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these expenses include third-party consulting fees , employee retention payments , legal fees and other costs related to the separation . management does not believe that these expenses are reflective of ongoing operating results . this adjustment does not include expenses incurred prior to the separation . a reconciliation of gaap net earnings to non-gaap adjusted ebitda for the years ended december 31 , 2016 , 2015 and 2014 for these adjustments is presented in the following table : replace_table_token_6_th 2016 restructuring , impairment and other charges—net . the year ended december 31 , 2016 included $ 3.7 million for employee termination costs , $ 1.5 million of lease termination and other restructuring costs and $ 0.2 million for other charges associated with the company 's decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate . 2015 restructuring , impairment and other charges—net . the year ended december 31 , 2015 included $ 2.3 million for employee termination costs related to the reorganization of certain administrative functions ; $ 1.9 million of lease termination and other restructuring costs and $ 0.2 million for other charges associated with the company 's decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate . 25 2014 restructuring , impairment and other charges—net . the year ended december 31 , 2014 included $ 2.1 million of lease termination and other r estructuring costs ; $ 1.7 million for the impairment of an acquired customer relationship intangible asset ; $ 0.7 million for employee termination costs related to the integration of multicorpora and the reorganization of certain operations and $ 0.3 million for other charges associated with the company 's decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate . share-based compensation expense . included pre-tax charges of $ 2.5 million , $ 1.6 million and $ 2.1 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . spin-off related transaction expenses . included pre-tax charges of $ 4.9 million related to third-party consulting fees , employee retention payments , legal fees and other costs related to the separation for the year ended december 31 , 2016. pension settlement charges . included pre-tax charges of $ 95.7 million for the year ended december 31 , 2014 , related to lump-sum pension settlement payments . see note 11 , retirement plans , to the consolidated and combined financial statements for further discussion . gain on sale of a building . included a gain of $ 6.1 million related to the sale of a building for the year ended december 31 , 2014. outlook the company initiated several restructuring actions in 2016 and 2015 to further reduce the company 's overall cost structure . these restructuring actions included the reorganization of certain functions . these actions , as well as 2017 actions , some of which have already been taken , are expected to have a positive impact on operating earnings in 2017 and in future years . cash flows from operations in 2017 are expected to benefit from improved profitability driven by organic net sales growth and cost control actions . the expected increases in cash flows are expected to be more than offset by payments for interest expense as a result of debt issued in connection with the separation . the company expects capital expenditures to be in the range of $ 30.0 million to $ 35.0 million in 2017. the company 's pension and other postretirement benefit plans were underfunded by $ 57.5 million and $ 1.2 million , respectively , as of december 31 , 2016 , as reported on the company 's consolidated and combined balance sheets and further described in note 11 , retirement plans , to the consolidated and combined financial statements . governmental regulations for measuring pension plan funded status differ from those required under accounting principles generally accepted in the united states ( “ gaap ” ) for financial statement preparation . based on the plans ' regulatory funded status , required contributions in 2017 for the company 's pension and other postretirement benefit plans are expected to be approximately $ 2.3 million . the company made contributions of $ 1.3 million to its pension plans during the year ended december 31 , 2016. in connection with the separation , the company expects to incur a significant amount of spin-off related transaction and transition expenses in 2017 , including information technology and other expenses . in addition , the separation and distribution agreement includes a provision for rrd to make a future cash payment of $ 68.0 million to the company no later than april 1 , 2017 , which is included in the consolidated and combined balance sheet as of december 31 , 2016. the company will use the proceeds to reduce outstanding debt under the $ 350.0 million senior secured term loan b facility . significant accounting policies and critical estimates the preparation of financial statements in conformity with gaap requires the extensive use of management 's 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 revenue and expenses during the reporting periods . actual results could differ from these estimates . estimates are used when accounting for items and matters including , but not limited to , allowance for uncollectible accounts receivable , pension , asset valuations and useful lives , income taxes , restructuring and other provisions and contingencies . 26 revenue recognition the company manages highly-customized data and materials , such as exchange act , securities act and investment company act filings with the sec on behalf of our customers , manages virtual and physical data rooms and performs xbrl and related services . clients are provided with edgar filing services , xbrl compliance services and translation , editing , interpreting , proof-reading and multilingual typesetting services , among others . story_separator_special_tag our products include our activedisclosure solution and our venue® virtual data room product , among others . revenue for services is recognized upon completion of the service performed or following final delivery of the related printed product . the company recognizes revenue for the majority of its products upon the transfer of title or risk of ownership , which is generally upon shipment to the customer . because substantially all of the company 's products are customized , product returns are not significant ; however , the company accrues for the estimated amount of customer credits at the time of sale . refer to note 2 , significant accounting policies , to the consolidated and combined financial statements for further discussion . certain revenues earned by the company require significant judgment to determine if revenue should be recorded gross , as a principal , or net of related costs , as an agent . billings for shipping and handling costs as well as certain postage costs and out-of-pocket expenses are recorded gross . goodwill and other long-lived assets the company 's methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors , including valuations performed by third-party appraisers when appropriate . goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed . goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative fair value of each reporting unit . based on its current organization structure , the company has identified four reporting units for which cash flows are determinable and to which goodwill may be allocated . the company performs its goodwill impairment tests annually as of october 31 , or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . the company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit . as part of its interim reviews , management analyzes potential changes in the value of individual reporting units based on each reporting unit 's operating results for the period compared to expected results as of the prior year 's annual impairment test . in addition , management considers how other key assumptions , including discount rates and expected long-term growth rates , used in the last annual impairment test , could be impacted by changes in market conditions and economic events . based on these interim assessments , management concluded that as of the interim periods , no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying value . as of october 31 , 2016 , all four reporting units had goodwill . the reporting units with goodwill were reviewed for impairment using a quantitative assessment . quantitative assessment for impairment a two-step method was used for determining goodwill impairment . in the first step ( “ step one ” ) , the company compared the estimated fair value of each reporting unit to its carrying value , including goodwill . if the carrying value of a reporting unit exceeded the estimated fair value , the second step ( “ step two ” ) is completed to determine the amount of the impairment charge . step two requires the allocation of the estimated fair value of the reporting unit to the assets , including any unrecognized intangible assets , and liabilities in a hypothetical purchase price allocation . any remaining unallocated fair value represents the implied fair value of goodwill , which is compared to the corresponding carrying value of goodwill to compute the goodwill impairment charge . the results of step one of the goodwill impairment test as of october 31 , 2016 , indicated that the estimated fair values for all four reporting units exceeded their respective carrying values . therefore , the company did not perform step two for any of the reporting units . as part of its impairment test for these reporting units , the company engaged a third-party appraisal firm to assist in the company 's determination of the estimated fair values . this determination included estimating the fair value of each reporting unit using both the income and market approaches . the income approach requires management to estimate a number of factors for each reporting unit , including projected future operating results , economic projections , anticipated future cash flows , discount rates and the allocation of shared or corporate items . the market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping . the company weighted both the income and market approach equally to estimate the concluded fair value of each reporting unit . 27 the determinatio n of fair value in step one and the allocation of that value to individual assets and liabilities in step two , if necessary , requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to : the selection of appropriate peer group companies ; control premiums appropriate for acquisitions in the industries in which the company competes ; the discount rate ; terminal growth rates ; and forecasts of revenue , operating income , depreciation and amortization , restructuring charges and capital expenditures . the allocation of fair value under step two requires several analyses to determine the fair value of assets and liabilities including , among others , trade names , customer relationships , and property , plant and equipment . as a result of the 2016 annual goodwill impairment test , the company did not recognize any goodwill impairment charges as the estimated fair values of all reporting units exceeded their respective carrying values .
| services cost of sales increased $ 2.6 million , or 0.8 % , for the year ended december 31 , 2016 , versus the year ended december 31 , 2015. services cost of sales increased primarily due to an increase in the allocation of information technology expenses from selling , general and administrative expenses to cost of sales , partially offset by lower capital markets transactions and compliance volume and cost control initiatives . as a percentage of net sales , services cost of sales increased 3.0 % primarily due to unfavorable mix and wage and other inflation , partially offset by cost control initiatives . products cost of sales decreased $ 15.1 million , or 5.0 % , for the year ended december 31 , 2016 , versus the year ended december 31 , 2015. products cost of sales decreased primarily due to lower print volumes and cost control initiatives , partially offset by wage and other inflationary increases . as a percentage of net sales , products cost of sales increased 2.7 % primarily due to unfavorable mix , price pressures and wage and other inflation . selling , general and administrative expenses for the year ended december 31 , 2016 increased $ 10.6 million , or 5.3 % , to $ 209.8 million , as compared to the year ended december 31 , 2015 , primarily due to an increase in expenses incurred to operate as an independent public company , including selling expenses and spin-off related transaction expenses , partially offset by an increase in the allocation of information technology expenses from selling , general and administrative expenses to cost of sales . as a percentage of net sales , selling , general , and administrative expenses increased from 19.0 % for the year ended december 31 , 2015 to 21.3 % for year ended december 31 , 2016 due to lower volume and spin-off related transaction expenses . 32 for the year ended december 31 , 2016 , the company recorded net restructuring , impairment and other charges of $ 5.4 million compared to $ 4.4 million for the year ended december 31 , 2015 . for
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in addition , we access and evaluate financial information regarding bloomberg from other private sources , as well as publicly available data . critical accounting policies and estimates our financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) , which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . this summary should be read in conjunction with a more complete discussion of our accounting policies included in note 2 – story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > parking income – revenue arising from the rental of parking space at our properties . this income is recognized as the service is provided . before we recognize revenue , we assess , among other things , its collectibility . if our assessment of the collectibility of revenue changes , the impact on our consolidated financial statements could be material . income taxes we operate in a manner intended to enable us to continue to qualify as a reit under sections 856 – 860 of the internal revenue code of 1986 , as amended ( the “ code ” ) . in order to maintain our qualification as a reit under the code , we must distribute at least 90 % of our taxable income to stockholders each year . we distribute to our stockholders 100 % of our taxable income and therefore , no provision for federal income taxes is required . if we fail to distribute the required amount of income to our stockholders , or fail to meet other reit requirements , we may fail to qualify as a reit , which may result in substantial adverse tax consequences . 26 results of operations – year ended december 31 , 2017 compared to december 31 , 2016 property rentals property rentals were $ 152,857,000 in the year ended december 31 , 2017 , compared to $ 151,444,000 in the prior year , an increase of $ 1,413,000. this increase was primarily due to higher rental income of $ 3,730,000 from the alexander apartment tower , which was placed in service in phases beginning july 2015 and leased up to stabilization in september 2016 , partially offset by income of $ 2,257,000 in 2016 resulting from a tenant lease termination at our rego park ii property . expense reimbursements tenant expense reimbursements were $ 77,717,000 in the year ended december 31 , 2017 , compared to $ 75,492,000 in the prior year , an increase of $ 2,225,000. this increase was primarily due to higher reimbursable real estate taxes and higher reimbursable operating expenses . operating expenses operating expenses were $ 85,127,000 in the year ended december 31 , 2017 , compared to $ 82,232,000 in the prior year , an increase of $ 2,895,000. this increase was primarily due to ( i ) higher real estate taxes of $ 3,267,000 and ( ii ) higher reimbursable operating expenses of $ 903,000 , partially offset by ( iii ) lower marketing costs for the alexander apartment tower of $ 1,098,000 and ( iv ) lower bad debt expense of $ 504,000. depreciation and amortization depreciation and amortization was $ 34,925,000 in the year ended december 31 , 2017 , compared to $ 33,807,000 in the prior year , an increase of $ 1,118,000. this increase was primarily due to additional depreciation and amortization of tenant improvements and deferred leasing costs of $ 2,444,000 related to a tenant lease termination at our 731 lexington avenue property in september 2017 , partially offset by additional depreciation and amortization of tenant improvements and deferred leasing costs of $ 1,077,000 in 2016 related to a tenant lease termination at our rego park ii property . general and administrative expenses general and administrative expenses were $ 5,252,000 in the year ended december 31 , 2017 , compared to $ 5,436,000 in the prior year , a decrease of $ 184,000. this decrease was primarily due to lower director 's fees and stock-based compensation expense as a result of having one less member on our board of directors in 2017. interest and other income , net interest and other income , net was $ 6,716,000 in the year ended december 31 , 2017 , compared to $ 3,305,000 in the prior year , an increase of $ 3,411,000. this increase was primarily due to higher interest income of ( i ) $ 2,453,000 from the rego park ii loan participation , ( ii ) $ 1,418,000 from an increase in the average interest rates and ( iii ) $ 216,000 from an increase in the average investment balances , partially offset by ( iv ) lower income of $ 429,000 in connection with bankruptcy recoveries and ( v ) income of $ 367,000 in the prior year from a cost reimbursement settlement with a retail tenant at our 731 lexington avenue property . interest and debt expense interest and debt expense was $ 31,474,000 in the year ended december 31 , 2017 , compared to $ 22,241,000 in the prior year , an increase of $ 9,233,000. this increase was primarily due to higher interest expense of ( i ) $ 5,289,000 due to an increase in average libor , ( ii ) $ 2,658,000 resulting from the refinancing of the office portion of 731 lexington avenue on june 1 , 2017 for $ 500,000,000 at libor plus 0.90 % ( previously a $ 300,000,000 loan at libor plus 0.95 % ) and ( iii ) $ 1,188,000 of higher amortization of debt issuance costs . income taxes income tax expense was $ 3,000 in the year ended december 31 , 2017 , compared to $ 48,000 in the prior year . story_separator_special_tag 27 results of operations – year ended december 31 , 2016 compared to december 31 , 2015 property rentals property rentals were $ 151,444,000 in the year ended december 31 , 2016 , compared to $ 138,688,000 in the prior year , an increase of $ 12,756,000. this increase was primarily due to ( i ) rental income of $ 7,271,000 from the alexander apartment tower , which was placed in service in phases beginning july 2015 and leased up to stabilization in september 2016 , ( ii ) higher rental income of $ 3,366,000 from the january 2016 lease amendment with bloomberg at 731 lexington avenue and ( iii ) income of $ 2,257,000 resulting from a tenant lease termination at our rego park ii property in june 2016. expense reimbursements tenant expense reimbursements were $ 75,492,000 in the year ended december 31 , 2016 , compared to $ 69,227,000 in the prior year , an increase of $ 6,265,000. this increase was primarily due to ( i ) higher recoveries of real estate taxes and operating expenses from bloomberg at 731 lexington avenue as a result of the january 2016 lease amendment , which converted 192,000 square feet from a gross basis to a net rent basis and ( ii ) higher reimbursable real estate taxes , partially offset by ( iii ) lower reimbursable operating expenses . operating expenses operating expenses were $ 82,232,000 in the year ended december 31 , 2016 , compared to $ 76,218,000 in the prior year , an increase of $ 6,014,000. this increase was primarily due to ( i ) higher operating expenses of $ 2,494,000 related to the alexander apartment tower , which was placed in service in phases beginning july 2015 and leased up to stabilization in september 2016 , ( ii ) higher reimbursable real estate taxes of $ 3,703,000 and ( iii ) higher bad debt expense of $ 871,000 , partially offset by ( iv ) lower reimbursable operating expenses of $ 1,068,000. depreciation and amortization depreciation and amortization was $ 33,807,000 in the year ended december 31 , 2016 , compared to $ 31,086,000 in the prior year , an increase of $ 2,721,000. this increase was primarily due to additional depreciation related to the alexander apartment tower , which was placed in service in phases beginning july 2015. general and administrative expenses general and administrative expenses were $ 5,436,000 in the year ended december 31 , 2016 , compared to $ 5,406,000 in the prior year , an increase of $ 30,000. interest and other income , net interest and other income , net was $ 3,305,000 in the year ended december 31 , 2016 , compared to $ 5,949,000 in the prior year , a decrease of $ 2,644,000. this decrease was primarily due to $ 2,141,000 from a special dividend from our investment in common shares of macerich in 2015 and lower income of $ 1,275,000 in connection with bankruptcy recoveries . interest and debt expense interest and debt expense was $ 22,241,000 in the year ended december 31 , 2016 , compared to $ 24,239,000 in the prior year , a decrease of $ 1,998,000. this decrease was primarily due to savings of $ 5,631,000 resulting from the refinancing of the retail portion of 731 lexington avenue on august 5 , 2015 at libor plus 1.40 % , or 2.05 % as of december 31 , 2016 ( the prior loan had a fixed rate of 4.93 % ) ; partially offset by lower capitalized interest of $ 1,486,000 as a result of completing the development of the alexander apartment tower , which was placed in service in phases beginning july 2015 and $ 2,066,000 due to an increase in average libor . income taxes income tax expense was $ 48,000 in the year ended december 31 , 2016 , compared to $ 8,000 in the prior year . 28 related party transactions vornado steven roth is the chairman of our board of directors and chief executive officer , the managing general partner of interstate properties ( “ interstate ” ) , a new jersey general partnership , and the chairman of the board of trustees and chief executive officer of vornado . as of december 31 , 2017 , mr. roth , interstate and its other two general partners , david mandelbaum and russell b. wight , jr. ( who are also directors of the company and trustees of vornado ) owned , in the aggregate , 26.2 % of our outstanding common stock , in addition to the 2.3 % they indirectly own through vornado . joseph macnow , our treasurer , is the executive vice president - chief financial officer and chief administrative officer of vornado . matthew iocco , our chief financial officer , is the executive vice president - chief accounting officer of vornado . as of december 31 , 2017 , vornado owned 32.4 % of our outstanding common stock . we are managed by , and our properties are leased and developed by , vornado , pursuant to various agreements , which expire in march of each year and are automatically renewable . these agreements are described in note 4 – related party transactions , to our consolidated financial statements in this annual report on form 10-k. toys our affiliate , vornado , owns 32.5 % of toys . joseph macnow , vornado 's executive vice president - chief financial officer and chief administrative officer and wendy a. silverstein , a member of our board of directors , represent vornado as members of toys ' board of directors . toys leases 47,000 square feet of retail space at our rego park ii shopping center ( $ 2,600,000 of annual revenue ) . on september 18 , 2017 , toys filed for chapter 11 bankruptcy relief .
