeting space , an expanded resort pool and events lawn , and a new multi-level parking structure . the expansion is expected to be completed in summer 2021. dividend policy pursuant to our current dividend policy , we plan to continue to pay a quarterly cash dividend to stockholders in an amount equal to an annualized payment of at least 50 % of adjusted funds from operations ( as defined by us ) less maintenance capital expenditures , or 100 % of reit taxable income , whichever is greater . during 2018 , the company 's board of directors declared quarterly dividends totaling $ 3.40 per share of common stock , or an aggregate of $ 174.5 million in cash . during 2017 , the company 's board of directors declared quarterly dividends totaling $ 3.20 per share of common stock , or an aggregate of $ 163.7 million in cash . during 2016 , the company 's board of directors declared quarterly dividends totaling $ 3.00 per share of common stock , or an aggregate of $ 153.0 million in cash . story_separator_special_tag the declaration , timing and amount of dividends will be determined by future action of our board of directors . our dividend policy may be altered at any time by our board of directors . our current operations our ongoing operations are organized into three principal business segments : · hospitality , consisting of our gaylord hotels properties , the inn at opryland , the ac hotel , and our investment in the gaylord rockies joint venture , each of which is managed by marriott . · entertainment , consisting of the grand ole opry , the ryman auditorium , wsm-am , ole red , and our other nashville-based attractions . we own our entertainment businesses in trss , and marriott manages the general jackson , wildhorse saloon and gaylord springs . 40 · corporate and other , consisting of our corporate expenses . for the years ended december 31 , 2018 , 2017 and 2016 , our total revenues were divided among these business segments as follows : replace_table_token_4_th key performance indicators the operating results of our hospitality segment are highly dependent on the volume of customers at our hotels and the quality of the customer mix at our hotels , which are managed by marriott . these factors impact the price that marriott can charge for our hotel rooms and other amenities , such as food and beverage and meeting space . the following key performance indicators are commonly used in the hospitality industry : · hotel occupancy ( a volume indicator ) ; · average daily rate ( “ adr ” ) – a price indicator calculated by dividing room revenue by the number of rooms sold ; · revenue per available room ( “ revpar ” ) – a summary measure of hotel results calculated by dividing room revenue by room nights available to guests for the period ; · total revenue per available room ( “ total revpar ” ) – a summary measure of hotel results calculated by dividing the sum of room , food and beverage and other ancillary service revenue by room nights available to guests for the period ; and · net definite room nights booked – a volume indicator which represents the total number of definite bookings for future room nights at our hotels confirmed during the applicable period , net of cancellations . hospitality segment revenue from our occupied hotel rooms is recognized over time as the daily hotel stay is provided to hotel groups and guests . revenues from concessions , food and beverage sales , and group meeting services are recognized over the period or at the point in time those goods or services are delivered to the group or hotel guest . revenues from ancillary services at our hotels , such as spa , parking , and transportation services , are generally recognized at the time the goods or services are provided . cancellation fees , as well as a ttrition fees that are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for , are generally recognized as revenue in the period we determine it is probable that a significant reversal in the amount of revenue recognized will not occur , which is typically the period these fees are collected . almost all of our hospitality segment revenues are either cash-based or , for meeting and convention groups that meet our credit criteria , billed and collected on a short-term receivables basis . the hospitality industry is capital intensive , and we rely on the ability of our hotels to generate operating cash flow to repay debt financing and fund maintenance capital expenditures . the results of operations of our hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period . a variety of factors can affect the results of any interim period , including the nature and quality of the group meetings and conventions attending our hotels during such period , which meetings and conventions have often been contracted for several years in advance , the level of attrition our hotels experience , and the level of transient business at our hotels during such period . we rely on marriott , as the manager of our hotels , to manage these factors and to offset any identified shortfalls in occupancy . 41 summary financial results the following table summarizes our financial results for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands , except percentages and per share data ) : replace_table_token_5_th 2018 results as compared to 2017 results the increase in our total revenues during 2018 , as compared to 2017 , is attributable to increases in our hospitality segment and entertainment segment revenues of $ 68.2 million and $ 22.2 million , respectively , as discussed more fully below . the increase in total operating expenses during 2018 , as compared to 2017 , is primarily the result of increases in hospitality segment and entertainment segment expenses of $ 37.6 million and $ 24.7 million , respectively , as well as an increase in depreciation and amortization and preopening expenses of $ 8.9 million and $ 2.9 million , respectively , partially offset by a $ 11.6 million decrease in impairment charges , each as discussed more fully below . the above factors resulted in a $ 28.4 million increase in operating income for 2018 , as compared to 2017. the $ 88.6 million increase in our net income in 2018 , as compared to 2017 , was due to the change in our operating income described above , and the following factors , each as described more fully below : · a $ 129.4 million increase in income from joint ventures , due primarily to a $ 131.4 million gain related to the re-measurement of the pre-existing equity method investment in the gaylord rockies joint venture prior to consolidation .
| total hospitality revenues in 2018 include $ 11.8 million in attrition and cancellation fee collections , a $ 0.9 million increase from 2017. the increase in total hospitality segment revenue in 2017 , as compared to 2016 , is primarily due to increases in revenue of $ 12.5 million and $ 5.9 million at gaylord national and gaylord opryland , respectively , as discussed below . total hospitality revenues in 2017 include $ 10.9 million in attrition and cancellation fee collections , a $ 1.8 million decrease from 2016. the percentage of group versus transient business based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_7_th the type of group based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_8_th the increase in rooms operating expenses in 2018 , as compared to 2017 , is primarily attributable to increases at gaylord opryland and gaylord texan , as described below . the increase in rooms operating expenses in 2017 , as compared to 2016 , is primarily attributable to an increase at gaylord national , as described below . the increase in food and beverage operating expenses in 2018 , as compared to 2017 , is primarily attributable to increases at gaylord opryland , gaylord texan and gaylord national , as described below . the increase in food and beverage operating expenses in 2017 , as compared to 2016 , is primarily attributable to an increase at gaylord national , as described below . other hotel expenses for the following years ended december 31 included ( in thousands ) : replace_table_token_9_th administrative employment costs include salaries and benefits for hotel administrative functions , including , among others , senior management , accounting , human resources , sales , conference services , engineering and security . administrative employment costs increased during 2018 , as compared to 2017 , primarily due to increases at gaylord texan and gaylord national . utility costs decreased slightly during 2018 , as compared to 2017 , primarily due to a decrease at gaylord national . property taxes increased slightly during 2018 , as compared to 2017 , primarily due to an increase at gaylord
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research and development expense decreased to $ 31.6 million in 2013 from $ 56.8 million in 2012 as a result of reduced headcount-related costs following our restructuring efforts as a result of the termination of the shell research agreement in 2012. selling , general and administrative expenses decreased to $ 26.9 million in 2013 from $ 31.4 million in 2012 as a result of reduced headcount-related costs following our restructuring efforts as a result of the termination of the shell research agreement in 2012. net loss for the twelve months ended december 31 , 2013 totaled $ 41.3 million compared to $ 30.9 million net loss for the twelve months ended december 31 , 2012. the increased loss is primarily related to lower collaborative research revenues related to the terminated shell research agreement , partially offset by reduced research spending . cash , cash equivalents and marketable securities balances declined to $ 25.9 million as of december 31 , 2013 compared to $ 49.1 million as of december 31 , 2012. we are actively partnering with new and existing pharmaceutical customers and we believe that we can utilize our products and services , and develop new products and services , that will increase our revenue and gross margins in future periods . we believe that , based on our current level of operations , our existing cash , cash equivalents and marketable securities will provide adequate funds for ongoing operations , planned capital expenditures and working capital requirements for at least the next 12 months . codexyme ® cellulase enzyme and codexol ® detergent alcohols businesses during 2013 we continued a reduced level of spending in biofuels research while efforts were made to obtain funding or sell the rights for this business . in the fourth quarter of 2013 , we announced that we would begin winding down our codexyme® cellulase enzymes program and stop further development of our codexol® detergent alcohols program . as a result , we have committed to a restructuring plan to reduce our cost structure to align with our projected future revenues from our pharmaceutical business . the restructuring plan includes a reduction of employees in the united states and hungary and the sale of excess assets which will reduce future research and development costs and related expenditures . we have recorded restructuring charges of $ 0.8 million in the year ended december 31 , 2013 , which included a total of 15 employee terminations in the united states . we also recorded $ 1.6 million in asset impairment charges related to excess equipment reclassified as held for sale as of december 31 , 2013. termination of shell collaboration the shell research agreement was terminated effective august 31 , 2012 and as a result , we no longer receive collaborative research and development revenues from shell . this has significantly decreased our revenues as compared to prior periods . we received no revenues from shell for the twelve months ended december 31 , 2013. collaborative research and development revenue received from shell accounted for $ 45.3 million and $ 63.2 million for the twelve months ended december 31 , 2012 and 2011 , respectively . as a result of the termination of the shell research agreement , we initiated a series of cost reduction measures in 2012 and refocused our business on the pharmaceuticals market . we terminated approximately 173 employees worldwide in the fourth quarter of 2012 , consisting of 150 research and development staff and 23 general and administrative staff . we also closed our singapore research and development facility in december 2012. we incurred $ 2.4 million in restructuring expenses related to these cost reduction measures , including severance for terminated employees , and other exit-related costs arising from contractual obligations associated with closed facilities under lease and equipment disposals . during 2013 , we made cash payments of $ 0.3 million . as of december 31 , 2013 , we had paid out substantially all of the costs under this restructuring plan . arch contract manufacturing collaboration from 2006 through november 2012 , arch pharma labs of mumbai , india manufactured substantially all of our commercialized intermediates and apis for sale to generic and innovator pharmaceutical manufacturers . prior to november 36 2012 , arch produced atorva-family api 's and intermediates for us and we sold these directly to end customers primarily in india . in november 2012 , we entered into a new commercial arrangement with arch ( the `` new arch enzyme supply agreement '' ) whereby we will supply arch with enzymes for use in the manufacture of atorva family products and arch will market these products directly to end customers . during 2013 , arch was unable to competitively supply these products to end customers , resulting in a significant decrease in revenues . for the twelve months ended december 31 , 2013 , we recognized $ 2.1 million in product revenue for the sale of enzyme inventory to arch pursuant to the new arch enzyme supply agreement . during 2013 , we recorded an allowance for bad debt of approximately $ 0.4 million due to a write-off of an accounts receivable from arch . the 2013 revenue for the sale of enzyme inventory related to a sale of inventory that occurred in 2012 for which the recognition of revenue was deferred until 2013 when all of the revenue recognition criteria were met . we do not anticipate significant arch product revenues in future periods . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements . the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the united states and include our accounts and the accounts of our wholly-owned subsidiaries . story_separator_special_tag the preparation of our consolidated financial statements requires our management to make estimates , assumptions , and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the applicable periods . management bases its estimates , assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements , which , in turn , could change the results from those reported . our management evaluates its estimates , assumptions and judgments on an ongoing basis . the critical accounting policies requiring estimates , assumptions , and judgments that we believe have the most significant impact on our consolidated financial statements are described below . revenue recognition revenues are recognized when the four basic revenue recognition criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) products have been delivered , transfer of technology has been completed or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . our primary sources of revenues consist of product revenues , collaborative research and development agreements , revenue sharing arrangement and government awards . collaborative research and development agreements typically provide us with multiple revenue streams , including up-front fees for licensing , exclusivity and technology access , fees for full-time employee ( “ fte ” ) services , milestone payments recognized upon achievement of contractual criteria , and royalty fees based on licensees ' sales of products using our technologies . product revenues are recognized once passage of title and risk of loss has occurred and contractually specified acceptance criteria , if any , have been met , provided all other revenue recognition criteria have also been met . product revenues consist of sales of biocatalysts , intermediates , active pharmaceutical ingredients and codex biocatalyst panels and kits . cost of product revenues includes both internal and third party fixed and variable costs including amortization of purchased technology , materials and supplies , labor , facilities and other overhead costs associated with our product revenues . revenue sharing arrangement revenues are recognized based upon sales of licensed products by our revenue share partner exela . revenue share amounts received are net of product and selling costs . revenue is recognized as earned in accordance with contract terms , and is recorded when revenue share amounts can be reasonably estimated and collectability is assured . we base our estimates on notification of the sale of revenue sharing products and related costs by our revenue share partner . up-front fees received in connection with collaborative research and development agreements , including license fees , technology access fees , and exclusivity fees , are deferred upon receipt , are not considered a separate unit of accounting and are recognized as revenues over the relevant performance periods related to the combined units of accounting appropriate for each customer arrangement . revenues related to fte services recognized as research services are performed over the related performance periods for each contract . we are required to perform research and development activities as specified in each respective agreement . the payments received are not refundable and are based on a contractual reimbursement rate per fte working on the project . when up-front payments are combined with fte services in a single unit of accounting , we recognize the up-front payments using 37 the proportionate performance method of revenue recognition based upon the actual amount of research and development labor hours incurred relative to the amount of the total expected labor hours to be incurred by us , up to the amount of cash received . in cases where the planned levels of research services fluctuate substantially over the research term , we are required to make estimates of the total hours required to perform our obligations . research and development expenses related to fte services under the collaborative research and development agreements approximate the research funding over the term of the respective agreements . a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved . a milestone is an event ( i ) that can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance , ( ii ) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved , and ( iii ) results in additional payments being due to us . milestones are considered substantive when the consideration earned from the achievement of the milestone ( i ) is commensurate with either our performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from its performance , ( ii ) relates solely to past performance , and ( iii ) is reasonable relative to all deliverable and payment terms in the arrangement . other payments received for which such payments are contingent solely upon the passage of time or the result of a collaborative partner 's performance are recognized as revenue when earned in accordance with the contract terms and when such payments can be reasonably estimated and collectability is reasonably assured . we recognize revenues from royalties based on licensees ' sales of products using our technologies . royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured . we base its estimates on notification of the sale of licensed products from licensees . though we received payments from government entities for work performed in the form of government awards .
| the decrease in product sales in 2013 as compared to 2012 is primarily due to lower revenues for generic statin-family and hepatitis c products , primarily to india-based generic manufacturers . statin-family products revenues were $ 3.4 million and hepatitis c product revenues were $ 6.2 million in 2013 . 43 in 2012 and 2011 , our revenues for generic statin-family based products were higher as customers purchased product in anticipation of the lipitor patent expiration . in 2012 , following patent expiration , pricing for lipitor generic products dropped due primarily to competition from chinese manufacturers . to counter this pricing pressure , we signed the new arch enzyme supply agreement in november 2012 to allow arch to supply these customers directly , while we supplied enzyme products to arch . during 2013 , arch was unable to competitively supply statin family products to end customers due to financial difficulties . as a result , our revenues for statin family products decreased by $ 17.5 million in 2013 compared to 2012. hepatitis c product revenues decreased $ 2.9 million in 2013 as a result of decreased demand resulting from newer products entering the market . we do not expect statin family and hepatitis c product revenues to be a significant portion of total revenues in future periods as a result of both unfavorable market pricing and newer products entering the market . sales of on-patent products to pharmaceutical innovator customers increased by $ 2.5 million in 2013 to $ 13.1 million as compared to $ 10.6 million in 2012 , as newer on-patent products utilizing our enzymes were released to the market and began to ramp production . we expect pharmaceutical sales for on-patent products to increase in future periods . our collaborative research and development revenues in 2013 were $ 6.9 million compared to 2012 revenues of $ 4.6 million . our collaborative research and development revenues accounted for 22 % and 5 % of our total revenues in 2013 and 2012 , respectively . the increase in collaborative research and development revenues in 2013 was primarily due to higher licensing
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we also capitalize direct and indirect costs , including interest costs , on vacant space during extended lease-up periods after construction of the building shell has been completed if costs are being incurred to prepare the vacant space for its intended use . if costs and activities incurred to prepare the vacant space for its intended use cease , then cost capitalization is also discontinued until such activities are resumed . once necessary work has been completed on a vacant space , project costs are no longer capitalized . in addition , all leasing commissions paid to third parties for new leases or lease renewals are capitalized . we depreciate buildings on a straight-line basis over 39 years and tenant improvements over the shorter of their estimated useful lives or the term of the related lease . real estate impairment we evaluate our real estate assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . if such an evaluation is necessary , we compare the carrying amount of any such real estate asset with the undiscounted expected future cash flows that are directly associated with , and that are expected to arise as a direct result of , its use and eventual disposition . our estimate of the expected future cash flows attributable to a real estate asset is based upon , among other things , our estimates regarding future market conditions , rental rates , occupancy levels , tenant improvements , leasing commissions , tenant concessions and assumptions regarding the residual value of our properties . if the carrying amount of a real estate asset exceeds its associated undiscounted expected future cash flows , we recognize an impairment loss to reduce the carrying amount of the real estate asset to its fair value based on marketplace participant assumptions . adoption of new or revised accounting standards as an emerging growth company under the jumpstart our business startups act , we can elect to adopt new or revised accounting standards as they are effective for private companies . however , we have elected to opt out of such extended transition period . therefore , we will adopt new or revised accounting standards as they are effective for public companies . this election is irrevocable . segment results of operations as of december 31 , 2014 , we operated our business in four segments : ( i ) office real estate , ( ii ) retail real estate , ( iii ) multifamily residential real estate and ( iv ) general contracting and real estate services that are conducted through our taxable reit subsidiaries ( trs ) . net operating income ( segment revenues minus segment expenses ) or noi is the measure used by management to assess segment performance and allocate our resources among our segments . noi is not a measure of operating income or cash flows from operating activities as measured by gaap and is not indicative of cash available to fund cash needs . as a result , noi should not be considered an alternative to cash flows as a measure of liquidity . not all companies calculate noi in the same manner . we consider noi to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our real estate and construction businesses . see note 3 to our consolidated and combined financial statements in item 8 of this annual report on form 10-k for a reconciliation of noi to net income . we define same store properties as those that we owned and operated and that were stabilized for the entirety of both periods compared . same store properties exclude those that were in lease-up during the periods compared . we generally consider a property to be in lease-up until the earlier of : ( i ) the quarter after the property reaches 80 % occupancy or ( ii ) the thirteenth quarter after the property receives its certificate of occupancy . 45 office segment data replace_table_token_10_th ( 1 ) stabilized properties as of the end of the periods presented . rental revenues for the year ended december 31 , 2014 increased $ 2.0 million compared to the year ended december 31 , 2013. noi for the year ended december 31 , 2014 increased $ 1.2 million compared to the year ended december 31 , 2013. the increases in rental revenues and noi resulted from the delivery and initial occupancy of our new 4525 main street office tower , higher occupancy at one columbus and two columbus and lease renewals at armada hoffler tower . rental revenues for the year ended december 31 , 2013 were relatively unchanged compared to the year ended december 31 , 2012. noi decreased $ 0.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to increased operating costs at our office properties in the town center of virginia beach . office same store results office same store rental revenues , property expenses and noi for the comparative years ended december 31 , 2014 and 2013 and december 31 , 2013 and 2012 were as follows : replace_table_token_11_th ( 1 ) same store excludes 4525 main street and the virginia natural gas office building . same store rental revenues and noi for the year ended december 31 , 2014 increased compared to the year ended december 31 , 2013 because of higher occupancy at one columbus and two columbus as well as lease renewals at armada hoffler tower . same store rental revenues for the year ended december 31 , 2013 were relatively unchanged compared to the year ended december 31 , 2012. same store noi decreased during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to increased operating costs at our office properties in the town center of virginia beach . 46 retail segment data replace_table_token_12_th ( 1 ) stabilized properties as of the end of the periods presented . story_separator_special_tag rental revenues for the year ended december 31 , 2014 increased $ 2.2 million compared to the year ended december 31 , 2013. noi for the year ended december 31 , 2014 increased $ 1.9 million compared to the year ended december 31 , 2013. the increases in rental revenues and noi resulted primarily from our consolidation of bermuda crossroads upon completion of our ipo and formation transactions on may 13 , 2013 and our acquisition of dimmock square on august 15 , 2014. rental revenues increased $ 0.6 million and noi increased $ 0.4 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increases in rental revenues and noi resulted from our consolidation of bermuda crossroads upon completion of our ipo and the formation transactions on may 13 , 2013 and our completion and concurrent stabilization of tyre neck harris teeter in the second quarter of 2012. the increased rental revenues and noi from bermuda crossroads and tyre neck harris teeter were partially offset by declines in occupancy at south retail in the town center of virginia beach and dick 's at town center . retail same store results retail same store rental revenues , property expenses and noi for the comparative years ended december 31 , 2014 and 2013 and december 31 , 2013 and 2012 were as follows : replace_table_token_13_th ( 1 ) same store excludes bermuda crossroads , dimmock square and greentree shopping center . ( 2 ) same store excludes bermuda crossroads and tyre neck harris teeter . same store rental revenues and noi for the year ended december 31 , 2014 increased compared to the year ended december 31 , 2013 because of higher occupancy at south retail in the town center of virginia beach , north point center , gainsborough square and fountain plaza , as well as increased percentage rent from 249 central park retail . same store rental revenues and noi decreased during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the decreases in same store rental revenues and same store noi resulted from declines in occupancy at south retail in the town center of virginia beach and dick 's at town center . 47 multifamily segment data replace_table_token_14_th ( 1 ) stabilized properties as of the end of the periods presented . rental revenues for the year ended december 31 , 2014 increased $ 3.0 million compared to the year ended december 31 , 2013. noi increased $ 0.9 million compared to the year ended december 31 , 2013. the increases in rental revenues and noi resulted primarily from our consolidation of smith 's landing upon completion of our ipo and formation transactions on may 13 , 2013 as well as higher occupancy at the cosmopolitan . our acquisition of liberty apartments on january 17 , 2014 and our initial delivery of encore apartments during the third quarter of 2014 also contributed to the increase in rental revenues . rental revenues increased $ 2.5 million and noi increased $ 1.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to our consolidation of smith 's landing upon completion of our ipo and the formation transactions on may 13 , 2013. multifamily same store results multifamily same store rental revenues , property expenses and noi for the comparative years ended december 31 , 2014 and 2013 and december 31 , 2013 and 2012 were as follows : replace_table_token_15_th ( 1 ) same store excludes smith 's landing , encore apartments , liberty apartments and whetstone apartments . ( 2 ) same store excludes smith 's landing . same store rental revenues and noi for the year ended december 31 , 2014 increased compared to the year ended december 31 , 2013 because of higher occupancy at the cosmopolitan . same store rental revenues increased slightly while same store noi decreased $ 0.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increase in same store rental revenues resulted from increased ground floor retail occupancy at the cosmopolitan , which helped to offset residential occupancy declines . increased operating expenses at the cosmopolitan caused the decrease in same store noi during the year ended december 31 , 2013 . 48 general contracting and real estate services segment data replace_table_token_16_th segment revenues for the year ended december 31 , 2014 increased $ 20.8 million compared to the year ended december 31 , 2013. noi for the year ended december 31 , 2014 increased $ 0.9 million compared to the year ended december 31 , 2013. the increases in segment revenues and noi resulted from higher volume on our construction contracts driven by the exelon construction project as operating margins year over year were consistent . segment revenues for the year ended december 31 , 2013 increased $ 28.5 million compared to the year ended december 31 , 2012. the increase in segment revenues was driven primarily by our progress and completion of the newport news apprentice school of shipbuilding , liberty apartments and the biomedical research laboratory at hampton university . noi decreased $ 0.2 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 as we experienced tighter operating margins on our construction contracts during 2013. the changes in construction backlog for the years ended december 31 , 2014 and 2013 were as follows : replace_table_token_17_th during the year ended december 31 , 2014 , we executed a $ 168.8 million contract for the construction of the new headquarters for exelon 's constellation business unit in baltimore , maryland . exelon is the nation 's leading competitive energy provider . construction began in the spring of 2014 with completion expected in the spring of 2016. as of december 31 , 2014 , we had $ 126.0 million of backlog on the exelon construction project .
| 50 rental revenues increased $ 3.1 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012. office rental revenues for the year ended december 31 , 2013 were relatively unchanged compared to the year ended december 31 , 2012. retail rental revenues increased due to our consolidation of bermuda crossroads beginning may 13 , 2013 and our completion and concurrent stabilization of tyre neck harris teeter in the second quarter of 2012. multifamily rental revenues increased due to our consolidation of smith 's landing beginning on may 13 , 2013. general contracting and real estate services revenues . general contracting and real estate services revenues for the year ended december 31 , 2014 increased $ 20.8 million compared to the year ended december 31 , 2013 because of higher volume on our construction contracts driven by the exelon construction project . general contracting and real estate services revenues for the year ended december 31 , 2013 increased $ 28.5 million compared to the year ended december 31 , 2012. the increase was driven primarily by our progress and completion of the newport news apprentice school of shipbuilding , liberty apartments and the biomedical research laboratory at hampton university . rental expenses . rental expenses by segment for each of the three years ended december 31 , 2014 were as follows : replace_table_token_20_th rental expenses increased $ 2.6 million during the year ended december 31 , 2014 compared to the year ended december 31 , 2013. office rental expenses increased primarily because of the initial operation of 4525 main street . retail rental expenses increased because of our consolidation of bermuda crossroads on may 13 , 2013 as well as our acquisition of dimmock square on august 15 , 2014. multifamily rental expenses increased because of our acquisition of liberty apartments on january 17 , 2014 , our initial delivery of encore apartments and whetstone apartments during the second half of 2014 and our consolidation of smith 's landing on may 13 , 2013. rental expenses increased $ 1.3 million during the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , primarily driven by our multifamily segment . multifamily rental expenses increased due to our consolidation of
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50 at december 31 , 2020 , we had total assets of $ 5.936 billion , including gross loans held for investment of $ 4.997 billion , compared to $ 5.060 billion of total assets and $ 4.195 billion of gross loans held for investment at december 31 , 2019. gross loan growth totaled $ 802.3 million during the year ended december 31 , 2020. excluding the sale of premium finance loans and acquired transportation factoring assets , organic loan growth totaled $ 795.8 million , or 19.4 % , $ 189.9 million of which consisted of ppp loans . our commercial finance loans increased from $ 1.250 billion in aggregate as of december 31 , 2019 to $ 1.874 billion as of december 31 , 2020 , an increase of 49.9 % , and constitute 38 % of our total loan portfolio at december 31 , 2020. excluding the acquired transportation factoring assets , our commercial finance product lines increased $ 516.4 million , or 41.3 % . our national lending lines increased from $ 850.4 million in aggregate as of december 31 , 2019 to $ 1.222 billion as of december 31 , 2020 , an increase of 43.7 % , and constitute 24 % of our total loan portfolio at december 31 , 2020. excluding premium finance loans , our national lending lines increased $ 472.3 million , or 63.0 % . our community bank lending lines decreased from $ 2.094 billion in aggregate as of december 31 , 2019 to $ 1.901 billion as of december 31 , 2020 , a decrease of 9.2 % , and constitute 38 % of our total loan portfolio at december 31 , 2020. at december 31 , 2020 , we had total liabilities of $ 5.209 billion , including total deposits of $ 4.717 billion , compared to $ 4.424 billion of total liabilities and $ 3.790 billion of total deposits at december 31 , 2019. deposits increased $ 926.7 million during the year ended december 31 , 2020. at december 31 , 2020 , we had total stockholders ' equity of $ 726.8 million , compared to total stockholders ' equity of $ 636.6 million at december 31 , 2019. the increase in total equity was primarily due to preferred stock issued during the year and our net income , offset in part by common stock repurchased during the year . holding company tier 1 capital and total capital to risk weighted assets ratios were 10.60 % and 13.03 % , respectively , at december 31 , 2020. for the year ended december 31 , 2020 , triumph business capital and triumphpay processed a combined $ 10.436 billion in transportation invoice payments . for the year ended december 31 , 2020 , the total dollar value of invoices purchased by triumph business capital was $ 7.135 billion with an average invoice size of $ 1,825. the transportation average invoice size for the quarter was $ 1,682. for the year ended december 31 , 2020 , triumphpay processed 4,394,901 invoices paying 93,648 distinct carriers a total of $ 4.175 billion . 2020 items of note transport financial solutions on july 8 , 2020 , triumph bancorp , inc. , through our wholly-owned subsidiary advance business capital llc ( “ abc ” ) , acquired the transportation factoring assets ( the “ tfs acquisition ” ) of transport financial solutions ( “ tfs ” ) , a wholly owned subsidiary of covenant logistics group , inc. ( `` cvlg '' ) , in exchange for cash consideration of $ 108.4 million , 630,268 shares of the company 's common stock valued at approximately $ 13.9 million , and contingent consideration of up to approximately $ 9.9 million to be paid in cash following the twelve-month period ending july 31 , 2021. subsequent to the closing of the tfs acquisition , the company identified that approximately $ 62.2 million of the assets acquired at closing were advances against future payments to be made to three large clients ( and their affiliated entities ) of tfs pursuant to long-term contractual arrangements between the obligor on such contracts and such clients ( and their affiliated entities ) for services that had not yet been performed . on september 23 , 2020 , the company and abc entered into an account management agreement , amendment to purchase agreement and mutual release ( the “ agreement ” ) with cvlg and covenant transport solutions , llc a wholly owned subsidiary of cvlg ( “ cts ” and , together with cvlg , `` covenant '' ) . pursuant to the agreement , the parties agreed to certain amendments to that certain accounts receivable purchase agreement ( the “ arpa ” ) , dated as of july 8 , 2020 , by and among abc , as buyer , cts , as seller , and the company , as buyer indirect parent . such amendments include : return of the portion of the purchase price paid under the arpa consisting of 630,268 shares of company common stock , which was accomplished through the sale of such shares by cvlg pursuant to the terms of the agreement and the surrender of the cash proceeds of such sale ( net of brokerage or underwriting fees and commissions ) to the company ; elimination of the earn-out consideration potentially payable to cts under the arpa ; and 51 modification of the indemnity provisions under the arpa that eliminated the existing indemnifications for breaches of representations and warranties and replaced such with a newly established indemnification by covenant in the event abc incurs losses related to the $ 62.2 million in over-formula advances made to specified clients identified in the agreement ( the “ over-formula advance portfolio ” ) . story_separator_special_tag under the terms of the new indemnification arrangement , covenant is responsible for and will indemnify abc for 100 % of the first $ 30 million of any losses incurred by abc related to the over-formula advance portfolio , and for 50 % of the next $ 30 million of any losses incurred by abc , for total indemnification by covenant of $ 45 million . covenant 's indemnification obligations under the agreement are secured by a pledge of equipment collateral by covenant with an estimated net orderly liquidation value of $ 60 million ( the “ equipment collateral ” ) . the company 's wholly-owned bank subsidiary , tbk bank , ssb , has provided covenant with a $ 45 million line of credit , also secured by the equipment collateral , the proceeds of which may be drawn to satisfy covenant 's indemnification obligations under the agreement . pursuant to the agreement , triumph and covenant agreed to certain terms related to the management of the over-formula advance portfolio , and the terms by which covenant may provide assistance to maximize recovery on the over-formula advance portfolio . pursuant to the agreement , the company and covenant provided mutual releases to each other related to any and all claims related to the transactions contemplated by the arpa or the over-formula advance portfolio . misdirected payments as of december 31 , 2020 we carry a separate $ 19.6 million receivable ( the “ misdirected payments ” ) payable by the united states postal service ( “ usps ” ) arising from accounts factored to the largest over-formula advance carrier . this amount is separate from the aforementioned over-formula advances . the amounts represented by this receivable were paid by the usps directly to such customer in contravention of notices of assignment delivered to , and previously honored by , the usps , which amount was then not remitted back to us by such customer as required . the usps disputes their obligation to make such payment , citing purported deficiencies in the notices delivered to them . in addition to commencing litigation against such customer , we have also filed a declaratory judgment action in united states federal district court for the southern district of florida seeking a ruling that the usps was obligated to make the payments represented by this receivable directly to us . based on our legal analysis and discussions with our counsel advising us on this matter , we believe it is probable that we will prevail in such action and that the usps will have the capacity to make payment on such receivable . consequently , we have not reserved for such balance as of december 31 , 2020. the full amount of such receivable is reflected as past due factored receivables as of december 31 , 2020 , and $ 6.0 million of such receivable , reflecting the portion of such receivable that was greater than 90 days past due , is included in our non-performing asset calculation as of december 31 , 2020 in accordance with our policy . as of the issuance date of this report , the entire $ 19.6 million misdirected payments amount was greater than 90 days past due . triumph premium finance on april 20 , 2020 , we entered into an agreement to sell the assets ( the “ disposal group ” ) of triumph premium finance ( “ tpf ” ) and exit our premium finance line of business . the transaction closed on june 30 , 2020 , and the assets of the disposal group , consisting primarily of $ 84.5 million of premium finance loans , were sold for a gain on sale of $ 9.8 million . for further information on the above transactions , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . preferred stock offering on june 19 , 2020 , we issued 45,000 shares of 7.125 % series c fixed-rate non-cumulative perpetual preferred stock , par value $ 0.01 per share , with a liquidation preference of $ 1,000 per share through an underwritten public offering of 1,800,000 depository shares , each representing a 1/40 th ownership interest in a share of the series c preferred stock . total gross proceeds from the preferred stock offering were $ 45.0 million . net proceeds after underwriting discounts and offering expenses were $ 42.4 million . the net proceeds will be used for general corporate purposes . stock repurchase program during the year ended december 31 , 2020 , we repurchased 871,319 shares into treasury stock under our stock repurchase program at an average price of $ 40.81 , for a total of $ 35.6 million , effectively completing the $ 50.0 million stock repurchase program authorized by our board of directors on october 16 , 2019 . 52 2019 items of note warehouse solutions inc. investment on october 17 , 2019 , we made a minority equity investment of $ 8 million in warehouse solutions inc. ( “ wsi ” ) , purchasing 8 % of the common stock of wsi and receiving warrants to purchase an additional 10 % of the common stock of wsi upon exercise of the warrants at a later date . wsi provides technology solutions to help reduce supply chain costs for a global client base across multiple industries . stock repurchase program on october 29 , 2018 , we announced that our board of directors had authorized us to repurchase up to $ 25.0 million of our outstanding common stock . on july 17 , 2019 , our board of directors authorized the repurchase of up to an additional $ 25.0 million of our outstanding common stock . on october 16 , 2019 our board of directors authorized us to repurchase up to an additional $ 50.0 million of our outstanding common stock . we may repurchase these shares from time to time in open market transactions or through privately negotiated transactions at our discretion .