| for our development properties , estimates of future cash flows also include all future expenditures necessary to develop the asset , including interest payments that will be capitalized as part of the cost of the asset . an impairment loss is recognized only if the carrying amount of the asset is not recoverable and is measured based on the excess of the property 's carrying amount over its estimated fair value . if our estimates of future cash flows , anticipated holding periods , or fair values change , based on market conditions or otherwise , our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements . estimates of future cash flows are subjective and are based , in part , on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results . plans to hold properties over longer periods decrease the likelihood of recording impairment losses . allowance for doubtful accounts we periodically evaluate the collectibility of amounts due from tenants , including the receivable arising from the straight-lining of rents , and maintain an allowance for doubtful accounts ( $ 1,501,000 and $ 1,473,000 as of december 31 , 2017 and 2016 , respectively ) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements . we exercise judgment in establishing these allowances and consider payment history and current credit status in developing these estimates . these estimates may differ from actual results , which could be material to our consolidated financial statements . revenue recognition we have the following revenue sources and revenue recognition policies : base rent – revenue arising from tenant leases . these rents are recognized over the non-cancelable term of the related leases on a straight-line basis , which includes the effects of rent steps and free rent abatements under the leases . we commence rental revenue recognition when the tenant takes possession of the leased space and the leased
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the company receives fees and minimum annual royalties under certain license agreements and records fee income on a ratable basis each quarter . in instances when sales of licensed products by its licensees exceed minimum annual royalties , the company recognizes fee income as the amounts have been earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . 32 on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company would be required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . story_separator_special_tag the end of march 2012. the company recorded an income tax benefit of $ 613,397 for the year ended december 31 , 2012. this benefit results from state research and development refundable credits that the company applied for related to the years ended december 31 , 2006 , 2007 , 2008 , and 2009. the company does not currently expect to collect additional credits . no income tax benefit or expense was recorded for the year ended december 31 , 2011. as a consequence of the factors discussed above , the company 's net loss was $ 3,063,601 ( $ 0.15 per common share ) for the year ended december 31 , 2012 as compared to $ 4,134,068 ( $ 0.22 per common share ) for the year ended december 31 , 2011. financial condition , liquidity and capital resources the company has primarily utilized its cash , cash equivalents , short-term investments , and the proceeds from its investments to fund its research and development , for marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including , but not limited to , the results of research and development activities , competitive and technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . 35 during 2013 , the company 's cash and cash equivalents balance decreased by $ 2,524,110. this decline was mainly due to : ( i ) cash used for operations , and ( ii ) cash received from financing activities . the company 's reported net loss in 2013 produced ( $ 3,244,859 ) of cash used for operations . the negative impact from cash used for operations on the company 's cash and cash equivalents balance was partially offset by proceeds from the exercise of options and warrants of $ 795,294. at december 31 , 2013 , the company had working capital of $ 11,782,967 and total shareholders ' equity of $ 11,869,937. during 2012 , the company 's cash and cash equivalents balance increased by $ 5,986,869 principally as a result of cash proceeds from the sale of common stock of $ 12,250,500 partially offset by cash used for operations of $ 2,679,093 as well as net cash invested in certificates of deposits of $ 3,797,865. the company expects to use its cash to fund its research and development of spd light valves , its expanded marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including the results of research and development activities , competitive and technological developments story_separator_special_tag the company receives fees and minimum annual royalties under certain license agreements and records fee income on a ratable basis each quarter . in instances when sales of licensed products by its licensees exceed minimum annual royalties , the company recognizes fee income as the amounts have been earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . 32 on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company would be required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . story_separator_special_tag the end of march 2012. the company recorded an income tax benefit of $ 613,397 for the year ended december 31 , 2012. this benefit results from state research and development refundable credits that the company applied for related to the years ended december 31 , 2006 , 2007 , 2008 , and 2009. the company does not currently expect to collect additional credits . no income tax benefit or expense was recorded for the year ended december 31 , 2011. as a consequence of the factors discussed above , the company 's net loss was $ 3,063,601 ( $ 0.15 per common share ) for the year ended december 31 , 2012 as compared to $ 4,134,068 ( $ 0.22 per common share ) for the year ended december 31 , 2011. financial condition , liquidity and capital resources the company has primarily utilized its cash , cash equivalents , short-term investments , and the proceeds from its investments to fund its research and development , for marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including , but not limited to , the results of research and development activities , competitive and technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . 35 during 2013 , the company 's cash and cash equivalents balance decreased by $ 2,524,110. this decline was mainly due to : ( i ) cash used for operations , and ( ii ) cash received from financing activities . the company 's reported net loss in 2013 produced ( $ 3,244,859 ) of cash used for operations . the negative impact from cash used for operations on the company 's cash and cash equivalents balance was partially offset by proceeds from the exercise of options and warrants of $ 795,294. at december 31 , 2013 , the company had working capital of $ 11,782,967 and total shareholders ' equity of $ 11,869,937. during 2012 , the company 's cash and cash equivalents balance increased by $ 5,986,869 principally as a result of cash proceeds from the sale of common stock of $ 12,250,500 partially offset by cash used for operations of $ 2,679,093 as well as net cash invested in certificates of deposits of $ 3,797,865. the company expects to use its cash to fund its research and development of spd light valves , its expanded marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including the results of research and development activities , competitive and technological developments
| also , licensees may offset some or all of their royalty payments on sales of licensed products for a given period by applying these advance payments towards such earned royalty payments . because the company 's license agreements typically provide for the payment of royalties by a licensee on product sales within 45 days after the end of the quarter in which a sale of a licensed product occurs ( with some of the company 's more recent license agreements providing for payments on a monthly basis ) , and because of the time period which typically will elapse between a customer order and the sale of the licensed product and installation in a home , office building , automobile , aircraft , boat or any other product , there could be a delay between when economic activity between a licensee and its customer occurs and when the company gets paid its royalty resulting from such activity . 33 operating expenses increased by $ 1,845,635 for the year ended december 31 , 2013 to $ 5,841,268 , from $ 3,995,633 for the year ended december 31 , 2012. this increase was principally the result of higher non-cash compensation charges related to common stock and option grants to employees and directors ( $ 1,167,000 ) , payroll costs ( $ 227,000 ) , marketing and investor relations costs ( $ 296,000 ) and patent costs ( $ 95,000 ) and bad debts ( $ 81,000 ) . research and development expenditures increased by $ 531,454 to $ 2,203,326 for the year ended december 31 , 2013 from $ 1,671,872 for the year ended december 31 , 2012. this increase was principally the result of higher non-cash compensation charges related to common stock and option grants to employees ( $ 505,000 ) , payroll and related costs ( $ 104,000 ) partially offset by lower materials and project costs ( $ 28,000 ) as well as lower allocated insurance ( $ 25,000 ) and office costs ( $ 32,000 ) . included in research and development expenses are approximately $ 648,000 and $
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for additional information on patent rights we consider most significant to our business as a whole , see the item 1. business––patents and other intellectual property rights section in this form 10-k. for a discussion of recent developments with respect to patent litigation , see note 16a1 . regulatory environment/pricing and access––u.s . healthcare legislation replace_table_token_4_th regulatory environment/pricing and access––government and other payer group pressures the pricing of medicines by pharmaceutical manufacturers and the cost of healthcare , which includes medicines , medical services and hospital services , continues to be important to payers , governments , patients , and other stakeholders . federal and state governments and private third-party payers in the u.s. continue to take action to manage the utilization of drugs and cost of drugs , including increasingly employing formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement . we consider a number of factors impacting the pricing of our medicines . within the u.s. , we often engage with patients , doctors and healthcare plans . we also often provide significant discounts from the list price to insurers , including pbms and mcos . the price that patients pay in the u.s. for prescribed medicines is ultimately set by healthcare providers and insurers . on average , insurers impose a higher out-of-pocket burden on patients for prescription medicines than for comparably priced medical services . certain governments outside the u.s. provide healthcare at low-to-zero direct cost to consumers at the point of care and have significant power as large single payers to effectively regulate prices or patient reimbursement levels to control costs for the government-sponsored healthcare system . governments may use a variety of measures , including proposing pricing reform or legislation , cross country collaboration and procurement , price cuts , mandatory rebates , health technology assessments , forced localization as a condition of market access , “ international reference pricing ” ( i.e. , the practice of a country linking its regulated medicine prices to those of other countries ) , qce processes and vbp . for additional information , see the item 1. business –– government regulation and price constraints section in this form 10-k. the global economic environment in addition to the industry-specific factors discussed above , we , like other businesses of our size and global extent of activities , are exposed to the economic cycle . certain factors in the global economic environment that may impact our global operations include , among other things , currency fluctuations , capital and exchange controls , global economic conditions , restrictive government actions , changes in intellectual property , legal protections and remedies , trade regulations and procedures and actions affecting approval , production , pricing , and marketing of , reimbursement for and access to our products , as well as impacts of political or civil unrest , terrorist activity , unstable governments and legal systems , inter-governmental disputes and public health outbreaks , epidemics and pandemics . government pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices , access criteria or other means of cost control . covid-19 pandemic the continuation of the covid-19 pandemic has impacted our business , operations and financial condition and results . for additional information on the impact of covid-19 on our revenues , please see the overview of our performance , operating environment , strategy and outlook–our 2020 performance section of this md & a . our response to covid-19 we are committed to confronting the public health challenge posed by the pandemic by collaborating with industry partners and academic institutions to develop potential approaches to prevent and treat covid-19 . in march 2020 , we issued a five-point plan calling on the biopharmaceutical industry to join us in committing to unprecedented collaboration to combat covid-19 . subsequently , we have made some important advances , including , among others : entry into a global agreement ( except for china , hong kong , macau and taiwan ) with biontech for the development , manufacture and commercialization of an mrna-based coronavirus vaccine , bnt162 , to help prevent covid-19 . in november 2020 , the companies announced that after conducting the final efficacy analysis in the phase 3 study , bnt162b2 met both of the study 's primary efficacy endpoints . pfizer inc. 2020 form 10-k 26 analysis of the data indicated a vaccine efficacy rate against covid-19 of 95 % in participants without prior sars-cov-2 infection ( first primary objective ) and also in participants with and without prior sars-cov-2 infection ( second primary objective ) , in each case measured from seven days after the second dose . the fda authorized the distribution and use of bnt162b2 in the u.s. to help prevent covid-19 for individuals 16 years of age and older under an eua issued in december 2020. bnt162b2 has not been approved or licensed by the fda . the eua authorizes distribution and use of this product subject to the conditions set forth in the eua , and only for the duration of the declaration by the department of health & human services that circumstances exist justifying authorization of emergency use of drugs and biological products ( such as bnt162b2 ) during the covid-19 pandemic under section 564 of the ffdca ( the declaration ) , or until revocation of the eua by the fda . the fda has issued euas to certain other companies for products intended for the prevention or treatment of covid-19 and may continue to do so during the duration of the declaration . the fda expects eua holders to work towards submission of a bla as soon as possible . bnt162b2 has now been granted a cma , eua or temporary authorization in more than 50 countries worldwide . the companies continue to study bnt162b2 , including studies evaluating it in additional populations , booster doses and emerging variants . story_separator_special_tag based on the updated 6-dose labeling and subject to continuous process improvements , expansion at current facilities and adding new suppliers and contract manufacturers , the companies believe that they can potentially manufacture at least 2 billion doses in total by the end of 2021. the companies have entered into agreements to supply pre-specified doses of bnt162b2 with multiple developed and emerging nations around the world and are continuing to deliver doses of bnt162b2 to governments under such agreements . as of february 2 , 2021 , based on the doses to be delivered in 2021 primarily under agreements entered into as of february 2 , 2021 ( including , among others , agreements with the u.s. government to supply 200 million doses , the european commission to supply 300 million doses , the japanese government to supply 144 million doses and covid-19 vaccines global access ( covax ) for up to 40 million doses in 2021 , subject to the negotiation and execution of additional agreements under the covax facility structure ) , we forecasted approximately $ 15 billion in revenues in 2021 from bnt162b2 , with gross margin to be split evenly with biontech . this forecast was based on doses mostly covered under agreements entered into as of february 2 , 2021 and did not include all of the doses we can potentially deliver by the end of 2021. the companies continue to enter into agreements with governments for additional doses , including , among others , the exercise by the u.s. government of an option for an additional 100 million doses and an agreement with the european commission for an additional 200 million doses to be delivered in 2021. accordingly , this forecast may change based , in part , on these and future additional agreements that may be signed and as circumstances warrant . for additional information on our covid-19 vaccine development program , see note 2 and the item 1a . risk factors—covid-19 pandemic section in this form 10-k. initiation , in september 2020 , of a phase 1b clinical trial in hospitalized participants with covid-19 to evaluate the safety , tolerability and pharmacokinetics of a novel investigational protease inhibitor for covid-19 , pf-07304814 , which is a phosphate prodrug of a 3c-like ( 3cl ) protease inhibitor , pf-00835231 . despite our significant investments and efforts , any of our ongoing development programs related to covid-19 may not be successful as the risk of failure is significant , and there can be no certainty these efforts will yield a successful product or that costs will ultimately be recouped . impact of covid-19 on our business and operations the following discussion summarizes our current views of key business and operational areas impacted by the pandemic and its effects on our business , operations , and financial condition and results . as part of our on-going monitoring and assessment , we have made certain assumptions regarding the covid-19 pandemic for purposes of our operational planning and financial projections , including assumptions regarding the duration , severity and the global macroeconomic impact of the pandemic , as well as covid-19 vaccine supply and contracts , which remain dynamic . despite careful tracking and planning , we are unable to accurately predict the extent of the impact of the pandemic on our business , operations and financial condition and results due to the uncertainty of future developments . in particular , we believe the ultimate impact on our business , operations and financial condition and results will be affected by the speed and extent of the continued spread of the coronavirus globally ; the emergence of additional virus variants ; the duration of the pandemic ; new information regarding the severity and incidence of covid-19 ; the safety , efficacy and availability of vaccines and treatments for covid-19 ; the rate at which the population becomes vaccinated against covid-19 ; the global macroeconomic impact of the pandemic and governmental or regulatory actions to contain the virus or control supply of medicines . we are focused on all aspects of our business and are implementing measures aimed at mitigating issues where possible , including by using digital technology to assist in operations for our commercial , manufacturing , r & d and enabling functions globally . our business and operations have been impacted by the pandemic in various ways . for example : at this time , most of our colleagues who are able to perform their job functions outside of our facilities continue to work remotely , while certain colleagues in the pgs and wrdm organizations continue to work onsite and are subject to strict protocols intended to reduce the risk of transmission . while engagement with healthcare professionals has started to return to pre-pandemic levels due to our virtual engagement capabilities , our sales force colleagues continue to encounter mixed access as a result of ongoing restrictions on in-person meetings . we are actively reviewing and assessing epidemiological data and our colleagues remain ready to resume in-person engagements with healthcare professionals on a location-by-location basis as soon as it is safe to do so . during the pandemic , we have adapted our promotional platform by amplifying our existing digital capabilities to reach healthcare professionals and customers to provide critical education and information , including increasing the scale of our remote engagement . we have not seen a significant disruption to our supply chain to date , and all of our manufacturing sites globally have continued to operate at or near normal levels . after a brief pause to the recruitment portion of certain ongoing clinical studies and a delay to most new study starts , we restarted recruitment across the development portfolio ( including new study starts ) in late-april 2020. our portfolio of products experienced varying impacts from the pandemic .