| net interest income our operating results depend primarily on our net interest income , which is the difference between interest income 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 , referred to as a “ volume change. ” it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as a “ rate change. ” 58 the following table presents the distribution of average assets , liabilities and equity , as well as interest income and fees earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities : replace_table_token_9_th 1. balance totals include respective nonaccrual assets . 2. net interest spread is the yield on average interest-earning assets less the rate on interest-bearing liabilities . 3. net interest margin is the ratio of net interest income to average interest-earning assets . 59 the following table presents loan yields earned on our community banking and commercial finance loan portfolios : replace_table_token_10_th we earned net interest income of $ 284.7 million for the year ended december 31 , 2020 compared to $ 255.9 million for the year ended december 31 , 2019 , an increase of $ 28.8 million , or 11.3 % , primarily driven by the following factors . interest income increased $ 11.0 million , or 3.5 % , as a result of an increase in total average interest-earning assets of $ 665.9 million , or 15.4 % . the average balance of our higher yielding commercial finance loans increased $ 268.2 million , or 22.5 % , from $ 1.191 billion for the year ended december 31 , 2019 to $ 1.459 billion for the year ended december 31 , 2020. the impact of increased average commercial finance
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asu 2010-06 requires reporting entities to make more robust disclosures about ( 1 ) the different classes of assets and liabilities measured at fair value , ( 2 ) the valuation techniques and inputs used , ( 3 ) the activity in level 3 fair value measurements , including information on purchases , sales , issuances , and settlements on a gross basis , and ( 4 ) the transfers between levels 1 , 2 , and 3. asu 2010-06 is effective for fiscal years beginning on or after december 15 , 2009 , except for the disclosure regarding level 3 activity , which is effective for fiscal years beginning after december 15 , 2010. the adoption of asu 2010-06 for levels 1 , 2 and 3 did not have a material impact on our consolidated financial statements . 22 intangibles – goodwill & other . in december 2010 , the fasb issued asu no . 2010-28 , “ intangibles - goodwill and other ( topic 350 ) : when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts ” ( “ asu 2010-28 ” ) . asu 2010-28 affects all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing step 1 of the goodwill impairment test is zero or negative . asu 2010-28 modifies step 1 so that for those reporting units , an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists . in determining whether it is more likely than not that a goodwill impairment exists , an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist . the qualitative factors are consistent with existing guidance , which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . asu 2010-28 is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2010. the adoption of asu 2010-28 did not have a material impact on our consolidated financial statements . business combinations . in december 2010 , the fasb issued asu no . 2010-29 , “ business combinations ( topic 805 ) : disclosure of supplementary pro forma information for business combinations ” ( “ asu 2010-29 ” ) . the objective of asu 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations . asu 2010-29 specifies that if a public entity presents comparative financial statements , it should disclose revenue and earnings of the combined entity as though the business combination ( s ) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only . the amendments also expand the required supplemental pro forma disclosures to include a description of the nature and amount of material , nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings . asu 2010-29 affects any public entity as defined by topic 805 that enters into business combinations that are material on an individual or aggregate basis . asu 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after december 15 , 2010. the adoption of asu 2010-29 did not have a material impact on our consolidated financial statements . story_separator_special_tag align= '' justify '' style= '' text-indent : 36pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > earnings from continuing operations . we generated net earnings from continuing operations of $ 2.7 million for the year ended december 31 , 2011 , as compared to $ 3.2 million during the year ended december 31 , 2010. in 2011 , our earnings from continuing operations per basic and diluted share was $ 0.42 , as compared to $ 0.55 during the year ended december 31 , 2010. there was no significant difference in the number of common shares we had outstanding between 2011 and 2010. our earnings during 2011 declined due primarily to the $ 0.8 million of one-time , non-operating expense in our other expense and the $ 0.5 million increase in our interest expense during 2011 over 2010 , which increases are described above . excluding the effect of these two items , our reported earnings from continuing operations before income taxes grew by 15 % , or $ 0.6 million , during the year ended december 31 , 2011 as compared to the prior year . our earnings from continuing operations in 2011 benefited from significantly higher revenues and gross profit , enabling us to achieve more leverage across our fixed operating expenses . 24 backlog . our order backlog at december 31 , 2011 was $ 24.8 million , up 41 % from $ 17.6 million at december 31 , 2010. approximately half of the $ 7.2 million increase in our backlog was derived from orders received from utilities and industrial customers in canada for our liquid-immersed transformers . these products , which account for approximately 80 % of our total backlog , generally entail longer lead times and higher average selling prices than our dry-type transformers . story_separator_special_tag the remaining growth in our backlog reflects a doubling of scheduled deliveries for dry-type transformers to our u.s. customers since december 31 , 2010 , plus the inclusion of backlog from bemag transformer inc. which we acquired in july 2011. our backlog is based on orders expected to be delivered in the future , most of which is expected to occur during 2012. new orders placed during the year ended december 31 , 2011 totaled $ 78.4 million , an increase of approximately 70 % compared to new orders of $ 46.2 million that were placed during the year ended december 31 , 2010. the large percentage increase in orders on a year-over-year basis was due to a 24 % increase in orders for liquid-filled transformers , coupled with increased demand for our dry-type models and the fact that the 2011 period includes ten additional months of operations for the two dry-type transformer businesses we acquired . discontinued operations as a result of our plan to divest pioneer wind energy systems inc. , the assets and liabilities of the business are considered held for sale at december 31 , 2011 and therefore its financial results are reported as discontinued operations in the consolidated financial statements . see “ item 8. financial statements and supplementary data – note 6 “ discontinued operations ” for further information . the following table summarizes the results of discontinued operations ( in thousands ) : replace_table_token_3_th ( 1 ) includes non-cash asset impairment charges of $ 1.6 million during the year ended december 31 , 2011. loss from operations before tax in 2010 includes a $ 0.7 million non-cash gain . liquidity and capital resources general . at december 31 , 2011 , we had cash and cash equivalents of approximately $ 1.4 million and total debt , including capital lease obligations , of $ 17.9 million . we have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings . our cash requirements are generally for operating activities , debt repayment and capital improvements . we believe that working capital , borrowing capacity available under our credit facilities and funds generated from operations should be sufficient to finance our cash requirements for anticipated operating activities , capital improvements and principal repayments of debt through at least the next twelve months . our operating activities generated cash flow of approximately $ 1.6 million during the year ended december 31 , 2011 , compared to cash flow from operating activities of $ 3.3 million during the year ended december 31 , 2010. the $ 1.7 million decrease in our operating cash flow during 2011 was caused primarily by our increased use of working capital to support our growth , as well as to pay certain one-time expenses included in other income ( expense ) in our consolidated statements of earnings . the principal elements of cash flow from operating activities during 2011 were net earnings from continuing operations of $ 2.7 million , plus non-cash expenses consisting of depreciation , amortization and stock-based compensation of $ 1.3 million , offset by $ 1.0 million of cash used by our discontinued wind energy business , $ 0.7 million related to deferred taxes and approximately $ 0.7 million of cash used for working capital to support our revenue growth during the period . 25 cash used in our investing activities during the year ended december 31 , 2011 was approximately $ 9.5 million , as compared to $ 2.3 million during the year ended december 31 , 2010. during 2011 , we used approximately $ 6.2 million to acquire bemag transformer inc. and $ 1.6 million to acquire all the machinery and equipment assets of its former u.s. affiliate , vermont transformer , inc. during 2011 , we also made additions to our property , plant and equipment of $ 1.4 million , consisting primarily of expenditures to complete the expansion of our liquid-filled transformer facility in quebec , as well as expenditures for logistics and the installation of the assets we acquired from vermont transformer , inc. at one of our dry-type transformer plants . in 2011 , we also made a $ 0.3 million loan to the owner of a large wind project development in the u.s. southwest for the purpose of securing a purchase order from the owner for our transformers to be used in the project 's balance of plant . for the year ended december 31 , 2010 , our cash used in investing activities included $ 1.7 million for the first phase of our liquid-filled facility expansion project and $ 0.6 million ( net of proceeds from asset sales ) for the acquisition of our discontinued wind energy business . cash provided by our financing activities was approximately $ 8.8 million during the year ended december 31 , 2011 , compared to $ 2.0 million of cash used during the year ended december 31 , 2010. during the 2011 period , we obtained $ 10.0 million of new long-term borrowings under our canadian credit facilities for acquisitions ( $ 8.1 million ) and capital expenditures ( $ 1.9 million ) . offsetting this increase in our long-term debt , we used $ 3.7 million of cash to repay debt that bemag transformer inc. previously had outstanding ( $ 2.8 million ) , as well as to make principal payments on the debt of our other subsidiaries . in addition , during the year ended december 31 , 2011 , our short term bank borrowings and overdrafts increased by $ 2.5 million , as compared to $ 1.5 million used to reduce our short term bank borrowings and overdrafts during the year ended december 31 , 2010. as of december 31 , 2011 , our current assets were 1.2 times our current liabilities . current assets increased by $ 8.0 million and current liabilities increased by $ 6.9 million during the year ended december 31 , 2011. these increases were primarily due to the acquisition of bemag transformer inc. and growth in our business during the year .
| for the year ended december 31 , 2011 , our gross margin percentage decreased to 23.2 % of revenues , compared to 24.6 % during the year ended december 31 , 2010. this decrease was anticipated due to the acquisition-driven shift in our sales mix towards our dry-type transformer segment which represented approximately 46 % of consolidated sales during 2011 , as compared to only 28 % in 2010. we generally expect this segment to achieve lower gross margins than our liquid-filled transformer segment because approximately 75 % of our dry-type sales volume consists of general purpose units sold to a large number of electrical distributors and brand label customers in the more price-competitive distribution sales channel . by contrast , our liquid-filled transformer segment sources the majority of its sales on a direct-to-customer basis and its products tend to be more customized , thereby warranting a higher gross margin percentage . 23 excluding the effect of segment mix during the year ended december 31 , 2011 , our liquid-filled transformer segment experienced a 0.7 % gross margin decline due mainly to variations in product mix . in our dry-type segment , gross margin declined 1.6 % driven by significantly higher sales of standardized units into the commercial construction market , coupled with lower manufacturing throughput caused by the implementation of our integration plan for bemag transformer inc. on a consolidated basis , approximately 0.2 % of the 1.4 % consolidated gross margin decline was attributable to our liquid-filled transformer segment and 1.2 % to our dry-type transformer segment . selling , general and administrative expense . for the year ended december 31 , 2011 , selling , general and administrative expense increased by approximately $ 3.4 million , or 45.0 % , to $ 11.1 million , as compared to $ 7.6 million during the year ended december 31 , 2010. the increase was due almost entirely to the fact that our selling , general and administrative expense for the year ended december 31 , 2011 includes ten additional months of operations for the two dry-type transformer businesses we acquired , as compared to the year ended december 31 , 2010. as a percentage of our consolidated revenue , selling , general and administrative expense decreased slightly to 16.1 % in 2011 , as compared to 16.2 % in 2010. foreign exchange ( gain ) loss . for the year ended december 31 , 2011 , approximately two-thirds of our consolidated operating revenues were denominated in canadian dollars , and a material percentage of our expenses were denominated and disbursed in u.s. dollars . we have not historically engaged in currency
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our effective tax rate for continuing operations decreased to 33.2 % in 2010 from 43.3 % in 2009. the decrease was primarily due to reversal of a valuation allowance in europe recorded during 2010. also , in 2009 we had a significant write-down of assets at one of our china facilities on which we derived no tax benefit . additionally , we recorded the reversal of previously recognized tax benefits in china in 2009. these china-related items did not recur in 2010. this favorable impact was partially offset by higher european taxes due to mix of income by country and recognition of tax expense for the repatriation of earnings of twvc in china upon our decision to dispose of the entity . net income from continuing operations . net income from continuing operations for 2010 was $ 63.1 million , or $ 1.69 per common share , compared to $ 41.0 million , or $ 1.10 per common share , for 2009. results for 2010 include an after-tax charge of $ 11.2 million , or $ 0.29 per common share , for restructuring and other charges related primarily to severance and accelerated depreciation compared to an after-tax restructuring and other charge of $ 18.1 million , or $ 0.49 per common share , for 2009. the release of the valuation allowance on net operating losses in europe as noted above contributed a tax benefit of $ 0.08 per common share to 2010. results for 2010 and 2009 included a non-cash net after-tax charge of $ 0.9 million , or $ 0.03 per share , and $ 2.6 million , or $ 0.07 per share , respectively , to write off certain intangible assets . the depreciation of the euro , partially offset by the appreciation of canadian dollar against the u.s. dollar , resulted in a negative impact on our operations of $ 0.04 per common share for 2010 compared to the comparable period in 2009. income ( loss ) from discontinued operations . the loss from discontinued operations in 2010 was primarily attributable to estimated profits disgorgement and legal costs related to the fcpa investigation of our former subsidiary in china . the loss from discontinued operations in 2009 was primarily attributable to the deconsolidation of team and the loss on the disposal and loss from operations of cwv offset by the resolution of the james jones litigation as described in note 3 of notes to consolidated financial statements . liquidity and capital resources 2011 cash flows in 2011 , we generated $ 128.2 million of cash from operating activities as compared to $ 113.4 million in 2010. we generated approximately $ 106.3 million of free cash flow ( a non-gaap financial measure , which we reconcile below , defined as net cash provided by continuing operating activities minus capital expenditures plus proceeds from sale of assets ) , compared to free cash flow of $ 91.0 million in 2010. free cash flow as a percentage of net income from continuing operations was 164.3 % in 2011 as compared to 144.2 % in 2010. in 2011 , we used $ 188.3 million of net cash from investing activities primarily for the purchase of socla and for capital equipment . we anticipate investing approximately $ 36.0 million in capital equipment in 2012 to improve our manufacturing capabilities . in 2011 , we used $ 23.9 million of net cash from financing activities . borrowings and repayments primarily related to funds borrowed under our credit agreement for the purchase of socla and then partially repaid . other cash outflows included $ 27.2 million used to repurchase one million shares of class a common stock during 2011 and for $ 16.3 million of dividend payments . on june 18 , 2010 , we entered into a credit agreement ( the credit agreement ) among the company , certain subsidiaries of the company who become borrowers under the credit agreement , bank of america , n.a. , as administrative agent , swing line lender and letter of credit issuer , and the other lenders referred to therein . the credit agreement provides for a $ 300 million , five-year , senior unsecured revolving credit facility which may be increased by an additional $ 150 million under certain 31 circumstances and subject to the terms of the credit agreement . the credit agreement has a sublimit of up to $ 75 million in letters of credit . borrowings outstanding under the credit agreement bear interest at a fluctuating rate per annum equal to ( i ) in the case of eurocurrency rate loans , the british bankers association libor rate plus an applicable percentage , ranging from 1.70 % to 2.30 % , determined by reference to our consolidated leverage ratio plus , in the case of certain lenders , a mandatory cost calculated in accordance with the terms of the credit agreement , or ( ii ) in the case of base rate loans and swing line loans , the highest of ( a ) the federal funds rate plus 0.5 % , ( b ) the rate of interest in effect for such day as announced by bank of america , n.a . as its `` prime rate , '' and ( c ) the british bankers association libor rate plus 1.0 % , plus an applicable percentage , ranging from 0.70 % to 1.30 % , determined by reference to our consolidated leverage ratio . in addition to paying interest under the credit agreement , we are also required to pay certain fees in connection with the credit facility , including , but not limited to , a facility fee and letter of credit fees . the credit agreement matures on june 18 , 2015. we may repay loans outstanding under the credit agreement from time to time without premium or penalty , other than customary breakage costs , if any , and subject to the terms of the credit agreement story_separator_special_tag our effective tax rate for continuing operations decreased to 33.2 % in 2010 from 43.3 % in 2009. the decrease was primarily due to reversal of a valuation allowance in europe recorded during 2010. also , in 2009 we had a significant write-down of assets at one of our china facilities on which we derived no tax benefit . additionally , we recorded the reversal of previously recognized tax benefits in china in 2009. these china-related items did not recur in 2010. this favorable impact was partially offset by higher european taxes due to mix of income by country and recognition of tax expense for the repatriation of earnings of twvc in china upon our decision to dispose of the entity . net income from continuing operations . net income from continuing operations for 2010 was $ 63.1 million , or $ 1.69 per common share , compared to $ 41.0 million , or $ 1.10 per common share , for 2009. results for 2010 include an after-tax charge of $ 11.2 million , or $ 0.29 per common share , for restructuring and other charges related primarily to severance and accelerated depreciation compared to an after-tax restructuring and other charge of $ 18.1 million , or $ 0.49 per common share , for 2009. the release of the valuation allowance on net operating losses in europe as noted above contributed a tax benefit of $ 0.08 per common share to 2010. results for 2010 and 2009 included a non-cash net after-tax charge of $ 0.9 million , or $ 0.03 per share , and $ 2.6 million , or $ 0.07 per share , respectively , to write off certain intangible assets . the depreciation of the euro , partially offset by the appreciation of canadian dollar against the u.s. dollar , resulted in a negative impact on our operations of $ 0.04 per common share for 2010 compared to the comparable period in 2009. income ( loss ) from discontinued operations . the loss from discontinued operations in 2010 was primarily attributable to estimated profits disgorgement and legal costs related to the fcpa investigation of our former subsidiary in china . the loss from discontinued operations in 2009 was primarily attributable to the deconsolidation of team and the loss on the disposal and loss from operations of cwv offset by the resolution of the james jones litigation as described in note 3 of notes to consolidated financial statements . liquidity and capital resources 2011 cash flows in 2011 , we generated $ 128.2 million of cash from operating activities as compared to $ 113.4 million in 2010. we generated approximately $ 106.3 million of free cash flow ( a non-gaap financial measure , which we reconcile below , defined as net cash provided by continuing operating activities minus capital expenditures plus proceeds from sale of assets ) , compared to free cash flow of $ 91.0 million in 2010. free cash flow as a percentage of net income from continuing operations was 164.3 % in 2011 as compared to 144.2 % in 2010. in 2011 , we used $ 188.3 million of net cash from investing activities primarily for the purchase of socla and for capital equipment . we anticipate investing approximately $ 36.0 million in capital equipment in 2012 to improve our manufacturing capabilities . in 2011 , we used $ 23.9 million of net cash from financing activities . borrowings and repayments primarily related to funds borrowed under our credit agreement for the purchase of socla and then partially repaid . other cash outflows included $ 27.2 million used to repurchase one million shares of class a common stock during 2011 and for $ 16.3 million of dividend payments . on june 18 , 2010 , we entered into a credit agreement ( the credit agreement ) among the company , certain subsidiaries of the company who become borrowers under the credit agreement , bank of america , n.a. , as administrative agent , swing line lender and letter of credit issuer , and the other lenders referred to therein . the credit agreement provides for a $ 300 million , five-year , senior unsecured revolving credit facility which may be increased by an additional $ 150 million under certain 31 circumstances and subject to the terms of the credit agreement . the credit agreement has a sublimit of up to $ 75 million in letters of credit . borrowings outstanding under the credit agreement bear interest at a fluctuating rate per annum equal to ( i ) in the case of eurocurrency rate loans , the british bankers association libor rate plus an applicable percentage , ranging from 1.70 % to 2.30 % , determined by reference to our consolidated leverage ratio plus , in the case of certain lenders , a mandatory cost calculated in accordance with the terms of the credit agreement , or ( ii ) in the case of base rate loans and swing line loans , the highest of ( a ) the federal funds rate plus 0.5 % , ( b ) the rate of interest in effect for such day as announced by bank of america , n.a . as its `` prime rate , '' and ( c ) the british bankers association libor rate plus 1.0 % , plus an applicable percentage , ranging from 0.70 % to 1.30 % , determined by reference to our consolidated leverage ratio . in addition to paying interest under the credit agreement , we are also required to pay certain fees in connection with the credit facility , including , but not limited to , a facility fee and letter of credit fees . the credit agreement matures on june 18 , 2015. we may repay loans outstanding under the credit agreement from time to time without premium or penalty , other than customary breakage costs , if any , and subject to the terms of the credit agreement
| we can not predict whether these currencies will continue to appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales . acquired net sales in europe related to the socla and austroflex rohr-isoliersysteme gmbh ( austroflex ) acquisitions and in north america was due to socla and blue ridge atlantic enterprises , inc. ( brae ) acquisitions . gross profit . gross profit and gross profit as a percent of net sales ( gross margin ) for 2011 and 2010 were as follows : replace_table_token_7_th gross margin decreased 0.6 percentage points in 2011 compared to 2010 for a variety of reasons . first , we were unable to completely recover commodity cost increases in europe and in the north american diy market . second , we incurred acquisition accounting adjustments of $ 4.7 million in connection with the socla acquisition . third , we experienced inefficiencies in the first half of 2011 as our french plant consolidation project was being completed . fourth , productivity initiatives were offset to some extent by higher inbound freight costs . selling , general and administrative expenses . selling , general and administrative expenses , or sg & a expenses , for 2011 increased $ 43.2 million , or 12.8 % , compared to 2010. the increase in sg & a expenses was attributable to the following : replace_table_token_8_th the organic increase in sg & a expenses was primarily due to separation costs of our former ceo of $ 6.3 million , an increase of approximately $ 4.4 million in variable selling costs due to the increase in year-over-year sales , and an increase in it costs of approximately $ 3.0 million due primarily to the implementation of a new enterprise resource planning system ( erp system ) and other licensing costs , offset by approximately $ 7.0 million in lower legal costs . the increase in sg & a expenses from foreign exchange was primarily
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while franchised sales are not recorded as revenues by the company , management believes the information is important in understanding the company 's financial performance because these sales are the basis on which the company calculates and records franchised revenues and are indicative of the financial health of the franchisee base . mcdonald 's corporation 2015 annual report 13 ▪ return on incremental invested capital ( `` roiic '' ) is a measure reviewed by management over one-year and three-year time periods to evaluate the overall profitability of the markets , the effectiveness of capital deployed and the future allocation of capital . the return is calculated by dividing the change in operating income plus depreciation and amortization ( numerator ) by the cash used for investing activities ( denominator ) , primarily capital expenditures . the calculation uses a constant average foreign exchange rate over the periods included in the calculation . strategic direction and financial performance the strength of the alignment among the company , its franchisees and suppliers ( collectively referred to as the `` system '' ) has been key to mcdonald 's long-term success . by leveraging the system , mcdonald 's is able to identify , implement and scale ideas that meet customers ' changing needs and preferences . in addition , the company 's business model enables the system to consistently deliver locally-relevant restaurant experiences to customers and be an integral part of the communities it serves . in 2015 , the company and its board of directors took steps to reset its business and restore growth , which included the election of a new ceo in the first quarter . in may , management announced the initial steps of the company 's turnaround plan , beginning with a worldwide restructuring in july . this resulted in a reorganization from a geographically-focused structure to segments that combine markets with similar characteristics and opportunities for growth . this new operating structure is designed to sharpen the company 's focus on the customer , drive greater accountability , and remove distractions and bureaucracy . management expects the new structure to enable faster decision-making and an increased ability to move proven initiatives quickly across markets . the system is focused on the fundamentals of running great restaurants by providing customers with what matters most to them - hot and fresh food , fast and friendly service , and a contemporary restaurant experience at the value of mcdonald 's . in addition , mcdonald 's is building on its competitive advantages of convenience , scale , geographic diversification and system alignment that have been created over time . mcdonald 's aspires to be viewed by its customers as a modern and progressive burger company delivering a contemporary customer experience . the priorities of the turnaround plan are threefold : drive operational growth , create brand excitement and enhance financial value . to drive operational growth , the company is working to enhance the quality , choice and variety of its menu . in addition , the company is building upon investments it has already made in reimaging and technology to innovate the way customers can order and how they are served , which represent elements of the experience of the future . while execution and timing of these elements may be different in each market , experience of the future is designed to fundamentally enhance mcdonald 's relationship with customers and their experience with the brand . the company 's brand efforts aim to reach customers in ways that drive greater excitement and are meaningful to them , such as fun , engaging marketing campaigns and focused support of communities . enhancements to the quality of mcdonald 's menu , more local sourcing of ingredients , and commitments around sustainability efforts are all designed to improve consumer confidence in the brand . the modifications to mcdonald 's operating approach are accompanied by strategies to enhance financial value . in 2015 , management announced plans to optimize the company 's restaurant ownership mix by refranchising about 4,000 restaurants through 2018 , deliver net annual g & a savings of about $ 500 million , the vast majority of which is expected to be realized by the end of 2017 , and return about $ 30 billion to shareholders for the three-year period ending 2016. mcdonald 's maintains a strong financial foundation supported by industry-leading unit volumes that enable the company to pursue growth through business and economic cycles while returning significant amounts of cash to shareholders each year . cash from operations benefits from a heavily franchised business model as the rent and royalty income received from franchisees provides a stable revenue stream that has relatively low costs and enables co-investment , either through capital expenditures or rent incentives , with franchisees on key initiatives , such as reimaging . in addition , the franchise business model is less capital intensive as franchisees invest in the costs of going into business and most future reinvestment . the company 's substantial cash flow , strong investment grade credit rating and continued access to credit provides mcdonald 's flexibility to fund capital expenditures as well as return cash to shareholders . after a thorough evaluation of financial opportunities , management announced plans to optimize the company 's capital structure and increased the cash return to shareholders target to about $ 30 billion for the three-year period ending 2016 - a $ 10 billion increase over the previous target with incremental debt funding the vast majority of the increase . this proactive move in the company 's leverage metrics and credit ratings still enables mcdonald 's to efficiently and cost effectively access capital globally , while allowing for continued investment in the business . these actions , together with the decision of the board of directors to raise the dividend in 2015 , reflect the board and management 's confidence in mcdonald 's future . the company 's financial results for 2015 reflect two distinct performance periods . story_separator_special_tag during the first half of the year , the company took bold and urgent action to reset the business and refocus the system on its customers ; however , operating performance was weak . the second half of the year was about execution , with results turning positive and providing tangible evidence that the turnaround plan is working . in mcdonald 's heavily franchised business model , growing comparable sales is important to increasing operating income and returns . global comparable sales increased 1.5 % in 2015 , driven by positive performance across all segments in the third and fourth quarters . consolidated guest counts were negative for the year . u.s. comparable sales increased 0.5 % and comparable guest counts declined 3.0 % , though performance improved sequentially throughout the year with positive comparable sales in the third and fourth quarters . comparable sales in the international lead markets grew 3.4 % and comparable guest counts increased 1.0 % . all major markets contributed to the positive comparable sales performance except france , which was impacted by macro-economic headwinds . in the high growth markets , comparable sales increased 1.8 % and comparable guest counts declined 2.2 % . the increase in comparable sales was driven primarily by solid performance in china as the market successfully executed strong recovery plans following the prior year supplier issue . comparable sales in the foundational markets increased 0.7 % and comparable guest counts declined 3.7 % . solid performance in many markets across asia , europe , latin america and the middle east were offset by negative comparable sales and guest counts in japan . 14 mcdonald 's corporation 2015 annual report results for the year : global comparable sales increased 1.5 % , reflecting an increase in all segments . comparable guest counts declined 2.3 % , as positive guest traffic in the international lead markets was more than offset by negative guest traffic in all other segments . ▪ systemwide sales , a non-gaap measure that includes franchised sales , decreased 6 % ( increased 3 % in constant currencies ) . ▪ consolidated revenues decreased 7 % ( increased 3 % in constant currencies ) . ▪ consolidated operating income decreased 10 % ( flat in constant currencies ) . ▪ diluted earnings per share was flat ( increased 10 % in constant currencies ) at $ 4.80. results and comparisons were impacted by the following current and prior year items outside normal operations : * strategic charges , primarily related to goodwill impairment and other asset write-offs in conjunction with the company 's refranchising initiatives , restructuring activities and incremental restaurant closings primarily in china , japan and the u.s. , were partly offset by a gain on sale of property in the u.s. these items had a negative net impact on diluted earnings per share of $ 0.18 in 2015 . * charges related to certain foreign tax matters and the china supplier issue had a negative impact on diluted earnings per share of $ 0.54 in 2014. excluding the impact of these current and prior year items , earnings per share in constant currencies would have reflected an increase of $ 0.12 or 2 % in 2015 . ▪ cash provided by operations was $ 6.5 billion . ▪ one-year roiic was 1.5 % and three-year roiic was negative 3.7 % for the period ended december 31 , 2015 ( see reconciliation on page 28 ) . ▪ the company increased the quarterly cash dividend per share 5 % to $ 0.89 for the fourth quarter , equivalent to an annual dividend of $ 3.56 per share . ▪ the company returned $ 9.4 billion to shareholders through dividends and share repurchases for the year . this brings the cumulative return to shareholders to $ 15.8 billion for the two-year period ending 2015 versus the targeted return of about $ 30 billion for the three-year period ending 2016 . ▪ capital expenditures of $ 1.8 billion were split fairly evenly between new restaurant openings and reinvestment in existing restaurants . across the system , about 1,000 restaurants were opened and over 1,000 existing locations were reimaged . areas of focus by segment u.s. as the company 's largest segment , the u.s. remains critical to the company 's turnaround given its significant contribution to consolidated results . while results in the first half of 2015 were weak , the steps taken to enhance menu quality , simplify restaurant operations and offer more convenience to customers led to a meaningful shift in momentum starting in the third quarter . menu initiatives in the u.s. include enhancing the taste of core products through new cooking procedures and continuing to evolve its menu and ingredients , including the introduction of the artisan grilled chicken and premium buttermilk crispy chicken deluxe sandwiches . the october launch of all day breakfast built on the positive momentum experienced during the third quarter . mcdonald 's ability to move from one test market in april to a national launch in october in over 13,000 restaurants is a testament to the cultural changes the company is making to become more relevant to customers . the u.s. is placing a renewed emphasis on running great restaurants . this includes simplifying the menu and operations and making it easier for guests to order and interact with the brand . customer feedback systems are showing improvements in many important aspects of the customer visit , including food quality , order accuracy , speed and friendliness . the recent launch of mcdonald 's mobile app in the u.s. is designed to capture additional demand and engage with customers in more fun , personal and relevant ways . given the importance of value to its customers , the u.s. is working to establish a consistent national value offering . the goal is to provide customers more choice and flexibility , including the opportunity to bundle their own meals at compelling price points .
| the strategic charges and gain on sale of property in the u.s. had a negative net impact on diluted earnings per share of $ 0.18 in 2015. results in 2014 were negatively impacted by the following items that had a negative impact of $ 0.54 on diluted earnings per share : $ 0.31 per share due to an increase in tax reserves for 2003-2010 resulting from an unfavorable lower tax court ruling in a foreign tax jurisdiction , as well as an increase in tax reserves related to audit progression in other foreign tax jurisdictions . mcdonald 's corporation 2015 annual report 17 $ 0.23 per share due to the estimated impact of a supplier issue in china . as a consequence , results in china , japan and certain other markets were negatively impacted due to lost sales and profitability , including expenses associated with customer recovery efforts . excluding the impact of these current and prior year items , in 2015 earnings per share in constant currencies would have reflected an increase of $ 0.12 or 2 % . in 2014 , diluted earnings per share would have reflected a decrease of 3 % ( 1 % in constant currencies ) excluding the 2014 charges related to certain foreign tax matters and the china supplier issue . this supplemental information is provided to assist investors in understanding the impact of significant items outside of normal operations . the company repurchased 61.8 million shares of its stock for $ 6.2 billion in 2015 and 33.1 million shares of its stock for $ 3.2 billion in 2014 , driving reductions in weighted-average shares outstanding on a diluted basis in both periods , which positively benefited earnings per share . revenues the company 's revenues consist of sales by company-operated restaurants and fees from restaurants operated by franchisees . revenues from conventional franchised restaurants include rent and royalties based on a percent of sales , minimum rent payments and initial fees . revenues from franchised
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and regulatory changes in mexico and other countries , sequestrations , uncertainties regarding the debt ceiling and the federal budget , and other potential political policies ; the effect on our businesses of changes in interest rates , changes in benchmarks , including the phase out of libor , the level of worldwide governmental debt issuances , austerity programs , government stimulus packages , including those related to covid-19 , increases or decreases in deficits and the impact of increased government tax rates , and other changes to monetary policy , and potential political impasses or regulatory requirements , including increased capital requirements for banks and other institutions or changes in legislation , regulations and priorities ; extensive regulation of our businesses and customers , changes in regulations relating to financial services companies and other industries , and risks relating to compliance matters , including regulatory examinations , inspections , investigations and enforcement actions , and any resulting costs , increased financial and capital requirements , enhanced oversight , remediation , fines , penalties , sanctions , and changes to or restrictions or limitations on specific activities , including potential delays in accessing markets , including due to our regulatory status and actions , operations , compensatory arrangements , and growth opportunities , including acquisitions , hiring , and new businesses , products , or services ; factors related to specific transactions or series of transactions , including credit , performance , and principal risk , trade failures , counterparty failures , and the impact of fraud and unauthorized trading ; the effect on our businesses of any extraordinary transactions , including the possible restructuring of our partnership into a corporate structure , including potential dilution and other impacts ; costs and expenses of developing , maintaining , and protecting our intellectual property , as well as employment , regulatory , and other litigation and proceedings , and their related costs , including judgments , indemnities , fines , or settlements paid and the impact thereof on our financial results and cash flows in any given period ; certain financial risks , including the possibility of future losses , reduced cash flows from operations , increased leverage , reduced availability under the revolving credit agreement resulting from recent borrowings , and the need for short- or long-term borrowings , including from cantor , our ability to refinance our indebtedness , including in the credit markets weakened by the impact of covid-19 , and changes to interest rates and liquidity or our access to other sources of cash relating to acquisitions , dispositions , or other matters , potential liquidity and other risks relating to our ability to maintain continued access to credit and availability of financing necessary to support our ongoing business needs , on terms acceptable to us , if at all , and risks associated with the resulting leverage , including potentially causing a reduction in our credit ratings and the associated outlooks and increased borrowing costs as well as interest rate and foreign currency exchange rate fluctuations ; risks associated with the temporary or longer-term investment of our available cash , including in the bgc opcos , defaults or impairments on our investments , joint venture interests , stock loans or cash management vehicles and collectability of loan balances owed to us by partners , employees , the bgc opcos or others ; our ability to enter new markets or develop new products , trading desks , marketplaces , or services for existing or new clients , including efforts to convert certain existing products to a fully electronic trade execution , and to induce such clients to use these products , trading desks , marketplaces , or services and to secure and maintain market share , including changes to the likelihood or timing of such efforts due to covid-19 or other measures ; the impact of any restructuring or similar transactions on our ability to enter into marketing and strategic alliances and business combinations or other transactions in the financial services and other industries , including acquisitions , tender offers , dispositions , reorganizations , partnering opportunities and joint ventures , the failure to realize the anticipated benefits of any such transactions , relationships or growth and the future impact of any such transactions , relationships or growth on our other businesses and our financial results for current or future periods , the integration of any completed 79 acquisitions and the use of proceeds of any completed dispositions , and the value of and any hedging entered into in connection with consideration received or to be received in connection with such dispositions and any transfers thereof ; our estimates or determinations of potential value with respect to various assets or portions of our businesses , such as fenics and our insurance brokerage business , including with respect to the accuracy of the assumptions or the valuation models or multiples used ; our ability to hire and retain personnel , including brokers , salespeople , managers , and other professionals , and recent departures of senior personnel ; our ability to expand the use of technology for hybrid and fully electronic trade execution in our product and service offerings ; our ability to effectively manage any growth that may be achieved , while ensuring compliance with all applicable financial reporting , internal control , legal compliance , and regulatory requirements ; our ability to remediate our material weakness in our internal controls and our ability to identify and remediate any other material weaknesses or significant deficiencies in our internal controls which could affect our ability to properly maintain books and records , prepare financial statements and reports in a timely manner , control our policies , practices and procedures , operations and assets , assess and manage our operational , regulatory and financial risks , and integrate our acquired businesses and brokers , salespeople , managers and other professionals ; the impact of unexpected market moves and similar events ; information technology risks , including capacity constraints , failures , or disruptions in our systems or those of the clients , counterparties , exchanges , clearing facilities , or story_separator_special_tag other parties with which we interact , including increased demands on such systems and on the telecommunications infrastructure from remote working during the covid-19 pandemic , cyber-security risks and incidents , compliance with regulations requiring data minimization and protection and preservation of records of access and transfers of data , privacy risk and exposure to potential liability and regulatory focus ; the effectiveness of our governance , risk management , and oversight procedures and impact of any potential transactions or relationships with related parties ; the impact of our esg or “ sustainability ” ratings on the decisions by clients , investors , ratings agencies , potential clients and other parties with respect to our businesses , investments in us or the market for and trading price of bgc class a common stock , company debt securities , or other matters ; the fact that the prices at which shares of our class a common stock are or may be sold in one or more of our ceo program or in other offerings , acquisitions , or other transactions may vary significantly , and purchasers of shares in such offerings or other transactions , as well as existing stockholders , may suffer significant dilution if the price they paid for their shares is higher than the price paid by other purchasers in such offerings or transactions ; the impact of our recent significant reductions to our dividends and distributions and the timing and amounts of any future dividends or distributions , including our ability to meet expectations with respect to payments of dividends and distributions and repurchases of shares of our class a common stock and purchases or redemptions of limited partnership interests in bgc holdings , or other equity interests in us or any of our other subsidiaries , including the bgc opcos , including from cantor , our executive officers , other employees , partners , and others , and the net proceeds to be realized by us from offerings of shares of bgc class a common stock and company debt securities ; and the effect on the markets for and trading prices of our class a common stock and company debt securities due to covid-19 and other market factors as well as on various offerings and other transactions , including our ceo program and other offerings of our class a common stock and convertible or exchangeable debt or other securities , our repurchases of shares of our class a common stock and purchases or redemptions of bgc holdings limited partnership interests or other equity interests in us or in our subsidiaries , any exchanges by cantor of shares of our class a common stock for shares of our class b common stock , any exchanges or redemptions of limited partnership units and issuances of shares of our class a common stock in connection therewith , including in corporate or partnership restructurings , our payment of dividends on our class a common stock and distributions on limited partnership interests in bgc holdings and the bgc opcos , convertible arbitrage , hedging , and other transactions engaged in by us or holders of our outstanding shares , company debt securities , share sales and stock pledge , stock loans , and other financing transactions by holders of our shares ( including by cantor or others ) , including of shares acquired pursuant to our employee benefit plans , unit exchanges and redemptions , corporate or partnership restructurings , acquisitions , conversions of shares of our class b common stock and our other convertible securities into shares of our class a common stock , stock pledge , stock loan , or other financing transactions , and distributions of our class a common stock by cantor to its partners , including the april 2008 and february 2012 distribution rights shares . the foregoing risks and uncertainties , as well as those risks and uncertainties discussed under the headings “ item 1a—risk factors , ” and “ item 7a—quantitative and qualitative disclosures about market risk ” and elsewhere in this form 10-k , may cause actual results and events to differ materially from the forward-looking statements . 80 overview and business environment we are a leading global brokerage and financial technology company servicing the global financial markets . through brands including bgc® , gfi® , sunrise brokers , besso , ed® broking , poten & partners® , rp martin , corant , and corant global , among others , our businesses specialize in the brokerage of a broad range of products , including fixed income such as government bonds , corporate bonds , and other debt instruments , as well as related interest rate derivatives and credit derivatives . we also broker products across fx , equity derivatives and cash equities , energy and commodities , shipping , insurance , and futures and options . our businesses also provide a wide variety of services , including trade execution , brokerage services , clearing , compression and other post-trade services , information , and other back-office services to a broad assortment of financial and non-financial institutions . our integrated platform is designed to provide flexibility to customers with regard to price discovery , execution and processing of transactions , and enables them to use voice , hybrid , or in many markets , fully electronic brokerage services in connection with transactions executed either otc or through an exchange . through our fenics® group of electronic brands , we offer a number of market infrastructure and connectivity services , fully electronic marketplaces , and the fully electronic brokerage of certain products that also may trade via voice and hybrid execution . the full suite of fenics® offerings include fully electronic brokerage , market data and related information services , trade compression and other post-trade services , analytics related to financial instruments and markets , and other financial technology solutions . fenics® brands operate under the names fenics® , bgc trader , creditmatch® , fenics market data , bgc market data , kace 2 ® , embonds® , capitalab® , swaptioniser® , cbid® and lucera® .