| see note 1a and item 1. business––commercial operations of this form 10-k for additional information . we expect to incur costs of approximately $ 700 million in connection with separating upjohn , of which , approximately 70 % has been incurred since inception and through december 31 , 2020. these charges include costs and expenses related to separation of legal entities and transaction costs . transforming to a more focused company : we have undertaken efforts to ensure our cost base aligns appropriately with our revenue base . while certain direct costs transferred to the consumer healthcare jv and to the upjohn business in connection with the spin-off , there are indirect costs which did not transfer . in addition , we are taking steps to restructure our corporate enabling functions to appropriately support and drive the purpose of our focused innovative biopharmaceutical products business and r & d and pgs platform functions . see the costs and expenses––restructuring charges and other costs associated with acquisitions and cost-reduction/productivity initiatives section of this md & a . r & d : we believe we have a strong pipeline and are well-positioned for future growth . r & d is at the heart of fulfilling our purpose to deliver breakthroughs that change patients ' lives as we work to translate advanced science and technologies into the therapies that may be the most impactful for patients . innovation , drug discovery and development are critical to our success . in addition to discovering and developing new products , our r & d efforts seek to add value to our existing products by improving their effectiveness and ease of dosing and by discovering potential new indications . see the item 1. business — research and development section of this form 10-k for our r & d priorities and strategy . we seek to leverage a strong pipeline , organize around expected operational growth drivers and capitalize on trends creating long-term growth opportunities , including : an aging global population that is generating increased demand
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loss factors increase as loans are classified or become delinquent . see `` part ii , item 8. financial statements and supplementary data – notes to consolidated financial statements – note 1 – summary of significant accounting policies '' for additional information related the quantitative and qualitative factors utilized in the formula analysis model . the factors applied in the formula analysis are reviewed quarterly by management to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio . our acl methodology permits modifications to the formula analysis in the event that , in management 's judgment , significant factors which affect the collectability of the portfolio or any category of the loan portfolio , as of the evaluation date , have changed from the current formula analysis . management 's evaluation of the qualitative factors with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with a specific problem loan or portfolio segment . management utilizes the formula analysis model , along with considering several other data elements , when evaluating the adequacy of the acl . such data elements include the trend and composition of delinquent loans , results of foreclosed property and short sale transactions , charge-off trends , the current status and trends of local and national economic conditions ( particularly levels of unemployment ) , trends and current conditions in the real estate and housing markets , and loan portfolio growth and concentrations . since our loan portfolio is primarily concentrated in one- to four-family real estate , management monitors residential real estate market value trends in the bank 's local market areas and geographic sections of the u.s. by reference to various industry and market reports , economic releases and surveys , and management 's general and specific knowledge of the real estate markets in which we lend , in order to determine what impact , if any , such trends may have on the level of acl . reviewing these data elements assists management in evaluating the overall credit quality of the loan portfolio and the reasonableness of the acl on an ongoing basis , and whether changes need to be made to our acl methodology . in addition , the adequacy of the company 's acl is reviewed during bank regulatory examinations . we consider any comments from our regulators when assessing the appropriateness of our acl . we seek to apply acl methodology in a consistent manner ; however , the methodology can be modified in response to changing conditions . fair value measurements . the company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures in accordance with accounting standard codification ( `` asc '' ) 820 and asc 825. the company groups its assets at fair value in three levels based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value , with level 1 ( quoted prices for identical assets in an active market ) being considered the most reliable , and level 3 having the most unobservable inputs and therefore being considered the least reliable . the company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date . the company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value . the company did not have any liabilities that were measured at fair value at september 30 , 2015 . 43 the company 's afs securities are its most significant assets measured at fair value on a recurring basis . changes in the fair value of afs securities are recorded , net of tax , as aoci in stockholders ' equity . the company primarily uses prices obtained from third party pricing services to determine the fair value of its securities . various modeling techniques are used to determine pricing for the company 's securities , including option pricing , discounted cash flow models , and similar techniques . the inputs to these models may include benchmark yields , reported trades , broker/dealer quotes , issuer spreads , benchmark securities , bids , offers and reference data . there is one security , with a balance of $ 1.9 million at september 30 , 2015 , in the afs portfolio that has significant unobservable inputs requiring the independent pricing services to use some judgment in pricing the related securities . this afs security is classified as level 3. all other afs securities are classified as level 2. loans individually evaluated for impairment and oreo are the company 's significant assets measured at fair value on a non-recurring basis . these non-recurring fair value adjustments involve the application of lower-of-cost-or-fair value accounting or write-downs of individual assets . fair values of loans individually evaluated for impairment are estimated through current appraisals or analyzed based on market indicators . oreo fair values are estimated using current appraisals or listing prices . fair values may be adjusted by management to reflect current economic and market conditions and , as such , are classified as level 3. recent accounting pronouncements for a discussion of recent accounting pronouncements , see `` item 8. financial statements and supplementary data – notes to financial statements – note 1 – summary of significant accounting policies . '' 44 management strategy we are a community-oriented financial institution dedicated to serving the needs of customers in our market areas . our commitment is to provide qualified borrowers the broadest possible access to home ownership through our mortgage lending programs and to offer a complete set of personal banking products and services to our customers . we strive to enhance stockholder value while maintaining a strong capital position . to achieve these goals , we focus on the following strategies : residential portfolio lending . story_separator_special_tag we are one of the leading originators of one- to four-family loans in the state of kansas . we originate these loans primarily for our own portfolio , and we service the loans we originate . we also purchase one- to four-family loans from correspondent lenders . we offer both fixed- and adjustable-rate products with various terms to maturity and pricing options . we maintain strong relationships with local real estate agents to attract mortgage loan business . we rely on our marketing efforts and customer service reputation to attract mortgage business from walk-in customers , customers that apply online , and existing customers . retail financial services . we offer a wide array of deposit products and retail services . these products include checking , savings , money market , certificates of deposit , and retirement accounts . they are provided through a branch network of 47 locations , including traditional branches and retail in-store locations , our call center which operates on extended hours , mobile banking , telephone banking and bill payment services , and online banking and bill payment services . cost control . we generally are very effective at controlling our costs of operations . by using technology , we are able to centralize our loan servicing and deposit support functions for efficient processing . we have located our branches to serve a broad range of customers through relatively few branch locations . our average deposit base per traditional branch at september 30 , 2015 was approximately $ 115.5 million . this large average deposit base per branch helps to control costs . our one- to four-family lending strategy and our effective management of credit risk allows us to service a large portfolio of loans at efficient levels because it costs less to service a portfolio of performing loans . asset quality . we utilize underwriting standards for our lending products that are designed to limit our exposure to credit risk . we require complete documentation for both originated and purchased loans , and make credit decisions based on our assessment of the borrower 's ability to repay the loan in accordance with its terms . capital position . our policy has always been to protect the safety and soundness of the bank through credit and operational risk management , balance sheet strength , and sound operations . the end result of these activities has been a capital ratio in excess of the well-capitalized standards set by the occ . we believe that maintaining a strong capital position safeguards the long-term interests of the bank , the company , and our stockholders . stockholder value . we strive to enhance stockholder value while maintaining a strong capital position . one way that we continue to provide returns to stockholders is through our dividend payments . total dividends declared and paid during fiscal year 2015 were $ 114.2 million , including a $ 0.25 per share , or $ 33.9 million , true blue® capitol dividend paid in june 2015. the company 's cash dividend payout policy is reviewed quarterly by management and the board of directors , and the ability to pay dividends under the policy depends upon a number of factors , including the company 's financial condition and results of operations , regulatory capital requirements , regulatory limitations on the bank 's ability to make capital distributions to the company , and the amount of cash at the holding company level . it is the intent of the board of directors to continue to pay regular quarterly and special cash dividends each year , and for fiscal year 2016 , it is the intent of the board of directors and management to continue with the payout of 100 % of the company 's earnings to its stockholders . another way we have provided returns to stockholders is through our share repurchase programs . during fiscal year 2015 , the company repurchased 3,875,581 shares of common stock at an average price of $ 11.99 per share , for a total cost of $ 46.4 million . interest rate risk management . changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities . as such , fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities . in order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments , we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies . 45 financial condition assets . total assets were $ 9.84 billion at september 30 , 2015 compared to $ 9.87 billion at september 30 , 2014. in fiscal year 2015 , management continued the strategy of moving cash flows from the relatively lower yielding securities portfolio to the higher yielding loans receivable portfolio . loans receivable . the loans receivable portfolio , net , increased $ 391.9 million , or 6.3 % , to $ 6.63 billion at september 30 , 2015 , from $ 6.23 billion at september 30 , 2014. the increase in the portfolio was due primarily to originations and purchases outpacing principal repayments between periods . during fiscal year 2015 , the bank originated and refinanced $ 780.5 million of loans , purchased $ 651.0 million of loans from correspondent lenders , and participated in $ 60.3 million of commercial real estate loans . the growth in the loan portfolio was primarily funded with cash flows from the mbs portfolio . the following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated .
| economic conditions in the bank 's local market areas have a significant impact on the ability of borrowers to repay loans and the value of the collateral securing these loans . the industries in our market areas are very diversified , specifically in the kansas city metropolitan statistical area , which comprises the largest segment of our loan portfolio and deposit base . as of october 2015 , the unemployment rate was 4.1 % for kansas and 5.0 % for missouri , compared to the national average of 5.0 % based on information from the bureau of economic analysis . the kansas city market area has an average household income of approximately $ 75 thousand per annum , based on 2015 estimates from the american community survey , which is a statistical survey by the u.s. census bureau . the average household income in our combined market areas is approximately $ 70 thousand per annum , with 90 % of the population at or above the poverty level , also based on the 2015 estimates from the american community survey . the fhfa price index for kansas and missouri has not experienced significant fluctuations during the past 10 years , unlike other market areas of the united states , which indicates relative stability in property values in our local market areas . during fiscal year 2015 , the bank continued to utilize the daily leverage strategy to increase earnings . the daily leverage strategy , during the current fiscal year , involved borrowing up to $ 2.10 billion on the bank 's fhlb line of credit in two leverage tiers . the first tier remained borrowed on the fhlb line of credit for the entire fiscal year except at december 31 , 2014 and june 30 , 2015 , when the outstanding balance was repaid to reduce regulatory assessments . the second , and larger , tier was borrowed at the beginning of each quarter and paid off prior to quarter end , for regulatory purposes . the proceeds of the borrowings , net of the required fhlb stock holdings , were deposited at the federal reserve bank of kansas city . the increase in average
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the deferred gain associated with this change in accounting was recognized through opening retained earnings as of december 31 , 2018 . - recognized a retained earnings adjustment of $ 3.5 million related to the write-off of the rou asset from a previously impaired ruth 's chris steak house restaurant . - recognized $ 413 thousand of additional deferred income taxes from the previously mentioned adoption related equity adjustments . the company did not experience material changes to either the consolidated statements of income or the consolidated statements of cash flows due to the adoption of topic 842. see note 4 of the notes to consolidated financial statements for a summary of the impact of the adoptions of topic 842. recap of fiscal year 2019 and fiscal year 2018 operating results operating income for fiscal year 2019 increased from fiscal year 2018 by $ 802 thousand to $ 52.5 million . operating income for fiscal year 2019 was favorably impacted by a $ 13.9 million increase in restaurant sales and decreases in marketing and advertising and general and administrative expenses , which were partially offset by increased food and beverage costs , restaurant operating expenses and depreciation and amortization expenses . higher restaurant sales were attributable to an increase in both new company-owned restaurant sales and comparable company-owned restaurants . after-tax income from continuing operations during fiscal year 2019 increased from fiscal year 2018 by $ 606 thousand to $ 42.2 million . fiscal year 2019 net income increased from fiscal year 2018 by $ 526 thousand to $ 42.2million . operating income for fiscal year 2018 increased from fiscal year 2017 by $ 5.0 million to $ 51.7 million . operating income for fiscal year 2018 was favorably impacted by a $ 37.0 million increase in restaurant sales , which was partially offset by increased food and beverage costs , restaurant operating expenses , marketing and advertising , general and administrative costs and depreciation and amortization expenses . the company had a $ 3.9 million loss on impairment during fiscal year 2017 that did not reoccur in fiscal year 2018. higher restaurant sales were attributable to an increase in new company-owned restaurant sales partially offset by sales at comparable company-owned restaurants . after-tax income from continuing operations during fiscal year 2018 increased from fiscal year 2017 by $ 11.4 million to $ 41.6 million . income tax expense decreased $ 7.4 million primarily due to the passage of the 2017 tax act which reduced the statutory rate from 35 % to 21 % . fiscal year 2018 net income increased from fiscal year 2017 by $ 11.5 million to $ 41.7 million . key financial terms and metrics we evaluate our business using a variety of key financial measures : restaurant sales . restaurant sales consist of food and beverage sales by company-owned restaurants . restaurant sales are primarily influenced by total operating weeks in the relevant period and comparable restaurant sales growth . total operating weeks is the total number of company-owned restaurants multiplied by the number of weeks each is in operation during the relevant period . total operating weeks are impacted by restaurant openings and closings , as well as changes in the number of weeks included in the relevant period . comparable restaurant sales growth reflects the change in year-over-year or quarter-over-quarter , as applicable , sales for the comparable restaurant base . we define the comparable restaurant base to be those company-owned restaurants in operation for not less than eighteen months prior to the beginning of the fiscal year including the period being measured . comparable restaurant sales growth is primarily influenced by customer traffic , which is measured by the number of entrées sold , and the average guest check . customer traffic is influenced by the popularity of our menu items , our guest mix , our ability to deliver a high-quality dining experience and overall economic conditions . average guest check , a measure of total restaurant sales divided by the number of entrées , is driven by menu mix and pricing . 23 franchise income . franchise income includes ( 1 ) franchise and development fees charged to franchisees , ( 2 ) sales-based royalty income and ( 3 ) sales-based advertising fees . franchise royalties consist of 5.0 % of adjusted gross sales from each franchisee-owned restaurant . in addition , our more recent franchise agreements require an advertising fee of up to 1.0 % of gross sales to be paid by the franchisee . under our prior franchise agreements , the company would pay 1.0 % out of the 5.0 % royalty toward national advertising . we evaluate the performance of our franchisees by measuring franchisee-owned restaurant operating weeks , which is impacted by franchisee-owned restaurant openings and closings , and comparable franchisee-owned restaurant sales growth , which together with operating weeks , drives royalty income . other operating income . other operating income consists primarily of breakage income associated with gift cards , and includes fees earned from management agreements , banquet-related guarantee and services revenue and other incidental guest fees . food and beverage costs . food and beverage costs include all restaurant-level food and beverage costs of company-owned restaurants . we measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée . food and beverage costs are generally influenced by the cost of food and beverage items , distribution costs and menu mix . restaurant operating expenses . we measure restaurant operating expenses for company-owned restaurants as a percentage of restaurant sales . restaurant operating expenses include the following : labor costs , consisting of restaurant management salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . story_separator_special_tag we measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales ; operating costs , consisting of maintenance , utilities , bank and credit card charges , and any other restaurant-level expenses ; and occupancy costs , consisting of both fixed and variable portions of rent , common area maintenance charges , insurance premiums and real property taxes . marketing and advertising . marketing and advertising includes all media , production and related costs for both local restaurant advertising and national marketing . we measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues . we have historically spent approximately 2.5 % to 4.0 % of total revenues on marketing and advertising and expect to maintain this level in the near term . general and administrative . general and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company and franchisee growth . general and administrative costs are comprised of management , supervisory and staff salaries and employee benefits , travel , performance-based compensation , stock compensation , information systems , training , corporate rent , professional and consulting fees , technology and market research . we measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues . depreciation and amortization . depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . 24 story_separator_special_tag to the factors noted above . income ( loss ) from discontinued operations , net of income taxes . there was no income ( loss ) from discontinued operations , net of income taxes during fiscal year 2019 compared to income of $ 80 thousand during fiscal year 2018. discontinued operations includes the recurring revenues and expenses of closed restaurants and related income taxes . net income . net income was $ 42.2 million during fiscal year 2019 compared to $ 41.7 million net income during fiscal year 2018 due to the factors noted above . fiscal year 2018 compared to fiscal year 2017 restaurant sales . restaurant sales increased $ 37.0 million , or 9.5 % , to $ 427.4 million during fiscal year 2018 from fiscal year 2017. the increase was attributable to a $ 41.1 million increase in new or relocated restaurants offset by a $ 4.1 million decrease from comparable company-owned restaurants . excluding discontinued operations , total operating weeks during fiscal year 2018 increased to 4,027 from 3,715 during fiscal year 2017. the 53 rd week contributed $ 12.4 million in sales in fiscal year 2017. comparable company-owned restaurant sales increased 1.4 % on a comparable 52-week basis , which consisted of an average check increase of 1.7 % , and 0.3 % decrease in traffic counts . comparable restaurant sales and traffic were negatively affected by approximately 50 basis points due to the shift of the new year 's eve holiday into fiscal year 2019. new restaurant sales primarily increased in fiscal year 2018 due to an increase in 294 operating weeks from the acquisition of the hawaiian restaurants in december 2017. franchise income . franchise income increased $ 374 thousand , or 2.1 % , to $ 17.9 million during fiscal year 2018 from fiscal year 2017. the increase is primarily attributable to the reclassification of $ 1.5 million in franchisee advertising fees due to the adoption of topic 606 and an increase in comparable franchisee-owned restaurant sales of 1.0 % . this was offset by the acquisition of the hawaii restaurants which decreased sales-based royalty income by $ 1.6 million during fiscal year 2018. other operating income . other operating income increased $ 138 thousand , or 2.0 % , to $ 7.0 million during fiscal year 2018 from fiscal year 2017. other operating income includes our share of income from managed restaurants , gift card breakage revenue and miscellaneous restaurant income . the increase in other operating income was primarily due to an increase of $ 106 thousand in income from restaurants operating under contractual agreements , including the new location in reno , nv . 26 food and beverage costs . food and beverage costs increased $ 3.8 million , or 3.2 % , to $ 120.1 million during fiscal year 2018 from fiscal year 2017. food and beverage costs , as a percentage of restaurant sales , decreased 170 basis points to 28.1 % compared to fiscal year 2017 largely due to a decrease of 8.4 % in total beef costs and an increase in average check of 1.7 % . restaurant operating expenses . restaurant operating expenses increased $ 20.8 million , or 11.2 % , to $ 206.3 million during fiscal year 2018 from fiscal year 2017. restaurant operating expenses , as a percentage of restaurant sales , increased 75 basis points to 48.3 % compared to fiscal year 2017 primarily due to an increase in occupancy expenses . marketing and advertising . marketing and advertising expenses increased $ 3.9 million , or 30.8 % to $ 16.6 million during fiscal year 2018 from fiscal year 2017. marketing and advertising , as a percent of total revenue , increased 60 basis points to 3.7 % compared to fiscal year 2017. the increase in marketing and advertising expenses during fiscal year 2018 was attributable to a planned increase in advertising in addition to the reclassification of $ 1.7 million in certain administrative support costs that have been historically charged to general and administrative costs . general and administrative .
| the increase in other operating income was primarily due to an increase of $ 1.1 million in breakage revenue and $ 716 thousand in income from restaurants operating under contractual agreements , including a full year of operations of the new location in reno , nv . food and beverage costs . food and beverage costs increased $ 7.5 million , or 6.2 % , to $ 127.6 million during fiscal year 2019 from fiscal year 2018. food and beverage costs , as a percentage of restaurant sales , increased 80 basis points to 28.9 % compared to fiscal year 2018 largely due to an increase of 8.4 % in total beef costs . 25 restaurant operating expenses . restaurant operating expenses increased $ 8.5 million , or 4.1 % , to $ 214.7 million during fiscal year 201 9 from fiscal year 201 8 . restaurant operating expenses , as a percentage of restaurant sales , in creased 40 basis points to 48 . 6 % compared to fiscal year 201 8 primarily due to o ccupancy related increase s . marketing and advertising . marketing and advertising expenses decreased $ 1.2 million , or 7.3 % to $ 15.4 million during fiscal year 2019 from fiscal year 2018. marketing and advertising , as a percent of total revenue , decreased 40 basis points to 3.3 % compared to fiscal year 2018. the decrease in marketing and advertising expenses during fiscal year 2019 was attributable to a planned decrease in marketing research investments . general and administrative . general and administrative expenses decreased $ 2.6 million or 7.0 % to $ 34.6 million during fiscal year 2019 from fiscal year 2018. the decrease in general and administrative costs was attributable to a reduction of $ 1.5 million in compensation costs and a $ 989 thousand reduction in franchisee acquisition and integration costs . depreciation and amortization expenses . depreciation and amortization expense increased $ 2.8 million to $ 21.4 million during fiscal year 2019 , primarily due to property additions related to new restaurants and remodel projects placed in service within the last twelve months including
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we have formed a dedicated commercial organization comprised of highly experienced and motivated sales representatives , account managers , and a complement of other support marketing personnel to manage the sales and marketing of these drugs . in addition , our scientific department supports field activities through various mds , phds and other medical science liaison personnel . 50 optimizing our development portfolio and maximizing the asset values of its components . while over the recent few years , we have evolved from a development-stage to a commercial-stage pharmaceutical company , we have maintained a highly focused development portfolio . our strategy with regard to our development portfolio is to focus on late-stage drugs and to develop them safely and expeditiously to the point of regulatory approval . we plan to develop some of these drugs ourselves or with our subsidiaries and affiliates , or secure collaborations with third parties such that we are able to suitably monetize these assets . we have assembled a drug development infrastructure that is comprised of highly experienced and motivated mds , phds , clinical research associates and a complement of other support personnel to develop these drugs . in april 2012 , we announced that the single instillation phase 3 clinical trials for apaziquone did not meet their primary endpoint , however , the pooled data from the studies did show a statistically significant treatment effect . a meeting with the fda was held in december 2012 to discuss the results from these clinical trials . based on the discussions with the fda , we understand that the fda can accept the nda filing with the current phase iii data and will likely convene an advisory committee meeting . further , based on discussions with the fda , we have agreed to conduct one additional phase iii study following consultation with the fda on its design . with regard to our anti-cancer drug belinostat , a novel hdac inhibitor , we have to date opened more than 100 international sites in the study of relapsed refractory peripheral t cell lymphoma . we completed enrollment in this trial in september 2011 , announced top line results in december 2012 and expect to file a nda in 2013. we have several other exciting compounds in earlier stages of development in our portfolio . based upon a criteria-based portfolio review , we are in the process of streamlining our pipeline drugs , allowing for greater focus and integration of our development and commercial goals . expanding our pipeline of development stage and commercial drugs through business development activities . it is our goal to identify new strategic opportunities that will create strong synergies with our currently marketed drugs and identify and pursue partnerships for out-licensing certain of our drugs in development . to this end , we will continue to explore strategic collaborations as these relate to drugs that are either in clinical trials or are currently on the market . we believe that such opportunistic collaborations will provide synergies with respect to how we deploy our internal resources . in this regard , we intend to identify and secure drugs that have significant growth potential either through enhanced marketing and sales efforts or through pursuit of additional clinical development . managing our financial resources effectively . we remain committed to fiscal discipline , a policy which has allowed us to become well capitalized among our peers , despite a very challenging capital markets environment beginning in 2009 and continuing through 2012. this policy includes the pursuit of dilutive and non-dilutive funding options , prudent expense management , and the achievement of critical synergies within our operations in order to maintain a reasonable burn rate . even with the continued build-up in operational infrastructure to facilitate the marketing of our three commercial drugs , we intend to be fiscally prudent in any expansion we undertake . in terms of revenue generation , we rely on sales from currently marketed drugs and intend to pursue out-licensing of select pipeline drugs in select territories , as discussed above . when appropriate , we may pursue other sources of financing , including dilutive and non-dilutive financing alternatives . while we are currently focused on advancing our key drug development programs , we anticipate that we will make regular determinations as to which other programs , if any , to pursue and how much funding to direct to each program on an ongoing basis , based on clinical success and commercial potential , including termination of our existing development programs , especially if we do not expect value to be realized from continued development . further enhancing the organizational structure to meet our corporate objectives . we have highly experienced staff in pharmaceutical operations , clinical development , regulatory and commercial functions who previously held positions at both small to mid-size biotech companies , as well as large pharmaceutical companies . we have strengthened the ranks of our management team , and will continue to pursue talent on an opportunistic basis . finally , we remain committed to running a lean and efficient organization , while effectively leveraging our critical resources . financial condition liquidity and capital resources our cumulative losses , since inception in 1987 through december 31 , 2012 , are approximately $ 179.3 million . we reported net income in 2011 and 2012 and remain dependent upon revenues from our three commercial drugs , specifically fusilev , folotyn and zevalin . our long-term strategy is to continue to generate profits from the sale and licensing of our drug products . story_separator_special_tag 51 while we believe that the approximately $ 143.0 million in cash , equivalents and investments we had available at december 31 , 2012 , which includes long term marketable securities ( after payment of $ 25.4 million for the purchase of the licensing rights to market zevalin outside the u.s. and $ 133.3 million for the purchase of allos ) , will allow us to fund our current planned operations for at least the next twelve to eighteen months , we may seek to obtain additional capital through the sale of debt or equity securities , if necessary , especially in conjunction with opportunistic acquisitions or licensing arrangements . we may be unable to obtain such additional capital when needed , or on terms favorable to us or our stockholders , if at all . if we raise additional funds by issuing equity securities , the percentage ownership of our stockholders will be reduced , stockholders may experience additional dilution or such equity securities may provide for rights , preferences or privileges senior to those of the holders of our common stock . if additional funds are raised through the issuance of debt securities , the terms of such securities may place restrictions on our ability to operate our business . if and when appropriate , just as we have done in the past , we may pursue non-dilutive financing alternatives as well . on september 5 , 2012 , we entered into a credit agreement with bank of america , n.a. , as the administrative agent and an initial lender and wells fargo bank , national association , as an initial lender , for a $ 75.0 million revolving line of credit , which can be increased up to $ 125.0 million , subject to meeting certain customary conditions and obtaining commitments for such increase from the lenders . the terms of the credit agreement contain financial performance covenants applicable to us and our subsidiaries , which include , among other things , a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio . we were in compliance with all such covenants as of december 31 , 2012. the terms of the credit agreement also provide for an interest rate based on the london interbank offer rate or the base rate , as selected by management , plus an applicable margin , of between 0.75 % and 1.00 % for base rate loans and between 1.75 % and 2.25 % for london interbank offer rate loans . additionally , an unused line fee is payable quarterly in an amount ranging from .375 % to 0.625 % of the sum of the average daily unused portion of the facilities during any quarter based upon consolidated leverage ratio as at the last test date . as of december 31 , 2012 , $ 75.0 million has been drawn down on the revolving line of credit , of which the entire amount is outstanding and there are no amounts available to borrow , and the interest rate on the outstanding balance was 4.25 % . our expenditures for research and development , or r & d , consist of direct product specific costs ( such as up-front license fees , milestone payments , active pharmaceutical ingredients , clinical trials , patent related legal costs , and product liability insurance , among others ) and non-product specific , or indirect , costs ( such as personnel costs , rent , and utilities , among others ) . during the year ended december 31 , 2012 , our total research and development expenditure , including indirect expenditures , was approximately $ 42.5 million ( net of $ 7.4 million received from allergan pursuant to the collaboration agreement ) . in addition to our present portfolio of drug product candidates , we continually evaluate proprietary products for acquisition . if we are successful in acquiring rights to additional products , we may pay up-front licensing fees in cash and or common stock and our research and development expenditures would likely increase . replace_table_token_10_th our primary focus areas for the foreseeable future , and the programs that are expected to represent a significant part of our r & d expenditures , are the on-going registrational clinical trials of apaziquone and belinostat and additional clinical studies in supporting the expanded utilization of our fda approved products ( zevalin , fusilev and post-approval studies required by the fda for folotyn ) . while we are currently focused on advancing these key product development programs , we continually evaluate our r & d programs of other pipeline products in response to the scientific and clinical success of each product candidate , as well as an ongoing assessment as to the product candidate 's commercial potential . our anticipated net use of cash for r & d in the fiscal year ending december 31 , 2013 , excluding the cost of in-licensing or acquisitions of additional drugs , if any , is expected to range between approximately $ 50 and $ 55 million . co-development , collaboration and out-licensing agreements with other companies for certain of our drug products may reduce our r & d expenses . for example , under our collaboration agreement with mundipharma , mundipharma is currently responsible for 40 % of the joint development costs incurred by the parties related to the folotyn post-approval studies . other than this 40 % reimbursement from mundipharma , we currently do not receive any funding from third parties for research and development that we conduct for folotyn .
| selling , general and administrative expenses increased as a result of the inclusion of allos and is primarily due to : $ 7.0 million increase in compensation and associated benefits , of which $ 4.3 million is attributable to sales and marketing expenses as a result of the expansion of our sales force , and the inclusion of allos personnel . we expect that sales and marketing activities will increase as we invest in additional commercial resources to increase market expansion of fusilev , folotyn and zevalin . $ 6.5 million increase in advertising , branding , printing , marketing and promotion $ 5.6 million in legal and professional fees related to the allos acquisition and $ 687,000 in transaction costs related to the acquisition of zevalin rights $ 2.0 million increase for transitional services related to sales of zevalin outside the u.s. $ 1.7 million severance and related expenses in connection with the allos acquisition $ 1.6 million increase in sales travel and expenses these increases were partially offset by a $ 7.6 million decrease in non-cash stock compensation expense primarily related to the management incentive plan expenses . research and development . research and development expenses increased as a result of the inclusion of allos and is primarily due to : $ 5.0 million increase for drug product and a payment related to the co-development and commercialization agreement with hamni pharmaceutical company for spi-2012 $ 2.7 million increase in compensation and associated benefits $ 2.2 million increase in on-going clinical trials $ 1.2 million increase in continuing medical education grants and symposiums $ 519,000 severance and related expenses in connection with the allos acquisition we expect research and development expenses to range between approximately $ 50.0 and $ 55.0 million for 2013 , excluding the cost of in-licensing or acquisitions of additional drugs , if any . 54 amortization of purchased intangibles . we incurred a non-cash charge of $ 6.7 million and $ 3.7 million in 2012 and 2011 , respectively , due to the amortization of intangibles recognized in the acquisition of zevalin rights and the amortization of intangibles
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ltd. ( “ am holdings ” ) a subsidiary of one asia , whereby am holdings had the right to earn an 80 % interest in our awak mas gold project in indonesia , in 2012 we received certain cash payments in excess of the carrying value of the project , which resulted in a realized gain of $ 2,934 during the year ended december 31 , 2012. there were no similar transactions in 2013 or 2014. write-down of amayapampa interest in december 2014 , the owner of the amayapampa gold project completed the sale of 100 % of the project to a private investor . accordingly , we evaluated the carrying value of our interest in amayapampa . given the frequency of ownership changes over the past several years , the conditions in the gold market , and the political climate in bolivia , we concluded that there is no more than a remote possibility that the amayapampa project will be successfully developed and operated within the foreseeable future ; and an impairment amount equal to the $ 4,813 carrying value has been included in our consolidated statements of income/ ( loss ) and comprehensive income/ ( loss ) for the year ended december 31 , 2014. there were no such charges for the years ended december 31 , 2013 or 2012. write-down of m ineral properties during 2014 , we completed a review of the permitting process and probable impediments to developing the long valley gold project , and concluded that the permitting process would consume an inordinate amount of our limited resources and time . accordingly , we will not attempt to advance this project in the foreseeable future . as a result , an impairment amount equal to the $ 750 carrying value has been taken for the year ended december 31 , 2014. during 2008 , we entered into an option agreement to purchase land near the los cardones gold project . under the terms of the agreement , we had the option to pay $ 50 each year from 2008 through 2012 and $ 2,000 in 2013. during 2012 , we terminate d the option agreement . as a result , we recorded a write-down on mineral properties of $ 250 related to the option payments made in 2008 through 2012. there w ere no similar charges in 2013 . 41 non-operating income and expenses unrealized loss on other investment s unrealized loss on other investments was $ 4,267 , $ 48,499 and $ 50,363 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . these amounts are substantially the result of changes in fair value of our midas gold s hares . the company also holds approximately half the number of midas gold shares in 2014 compared to the number of shares held in 2013 due to the sale of midas gold shares in february of 2014 . write-down of property , plant and equipment impairment charges of $ 3,500 and $ 7,117 for the years ended december 31 , 2013 and 2012 , respectively , were primarily due to the write -down of the carrying value of the mill equipment to its estimated fair value , net of costs to sell and commissions , of $ 6,500 and $ 10,000 , respectively , based on an independent assessment from a third party who has been contracted to sell the mill equipment on our behalf . there were no such charges during the year ended december 31 , 2014 . deferred income tax benefit/ ( expense ) fluctuations in the fair value of our midas gold s story_separator_special_tag inline ; font-size:10pt ; '' > during october 2014 , invecture announced that the los cardones gold project had been suspended , stating that conditions for its development were not favorable at that time . since making this announcement , there have been no apparent significant favorable changes to incentivize i nvecture to lift the suspension . during january 2015 we agreed to amend the payment terms ( the “ amendment ” ) of the acquisition of the los cardones gold project . under the amendment , t he company received a payment of $ 3,000 cash from invecture as full and final payment for 100 % of the company 's interest in the project . since late 2012 , capital raising through the issuance of common shares has become more difficult for junior mining companies which do not have producing assets , and these conditions are expected to continue for the foreseeable future . during this period , the company cut costs significantly and successfully financed itself through the use of debt , which was subsequently fully repaid , the optioning and sale of non-core assets , and the sale of approximately 50 % of our position in midas gold corp. going forward , management remains committed to maintaining similar efforts to manage costs and ensure liquidity . the company 's cash requirements have been dramatically reduced since 2013 ( $ 7,05 8 vs $ 24,509 ) for the year ended december 31 , 2014 and 2013 , respectively ) as several cash intensive programs at the mt todd gold project such as water treatment , preparation and submission of the final eis , and preparation of the preliminary feasibility study have been completed . in addition , in 2013 several significant cost cutting measures were introduced , including a reduction of management positions , reductions in cash compensation for executives , senio r management and the company 's board of d irectors , and the delay or elimination of discretionary programs , including exploration activities . the company remains committed to continued cost reduction efforts where appropriate , taking into consideration our safety , regulatory and environmental responsibilities ; however , the magnitude of future cost cuts is expected to diminish from 2014 levels . we expect our company-wide cash requirements to average $ 1,500 to $ 1,750 per quarter through 2015 , assuming no material discretionary programs and a normal 2014-2015 wet season in the nt . story_separator_special_tag we believe our cash position as of december 31 , 2014 , together with the $ 3,000 payment received from invecture in january 2015 , the approximately $ 2,800 net proceeds receivable f rom the february 2015 sale of 8,000,000 midas gold shares , and the $ 500 guadalupe de los reyes option payment received in february 2015 , will be sufficient to fund the company through most of 2016 . potential f uture sources of financing include the $ 1,500 option payment which we expect to receive in 2016 pursuant to the guadalupe de los reyes option agreement . in addition , we will continue to seek additional financing with priority given to non-dilutive sources such as the sale of our used mill equipment , other non-core assets , and our remaining midas gold shares . there can be no assurance that we will receive the guadalupe de los reyes option payment from cangol d limited or be able to timely monetize our mill equipment , other non-core assets , or our midas gold shares at a v alue acceptable to us or at all . the government of the northern territory of australia ( the “ nt government ” ) has committed to non-recourse funding for the first year of a proposed multi-year program with the objective of reducing the inventory of acidic metalliferous water at the mt todd site by 70 % . the scope of the initial program to be funded by the nt govern ment between december 2014 and approximately the end of july 2015 includes additional water treatment followed by the discharge of remediated water in accordance with the applicable permits , subsequent environmental monitoring , analysis and reporting , and evaluations designed to aid in the definition of the scope of work for subsequent years ' programs . the nt government 's funding mitigates the company 's risk of incurring material unexpected environmental expenditures through 2015 . 43 the continuing viability of the company is dependent upon our ability to secure sufficient funding and ultimately to generate future profits from operations . the underlying value and recoverability of the amounts shown as mineral properties , plant and equipment , assets held for sale , investments and other property interests in our condensed consolidated balance sheets are dependent on our ability to fund exploration and development activities that could lead to profitable production or proceeds from the disposition of these assets . there can be no assurance that we will be successful in disposing of these assets or securing additional funding on terms acceptable to us or at all or developing profitable operations in the future . our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities which might be necessary should we not be able to continue as a going concern . fair value accounting the following table sets forth the company ' s assets measured on a recurring basis at fair value by level within the fair value hierarchy ( see note 3 ( financial instruments ) to the consolidated financial statements ) . as required by accounting guidance , assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement . replace_table_token_11_th our cash equivalent instruments , marketable securities and investment in midas gold s hares are classified as level 1 of the fair value hierarchy as they are valued at quoted market prices in an active market . the company incurred a level 3 impairment loss o n certain mill equipment ( see note 6 to the consolidated financial statements ) for the years ended december 31 , 2013 and 2012. this equipment was valued at $ 6,500 and $ 10,000 , at december 31 , 2013 and 2012 , respectively , based on a third party assessment of the projected sale value , net of commissions and other costs to sell , given full consideration to current market conditions and an orderly sale process . this valuation was used to determine the level 3 impairment charge taken in 2013 and 2012. the mill equipment is categorized as assets held for sale on the consolidated balance sheets . there was no change in the fair value of the mill equipment for the year ended december 31 , 2014. during 2014 , the company wrote-off the level 3 non-recurring carrying values of the amayapampa interest ( see note 7 to the consolidated financial statements ) and the long valley gold project ( see note 6 to the consolidated financial statements ) . at december 31 , 201 4 , the assets classified within level 3 of the fair value hierarchy represent 51 % of the total assets measured at fair value . there were no transfers between levels nor were there any changes in valuation methods in 2014 . off-balance sheet arrangements we have no off-balance sheet arrangements required to be disclosed in this annual report on form 10-k. 44 contractual obligations at december 31 , 2013 , our material contractual obligation consist ed of our 2013 facility , discussed above , and such obligation is recorded in our consolidated balance sheet s as of december 31 , 2013. the 2013 facility was fully repaid in 2014. we have no material contractual obligations as of december 31 , 2014. summary of quarterly results replace_table_token_12_th transactions with related parties agreement with sierra partners llc on april 1 , 2009 , we entered into an agreement with sierra partners llc ( “ sierra ” ) pursuant to which sierra provided us with support for and analysis of our general corporate finance and strategy efforts . a founder and partner of sierra is also one of our directors . as compensation for these services , we paid sierra a monthly retainer fee of $ 10 for the duration of the agreement , which was terminated on august 31 , 2013. we paid to sierra $ 80 and $ 120 during the years ended december 31 , 2013 and 2012 , respectively .