| our brokerage revenues from insurance increased by $ 26.9 million , or 17.3 % , to $ 182.7 million for the year ended december 31 , 2020. this increase was primarily due to organic growth , as previously hired brokers and salespeople ramped up production and benefited from favorable pricing trends for insurance renewals . our credit revenues increased by $ 23.2 million , or 7.6 % , to $ 329.9 million for the year ended december 31 , 2020. this increase was mainly due to greater trading volumes . our brokerage revenues from energy and commodities increased by $ 3.9 million , or 1.4 % , to $ 292.6 million for the year ended december 31 , 2020. this increase was primarily driven by organic growth . our brokerage revenues from equity derivatives and cash equities increased by $ 3.4 million , or 1.3 % , to $ 254.7 million for the year ended december 31 , 2020. this was primarily driven by organic growth . fees from related parties fees from related parties decreased by $ 3.7 million , or 12.5 % to $ 25.8 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. data , software and post-trade data , software and post-trade revenues increased by $ 8.8 million , or 12.0 % , to $ 81.9 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. this increase was primarily driven by lucera 's connect platform winning new saas client contracts , the acquisition of algomi , as well as an increase in revenues from post-trade services . interest and dividend income interest and dividend income decreased by $ 6.0 million , or 32.7 % , to $ 12.3 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. this decrease was primarily due to a decrease in dividend income and lower interest earned on deposits . 96 other revenues other revenues increased by $ 1.9 million , or 11.9 %
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in accordance with the pdco 's opinion , we plan to initiate global pediatric trials in previously-treated patients less than 12 years of age as soon as sufficient data are available from studies of older patients . the pdco opinions for factor viii and factor ix are under guidelines published by the ema for the development of factor ix and factor viii products . pediatric data from these trials will be required in the initial submission of marketing authorization applications to the european regulatory agency . the factor ix and factor viii hemophilia programs continue to advance according to plan with recruitment of patients in both phase iii studies ( b-long and a-long , respectively ) . for additional information about our collaboration with sobi , please read note 20 , collaborations to our consolidated financial statements included in this report . isis pharmaceuticals , inc. in january 2012 , we entered into an exclusive , worldwide option and development agreement with isis pharmaceuticals , inc. ( isis ) under which both companies will develop and commercialize isis ' antisense investigational drug , isis-smn rx , for the treatment of spinal muscular atrophy ( sma ) . under the terms of the agreement , isis received an upfront payment of $ 29.0 million and is eligible to receive up to $ 45.0 million in milestone payments associated with the clinical development of isis-smn rx prior to licensing . for additional information about our agreement with isis , please read note 27 , subsequent events to our consolidated financial statements included in this report . 40 samsung biosimilar agreement in december 2011 , we entered into an agreement with samsung biologics co. ltd. ( samsung ) to establish an entity to develop , manufacture and market biosimilar pharmaceuticals . under the terms of the agreement , samsung will contribute approximately $ 255.0 million for an 85 percent stake in the entity and biogen idec will contribute approximately $ 45.0 million for the remaining 15 percent ownership interest . our investment will initially be limited to this initial contribution as we have no obligation to provide any additional funding ; however , we maintain an option to purchase additional stock in the entity in order to increase our ownership percentage up to 49.9 percent . the exercise of this option is within our control . completion of the transaction is subject to customary closing conditions . for additional information about our agreement with samsung , please read note 19 , investment in variable interest entities to our consolidated financial statements included in this report . portola pharmaceuticals , inc. in october 2011 , we entered into an exclusive , worldwide collaboration and license agreement with portola pharmaceuticals , inc. ( portola ) under which both companies will develop and commercialize highly selective , novel oral syk inhibitors for the treatment of various autoimmune and inflammatory diseases , including rheumatoid arthritis and systemic lupus erythematosus . for additional information about this transaction , please read note 20 , collaborations to our consolidated financial statements included in this report . results of operations revenues revenues are summarized as follows : replace_table_token_7_th product revenues product revenues are summarized as follows : replace_table_token_8_th 41 avonex revenues from avonex are summarized as follows : replace_table_token_9_th for 2011 compared to 2010 , as well as for 2010 compared to 2009 , the increase in u.s. avonex revenues was due to price increases offset by decreased commercial demand . decreased commercial demand resulted in declines of approximately 3 % and 6 % in u.s. avonex unit sales volume for 2011 and 2010 , respectively , from the prior year comparative periods . for 2011 compared to 2010 , as well as for 2010 compared to 2009 , the increase in rest of world avonex revenues reflects an increase in commercial demand offset by price decreases in some countries . increased commercial demand resulted in increases of approximately 6 % in rest of world avonex unit sales in both 2011 and 2010 , respectively , over their prior year comparative periods . the increase in rest of world avonex revenues for 2011 compared to 2010 also reflects the favorable impact of foreign currency exchange rates offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program . the increase in rest of world avonex revenues for 2010 compared to 2009 also reflects gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program offset by the negative impact of foreign currency exchange rates . losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $ 30.6 million in 2011 , compared to gains recognized of $ 35.0 million for 2010 and losses recognized of $ 39.5 million in 2009. we expect avonex to continue facing increased competition in the ms marketplace in both the u.s. and rest of world . we and a number of other companies are working to develop or have already commercialized products to treat ms , including oral and other alternative formulations that may compete with avonex now and in the future . in addition , the continued growth of tysabri and the commercialization of our other pipeline product candidates , such as bg-12 , may negatively impact future sales of avonex . increased competition may also lead to reduced unit sales of avonex , as well as increasing price pressure . tysabri we collaborate with elan pharma international , ltd ( elan ) an affiliate of elan corporation , plc , on the development and commercialization of tysabri . for additional information about this collaboration , please read note 20 , collaborations to our consolidated financial statements included in this report . revenues from tysabri are summarized as follows : replace_table_token_10_th for 2011 compared to 2010 , as well as for 2010 compared to 2009 , the increase in u.s. tysabri revenues was due to increased commercial demand and price increases . story_separator_special_tag increased commercial demand resulted in increases of approximately 12 % and 10 % in u.s. tysabri unit sales volume for 2011 and , 2010 , respectively , 42 over the prior year comparative periods . the increase in u.s. tysabri revenues for 2010 compared to 2009 , resulting from increased commercial demand and price increases , was offset by the sale to elan of previously written-down tysabri inventory which became saleable following the approval of our higher-yielding manufacturing process . as our sales price to elan in the u.s. is set to effect an approximate equal sharing of the gross margin with elan plus reimbursement for our cost of goods sold , the distribution of this specific inventory reduced our cost of sales , which reduced the price per unit we charged to elan and reduced our revenues by $ 7.5 million in 2010 compared to 2009. this inventory was fully utilized during 2010. net sales of tysabri from our collaboration partner , elan , to third-party customers in the u.s. for 2011 , 2010 , and 2009 totaled $ 746.5 million , $ 593.1 million , and $ 508.5 million , respectively . for 2011 compared to 2010 , as well as for 2010 compared to 2009 , the increase in rest of world tysabri revenues reflects an increase in commercial demand offset by price decreases in some countries . increased commercial demand resulted in increases of approximately 19 % and 23 % in rest of world tysabri unit sales for 2011 and 2010 , respectively , over their prior year comparative periods . the increase in rest of world tysabri revenues for 2011 compared to 2010 also reflects the favorable impact of foreign currency exchange rates offset by the deferral of a portion of our revenues recognized on sales of tysabri in italy made during the fourth quarter of 2011 and losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program . the increase in rest of world tysabri revenues for 2010 compared to 2009 reflects gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program offset by the negative impact of foreign currency exchange rates . in the fourth quarter of 2011 , biogen idec srl received a notice from the italian national medicines agency ( aifa ) stating that sales of tysabri for the period from february 2009 through february 2011 exceeded by eur 30.7 million a reimbursement limit established pursuant to a price determination resolution ( price resolution ) granted by aifa in february 2007. in december 2011 , we filed an appeal against aifa seeking a ruling that our interpretation of the price resolution is valid and that the position of aifa is unenforceable . while we believe that we have good and valid grounds for our appeal , an unfavorable decision could negatively impact our results of operations . as a result of this dispute , we deferred $ 13.8 million of revenue recognized on sales of tysabri made in italy during the fourth quarter of 2011 and expect that we will continue to defer a portion of our revenues on future sales of tysabri in italy until this matter is resolved . for additional information , please read note 21 , litigation to our consolidated financial statements included within this report . losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $ 6.3 million in 2011 , compared to gains recognized of $ 10.7 million for 2010 and losses recognized of $ 10.1 million 2009. we expect tysabri to continue facing increased competition in the ms marketplace in both the u.s. and rest of world . we and a number of other companies are working to develop or have already commercialized products to treat ms , including oral and other alternative formulations that may compete with tysabri now and in the future . the commercialization of our other pipeline product candidates , such as bg-12 , also may negatively impact future sales of tysabri . increased competition may also lead to reduced unit sales of tysabri , as well as increasing price pressure . in addition , safety warnings included in the tysabri label , such as the risk of pml , and any future safety-related label changes , may limit the growth of tysabri unit sales . we continue to research and develop protocols and therapies that may reduce risk and improve outcomes of pml in patients . our efforts to stratify patients into lower or higher risk for developing pml , including through the jcv assay , and other ongoing or future clinical trials involving tysabri may have a negative impact on prescribing behavior in at least the short term , which may result in decreased product revenues from sales of tysabri . 43 other product revenues other product revenues are summarized as follows : replace_table_token_11_th unconsolidated joint business revenues we collaborate with genentech on the development and commercialization of rituxan . for additional information related to this collaboration including information regarding the pre-tax co-promotion profit sharing formula for rituxan and its impact on future unconsolidated joint business revenues , please read note 20 , collaborations to our consolidated financial statements included in this report . revenues from unconsolidated joint business are summarized as follows : replace_table_token_12_th biogen idec 's share of pre-tax co-promotion profits in the u.s. the following table provides a summary of amounts comprising our share of pre-tax co-promotion profits in the u.s. : replace_table_token_13_th for 2011 compared to 2010 , as well as for 2010 compared to 2009 , the increase in u.s. rituxan product revenues was primarily due to price increases and an increase in commercial demand . increased commercial demand resulted in increases of approximately 4 % and 2 % in u.s. rituxan unit sales volume for 2011 and 44 2010 , respectively , over their prior year comparative periods .
| ( 4 ) income from operations , as well as net income attributable to biogen idec inc. , for 2011 and 2010 , was reduced by $ 19.0 million and $ 75.2 million , respectively , resulting from charges associated with our restructuring initiative announced in november 2010. as described below under results of operations , our operating results for the year ended december 31 , 2011 , reflect the following : worldwide avonex revenues totaled $ 2,686.6 million for 2011 , representing an increase of 6.7 % over 2010. our share of tysabri revenues totaled $ 1,079.5 million for 2011 , representing an increase of 19.9 % over 2010 . 38 our share of rituxan revenues totaled $ 996.6 million for 2011 , representing a decrease of 7.5 % from 2010. this decrease was primarily the result of royalty expirations in our rest of world markets , a decrease in selling and development expenses incurred by us and reimbursed by genentech , which are also included within our total unconsolidated joint business revenues , and our share of a charge recorded by the collaboration in relation to genentech 's ongoing arbitration with hoechst gmbh . these decreases were offset in part by an increase in our share of u.s. rituxan net product revenues which increased 6.0 % over 2010. total cost and expenses decreased 4.1 % for 2011 compared to 2010. this decrease was primarily the result of the $ 245.0 million of ipr & d charges recognized in 2010 as well as a 2.3 % decrease in research and development expense and a 74.7 % decrease in restructuring charges recognized over 2010. these decreases were offset by a 16.6 % increase in cost of sales , a 23.1 % increase in collaboration profit sharing expense due to tysabri revenue growth , as well as a 2.4 % increase in selling , general and administrative costs over the same period in 2010. we generated $ 1,727.7 million of net cash flows from operations for 2011 , which were primarily driven by earnings . cash , cash equivalents and marketable securities totaled approximately $ 3,107.4 million as of december 31 , 2011. in february 2011 , our board of directors authorized the repurchase of up to 20.0 million shares of our common stock . under this authorization , in 2011 , we repurchased approximately 6.0 million shares of our common stock at a cost of approximately $ 498.0
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how we generate revenue our revenues are advertising revenues , consisting primarily of listing fees paid by travel , entertainment and local businesses to advertise their offers on travelzoo 's media properties . listing fees are based on audience reach , placement , number of listings , number of impressions , number of clicks , number of referrals , or percentage of the face value of vouchers sold . insertion orders are typically for periods between one month and twelve months and are not automatically renewed . merchant agreements for local deals and getaway advertisers are typically for twelve months and are not automatically renewed . we have three separate groups of our advertising products : travel , search and local . our travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies , such as hotels , airlines , cruises or car rentals and includes products such as top 20 , website , newsflash , travelzoo network as well as getaway vouchers . the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold or other items sold . we recognize revenue upon delivery of the e-mails , delivery of the clicks , over the period of placement of the advertising and upon the sale of the vouchers or other items sold . 28 our search category of revenue includes comparison shopping tools for consumers to quickly and easily compare airfares , hotel and car rental prices and includes supersearch and fly.com products . the revenues generated from these products are based upon a fee for clicks delivered to the advertisers or a fee for clicks delivered to advertisers that resulted in revenue for advertisers ( i.e . successful clicks ) . we recognize revenue upon delivery of the clicks or successful clicks . our local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses , such as restaurants , spas , shows , and other activities and includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . the revenues generated from these products are based upon a percentage of the face value of vouchers or items sold or a fee for clicks delivered to the advertisers . we recognize revenue upon the sale of the vouchers , when we receive notification of the direct bookings or upon delivery of the clicks . the company earns a fee for acting as an agent in these transactions , which is recorded on a net basis and is included in revenue upon completion of the voucher sale . certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration , which we recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to merchants , subscribers or others . trends in our business our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers , our ability to increase our audience reach and advertising rates and our ability to develop and launch new products . our current revenue model depends on advertising fees paid primarily by travel , entertainment and local businesses . a number of factors can influence whether current and new advertisers decide to advertise their offers with us . we have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising , the relative health of the economy , competition and the introduction of new methods of advertising . for example , the consolidation of the airline industry reduced our revenues generated from this sector ; the reduction of capacity in the airline industry reduced demand to advertise for excess capacity ; the introduction of new voucher-based products offered by competitive companies impacted our ability to sell our existing advertising products ; the reduction in spending by travel intermediaries due to their focus on improving profitability , the trend towards mobile usage by consumers , the willingness of consumers to purchase the deals we advertise , the willingness of certain competitors to grow their business unprofitably and the economic uncertainty in europe impacted advertiser 's willingness to purchase our advertising . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaway ) . these shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers , and in particular , with local deals and getaway , depending on how many vouchers are purchased by subscribers . since the introduction of local deals in 2010 and getaway in 2011 , we have seen a decline in the number of average vouchers sold per deal . our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience to reach with our advertising publications . we monitor our subscribers and page views of our websites to assess our efforts to maintain and grow our audience reach . we obtain additional subscribers and activity on our websites by acquiring traffic from internet search companies . the costs to grow our audience have had , and we expect will continue to have , a significant impact on our financial results and can vary from period to period . story_separator_special_tag we may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition . we believe that we can increase our advertising rates only if the reach of our publications increases . we do not know if we will be able to increase the reach of our publications . if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . we have not had any significant rate increase in recent years due to intense competition in our industry . even if we increase our rates , based upon the increased price this may reduce the amount of advertisers willing to advertise for the increased rates and therefore decrease our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues will increase if the number of searches performed on fly.com increases because we pay a fee based on the number of searches performed on fly.com . our cost of revenues will increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , customer service costs related to vouchers sold and subscriber refunds on vouchers sold . we expect fluctuations 29 of cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new subscribers in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new subscriber . increases in the average cost of acquiring new subscribers may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our subscriber acquisition efforts successfully , and the degree of competition in our industry . we may decide to accelerate our subscriber acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we may see a unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . further , we expect our strategy to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . due to the continued desire to grow our business both in the north america and europe we expect relatively high level of sales and marketing expenses in the foreseeable future . we expect fluctuations of sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we expect increased marketing expense to spur continued growth in subscribers and revenue in future periods ; however , we can not be assured of this due to the many factors that impact our growth in subscribers and revenue . we expect to adjust the level of such incremental spending during any given quarter based upon market conditions as well as our performance in each quarter . we do not know what our general and administrative expenses as a percentage of revenue will be in future periods . there may be fluctuations that have a material impact on our results of operations . we expect our headcount to continue to increase in the future . the company 's headcount is one of the main drivers of general and administrative expenses . therefore , we expect our absolute general and administrative expenses to continue to increase . we expect our continued expansion into foreign markets and development of new advertising formats to result in a significant additional increase in our general and administrative expenses . our general and administrative expenses as a percentage of revenue may also fluctuate depending on the number of requests received related to a program under which the company intends to make cash payments to people who establish that they were former stockholders of travelzoo.com corporation , and who failed to submit requests to convert shares into travelzoo inc. within the required time period . we expect an increase in legal and professional fees due primarily to our defense of legal proceedings and claims and compliance efforts . in addition , we expect to incur additional costs related to the development of our hotel booking platform capabilities . we do not know what our income taxes will be in future periods . there may be fluctuations that have a material impact on our results of operations .
| the decrease in travel revenue of $ 1.2 million was primarily due to lower top 20 and newsflash revenue related to certain online booking engines , hotels and airlines , offset by an increase from getaway due to increased number of getaway vouchers sold . the decrease in search revenue of $ 879,000 was primarily due to the reduced number of clicks that generate revenue as a result from our reduced spending on traffic acquisition . north america revenues increased $ 20.9 million in 2011 compared to 2010. this increase was primarily due to growth of travel and local revenues offset by a decrease in search revenue . the increase in travel revenue of $ 4.1 million was primarily due to the introduction of getaway offset by lower top 20 and newsflash revenue related to airline consolidation and increased competition . the decrease in search revenue of $ 934,000 was primarily due to the reduced number of clicks that generate revenue as a result from our reduced spending on traffic acquisition as well as lower average cost-per-click paid by our advertisers . the increase in local revenue of $ 17.7 million was primarily due to the increased number of local deals sold . europe europe revenues increased $ 2.6 million in 2012 compared to 2011. this increase was primarily due to growth of travel and local revenues offset by a decrease in search revenue . the increase in travel revenue of $ 2.4 million was primarily due to an increase from getaway due to increased number of getaway vouchers sold . the increase in local revenue of $ 1.1 million was primarily due to the increased number of local deals sold . the decrease in search revenue of $ 940,000 was primarily due to the decreased number of clicks that generate revenue as a result from decreased spending on traffic acquisition . 33 europe revenues increased $ 14.7 million in 2011 compared to 2010. this increase was due to growth of travel , search and local revenues . the increase in travel revenue of $ 5.6 million was primarily due to the introduction of getaway , increase in top 20 and newsflash revenue from the
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we do not offer subprime loans ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . we also do not own any private label mortgage-backed securities that are collateralized by alt-a , low or no documentation or subprime mortgage loans . the association 's legal lending limit to any one borrower is 15 % of unimpaired capital and surplus . on july 30 , 2012 the association received approval from the office of the comptroller of the currency to participate in the supplemental lending limits program ( sllp ) . this program allows eligible savings associations to make additional residential real estate loans or extensions of credit to one borrower , small business loans or extensions of credit to one borrower , or small farm loans or extensions of credit to one borrower . for our association this additional limit ( or supplemental limit ( s ) ) for one- to four-family residential real estate , small business , or small farm loans is 10 % of our association 's capital and surplus . in addition , the total outstanding amount of the association 's loans or extensions of credit or parts of loans and extensions of credit made to all of its borrowers under the sllp may not exceed 100 % of the association 's capital and surplus . by association policy , participation of any credit facilities in the sllp is to be infrequent and all credit facilities are to be with prior board approval . all of our mortgage-backed securities have been issued by freddie mac , fannie mae or ginnie mae , u.s. government-sponsored enterprises . these entities guarantee the payment of principal and interest on our mortgage-backed securities . on july 7 , 2011 , we completed our initial public offering of common stock in connection with iroquois federal 's mutual-to-stock conversion , selling 4,496,500 shares of common stock at $ 10.00 per share , including 384,900 shares sold to iroquois federal 's employee stock ownership plan , and raising approximately $ 45.0 million of gross proceeds . in addition , we issued 314,755 shares of our common stock to the iroquois federal foundation . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . we consider the following to be our critical accounting policies . allowance for loan losses . we believe that the allowance for loan losses and related provision for loan losses are particularly susceptible to change in the near term , due to changes in credit quality which are evidenced by trends in charge-offs and in the volume and severity of past due loans . in addition , our portfolio is comprised of a substantial amount of commercial real estate loans which generally have greater credit risk than one- to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous . the allowance for loan losses is maintained at a level to cover probable credit losses inherent in the loan portfolio at the balance sheet date . based on our estimate of the level of allowance for loan losses required , we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level . the estimate of our credit losses is applied to two general categories of loans : loans that we evaluate individually for impairment under asc 310-10 , receivables ; and groups of loans with similar risk characteristics that we evaluate collectively for impairment under asc 450-20 , loss contingencies. 48 the allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio . the factors used to evaluate the collectability of the loan portfolio include , but are not limited to , current economic conditions , our historical loss experience , the nature and volume of the loan portfolio , the financial strength of the borrower , and estimated value of any underlying collateral . this evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available . actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results . see also business allowance for loan losses. income tax accounting . the provision for income taxes is based upon income in our consolidated financial statements , rather than amounts reported on our income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date . under gaap , a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized . the determination as to whether we will be able to realize the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence , our forecasts of future income , applicable tax planning strategies , and assessments of current and future economic and business conditions . story_separator_special_tag positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods , while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . any required valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination . the benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 % likely of being realized upon settlement with the tax authority , assuming full knowledge of the position and all relevant facts . differences between our position and the position of tax authorities could result in a reduction of a tax benefit or an increase to a tax liability , which could adversely affect our future income tax expense . we believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our net income and the carrying value of our assets . we believe our tax liabilities and assets are properly recorded in the consolidated financial statements at june 30 , 2018 and no valuation allowance was necessary . the tax cuts and jobs act , enacted on december 22 , 2017 , provides for a reduction in the federal corporate income rate from 35 % to 21 % effective january 1 , 2018. as a result , our blended federal corporate income tax rate for the year ended june 30 , 2018 was 27.6 % . comparison of financial condition at june 30 , 2018 and june 30 , 2017 total assets increased $ 53.4 million , or 9.1 % , to $ 638.9 million at june 30 , 2018 from $ 585.5 million at june 30 , 2017. the increase was primarily due to a $ 36.2 million increase in net loans , a $ 14.4 million increase in investments , and a $ 4.4 million increase in premises and equipment , partially offset by a $ 3.0 million decrease in cash and cash equivalents . net loans receivable , including loans held for sale , increased by $ 36.2 million , or 8.2 % , to $ 476.5 million at june 30 , 2018 from $ 440.3 million at june 30 , 2017. the increase in net loans receivable during this period was due primarily to a $ 20.2 million , or 23.2 % , increase in multi-family loans , a $ 7.1 million , or 5.3 % , increase in 49 commercial real estate loans , a $ 1.5 million , or 20.5 % , increase in home equity lines of credit , a $ 6.3 million , or 85.5 % , increase in construction loans , and a $ 6.3 million , or 10.1 % , increase in commercial business loans , partially offset by a $ 5.7 million , or 4.0 % , decrease in one- to four-family loans , and a $ 539,000 , or 6.8 % , decrease in consumer loans . investment securities , consisting entirely of securities available for sale , increased $ 14.4 million , or 12.9 % , to $ 126.0 million at june 30 , 2018 from $ 111.6 million at june 30 , 2017. we had no held-to-maturity securities at june 30 , 2018 or june 30 , 2017. compared to june 30 , 2017 , as of june 30 , 2018 , premises and equipment increased $ 4.4 million to $ 10.2 million , deferred income taxes increased $ 282,000 to $ 4.0 million , mortgage servicing rights increased $ 156,000 to $ 866,000 , accrued interest receivable increased $ 282,000 to $ 1.8 million , federal home loan bank ( fhlb ) stock increased $ 742,000 to $ 3.3 million , and other assets increased $ 300,000 to $ 720,000 , while foreclosed assets held for sale decreased $ 210,000 to $ 219,000. the increase in premises and equipment was mostly due to the purchase of an office building , furniture and equipment for our newest office in champaign , illinois . the increase in deferred income taxes was mostly due to an increase in the unrealized losses on sale of available-for sale securities , while the increase in mortgage servicing rights was a result of both an increase in the balance of fhlb mpf loans serviced and the market value of the servicing . the increase in accrued interest receivable was due to increase in both our loan and investment portfolios , while the increase in fhlb stock was due to an increase in fhlb advances . the increase in other assets resulted from an increase in accounts receivable general at june 30 , 2018. the decrease in foreclosed assets held for sale was due to a decrease in the number of properties owned . at june 30 , 2018 , our investment in bank-owned life insurance was $ 8.8 million , a decrease of $ 20,000 from $ 8.8 million at june 30 , 2017. the decrease in bank-owned life insurance was due to a decrease in cash surrender value of bank-owned life insurance as a result of a benefit claim . we invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations . bank-owned life insurance also generally provides us noninterest income that is non-taxable .
| interest and dividend income increased $ 1.5 million , or 6.8 % , to $ 22.8 million for the year ended june 30 , 2018 from $ 21.3 million for the year ended june 30 , 2017. the increase in interest income was due to a $ 1.2 million increase in interest income on loans , a $ 206,000 increase in interest income on securities , and a $ 77,000 increase in other interest income . an increase of $ 1.2 million , or 6.4 % , in interest on loans resulted from a $ 24.0 million , or 5.4 % , increase in the average balance of loans to $ 469.7 million for the year ended june 30 , 2018 , and a 4 basis point , or 0.9 % , increase in the average yield on loans to 4.18 % from 4.14 % . interest on securities increased $ 206,000 , or 7.5 % , due to an $ 8.4 million increase in the average balance of securities to $ 118.9 million at june 30 , 2018 from $ 110.5 million at june 30 , 2017 , partially offset by a 1 basis point , or 0.4 % , decrease in the average yield on securities to 2.48 % for the year ended june 30 , 2018 from 2.49 % for the year ended june 30 , 2017. interest expense . interest expense increased $ 1.7 million , or 46.2 % , to $ 5.3 million for the year ended june 30 , 2018 from $ 3.6 million for the year ended june 30 , 2017. the increase was primarily due to increased average balance of interest-bearing liabilities and higher market rates of interest during the period . interest expense on interest-bearing deposits increased $ 1.6 million , or 53.9 % , to $ 4.5 million for the year ended june 30 , 2018 , from $ 2.9 million for the year ended june 30 , 2017. this increase was primarily due to an increase in the average balance of interest-bearing deposits to $ 442.7 million for the year ended june 30 , 2018 , from $ 409.7 million for the year ended june 30 , 2017 , and also a 30 basis point , or 42.5 % increase in the average cost of interest-bearing deposits to 1.01 % from 0.71 % . interest expense on borrowings , including fhlb
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the increase in cash interest expense in fiscal 2014 was primarily due to senior notes and term loans issued and debt assumed in connection with our completed acquisition of hillshire brands on august 28 , 2014 , partially offset by lower cash interest expense on our 3.25 % convertible senior notes due 2013 ( 2013 notes ) which matured october 15 , 2013. the decrease in cash interest expense in fiscal 2013 is due to lower average coupon rates compared to fiscal 2012. this decrease was driven by the full extinguishment of the 10.50 % senior notes due 2014 ( 2014 notes ) in fiscal 2012 , partially offset with the 4.5 % senior notes due 2022 ( 2022 notes ) issued in fiscal 2012. loss on early extinguishment of debt included the amount paid exceeding the par value of debt , unamortized discount and unamortized debt issuance costs related to the full extinguishment of the 2014 notes . non-cash interest expense primarily included interest related to the amortization of debt issuance costs and discounts/premiums on note issuances . this includes debt issuance costs incurred on our revolving credit facility , the senior notes and term loans issued in connection with our acquisition of hillshire brands and the accretion of the debt discount on the 2013 notes . the decrease in non-cash interest expense in fiscal 2014 is due primarily to lower non-cash interest expense on our 2013 notes . replace_table_token_14_th 2014 – included $ 60 million of costs associated with bridge financing facilities for the hillshire brands acquisition and $ 6 million of other than temporary impairment related to an available-for-sale security , partially offset with $ 14 million of equity earnings in joint ventures and net foreign currency exchange gains . 2013 – included $ 19 million related to recognized currency translation adjustment gain . 2012 – included $ 16 million of equity earnings in joint ventures and $ 4 million in net foreign currency exchange gains . 26 replace_table_token_15_th the effective tax rate on continuing operations was impacted by a number of items which result in a difference between our effective tax rate and the u.s. statutory rate of 35 % . the table below reflects significant items impacting the rate as indicated . 2014 – domestic production activity deduction reduced the rate 4.0 % . net decrease in unrecognized tax benefits , mostly related to expiration of statutes of limitations and settlements with taxing authorities , reduced the rate 4.7 % . state income taxes increased the rate 2.8 % . foreign rate differences and valuation allowances increased the rate 2.8 % . 2013 – domestic production activity deduction reduced the rate 3.2 % . general business credits reduced the rate 1.3 % . state income taxes increased the rate 2.4 % . 2012 – domestic production activity deduction reduced the rate 1.8 % . general business credits reduced the rate 0.7 % . state income taxes increased the rate 1.5 % . foreign rate differences and valuation allowances increased the rate 1.8 % . segment results we operate in five segments : chicken , beef , pork , prepared foods and international . the results from dynamic fuels are included in other . we allocate expenses related to corporate activities to the segments , except for acquisition and integration related fees which are included in other . the following table is a summary of sales and operating income ( loss ) , which is how we measure segment income ( loss ) . replace_table_token_16_th 27 replace_table_token_17_th 2014 vs. 2013 – sales volume – sales volume grew as a result of stronger demand for chicken products and mix of rendered product sales . average sales price – average sales price decreased as feed ingredient costs declined , partially offset by mix changes . operating income – operating income increased due to higher sales volume and lower feed ingredient costs of $ 600 million , partially offset by decreased average sales price . 2013 vs. 2012 – sales volume – sales volume grew due to increased production driven by stronger demand for our chicken products . average sales price – the increase in average sales price was primarily due to mix changes and price increases associated with higher input costs . since many of our sales contracts are formula based or shorter-term in nature , we were able to offset rising input costs through improved pricing and mix . operating income – operating income was positively impacted by increased average sales price , and improved live performance and operational execution . these increases were partially offset by increased feed costs of $ 406 million . replace_table_token_18_th 2014 vs. 2013 – sales volume – sales volume decreased due to a reduction in live cattle processed . average sales price – average sales price increased due to lower domestic availability of beef products . operating income – operating income increased due to improved operational execution and maximizing our revenues relative to the rising live cattle markets , partially offset by increased operating costs . derivative activities – operating results included net losses of $ 72 million in fiscal 2014 , compared to net gains of $ 9 million in fiscal 2013 for commodity risk management activities related to futures contracts . these amounts exclude the impact from related physical sale and purchase transactions , which mostly offset the commodity risk management gains and losses . 2013 vs. 2012 – sales volume – sales volume decreased due to less outside trim and tallow purchases , partially offset by increased production volumes . average sales price – average sales price increased due to lower domestic availability of fed cattle supplies , which drove up livestock costs . operating income – operating income increased due to improved operational execution , less volatile live cattle markets and improved export markets , partially offset by increased operating costs . 28 replace_table_token_19_th 2014 vs. 2013 – sales volume – sales volume increased due to better domestic demand for our pork products . story_separator_special_tag average sales price – average sales price increased due to lower total hog supplies , which resulted in higher input costs . operating income – operating income increased as we maximized our revenues relative to live hog markets , partially attributable to operational and mix performance . derivative activities – operating results included net losses of $ 112 million in fiscal 2014 , compared to net losses of $ 15 million in fiscal 2013 for commodity risk management activities related to futures contracts . these amounts exclude the impact from related physical sale and purchase transactions , which mostly offset the commodity risk management losses . 2013 vs. 2012 – sales volume – sales volume decreased as a result of decreased customer demand and reduced exports . average sales price – demand for pork products improved , which drove up average sales price and livestock cost despite a slight increase in live hog supplies . operating income – while reduced compared to prior year , operating income remained strong in fiscal 2013 despite brief periods of imbalance in industry supply and customer demand . we were able to maintain strong operating margins by maximizing our revenues relative to the live hog markets , partially due to operational and mix performance . derivative activities – operating results included net losses of $ 15 million in fiscal 2013 , compared to net gains of $ 66 million in fiscal 2012 for commodity risk management activities related to futures contracts . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results . 29 replace_table_token_20_th 2014 vs. 2013 – sales volume – sales volume increased as a result of improved demand for our prepared foods products and incremental volumes as a result of the acquisition of hillshire brands in our final month of fiscal 2014. average sales price – average sales price increased due to price increases associated with higher input costs along with better product mix which was positively impacted incrementally by the acquisition of hillshire brands in our final month of fiscal 2014. operating income – operating income decreased as a result of higher raw material and other input costs of approximately $ 210 million . because many of our sales contracts are formula based or shorter-term in nature , we are typically able to offset rising input costs through pricing . however , there is a lag time for price increases to take effect . additionally , operating income was reduced by $ 113 million due to additional costs associated with the prepared foods improvement plan , hillshire brands post-closing results , purchase price accounting adjustments and ongoing costs related to a legacy hillshire brands plant fire . 2013 vs. 2012 – sales volume – sales volume increased as a result of improved demand for our prepared products and incremental volumes from the purchase of two businesses in fiscal 2013. average sales price – average sales price increased due to price increases associated with higher input costs . operating income – operating income decreased , despite increases in sales volumes and average sales price , as a result of increased raw material and other input costs of approximately $ 110 million and additional costs incurred as we invested in our lunchmeat business and growth platforms . because many of our sales contracts are formula based or shorter-term in nature , we are typically able to offset rising input costs through pricing . however , there is a lag time for price increases to take effect . replace_table_token_21_th 2014 vs. 2013 – sales volume – sales volume increased as we grew our businesses in brazil and china . average sales price – average sales price decreased due to poor export market conditions in brazil , supply imbalances associated with weak demand in china and a less favorable pricing environment in mexico . operating income – operating income decreased due to poor operational execution in brazil , challenging market conditions in brazil and china and additional costs incurred as we grew our international operation . additionally , operating income was reduced by $ 42 million related to an impairment of brazil assets and other costs related to the pending sale of our brazil operation . 2013 vs. 2012 – sales volume – sales volume increased as we continued to grow our international operation . average sales price – average sales price increased due to improved market conditions and more favorable pricing environments in brazil and mexico . operating loss – operating income improved due to better performance in brazil and mexico , partially offset by increased feed costs of $ 64 million and supply imbalances associated with weak demand in china as a result of avian influenza . 30 liquidity and capital resources our cash needs for working capital , capital expenditures , growth opportunities , the repurchases of senior notes , repayment of term loans and share repurchases are expected to be met with current cash on hand , cash flows provided by operating activities , or short-term borrowings . based on our current expectations , we believe our liquidity and capital resources will be sufficient to operate our business . however , we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions . the amount , nature and timing of any capital market transactions will depend on our operating performance and other circumstances ; our then-current commitments and obligations ; the amount , nature and timing of our capital requirements ; any limitations imposed by our current credit arrangements ; and overall market conditions .