| financing activities net cash used in financing activities was $ 6,344 for the year ended december 31 , 2014 was a result of the repayment of the loan facility entered into in 2013 ( the “ 2013 facility ” ) . net cash provided by financing activities was $ 6,664 for the year ended december 31 , 2013 due to the 2013 facility draw-down , net of repayments . net cash provided by financing activities was $ 26,724 for the year ended december 31 , 2012. we raised a net total of $ 24,472 from the july 2012 offering and the december 2012 offering ( each as defined below ) . in addition , we received a total of $ 2,252 from the exercise of warrants , compensation options and stock options . during july 2012 , we closed a private placement of 5,000,000 units ( the “ july 2012 units ” ) for gross proceeds of $ 15,000 ( the “ july 2012 offering ” ) . each july 2012 unit consisted of one common share in the capital of the company and one-half of one common share purchase warrant ( each full warrant , a “ july 2012 warrant ” ) . each july 2012 warrant entitled the holder thereof to purchase one common share at a price of $ 3.60 per share ( subject to adjustment in certain circumstances ) and was exercisable for a period of 24 months from the closing of the july 2012 offering . in connection with the july 2012 offering , we incurred $ 770 in commissions and other costs and issued a total of 166,667 compensation warrants to finders that provided services in respect of subscriptions for 3,333,334 july 2012 units . ea ch compensation warrant entitled the holder thereof to purchase one common share at a price of $ 3.18 per share ( subject to adjustment in certain circumstances ) for a period of 24 months from the closing of the july 2012 offering . on september 29 , 2012 , we filed a registration statement on form s-3 related to the resale by the purchasers of the july 2012 units of the common shares issued as part
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the services are provided by certain employees of pfizer as independent contractors of allogene . we believe that it is helpful for pfizer to provide such services to us under the tsa to help facilitate the efficient operation of our business after the asset purchase . pfizer began providing the services in may 2018 and agreed to provide the services for a period of time ranging from one to 12 months thereafter , depending on the service , which we refer to as the service period , with the exception of the services relating to the facilities , which pfizer agreed to provide for up to 18 months . the services and employees for each service may be amended from time to time by the parties . under the tsa , total expenses were $ 10.1 million for the year ended december 31 , 2018 and we estimate we will pay pfizer an aggregate of $ 3.8 million in 2019. the tsa provides that pfizer will indemnify us for damages that result from pfizer 's gross negligence , willful misconduct or material breach of the tsa and that we will indemnify pfizer for damages that arise from the provision of the services , unless such damages result from pfizer 's gross negligence , willful misconduct or material breach . we are also required to indemnify pfizer for damages that arise from our material breach of the tsa . the term of the agreement began in april 2018 and ends on the earlier to occur of the last date that pfizer is required to provide the services or the termination of the tsa in accordance with the agreement . either party may terminate the agreement upon 60 days ' prior written notice in the event of the other party 's uncured material breach . pfizer may terminate the tsa upon 10 days ' prior written notice in the event of our non-payment , if left uncured . we may terminate our use of the facilities with 60 days ' written notice . components of results of operations operating expenses research and development to date , our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates . research and development expenses for the year ended december 31 , 2018 includes acquired in-process research and development costs of $ 109.4 million recognized as a non-cash expense related to the pfizer agreement . additional research and development expenses were incurred in the year related to development of pipeline product candidates ucart19 , allo-501 and allo-715 . the most significant research and development expenses for the year relates to costs incurred for the development of our most advanced product candidates , ucart19 and allo-501 , which include : expenses incurred under agreements with our collaboration partners and third-party contract organizations , investigative clinical trial sites that conduct research and development activities on our behalf , and consultants ; costs related to production of clinical materials , including fees paid to contract manufacturers ; laboratory and vendor expenses related to the execution of preclinical and clinical trials ; employee-related expenses , which include salaries , benefits and stock-based compensation ; and facilities and other expenses , which include expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . 79 other significant research and development costs include costs relating to facilities and overhead cost s , including payments to pfizer under the tsa for use of their facilities . we expense all research and development costs in the periods in which they are incurred . we accrue for costs incurred as the services are being provided by monitoring the status of the project and the invoices received from our external service providers . we adjust our accrual as actual costs become known . where contingent milestone payments are due to third parties under research and development arrangements or license agreements , t he milestone payment obligations are expensed when the milestone results are achieved . we are required to reimburse servier for 60 % of the costs associated with the development of ucart19 , including for the calm and pall clinical trials . we accrue for costs incurred by monitoring the status of the calm and pall clinical trials and the invoices received from servier . we adjust our accrual as actual costs become known . servier is required to reimburse us for 40 % of the costs associated with the development of allo-501 , including for the alpha clinical trial . collaboration expenses and cost reimbursement is recorded on a net basis as a research and development expense in our statements of operations and comprehensive loss . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expenses to increase over the next several years as our ucart19 , allo-501 and allo-715 clinical programs progress and as we seek to initiate clinical trials of additional product candidates . the cost of advancing our manufacturing process as well as the cost of manufacturing product candidates for clinical trials are included in our research and development expense . we also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates . however , it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates . story_separator_special_tag the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include , but are not limited to , the following : per patient trial costs ; the cost of manufacturing for the trials ; the number of patients that participate in the trials ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profile of the product candidates . in the case of ucart19 , we are also dependent on servier 's ability to manage the calm and pall clinical trials . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . because our product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain , we can not estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether , or when , we may achieve profitability . 80 general and administrative general and administrative expenses consist primarily of salaries and other staff-related costs , including stock-based compensation for options granted and modification of shares of common stock issued to our founders to include vesting conditions , for personnel in executive , finance , accounting , legal , investor relations , facilities , business development , information technology and human resources functions . other significant costs include costs relating to facilities and overhead costs , including payments to pfizer under the tsa for use of their facilities , legal fees relating to corporate and patent matters , insurance , investor relations costs , fees for accounting and consulting services , information technology , and other general and administrative costs . general and administrative costs are expensed as incurred , and we accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service providers , and adjusting our accruals as actual costs become known . we expect our general and administrative expenses to increase over the next several years to support our continued research and development activities , manufacturing activities , potential commercialization of our product candidates and the increased costs of operating as a public company . these increases are anticipated to include increased costs related to the hiring of additional personnel , developing commercial infrastructure , fees to outside consultants , lawyers and accountants , and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with nasdaq listing rules and sec requirements , insurance and investor relations costs . change in fair value of 2018 notes in september 2018 , we entered into a note purchase agreement pursuant to which we sold and issued an aggregate of $ 120.2 million in convertible promissory notes ( 2018 notes ) and received net cash proceeds of $ 116.8 million . we elected on issuance to account for the 2018 notes at fair value until their settlement . from issuance to settlement , the change in fair value of the 2018 notes was recognized in the statement of operations and comprehensive loss . the 2018 notes settled on the closing of our ipo in october 2018. interest expense interest expense consists of debt issuance costs we incurred to issue the 2018 notes . the debt issuance costs were expensed on issuance because we elected to record the 2018 notes at fair value . interest and other income , net interest and other income , net consists of interest earned on our cash equivalents and investment gains and losses recognized during the period . story_separator_special_tag financings and collaboration arrangements . if we do raise additional capital through public or private 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 . if we are unable to raise capital when needed , we will need to delay , reduce or terminate planned activities to reduce costs . doing so will likely harm our ability to execute our business plans . cash flows the following table summarizes our cash flows for the period indicated : year ended december 31 , 2018 ( in thousands ) net cash ( used in ) provided by : operating activities $ ( 44,653 ) investing activities ( 632,798 ) financing activities 771,182 net increase in cash , cash equivalents and restricted cash $ 93,731 operating activities during the year ended december 31 , 2018 , cash used in operating activities of $ 44.7 million was attributable to a net loss of $ 211.5 million , substantially offset by non-cash charges of $ 154.8 million and a net change of $ 12.1 million in our net operating assets and liabilities . the non-cash charges consisted primarily of acquired in-process research and development expense resulting from the asset acquisition from pfizer of $ 109.4 million , change in fair value of convertible notes payable of $ 21.2 million and $ 18.6 million of stock-based compensation .