| higher input costs per pound increased cost of sales $ 2.3 billion and higher sales volume increased cost of sales $ 610 million . the $ 2.3 billion impact of higher input costs was primarily driven by : increase in live cattle and live hog costs of approximately $ 1.7 billion and $ 550 million , respectively . increase in raw material and other input costs in our prepared foods segment of approximately $ 210 million . increase due to net losses of $ 260 million in fiscal 2014 , compared to net gains of approximately $ 5 million in fiscal 2013 , from our beef and pork segment commodity risk management activities . these amounts exclude the impact from related physical purchase transactions , which mostly offset the losses . decrease in feed costs of $ 600 million in our chicken segment and $ 42 million in our international segment . the $ 610 million impact of higher sales volume was driven by increases in all of our segments , with the exception of beef . chicken and prepared foods contributed to the majority of the increase , with the prepared foods increase mainly attributable to the acquisition and consolidation of hillshire brands in our final month of fiscal 2014 . 2013 vs. 2012 – cost of sales increased by approximately $ 1.2 billion due to higher input cost per pound . the $ 1.2 billion impact of higher input costs was primarily driven by : increase in feed costs of $ 406 million in our chicken segment and $ 64 million in our international segment . increase in live cattle and hog costs of approximately $ 395 million . increase in raw material and other input costs in our prepared foods segment of approximately $ 110 million . increase due to net losses of $ 15 million in fiscal 2013 , compared to net gains of approximately $ 66 million in fiscal 2012 , from our pork segment commodity risk management activities . these amounts exclude
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( 5 ) includes asset retirement obligations to return property to its original condition at the termination of lease agreements . effects of inflation inflation in the united states has been relatively low in recent years and we do not expect it to have a material impact on our future results of operations . critical accounting policies and estimates the preparation of our consolidated financial statements requires that we use estimates that affect the reported assets , liabilities , revenue s , expense s and related disclosures for contingent assets and liabilities . we base our estimates on experience and assumptions we believe are proper and reasonable . while we regularly evaluate the appropriateness of these estimates , actual results could differ materially from our estimates . the following accounting policies , in particular , may be impacted by judgments , assumptions and estimates used to prepare our consolidated financial statements . revenue recognition a substantial portion of our revenues and cash flows are derived from commercial agreements with green plains trade . we recognize revenues when evidence of an arrangement exists ; there is risk of loss and title transfer to the customer ; the price is fixed or determinable ; and collectability is reasonably assured . storage , terminal and transportation services revenues are recognized when services are performed , which occurs when the product is delivered to the customer . 49 our storage and throughput agreement and certain terminal services agreements with green plains trade are supported by minimum volume commitments . o ur rail transportation services agreement is supported by minimum take-or-pay capacity commitments . green plains trade is required to pay us fees for these minimum commitments regardless of the actual volume , throughput or capacity used for transport . payment related to volume that was not actually throughput by green plains trade is applied as a credit toward volume in excess of the minimum volume commitment during any of the next four quarters , after which time unused credits expire . we record a liability for deferred revenue s in the amount of the credit that may be used in future periods and for customer prepayments before the product is delivered . we recognize revenue and relieve the liability when throughput volumes exceed the minimum volume commitment or unused credits expire . as a result , a significant portion of our revenue s may be associated with cash collected during an earlier period that do not generate any cash during the current period . depreciation of property and equipment property and equipment are stated at cost less accumulated depreciation . we calculate depreciation expense using the straight-line method based on the estimated useful life of each asset . we assign asset lives based on reasonable estimates regarding the timing in which assets are placed into service . we periodically evaluate the estimated useful lives of our property , plant and equipment and revise our estimates . the determination of an asset 's estimated useful life takes a number of factors into consideration , including technological change , normal depreciation and physical usage . we periodically evaluate whether events or circumstances have occurred that may warrant a revision of the estimated useful lives of our fixed assets , which is accounted for prospectively . impairment of long-lived assets and goodwill our long-lived assets consist of property and equipment . we review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . we measure recoverability by comparing th e carrying amount of the asset with the estimated undiscounted future cash flows the asset is expected generate . if the carrying amount of the asset exceeds its estimated future cash flows , we record an impairment charge for the amount in excess of the fair value . no impairment charges have been recorded during the periods presented . our goodwill consists of amounts related to our predecessor 's acquisition of its fuel terminal and distribution business . we review goodwill at the reporting unit level for impairment at least annually , as of october 1 , or more frequently when events or changes in circumstances indicate that impairment may have occurred . we assess the qualitative factors of goodwill to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test . under the first step , we compare the estimated fair value of the reporting unit with its carrying value including goodwill . if the estimated fair value is less than the carrying value , we complete a second step to determine the amount of the goodwill impairment . in the second step , we allocate the reporting unit 's fair value to all of its assets and liabilities other than goodwill to determine an implied fair value . we compare the result with the carrying amount and record an impairment charge for the difference . we estimate the amount and timing of projected cash flows that will be generated by an asset over an extended period of time when we review our long-lived assets and goodwill . circumstances that may indicate impairment include a decline in future projected cash flows , a decision to suspend plant operations for an extended period of time , a sustained decline in our market capitalization , a sustained decline in market prices for similar assets or businesses , or a significant adverse change in legal or regulatory matters or business climate . significant management judgment is required to determine the fair value of our long-lived assets and goodwill and measure impairment , including projected cash flows . fair value is determined through various valuation techniques , including discounted cash flow models , sales of comparable properties and third-party independent appraisals . changes in estimated fair value could result in a story_separator_special_tag ( 5 ) includes asset retirement obligations to return property to its original condition at the termination of lease agreements . effects of inflation inflation in the united states has been relatively low in recent years and we do not expect it to have a material impact on our future results of operations . critical accounting policies and estimates the preparation of our consolidated financial statements requires that we use estimates that affect the reported assets , liabilities , revenue s , expense s and related disclosures for contingent assets and liabilities . we base our estimates on experience and assumptions we believe are proper and reasonable . while we regularly evaluate the appropriateness of these estimates , actual results could differ materially from our estimates . the following accounting policies , in particular , may be impacted by judgments , assumptions and estimates used to prepare our consolidated financial statements . revenue recognition a substantial portion of our revenues and cash flows are derived from commercial agreements with green plains trade . we recognize revenues when evidence of an arrangement exists ; there is risk of loss and title transfer to the customer ; the price is fixed or determinable ; and collectability is reasonably assured . storage , terminal and transportation services revenues are recognized when services are performed , which occurs when the product is delivered to the customer . 49 our storage and throughput agreement and certain terminal services agreements with green plains trade are supported by minimum volume commitments . o ur rail transportation services agreement is supported by minimum take-or-pay capacity commitments . green plains trade is required to pay us fees for these minimum commitments regardless of the actual volume , throughput or capacity used for transport . payment related to volume that was not actually throughput by green plains trade is applied as a credit toward volume in excess of the minimum volume commitment during any of the next four quarters , after which time unused credits expire . we record a liability for deferred revenue s in the amount of the credit that may be used in future periods and for customer prepayments before the product is delivered . we recognize revenue and relieve the liability when throughput volumes exceed the minimum volume commitment or unused credits expire . as a result , a significant portion of our revenue s may be associated with cash collected during an earlier period that do not generate any cash during the current period . depreciation of property and equipment property and equipment are stated at cost less accumulated depreciation . we calculate depreciation expense using the straight-line method based on the estimated useful life of each asset . we assign asset lives based on reasonable estimates regarding the timing in which assets are placed into service . we periodically evaluate the estimated useful lives of our property , plant and equipment and revise our estimates . the determination of an asset 's estimated useful life takes a number of factors into consideration , including technological change , normal depreciation and physical usage . we periodically evaluate whether events or circumstances have occurred that may warrant a revision of the estimated useful lives of our fixed assets , which is accounted for prospectively . impairment of long-lived assets and goodwill our long-lived assets consist of property and equipment . we review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . we measure recoverability by comparing th e carrying amount of the asset with the estimated undiscounted future cash flows the asset is expected generate . if the carrying amount of the asset exceeds its estimated future cash flows , we record an impairment charge for the amount in excess of the fair value . no impairment charges have been recorded during the periods presented . our goodwill consists of amounts related to our predecessor 's acquisition of its fuel terminal and distribution business . we review goodwill at the reporting unit level for impairment at least annually , as of october 1 , or more frequently when events or changes in circumstances indicate that impairment may have occurred . we assess the qualitative factors of goodwill to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test . under the first step , we compare the estimated fair value of the reporting unit with its carrying value including goodwill . if the estimated fair value is less than the carrying value , we complete a second step to determine the amount of the goodwill impairment . in the second step , we allocate the reporting unit 's fair value to all of its assets and liabilities other than goodwill to determine an implied fair value . we compare the result with the carrying amount and record an impairment charge for the difference . we estimate the amount and timing of projected cash flows that will be generated by an asset over an extended period of time when we review our long-lived assets and goodwill . circumstances that may indicate impairment include a decline in future projected cash flows , a decision to suspend plant operations for an extended period of time , a sustained decline in our market capitalization , a sustained decline in market prices for similar assets or businesses , or a significant adverse change in legal or regulatory matters or business climate . significant management judgment is required to determine the fair value of our long-lived assets and goodwill and measure impairment , including projected cash flows . fair value is determined through various valuation techniques , including discounted cash flow models , sales of comparable properties and third-party independent appraisals . changes in estimated fair value could result in a
| selected financial information and operating data the following table reflects selected financial information ( in thousands ) : replace_table_token_7_th 46 t he following table reflects selected operating data ( in mmg , except railcar capacity billed ) : replace_table_token_8_th ( 1 ) volumetric data for periods before july 1 , 2015 , is not considered meaningful , as the related commercial agreements were not in effect prior to that date . ( 2 ) railcar capacity for 2015 is based on capacity since july 1 , 2015 , when the commercial agreement became effective . year ended december 31 , 2015 , compare d with the year ended december 31 , 2014 revenues revenues generated from our storage and throughput agreement and rail transportation services agreement with green plains trade , executed in connection with our ipo and effective beginning july 1 , 2015 , were $ 36.9 million for the year ended december 31 , 2015 . revenues generated by trucking and terminal services increased $ 1.2 million for the year ended december 31 , 2015 , compared with the same period for 2014 , due to an increase in the number of trucks in service and locations where we do business . operations and maintenance expenses operations and maintenance expenses increased $ 2.9 million for the year ended december 31 , 2015 , compared with the same period for 2014 , primarily due to increased railcar lease expenses , wages and fuel costs associated with our trucking operations . this was partially offset by a decrease in throughput unloading fees . general and administrative expenses general and administrative expenses increased $ 1.7 million for the year ended december 31 , 2015 , compared with the same period for 2014 , primarily due to transaction costs related to the formation of the partnership and the acquisition of hereford , texas and hopewell , virginia storage and transportation assets , additional expenses attributable to being a public company , unit-based compensation and board fees . year ended december 31 , 2014 , compared with the year ended december 31 , 2013 revenues revenues generated by trucking and terminal services increased $ 1.8 million for the year ended december 31 , 2014 , compared with the same period in 2013 , due to increased non-affiliate throughput revenues across blendstar terminal facilities of $ 1.1 million , and the commencement
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contingent value rights agreement in accordance with the merger agreement , on november 4 , 2020 , we and the rights agent ( as defined therein ) executed and delivered a contingent value rights agreement ( the “ cvr agreement ” ) , pursuant to which each holder of our common stock as of november 6 , 2020 , other than former stockholders of private viridian , is entitled to one contractual contingent value right issued by us , subject to and in accordance with the terms and conditions of the cvr agreement , for each share of our common stock held by such holder . each contingent value right entitles the holder thereof to receive certain cash payments equal to 80 % of the net proceeds , if any , related to the disposition of our legacy programs to develop product candidates that modulate micrornas within five years following the date of the merger . the contingent value rights are not transferable , except in certain limited circumstances as will be provided in the cvr agreement , will not be certificated or evidenced by any instrument , and will not be registered with the sec or listed for trading on any exchange . private placement and securities purchase agreement on october 27 , 2020 , we entered into a securities purchase agreement ( the “ purchase agreement ” ) with the purchasers named therein ( the “ investors ” ) . pursuant to the purchase agreement , we sold an aggregate of approximately 195,290 shares of series a preferred stock for an aggregate purchase price of approximately $ 91.0 million ( collectively , the “ financing ” ) . each share of series a preferred stock is convertible into 66.67 shares of our common stock , as described below . the powers , preferences , rights , qualifications , limitations , and restrictions applicable to the series a preferred stock are set forth in the certificate of designation filed in connection with the merger . we plan to use the proceeds from the financing to potentially advance multiple compounds through phase 2 proof of concept studies in ted and expand our orphan disease pipeline and for general and working capital purposes . holders of series a preferred stock are entitled to receive dividends on shares of series a preferred stock equal , on an as-if-converted-to-common-stock basis , and in the same form as dividends actually paid on shares of our common stock . except as 58 otherwise required by law , the series a preferred stock does not have voting rights . however , as long as any shares of series a preferred stock are outstanding , we will not , without the affirmative vote of the holders of a majority of the then outstanding shares of the series a preferred stock , ( a ) alter or change adversely the powers , preferences or rights given to the series a preferred stock , ( b ) alter or amend the certificate of designation , ( c ) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series a preferred stock , ( d ) increase the number of authorized shares of series a preferred stock , ( e ) at any time while at least 30 % of the originally issued series a preferred stock remains issued and outstanding , consummate a fundamental transaction ( as defined in the certificate of designation ) or ( f ) enter into any agreement with respect to any of the foregoing . the series a preferred stock does not have a preference upon any liquidation , dissolution , or winding-up of us . following stockholder approval of the conversion of the series a preferred stock into shares of common stock in december 2020 , each share of series a preferred stock is convertible into shares of our common stock at any time at the option of the holder thereof , into 66.67 shares of our common stock , subject to certain limitations , including that a holder of series a preferred stock is prohibited from converting shares of series a preferred stock into shares of our common stock if , as a result of such conversion , such holder , together with its affiliates , would beneficially own more than a specified percentage ( to be established by the holder between 4.99 % and 19.99 % ) of the total number of shares of our common stock issued and outstanding immediately after giving effect to such conversion . on october 30 , 2020 , we entered into a registration rights agreement ( the “ registration rights agreement ” ) , pursuant to which we agreed to register for resale the shares of common stock sold to investors in the financing . the registration statement that was filed pursuant to the registration rights agreement was declared effective by the sec on december 22 , 2020. reverse stock split on november 12 , 2020 , we effected a reverse stock split of our shares of common stock at a ratio of 1-for-15 , and trading of our common stock began on a split-adjusted basis on november 13 , 2020. our common stock is traded on the nasdaq capital market under the ticker symbol “ vrdn , ” under cusip number 92790c104 . as a result of the reverse stock split , every 15 shares of our pre-reverse split common stock were combined and reclassified into one share of our common stock . no fractional shares were issued in connection with the reverse stock split , and in the case the stock split resulted in any stockholders owning a fractional share , then such stockholders received a cash payment in lieu of such fractional share . the reverse stock split did not modify any rights of our common stock . story_separator_special_tag the reverse stock split reduced the number of shares of our common stock issuable upon the conversion of our outstanding shares of series a preferred stock to a ratio of 66.67 and the exercise or vesting of outstanding stock options and warrants in proportion to the ratio of the reverse stock split and caused a proportionate increase in the conversion and exercise prices of such preferred stock , stock options , and warrants . the accompanying consolidated financial statements and notes to the consolidated financial statements in this annual report give retroactive effect to the exchange ratio for all periods presented . the covid-19 pandemic in march 2020 , the world health organization declared the outbreak of covid-19 , a novel strain of coronavirus , a global pandemic . to date , the covid-19 pandemic continues to spread throughout the united states and worldwide . we could be materially and adversely affected by the risks , or the public perception of the risks , related to an epidemic , pandemic or other public health crisis , such as the covid-19 pandemic , including but not limited to potential delays in our clinical trials . the ultimate extent of the impact of any epidemic , pandemic or other public health crisis on our business , financial condition and results of operations will depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge concerning the severity of such epidemic , pandemic or other public health crisis and actions taken to contain or prevent the further spread , among others . accordingly , we can not predict the extent to which our business , financial condition and results of operations may be affected by the covid-19 pandemic , but we are monitoring the situation closely . financial operations overview revenue our revenue has historically consisted primarily of up-front payments for licenses , milestone payments , and payments for other research and development services earned under a license and collaboration agreement ( the “ servier collaboration agreement ” ) , with les laboratoires servier and institut de recherches servier ( collectively , “ servier ” ) for the research , 59 development , and commercialization of rna-targeting therapeutics in cardiovascular disease . we also recognize revenue for amounts received or receivable under certain grants we have been awarded . in august 2019 , servier terminated the servier collaboration agreement , with such termination becoming effective in february 2020. we completed certain activities under the servier collaboration agreement through the effective termination date in february 2020. the activities eligible for reimbursement under the servier collaboration agreement were considered a research and development performance obligation and revenue was recognized through the termination date . in october 2020 , we became party to a license agreement with zenas biopharma . in february 2021 , we entered into a letter agreement with zenas biopharma in which we agreed to provide assistance to zenas biopharma with certain manufacturing activities . under the terms of the zenas agreements , we granted zenas biopharma an exclusive license to develop , manufacture , and commercialize certain igf-1r directed antibody products for non-oncology indications in the greater area of china in exchange for upfront non-cash consideration and non-refundable milestone payments upon achieving specific milestone events during the contract term . additionally , we may receive royalty payments based on a percentage of the annual net sales of any licensed products sold on a country-by-country basis in the greater area of china . the royalty percentage may vary based on different tiers of annual net sales of the licensed products made . zenas biopharma is obligated to make royalty payments to us for the royalty term in the zenas agreements . the zenas agreements may be considered related party transactions because tellus bioventures , a 5 % or greater stockholder of our company ( on an as-converted basis , assuming that only the shares of convertible preferred stock held by tellus bioventures are converted into shares of our common stock ) , is also a 5 % or greater stockholder of zenas biopharma and has a seat on zenas biopharma 's board of directors . in the future , we may generate revenue from a combination of license fees and other up-front payments , payments for research and development services , milestone payments , product sales , and royalties in connection with strategic alliances . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing of our achievement of preclinical , clinical , regulatory , and commercialization milestones , the timing and amount of payments relating to such milestones , and the extent to which any of our products are approved and successfully commercialized by us or our strategic alliance collaborators , if any . if our strategic alliance collaborators do not elect or otherwise agree to fund our development costs pursuant to our strategic alliance agreements , or we or our strategic alliance collaborators , if any , fail to develop product candidates in a timely manner or to obtain regulatory approval for them , then our ability to generate future revenue , and our results of operations and financial position would be adversely affected . research and development expenses research and development expenses consist of costs incurred for the research and development of our therapeutic programs and product candidates , which include : employee-related expenses , including salaries , severance , retention , benefits , insurance , and share-based compensation expense ; expenses incurred under agreements with cros , investigative sites that conduct our clinical trials , and other clinical trial-related vendors , and consultants ; the costs of acquiring , developing , and manufacturing and testing clinical and preclinical materials , including costs incurred under agreements with cmos ; costs associated with non-clinical activities and regulatory operations ; license fees and milestone payments related to the acquisition and retention of certain licensed technology and intellectual property rights ; and facilities , depreciation , market research , and other expenses , which include allocated expenses for rent and
| liquidity and capital resources we have funded our operations to date principally through proceeds received from the sale of our common stock , our preferred stock , and other equity securities , debt financings , and from amounts received under a prior collaboration agreement . as of december 31 , 2020 , we had $ 127.6 million in cash , cash equivalents , and short-term investments . we expect that our current resources will enable us to fund our planned operations into the second half of 2023 . 62 we have no products approved for commercial sale and have not generated any revenue from product sales . since our inception and through december 31 , 2020 , we have generated an accumulated deficit of $ 278.9 million . substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we will continue to require substantial additional capital to continue the development of our product candidates , and potential commercialization activities , and to fund our ongoing operations . the amount and timing of future funding requirements will depend on many factors , including the pace and results of our clinical development efforts , equity financings , securing additional license and collaboration agreements , and issuing debt or other financing vehicles . our ability to secure capital is dependent upon a number of factors , including success in developing our technology and product candidates . failure to raise capital as and when needed , on favorable terms or at all , would have a negative impact on our financial condition and our ability to develop our product candidates . changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate . if we are unable to acquire additional capital or resources , we will be required to modify our operational plans to complete future milestones . we have based these estimates on assumptions that may prove to be wrong ,
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first security , based in owensboro , kentucky , operated 11 retail banking offices , through first security bank , inc. , in owensboro , bowling green , franklin and lexington , kentucky and in evansville and newburgh , indiana . as of the closing of the transaction , first security had total assets of approximately $ 553.2 million , total loans of approximately $ 390.1 million , and total deposits of approximately $ 424.4 million . the company issued approximately 2.0 million shares of its common stock , and paid approximately $ 31.2 million in cash , in exchange for all of the issued and outstanding shares of common stock of first security and in cancellation of all outstanding options to acquire first security common stock . on february 21 , 2019 , the company entered into an agreement and plan of reorganization with citizens first corporation ( “ citizens first ” ) , pursuant to which citizens first agreed to merge with and into the company . the merger agreement also provides that citizens first 's wholly-owned banking subsidiary , citizens first bank , inc. will be merged with and into the company 's subsidiary bank , german american bank , immediately following the holding company merger . based on the number of citizens first common shares expected to be outstanding at closing , the company would issue approximately 1.7 million shares of its common stock , and pay approximately $ 16 million cash , for all of the issued and outstanding common shares of citizens first . citizens first is a bank holding company headquartered in bowling green , kentucky . it operates , through citizens first bank , inc. , branch offices in barren , hart , simpson and warren counties in kentucky , and a loan production office in williamson county , tennessee . at december 31 , 2018 , citizens first reported total assets of approximately $ 476 million , total loans of approximately $ 372 million , and total deposits of approximately $ 389 million . completion of the mergers is subject to approval by regulatory authorities and citizens first 's shareholders , as well as certain other closing conditions . the transaction is expected to be completed in the third quarter of 2019. for further information regarding this pending acquisition , see note 21 ( subsequent events ) in the notes to the consolidated financial statements included in item 8 of this report . critical accounting policies and estimates the financial condition and results of operations for the company presented in the consolidated financial statements , accompanying notes to the consolidated financial statements , and selected financial data appearing elsewhere within this report , are , to a large degree , dependent upon the company 's accounting policies . the selection of and application of these policies involve estimates , judgments , and uncertainties that are subject to change . the critical accounting policies and estimates that the company has determined to be the most susceptible to change in the near term relate to the determination of the allowance for loan losses , the valuation of securities available for sale , income tax expense , and the valuation of goodwill and other intangible assets . allowance for loan losses the company maintains an allowance for loan losses to cover probable incurred credit losses at the balance sheet date . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . allocations of the allowance may be made for specific loans , but the entire allowance is available for any loan that , in management 's judgment , should be charged-off . a provision for loan losses is charged to operations based on management 's periodic evaluation of the necessary allowance balance . evaluations are conducted at least quarterly and more often if deemed necessary . the ultimate recovery of all loans is susceptible to future market factors beyond the company 's control . the company has an established process to determine the adequacy of the allowance for loan losses . the determination of the allowance is inherently subjective , as it requires significant estimates , including the amounts and timing of expected future cash flows on impaired loans , estimated losses on other classified loans and pools of homogeneous loans , and consideration of 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 , all of which may be susceptible to significant change . the allowance consists of 23 two components of allocations , specific and general . these two components represent the total allowance for loan losses deemed adequate to cover losses inherent in the loan portfolio . commercial and agricultural loans are subject to a standardized grading process administered by an internal loan review function . the need for specific reserves is considered for credits identified as impaired when : ( a ) the customer 's cash flow or net worth appears insufficient to repay the loan ; ( b ) the loan has been criticized in a regulatory examination ; ( c ) the loan is on non-accrual ; or ( d ) other reasons where the ultimate collectability of the loan is in question , or the loan characteristics require special monitoring . specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that we believe indicates the loan is impaired . specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds . allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages , including non-performing consumer or residential real estate loans . such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values . story_separator_special_tag general allocations are made for commercial and agricultural loans that are graded as substandard based on migration analysis techniques to determine historical average losses for similar types of loans . general allocations are also made for other pools of loans , including non-classified loans , homogeneous portfolios of consumer and residential real estate loans , and loans within certain industry categories believed to present unique risk of loss . general allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios , judgmentally adjusted for economic , external and internal factors and portfolio trends . economic factors include evaluating changes in international , national , regional and local economic and business conditions that affect the collectability of the loan portfolio . internal factors include evaluating changes in lending policies and procedures ; changes in the nature and volume of the loan portfolio ; and changes in experience , ability and depth of lending management and staff . in setting our external and internal factors we also consider the overall level of the allowance for loan losses to total loans ; our allowance coverage as compared to similar size bank holding companies ; and regulatory requirements . due to the imprecise nature of estimating the allowance for loan losses , the company 's allowance for loan losses includes a minor unallocated component . the unallocated component of the allowance for loan losses incorporates the company 's judgmental determination of inherent losses that may not be fully reflected in other allocations , including factors such as economic uncertainties , lending staff quality , industry trends impacting specific portfolio segments , and broad portfolio quality trends . therefore , the ratio of allocated to unallocated components within the total allowance may fluctuate from period to period . securities valuation securities available-for-sale are carried at fair value , with unrealized holding gains and losses reported separately in accumulated other comprehensive income ( loss ) , net of tax . the company obtains market values from a third party on a monthly basis in order to adjust the securities to fair value . equity securities that do not have readily determinable fair values are carried at cost . additionally , when securities are deemed to be other than temporarily impaired , a charge will be recorded through earnings ; therefore , future changes in the fair value of securities could have a significant impact on the company 's operating results . in determining whether a market value decline is other than temporary , management considers the reason for the decline , the extent of the decline , the duration of the decline and whether the company intends to sell or believes it will be required to sell the securities prior to recovery . as of december 31 , 2018 , gross unrealized gains on the securities available-for-sale portfolio totaled approximately $ 5,436,000 and gross unrealized losses totaled approximately $ 14,079,000. income tax expense income tax expense involves estimates related to the valuation allowance on deferred tax assets and loss contingencies related to exposure from tax examinations presumed to occur . a valuation allowance reduces deferred tax assets to the amount management believes is more likely than not to be realized . in evaluating the realization of deferred tax assets , management considers the likelihood that sufficient taxable income of appropriate character will be generated within carry-back and carry-forward periods , including consideration of available tax planning strategies . tax-related loss contingencies , including assessments arising from tax examinations and tax strategies , are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated . in considering the likelihood of loss , management considers the nature of the contingency , the progress of any examination or related protest or appeal , the views of legal counsel and other advisors , experience of the company or other enterprises in similar matters , if any , and management 's intended response to any assessment . 24 goodwill and other intangible assets goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of businesses acquired . goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred , plus the fair value of any noncontrolling interests in the acquiree , over the fair value of the net assets acquired and liabilities assumed as of the acquisition date . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but tested for impairment at least annually . the company has selected december 31 as the date to perform the annual impairment test . intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values . goodwill is the only intangible asset with an indefinite life on the company 's balance sheet . other intangible assets consist of core deposit and acquired customer relationship intangible assets . they are initially measured at fair value and then are amortized over their estimated useful lives , which range from 6 to 10 years . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ( 1 ) effective tax rates were determined as though interest earned on the company 's investments in municipal bonds and loans was fully taxable . ( 2 ) loans held-for-sale and non-accruing loans have been included in average loans . interest income on loans includes loan fees of $ 3,151 , $ 3,216 , and $ 4,283 for 2018 , 2017 and 2016 , respectively .
| several factors contribute to the determination of net interest income and net interest margin , including the volume and mix of earning assets , interest rates , and income taxes . many factors affecting net interest income are subject to control by management policies and actions . factors beyond the control of management include the general level of credit and deposit demand , federal reserve board monetary policy , and changes in tax laws . net interest income increased $ 14,701,000 , or 15 % , for the year ended december 31 , 2018 compared with 2017. the increased level of net interest income during 2018 compared with 2017 was driven primarily by a higher level of earning assets resulting from organic loan growth and merger and acquisition activity completed during 2018. the net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets . the tax equivalent net interest margin for the year ended december 31 , 2018 was 3.75 % compared to 3.76 % in 2017. the tax equivalent yield on earning assets totaled 4.36 % during 2018 compared to 4.16 % in 2017 , while the cost of funds ( expressed as a percentage of average earning assets ) totaled 0.61 % during 2018 compared to 0.40 % in 2017. the increased yield on earning assets and the increase in the cost of funds during 2018 were both impacted by increased short-term market interest rates . accretion of loan discounts on acquired loans contributed approximately 8 basis points to the net interest margin during 2018 compared with 9 basis points in 2017. the lower federal income tax rates during 2018 had an approximately 9 basis point negative impact on the company 's net interest margin and earning asset yield . net interest income increased $ 5,005,000 , or 5 % , for the year ended december 31 , 2017 compared with 2016. the increased level of net interest income during 2017 compared with 2016 was driven primarily by a higher level of earning
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the company 's investment in equitrans midstream fluctuates with changes in equitrans midstream 's stock price , which was $ 13.36 and $ 20.02 as of december 31 , 2019 and 2018 , respectively . dividend and other income increased due to dividends received on the company 's investment in equitrans midstream during the year ended december 31 , 2019 . 47 interest expense decreased for 2019 compared to 2018 due to repayment of the $ 700 million aggregate principal amount of the company 's 8.125 % senior notes that matured on june 1 , 2019 and decreased borrowings under the company 's credit facility , partly offset by interest incurred on borrowings under the term loan facility . see note 9 to the consolidated financial statements for a discussion of income tax benefit . outlook see item 1. , `` business . '' impairment of oil and gas properties see `` critical accounting policies and estimates '' and note 1 to the consolidated financial statements for a discussion of the company 's accounting policies and significant assumptions related to impairment of the company 's oil and gas properties . see item 1a. , `` risk factors – natural gas , ngls and oil price declines , and changes in our development strategy , have resulted in impairment of certain of our assets . future declines in commodity prices , increases in operating costs or adverse changes in well performance or additional changes in our development strategy may result in additional write-downs of the carrying amounts of our assets , including long-lived intangible assets , which could materially and adversely affect our results of operations in future periods. `` capital resources and liquidity the statements of consolidated cash flows for the years ended december 31 , 2018 and 2017 have not been restated for discontinued operations ; therefore , the following discussion of operating , investing and financing activities includes cash flows of both continuing and discontinued operations through the separation and distribution . see note 2 to the consolidated financial statements for amounts attributable to discontinued operations included in the statements of consolidated cash flows . although the company can not provide any assurance , it believes cash flows from operating activities and availability under the revolving credit facility should be sufficient to meet the company 's cash requirements inclusive of , but not limited to , normal operating needs , debt service obligations , planned capital expenditures and commitments for at least the next twelve months . see item 7. , `` management 's discussion and analysis of financial condition and results of operations '' included in the company 's annual report on form 10-k for the year ended december 31 , 2018 , which is incorporated herein by reference , for discussion and analysis of operating , investing and financing activities for the year ended december 31 , 2017 . operating activities net cash flows provided by operating activities were $ 1,852 million for 2019 compared to $ 2,976 million for 2018 . the decrease was driven by cash provided by discontinued operations included in 2018 and lower cash operating revenues , partly offset by favorable timing of working capital payments and dividends received on the company 's investment in equitrans midstream . the company 's cash flows from operating activities will be affected by movements in the market price for commodities . the company is unable to predict such movements outside of the current market view as reflected in forward strip pricing . refer to item 1a. , `` risk factors – natural gas , ngls and oil price volatility , or a prolonged period of low natural gas , ngls and oil prices , may have an adverse effect upon our revenue , profitability , future rate of growth , liquidity and financial position. `` for further information . investing activities net cash flows used in investing activities were $ 1,601 million for 2019 compared to $ 3,979 million for 2018 . the decrease was due primarily to lower capital expenditures as a result of the company 's change in strategic focus from production growth to capital efficiency and cash used for capital expenditures and capital contributions by discontinued operations included in 2018 , partly offset by proceeds received from asset sales in 2018 . 48 capital expenditures replace_table_token_17_th ( a ) midstream infrastructure capital expenditures are presented as discontinued operations . see note 2 to the consolidated financial statements . ( b ) represents the net impact of non-cash capital expenditures , including capitalized share-based compensation costs and the effect of timing of receivables from working interest partners and accrued capital expenditures . the impact of accrued capital expenditures includes the reversal of the prior period accrual as well as the current period estimate . the year ended december 31 , 2018 included $ 14.4 million of measurement period adjustments for 2017 acquisitions . financing activities net cash flows used in financing activities were $ 249 million for 2019 compared to net cash flows provided by financing activities of $ 859 million for 2018 . for 2019 , the primary uses of financing cash flows were net repayments of debt and credit facility borrowings , and the primary source of financing cash flows was net proceeds from borrowings on the term loan facility . for 2018 , the primary source of financing cash flows was net proceeds from a debt offering by eqm midstream partners , lp ( eqm ) , the company 's former midstream affiliate , and the primary uses of financing cash flows were the repurchase and retirement of common stock , distributions to noncontrolling interests , net repayments of credit facility borrowings , eqm 's acquisition of 25 % ownership interest in strike force midstream llc , net cash transferred in connection with the separation and distribution , cash paid for dividends and taxes on share-based incentive awards . story_separator_special_tag on february 4 , 2020 , the company 's board of directors declared a quarterly cash dividend of three cents per share , payable march 1 , 2020 to the company 's shareholders of record at the close of business on february 14 , 2020. on january 21 , 2020 , the company issued $ 1.0 billion aggregate principal amount of 6.125 % senior notes due february 1 , 2025 and $ 750 million aggregate principal amount of 7.000 % senior notes due february 1 , 2030 ( together , the adjustable rate notes ) . the company used the net proceeds from the adjustable rate notes to repay $ 500 million aggregate principal amount of the company 's floating rate notes and $ 500 million aggregate principal amount of the company 's 2.50 % senior notes and expects to use the remaining proceeds to repay or redeem other outstanding indebtedness , which may include all or a portion of the company 's outstanding 4.875 % senior notes due november 15 , 2021. the adjustable rate notes have covenants that are consistent with the company 's existing senior unsecured notes , with an additional interest rate adjustment provision that provides for adjustments to its interest rates based on credit ratings assigned by moody 's , s & p and fitch to the adjustable rate notes . as a result of the s & p and fitch downgrades of the company 's senior notes credit rating ( discussed in section `` security ratings and financing triggers '' ) , the interest rate on the 6.125 % senior notes increased to 6.875 % and the interest rate on the 7.000 % senior notes increased to 7.750 % . on february 3 , 2020 , the company 's 2.50 % senior notes and floating rate notes , each due october 1 , 2020 , were fully redeemed by the company at a redemption price of 100.446 % and 100 % , respectively , plus accrued but unpaid interest of $ 4.2 million and $ 1.2 million , respectively . this resulted in the payment of make whole call premiums of $ 2.2 million related to the 2.50 % senior notes . on february 12 , 2020 , the company announced its commencement of a cash tender offer ( the tender offer ) for up to $ 400 million aggregate principal amount of its 4.875 % senior notes due 2021 ( the 4.875 % notes ) . consideration paid in the tender offer for 49 the 4.875 % notes that are validly tendered on or prior to march 2 , 2020 , and accepted for purchase by the company , will be $ 1,020 per $ 1,000 principal amount , including an early tender premium of $ 30 per $ 1,000 principal amount . the settlement date for such notes is expected to be march 4 , 2020. consideration paid in the tender offer for the 4.875 % notes that are validly tendered after march 2 , 2020 and on or prior to march 16 , 2020 , and accepted for purchase by the company , will be $ 990 per $ 1,000 principal amount . the settlement date for such notes is expected to be march 18 , 2020. payments for the 4.875 % notes purchased will also include accrued and unpaid interest from , and including , the last interest payment date on the 4.875 % notes up to , but not including , the applicable settlement date for such 4.875 % notes accepted for purchase by the company . the company may from time to time seek to repurchase its outstanding debt securities . such repurchases , if any , will depend on prevailing market conditions , the company 's liquidity requirements , contractual and legal restrictions and other factors . additionally , the company plans to dispose of its remaining retained shares of equitrans midstream 's common stock and use the proceeds to reduce the company 's debt . revolving credit facility the company primarily uses borrowings under its revolving credit facility to fund working capital needs , timing differences between capital expenditures and other cash uses and cash flows from operating activities , margin deposits on derivative instruments and collateral requirements on midstream services contracts . see section `` security ratings and financing triggers '' for further discussion of margin deposits and collateral requirements on the company 's derivative instruments and midstream services contracts . see note 10 to the consolidated financial statements for further discussion of the company 's credit facility . security ratings and financing triggers the table below reflects the credit ratings and rating outlooks assigned to the company 's debt instruments at february 26 , 2020 . the company 's credit ratings and rating outlooks are subject to revision or withdrawal at any time by the assigning rating agency , and each rating should be evaluated independent from any other rating . the company can not ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn by a rating agency if , in its judgment , circumstances so warrant . see note 4 to the consolidated financial statements for further discussion of what is deemed investment grade . rating service senior notes outlook moody 's investors service ( moody 's ) ba1 negative standard & poor 's ratings service ( s & p ) bb+ negative fitch ratings service ( fitch ) bb negative as of december 31 , 2019 , the company 's senior notes were rated `` baa3 '' by moody 's , `` bbb– '' by s & p and `` bbb– '' by fitch , each with a `` negative '' outlook . in january 2020 , moody 's downgraded the company 's senior notes credit rating to `` ba1 , '' and , in february 2020 , s & p and fitch downgraded the company 's senior notes rating to `` bb+ '' and `` bb , '' respectively .
| see `` reconciliation of non-gaap financial measures '' for a reconciliation of adjusted operating revenues with total operating revenues , the most directly comparable financial measure calculated in accordance with gaap . 43 replace_table_token_13_th ( a ) the company 's volume weighted nymex natural gas price ( actual average nymex natural gas price ( $ /mmbtu ) ) was $ 2.63 and $ 3.09 for the years ended december 31 , 2019 and 2018 , respectively . ( b ) basis represents the difference between the ultimate sales price for natural gas and the nymex natural gas price . ( c ) ngls , ethane and oil were converted to mcfe at a rate of six mcfe per barrel . ( d ) total natural gas and liquids sales , including cash settled derivatives , is also referred to in this report as adjusted operating revenues , a non-gaap supplemental financial measure . 44 non-gaap financial measures reconciliation the table below reconciles adjusted operating revenues , a non-gaap supplemental financial measure , with total operating revenues , its most directly comparable financial measure calculated in accordance with gaap . adjusted operating revenues ( also referred to as total natural gas and liquids sales , including cash settled derivatives ) is presented because it is an important measure used by the company 's management to evaluate period-to-period comparisons of earnings trends . adjusted operating revenues as presented excludes the revenue impact of changes in the fair value of derivative instruments prior to settlement and the revenue impact of net marketing services and other . management uses adjusted operating revenues to evaluate earnings trends because the measure reflects only the impact of settled derivative contracts and , thus , excludes the impact of the often-volatile fluctuations in the fair value of derivatives prior to settlement . adjusted operating revenues also excludes net marketing services and other because management considers these revenues to be unrelated to revenues from its natural gas and liquids production . net marketing services and other primarily includes the cost of , and recoveries on , pipeline capacity releases and revenues for gathering services . management further believes that adjusted operating revenues as presented
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non-operating income and expenses , net , increased $ 9.9 million in 2019 compared with 2018. as disclosed in note 12 - `` benefit plans '' to the consolidated financial statements included in this report , a temporary deviation from an idaho power substantive postretirement plan resulted in a $ 4.2 million charge in 2018 that did not recur in 2019. allowance for equity funds used during construction increased $ 2.8 million in 2019 as the average construction work in progress balance was higher throughout 2019 compared with 2018. also , investment income from the rabbi trust associated with idaho power 's nonqualified defined benefit pension plans increased $ 2.2 million based on stronger asset returns in 2019 compared with 2018. during 2018 , idaho power recorded tax benefits for a $ 5.7 million remeasurement of deferred taxes resulting from income tax reform and $ 1.3 million for tax-deductible bond redemption costs incurred in 2018. there was no such remeasurement or bond redemption in 2019. these items , combined with higher pre-tax net income in 2019 , resulted in higher income tax expense in 2019 compared with 2018. amortization of vintage investment tax credits that became available in 2019 lowered income tax expense by $ 3.4 million , most of which is not expected to recur . at ifs , a $ 3.0 million increase in distributions from the sale of low-income housing properties led to higher ifs net income in 2019 compared with 2018 . 2020 initiatives and strategy idacorp 's strategy is focused on four areas : growing financial strength , improving idaho power 's core business , enhancing idaho power 's brand , and keeping employees safe and engaged . idacorp 's board of directors has reviewed and affirmed idacorp 's long-term strategy . in executing on these four strategic cornerstones , idacorp seeks to balance the interests of shareowners , idaho power customers , employees , and other stakeholders . idaho power is committed to working for strong , sustainable financial results by continuing to provide safe , fair-priced , reliable service to its customers from diversified generation resources . for more information on the business strategy of the companies , see part i , item 1 – “ business - business strategy ” in this report . overview of general factors and trends affecting results of operations and financial condition idacorp 's and idaho power 's results of operations and financial condition are affected by a number of factors , and the impact of those factors is discussed in more detail below in this md & a . to provide context for the discussion elsewhere in this report , some of the more notable factors include the following : regulation of rates and cost recovery : the prices that idaho power is authorized to charge for its electric and transmission services are a critical factor in determining idacorp 's and idaho power 's results of operations and financial condition . those rates are established by state regulatory commissions and the ferc and are intended to allow idaho power an opportunity to recover its expenses and earn a reasonable return on investment . idaho power focuses on timely recovery of its costs through filings with its regulators , working to put in place innovative regulatory mechanisms , and prudently managing expenses and investments . idaho power has regulatory settlement stipulations in idaho that include provisions for the accelerated amortization of certain tax credits to help achieve a minimum 9.5 percent ( 9.4 percent after 2019 ) return on year-end equity in the idaho jurisdiction ( idaho roe ) . the settlement stipulations also provide for the potential sharing between idaho power and its idaho customers of idaho-jurisdictional earnings in excess of 10.0 percent of idaho roe . the settlement stipulations provide for modifications of certain terms and the indefinite extension of the mechanism beyond the original termination date of december 31 , 2019. the specific terms of these settlement stipulations are described in `` regulatory matters '' in this md & a and in note 3 - `` regulatory matters '' to the consolidated financial statements included in this report . during 2020 , idaho power will 40 continue to assess the need to file a general rate case to reset base rates , but does not anticipate filing a rate case in the next twelve months . economic conditions and loads : economic conditions impact consumer demand for energy , revenues , collectability of accounts , the volume of wholesale energy sales , and the need to construct and improve infrastructure and purchase power . in recent years , idaho power has seen growth in the number of customers in its service area . in 2019 , idaho power 's customer count grew by 2.5 percent . idaho power expects its number of customers to continue to increase in the foreseeable future . employment in idaho power 's service area grew by approximately 3.2 percent based on idaho department of labor preliminary december 2019 data . idaho power continues to support state of idaho-coordinated efforts to promote economic development with an emphasis on attracting industrial and commercial customers to its service area . in june 2019 , idaho power released its 2019 integrated resource plan ( irp ) , idaho power 's long-term forecast of loads and resources , which was amended in january 2020. for more information on the 2019 irp , including the load forecast assumptions idaho power used in its 2019 irp , refer to `` resource planning '' in item 1 - `` business '' in this form 10-k. weather conditions : weather and agricultural growing conditions have a significant impact on idaho power 's energy sales . relatively low and high temperatures result in greater energy use for heating and cooling , respectively . during the agricultural growing season , which in large part occurs during the second and third quarters , irrigation customers use electricity to operate irrigation pumps , and weather conditions can impact the timing and extent of use of those pumps . story_separator_special_tag idaho power also has tiered rates and seasonal rates , which contribute to increased revenues during higher-load periods , most notably during the third quarter of each year , when overall customer demand is highest . much of the adverse or favorable impact of weather on sales of energy to idaho residential and small commercial customers is mitigated through the fca mechanism , which is described in note 3 - `` regulatory matters '' to the consolidated financial statements in this report . further , as idaho power 's hydropower facilities comprise over one-half of idaho power 's nameplate generation capacity , precipitation levels impact the mix of idaho power 's generation resources . when hydropower generation is reduced , idaho power must rely on more expensive generation sources and purchased power . when favorable hydropower generating conditions exist for idaho power , they also may exist for other pacific northwest hydropower facility operators , lowering regional wholesale market prices and impacting the revenue idaho power receives from wholesale energy sales . much of the adverse or favorable impact of this volatility is addressed through the idaho and oregon power cost adjustment mechanisms . rate base growth and infrastructure investment : as noted above , the rates established by the ipuc and opuc are determined with the intent to provide an opportunity for idaho power to recover authorized operating expenses and depreciation and earn a reasonable return on “ rate base. ” rate base is generally determined by reference to the original cost ( net of accumulated depreciation ) of utility plant in service and certain other assets , subject to various adjustments for deferred taxes and other items . over time , rate base is increased by additions to utility plant in service and reduced by depreciation and retirement of utility plant and write-offs as authorized by the ipuc and opuc . in recent years , idaho power has been pursuing significant enhancements to its utility infrastructure in an effort to maintain system reliability , ensure an adequate supply of electricity , and to provide service to new customers , including major ongoing transmission projects such as the boardman-to-hemingway and gateway west projects . idaho power 's existing hydropower and thermal generation facilities also require continuing upgrades and equipment replacement , and the company is undertaking a significant relicensing effort for the hells canyon complex ( hcc ) , its largest hydropower generation resource . idaho power intends to pursue timely inclusion of any significant completed capital projects into rate base as part of a future general rate case or other appropriate regulatory proceeding . mitigation of impact of fuel and purchased power expense : in addition to hydropower generation , idaho power relies heavily on natural gas and coal to fuel its generation facilities and power purchases in the wholesale markets . fuel costs are impacted by electricity sales volumes , the terms and conditions of contracts for fuel , idaho power 's generation capacity , the availability of hydropower generation resources , transmission capacity , energy market prices , and idaho power 's hedging program for managing fuel costs . purchased power costs are impacted by the terms and conditions of contracts for purchased power , the rate of expansion of alternative energy generation sources such as wind or solar energy , and wholesale energy market prices . the idaho and oregon power cost adjustment mechanisms mitigate in large part the potential adverse impacts to idaho power of fluctuations in power supply costs . regulatory and environmental compliance costs : idaho power is subject to extensive federal and state laws , policies , and regulations , as well as regulatory actions and audits by agencies and quasi-governmental agencies , 41 including the ferc , the north american electric reliability corporation , and western electricity coordinating council . compliance with these requirements directly influences idaho power 's operating environment and affects idaho power 's operating costs . recently , energy industry regulators have issued substantial penalties for utilities alleged to have violated reliability and critical infrastructure protection requirements . moreover , environmental laws and regulations , in particular , may increase the cost of operating generation plants , including idaho power 's coal-fired plants , increase the cost of constructing new facilities , require that idaho power install additional pollution control devices at existing generating plants , or require that idaho power cease operating certain generation plants . idaho power expects to spend a considerable amount on environmental compliance and controls in the next decade , and due to economic factors in part associated with the costs of compliance with environmental regulation , has accelerated the retirement dates of its jointly-owned coal-fired generating plants . water management and relicensing of the hells canyon hydropower project : because of idaho power 's reliance on stream flow in the snake river and its tributaries , idaho power participates in numerous proceedings and venues that may affect its water rights , seeking to preserve the long-term availability of its rights for its hydropower projects . also , idaho power is involved in renewing its long-term federal license for the hcc , its largest hydropower generation source . given the number of parties and issues involved , idaho power 's relicensing costs have been and are expected to continue to be substantial . idaho power can not currently determine the terms of , and costs associated with , any resulting long-term license . results of operations this section of md & a takes a closer look at the significant factors that affected idacorp 's and idaho power 's earnings . in this analysis , the results for 2019 are compared with 2018 . the table below presents idaho power 's energy sales and supply ( in thousands of mwh ) for the last two years . replace_table_token_7_th for purposes of illustration , boise , idaho , weather-related information for the last two years is presented in the table that follows .
| idaho power 's customer growth of 2.5 percent added $ 18.8 million to idaho power 's operating income compared with 2018 . lower sales volumes on a per-customer basis decreased operating income by $ 21.4 million in 2019 compared with 2018 , primarily due to lower irrigation sales . greater precipitation and more moderate spring and summer temperatures in idaho power 's service area led agricultural irrigation customers to use 12 percent less energy per customer to operate irrigation pumps during 2019 compared with 2018. to a lesser extent , sales volumes on a per-customer basis in 2019 were negatively affected by lower per-customer commercial and industrial sales . the net decrease in retail revenues per mwh reduced operating income by $ 2.8 million in 2019 compared with 2018 . as provided by the settlement stipulation approved by the ipuc in 2018 related to income tax reform , retail revenues per mwh in 2019 were reduced by $ 7.4 million of non-cash accruals for future amortization related to regulatory deferrals that would otherwise be a future liability of idaho customers , compared with a $ 1.5 million revenue reduction in 2018. in 2018 , a corresponding $ 4.0 million of non-cash accruals were recorded as other o & m expense for the amortization of specified deferrals . the decrease in retail revenues per mwh from these non-cash accruals was partially offset by changes in the customer sales mix , as volumes sold to residential customers in 2019 made up a greater portion of the customer sales mix compared with 2018. residential customers generally pay a higher per-mwh rate than other customers . 39 < a
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therefore , we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effects of foreign currency rate fluctuations . our cloud infrastructure-as-a-service segment was established during our fiscal quarter ended may 31 , 2014. our fiscal 2014 results , and historical results for fiscal 2013 and 2012 , reflect this new segment structure and will continue prospectively in our future filings . see note 16 of notes to consolidated financial statements , included elsewhere in this annual report , for additional information related to our operating segments . an overview of our three businesses and related operating segments follows . software and cloud business our software and cloud business , which represented 76 % , 75 % and 72 % of our total revenues in fiscal 2014 , 2013 and 2012 , respectively , is comprised of three operating segments : ( 1 ) new software licenses and cloud software subscriptions , ( 2 ) cloud infrastructure-as-a-service and ( 3 ) software license updates and product support . on a constant currency basis , we expect that our software and cloud business ' total revenues generally will continue to increase due to continued demand for our software products and subscription offerings , our software license updates and product support offerings , including the high percentage of customers that renew their software license updates and product support contracts , and our acquisitions , which should allow us to grow our profits and continue to make investments in research and development . new software licenses and cloud software subscriptions : we license our database and middleware , as well as our application software , and provide access to a broad range of our software through oracle cloud software-as-a-service ( saas ) and oracle cloud platform-as-a-service ( paas ) offerings ( saas and paas collectively are referred to as cloud software subscriptions ) . our software offerings are substantially built on a standards-based , integrated architecture that is designed to help customers reduce the cost and complexity of their it infrastructure . our software offerings are substantially designed to operate on both single server and clustered server configurations for cloud or on-premise it environments , and to support a choice of operating systems including oracle solaris , oracle linux , microsoft windows and third party unix products , among others . our customers include businesses of many sizes , government agencies , educational institutions and resellers . we market and sell our software products and services to these customers with a sales force positioned to offer the combinations that best fit their needs . we enable customers to evolve and transform to substantially any it environment at whatever pace is most appropriate for them . the growth in our new software licenses and our saas and paas revenues that we report is affected by the strength of general economic and business conditions , governmental budgetary constraints , the competitive position of our software offerings , our acquisitions and foreign currency fluctuations . the substantial majority of our new software licenses transactions are characterized by long sales cycles and the timing of a few large software license transactions can substantially affect our quarterly new software licenses revenues . new software licenses and cloud software subscriptions revenues represented 28 % of our total revenues in each of fiscal 2014 and 2013 and 27 % in fiscal 2012. our cloud software subscriptions contracts , which consist of saas and paas arrangements , are generally one to three years in duration and we strive to renew these contracts when they are eligible for renewal . our new software licenses and cloud software subscriptions segment 's margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our new software licenses revenues over those quarterly periods and because the majority of our costs for this segment are predominantly fixed in the short-term . however , our new software licenses and cloud software subscriptions segment 's margin has been and will continue to be affected by the fair value adjustments relating to the cloud software subscriptions obligations that we assumed in our business combinations ( described further below ) and by the amortization of intangible assets associated with companies and technologies that we have acquired . for certain of our acquired businesses , we recorded adjustments to reduce the cloud saas and paas obligations to their estimated fair values at the acquisition dates . as a result , as required by business combination accounting rules , we did not recognize cloud saas and paas revenues related to acquired contracts that would have been otherwise recorded by the acquired businesses as independent entities in the amounts of $ 17 million , $ 45 million 36 and $ 22 million in fiscal 2014 , 2013 and 2012 , respectively . to the extent underlying cloud saas and paas contracts are renewed with us following an acquisition , we will recognize the revenues for the full values of these contracts over their respective contractual periods . cloud infrastructure-as-a-service : our cloud infrastructure-as-a-service offerings ( iaas ) , which represented 1 % of our total revenues in each of fiscal 2014 and 2013 and 2 % in fiscal 2012 , provide deployment and management offerings for our software and hardware and related it infrastructure including virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage ; oracle engineered systems hardware and related support that are deployed in our customers ' data centers for a monthly fee ; and comprehensive software and hardware management and maintenance services arrangements for customer it infrastructure for a stated term that is hosted at our data center facilities , select partner data centers or physically on-premise at customer facilities . story_separator_special_tag software license updates and product support : customers that purchase software license updates and product support are granted rights to unspecified product upgrades and maintenance releases and patches released during the term of the support period , as well as technical support assistance . our software license updates and product support contracts are generally one year in duration and substantially all of our customers renew their software license updates and product support contracts annually . the growth of software license updates and product support revenues is primarily influenced by three factors : ( 1 ) the percentage of our software support contract customer base that renews its software support contracts , ( 2 ) the amount of new software support contracts sold in connection with the sale of new software licenses and ( 3 ) the amount of software support contracts assumed from companies we have acquired . software license updates and product support revenues , which represented 47 % , 46 % and 43 % of our total revenues in fiscal 2014 , 2013 and 2012 , respectively , is our highest margin business unit . our software support margins during fiscal 2014 were 89 % and accounted for 77 % of our total margins over the same period . our software license updates and product support margins have been affected by fair value adjustments relating to software support obligations assumed in business combinations ( described further below ) and by amortization of intangible assets . however , over the longer term , we believe that software license updates and product support revenues and margins will grow for the following reasons : substantially all of our customers , including customers from acquired companies , renew their software support contracts when eligible for renewal ; substantially all of our customers purchase software license updates and product support contracts when they buy new software licenses , resulting in a further increase in our software support contract base . even if new software licenses revenues growth was flat , software license updates and product support revenues would continue to grow in comparison to the corresponding prior year periods assuming contract renewal and cancellation rates and foreign currency rates remained relatively constant since substantially all new software licenses transactions result in the sale of software license updates and product support contracts , which add to our software support contract base ; and our acquisitions have increased our software support contract base , as well as the portfolio of products available to be licensed and supported . we recorded adjustments to reduce software support obligations assumed in business combinations to their estimated fair values at the acquisition dates . as a result , as required by business combination accounting rules , we did not recognize software license updates and product support revenues related to software support contracts that would have been otherwise recorded by the acquired businesses as independent entities in the amounts of $ 3 million , $ 14 million and $ 48 million in fiscal 2014 , 2013 and 2012 , respectively . to the extent underlying software support contracts are renewed with us following an acquisition , we will recognize the revenues for the full values of the software support contracts over the respective support periods , the majority of which are one year . hardware systems business our hardware systems business is comprised of two operating segments : ( 1 ) hardware systems products and ( 2 ) hardware systems support . our hardware business represented 14 % of our total revenues in each of fiscal 2014 and 2013 and 17 % in fiscal 2012. we expect our hardware business to have lower operating margins as a 37 percentage of revenues than our software and cloud business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . hardware systems products : we provide a broad selection of hardware systems and related services including servers , storage , networking , virtualization software , operating systems , and management software to support diverse it environments , including cloud computing environments . we engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud and on-premise it infrastructures . our hardware products support many of the world 's largest cloud infrastructures , including the oracle cloud . our hardware products and services are designed to work in customer environments that may include other oracle or non-oracle hardware or software components . this flexible and open approach provides oracle 's customers with a broad range of choices in deploying hardware systems , which we believe is a priority for our customers . our hardware products and services also help to meet customers ' demands to manage growing amounts of data and business requirements to meet increasing compliance and regulatory demands and to reduce energy , space and operational costs . we have also engineered our hardware systems products to create performance and operational cost advantages for customers when our hardware and software products are combined as oracle engineered systems . we offer a wide range of server systems using our sparc microprocessor . our sparc servers run the oracle solaris operating system and are designed to be differentiated by their reliability , security , and scalability . our mid-size and large servers are designed to offer greater performance and lower total cost of ownership than mainframe systems for business critical applications , for customers having more computationally intensive needs , and as platforms for building cloud computing it environments . our sparc servers are also a core component of the oracle supercluster , one of our oracle engineered systems . we also offer enterprise x86 servers . these x86 servers are based on microprocessor platforms from intel corporation and are compatible with oracle solaris , oracle linux , microsoft windows and other operating systems .
| 50 we caution readers that , while pre- and post-acquisition comparisons , as well as any quantified amounts themselves , may provide indications of general trends , the acquisition information that we provide has inherent limitations for the following reasons : any qualitative and quantitative disclosures can not specifically address or quantify the substantial effects attributable to changes in business strategies , including our sales force integration efforts . we believe that if our acquired companies had operated independently and sales forces had not been integrated , the relative mix of products sold would have been different ; and although substantially all of our customers , including customers from acquired companies , renew their software license updates and product support contracts when the contracts are eligible for renewal and we strive to renew cloud saas and paas contracts and hardware systems support contracts , the amounts shown as cloud software-as-a-service and platform-as-a-service deferred revenues , software license updates and product support deferred revenues , and hardware systems support deferred revenues in our supplemental disclosure related to certain charges ( presented below ) are not necessarily indicative of revenue improvements we will achieve upon contract renewals to the extent customers do not renew . constant currency presentation our international operations have provided and will continue to provide a significant portion of our total revenues and expenses . as a result , total revenues and expenses will continue to be affected by changes in the u.s. dollar against major international currencies . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percent change in the results from one period to another period in this annual report using constant currency disclosure . to present this information , current and comparative prior period results for entities reporting in currencies other than u.s. dollars are converted into u.s. dollars at constant exchange rates ( i.e. , the rates in effect on may 31 , 2013 , which was the last day
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) ( 684,529 ) effect of merger and recapitalization - - - - - - 1,774,902 1,775 ( 1,775 ) ( 2,072,374 ) ( 2,072,374 ) purchase of treasury shares ( $ 15.00 per share ) - - - - - - ( 13,333 ) ( 13 ) ( 199,987 ) - ( 200,000 ) stock issued for cash ( $ 0.03 per share ) - - - - - - 840,000 840 24,160 - 25,000 net loss - - - - - - - - - ( 2,458,632 ) ( 2,458,632 ) balance 12/31/2013 1,800,000 $ 1,800,000 1,400,000,000 $ 1,400,000 $ ( 232,000 ) $ ( 2,466,999 ) 9,281,568 $ 9,282 $ 204,718 $ ( 6,105,536 ) ( 5,390,535 ) stock issued for service ( $ 0.30 per share ) - - - - - - 48,867 49 14,951 - 15,000 stock issued for service ( $ 0.21 per share ) - - - - - - 73,333 73 14,927 - 15,000 stock issued for service ( $ 0.195 per share ) - - - - - - 256,410 256 49,744 - 50,000 stock issued for service ( $ 0.048 per share ) - - - - - - 573,333 573 26,947 - 27,520 stock issued for service ( $ 0.0225 per share ) - - - - - - 266,667 267 5,733 - 6,000 stock issued for service ( $ 0.0105 per share ) - - - - - - 240,000 240 2,280 - 2,520 stock issued for service ( $ 0.003 per share ) - - - - - - 533,333 533 1,067 - 1,600 stock issued for conversion of note payable - - - - - - 33,797,238 33,798 473,160 - 506,958 reclasification of derivative liabilities due to conversion of debt - - - - - - - - 280,158 - 280,158 liabilities settled under laibility purchase agreement - - - - - - 14,692,867 14,693 232,041 - 246,734 net profit/ ( loss ) - - - - - - - - - ( 771,742 ) ( 771,742 ) balance 12/31/2014 1,800,000 $ 1,800,000 1,400,000,000 $ 1,400,000 $ ( 232,000 ) $ ( 2,466,999 ) 59,763,617 $ 59,764 $ 1,305,726 $ ( 6,877,278 ) $ ( 5,010,787 ) f- 6 stl marketing group , inc. & subsidiaries notes to the consolidated financial statements december 31 , 2014 and 2013 note 1 – nature of operations and summary of significant accounting policies nature of operations on october 15 , 2012 , stl marketing group , inc. ( “ stlk ” ) entered into a merger agreement with versant corporation , a delaware corporation ( “ versant ” ) . the agreement consisted of $ 75,000 for the series a and c preferred stock . on january 23 and january 29 , the respective boards of versant and stlk respectively approved the share exchange plan ( “ sep ” ) . as a result of the share exchange plan , on february 4 , 2013 : ( 1 ) the stl marketing holders of preferred a and preferred c series stock , returned their shares to treasury for the reclassification and restructuring of these shares ; ( 2 ) stlk 's preferred series a , b and c were restructured and amended to reflect the sep agreed to by the companies ; ( 3 ) versant class x shareholders exchanged their 1,000 versant class x common shares for 1,400,000,000 preferred series b stlk stock ; ( 4 ) versant class a shareholders exchanged their 1,800,000 versant class a shares for 1,800,000 preferred series a convertible stlk stock ; ( 5 ) of the 200,003 versant 's class b common stock shareholders , 200,000 shares ( $ 200,000 value ) received convertible notes in stlk and the remaining 3 shares ( $ 219,000 value ) received 6,666,667 restricted stlk common stock ; ( 6 ) versant issued 7,500,000 class b , common shares to stl marketing group , granting them 100 % of the common shares in versant . upon finalization of the merger the accounting acquirer held 100,120,000 shares or 98.26 % of the combined entity and the legal acquirer held 1,774,902 shares of 1.74 % of the combined entity . stl marketing group , inc. was a “ shell company ” prior to the merger and did not conduct an active trade or business . from and after the consummation of the merger on february 4 , 2013 stl marketing group , inc. 's primary operations consisted of the business and operations of versant corporation . because stl marketing group , inc. was a shell company at the time of the merger ; we filed a general form for registration under form 10 under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . for accounting purposes , the merger transaction has been accounted for as a reverse acquisition story_separator_special_tag story_separator_special_tag font > for the years ended december 31 , 2014 and 2013 , the company reported a net loss of $ ( 771,742 ) and $ ( 2,458,632 ) , respectively . the change in net loss between the periods ended december 31 , 2014 and 2013 is due to a decrease in derivative liabilities . operating expenses decreased by roughly 8 % during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013. the $ 60,635 decrease in operating expenses is primarily attributed to the following changes in operating expenses : decrease in professional fees of $ 89,041 and increase in general and administrative of $ 33,405 primarily related to the additional startup expenses of phonesuite solutions . the company has no revenues to date . liquidity and capital resources as of december 31 , 2014 , we had a working deficit of $ 5,017,677 as compared to december 31 , 2013 of $ 5,402,299 a decrease of $ 384,622. the decrease in working capital deficit for the period ended story_separator_special_tag ) ( 684,529 ) effect of merger and recapitalization - - - - - - 1,774,902 1,775 ( 1,775 ) ( 2,072,374 ) ( 2,072,374 ) purchase of treasury shares ( $ 15.00 per share ) - - - - - - ( 13,333 ) ( 13 ) ( 199,987 ) - ( 200,000 ) stock issued for cash ( $ 0.03 per share ) - - - - - - 840,000 840 24,160 - 25,000 net loss - - - - - - - - - ( 2,458,632 ) ( 2,458,632 ) balance 12/31/2013 1,800,000 $ 1,800,000 1,400,000,000 $ 1,400,000 $ ( 232,000 ) $ ( 2,466,999 ) 9,281,568 $ 9,282 $ 204,718 $ ( 6,105,536 ) ( 5,390,535 ) stock issued for service ( $ 0.30 per share ) - - - - - - 48,867 49 14,951 - 15,000 stock issued for service ( $ 0.21 per share ) - - - - - - 73,333 73 14,927 - 15,000 stock issued for service ( $ 0.195 per share ) - - - - - - 256,410 256 49,744 - 50,000 stock issued for service ( $ 0.048 per share ) - - - - - - 573,333 573 26,947 - 27,520 stock issued for service ( $ 0.0225 per share ) - - - - - - 266,667 267 5,733 - 6,000 stock issued for service ( $ 0.0105 per share ) - - - - - - 240,000 240 2,280 - 2,520 stock issued for service ( $ 0.003 per share ) - - - - - - 533,333 533 1,067 - 1,600 stock issued for conversion of note payable - - - - - - 33,797,238 33,798 473,160 - 506,958 reclasification of derivative liabilities due to conversion of debt - - - - - - - - 280,158 - 280,158 liabilities settled under laibility purchase agreement - - - - - - 14,692,867 14,693 232,041 - 246,734 net profit/ ( loss ) - - - - - - - - - ( 771,742 ) ( 771,742 ) balance 12/31/2014 1,800,000 $ 1,800,000 1,400,000,000 $ 1,400,000 $ ( 232,000 ) $ ( 2,466,999 ) 59,763,617 $ 59,764 $ 1,305,726 $ ( 6,877,278 ) $ ( 5,010,787 ) f- 6 stl marketing group , inc. & subsidiaries notes to the consolidated financial statements december 31 , 2014 and 2013 note 1 – nature of operations and summary of significant accounting policies nature of operations on october 15 , 2012 , stl marketing group , inc. ( “ stlk ” ) entered into a merger agreement with versant corporation , a delaware corporation ( “ versant ” ) . the agreement consisted of $ 75,000 for the series a and c preferred stock . on january 23 and january 29 , the respective boards of versant and stlk respectively approved the share exchange plan ( “ sep ” ) . as a result of the share exchange plan , on february 4 , 2013 : ( 1 ) the stl marketing holders of preferred a and preferred c series stock , returned their shares to treasury for the reclassification and restructuring of these shares ; ( 2 ) stlk 's preferred series a , b and c were restructured and amended to reflect the sep agreed to by the companies ; ( 3 ) versant class x shareholders exchanged their 1,000 versant class x common shares for 1,400,000,000 preferred series b stlk stock ; ( 4 ) versant class a shareholders exchanged their 1,800,000 versant class a shares for 1,800,000 preferred series a convertible stlk stock ; ( 5 ) of the 200,003 versant 's class b common stock shareholders , 200,000 shares ( $ 200,000 value ) received convertible notes in stlk and the remaining 3 shares ( $ 219,000 value ) received 6,666,667 restricted stlk common stock ; ( 6 ) versant issued 7,500,000 class b , common shares to stl marketing group , granting them 100 % of the common shares in versant . upon finalization of the merger the accounting acquirer held 100,120,000 shares or 98.26 % of the combined entity and the legal acquirer held 1,774,902 shares of 1.74 % of the combined entity . stl marketing group , inc. was a “ shell company ” prior to the merger and did not conduct an active trade or business . from and after the consummation of the merger on february 4 , 2013 stl marketing group , inc. 's primary operations consisted of the business and operations of versant corporation . because stl marketing group , inc. was a shell company at the time of the merger ; we filed a general form for registration under form 10 under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . for accounting purposes , the merger transaction has been accounted for as a reverse acquisition story_separator_special_tag story_separator_special_tag font > for the years ended december 31 , 2014 and 2013 , the company reported a net loss of $ ( 771,742 ) and $ ( 2,458,632 ) , respectively . the change in net loss between the periods ended december 31 , 2014 and 2013 is due to a decrease in derivative liabilities . operating expenses decreased by roughly 8 % during the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013. the $ 60,635 decrease in operating expenses is primarily attributed to the following changes in operating expenses : decrease in professional fees of $ 89,041 and increase in general and administrative of $ 33,405 primarily related to the additional startup expenses of phonesuite solutions . the company has no revenues to date . liquidity and capital resources as of december 31 , 2014 , we had a working deficit of $ 5,017,677 as compared to december 31 , 2013 of $ 5,402,299 a decrease of $ 384,622. the decrease in working capital deficit for the period ended
| the costa rica presidential elections resulted in mr. luis guillermo solis becoming the president of costa rica ( as the candidate from the partido accion ciudadana or pac ) . we believed mr. solis , as a candidate , took a very favorable position to the generation of electricity by private enterprises as part of an overall solution to the energy crisis of the country . however , since his election , president solis has since appointed the new grupo ice chairman and ceo whom we believe opposes any private generation of electricity . further complicating matters , the general manager who issued us the ppa letter from cnfl , was unexpectedly removed from office . in fact , a great majority of the cnfl executive staff , who the company believes was key in its efforts to finalize the ppa have been removed and replaced . as a result , the board has reached out to cnfl and requested a meeting with the new general manager to move forward on our ppa proposal as reflected in the ppa letter . the company will also be exploring alternatives to cnfl , including the possibility of a 7200/7508 license ( maximum of 20mw ) . at this time , it is unclear on how these changes affect our progress to date . due to the governmental changes in costa rica , we may have to reinitiate the process with cnfl . in the interim , the company has cut its operating costs in costa rica by approximately $ 13,000 per month . most of the professional studies and technical assessments for the ppa have been paid for and will continue to be applicable in the future leaving minimal costs for us to continue pursuing the ppa . additionally , the company believes that all of the services related to the ppa can be easily reinstated or expanded as needed . in october 2014 , the company met with representatives of cnfl and has also met with a variety of business and government officials