| general and administrative expenses consisted primarily of $ 14.9 million in stock-based compensation related to vesting of modified founders ' shares , $ 2.0 million of expense for all other stock-based compensation , $ 6.5 million for personnel-related costs , $ 6.5 million in legal fees and professional consulting service fees related to supporting the growth of the company , and $ 4.9 million for expenses incurred under the tsa . change in fair value of 2018 notes the change in fair value of the 2018 notes of $ 21.2 million for the year ended december 31 , 2018 was due to the accretion of the 2018 notes to their fair value from the date of issuance at $ 120.2 million to the fair value upon settlement of $ 141.4 million . interest expense interest expense of $ 3.4 million for the year ended december 31 , 2018 consists of debt issuance costs that were expensed on issuance of the 2018 notes . interest and other income , net interest and other income , net was $ 5.8 million for the year ended december 31 , 2018 and primarily consists of interest earned on our investments and cash equivalents during the period . 82 liquidity , capital resources and plan of operations to date , we have incurred significant net losses and negative cash flows from operations . our operations have been financed primarily by net proceeds from the sale and issuance of our convertible preferred stock , the issuance of the 2018 notes and net proceeds from our ipo . in connection with our ipo , we sold an aggregate of 20,700,000 shares of our common stock ( inclusive of 2,700,000 shares of common stock pursuant to the over-allotment option granted to the underwriters ) at a price of $ 18.00 per share and received approximately $ 343.3 million in net proceeds . at the closing of the ipo , the 2018 notes were automatically converted into 7,856,176 shares of common stock . as of december 31 , 2018 , we had $ 721.4 million in cash , cash equivalents and investments . capital resources our primary
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we believe that our most critical accounting policies upon which our financial position depends , and which involve the most complex or subjective decisions or assessments , are those described below . for a discussion on the application of these and other accounting policies , see note 1 to the consolidated financial statements . revenue recognition and accounts receivable . most of our revenue is recognized under accounting standards codification ( asc ) 605 , `` revenue recognition '' ( asc 605 ) , when the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or service has been rendered , the sales price is fixed or determinable , and collectability is reasonably assured . we also enter into arrangements with customers that have multiple deliverables , such as equipment and installation , and we recognize revenues and profits on certain long-term contracts using the percentage-of-completion and completed-contract methods of accounting . revenue recognition methods . under asc 605 , when the terms of sale include customer acceptance provisions , and compliance with those provisions can not be demonstrated until customer acceptance , we recognize revenues upon such acceptance . the company includes in revenues amounts invoiced for shipping and handling with the corresponding costs reflected in cost of revenues . provisions for discounts , warranties , returns , and other adjustments are provided for in the period in which the related sales are recorded . sales taxes , value-added taxes and certain excise taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and are therefore excluded from revenue . most of our revenue is recognized in accordance with the accounting policies in the preceding paragraph . however , when a sale arrangement involves multiple elements , such as equipment and installation , we consider the guidance in asc 605. such transactions are evaluated to determine whether the deliverables in the arrangement represent separate units of accounting based on the following criteria : the delivered item has value to the customer on a stand-alone basis , and if the contract includes a general right of return relative to the delivered item , delivery or performance of the undelivered item is considered probable and substantially under our control . revenue is allocated to each unit of accounting or element based on relative selling prices and is recognized as each element is delivered or completed . we determine relative selling prices by using either vendor-specific objective evidence 20 kadant inc. 2016 annual report ( vsoe ) if that exists , or third-party evidence of selling price . when neither vsoe or third-party evidence of selling price exists for a deliverable , we use our best estimate of the selling price for that deliverable . in cases in which elements can not be treated as separate units of accounting , the elements are combined into a single unit of accounting for revenue recognition purposes . the complexity of all issues related to the assumptions , risks , and uncertainties inherent in the application of asc 605 affects the amounts reported as revenues in our consolidated financial statements . under asc 605 , we may not be able to reliably predict future revenues and profitability due to the difficulty of estimating when installation will be performed or when we will meet the contractually agreed upon performance tests , which can delay or prohibit recognition of revenues . the determination of when we install the equipment or fulfill the performance guarantees is largely dependent on our customers , their willingness to allow installation of the equipment or performance of the appropriate tests in a timely manner , and their cooperation in addressing possible problems that would impede achievement of the performance guarantee criteria . unexpected changes in the timing related to the completion of installation or performance guarantees could cause our revenues and earnings to be significantly affected . percentage-of-completion . revenues recorded under the percentage-of-completion method of accounting pursuant to asc 605 were $ 23.3 million , $ 32.1 million , and $ 19.1 million in 2016 , 2015 , and 2014 , respectively . we determine the percentage of completion by comparing the actual costs incurred to date to an estimate of total costs to be incurred on each contract . if a loss is indicated on any contract in process , a provision is made currently for the entire loss . our contracts generally provide for billing of customers upon the attainment of certain milestones specified in the contract . revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees , and amounts billed in excess of revenues earned are classified as billings in excess of contract costs and fees , which are included in other current liabilities . the estimation process under the percentage-of-completion method affects the amounts reported in our consolidated financial statements . a number of internal and external factors affect our percentage-of-completion and cost of sales estimates , including labor rate and efficiency variances , estimates of warranty costs , estimated future material prices from vendors , and customer specification and testing requirements . although we make every effort to ensure the accuracy of our estimates in the application of this accounting policy , if our actual results were to differ from our estimates , or if we were to use different assumptions , it is possible that materially different amounts could be reported as revenues in our consolidated financial statements . completed-contract method . for long-term contracts that do not meet the criteria under asc 605-35 to be accounted for under the percentage-of-completion method , we recognize revenue , primarily in china , using the completed-contract method . when using the completed-contract method , we recognize revenue when the contract has been substantially completed , the product has been delivered , and , if applicable , the customer acceptance criteria have been met . story_separator_special_tag we exercise judgment in determining our allowance for doubtful accounts , which is based on our historical collection experience , current trends , credit policies , specific customer collection issues , and accounts receivable aging categories . in determining this allowance , we look at historical write-offs of our receivables . we also look at current trends in the credit quality of our customer base as well as changes in our credit policies . we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and each customer 's current creditworthiness . we continuously monitor collections and payments from our customers . in addition , in some instances we utilize letters of credit to mitigate credit exposure . while actual bad debts have historically been within our expectations and the provisions established , we can not guarantee that we will continue to experience the same rate of bad debts that we have had in the past . a significant change in the liquidity or financial position of any of our customers could result in the uncollectibility of the related accounts receivable and could adversely affect our operating results and cash flows in that period . warranty obligations . we offer warranties of various durations to our customers depending upon the specific product and terms of the customer purchase agreement . we typically negotiate terms regarding warranty coverage and length of warranty depending on the products and their applications . our standard mechanical warranties require us to repair or replace a defective product during the warranty period at no cost to the customer . we record an estimate for warranty-related costs at the time of sale based on our actual historical occurrence rates and repair costs , as well as knowledge of any specific warranty problems that indicate that projected warranty costs may vary from historical patterns . these estimates are revised for variances between actual and expected claims rates . while our warranty costs have historically been within our expectations and the provisions established , we may not continue to experience the same warranty return rates or repair costs that we have in the past . a significant increase in warranty occurrence rates or costs to repair our products would lead to an increase in the warranty provision and could have a material adverse impact on our consolidated results for the period or periods in which such returns or additional costs occur . income taxes . we operate in numerous countries under many legal forms and , as a result , are subject to the jurisdiction of numerous domestic and non-u.s. tax authorities , as well as to tax agreements and treaties among these governments . 21 kadant inc. 2016 annual report determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events , such as the amount , timing and character of deductions , permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits . changes in tax laws , regulations , agreements and treaties , currency-exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and our results of operations . we estimate the degree to which our deferred tax assets on deductible temporary differences and tax loss or credit carryforwards will result in an income tax benefit based on the expected profitability by tax jurisdiction , and provide a valuation allowance for these deferred tax assets if it is more likely than not that they will not be realized in the future . if it were to become more likely than not that these deferred tax assets would be realized , we would reverse the related valuation allowance . our tax valuation allowance was $ 10.9 million at year-end 2016 . should our actual future taxable income by tax jurisdiction vary from our estimates , additional allowances or reversals thereof may be necessary . when assessing the need for a valuation allowance in a tax jurisdiction , we evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized . as part of this evaluation , we consider our cumulative three-year history of earnings before income taxes , taxable income in prior carryback years , future reversals of existing taxable temporary differences , prudent and feasible tax planning strategies , and expected future results of operations . as of year-end 2016 , we continued to maintain a valuation allowance in the united states against certain of our state operating loss carryforwards due to the uncertainty of future profitability in these state jurisdictions in the united states as of year-end 2016 , we maintained valuation allowances in certain foreign jurisdictions because of the uncertainty of future profitability . in the ordinary course of business there is inherent uncertainty in quantifying our income tax positions . it is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities . at year-end 2016 , we believe that we have appropriately accounted for any liability for unrecognized tax benefits . to the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability , our effective tax rate in a given financial statement period may be affected . we reinvest certain earnings of our international subsidiaries indefinitely , and accordingly , we do not provide for u.s. income taxes that could result from the remittance of such foreign earnings . through year-end 2016 , we have not provided for u.s. income taxes on approximately $ 182.2 million of unremitted foreign earnings .
| the following table presents revenues for our papermaking systems segment by product line , the changes in revenues by product line between 2016 and 2015 , and the changes in revenues by product line between 2016 and 2015 excluding the effect of currency translation . the increase ( decrease ) in revenues excluding the effect of currency translation represents the increase ( decrease ) resulting from converting 2016 revenues in local currency into u.s. dollars at 2015 exchange rates , and then comparing this result to actual revenues in 2015 . the presentation of the changes in revenues by product line excluding the effect of currency translation is a non-gaap measure . we believe this non-gaap measure helps investors gain an understanding of our underlying operations , consistent with how management measures and forecasts our performance , especially when comparing such results to prior periods or forecasts . this non-gaap measure should not be considered superior to or a substitute for the corresponding generally accepted accounting principles ( gaap ) measure . replace_table_token_8_th revenues from our stock-preparation product line increased $ 23.0 million , or 16 % , in 2016 compared to 2015 , including $ 40.8 million in revenues from the acquisition of paal , offset in part by a $ 1.6 million decrease due to the unfavorable effect of foreign currency translation . excluding the acquisition and unfavorable effect of foreign currency translation , revenues from our stock-preparation product line decreased $ 16.2 million , or 11 % , in 2016 compared to 2015 , due to decreased capital spending by our chinese customers in the first nine months of 2016 and decreased spending by our north american customers due to general economic uncertainty . by comparison , 2015 included robust spending by our customers in north america and china for our stock-preparation products . revenues from our doctoring , cleaning , & filtration product line increased $ 4.4 million , or 4 % , in 2016 compared to 2015 , including a $ 3.7 million decrease from the unfavorable effect of 25 kadant inc. 2016 annual report foreign currency
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in february 2013 , the operations of stoney river were contributed to j. alexander 's by fidelity newport holdings , llc ( “ fnh ” ) , a majority-owned subsidiary of fnf . additionally , in february 2013 , j. alexander 's holdings , llc assumed the $ 20,000,000 fnf note , which was accounted for as a distribution of capital . the note accrued interest at 12.5 % , and the interest and principal were payable in full on january 31 , 2016. during fiscal years 2015 , 2014 and 2013 , $ 493,000 , $ 2,479,000 and $ 2,139,000 of interest expense payable to fnf was recorded related to this note . in may 2015 , this note was repaid in full . · during 2013 , we closed three underperforming j. alexander 's restaurants : o chicago , illinois – closed february 2013 ; o orlando , florida – closed april 2013 ; and o scottsdale , arizona – closed april 2013. for financial reporting purposes , the orlando and scottsdale locations were deemed to represent discontinued operations while results related to the chicago location are reflected as a component of continuing operations . performance indicators we use the following key metrics in evaluating our performance : same store sales . we include a restaurant in the same store restaurant group starting in the first full accounting period following the eighteenth month of operations . our same store restaurant base consisted of 40 restaurants at each of january 3 , 2016 and december 28 , 2014. changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time . this measure highlights the performance of existing restaurants , as the impact of new restaurant openings is excluded . measuring our same store restaurant sales allows us to evaluate the performance of our existing restaurant base . various factors impact same store sales including : · consumer recognition of our concepts and our ability to respond to changing consumer preferences ; · overall economic trends , particularly those related to consumer spending ; · our ability to operate restaurants effectively and efficiently to meet guest expectations ; · pricing ; · guest traffic ; · spending per guest and average check amounts ; · local competition ; · trade area dynamics ; and · introduction of new menu items . average weekly sales . average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average . the daily sales average is then 44 multiplied by seven to arrive at average weekly sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . revenue associated with reduction in liabilities for gift cards which are considered to be only remotely likely to be redeemed ( based on historical redemption rates ) is not included in the calculation of average weekly sales per restaurant . average weekly same store sales . average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average . the daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than eighteen months . revenue associated with reduction in liabilities for gift cards which are considered to be only remotely likely to be redeemed ( based on historical redemption rates ) is not included in the calculation of average weekly same store sales per restaurant . average check . average check is calculated by dividing total restaurant sales by guest counts for a given time period . total restaurant sales includes food , alcohol and beverage sales . average check is influenced by menu prices and menu mix . management uses this indicator to analyze trends in customers ' preferences , the effectiveness of menu changes and price increases and per guest expenditures . average unit volume . average unit volume consists of the average sales of our restaurants over a certain period of time . this measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented . this indicator assists management in measuring changes in customer traffic , pricing and development of our concepts . cost of sales . cost of sales is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes . guest counts . guest counts are measured by the number of entrees ordered at our restaurants over a given time period . our business is subject to seasonal fluctuations . historically , the percentage of our annual revenues earned during the first and fourth quarters has been higher due , in part , to increased gift card redemptions and increased private dining during the year-end holiday season . in addition , we operate on a 52- or 53-week fiscal year that ends on the sunday closest to december 31. each quarterly period has 13 weeks , except for a 53-week year when the fourth quarter has 14 weeks . as many of our operating expenses have a fixed component , our operating income and operating income margins have historically varied from quarter to quarter . story_separator_special_tag accordingly , results for any one quarter are not necessarily indicative of results to be expected for any other quarter , or for the full fiscal year . key financial definitions net sales . net sales consist primarily of food and beverage sales at our restaurants , net of any discounts , such as management meals and employee meals , associated with each sale . net sales are directly influenced by the number of operating weeks in the relevant period , the number of restaurants we operate and same store sales growth . cost of sales . cost of sales is comprised primarily of food and beverage expenses and is presented net of earned vendor rebates . food and beverage expenses are generally influenced by the cost of food and beverage items , distribution costs and menu mix . the components of cost of sales are variable in nature , increase with revenues , are subject to increases or decreases based on fluctuations in commodity costs , including beef prices , and depend in part on the controls we have in place to manage cost of sales at our restaurants . restaurant labor and related costs . restaurant labor and related costs includes restaurant management salaries , hourly staff payroll and other payroll-related expenses , including management bonus expenses , vacation pay , payroll taxes , fringe benefits and health insurance expenses . depreciation and amortization . depreciation and amortization principally includes depreciation on restaurant fixed assets , including equipment and leasehold improvements , and amortization of certain intangible assets for restaurants . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . as we accelerate our restaurant openings , depreciation and amortization is expected to increase as a result of our increased capital expenditures . other operating expenses . other operating expenses includes repairs and maintenance , credit card fees , rent , property taxes , insurance , utilities , operating supplies and other restaurant-level related operating expenses . 45 pre-opening expenses . pre-opening expenses are costs incurred prior to opening a restaurant , and primarily consist of manager salaries , relocation costs , recruiting expenses , employee payroll and related training costs for new employees , including rehearsal of service activities , as well as lease costs incurred prior to opening . we currently targ et pre-opening costs per restaurant at approximately $ 625,000. general and administrative expenses . general and administrative expenses are comprised of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth . these expenses reflect management , supervisory and staff salaries and employee benefits , travel , information systems , training , corporate rent , depreciation of corporate assets , professional and consulting fees , technology and market research . these expenses are expected to increase as a result of costs associated with being a public company as well as costs related to our anticipated growth . as we are able to leverage these investments made in our people and systems , we expect these expenses to decrease as a percentage of net sales over time . interest expense . interest expense consists primarily of interest on our outstanding indebtedness . our debt issuance costs are recorded at cost and are amortized over the lives of the related debt under the effective interest method . income tax ( expense ) benefit . this represents expense or benefit related to the taxable income at the federal , state and local level . as a partnership , j. alexander 's holdings , llc generally pays no tax on its income , and each of its members is required to report such member 's allocable share of the partnership 's income on such member 's income tax returns . as a result of the reorganization transactions effective september 28 , 2015 , j. alexander 's holdings , inc. became the owner of all of the outstanding class a units of j. alexander 's holdings , llc . therefore , beginning after the date of the reorganization , j. alexander 's holdings , inc. will pay federal , state and local tax on its allocable share of income of the partnership . discontinued operations . on april 3 , 2013 we closed our orlando , florida location and on april 15 , 2013 we closed our scottsdale , arizona location . we determined that these closures met the criteria for classification as discontinued operations . refer to item 8. financial statements and supplementary data - notes to consolidated financial statements - note 2 ( c ) summary of significant accounting policies—discontinued operations and restaurant closing costs for more information . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; font-weight : bold ; color : # 000000 ; font-family : times new roman ; font-size:10pt ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 3.3 0.4 general and administrative expenses 7.4 7.1 asset impairment charges and restaurant closing costs 0.0 0.0 pre-opening expenses 0.1 0.3 total operating expenses 96.1 94.0 operating income 3.9 6.0 other income ( expense ) : interest expense ( 0.5 ) ( 1.4 ) other , net 0.0 0.1 total other expense ( 0.5 ) ( 1.4 ) income from continuing operations before income taxes 3.4 4.6 income tax expense ( 0.7 ) ( 0.2 ) loss from discontinued operations , net ( 0.2 ) ( 0.2 ) net income 2.5 % 4.2 % note : certain percentage totals do not sum due to rounding .