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we required borrowings to fund our working capital which has been adversely impacted by the suspension of the cheviot project and the extended collection of the associated bluewater receivable as discussed further in critical accounting policies. also , as discussed in critical accounting policies , contributing to our decreased working capital were increased contract losses incurred during 2012 , primarily attributable to one of our major deepwater projects . on march 7 , 2013 , we entered into a change order with our customer to settle our claim relating to this project . revenue for this change order earned by the company was recorded in the quarter ended december 31 , 2012. as a result of our entry into this change order , we expect to pay down a portion of our outstanding borrowings in the first half of 2013. we are required to maintain certain financial covenants under our revolving line of credit , including a minimum current ratio of 1.25 to 1.0 , a net worth minimum requirement of $ 241.2 million , debt to net worth ratio of 0.5 to 1.0 , and earnings before interest , taxes , depreciation and amortization ( ebitda ) to interest expense ratio of 4.0 to 1.0. as of december 31 , 2012 , we were in compliance with these covenants . at december 31 , 2012 , our cash and cash equivalents totaled $ 24.9 million . working capital was $ 81.3 million at december 31 , 2012. the ratio of current assets to current liabilities was 1.88 to 1 at december 31 , 2012. net cash provided by operating activities was $ 11.0 million for the year ended december 31 , 2012 , compared to $ 11.9 million for the year ended december 31 , 2011. our primary uses of cash during 2012 were related to capital expenditures and an increase in our net contract position . as of december 31 , 2012 , our investment in net contract position was $ 43.3 million compared to $ 30.3 million as of december 31 , 2011 , representing an increase of $ 13.1 million . the increase is due to timing of work performed on several larger contracts compared to scheduled contractual billing terms , the revisions to the payment terms agreed to with bluewater in august 2012 , and cost recoveries negotiated with customers . we define net contract position as contracts receivable , contract retainage , costs and estimated earnings in excess of billings on uncompleted contracts , materials and other amounts prepaid to subcontractors , accounts payable , and billings in excess of 30 index to financial statements costs and estimated earnings on uncompleted contracts . an overall increase in these contract related accounts represents a relative decrease in cash on hand for working capital needs and an increase in cash utilized by contracts in progress . net cash used in investing activities for the year ended december 31 , 2012 was $ 35.9 million , mainly related to capital expenditures for equipment and improvements to our production facilities , including an additional $ 4.8 million to extend the length of our graving dock at our texas facility , $ 2.8 million for two manitowac 18000 maxer attachments for our cranes at our texas facility and $ 5.4 million to dredge the waterways near the bulkhead of our texas facilities to accommodate larger vessels used in the installation of deepwater projects . also included in capital expenditures were $ 2.9 million for an additional m2250 manitowoc crane for our gulf island facility in houma and $ 1.1 million on the construction of a new , 30,000 square foot warehouse for gulf island 's east yard . also for the twelve-month period ended december 31 , 2012 , $ 9.5 million was spent to complete the construction of a coffer cell to drain the graving dock at our texas facility . during the fourth quarter of 2011 , the graving dock flooded unexpectedly when soil washed out from under the graving dock floor , which allowed water from the corpus christi ship channel to enter the dock through the floor and caused damage to a portion of the graving dock slab . to prevent further flooding , the company designed and constructed a coffer cell to drain the dock and complete repairs to the slab so that it can be utilized during the fabrication stage of the williams gulfstar fps gs-1hull project . of the $ 9.5 million spent in 2012 , $ 3.1 million of costs to build the coffer are included in contract costs for the williams project . the remaining $ 6.4 million has been capitalized as property as part of the graving dock or as inventory for use on future projects after its removal upon completion of the williams project . the graving dock at our texas facility is drained and repairs to the slab are substantially complete . the approximate cost to repair the graving dock was $ 7.5 million , all of which has been recovered through insurance . we anticipate capital expenditures for 2013 to be approximately $ 17.6 million for the purchase of equipment and additional yard and facility infrastructure improvements , including $ 4.5 million for rolling equipment to replace aging rolling equipment at our texas facility . the $ 5.5 million of net cash used in financing activities for the year ended december 31 , 2012 included $ 17,000 of proceeds from the exercise of stock options and $ 259,000 of excess tax benefits associated with the share-based payment arrangements less $ 5.8 million in payments of dividends on common stock . we believe that for the next twelve months , our cash on hand , our cash generated by operating activities and funds available under our revolving line of credit will be sufficient to fund our capital expenditures and meet our working capital needs . however , job awards may require us to issue additional letters story_separator_special_tag we required borrowings to fund our working capital which has been adversely impacted by the suspension of the cheviot project and the extended collection of the associated bluewater receivable as discussed further in critical accounting policies. also , as discussed in critical accounting policies , contributing to our decreased working capital were increased contract losses incurred during 2012 , primarily attributable to one of our major deepwater projects . on march 7 , 2013 , we entered into a change order with our customer to settle our claim relating to this project . revenue for this change order earned by the company was recorded in the quarter ended december 31 , 2012. as a result of our entry into this change order , we expect to pay down a portion of our outstanding borrowings in the first half of 2013. we are required to maintain certain financial covenants under our revolving line of credit , including a minimum current ratio of 1.25 to 1.0 , a net worth minimum requirement of $ 241.2 million , debt to net worth ratio of 0.5 to 1.0 , and earnings before interest , taxes , depreciation and amortization ( ebitda ) to interest expense ratio of 4.0 to 1.0. as of december 31 , 2012 , we were in compliance with these covenants . at december 31 , 2012 , our cash and cash equivalents totaled $ 24.9 million . working capital was $ 81.3 million at december 31 , 2012. the ratio of current assets to current liabilities was 1.88 to 1 at december 31 , 2012. net cash provided by operating activities was $ 11.0 million for the year ended december 31 , 2012 , compared to $ 11.9 million for the year ended december 31 , 2011. our primary uses of cash during 2012 were related to capital expenditures and an increase in our net contract position . as of december 31 , 2012 , our investment in net contract position was $ 43.3 million compared to $ 30.3 million as of december 31 , 2011 , representing an increase of $ 13.1 million . the increase is due to timing of work performed on several larger contracts compared to scheduled contractual billing terms , the revisions to the payment terms agreed to with bluewater in august 2012 , and cost recoveries negotiated with customers . we define net contract position as contracts receivable , contract retainage , costs and estimated earnings in excess of billings on uncompleted contracts , materials and other amounts prepaid to subcontractors , accounts payable , and billings in excess of 30 index to financial statements costs and estimated earnings on uncompleted contracts . an overall increase in these contract related accounts represents a relative decrease in cash on hand for working capital needs and an increase in cash utilized by contracts in progress . net cash used in investing activities for the year ended december 31 , 2012 was $ 35.9 million , mainly related to capital expenditures for equipment and improvements to our production facilities , including an additional $ 4.8 million to extend the length of our graving dock at our texas facility , $ 2.8 million for two manitowac 18000 maxer attachments for our cranes at our texas facility and $ 5.4 million to dredge the waterways near the bulkhead of our texas facilities to accommodate larger vessels used in the installation of deepwater projects . also included in capital expenditures were $ 2.9 million for an additional m2250 manitowoc crane for our gulf island facility in houma and $ 1.1 million on the construction of a new , 30,000 square foot warehouse for gulf island 's east yard . also for the twelve-month period ended december 31 , 2012 , $ 9.5 million was spent to complete the construction of a coffer cell to drain the graving dock at our texas facility . during the fourth quarter of 2011 , the graving dock flooded unexpectedly when soil washed out from under the graving dock floor , which allowed water from the corpus christi ship channel to enter the dock through the floor and caused damage to a portion of the graving dock slab . to prevent further flooding , the company designed and constructed a coffer cell to drain the dock and complete repairs to the slab so that it can be utilized during the fabrication stage of the williams gulfstar fps gs-1hull project . of the $ 9.5 million spent in 2012 , $ 3.1 million of costs to build the coffer are included in contract costs for the williams project . the remaining $ 6.4 million has been capitalized as property as part of the graving dock or as inventory for use on future projects after its removal upon completion of the williams project . the graving dock at our texas facility is drained and repairs to the slab are substantially complete . the approximate cost to repair the graving dock was $ 7.5 million , all of which has been recovered through insurance . we anticipate capital expenditures for 2013 to be approximately $ 17.6 million for the purchase of equipment and additional yard and facility infrastructure improvements , including $ 4.5 million for rolling equipment to replace aging rolling equipment at our texas facility . the $ 5.5 million of net cash used in financing activities for the year ended december 31 , 2012 included $ 17,000 of proceeds from the exercise of stock options and $ 259,000 of excess tax benefits associated with the share-based payment arrangements less $ 5.8 million in payments of dividends on common stock . we believe that for the next twelve months , our cash on hand , our cash generated by operating activities and funds available under our revolving line of credit will be sufficient to fund our capital expenditures and meet our working capital needs . however , job awards may require us to issue additional letters
| factors contributing to the overall decrease in gross profit for the twelve-month period ended december 31 , 2012 compared to the twelve-month period ended december 31 , 2011 include : we recognized provisions for losses on contract receivables of $ 14.5 million during the twelve-month period ended december 31 , 2012 as compared to asset impairments of $ 7.7 million recognized during the twelve-month period ended december 31 , 2011. for additional information , see note 2 to our consolidated financial statements . we recognized contract losses of $ 12.5 million during the twelve-month period ended december 31 , 2012 as compared to $ 3.0 million recognized during the twelve-month period ended december 31 , 2011 as explained in critical accounting policies. partially offsetting these adverse impacts on gross profit , man-hours worked increased as discussed in workforce. the increase in production had a favorable impact on margin due to the spread it provided to our fixed overhead as compared to the twelve-month period ended december 31 , 2011. our general and administrative expenses were $ 9.8 million for the twelve-month period ended december 31 , 2012 compared to $ 8.2 million for the twelve-month period ended december 31 , 2011. although the absolute dollar value was more , general and administrative expenses , as a percentage of revenue , was 1.9 % compared to 2.7 % for the twelve-month periods ended december 31 , 2012 and 2011 , respectively . factors that contributed to the increase in general and administrative expenses for the twelve months ended december 31 , 2012 include : increase of $ 515,000 in professional fees as a result of our various contractual issues . we anticipate these fees will continue until these issues are resolved . increase of $ 385,000 in stock compensation expense mainly due to the accelerated vesting of restricted shares upon the retirement of kerry chauvin , our former c.e.o. , in december 2012. increase of $ 289,000 in bank service charges resulting from the issuance of additional letters of credit related to our two major deepwater projects . increase of $ 181,000 in expenses associated with setting up additional staff in our offices . we had net interest income of $ 433,000 for the twelve-month period ended december 31 , 2012 compared to net interest income of $ 902,000 for the twelve-month period ended december 31 , 2011. the interest income for the period ended december 31 , 2012 was primarily related to the accretion of the
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reportable segments effective in the first quarter of 2017 , as a result of the esselte acquisition , the company realigned its operating structure , which affected the makeup of its business segments for financial reporting purposes . the company has three operating business segments each of which is comprised of different geographic regions . the company no longer reports the results of its computer products group as a separate segment . results of the former computer products group are reflected in the appropriate geographic segment based on the region from which sales are made . the company 's three realigned business segments are as follows : operating segment geographic regions primary brands acco brands north america united states and canada at-a-glance ® , five star ® , gbc ® , hilroy ® , kensington ® , mead ® , quartet ® , and swingline ® acco brands emea europe , middle east and africa derwent ® , esselte ® , gbc ® , kensington ® , leitz ® , nobo ® , rapid ® , and rexel ® acco brands international australia , latin america and asia-pacific artline ® , gbc ® , kensington ® , marbig ® , quartet ® , rexel ® , tilibra ® , and wilson jones ® we have restated our financial statements for each of the periods presented to reflect this change in reportable business segments . each of the company 's three operating segments designs , markets , sources , manufactures and sells recognized consumer and end-user demanded brands used in businesses , schools and homes . product designs are tailored based on end-user preferences in each geographic region . our product categories include storage and organization ; stapling ; punching ; laminating , binding and shredding machines and related consumable supplies ; whiteboards ; notebooks ; calendars ; computer accessories ; and do-it-yourself tools , among others . our portfolio of consumer and end-user demanded brands includes both globally and regionally recognized brands . acco brands markets and sells its strong multi-product offering broadly and is not dependent on any one channel . our products are sold through all relevant channels , namely retailers , including : mass retailers ; e-tailers ; discount , drug/grocery and variety chains ; warehouse clubs ; hardware and specialty stores ; independent office product dealers ; office superstores ; and contract stationers . we also sell directly to commercial and consumer end-users through our e-commerce platform and our direct sales organization . for further information on our business segments see `` note 16. information on business segments `` to the consolidated financial statements contained in part ii , item 8. of this report . story_separator_special_tag interest expense , equity in earnings of joint venture and other ( income ) expense , net interest expense of $ 41.1 million , was down $ 8.2 million , or 17 % , from $ 49.3 million in the prior-year period . the decrease was primarily due to the lower interest rate paid on our senior unsecured notes , which were refinanced in the fourth quarter of 2016 , partially offset by interest resulting from increased debt incurred in connection with the esselte acquisition . the prior-year period included $ 2.5 million of incremental interest expense related to the above-referenced refinancing of our senior unsecured notes and the accelerated amortization of debt issuance cost related to the prepayment of $ 70 million on our u.s. dollar senior secured term loan a. as a result of the pa acquisition , which was completed on may 2 , 2016 , equity in earnings of joint venture decreased $ 2.1 million as the company ceased accounting for the pelikan artline joint-venture using the equity method of accounting . 28 other ( income ) expense , net was income of $ 0.4 million compared to expense of $ 1.4 million in the prior-year period . the current-year period included a $ 2.3 million foreign currency gain related to the settlement of certain intercompany loan transactions . the prior-year period included charges associated with the refinancing of our senior unsecured notes . these charges consisted of $ 25.0 million in a `` make-whole '' call premium and a $ 4.9 million charge for the write-off of debt issuance costs , which were offset by a $ 28.9 million non-cash gain arising from the pa acquisition due to the revaluation of the company 's previously held equity interest to fair value and a gain on the settlement of an intercompany loan of $ 1.0 million , previously deemed permanently invested . income taxes for the current-year period , income tax expense was $ 26.4 million on income before taxes of $ 158.1 million , or an effective tax rate of 16.7 % . the low effective tax rate for the current-year period is primarily due to a net tax benefit of $ 25.7 million related to the newly passed u.s. tax act in december of 2017. this benefit was driven by the reduction of net deferred tax liabilities , partially offset by a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries ' previously untaxed foreign earnings ( the `` transition toll tax '' ) . for further information on the impact of the u.s. tax act , see `` note 11. income taxes `` to the consolidated financial statements contained in item 8. of this report . also contributing to the low effective rate was $ 5.6 million of excess tax benefits from stock-based compensation related to the adoption of asu no . 2016-09 , compensation - stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . see `` note 2. significant accounting policies `` to the consolidated financial statements contained in item 8. of this report for details on the adoption of this new standard . for the prior-year period , income tax expense was $ 29.6 million on income before taxes of $ 125.1 million , or an effective tax rate of 23.7 % . story_separator_special_tag the low effective tax rate in the prior-year period was primarily due to the following : 1 ) the $ 28.9 million gain arising from the pa acquisition due to the revaluation of the previously held equity interest to fair value , which was not subject to tax , and 2 ) tax losses on foreign exchange on the repayment of intercompany loans , for which the pre-tax effect was recorded in equity . net income net income of $ 131.7 million , was up $ 36.2 million , or 38 % , from $ 95.5 million in the prior-year period . diluted income per share was $ 1.19 , up $ 0.32 , or 37 % from $ 0.87 per diluted share in the prior-year period . foreign currency translation increased net income by $ 5.9 million , or 6 % in the current-year period . the increase in net income was primarily due to inclusion of the acquisitions , lower interest expense and a lower effective tax rate . segment net sales and operating income for the years ended december 31 , 2017 and 2016 replace_table_token_9_th ( 1 ) segment operating income excludes corporate costs : `` interest expense ; '' `` interest income ; '' `` equity in earnings of joint-venture `` and `` other ( income ) expense , net . '' see `` note 16. information on business segments `` to the consolidated financial statements contained in item 8. of this report for a reconciliation of total `` segment operating income `` to `` income before income tax . '' 29 acco brands north america acco brands north america net sales of $ 999.0 million , including $ 13.4 million attributable to the esselte acquisition , were down $ 17.1 million , or 2 % , from $ 1,016.1 million in the prior-year period . foreign currency translation increased sales by $ 2.0 million , or 0.2 % , in the current-year period . comparable net sales , excluding esselte and foreign currency translation , decreased primarily due to continued declines with office superstore customers and lost product placements with certain customers . sales during the back-to-school season were down slightly compared to the prior year , which had strong growth . acco brands north america operating income of $ 155.6 million , was up $ 2.3 million , or 2 % , from $ 153.3 million in the prior-year period , and operating income as a percent of net sales increased to 15.6 % from 15.1 % . the increase was due to higher gross margins from cost savings and productivity initiatives , and reduced customer sales rebates , which were partially offset by lower comparable sales , higher go-to-market spending and $ 5.5 million in restructuring charges ( versus $ 1.1 million in the prior-year period ) . the restructuring charges related to the realignment of the operating structure of our former computer products group , the esselte integration and other projects to enhance the future long-term performance of the business . acco brands emea acco brands emea net sales of $ 542.8 million , including approximately $ 388 million attributable to the esselte acquisition , were up $ 371.0 million , or 216 % , from $ 171.8 million in the prior-year period . foreign currency translation increased sales by $ 0.8 million , or 0.5 % , in the current-year period . comparable net sales , excluding esselte and foreign currency translation , decreased due to lost product placements and inventory reductions by certain customers . acco brands emea operating income of $ 37.1 million , including approximately $ 24.9 million attributable to the esselte acquisition , was up $ 24.5 million , or 194 % , from $ 12.6 million in the prior-year period , but operating income as a percent of net sales decreased to 6.8 % from 7.3 % . the increase in operating income was driven by the esselte acquisition and includes restructuring costs of $ 11.2 million , integration costs of $ 5.5 million , and the amortization of step-up in the value of finished goods inventory of $ 0.8 million . foreign currency translation increased operating income by $ 2.4 million in the current-year period . underlying operating income , excluding esselte , restructuring and integration costs , foreign currency translation and the amortization of step-up in the value of finished goods inventory , decreased due to lower comparable sales , partially offset by reduced sg & a expenses . operating income as a percent of sales decreased due to restructuring and integration costs , higher intangible amortization resulting from the esselte acquisition and lower gross margins ( primarily due to esselte having lower margins than the legacy acco business ) , partially offset by the lower sg & a margins in the legacy esselte business . acco brands international acco brands international net sales of $ 407.0 million , including $ 37.9 million attributable to the pa and esselte acquisitions , were up $ 37.8 million , or 10 % , from $ 369.2 million in the prior-year period . foreign currency translation increased sales by $ 9.6 million , or 3 % in the current-year period . comparable net sales , excluding acquisitions and foreign currency translation , decreased primarily due to lost product placements and inventory reductions in australia , partially offset by higher sales in brazil and mexico . acco brands international operating income of $ 50.9 million , was up $ 1.5 million , or 3 % , from $ 49.4 million in the prior-year period , but operating income as a percent of net sales decreased to 12.5 % from 13.4 % . restructuring and integration costs in the current-year period were $ 5.0 million and $ 2.6 million , respectively . in addition , the current-year period includes a $ 1.5 million gain on the sale of a distribution center in new zealand related to the integration of pelikan artline .
| million attributable to the esselte and pa acquisitions , were up $ 391.7 million , or 25 % , from $ 1,557.1 million in the prior-year period . foreign currency translation increased sales by $ 12.4 million , or 1 % in the current-year period . comparable net sales , excluding the acquisitions and foreign currency translation , were down primarily due to declines at certain office superstore customers and lost product placements . cost of products sold cost of products sold includes all manufacturing , product sourcing and distribution costs , including depreciation related to assets used in the manufacturing , procurement and distribution processes , allocation of certain information technology costs supporting those processes , inbound and outbound freight , shipping and handling costs , purchasing costs associated with materials and packaging used in the production processes and inventory valuation adjustments . cost of products sold of $ 1,292.4 million , was up $ 250.4 million , or 24 % , from $ 1,042.0 million in the prior-year period . foreign currency translation reduced cost of 27 products sold by $ 8.4 million , or 1 % in the current-year period . underlying cost of products sold , excluding foreign currency translation , increased due to the inclusion of the acquisitions , partially offset by lower comparable sales and cost savings and productivity improvements . gross profit we believe that gross profit and gross profit margin provide enhanced shareholder appreciation of underlying profit drivers . gross profit of $ 656.4 million , was up $ 141.3 million , or 27 % , from $ 515.1 million in the prior-year period . foreign currency translation increased gross profit by $ 4.0 million , or 1 % in the current-year period . underlying gross profit , excluding foreign currency translation , increased due to the inclusion of the acquisitions , together with productivity initiatives and higher pricing , which was partially offset by lower comparable sales and inflation . gross profit as a
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such agencies may require that we recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination . accordingly , actual results could differ materially from those estimates . deterioration in the hawaii real estate market could result in an increase in loan delinquencies , additional increases in our allowance for loan losses and provision for loan losses , as well as an increase in loan charge-offs . securities impairment . we periodically perform analyses to determine whether there has been an other-than-temporary decline in the value of our securities . our held-to-maturity securities consist primarily of debt securities for which we have a positive intent and ability to hold to maturity , and are carried at amortized cost . our available-for-sale securities are carried at fair value . we conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost , and whether such decline is other-than-temporary . if such decline is deemed other-than-temporary , we would adjust the cost basis of the security by writing down the security for any credit losses through a charge on the income statement . the market values of our securities are affected by changes in interest rates as well as shifts in the market 's perception of the issuers . the fair value of investment securities is usually based on quoted market prices or dealer quotes . however , if there are no observable market inputs ( for securities such as trust preferred securities ) , we estimate the fair value using unobservable inputs . we discount projected cash flows using a risk-adjusted discount rate in accordance with the fair value measurements and disclosures topic of the fasb asc . our investment in pretsl xxiii was determined to be other-than-temporarily impaired and we recorded an impairment charge of $ 2.4 million in the year ended december 31 , 2010. pretsl xxiii has a book value of $ 916,000 at december 31 , 2015. the difference between the book value of $ 916,000 and the remaining unamortized cost basis of $ 1.1 million is reported as other comprehensive loss and is related to noncredit factors such as an inactive trust preferred securities market . see also item 1a . risk factors for a discussion on our investment in trust preferred securities . we evaluated our $ 4.8 million investment in fhlb stock for other-than-temporary impairment as of december 31 , 2015. considering the long-term nature of this investment and the liquidity position of the fhlb of des moines , our fhlb stock was not considered other-than-temporarily impaired . as of december 31 , 2015 , the fhlb of des moines has met all of its regulatory capital requirements . moody 's investor services and standard and poor 's have given the fhlb of des moines long-term credit ratings of aaa and aa+ , respectively . we evaluated our $ 3.0 million investment in frb stock for other-than-temporary impairment as of december 31 , 2015. based on the long-term nature of this investment and the liquidity position of the frb of san francisco , our frb stock was not considered to be other-than-temporarily impaired . 38 deferred tax assets . deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to temporary differences and carryforwards . a valuation allowance may be required if , based on the weight of available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . in determining whether a valuation allowance is necessary , we consider the level of taxable income in prior years , to the extent that carrybacks are permitted under current tax laws , as well as estimates of future taxable income and tax planning strategies that could be implemented to accelerate taxable income if necessary . if our estimates of future taxable income were materially overstated or if our assumptions regarding the tax consequences of tax planning strategies were inaccurate , some or all of our deferred tax assets may not be realized , which would result in a charge to earnings . defined benefit retirement plan . defined benefit plan obligations and related assets of our defined benefit retirement plan are presented in note 17 to the consolidated financial statements . effective december 31 , 2008 , the defined benefit retirement plan was frozen and all plan benefits were fixed as of that date . plan assets , which consist primarily of marketable equity securities and mutual funds , are typically valued using market quotations . plan obligations and the annual pension expense are determined by independent actuaries through the use of a number of assumptions . key assumptions in measuring the plan obligations include the discount rate and the expected long-term rate of return on plan assets . in determining the discount rate , we utilize a yield that reflects the top 50 % of the universe of bonds , ranked in the order of the highest yield . these bonds provide cash flows that match the timing of expected benefit payments . asset returns are based upon the anticipated average rate of earnings expected on the invested funds of the plans . at december 31 , 2015 , we used weighted-average discount rates of 4.10 % and 4.40 % for calculating annual pension expense and projected plan liabilities , respectively , and an expected long-term rate of return on plan assets of 7.50 % for calculating annual pension expense . at december 31 , 2014 , we used a weighted-average discount rate of 4.90 % and 4.10 % for calculating annual pension expense and projected plan liabilities , respectively , and an expected long-term rate of return on plan assets of 7.50 % for calculating annual pension expense . story_separator_special_tag for both the discount rate and the asset return rate , a range of estimates could reasonably have been used , which would affect the amount of pension expense and pension liability recorded . a decrease in the discount rate or an increase in the asset return rate would reduce pension expense in 2015 , while an increase in the discount rate or a decrease in the asset return rate would have the opposite effect . a 25 basis point decrease in the discount rate assumptions would decrease 2015 pension expense by $ 3,000 and increase year-end 2015 pension liability by $ 554,000 , while a 25 basis point decrease in the asset return rate would increase 2015 pension expense by $ 33,000. balance sheet analysis assets . at december 31 , 2015 , our assets were $ 1.821 billion , an increase of $ 129.2 million , or 7.6 % , from $ 1.692 billion at december 31 , 2014. the increase was primarily caused by a $ 220.4 million increase in loans receivable that occurred as loan production exceeded loan sales and repayments . this was partially offset by a $ 79.9 million decrease in investment securities that occurred as repayments and sales exceeded purchases . cash and cash equivalents . at december 31 , 2015 , we had $ 65.9 million of cash and cash equivalents compared to $ 75.1 million at december 31 , 2014. during 2015 , cash and cash equivalents decreased by $ 9.1 million primarily due to a $ 220.4 million increase in loans receivable , $ 8.9 million of common stock repurchases , a $ 17.0 million decrease in securities sold under agreements to repurchase and the $ 7.0 million payment of common stock dividends . these uses of cash were partially offset by an $ 85.4 million increase in deposits , a $ 79.9 million decrease in investment securities , a $ 54.0 million increase in fhlb advances , net income of $ 14.7 million , and a $ 6.4 million decrease in fhlb stock . 39 loan portfolio composition . the following table sets forth the composition of our loan portfolio at the dates indicated . replace_table_token_5_th loan portfolio maturities and yields . the following table summarizes the scheduled maturities of our loan portfolio at december 31 , 2015. demand loans , loans having no stated repayment schedule or maturity , and overdraft loans are reported as being due in one year or less . one- to four-family residential real estate multi-family residential real estate construction , commercial and other real estate home equity loans and lines of credit other loans total due during the years ending december 31 , amount weighted average rate amount weighted average rate amount weighted average rate amount weighted average rate amount weighted average rate amount weighted average rate ( dollars in thousands ) 2016 $ % $ % $ 209 7.00 % $ 4 0.95 % $ 744 6.81 % $ 957 6.83 % 2017 to 2020 2,845 5.23 639 5.28 2,132 5.39 3,093 5.35 726 5.65 9,435 5.34 2021 and beyond 1,143,059 4.05 9,195 4.65 16,947 4.58 12,236 4.07 3,073 4.99 1,184,510 4.06 total $ 1,145,904 4.05 % $ 9,834 4.69 % $ 19,288 4.70 % $ 15,333 4.33 % $ 4,543 5.39 % $ 1,194,902 4.07 % 40 the following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at december 31 , 2015 that are contractually due after december 31 , 2016. replace_table_token_6_th securities . at december 31 , 2015 , our securities portfolio totaled $ 493.1 million , or 27.1 % of assets . at that date , our securities held to maturity consisted of securities with the following amortized costs : $ 481.5 million of mortgage-backed securities , $ 10.7 million of collateralized mortgage obligations and $ 916,000 of trust preferred securities . all of the mortgage-backed securities and collateralized mortgage obligations were issued by fannie mae , freddie mac or ginnie mae . at december 31 , 2015 , none of the underlying collateral consisted of subprime or alt-a loans ( traditionally defined as nonconforming loans having less than full documentation ) . at december 31 , 2015 , we held no common or preferred stock of fannie mae or freddie mac . during the year ended december 31 , 2015 our securities portfolio decreased by $ 79.9 million , or 13.9 % , primarily due to repayments and sales exceeding purchases . the following table sets forth the amortized cost and estimated fair value of our securities portfolio at the dates indicated . replace_table_token_7_th ( 1 ) all of our collateralized mortgage obligations have been issued by fannie mae , freddie mac or ginnie mae . 41 any unrealized loss on individual mortgage-backed securities as of december 31 , 2015 , 2014 and 2013 was caused by increases in market interest rates . all of our mortgage-backed securities are guaranteed by u.s. government-sponsored enterprises or a u.s. government agency . since the decline in market value has been attributable to changes in interest rates and not credit quality , we continue to have the intent not to sell these investments , and it is not more likely than not that we will be required to sell such investments prior to the recovery of the amortized cost basis , we have not considered these investments to be other-than-temporarily impaired as of december 31 , 2015 , 2014 or 2013. at december 31 , 2015 , we owned a trust preferred security with an amortized cost of $ 916,000. this security represents an investment in a pool of debt obligations issued primarily by holding companies of federal deposit insurance corporation-insured financial institutions . the trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 48 months in the same tranche of securities that we own and no new issues of pooled trust preferred securities have occurred since 2007. we used a discounted cash flow model to determine whether these securities are other-than-temporarily impaired .
| net interest income increased by $ 3.1 million , or 5.8 % , to $ 56.6 million for the year ended december 31 , 2015 from $ 53.5 million for the year ended december 31 , 2014. interest and dividend income increased by $ 3.5 million , or 5.8 % , to $ 63.1 million for the year ended december 31 , 2015 from $ 59.6 million for the year ended december 31 , 2014. the increase in interest and dividend income occurred primarily because of a $ 96.8 million increase in average interest-earning assets which was partially offset by a one basis point decline in the average yield on interest-earning assets . interest expense increased by $ 397,000 , or 6.5 % , to $ 6.5 million for the year ended december 31 , 2015 from $ 6.1 million for the year ended december 31 , 2014. the increase in interest expense is due to an $ 83.2 million increase in average interest-bearing liabilities . the interest rate spread and net interest margin were 3.29 % and 3.36 % , respectively , for the year ended december 31 , 2015 , compared to 3.30 % and 3.37 % for 2014. net interest income increased by $ 3.6 million , or 7.2 % , to $ 53.5 million for the year ended december 31 , 2014 from $ 49.9 million for the year ended december 31 , 2013. interest and dividend income increased by $ 3.4 million , or 6.1 % , to $ 59.6 million for the year ended december 31 , 2014 from $ 56.2 million for the year ended december 31 , 2013. the increase in interest and dividend income occurred primarily because of a $ 69.9 million increase in average interest-earning assets and a five basis point increase in the average interest-earning asset yield . interest expense decreased by $ 164,000 , or 2.6 % , to $ 6.1 million for the year ended december 31 , 2014 from $ 6.3 million for the year ended december 31 , 2013. the decrease in interest expense is primarily due to a three basis point decline in the average cost of interest-bearing liabilities that was partially offset by a $ 74.3 million increase in average interest-bearing liabilities . the interest rate spread and net interest margin were 3.30 % and 3.37 % , respectively , for the year ended december 31 , 2014 , compared to 3.22 % and 3.28 % for 2013. the eight basis point increase in the net interest rate spread is due to a five basis point increase in the average
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the emrg story_separator_special_tag this form 10-k and other reports filed by the company from time to time with the sec ( collectively , the “ filings ” ) contain or may contain forward-looking statements and information that are based upon beliefs of , and information currently available to , the company 's management as well as estimates and assumptions made by company 's management . readers are cautioned not to place undue reliance on these forward-looking statements , which are only predictions and speak only as of the date hereof . when used in the filings , the words “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ future , ” “ intend , ” “ plan , ” or the negative of these terms and similar expressions as they relate to the company or the company 's management identify forward-looking statements . such statements reflect the current view of the company with respect to future events and are subject to risks , uncertainties , assumptions , and other factors , including the risks relating to the company 's business , industry , and the company 's operations and results of operations . should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended , or planned . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance , or achievements . except as required by applicable law , including the securities laws of the united states , the company does not intend to update any of the forward-looking statements to conform these statements to actual results . our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . these accounting principles require us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented . our financial statements would be affected to the extent there are material differences between these estimates and actual results . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . the following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report . overview we intend for this discussion to provide information that will assist in understanding our financial statements , the changes in certain key items in those financial statements , and the primary factors that accounted for those changes , as well as how certain accounting principles affect our financial statements . business overview the company is a nevada corporation incorporated on november 3 , 2015 as a holding corporation focusing on the acquisition of healthcare related technology companies . the company 's fiscal year end is december 31. to date , the company has financed and acquired three electronic medical records companies . story_separator_special_tag of the membership interests of emrgence , llc ( “ emrg ” ) , a florida limited liability company . as part of the consideration , the company issued a three year convertible promissory note for $ 200,000. our auditors have raised substantial doubts as to our ability to continue as a going concern our consolidated financial statements have been prepared assuming we will continue as a going concern . the company has experienced recurring losses from operations which have caused an accumulated deficit of $ 2,194,086 at december 31 , 2016. the ability of the company to continue its operations as a going concern is dependent on management 's plans , which include the raising of capital through debt and or equity markets with some additional funding from other traditional financing sources , including term notes , until such time that funds provided by operations are sufficient to fund working capital requirements . the company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives . the company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future . there can be no assurance that financing will be available in amounts or terms acceptable to the company , if at all . the accompanying financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . these financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern . off-balance sheet arrangements as of december 31 , 2016 , the company had no off-balance sheet arrangements . critical accounting policies we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “ management 's discussion and analysis of financial condition and results of operation. story_separator_special_tag ” 18 revenue recognition the company follows paragraph 605-10-s99-1 of the fasb accounting standards codification for revenue recognition . the company recognizes revenue when it is realized or realizable and earned . the company considers revenue realized or realizable and earned when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) title has passed to the customer , ( iii ) the sales price is fixed or determinable , and ( iv ) collectability is reasonably assured . use of estimates 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 . the company 's significant accounting estimates and assumptions affecting the consolidated financial statements were the estimates and assumptions used in valuation of equity and derivative instruments . those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions , and certain estimates or assumptions are difficult to measure or value . management bases its estimates on historical experience and on various 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 . management regularly reviews its estimates utilizing currently available information , changes in facts and circumstances , historical experience and reasonable assumptions . after such reviews , and if deemed appropriate , those estimates are adjusted accordingly . actual results could differ from those estimates . stock based compensation all stock-based payments to employees , non-employee consultants , and to nonemployee directors for their services as directors , including any grants of restricted stock and stock options , are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the relevant service period . stock- based payments to nonemployees are recognized as an expense over the period of performance . such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed . in addition , for awards that vest immediately and are non-forfeitable the measurement date is the date the award is issued . fair value of financial instruments we follow paragraph 825-10-50-10 of the fasb accounting standards codification for disclosures about fair value of our financial instruments and paragraph 820-10-35-37 of the fasb accounting standards codification ( “ paragraph 820-10-35-37 ” ) to measure the fair value of our financial instruments . paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) , and expands disclosures about fair value measurements . to increase consistency and comparability in fair value measurements and related disclosures , paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad levels . the fair value hierarchy gives the highest priority to quoted prices ( unadjusted ) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs . recent accounting pronouncements in may 2014 , fasb issued accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers . the revenue recognition standard affects all entities that have contracts with customers , except for certain items . the new revenue recognition standard eliminates the transaction and industry-specific revenue recognition guidance under current gaap and replaces it with a principle-based approach for determining revenue recognition . on july 9th , the effective date was delayed one year by a vote by the fasb . public business entities , certain not-for-profit entities , and certain employee benefit plans would apply the guidance in asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application would be permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the company has reviewed the applicable asu and has not , at the current time , quantified the effects of this pronouncement , however it believes that there will be no material effect on the consolidated financial statements . 19 in june 2014 , the financial accounting standards board issued accounting standards update 2014-12 , compensation- stock compensation . the amendments in this update apply to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period . this accounting standards update is the final version of proposed accounting standards update eitf-13d-compensation-stock compensation ( topic 718 ) : accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period , which has been deleted . the amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition . a reporting entity should apply existing guidance in topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards . as such , the performance target should not be reflected in estimating the grant-date fair value of the award .
| the increase in professional fees was also due to the consummation of an investment agreement and the completion of the acquisitions of fms and emrg selling , general and administrative expenses selling , general and administrative expenses of $ 15,836 for the year ended december 31 , 2016 , increased by $ 11,677 over selling , general and administrative expenses of $ 4,159 for the period ended december 31 , 2015. the increase in selling , general and administrative expenses between the periods was primarily related to the consummation of an investment agreement and the completion of the acquisitions of fms and emrg . other expense other expense of $ 88,936 for the year ended december 31 , 2016 , increased by $ 88,936 over other expense of $ 0 for the period ended december 31 , 2015 due to loss on conversion of $ 200,000 of convertible promissory note and accrued interest on the promissory note issued to the sellers upon the closing of fms and emrg . net loss net loss of $ 2,189,927 for the year ended december 31 , 2016 , increased by $ 2,185,768 over net loss of $ 4,159 for the period ended december 31 , 2015. this increase was primarily due to the increase in officer compensation , professional fees , sg & a expenses , and other expense described above . 17 liquidity and capital resources the following table summarizes total current assets , liabilities and working capital at december 31 , 2016 compared to december 31 , 2015. replace_table_token_1_th at december 31 , 2016 , we had working capital deficit of $ 24,136 as compared to working capital deficit of $ 1,659 at december 31 , 2015 , an increase in working capital deficit of $ 22,477. financings effective august 23 , 2016 , the company entered into an investor stock subscription agreement ( “ agreement ” ) with pts to purchase up to 3,700,000 shares of the company 's common stock for $ 2,000,000 in tranches based on
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our set of solutions currently consists of ( i ) identityiq , our on-premises identity governance solution , ( ii ) identitynow , our cloud-based , multi-tenant governance suite , which is delivered as a subscription service , and ( iii ) securityiq , our on-premises identity governance for files solution that secures access to data stored in file servers , collaboration portals , mailboxes and cloud storage systems , and ( iv ) identityai , our cloud-based advanced identity analytics solution . see in part i – item 1 , the section titled “ business—products ” for more information regarding our solutions . for our identityiq and securityiq solutions , our customers typically purchase a perpetual software license , which includes one year of maintenance . our maintenance provides software maintenance as well as access to our technical support services during the maintenance term . after the initial maintenance period , customers with perpetual licenses may renew their maintenance agreement for an additional fee . for our cloud-based solutions , identitynow and identityai , for a subscription fee , we offer customers access to this solution and infrastructure support for the duration of their subscription agreement . our standard subscription agreement for our identitynow solution has a duration of three years . pricing for each of our solutions is dependent on the number of digital identities of employees , contractors , business partners and other users that the customer is entitled to govern with the solution . we also package and price our identityiq and identitynow solutions into modules . each module has unique functionalities , and our identityiq and identitynow customers are able to purchase one or more modules , depending on their needs . we package and price securityiq , our identity governance for files solution , by target storage systems . thus , our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules ( for our identityiq and identitynow solutions ) or target storage systems ( for our securityiq solution ) purchased by the customer . our go-to-market strategy consists of both direct sales and indirect sales through our partnership network of systems integrators , value-added resellers and adjacent technology vendors . we work closely with systems integrators , many of whom have dedicated sailpoint practices ( including accenture , deloitte , kpmg and pwc ) , with some dating back more than seven years , and resellers ( including value-added resellers such as optiv ) to identify potential sales opportunities and help us increase our reach , and we frequently cooperate with systems integrators to make joint sales proposals to address our mutual customers ' requirements . we also collaborate with leading access management vendors by adding our identity governance capabilities to their access management services ( e.g. , microsoft , okta and vmware ) . we do not have any material payment obligations to systems integrators , resellers or our technology partners ; nor do they have any material payment obligations to us , except that resellers typically purchase solutions directly from us and resell to customers . see the section titled “ business—partnerships and strategic relationships ” for more information regarding our partnership network . 51 in addition to our solutions , we offer professional services to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform . most of our professional services activity is in support of our partners , who perform a significant majority of all initial and follow-on implementation work for our customers . most of our consulting services are priced on a time and materials basis ; our training services are provided through multiple pricing models , including on a per-person basis ( for courses provided at our headquarters and on-site at our customers ' offices ) and a flat-rate basis ( for our e-learning course ) . we devote significant resources to acquire new customers , in both existing and new markets , in order to grow our customer base . in addition , we focus on three distinct opportunities to increase sales to existing customers : ( i ) expand the number of digital identities ; ( ii ) up-sell additional modules or target storage systems , as applicable , within a single solution ; and ( iii ) cross-sell additional solutions . key factors affecting our performance our historical financial performance has been , and we expect our financial performance in the future to be , driven by our ability to : add new customers within existing markets . based on data from s & p global market intelligence , we believe that we have penetrated less than 2 % of the approximately 65,000 companies in the countries where we have customers today and that as a result , there is significant opportunity to expand our footprint in our existing markets through new , greenfield installations and displacement of our competitors ' legacy solutions . to do so , we plan to grow our sales organization , increase and leverage our indirect channel partners and enhance our marketing efforts . g enerate additional sales to existing customers . we believe that our existing customer base provides us with a significant opportunity to drive incremental sales . in most cases , our customers initially purchase a subset of the modules or solutions we offer based on their immediate need . we focus on generating more revenue from the modules that our customers have already purchased from us as our customers grow the number of identities our solutions manage and govern and as our customers deploy our solutions across other business units or geographies within their organizations . over time , we also identify up-selling and cross-selling opportunities and seek to sell additional modules and solutions to our existing customers . retain customers . story_separator_special_tag we believe that our ability to retain our customers is an important component of our growth strategy and reflects the long-term value of our customer relationships . for example , when we add a new customer , we generate new license revenue . if the customer renews , we generate incremental maintenance revenue . as we add new identityiq customers , our high renewal rates result in incremental maintenance revenue . our key strategies to maintain our high renewal rates include focusing on the quality and reliability of our solutions , customer service and support to ensure our customers receive value from our solutions , providing consistent software upgrades and having dedicated customer success teams . expand into new markets . we expect to continue to invest significantly in sales , marketing and customer service , as well as our indirect channel partner network , to expand into new geographies and vertical markets . we believe that our market opportunity is large and growing and that the global cyber security market represents a significant growth opportunity for us . in 2017 , we generated only 28 % of our revenue outside of the united states . 52 key business metrics in addition to our gaap financial information , we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations : replace_table_token_5_th number of customers . we believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity . we define a customer as a distinct entity , division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date . subscription revenue as a percentage of total revenue . subscription revenue is a portion of our total revenue and is derived from ( i ) identitynow , our cloud-based solution where customers enter into saas subscription agreements with us , and ( ii ) identityiq and securityiq maintenance and support agreements , but not licenses . as we generally sell our solutions on a per-identity basis , our subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern as part of a saas subscription , and the ongoing price paid per-identity under a maintenance and support agreement or saas subscription . thus , we consider our subscription revenue to be the recurring portion of our revenue base and believe that its continued growth as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues . because we recognize our subscription revenue ratably over the duration of those agreements , a portion of the revenue we recognize each period is derived from agreements we entered into in prior periods . in contrast , we typically recognize license revenue upon entering into the applicable license , the timing of which is less predictable and may cause significant fluctuations in our quarterly financial results . adjusted ebitda . we believe that adjusted ebitda is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies . we believe that adjusted ebitda is an important measure for evaluating our performance because it facilitates comparisons of our core operating results from period to period by removing the impact of our capital structure ( net interest income or expense from our outstanding debt ) , asset base ( depreciation and amortization ) , tax consequences , purchase accounting adjustments , acquisition and sponsor related costs and stock-based compensation . in addition , we base certain of our forward-looking estimates and budgets on adjusted ebitda . see the section titled “ non-gaap financial measures ” for more information regarding adjusted ebitda , including the limitations of using adjusted ebitda as a financial measure , and for a reconciliation of adjusted ebitda to net loss , the most directly comparable financial measure calculated in accordance with gaap . non-gaap financial measures in addition to our financial information presented in accordance with gaap , we use certain non-gaap financial measures to clarify and enhance our understanding of past performance and future prospects . generally , a non-gaap financial measure is a numerical measure of a company 's operating performance , financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with gaap . as discussed below , we monitor the non-gaap financial measures described below , and we believe they are helpful to investors . 53 our non-gaap financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-gaap financial results differently . in addition , there are limitations in using non-gaap financial measures because they are not prepared in accordance with gaap and exclude expenses that may have a material impact on our reported financial results . in particular , interest expense , which is excluded from adjusted ebitda has been and will continue to be a significant recurring expense in our business for the foreseeable future . the presentation of non-gaap financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with gaap . we urge you to review the reconciliations of our non-gaap financial measures to the comparable gaap financial measures included below , and not to rely on any single financial measure to evaluate our business . we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies .
| services and other revenue increased by $ 7.2 million , or 25 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase is primarily a result of an increase in the number of customers using our consulting and training services . geographic regions . our operations in the united states were responsible for the largest portion of our revenue in each year ended december 31 , 2017 and 2016 because of our larger and more established sales force and partner network in the united states as compared to our other regions . revenue from both europe , the middle east and africa ( “ emea ” ) and the rest of the world also increased for years ended december 31 , 2017 and 2016 , primarily due to our investment in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide . the following table sets forth , for each of the periods presented , our consolidated total revenue by geography and the respective percentage of total revenue : replace_table_token_12_th ( 1 ) no single country represented more than 10 % of our consolidated revenue . cost of revenue replace_table_token_13_th cost of license revenue . the cost of license revenue increased by $ 0.3 million , or 7 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. during each of the years ended december 31 , 2017 and 2016 , cost of license revenue included $ 4.0 million in amortization of intangibles acquired in business combinations . cost of subscription revenue . cost of subscription revenue increased by $ 3.4 million , or 26 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. approximately $ 1.7 million was attributable to an increase in headcount and related allocated expenses to support growth of our subscription cloud-based offering and ongoing maintenance for our expanding
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the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 6.2 million , a decrease in unit cost resulting in a cost of sales decrease of $ 2.3 million and the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales decrease of $ 1.8 million . — cost of sales for wuhu was $ 22.0 million for the year ended december 31 , 2016 , compared with $ 21.2 million for the year ended december 31 , 2015 , representing an increase of $ 0.8 million , or 3.8 % . the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 1.8 million , the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales decrease of $ 1.3 million , and an increase in unit cost resulting in a cost of sales increase of $ 0.3 million . — cost of sales for hubei henglong was $ 40.0 million for the year ended december 31 , 2016 , compared with $ 43.5 million for the year ended december 31 , 2015 , representing a decrease of $ 3.5 million , or 8.1 % . the net decrease in cost of sales was mainly due to a decrease in unit cost resulting in a cost of sales decrease of $ 2.5 million and the appreciation of the rmb against u.s. dollar resulting in a cost of sales decrease of $ 2.7 million , offset by an increase in sales volumes resulting in a cost of sales increase of $ 1.7 million . — cost of sales for other sectors was $ 38.4 million for the year ended december 31 , 2016 , compared with $ 32.0 million for the year ended december 31 , 2015 , representing an increase of $ 6.4 million , or 20.0 % . the increase in cost of sales for other sectors was mainly due to the increase in cost of sales of wuhan chuguanjie . gross margin was 17.5 % for the year ended december 31 , 2016 , representing a 0.4 % decrease from 17.9 % for the year ended december 31 , 2015 , which was primarily due to the product mix change in 2016 . 32 | page gain on other sales gain on other sales mainly consisted of net amount retained from sales of materials , property , plant and equipment , land use rights and scraps . for the year ended december 31 , 2016 , gain on other sales amounted to $ 3.8 million , as compared to $ 4.4 million for the year ended december 31 , 2015 , representing a decrease of $ 0.6 million , or 13.6 % , mainly resulting from a decreased gain on sales of materials , iron scrap and aluminum scrap . selling expenses for the years ended december 31 , 2016 and 2015 , selling expenses are summarized as follows ( figures are in thousands of usd ) : replace_table_token_8_th selling expenses were $ 17.2 million for the year ended december 31 , 2016. as compared to $ 15.0 million for the year ended december 31 , 2015 , there was an increase of $ 2.2 million , or 14.7 % , which was mainly due to the company 's increased marketing activities . general and administrative expenses for the years ended december 31 , 2016 and 2015 , general and administrative expenses are summarized as follows ( figures are in thousands of usd ) : replace_table_token_9_th ( 1 ) listing expenses consisted of the costs associated with legal , accounting and auditing fees for operating a public company . the expenses also included share-based compensation expense for options granted to independent directors . general and administrative expenses were $ 16.8 million for the year ended december 31 , 2016 , substantially consistent with $ 17.0 million for the year ended december 31 , 2015 . 33 | page research and development expenses research and development expenses , “ r & d ” expenses , were $ 27.7 million for the year ended december 31 , 2016 as compared to $ 22.3 million for the year ended december 31 , 2015 , an increase of $ 5.4 million , or 24.2 % , which was mainly due to increased expenditures on r & d activities for eps products . the global automotive parts industry is highly competitive ; winning and maintaining new business requires suppliers to rapidly produce new and innovative products on a cost-competitive basis . in 2016 , remaining foreign oems significantly increased their demand for eps , but the related technology in china was still in the research , development and testing stage . in order to expand into the market for eps , the company continued its investment in the research and development of eps in 2016 , including assigning the company 's senior technicians and advanced manufacturing equipment to eps , establishing the eps trail-production department , hiring technologists and purchasing advanced technology and testing equipment . income from operations income from operations was $ 23.0 million for the year ended december 31 , 2016 as compared to $ 29.7 million for the year ended december 31 , 2015 , a decrease of $ 6.7 million , or 22.6 % , which mainly consisted of a decrease of $ 0.6 million , or 13.6 % , in gain on other sales and an increase in operating expenses of $ 7.4 million , or 13.6 % , offset by an increase of $ 1.4 million , or 1.7 % , in gross profit . story_separator_special_tag other income , net other income , net was $ 1.1 million for the year ended december 31 , 2016 as compared to $ 0.8 million for the year ended december 31 , 2015 , an increase of $ 0.3 million , or 37.5 % , primarily as a result of an increase in the unspecific purpose subsidies being recognized in 2016. the company 's government subsidies consisted of specific subsidies and other subsidies . specific subsidies are the subsidies that the chinese government has specified its purpose for , such as product development and renewal of production facilities . other subsidies are the subsidies that the chinese government has not specified its purpose for and are not tied to future trends or performance of the company . receipt of such subsidy income is not contingent upon any further actions or performance of the company and the amounts do not have to be refunded under any circumstances . the company recorded specific purpose subsidies as advances payable when received . for specific purpose subsidies , upon government acceptance of the related project development or asset acquisition , the specific purpose subsidies will be recognized to reduce related r & d expenses or cost of asset acquisition . the unspecific purpose subsidies are recognized as other income upon receipt as future performance by the company is not required . interest expense interest expense was $ 0.7 million for the year ended december 31 , 2016 as compared to $ 1.3 million for the year ended december 31 , 2015 , a decrease of $ 0.6 million , or 46.2 % , primarily as a result of the decrease in weighted average loans outstanding . 34 | page financial income , net financial income , net was $ 1.4 million for the year ended december 31 , 2016 as compared to $ 2.9 million for the year ended december 31 , 2015 , a decrease of $ 1.5 million , or 51.7 % , primarily as a result of a decrease in interest income of $ 1.3 million . income before income tax expenses and equity in earnings of affiliated companies income before income tax expenses and equity in earnings of affiliated companies was $ 24.9 million for the year ended december 31 , 2016 compared with $ 32.0 million for the year ended december 31 , 2015 , a decrease of $ 7.1 million , or 22.2 % , including a decrease in income from operations of $ 6.7 million , an increase in other income of $ 0.3 million , a decrease in interest expenses of $ 0.6 million , and a decrease in financial income of $ 1.5 million . income taxes income tax expense was $ 2.5 million for the year ended december 31 , 2016 compared to $ 4.5 million for the year ended december 31 , 2015 , representing a decrease of $ 2.0 million , or 44.4 % , which was mainly due to a decrease in income before tax and a decrease in effective tax rate . the effective tax rate decreased from 14.0 % for the year ended december 31 , 2015 to 10.0 % for the year ended december 31 , 2016 , primarily due to an increase in the tax benefit from the super deduction for r & d expenses . 35 | page net income net income was $ 23.0 million for the year ended december 31 , 2016 , compared with net income of $ 27.9 million for the year ended december 31 , 2015 , representing a decrease of $ 4.9 million , or 17.6 % , mainly due to a decrease in income before income tax expenses and equity in earnings of affiliated companies of $ 7.1 million , offset by a decrease in income tax expenses of $ 2.0 million . net income attributable to non-controlling interests the company recorded net income attributable to non-controlling interests of $ 0.5 million for the year ended december 31 , 2016 , consistent with $ 0.5 million for the year ended december 31 , 2015. the company owns different equity interests in nine non-wholly owned subsidiaries established in the prc and brazil , through which it conducts its operations . except for beijing henglong and chongqing jinghua , which are accounted for under the equity method , all of the operating results of these non-wholly owned subsidiaries were consolidated in the company 's consolidated financial statements as of december 31 , 2016 and 2015. net income attributable to parent company net income attributable to parent company was $ 22.5 million for the year ended december 31 , 2016. as compared to $ 27.4 million for the year ended december 31 , 2015 , there was a decrease of $ 4.9 million , or 17.9 % , mainly resulting from the decrease in net income of $ 4.9 million . liquidity and capital resources capital resources and use of cash the company has historically financed its liquidity requirements from a variety of sources , including short-term borrowings under bank credit agreements , bankers ' acceptances , issuances of capital stock and notes and internally generated cash . as of december 31 , 2016 , the company had cash and cash equivalents and short-term investments of $ 61.6 million , compared with $ 90.9 million as of december 31 , 2015 , a decrease of $ 29.3 million , or 32.2 % . short-term investments included pledged short-term investments of $ 5.7 million and nil , respectively , as of december 31 , 2016 and 2015. the company had working capital ( current assets less current liabilities ) of $ 161.0 million as of december 31 , 2016 , compared with $ 177.8 million as of december 31 , 2015 , representing a decrease of $ 16.8 million , or 9.4 % . the company intends to indefinitely reinvest the funds in subsidiaries established in the prc .
| in summary , an increase in sales volume led to a sales increase of $ 40.9 million , an increase in average selling price of steering gears led to a sales increase of $ 6.8 million , and the effect of foreign currency translation of the rmb against the u.s. dollar led to a sales decrease of $ 29.1 million . 30 | page further analysis is as follows : — net sales for henglong were $ 301.4 million for the year ended december 31 , 2016 , compared with $ 284.4 million for the year ended december 31 , 2015 , representing an increase of $ 17.0 million , or 6.0 % , which was mainly due to an increase in sales of eps , partially offset by the decrease in sales of hydraulic power steering gears . an increase in sales volume led to a sales increase of $ 48.0 million , a decrease in selling price led to a sales decrease of $ 15.7 million , and the effect of foreign currency translation of the rmb against the u.s. dollar led to a sales decrease of $ 15.3 million . — net sales for jiulong were $ 77.0 million for the year ended december 31 , 2016 , compared with $ 70.0 million for the year ended december 31 , 2015 , representing an increase of $ 7.0 million , or 10.0 % . a decrease in sales volume led to a sales decrease of $ 2.7 million , an increase in selling price led to a sales increase of $ 14.1 million , and the effect of foreign currency translation of the rmb against the u.s. dollar led to a sales decrease of $ 4.4 million . — net sales for shenyang were $ 35.2 million for the year ended december 31 , 2016 , compared with $ 33.2 million for the year ended december 31 , 2015 , representing an increase of $ 2.0 million , or 6.0 % . the products of shenyang are mainly sold to
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see note 6 ( unfavorable contracts liability ) to the accompanying consolidated and combined financial statements included in part ii , item 8 “ financial statements and supplementary data ” of this annual report on form 10-k. technology transformation . in february 2019 , we announced a restructuring of the product and technology team ( the “ technology transformation ” ) . this restructuring is primarily focused on shifting our technology spend towards innovation , aiming to improve our speed of product delivery , to enable integration across current and future systems , and to migrate our systems to the cloud . in connection with the technology transformation , we have aligned our product and technology team with our long-term growth strategy to expand beyond listings to a digital solutions marketplace . as part of this process , we have streamlined the existing teams as we modernize our technology platform and invested in a more efficient cloud-based infrastructure focused on machine learning , product innovation and growth . we estimate the pre-tax costs associated with the technology transformation will be $ 8 to $ 10 million and primarily consist of employee severance and retention , as well as certain vendor-related costs . we expect to recognize a substantial portion of these costs in 2019. further , we expect to achieve cost efficiencies upon completion of the technology transformation . sales transformation . in december 2018 , the company announced a restructuring of the sales team ( the “ sales transformation ” ) , which reorganized the sales force into teams designed to provide the full range of enhanced services to current customers and a more tailored structure to win new customers . these changes reflect the expansion of the company 's business beyond car listings to include value-added digital solutions such as innovations from dealer inspire and dealerrater . the sales transformation also reflects a realignment of territories following the conversion of the majority of the affiliate arrangements . for the year ended december 31 , 2018 , the company recorded $ 4.4 million in sales transformation costs , which are included in marketing and sales in the consolidated and combined statements of income . strategic alternatives to enhance shareholder value . in january 2019 , we announced we have been conducting a process to explore strategic alternatives to enhance shareholder value . at the september 28 , 2018 meeting , the board of directors authorized management and its external advisors to initiate such a process and we have since been considering a broad range of strategic alternatives including a potential sale of the company . there can be no assurance that the strategic alternatives review process will result in a sale of the company or other strategic change or outcome . we have not set a timetable for the conclusion of our review of strategic alternatives , and we do not intend to comment further unless and until the board of directors has approved a specific course of action or we otherwise determined that further disclosure is appropriate or required by law . share repurchase program . in march 2018 , our board of directors authorized a two-year share repurchase program to acquire up to $ 200 million of our common stock . we may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws . we intend to fund the share repurchase program principally with cash from operations . during the year ended december 31 , 2018 , the company repurchased and subsequently retired 3.8 million shares for $ 97.2 million . 22 key operating metrics . we regularly review a number of key metrics to evaluate our bus iness , measure our performance , identify trends affecting our business , formulate financial projections and make operating and strategic decisions . we also review other key metrics including dealer customer and consumer satisfaction statistics . information regarding selected key operating metrics is as follows : replace_table_token_4_th traffic ( visits ) . traffic and our ability to generate traffic are key to our business . tracking our traffic performance is a critical measure . traffic to the cars.com network of websites and mobile apps provides value to our advertisers in terms of audience , awareness , consideration and conversion . in addition to tracking traffic volume and sources , we monitor activity on our properties , allowing us to innovate and refine our consumer-facing offerings . traffic is an internal metric representing the number of visits to cars.com desktop and mobile properties ( web browser and mobile applications ) . visits refers to the number of times visitors accessed cars.com properties during the period , no matter how many visitors make up those visits . we measure traffic using adobe analytics . traffic provides an indication of our consumer reach . although our consumer reach does not directly result in revenue , we believe our ability to reach diverse demographic audiences is attractive to our dealer customers and national advertisers . traffic increases were primarily driven by an increase in search engine optimization and planned strategic marketing investments aimed at consumer acquisition , engagement and brand awareness amongst auto shopping audiences . mobile traffic accounted for 67 % and 59 % of total traffic for the years ended december 31 , 2018 and 2017 , respectively . average monthly unique visitors ( “ uvs ” ) . measuring unique visitors is important to us because our revenues depend in part on our ability to enable dealer customers and oems to connect with consumers . growth in unique visitors and consumer traffic to our mobile applications and websites increases the number of impressions , clicks , leads and other events we can monetize to generate revenue . we count uvs in a given month as the number of distinct visitors that engage with our platform during that month . visitors are identified when a user first visits an individual cars.com property on an individual device/browser combination or installs one of our mobile apps on an individual device . story_separator_special_tag if an individual accesses more than one of our web properties or apps or uses more than one device or browser , each of those unique property/browser/application/device combinations counts towards the number of uvs . we measure uvs with adobe analytics . uvs increased , primarily driven by an increase in search engine optimization and planned strategic marketing and product investments aimed at consumer acquisition , engagement and brand awareness amongst auto shopping audiences . dealer customers . our value to consumers tracks to our ability to showcase the inventory of our dealer and oem customers . the larger the advertiser base , the more inventory and options that are available for consumers to review . dealer customers represents the car dealerships using our products as of the end of each reporting period . each physical or virtual dealership location is counted separately , whether it is a single-location proprietorship or part of a large consolidated dealer group . multi-franchise dealerships at a single location are counted as one dealer . beginning june 30 , 2018 , this key operating metric includes dealer inspire incremental dealer customers . total dealer customers declined 2 % from september 30 , 2018. direct dealer customers decreased 337 , primarily due to dealers citing insufficient lead volume and perceived lower sales conversion , and cutbacks attributable to their own year-end cost reduction activities . total dealer customers declined 6 % from december 31 , 2017. direct dealer customers increased 2,318 , resulting from dealer customers converted from affiliate markets and the addition of incremental customers from dealer inspire , partially offset by higher cancellations . average revenue per dealer ( “ arpd ” ) . we believe that our ability to grow arpd is an indicator of the value proposition of our products and the return on investment our dealer customers realize from our products . we define arpd as direct retail revenue during the period divided by the average number of direct dealer customers during the same period . dealer inspire is not included in arpd . 23 arpd increases were primarily driven by the favorable impact of a ff iliate conversions in certain markets that had higher retail rates . factors affecting our financial performance . our continued success will depend in part on our ability to address and successfully manage challenges from all parts of the digital advertising ecosystem . some challenges are particular to cars.com , given our history and situation . the indebtedness we incurred in connection with the separation in may 2017 and the acquisition in february 2018 may limit our ability to make strategic acquisitions or other transactions that we believe to be in the best interests of our stockholders or that might increase the value of our business . we also are transforming our business toward digital solutions . we are still integrating dealer inspire . we are adapting our go-to-market sales and technology infrastructure as described in the sales and technology transformation discussion above . we also plan to generate cost efficiencies to fund increased investments in product and marketing to drive more value delivery to our customers . during 2018 , we converted approximately 3,500 dealer customers from the former affiliate markets to our direct sales team . in addition , our business is subject to risks related to the larger automotive ecosystem , including consumer demand and other macroeconomic factors . we have recently observed the beginning of a downturn in the united states auto market , which has impacted new car sales and thus oems ' and dealers ' spending . while our customers continue to consider cost as a primary factor in choosing partners , we believe that the value we deliver will provide continuity as they evaluate their spend . story_separator_special_tag ont > general and administrative . general and administrative expenses primarily consist of compensation costs for the finance , legal , human resources , facilities and other administrative employees . in addition , general and administrative expenses include office space rent , legal and accounting services , other professional services , transaction-related costs and costs related to the write-off and loss on assets . general and administrative expenses represent 9.0 % and 7.2 % of total revenues for the years ended december 31 , 2018 and 25 2017 , res pectively . g eneral and administrative expenses increased $ 14.8 million and 33 % , primarily due to $ 9.8 million in consulting services and other costs incurred as part of our settlement agreement with our stockholder activist ; $ 5.7 million in incremental tra nsaction costs , primarily related to the acquisition and the process to explore strategic alternatives to enhance shareholder value ; $ 3.1 million in incremental stock-based compensation ; the addition of dealer inspire 's business and the incremental costs o f being a public company . these increases were partially offset by $ 1.6 million in lower costs associated with the separation of certain employees and the prior year impacts of $ 5.0 million related to the separation and $ 3.6 million related to the move to our new corporate headquarters location . affiliate revenue share . affiliate revenue share expenses primarily represent payments made to affiliates pursuant to our affiliate agreements . affiliate revenue share expenses increased 73 % , primarily due to an increase in costs associated with the early conversions of the mcclatchy , tronc and washington post markets , partially offset by amortization of the unfavorable contracts liability . for information related to the unfavorable contracts liability , see note 6 ( unfavorable contracts liability ) to the accompanying consolidated and combined financial statements included in part ii , item 8. , “ financial statements and supplementary data ” of this annual report on form 10-k. depreciation and amortization . depreciation and amortization expense increased 17 % , primarily due to the incremental amortization expense related to the acquisition . interest expense , net . interest expense , net increased due to interest associated with the credit agreement principally utilized to fund the separation and the acquisition .
| national advertising revenues represented 15.9 % and 18.2 % of total revenues for the years ended december 31 , 2018 and 2017 , respectively . national advertising revenues decreased 8 % , as oems reduced their spending mostly due to the cyclical nature of the auto industry . the majority of the decline relates to reductions by three oem customers . wholesale revenues . wholesale revenues represent the fees we charge for online subscription products sold to dealers by affiliates . the fees represent approximately 60 % of the retail value for the same online subscription products sold by our direct sales team . wholesale revenues represented 12.5 % and 26.0 % of total revenues for the years ended december 31 , 2018 and 2017 , respectively . wholesale revenues decreased primarily due to the affiliate market conversions from wholesale revenues ( $ 78.8 million , which includes $ 18.7 million of unfavorable contracts liability amortization ) to direct revenues ( $ 88.9 million ) . in addition , excluding the affiliate market conversions , wholesale revenues declined due to a 13 % decline in dealer customers . for information related to the affiliate market conversions , see note 6 ( unfavorable contracts liability ) to the accompanying consolidated and combined financial statements included in part ii , item 8. , “ financial statements and supplementary data ” of this annual report on form 10-k. cost of revenues and operations . cost of revenues and operations expenses primarily consist of expenses related to our pay-per-lead products , third-party costs for processing dealer vehicle inventory , product fulfillment , customer service and related compensation costs . cost of revenues and operations expenses represent 14.0 % and 10.5 % of total revenues for the years ended december 31 , 2018 and 2017 , respectively . the addition of dealer inspire 's business contributed $ 24.0 million to the overall increase . excluding dealer inspire , cost of revenues and operations expenses increased due to higher third-party costs related to new product offerings , partially offset by reduced compensation
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maintaining our brand the ability of our employees to deliver great customer service helps distinguish our company and our brands from our competitors . our employees are an important reason that our customers continue to choose our properties over the competition across the country . 30 our key performance indicators we use several key performance measures to evaluate the operations of our properties . these key performance measures include the following : gaming revenue measures : slot handle , which means the dollar amount wagered in slot machines , and table game drop , which means the total amount of cash deposited in table games drop boxes , plus the sum of markers issued at all table games , are measures of volume and or market share . slot win and table game hold , which mean the difference between customer wagers and customer winnings on slot machines and table games , respectively , represent the amount of wagers retained by us and recorded as gaming revenues . slot win percentage and table game hold percentage , which are not fully controllable by us , represent the relationship between slot handle to slot win and table game drop to table game hold , respectively . food & beverage revenue measures : average guest check , which means the average amount spent per customer visit and is a measure of volume and product offerings ; number of guests served ( `` food covers '' ) , which is an indicator of volume ; and the cost per guest served , which is a measure of operating margin . room revenue measures : hotel occupancy rate , which measures the utilization of our available rooms ; and average daily rate ( `` adr '' ) , which is a price measure . results of operations overview replace_table_token_5_th adoption of revenue recognition guidance as discussed in note 1 , story_separator_special_tag equity interest in borgata and property tax refunds of $ 9.1 million , which were received after the sale , both of which are included in discontinued operations in 2016. net income for the year ended december 31 , 2018 , net income was $ 115.0 million , compared with net income of $ 189.4 million for the corresponding period of the prior year . the $ 74.3 million change is primarily due to the decrease in income from continuing operations , net of tax along with a $ 21.0 million decrease in income from discontinued operations from the prior year ( both items discussed above ) . for the year ended december 31 , 2017 , net income was $ 189.4 million , compared with net income of $ 420.2 million for the corresponding period of the prior year . the $ 230.8 million change is primarily due to the decrease in income from continuing operations , net of tax along with a $ 191.1 million decrease in income from discontinued operations from the prior year ( both items discussed above ) . operating revenues we derive the majority of our revenues from our gaming operations , which generated approximately 73 % , 72 % and 73 % of our revenues for 2018 , 2017 and 2016 , respectively . food & beverage revenues represent our next most significant revenue source , generating approximately 14 % of revenues for 2018 , 2017 and 2016 . room revenues and other revenues separately contributed less than 10 % of revenues during each year . 32 replace_table_token_6_th gaming gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games win . the $ 185.2 million , or 10.6 % , increase in gaming revenues during 2018 as compared to the prior year , was primarily due to the midwest & south segment . the midwest & south segment experienced a $ 183.6 million increase in gaming revenue primarily due to the acquisitions . in addition , the louisiana and mississippi properties experienced gaming revenue growth , particularly delta downs , amelia belle and ip . gaming margins were essentially even with the prior year . the $ 129.9 million , or 8.1 % , increase in gaming revenues during 2017 as compared to the prior year , was primarily due to the addition of the aliante & cannery acquisitions to our las vegas locals segment . partially offsetting this increase , is a decrease in gaming revenues in the midwest & south segment . the midwest & south segment experienced a 1.5 % decline in slot handle , along with a 2.8 % decrease in table game drop . gaming margins slightly increased as compared to prior year due to top line gaming revenue growth and effective cost control . food & beverage food & beverage revenues increased $ 21.5 million , or 6.2 % , during 2018 as compared to prior year due primarily to the acquisitions . overall food & beverage margins increased to 5.5 % from 3.1 % in the prior year , primarily due to an overall increase in average check of 2.2 % offset slightly by an increase in cost per cover of 0.6 % . food & beverage revenues increased $ 43.7 million , or 14.4 % , during 2017 as compared to prior year due primarily to the aliante & cannery acquisitions , along with an increase in the las vegas locals segment , excluding the aliante & cannery acquisitions , of $ 8.4 million , as food covers increased 33 % and average check increased 16.9 % in the segment . food & beverage margins increased due to our cost control efforts . room room revenues increased $ 12.7 million , or 6.8 % , in 2018 compared to 2017 due primarily to the acquisitions which accounted for $ 8.4 million . the increase in room revenue of $ 2.3 million in the downtown las vegas segment was driven by an increase in the average daily rate of 6.1 % from the prior year . story_separator_special_tag the las vegas locals segment also experienced room revenue growth of $ 1.7 million attributable to a 1.2 % increase over the prior year in average daily rate . room revenues increased $ 17.4 million , or 10.3 % , in 2017 compared to 2016 due to the addition of the aliante and cannery acquisitions in the las vegas locals segment along with a $ 4.4 million increase in the downtown las vegas segment . the downtown las vegas segment 's occupancy rate stayed consistent year-over-year however the average daily rate increased by 33 22.3 % from the prior year . the growth in this segment over the prior year is due in part to the completion of the 300-room hotel renovation at the cal property in august 2017. overall , room margins remained consistent from 2016 to 2017. other other revenues relate to patronage visits at the amenities at our properties , including entertainment and nightclub revenues , retail sales , theater tickets and other venues . other revenues increased by $ 6.5 million , or 5.1 % , during 2018 as compared to the prior year due primarily to the acquisitions , which accounted for an increase of $ 5.5 million to other revenue in the midwest & south segment . other revenues increased by $ 10.6 million , or 9.1 % , during 2017 as compared to the prior year due primarily to the aliante and cannery acquisitions , which accounted for an increase to other revenue in the las vegas locals segment . revenues by reportable segment the following table presents our total revenues by reportable segment : replace_table_token_7_th las vegas locals total revenues increased $ 5.1 million , or 0.6 % , during 2018 as compared to the comparable prior year period , reflecting revenue increases in all departmental categories . gaming revenues increased $ 1.8 million primarily due to a 3.7 % and 0.4 % increase in table game win and slot win , respectively . in addition , room revenue increased $ 1.7 million due to a 1.2 % increase in average daily rate and other revenue increased $ 1.0 million due to increased consumption of property amenities and visitor spending . total revenues increased $ 213.4 million , or 32.6 % , during 2017 as compared to the comparable prior year period primarily due to the addition of the aliante and cannery acquisitions . downtown las vegas total revenues increased by $ 3.7 million , or 1.5 % , in 2018 as compared to the prior year , reflecting revenue increases in all departmental categories except gaming revenues . food & beverage revenues increased by $ 1.3 million due to an increase in average check of 3.4 % over prior year . in addition , room revenues increased $ 2.3 million as the average daily rate increased 6.1 % over prior year . we continue to tailor our marketing programs in the downtown segment to cater to our hawaiian market . our hawaiian market represented approximately 54 % during both 2018 and 2017 of our occupied rooms in this segment . total revenues increased by $ 7.9 million , or 3.3 % , in 2017 as compared to the prior year , reflecting revenue increases in all departmental categories . we continue to tailor our marketing programs in the downtown segment to cater to our hawaiian market . our hawaiian market represented approximately 54 % and 52 % during 2017 and 2016 , respectively , of our occupied rooms in this segment . midwest & south total revenues increased $ 217.1 million , or 16.9 % , in 2018 as compared to 2017 , primarily due to the acquisitions , which accounted for an increase of $ 206.6 million . in addition , the louisiana and mississippi properties experienced gaming revenue growth , particularly delta downs , amelia belle and ip . total revenues decreased 1.5 % , during 2017 as compared to 2016 , primarily due to a gaming revenue decrease resulting from a 1.5 % decline in slot handle , along with a 2.8 % decrease in table game drop . the results for this segment were impacted by evangeline downs and amelia belle experiencing localized economic weakness . the declines are partially offset by room revenue growth of $ 2.9 million at delta downs due to the opening of the new hotel tower and newly renovated rooms . the average daily rate at delta downs increased by 25.5 % over the prior year . 34 other operating costs and expenses the following operating costs and expenses , as presented in our consolidated statements of operations , are further discussed below : replace_table_token_8_th selling , general and administrative selling , general and administrative expenses include marketing , technology , compliance and risk , surveillance and security . these costs , as a percentage of total revenues , were 14.1 % , 15.1 % and 14.7 % for 2018 , 2017 and 2016 , respectively . we continue to focus on disciplined and targeted marketing spend and on our cost containment efforts . master lease rent expense master lease rent expense represents rent expense incurred by those properties subject to a master lease agreement with a real estate investment trust . maintenance and utilities maintenance and utilities expenses , as a percentage of total revenues , were 4.8 % , 4.6 % and 4.5 % for 2018 , 2017 and 2016 , respectively . depreciation and amortization depreciation and amortization expense , as a percentage of total revenues , was 8.8 % , 9.1 % and 8.9 % for 2018 , 2017 and 2016 , respectively . corporate expense corporate expense represents unallocated payroll , professional fees , rent and various other administrative expenses that are not directly related to our casino and or hotel operations , in addition to the corporate portion of share-based compensation expense . corporate expense , represe nted 4.0 % , 3 .7 % and 3.3 % , of total revenues , for 2018 , 2017 and 2016 , respectively .