| results of operations year ended january 3 , 2016 ( 53 weeks ) compared to year ended december 28 , 2014 ( 52 weeks ) the following tables set forth , for the periods indicated , ( i ) the items in the company 's consolidated statements of income and comprehensive income , including our results expressed as a percentage of net sales , and ( ii ) other selected operating data : replace_table_token_6_th 46 replace_table_token_7_th note : ncm means not considered meaningful . year ended as a percentage of net sales january 3 december 28 2016 2014 costs and expenses : ( 53 weeks ) ( 52 weeks ) cost of sales 31.6 % 31.9 % restaurant labor and related costs 30.2 30.4 depreciation and amortization of restaurant property and equipment 3.8 3.8 other operating expenses 19.8 20.0 total restaurant operating expenses 85.3 86.1 transaction and integration expenses < p
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we also had a strong increase in units sold which was offset by a reduction in the average ticket . in fiscal 2016 , home fashions performed better than apparel but both recorded strong same store sales growth . geographically , in the u.s. , sales were strong in virtually all regions , with the southeast reporting the highest same store sales growth . in canada , same store sales increases were well above the consolidated average while tjx international was slightly below the consolidated average . same store sales increases in the u.s. for fiscal 2015 were driven by increases in the value of the average transaction and customer traffic . in fiscal 2015 , within apparel , sales from jewelry and accessories and activewear performed particularly well , as did home fashions . geographically , in the u.s. , sales were strongest in the southeast and southwest . same store sales increases at tjx international and tjx canada were above the consolidated average . we define same store sales to be sales of those stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . the sales of sierra trading post ( including stores ) , tjmaxx.com and tkmaxx.com ( our e-commerce businesses ) are not included in same store sales . we classify a store as a new store until it meets the same store sales criteria . the newly acquired trade secret stores will be included in same store sales when they meet the above definition . we determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year , unless a store is closed . we calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have increased in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated same store percentage is immaterial . same store sales of our foreign segments are calculated on a constant currency basis , meaning we translate the current year 's same store sales of our foreign segments at the same exchange rates used in the prior year . this removes the effect of changes in currency exchange rates , which we believe is a more accurate measure of segment operating performance . we define customer traffic to be the number of transactions in stores included in the same store sales calculation and define average ticket to be the average retail price of the units sold . we define average transaction or average basket to be the average dollar value of transactions included in the same store sales calculation . 26 the following table sets forth our consolidated operating results as a percentage of net sales : replace_table_token_9_th * figures may not foot due to rounding . impact of foreign currency exchange rates : our operating results are affected by foreign currency exchange rates as a result of changes in the value of the u.s. dollar in relation to other currencies . two ways in which foreign currency exchange rates affect our reported results are as follows : translation of foreign operating results into u.s. dollars : in our financial statements , we translate the operations of tjx canada and tjx international from local currencies into u.s. dollars using currency rates in effect at different points in time . significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales , net income and earnings per share growth as well as the net sales and operating results of these segments . currency translation generally does not affect operating margins as a percentage of net sales , or affects them only slightly , as sales and expenses of the foreign operations are translated at approximately the same rates within a given period . inventory-related derivatives : we routinely enter into inventory-related hedging instruments to mitigate the impact on earnings of changes in foreign currency exchange rates on merchandise purchases denominated in currencies other than the local currencies of our divisions , principally tjx canada and tjx international . as we have not elected hedge accounting for these instruments as defined by u.s. generally accepted accounting principles ( gaap ) , we record a mark-to-market gain or loss on the derivative instruments in our results of operations at the end of each reporting period . in subsequent periods , the income statement impact of the mark-to-market adjustment is effectively offset when the inventory being hedged is received and paid for . while these effects occur every reporting period , they are of much greater magnitude when there are sudden and significant changes in currency exchange rates during a short period of time . the mark-to-market adjustment on these derivatives does not affect net sales , but it does affect the cost of sales , operating margins and earnings we report . we refer to the impact of the above two items throughout our discussion as foreign currency. this does not include the impact currency exchange rates can have on various transactions that are denominated in a currency other than an operating division 's local currency . story_separator_special_tag when discussing the impact on our results of the effect of currency exchange rates on such transactions we refer to it as transactional foreign exchange. cost of sales , including buying and occupancy costs : cost of sales , including buying and occupancy costs , as a percentage of net sales was 71.2 % in fiscal 2016 compared to 71.5 % in both fiscal 2015 and fiscal 2014. the improvement in this expense ratio was driven by leverage on buying and occupancy costs as a result of the 5 % same store sales increase along with an increase on our profit margin on merchandise sold ( merchandise margin ) . together these two items benefitted the fiscal 2016 expense ratio by approximately 0.5 percentage points . merchandise margin improved despite the negative impact transactional foreign exchange had on the cost of merchandise for canada and europe this year versus last year . the change in exchange rates increased the cost of merchandise purchased by canada and europe that were denominated in currencies other than their local currency , primarily the u.s. dollar . this expense ratio was also negatively impacted by increased freight and distribution costs associated with moving more units through our supply chain and the mark to 27 market of inventory derivatives . the fiscal 2015 expense ratio was comparable to that of fiscal 2014 with a slight increase in the fiscal 2015 merchandise margin . selling , general and administrative expenses : selling , general and administrative expenses as a percentage of net sales were 16.8 % in fiscal 2016 , 16.1 % in fiscal 2015 and 16.3 % in fiscal 2014. the increase in this ratio in fiscal 2016 was primarily due to a combination of higher employee payroll costs , due to our wage initiative and an increase in units handled at the stores , along with our incremental investments and increased contributions to tjx 's charitable foundations . the reduction in this ratio for fiscal 2015 was largely due to a reduction in our reserves for former operations in fiscal 2015 , as well as costs incurred in fiscal 2014 relating to our home office relocations . loss on early extinguishment of debt : on july 8 , 2014 , we redeemed our $ 400 million aggregate principal amount of 4.20 % notes due august 2015 and recorded a pre-tax loss on the early extinguishment of debt of $ 16.8 million . interest expense , net : the components of interest expense , net for the last three fiscal years are summarized below : replace_table_token_10_th the increase in net interest expense for fiscal 2016 reflects interest expense in fiscal 2016 on the financing lease obligation related to tjx canada 's new home office of $ 3.7 million . the increase in net interest expense also reflects a reduction in capitalized interest costs and interest income in the fiscal 2016 periods as compared to the same periods last year . the increase in net interest expense for fiscal 2015 reflected the interest cost from the date of issuance ( june 5 , 2014 ) on the $ 750 million 2.75 % seven-year notes . in addition , fiscal 2015 included 12 months of interest expense on the $ 500 million 2.50 % ten-year notes , compared to fiscal 2014 , which only reflected nine months of interest expense . these costs were partially offset by interest savings due to the redemption of the $ 400 million 4.20 % notes . the reduction in capitalized interest on ongoing capital projects is partially offset by an increase in interest income driven by higher cash balances . income taxes : our effective annual income tax rate was 37.7 % in fiscal 2016 , 37.6 % in fiscal 2015 and 35.6 % in fiscal 2014. the increase in the fiscal 2016 income tax rate was due to the jurisdictional mix of income and the valuation allowance on foreign net operating losses . the increase in the fiscal 2015 effective income tax rate , as compared to fiscal 2014 , was primarily due to the impact on the fiscal 2014 income tax rate from tax benefits in fiscal 2014 of approximately $ 80 million , which were primarily due to a reduction in our reserve for uncertain tax positions as a result of settlements with state taxing authorities and the reversal of valuation allowances against foreign net operating loss carryforwards . these benefits reduced the fiscal 2014 effective income tax rate by 2.2 percentage points . see note k to the consolidated financial statements for more information relating to income taxes . net income and diluted earnings per share : net income was $ 2.3 billion in fiscal 2016 , a 3 % increase over $ 2.2 billion in fiscal 2015 , which in turn was a 4 % increase over $ 2.1 billion in fiscal 2014. diluted earnings per share were $ 3.33 in fiscal 2016 , $ 3.15 in fiscal 2015 and $ 2.94 in fiscal 2014. the after-tax cost for the loss on the early extinguishment of debt in the second quarter of fiscal 2015 reduced earnings per share for fiscal 2015 by $ 0.01 per share . the tax benefits referred to above added $ 0.11 to earnings per share for fiscal 2014. foreign currency exchange rates also affected the comparability of our results . foreign currency exchange rates had a $ 0.09 negative impact on earnings per share in fiscal 2016 when compared to fiscal 2015 , and a $ 0.02 negative impact in fiscal 2015 when compared to fiscal 2014 . 28 our stock repurchase programs , which reduce our weighted average diluted shares outstanding , benefited our earnings per share growth in fiscal 2016 by approximately 3 % .
| the change in the deferred income tax provision unfavorably impacted year-over-year cash flows by $ 71 million , which was driven by the deferred tax impact of the higher contributions to the pension plan in fiscal 2015. the change in merchandise inventory , net of the related change in accounts payable , resulted in a use of cash of $ 290 million in fiscal 2016 , compared to a use of cash of $ 47 million in fiscal 2015 , negatively impacting year-over-year cash flows by $ 243 million . the cash flow impact of the change in inventory and accounts payable was primarily due to an increase in packaway inventory at the end of fiscal 2016 as compared to the prior year as well as the impact of merchandise received late in the fourth quarter of fiscal 2015 that was paid for in fiscal 2016. the change in accrued expenses and other liabilities favorably impacted cash flows by $ 353 million in fiscal 2016 versus a favorable impact of $ 166 million in fiscal 2015. this favorable impact of $ 187 million in year-over-year cash flows from operations was driven primarily by an additional $ 100 million of voluntary contributions to our qualified pension plan in fiscal 2015 as compared to fiscal 2016. lastly , fiscal 2016 cash flow from operations was reduced by $ 23 million for the cost to acquire favorable lease rights . operating cash flows for fiscal 2015 increased $ 408 million compared to fiscal 2014. net income plus the non-cash impact of depreciation provided cash of $ 2,804 million in fiscal 2015 compared to $ 2,686 million in fiscal 2014 , an increase of $ 118 million . the change in the deferred income tax provision , which was driven by the tax treatment of the voluntary contributions to our funded pension plan of $ 150 million in fiscal 2015 , favorably impacted fiscal 2015 operating cash flows by $ 50 million . the change in merchandise inventory , net of the related change in accounts payable , resulted in a use of cash of $ 47 million in fiscal 2015 , compared to a use of cash of $ 117 million
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if the markets were to deteriorate and the u.s. experienced a prolonged economic downturn , we believe there could be additional loan modifications and delinquencies , which may result in reduced net interest margins and additional losses throughout our sector . changes in financial condition assetscomparison of balances at december 31 , 2019 to december 31 , 2018 : our structured loan and investment portfolio balance was $ 4.28 billion and $ 3.28 billion at december 31 , 2019 and 2018 , respectively . this increase was primarily due to loan originations exceeding loan payoffs and paydowns by $ 1.05 billion . see below for details . our portfolio had a weighted average current interest pay rate of 5.98 % and 7.02 % at december 31 , 2019 and 2018 , respectively . including certain fees earned and costs associated with the structured portfolio , the weighted average current interest rate was 6.68 % and 7.66 % at december 31 , 2019 and 2018 , respectively . advances on our financing facilities totaled $ 3.93 billion and $ 2.89 billion at december 31 , 2019 and 2018 , respectively , with a weighted average funding cost of 3.82 % and 4.66 % , respectively , which excludes financing costs . including financing costs , the weighted average funding rate was 4.35 % and 5.24 % at december 31 , 2019 and 2018 , respectively . activity from our structured business portfolio is comprised of the following ( $ in thousands ) : replace_table_token_9_th loans held-for-sale from the agency business increased $ 379.7 million , primarily related to $ 401.2 million of private label loan originations . our agency business loan originations and loan sales during 2019 are noted in the following table ( in thousands ) . our gse loans are generally sold within 46 60 days , while our private label loans are expected to be sold and securitized within 180 days from the loan origination date . replace_table_token_10_th securities held-to-maturity increased $ 12.3 million , primarily due to the purchase of $ 20.0 million of single-family rental ( `` sfr '' ) bonds , partially offset by principal payments received from underlying loan payoffs from our b piece bonds . investments in equity affiliates increased $ 20.2 million , primarily due to investments in two new joint ventures totaling $ 13.3 million , and income from our investment in a residential mortgage banking business of $ 7.2 million . see note 8 for details . due from related party increased $ 9.4 million , primarily due to funds from payoffs to be remitted by our affiliated servicing operations related to real estate transactions at the end of the reporting period . these amounts were remitted to us in early 2020. other assets increased $ 39.7 million , primarily due to the adoption of asu 2016-02 , which required us to record an operating lease rou asset ( see note 2 for details ) , an increase in interest and fee receivables and the 2019 purchase of over-the-counter interest rate swap futures ( `` swap futures '' ) . liabilitiescomparison of balances at december 31 , 2019 to december 31 , 2018 : credit facilities and repurchase agreements increased $ 542.7 million , primarily due to funding of new structured loan activity and an increase in financings on our loans held-for-sale , as a result of private label loan originations . collateralized loan obligations increased $ 536.6 million , primarily due to the issuance of two new clos , where we issued $ 1.07 billion of notes to third party investors , partially offset by the unwind of two clos totaling $ 529.3 million . senior unsecured notes increased $ 197.3 million , primarily due to the issuances of an additional $ 200.0 million aggregate principal amount of senior unsecured notes during 2019. see note 11 for details . convertible senior unsecured notes , net increased $ 29.4 million , primarily due to the issuance of $ 264.0 million of 4.75 % convertible notes , partially offset by the exchange of $ 228.7 million of our 5.25 % convertible notes . due to related party was $ 13.1 million at december 31 , 2019 and consisted of loan payoffs , holdbacks and escrows to be remitted to our affiliated servicing operations related to real estate transactions . other liabilities increased $ 15.5 million , primarily due to the adoption of asu 2016-02 , which required us to record an operating lease liability , and an increase in certain accrued expenses ( such as accrued compensation and professional fees ) , partially offset by the payment made in 2019 of the special dividend declared in 2018 . 47 equity during 2019 , we sold 19.8 million shares of our common stock through two public stock offerings and our `` at-the-market '' agreement , raising net proceeds of $ 260.6 million . we also issued 4.7 million shares of our common stock in connection with the exchanges of our convertible notes . we used a portion of the net proceeds from the first public offering to purchase an aggregate of 0.9 million shares of our common stock from our chief executive officer and acm during 2019. we used a portion of the net proceeds from the second public offering to purchase , in february 2020 , an aggregate of 0.7 million shares of our common stock and op units from our chief executive officer and acm . see note 17 for details of these transactions . distributions the following table presents dividends declared ( on a per share basis ) for 2019 : replace_table_token_11_th ( 1 ) the dividend declared on february 1 , 2019 was for december 1 , 2018 through february 28 , 2019. the dividend declared on may 1 , 2019 was for march 1 , 2019 through may 31 , 2019. the dividend declared on july 31 , 2019 was for june 1 , 2019 through august 31 , 2019. the dividend declared on october 30 , 2019 was for september 1 , 2019 through november 30 , 2019. story_separator_special_tag common stock on february 13 , 2020 , the board of directors declared a cash dividend of $ 0.30 per share of common stock . the dividend is payable on march 17 , 2020 to common stockholders of record as of the close of business on february 28 , 2020. preferred stock on january 31 , 2020 , the board of directors declared a cash dividend of $ 0.515625 per share of 8.25 % series a preferred stock ; a cash dividend of $ 0.484375 per share of 7.75 % series b preferred stock ; and a cash dividend of $ 0.53125 per share of 8.50 % series c preferred stock . these amounts reflect dividends from december 1 , 2019 through february 29 , 2020 and are payable on march 2 , 2020 to preferred stockholders of record on february 15 , 2020. deferred compensation we issued 516,691 shares of restricted stock to our employees , including our chief executive officer , 55,244 shares to the independent members of the board of directors and up to 352,427 shares of performance-based restricted common stock units and 246,508 shares of performance-based restricted stock to our chief executive officer during 2019. see note 17 for details . 48 agency servicing portfolio the following table sets forth the characteristics of our loan servicing portfolio collateralizing our mortgage servicing rights and servicing revenue ( $ in thousands ) : replace_table_token_12_th replace_table_token_13_th ( 1 ) prepayments reflect loans repaid prior to nine months from the loan 's maturity . the majority of our loan servicing portfolio has a prepayment protection term and therefore , we may collect a prepayment fee which is included as a component of servicing revenue , net . ( 2 ) delinquent loans reflect loans that are contractually 60 days or more past due . as of december 31 , 2019 and 2018 , delinquent loans totaled $ 59.2 million and $ 35.6 million , respectively , of which $ 33.5 million and $ 35.6 million , respectively , were in the foreclosure process . in addition , as of december 31 , 2019 , loans collateralizing our servicing portfolio totaling $ 3.2 million are currently in bankruptcy . our servicing portfolio represents commercial real estate loans originated in our agency business , which are generally transferred or sold within 60 days to 180 days from the date the loan is funded . primarily all of the loans in our servicing portfolio are collateralized by multifamily properties . in addition , we are generally required to share in the risk of any losses associated with loans sold under the fannie mae dus program , see note 12 . 49 comparison of results of operations for years ended 2019 and 2018 the following table provides our consolidated operating results ( $ in thousands ) : replace_table_token_14_th nmnot meaningful 50 the following table presents the average balance of our structured business interest-earning assets and interest-bearing liabilities , associated interest income ( expense ) and the corresponding weighted average yields ( $ in thousands ) : replace_table_token_15_th ( 1 ) based on upb for loans , amortized cost for securities and principal amount for debt . ( 2 ) weighted average yield calculated based on annualized interest income or expense divided by average carrying value . net interest income the increase in interest income was primarily due to an increase of $ 63.1 million , or 28 % , from our structured business . the increase was primarily due to a 24 % increase in our average core interest-earning assets , as a result of loan originations exceeding loan runoff , and a 3 % increase in the average yield on core interest-earning assets . the increase in the average yield was largely due to increases in the average libor rate , acceleration fees from early runoff and default interest and fees on a loan that paid off during 2019. in addition , libor floors on a portion of our loans resulted in an increase to interest income , which is due to the decline in the libor during the second half of 2019. the increase in interest expense is primarily due to an increase of $ 32.1 million , or 23 % , from our structured business . the increase was primarily due to a 28 % increase in the average balance of our interest-bearing liabilities , due to growth in our loan portfolio and the issuance of additional clo and unsecured debt . the increase was partially offset by a 4 % decrease in the average cost of our interest-bearing liabilities , primarily due to an increase in accelerated deferred financing costs from the 51 redemptions of our clos and senior unsecured notes in 2019 , as compared to 2018 , partially offset by an increase in the average libor rate . agency business revenue the decrease in gain on sales , including fee-based services , net was primarily due to a decrease of $ 523.0 million , or 11 % , in loan sales volume , partially offset by a 5 % increase in sales margin ( gain on sale , including fee-based services , net as a percentage of loan sales volume ) from 1.42 % to 1.49 % . the decrease in income from msrs was primarily due to a 3 % decrease in the msr rate ( income from msrs as a percentage of loan commitment volume ) from 1.94 % to 1.88 % , as well as a decrease of $ 274.4 million , or 5 % , in loan commitment volume . the increase in servicing revenue , net was primarily due to an increase in our servicing portfolio and an increase in earnings on escrows due to increases in average escrow balances and the average libor rate . our servicing portfolio increased 8 % from $ 18.60 billion at december 31 , 2018 to $ 20.06 billion at december 31 , 2019. our servicing revenue , net in 2019 and 2018 , included $ 48.7 million and $ 48.1 million , respectively , of amortization expense .