| changes in operating margins are discussed in detail below . in 2017 , our operating income increased $ 83.4 million as compared to 2016 , which reflected the addition of the aliante & cannery acquisitions , as well as the impact of our continuing cost control efforts . changes in operating margins are discussed in detail below . the increase was also driven by project development , preopening and writedowns expense decreasing by $ 7.7 million as compared to the prior year , along with the inclusion in the prior year of $ 38.3 million in impairments of intangible assets , both of which are discussed in their respective sections below . corporate expense increased $ 15.5 million over the comparable prior year 31 due to costs related to creation of back-of-house support functions as part of the implementation of our business improvement initiatives . income from continuing operations , net of tax income from continuing operations , net of tax was $ 114.7 million in 2018 , as compared to $ 168.0 million in 2017 , a decrease of $ 53.3 million . this decrease was attributable to a $ 37.2 million increase in the income tax provision . the increase in the income tax provision is a result of the prior year provision including a discrete tax benefit of $ 60.1 million related to the changes in tax legislation in 2017. in addition , interest expense , net of amounts capitalized , increased $ 31.1 million due to an increase in the weighted average long-term debt balance of $ 205.9 million reflecting the additional debt issued to fund the acquisitions and a 1.0 % percentage point increase in the weighted average interest rate . these declines were offset by the operating income increase of $ 11.5 million from the prior year for those factors mentioned above and an increase in interest income of $ 1.9 million due to the investment in cash equivalents and short-term marketable securities of the net proceeds from
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often , the parking experience makes both the first and the last impressions on their properties ' tenants and visitors . by outsourcing these services , they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer . our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations . our location retention rate , excluding central , for the twelve-month periods ended december 31 , 2012 and december 31 , 2011 was approximately 89 % and 91 % , respectively , which also reflects our decision not to renew , or terminate , unprofitable contracts and sales required to be made by the department of justice in connection with the central merger . excluding central , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , average gross profit per location did not change significantly from $ 41.1 thousand in 2011 compared to $ 41.7 thousand in 2012 . 38 summary of operating facilities we focus our operations in core markets where a concentration of locations improves customer service levels and operating margins . the following table reflects our facilities operated at the end of the years indicated : replace_table_token_6_th ( 1 ) includes 1,388 managed facilities , 754 leased facilities and 2,142 total facilities acquired in the central merger . we have partial ownership interest in four lease facilities and two managed facilities acquired in the central merger . revenue we recognize parking services revenue from lease and management contracts as the related services are provided . substantially all of our revenues come from the following two sources : parking services revenuelease contracts . parking services revenues related to lease contracts consist of all revenue received at a leased facility , including parking receipts ( net of parking tax ) , consulting and real estate development fees , gains on sales of contracts and payments for exercising termination rights . parking services revenuemanagement contracts . management contract revenue consists of management fees , including both fixed and performance-based fees , and amounts attributable to ancillary services such as accounting , equipment leasing , payments received for exercising termination rights , consulting , development fees , gains on sales of contracts , insurance and other value-added services with respect to managed locations . we believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker 's compensation claims by maintaining a large per-claim deductible . as a result , we have generated operating income on the insurance provided under our management contracts by focusing on our risk management efforts and controlling losses . management contract revenues do not include gross customer collections at the managed locations as this revenue belongs to the property owner rather than to us . management contracts generally provide us with a management fee regardless of the operating performance of the underlying facility . conversions between type of contracts , lease or management , are typically determined by our clients and not us . although the underlying economics to us of management contracts and leases are similar , the manner in which we account for them differs substantially . reimbursed management contract revenue reimbursed management contract revenue consists of the direct reimbursement from the property owner for operating expenses incurred under a management contract , which is reflected in our revenue . 39 cost of parking services our cost of parking services consists of the following : cost of parking serviceslease contracts . the cost of parking services under a lease arrangement consists of contractual rental fees paid to the facility owner and all operating expenses incurred in connection with operating the leased facility . contractual fees paid to the facility owner are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof . generally , under a lease arrangement we are not responsible for major capital expenditures or real estate taxes . cost of parking servicesmanagement contracts . the cost of parking services under a management contract is generally the responsibility of the facility owner . as a result , these costs are not included in our results of operations . however , our reverse management contracts , which typically provide for larger management fees , do require us to pay for certain costs . reimbursed management contract expense reimbursed management contract expense consists of direct reimbursed costs incurred on behalf of property owners under a management contract , which is reflected in our cost of parking services . gross profit gross profit equals our revenue less the cost of generating such revenue . this is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease contracts and management contracts . general and administrative expenses general and administrative expenses include salaries , wages , payroll taxes , insurance , travel and office related expenses for our headquarters , field offices , supervisory employees , and board of directors . depreciation and amortization depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes or in the case of leasehold improvements , over the initial term of the operating lease or its useful life , whichever is shorter . intangible assets determined to have finite lives are amortized over their remaining useful life . results of operations fiscal 2012 compared to fiscal 2011 as noted previously , the financial results for the year ended december 31 , 2012 include only approximately three months of operations related to the acquired central operations due to the timing of the closing of the central merger on october 2 , 2012. the financial results for the year ended december 31 , 2011 do not include any amounts related to central . story_separator_special_tag to help understand the operating results for the periods , the term `` central operations '' refers to the results of central on a stand-alone basis for the period from october 2 , 2012 to december 31 , 2012 and the term `` standard operations '' refers to the results of standard on a stand-alone basis and not inclusive of results from the acquired operations of central for the twelve months ended december 31 , 2012 . 40 segments an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses , and about which separate financial information is regularly evaluated by our chief operating decision maker , in deciding how to allocate resources . our chief operating decision maker is our president and chief executive officer . our business is managed based on regions administered by executive vice presidents . the following is a summary of revenues ( excluding reimbursed management contract revenue ) by region for the years ended december 31 , 2012 and 2011. information related to prior years has been recast to conform to the current regional alignment . region one encompasses operations in connecticut , delaware , district of columbia , illinois , indiana , kansas , kentucky , maine , maryland , massachusetts , michigan , minnesota , missouri , nebraska , new jersey , new york , north carolina , ohio , pennsylvania , rhode island , south carolina , virginia , west virginia and wisconsin . region two encompasses event planning and transportation , and our technology-based parking and traffic management systems . region three encompasses operations in canada , arizona , california , colorado , hawaii , nevada , new mexico , oregon , utah , washington , and wyoming . region four encompasses all major airport and transportation operations nationwide . region five encompasses alabama , arkansas , florida , georgia , louisiana , mississippi , oklahoma , puerto rico , tennessee , and texas . `` other '' consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years . the following tables present the material factors that impact our financial statements on an operating segment basis . segment revenue information is summarized as follows : replace_table_token_7_th parking services revenuelease contracts . lease contract revenue increased $ 102.9 million , or 69.8 % , to $ 250.4 million for the year ended december 31 , 2012 , compared to $ 147.5 million for the year-ago period . the increase in lease contract revenue consisted of an increase from the standard 41 operations of $ 19.2 million , or 13.0 % , and $ 83.7 million from the central operations . the increase resulted primarily from increases in revenue from new locations and acquisitions , partially offset by decreases in revenue from contract expirations and fewer locations that converted from management contracts during the current year . same location revenue for those facilities , which as of december 31 , 2012 are the comparative periods for the two years presented , increased 6.7 % . the increase in same location revenue was due to increases in short-term parking revenue of $ 7.9 million , or 8.0 % , and increases in monthly parking revenue of $ 1.2 million , or 3.0 % . revenue associated with contract expirations relates to contracts that expired during the current period . parking services revenuemanagement contracts . management contract revenue increased $ 56.8 million , or 32.7 % , to $ 230.5 million for the year ended december 31 , 2012 , compared to $ 173.7 million for the year-ago period . the increase in management contact revenue consisted of an increase from the standard operations of $ 12.7 million , or 7.3 % , and $ 44.1 million from the central operations . the increase resulted primarily from increases in revenue from new locations , acquisitions and conversions , which was partially offset by the decrease in contract expirations . same location revenue for those facilities , which as of december 31 , 2012 are the comparative periods for the two years presented , increased 5.9 % , primarily due to increased fees from reverse management locations and ancillary services . reimbursed management contract revenue . reimbursed management contract revenue increased $ 64.7 million , or 15.8 % , to $ 473.1 million for the year ended december 31 , 2012 , compared to $ 408.4 million in the year-ago period . this increase resulted from an increase in reimbursements for costs incurred on behalf of owners . lease contract revenue increased primarily due to new locations and same locations in regions one , three , four and five , combined with acquisitions in regions one , two , three and five . this was partially offset by decreases in contract expirations in regions one , three , four and five . same location revenue increases for the aforementioned regions were primarily due to increases in short-term and monthly parking revenue . management contract revenue increased primarily due to new locations and acquisitions in all five operating regions , combined with same location revenue in regions one , three , four , five and other . this was partially offset by contract expirations in all five operating regions and same locations in region two . the increases in same location revenue were primarily due to an increase in fees from reverse management locations and ancillary services . for comparability purposes , revenue associated with contract expirations relate to the contracts that expired during the current period . 42 segment cost of parking services information is summarized as follows : replace_table_token_8_th cost of parking serviceslease contracts . cost of parking services for lease contracts increased $ 93.8 million , or 68.7 % , to $ 230.3 million for the year ended december 31 , 2012 , compared to $ 136.5 million for the year-ago period .
| lease contract revenue increased primarily due to conversions and new locations in regions one and three , combined with same location revenue in regions one , three , four and five . this was partially offset by decreases in contract expirations in regions one , three , four and five . same location revenue increases for the aforementioned regions were primarily due to increases in short-term parking revenue and monthly parking revenue . management contract revenue increased primarily due to new location revenue in all five operating regions and same location revenue in regions one , two , three and other . this was offset with by contract expirations in all five operating regions , conversion in regions one and three and same location revenue declines in regions four and five . the increases in same location revenue were 47 primarily due to an increase in fees from reverse management locations and ancillary services . for comparability purposes , revenue associated with contract expirations relate to the contracts that expired during the current period . segment cost of parking services information is summarized as follows : replace_table_token_11_th cost of parking serviceslease contracts . cost of parking services for lease contracts increased $ 7.9 million , or 6.1 % , to $ 136.5 million for the year ended december 31 , 2011 , compared to $ 128.6 million for the year-ago period . the increase resulted primarily from increases in costs from new locations and conversions from management contracts , which were partially offset by decreases in contract expirations . same location costs for those facilities , which as of december 31 , 2011 are the comparative for the two years presented , increased 3.2 % . same location costs increased $ 0.3 million due to payroll and payroll-related expenses , $ 2.8 million due to rent expense , primarily as a result of contingent rental payments on the increase in revenue for same locations , and $ 0.6 million related to other operating costs . cost of parking servicesmanagement contracts . cost of parking services for management contracts increased $ 1.7 million , or 1.8 % , to
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for the years ended december 31 , 2020 , 2019 and 2018 , product , subscription and support revenue as a percentage of total revenue was 77 % , 80 % and 83 % , respectively . revenue from professional services was 23 % , 20 % and 17 % of total revenue for december 31 , 2020 , 2019 and 2018 , respectively . we further disaggregate revenue in the product , subscription and support category into the product and related subscription and support sub-category and platform , cloud subscription and managed services sub-category . product , subscription and support 55 within the product , subscription and support category , we provide supplemental data to distinguish between sales of our security control product solutions that are deployed on-premise ( or in hybrid on-premise/private cloud configurations ) , and sales of our platform , cloud-based subscriptions and managed detection and response services . security control product solutions deployed on-premise ( or in hybrid on-premise/private cloud configurations ) are included in the product and related subscription and support sub-category . our security validation , helix security operations platform , cloud-based security control products and cloud visibility solutions , detection-on-demand , threat intelligence subscriptions and detection and response managed services are included in the platform , cloud subscription and managed services sub-category . for the years ended december 31 , 2020 , 2019 and 2018 , product and related subscription and support revenue as a percentage of total revenue was 45 % , 53 % and 60 % , respectively . revenue from platform , cloud subscription and managed services as a percent of total revenue was 32 % , 27 % and 23 % for the years ended december 31 , 2020 , 2019 and 2018 , respectively . sales of our products , saas solutions and managed services initially increase our deferred revenue . deferred revenue from our product , subscription and support sales totaled $ 845.3 million and $ 878.2 million as of december 31 , 2020 and 2019 , respectively . the decrease in deferred revenue from our product , subscription and support sales was due primarily to a decrease in sales of our appliance hardware and attached dti cloud and support subscriptions compared with prior periods . product and related subscription and support sub-category revenue in the product and related subscription and support sub-category consists primarily of revenue from sales of our network , email and endpoint security solutions that are deployed on the customer 's premise , either as an integrated security appliance or in distributed hybrid on-premise/private cloud configurations . both deployment options are available on pre-configured appliance hardware or as virtual ( software ) sensors and include our detection and mvx analysis technologies , our dti cloud updates and support services . integrated and distributed solutions deployed on virtual sensors are offered as an “ all inclusive ” subscription that includes our detection and mvx analysis technologies , dti cloud updates , and support services . there is no limit to the number of virtual sensors a customer can deploy , and capacity can be distributed throughout the customer 's it environment as needed . subscription revenue is recognized ratably over the contractual term , typically one to three years . customers purchasing our network and email security subscriptions have the option of purchasing our appliance hardware at additional cost , but are not required to do so . our network and email security solutions can also be deployed on pre-configured appliance hardware purpose-built for our solutions . integrated security appliance hardware is delivered with our detection and mvx analysis technologies pre-installed and require subscriptions to our dti cloud updates and support services , which are priced as a percentage of the appliance price per year . subscription terms are typically one to three years and include a material right of renewal . historically , the majority of on-premise network and email security customers have purchased our security control products under this pricing model . since our network , email and endpoint security solutions require regular dti cloud and software updates to maintain detection efficacy , physical appliances and virtual sensors , together with the related dti cloud and support subscriptions are considered a single performance obligation , whether deployed as an integrated appliance , virtual sensor or in a distributed hybrid on-premise/cloud configuration . as a single performance obligation , revenue from sales of appliance hardware and related subscriptions is recognized ratably over the contractual term , typically one to three years . such contracts typically contain a material right of renewal option that allows the customer to renew their dti cloud and support subscriptions for an additional term at a discount to the original purchase price of the single performance obligation . for contracts that contain a material right of renewal option , the value of the performance obligation allocated to the renewal is recognized ratably over the period between the end of the initial contractual term and end of the estimated useful life of the related appliance and license . a small portion of our revenue in the product and related subscription and support revenue is derived from the sale of our network forensics appliances and our central management system appliances . these appliances are not dependent on regular security intelligence updates , and revenue from these appliances is therefore recognized when ownership is transferred to our customer , typically at shipment . platform , cloud subscriptions and managed services sub-category revenue in the platform , cloud subscription and managed services sub-category consists primarily of revenue from sales of our cloud-based network , email and endpoint security , our detection-on-demand service , our security validation platform , our threat analytics platform ( either standalone or within the helix security platform ) , our helix security operations platform , our standalone threat intelligence subscriptions and our managed services . the majority of revenue from our platform , cloud subscription and managed services category is recognized ratably over the contractual term , generally one to three years . story_separator_special_tag a small portion of our revenue in the platform , cloud subscription and managed services category is derived from term licenses of our security validation platform , and revenue from these sales is recognized when the license key is issued to the customer . professional services 56 in addition to our product , subscription and support solutions , we offer professional services , including incident response and other strategic security consulting services , to our customers who have experienced a cybersecurity breach or desire assistance assessing and increasing the resilience of their it environments to cyber attack . the majority our professional services are offered on a time and materials basis , through a fixed fee arrangement , or on a retainer basis . revenue from professional services is recognized as services are delivered . revenue from our expertise-on-demand subscription and some pre-paid professional services is deferred , and revenue is recognized when services are delivered . deferred revenue from professional services as of december 31 , 2020 and 2019 was $ 111.2 million and $ 96.4 million , respectively . 57 key business metrics we monitor our key business metrics set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . we discuss revenue and gross margin below under “ components of operating results. ” deferred revenue , annualized recurring revenue , billings ( a non-gaap metric ) , net cash flow provided by ( used in ) operating activities , and free cash flow ( a non-gaap metric ) are discussed immediately below the following table ( in thousands , except percentages ) . replace_table_token_5_th deferred revenue . our deferred revenue consists of amounts that we have the right to invoice but have not yet been recognized into revenue as of the end of the respective period . we monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods . the majority of our deferred revenue consists of the unamortized balance of deferred revenue from previously invoiced sales of our security appliance hardware and non-cancelable contracts for subscriptions to our network , email and endpoint security solutions , helix and security validation platforms , threat intelligence , managed detection and response services and support and maintenance contracts . invoiced amounts for such contracts can be for multiple years , and we classify our deferred revenue as current or non-current depending on when we expect to recognize the related revenue . if the deferred revenue is expected to be recognized within 12 months it is classified as current , otherwise , the deferred revenue is classified as non-current . a table for our deferred revenue is provided below ( in thousands ) : replace_table_token_6_th annualized recurring revenue . annualized recurring revenue ( `` arr '' ) is an operating metric and represents the annualized revenue run-rate of active term licenses , subscriptions , and support contracts at the end of a reporting period . arr should be viewed independently of revenue and deferred revenue as arr is an operating metric and is not intended to be combined with or replace these items . arr is not a forecast of future revenue , which can be impacted by contract start and end dates and renewal rates , and does not include revenue from appliance hardware , perpetual software , consumption-based contracts or professional services except for service level agreement payments . we consider arr a useful measure of the value of the recurring components of our business because it reflects both our ability to attract new customers for our solutions and our success at retaining and expanding our relationships with existing customers . further , arr is not impacted by variations in contract length , enabling more meaningful comparison to prior periods as we align our invoicing practices to growing customer preference for annual billing on multi-year contracts . we started including arr from service level agreement payments in our arr calculation starting in 2020 once they became material . arr calculations for 2019 and 2018 have been updated for comparative purposes . we disaggregate arr by the same sub-categories we use for disaggregation of billings and revenue in the table below ( in thousands ) : replace_table_token_7_th 58 billings . billings are a non-gaap financial metric that we define as revenue recognized in accordance with generally accepted accounting principles ( `` gaap '' ) plus the change in deferred revenue from the beginning to the end of the period , excluding deferred revenue assumed through acquisitions . we monitor billings as a supplement to revenue ( the corresponding gaap measure ) , because billings impact our deferred revenue , which is an important indicator of the health and visibility of trends in our business and represents a significant percentage of future revenue . however , it is important to note that other companies , including companies in our industry , may not use billings , may define billings differently , may have different billing frequencies , or may use other financial measures to evaluate their performance , all of which could reduce the usefulness of billings as a comparative measure . additionally , the calculated billings metric represents the total contract value we have the right to invoice , which includes multi-year subscriptions to our solutions . calculated billings are impacted by changes in average contract length , thereby reducing the usefulness of comparisons to prior periods . a reconciliation of billings to revenue , the most directly comparable financial measure calculated and presented in accordance with gaap , is provided below ( in thousands ) : replace_table_token_8_th we have provided disaggregation of billings below ( in thousands ) : replace_table_token_9_th net cash provided by operating activities . we monitor net cash provided by operating activities as a measure of our overall business performance . our net cash provided by operating activities performance is driven in large part by sales of our products and from up-front payments for both subscriptions and support and maintenance services .
| professional services revenue increased by $ 35.3 million , or 20 % , during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily driven by an increase in number of engagements enabled by an increase in professional services personnel as compared to the same period in 2019. our international revenue increased $ 21.6 million , or 6 % , during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase reflects growth in sales from certain international regions compared to prior periods as a result of an increase in revenue recognized from a build-up of deferred revenue from prior periods . 65 cost of revenue and gross margin replace_table_token_14_th the cost of product , subscription and support revenue increased $ 6.8 million , or 3 % , during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase in cost of product , subscription and support revenue was primarily driven by a $ 14.0 million increase in personnel costs due to increased headcount and an $ 11.0 million increase in third-party hosting costs associated with higher sales of cloud-based solutions which were partially offset by a $ 9.1 million decrease in intangible amortization , a $ 4.0 million decrease in depreciation and a $ 1.6 million decrease in travel and entertainment expense which we attribute to the covid-19 pandemic . the cost of professional services revenue increased $ 18.3 million , or 19 % , during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase in cost of professional services revenue was primarily driven by an $ 18.6 million increase in personnel costs due to increased headcount , and a $ 4.7 million increase in stock-based compensation expense which were partially offset by a $ 7.2 million decrease in travel and entertainment expense which we attribute to the covid-19 pandemic . gross margin was lower for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. operating expenses replace_table_token_15_th research and development research and development expense decreased $ 18.6 million , or 7 % , during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the decrease was primarily due to a $ 9.0 million decrease in personnel costs due to lower headcount , a $ 2.9 million decrease in travel and entertainment expense which we attribute
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currency exchange losses were $ 5.5 million during the twelve months ended december 31 , 2013 , compared to losses of $ 3.2 million during the same period in 2012. currency exchange losses in both periods were mostly unrealized and relate primarily to the effect of the strengthening u.s. dollar on intercompany balances . income tax provision . our effective tax rate from continuing operations for the year ended december 31 , 2013 was 29.3 % compared to 32.0 % for the year ended december 31 , 2012. the lower effective tax rate for the year was primarily related to a tax benefit recognized for the research and development tax credit , including the benefit related to the recognition of the 2012 credit in january 2013. a favorable mix of income sourced from lower tax jurisdictions also contributed to the lower effective tax rate in 2013. net income from continuing operations . net income from continuing operations for the year ended december 31 , 2013 was $ 85.9 million , a decrease of $ 1.7 million , or 2 % , from net income from continuing operations for the year ended december 31 , 2012 of $ 87.6 million . local currency net income decreased by $ 0.9 million . currency translation effects decreased current period net income when stated in u.s. dollars , by $ 0.8 million . basic earnings per share from continuing operations was $ 2.31 in 2013 compared to $ 2.37 in 2012 , a decrease of 6 cents per share , or 3 % . north american segment net income for the year ended december 31 , 2013 was $ 70.6 million , an improvement of $ 6.3 million , or 10 % , from $ 64.3 million for the year ended december 31 , 2012. the increase in north american segment net income reflects higher sales and gross profits and decreased restructuring expense , partially offset by increased selling , general and administrative expenses from higher payroll , legal fees , and other professional services fees . european segment net income for the year ended december 31 , 2013 was $ 18.4 million , a decrease of $ 2.0 million , or 10 % , from $ 20.4 million for the year ended december 31 , 2012. local currency net income decreased by $ 3.1 million , reflecting lower gross profits on lower sales and increased restructuring expense , partially offset by lower selling , general and administrative expense . the favorable translation effects of a stronger euro in the current year increased european segment net income , when stated in u.s. dollars , by $ 1.1 million . international segment net income for the year ended december 31 , 2013 was $ 20.4 million , an increase of $ 1.2 million , or 6 % , from $ 19.2 million for the year ended december 31 , 2012. currency translation effects decreased current period international segment net income when stated in u.s. dollars , by $ 1.2 million , primarily due to a weaker australian dollar and brazilian real . higher local currency net income was primarily related to increased gross profits from increased sales , lower selling , general and administrative expenses , partially offset by increased restructuring expense . the net loss reported in reconciling items for the year ended december 31 , 2013 was $ 23.5 million , compared to a net loss of $ 16.4 million for the year ended december 31 , 2012. the higher loss during the year ended december 31 , 2013 reflects higher currency exchange losses . additionally , the year ended december 31 , 2012 benefited from the previously-discussed one-time gain on the sale of land in our cranberry woods office park . year ended december 31 , 2012 compared to year ended december 31 , 2011 net sales . net sales for the year ended december 31 , 2012 were $ 1,110.4 million , a decrease of $ 2.4 million , from $ 1,112.8 million for the year ended december 31 , 2011. excluding the effects of weakening currencies and the divestitures of our ballistic vest and north american ballistic helmet businesses , sales increased $ 67.4 million , or 6 % . sales of ballistic vests and helmets were $ 36.0 million lower in 2012 , reflecting the divestiture of those businesses . the unfavorable translation effects of weaker foreign currencies decreased sales , when stated in u.s. dollars , by $ 33.8 million . replace_table_token_8_th 22 net sales by the north american segment were $ 551.9 million for the year ended december 31 , 2012 , a decrease of $ 9.2 million , or 2 % , compared to $ 561.1 million for the year ended december 31 , 2011. during the year ended december 31 , 2012 , we continued to see growth in the fire service and industrial markets . shipments of instruments , head , eye and face protection and self-contained breathing apparatus ( scba ) were up $ 25.1 million , $ 4.7 million and $ 2.2 million , respectively . these increases were offset by a $ 4.7 million decrease in shipments of communication devices and a $ 36.0 million decrease in shipments of ballistic helmets and vests to military markets . we divested our ballistic vest and north american ballistic helmet businesses during the fourth quarter of 2011 and the second quarter of 2012 , respectively . net sales for the european segment were $ 289.5 million for the year ended december 31 , 2012 , an increase of $ 2.7 million , or 1 % , from $ 286.8 million for the year ended december 31 , 2011. local currency sales increased $ 22.4 million , reflecting higher shipments of instruments , scba , ballistic helmets , and respirators , up $ 10.8 million , $ 4.8 million , $ 4.2 million , and $ 3.3 million , respectively . the increase was partially offset by a $ 2.1 million decrease in shipments of gas masks to military markets . story_separator_special_tag currency translation effects decreased european segment sales , when stated in u.s. dollars , by $ 19.7 million , primarily related to a weaker euro . net sales of our international segment were $ 269.0 million for the year ended december 31 , 2012 , an increase of $ 4.1 million , or 2 % , compared to $ 264.9 million for the year ended december 31 , 2011. local currency sales in the international segment increased $ 16.6 million during the year ended december 31 , 2012. growth in fire service markets in china and latin america led to increases in sales of scba and fire helmets of $ 10.0 million and $ 3.9 million , respectively . in addition , sales of head , eye and face protection to industrial markets improved by $ 7.6 million , offset by decreased shipments of circuit breathing apparatus and gas masks of $ 4.5 million and $ 0.4 million , respectively . currency translation effects decreased international segment sales , when stated in u.s. dollars , by $ 12.5 million , primarily related to a weaker brazilian real and south african rand . other income . other income for the year ended december 31 , 2012 was $ 10.9 million , an increase of $ 5.4 million , from $ 5.5 million for the year ended december 31 , 2011. during the year ended december 31 , 2012 , we recognized gains on the sale of assets totaling $ 8.4 million compared to gains of $ 3.3 million in 2011. these gains in both years were primarily related to property sales in our cranberry woods office park . in december 2012 , we sold the last available parcel in cranberry woods . other income for the year ended december 31 , 2012 also includes a $ 4.8 million gain on an escrow settlement related to our october 2010 acquisition of the general monitors group of companies . these improvements were partially offset by impairment losses on intangible assets and tooling related to our firefighter location project of $ 4.3 million and $ 0.5 million , respectively . cost of products sold . cost of products sold was $ 620.9 million for the year ended december 31 , 2012 , a decrease of $ 33.5 million , or 5 % , from $ 654.4 million for the year ended december 31 , 2011. cost of products sold as a percentage of sales was 55.9 % in the year ended december 31 , 2012 compared to 58.8 % in 2011. the decrease in cost of products sold in relation to sales was primarily due to lower manufacturing costs , a more favorable product mix , and improved pricing . gross profit . gross profit for the year ended december 31 , 2012 was $ 489.5 million , an increase of $ 31.1 million , or 7 % , from $ 458.4 million for the year ended december 31 , 2011. the ratio of gross profit to sales was 44.1 % for 2012 compared to 41.2 % in 2011. the higher gross profit ratio in 2012 was primarily related to lower manufacturing costs , a more favorable product mix , and improved pricing . selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2012 were $ 312.9 million , an increase of $ 15.1 million , or 5 % , from $ 297.8 million for the year ended december 31 , 2011. selling , general and administrative expenses were 28.2 % of sales in 2012 compared to 26.8 % of sales in 2011. local currency selling , general and administrative expenses increased $ 24.2 million across all segments , reflecting higher selling costs , an increase in due diligence and consulting expense related to special projects and an increase in product liability related legal and administrative expenses . currency translation effects decreased selling , general and administrative expenses for the year ended december 31 , 2012 , when stated in u.s. dollars , by $ 9.1 million , primarily related to a weaker euro , brazilian real and south african rand . research and development expenses . research and development expenses were $ 40.9 million for the year ended december 31 , 2012 , an increase of $ 1.7 million , or 4 % , from $ 39.2 million for the year ended december 31 , 2011. the increase reflected our ongoing focus on developing innovative new core products . restructuring and other charges . for the year ended december 31 , 2012 , we recorded charges of $ 2.8 million . charges for the year ended december 31 , 2012 were related to severance costs associated with staff reductions in our north american , european and international segments of $ 1.5 million , $ 1.1 million and $ 0.2 million , respectively . 23 for the year ended december 31 , 2011 , we recorded charges of $ 8.6 million . european segment charges of $ 5.8 million for the year ended december 31 , 2011 , related primarily to staff reductions and the transfer of certain production activities to china . north american segment charges for the year ended december 31 , 2011 of $ 1.7 million included costs associated with the relocation of certain administrative and production activities . international segment charges for the year ended december 31 , 2011 of $ 1.1 million were related primarily to severance costs associated with the relocation of our wuxi , china operations to suzhou , china . interest expense . interest expense for the year ended december 31 , 2012 was $ 11.3 million , a decrease of $ 2.8 million , or 20 % , from $ 14.1 million for the year ended december 31 , 2011. the decrease in interest expense reflects lower borrowing on our revolving credit line and lower interest rates . income tax provision .
| replace_table_token_7_th 20 net sales by the north american segment were $ 559.2 million for the year ended december 31 , 2013 , an increase of $ 7.3 million , or 1 % , compared to $ 551.9 million for the year ended december 31 , 2012. excluding the effects of the divestiture of the north american ballistic helmet business , north american segment sales increased $ 16.9 million , or 3 % , when compared to 2012. north american ballistic helmet sales were $ 9.6 million lower in the current year , reflecting the divestiture . during the year ended december 31 , 2013 , we continued to see growth in the fire service and industrial markets . shipments of instruments , self-contained breathing apparatus ( scba ) and head , eye and face protection were up $ 21.3 million , $ 3.2 million and $ 2.9 million , respectively . these increases were partially offset by a $ 7.6 million decrease in shipments of gas masks to military markets and other small decreases across a broad range of product lines . net sales for the european segment were $ 289.8 million for the year ended december 31 , 2013 , an increase of $ 0.3 million from $ 289.5 million for the year ended december 31 , 2012. local currency sales in europe decreased $ 5.6 million . shipments of fixed gas & flame detection decreased $ 3.2 million on a local currency basis , while the remaining decrease in local currency sales was primarily due to lower adjacent product shipments to military markets . the favorable translation effects of a stronger euro in the current year increased european segment sales , when stated in u.s. dollars , by $ 5.9 million . net sales for the international segment were $ 263.1 million for the year ended december 31 , 2013 , a decrease of $ 5.9 million , or 2 % , compared to $ 269.0 million for the year ended december 31 , 2012. currency translation effects decreased international segment sales , when stated in u.s. dollars , by $ 16.1 million , primarily related to a weaker australian dollar and brazilian real . local currency sales in the international segment increased $ 10.2 million , as strength in the industrial markets was partially offset by weakness in the fire service and military markets . shipments of instruments , self-contained breathing apparatus ( scba ) and fall protection , up $ 9.1 million , $ 5.7 million and $ 2.0 million , respectively , were
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