| we recognize the bulk of our net interest income from our structured business . additionally , we recognize net interest income from loans originated through our agency business , which are generally sold within 60 days of origination . fees and other revenues recognized from originating , selling and servicing mortgage loans through the gse and hud programs . revenue recognized from the origination and sale of mortgage loans consists of gains on sale of loans ( net of any direct loan origination costs incurred ) , commitment fees , broker fees , loan assumption fees and loan origination fees . these gains and fees are collectively referred to as gain on sales , including fee-based services , net . we record income from msrs at the time of commitment to the borrower , which represents the fair value of the expected net future cash flows associated with the rights to service mortgage loans that we originate , with the recognition of a corresponding asset upon sale . we also record servicing revenue which consists of fees received for servicing mortgage loans , net of amortization on the msr assets recorded . although we have long-established relationships with the gse and hud agencies , our operating performance would be negatively impacted if our business relationships with these agencies deteriorate . income earned from our structured transactions . our structured transactions are primarily comprised of investments in equity affiliates , which represent unconsolidated joint venture investments formed to acquire , develop and or sell real estate-related assets . if interest rates continue to rise , it is likely that income from these investments will continue to be significantly impacted , particularly from our investment in a residential mortgage banking business , since rising interest rates generally decrease the demand for residential real estate loans and the number of loan originations . in addition , we periodically receive distributions from our equity investments . it is difficult to forecast the timing of 43 such payments ,
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announcement to sell hussmann minority interest on december 21 , 2015 , we announced we will sell our remaining equity interest in hussmann parent , inc. ( “ hussmann ” ) as part of a transaction in which panasonic corporation will acquire 100 percent of hussmann 's shares . we expect to receive net proceeds of approximately $ 425 million . the transaction is anticipated to close in the first half of 2016 subject to customary approvals and closing conditions and has no impact on the results of our operations in 2015. acquisitions on january 1 , 2015 , we completed the acquisition of the assets of cameron international corporation 's centrifugal compression business for approximately $ 850 million . the acquired business manufactures centrifugal compression equipment and provides aftermarket parts and services for global industrial applications , air separation , gas transmission and process gas . the acquisition was financed through a combination of cash on hand and debt . the results of the engineered centrifugal compression business have been included in our consolidated financial statements since the date of the acquisition and are reported within our industrial segment . on march 4 , 2015 , we acquired 100 % of the outstanding stock of frigoblock for approximately 100 million ( approximately $ 113 million ) . the acquired business manufactures and designs transport refrigeration units for trucks and trailers , which it sells primarily in western europe . the results of the frigoblock business have been included in our consolidated financial statements since the date of the acquisition and are reported within our climate segment . 2016 dividend increase and share repurchase program in february 2016 , we announced an increase in our quarterly share dividend of 10 % from $ 0.29 to $ 0.32 per share beginning with our march 2016 payment . in february 2014 , our board of directors authorized the repurchase of up to $ 1.5 billion of our ordinary shares under a share repurchase program that began in april 2014. share repurchases are made from time to time at the discretion of management subject to market conditions , regulatory requirements and other considerations . during the year ended december 31 , 2015 , we repurchased and settled 4.4 million shares for $ 250.1 million . as of december 31 , 2015 , we had approximately $ 667 million remaining on the authorized plan . since january 1 , 2016 , we repurchased and settled 4.9 million shares for $ 250.0 million . we have approximately $ 417 million remaining on the authorized plan . venezuela currency devaluation we have one subsidiary with operations in venezuela . due to the historical designation of venezuela as a highly inflationary economy , the u.s. dollar is the functional currency for this subsidiary . from february 2013 to march 2015 , we utilized the official exchange rate obtained through the national center of foreign trade ( cencoex ) of 6.3 bolivars to the u.s. dollar to translate the venezuela subsidiary financial statements . in january 2014 , the venezuelan government significantly expanded the use of the supplementary foreign currency administration system ( sicad ) i exchange market and created a third exchange market called sicad ii . in january 2015 , the venezuelan government clarified the priority imports for the cencoex exchange and our products were not listed as a priority . in february 2015 , the venezuelan government announced a new exchange market called the marginal currency system ( simadi ) , which replaced the sicad ii exchange and allows for trading based on supply and demand . these markets have exchange rates significantly less favorable than the cencoex rate . in light of the developments described above and the continued deterioration in the economic conditions of venezuela in connection with our preparation of the first quarter 2015 financial statements , we utilized the simadi rate of 192.95 bolivars to u.s. dollar to translate the financial position of our venezuelan subsidiary as of march 31 , 2015. as a result , we recorded a pre-tax charge of $ 42.6 million ( within other income/ ( expense ) , net ) during the first quarter of 2015 to remeasure the net monetary assets at march 24 31 , 2015. our remaining net assets denominated in venezuelan bolivar are nominal and continue be measured in u.s. dollars using the simadi rate through december 31 , 2015 . 25 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > discontinued operations the components of discontinued operations for the years ended december 31 are as follows : replace_table_token_10_th 28 discontinued operations by business for the years ended december 31 are as follows : replace_table_token_11_th allegion spin-off on december 1 , 2013 , ( the distribution date ) we completed the spin-off of our commercial and residential security businesses , now under the name of allegion , plc ( allegion ) , to our shareholders ( the spin-off ) . allegion is now an independently traded public company . after-tax earnings from allegion for the year ended december 31 , 2014 primarily represent adjustments for certain tax matters . other discontinued operations other discontinued operations , net of tax for the years ended december 31 , 2015 and 2014 are mainly related to postretirement benefits , product liability , worker 's compensation , tax , and legal costs ( mostly asbestos-related ) from previously sold businesses . year ended december 31 , 2014 compared to the year ended december 31 , 2013 replace_table_token_12_th net revenues net revenues for the year ended december 31 , 2014 increased by 4.4 % , or $ 540.9 million , compared with the same period of 2013 , which primarily resulted from the following : volume/product mix 4.6 % pricing 0.5 % currency translation ( 0.7 ) % total 4.4 % the increase in revenues was primarily driven by volume improvements within the climate and industrial segments . our revenues by segment are as follows : replace_table_token_13_th 29 climate net revenues for the year ended december 31 , 2014 increased by 4.9 story_separator_special_tag % or $ 465.7 million , compared with the same period of 2013 , which primarily resulted from the following : volume/product mix 5.0 % pricing 0.6 % currency translation ( 0.7 ) % total 4.9 % commercial hvac net revenues increased due to improvements in equipment , parts , services and solutions markets . residential hvac net revenues increased due to increased volume in all major product categories . thermo king refrigerated transport revenues increases in north america were partially offset by declines overseas . industrial net revenues for the year ended december 31 , 2014 increased by 2.6 % , or $ 75.2 million , compared with the same period of 2013 , which primarily resulted from the following . volume/product mix 3.2 % pricing 0.3 % currency translation ( 0.9 ) % total 2.6 % air compressors and industrial product net revenues increased with pricing gains in americas . club car net revenues increased with growth in both golf car and utility vehicle sales . operating income/margin operating margin improved to 10.9 % for the year ended december 31 , 2014 , compared to 8.9 % for the same period of 2013. the increase was primarily due to productivity benefits in excess of other inflation ( 1.1 % ) , favorable product mix and volume ( 0.6 % ) , improved pricing net of material inflation ( 0.2 % ) and decreased restructuring spending ( 0.6 % ) , partially offset by increased investment ( 0.5 % ) . our operating income and operating margin by segment are as follows : replace_table_token_14_th climate segment operating margin improved to 12.1 % for the year ended december 31 , 2014 , compared to 9.9 % for the same period of 2013. the improvement was primarily driven by productivity benefits in excess of other inflation ( 1.2 % ) , favorable volume/product mix ( 0.6 % ) , pricing improvements in excess of material inflation ( 0.2 % ) and decreased restructuring spending ( 0.4 % ) ; partially offset by increased investment spending ( 0.2 % ) . industrial segment operating margin decreased to 14.7 % for the year ended december 31 , 2014 compared to 15.3 % for the same period of 2013. the decrease was due to increased investment spending ( 1.2 % ) , partially offset by lower restructuring spending ( 0.4 % ) and favorable volume/product mix ( 0.2 % ) . unallocated corporate expenses unallocated corporate expense for the year ended december 31 , 2014 decreased by 16.9 % or $ 47.4 million , compared with the same period of 2013 due to lower professional expenses . interest expense interest expense for the year ended december 31 , 2014 decreased by $ 53.5 million compared with the same period of 2013 , primarily as a result of lower redemption premium expense from early debt retirements ( $ 10.2 million in 2014 compared to $ 45.6 million in 2013 ) and lower interest rates on refinanced debt . 30 other income/ ( expense ) , net the components of other income/ ( expense ) , net , for the year ended december 31 are as follows : replace_table_token_15_th we recognized income from our equity investment in hussmann , a refrigeration display case business , of $ 7.8 million and a loss of $ 2.6 million for the years ended december 31 , 2014 and 2013 , respectively . our ownership interest was 37.2 % at both december 31 , 2014 and 2013 . other activity primarily consists of income realized from insurance settlements on asbestos-related matters . in addition , other activity for the year ended december 31 , 2014 includes a $ 6.0 million gain on the sale of an investment . provision for income taxes the 2014 effective tax rate was 24.3 % . the 2014 effective tax rate is lower than the u.s. statutory rate of 35 % primarily due to earnings in non-u.s. jurisdictions , which in aggregate have a lower effective rate partially offset by u.s. state and local income taxes and u.s. tax on non-u.s. earnings . the 2013 effective tax rate was 22.8 % . the 2013 effective tax rate is lower than the u.s. statutory rate of 35 % primarily due to earnings in non-u.s. jurisdictions , which in aggregate , have a lower effective rate and a $ 36 million net reduction in our liability for unrecognized tax benefits primarily due to the settlement of an audit in a major tax jurisdiction , partially offset by a tax charge of $ 51 million as a result of a change in assertion in certain subsidiary earnings that the company has previously determined to be permanently reinvested and approximately $ 74 million of allegion spin-off tax charges , primarily related to a net increase in our valuation allowances on certain deferred tax assets . discontinued operations the components of discontinued operations for the years ended december 31 are as follows : replace_table_token_16_th discontinued operations by business for the years ended december 31 are as follows : replace_table_token_17_th allegion spin-off on december 1 , 2013 , ( the distribution date ) we completed the spin-off of our commercial and residential security businesses , now under the name of allegion , plc ( allegion ) , to our shareholders ( the spin-off ) . allegion is now an independently traded public company . after-tax earnings from allegion for the year ended december 31 , 2014 primarily represent adjustments for certain tax matters . after-tax earnings from allegion for the year ended december 31 , 2013 includes spin costs of $ 128.0 million . also , the 2013 results include non-cash goodwill charges and tax of $ 111.4 million and $ 148.2 million , respectively . other discontinued operations other discontinued operations , net of tax for the years ended december 31 , 2014 and 2013 are mainly related to postretirement benefits , product liability , worker 's compensation , and legal costs ( mostly asbestos-related ) from previously sold businesses and tax effects of post-closing purchase price adjustments .
| these items were partially offset by unfavorable currency impacts , primarily from the euro . our revenues by segment are as follows : replace_table_token_7_th 26 climate net revenues for the year ended december 31 , 2015 increased by 3.5 % or $ 344.6 million , compared with the same period of 2014 the components of the period change are as follows : volume/product mix 6.4 % acquisitions 0.4 % pricing 0.1 % currency translation ( 3.4 ) % total 3.5 % the primary driver of the revenue increase related to higher volumes in each of our businesses . commercial hvac revenues increased from improvements in equipment , parts , services and solutions . in addition , residential hvac revenues increased through moderate market growth . revenues in our thermo king refrigeration transport business improved through organic growth in north america and europe . revenue improvements in the climate segment were partially offset by the negative impact of foreign currency exchange rates . industrial net revenues for the year ended december 31 , 2015 increased by 2.1 % or $ 64.7 million , compared with the same period of 2014. the components of the period change are as follows : volume/product mix ( 1.6 ) % acquisitions 8.9 % pricing 0.4 % currency translation ( 5.6 ) % total 2.1 % the primary driver of the revenue increase related to acquisition of the engineered centrifugal compression business during the year . in addition , club car revenues increased from gains in golf cars , utility vehicles and aftermarket sales . however , overall organic revenues decreased due to weak industrial markets . segment results were also negatively impacted by foreign currency exchange rate movements . operating income/margin operating margin improved to 11.0 % for the year ended december 31 , 2015 , compared to 10.9 % for the same period of 2014. the increase was primarily due to productivity benefits in excess of other inflation ( 0.9 % ) , pricing improvements in excess of material
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liberty acquired its interest in charter on may 1 , 2013. at december 31 , 2018 , liberty broadband owned approximately 54.1 million shares of charter class a common stock , representing an approximate 24 % economic ownership interest in charter 's issued and outstanding shares . upon the closing of the time warner cable merger , the second amended and restated stockholders agreement , dated as of may 23 , 2015 , by and among legacy charter , charter , liberty broadband and a/n , as amended ( the “ stockholders agreement ” ) , became fully effective . under the stockholders agreement , we have the right to designate three directors to the charter board of directors , subject to certain exclusions and requirements . charter has agreed to cause the appointment of at least one of our designees to serve on the nominating and corporate governance , finance , audit and compensation and benefits committees of the board , provided they meet the independence and other qualifications for membership on those committees . key drivers of revenue skyhook earns revenue from the sale and integration of its precision location solution ( including the licensing of software and data components that make up that solution ) and the licensing of geospatial insights data . in addition , skyhook earns revenue from licensing its intellectual property ( including patents ) to other enterprises . prior to 2016 , skyhook also earned significant revenue from the sale of hardware and the licensing of its u-tdoa service , and from professional and support services related thereto . charter 's revenue is principally derived from the monthly fees customers pay for the residential and commercial video , internet and voice services provided . charter also earns revenue from one-time installation fees and advertising sales . charter 's marketing organization creates and executes marketing programs intended to grow customer relationships , increase the number of services they sell per relationship , retain existing customers and cross-sell additional products to current customers . current trends affecting our business skyhook 's location determination services compete against ( 1 ) other satellite and terrestrial based location technology offerings , such as gps ; ( 2 ) other providers of wifi and cell-based positioning , such as google , inc. ( “ google ” ) and here , a former subsidiary of nokia ; and ( 3 ) other in-house developed location solutions . in the smartphone location provider market , because apple and google control a large percentage of the market share for smartphone operating systems and both offer location provider services free as part of the ios and android markets , skyhook is constrained in the distribution and monetization of the precision location solution in that market . there are also a number of new location technologies in development which may further increase competition to be a location solution for new devices ( including internet of things devices and wearable ) and which may require skyhook to meet more stringent accuracy standards . in addition , skyhook 's context services compete against other geofencing and location data offerings from other niche location companies . charter faces intense competition for residential customers , both from existing competitors and , as a result of the rapid development of new technologies , services and products , from new entrants . with respect to its residential business , charter competes with other providers of video , high-speed internet access , telephone services , and other sources of home entertainment . specifically , newer categories of competitors include virtual multichannel video programming distributors such as directv now , sling tv , playstation vue , youtube tv and hulu live . in the broadband communications industry , charter 's principal competitors for video services are dbs service providers and telephone companies that offer video services . charter 's principal competitors for high-speed internet services are the broadband services provided by telephone companies , including fiber-to-the-home wireless broadband offerings and dsl . a growing number of commercial areas , such as retail malls , restaurants and airports , offer wifi internet service . numerous local governments are also considering or actively pursuing publicly subsidized wifi internet access networks . these options offer alternatives to cable-based internet access . charter 's principal competitors for voice and mobile services are other mobile and wireline phone providers , as well as other forms of communication , such as instant messaging , social networking services , video conferencing and email . the increase in the number of different technologies capable of carrying voice services and the number of alternative communication options available to customers as well as the replacement of wireline services by wireless have intensified the competitive environment in which charter operates its residential voice service . ii-5 skyhook and charter must stay abreast of rapidly evolving technological developments and offerings to remain competitive and increase the utility of their products and services . these companies must be able to incorporate new technologies into their products and services in order to address the needs of their customers . results of operations—consolidated story_separator_special_tag to increased revenue of $ 9.2 million , discussed above , coupled with lower operating expenses of $ 3.7 million , discussed above . the decrease in adjusted oibda for the year ended december 31 , 2017 is due to decreased revenue of $ 17.5 million , discussed above , partially offset by a $ 3.2 million decline in legal expenses and a $ 9.3 million improvement in operating , research and development , and selling , general and administrative expenses during the year ( discussed above ) . ii-7 other income and expense : components of other income ( expense ) are presented in the table below . replace_table_token_7_th interest expense interest expense increased $ 3.7 million and $ 4.6 million during the years ended december 31 , 2018 and 2017 , respectively . story_separator_special_tag the increase in 2018 was attributable to additional amounts outstanding on the amended 2017 margin loan during 2018 as compared to the prior year , as well as an increase in our weighted average interest rate and libor during 2018 as compared to the prior year . the increase in 2017 was primarily due to an increase in libor during 2017 as compared to the prior year . dividend and interest income dividend and interest income decreased $ 0.6 million and $ 3.6 million for each of the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods . the decrease in 2018 was the result of lower cash balances in the current period . the decrease in 2017 was the result of a loss of dividend income previously received from time warner cable , following the time warner cable merger during may 2016. share of earnings ( losses ) of affiliates share of earnings ( losses ) from affiliates declined $ 2,342.8 million and improved $ 1,867.4 million during the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods . share of earnings ( losses ) from affiliates is attributable to the company 's ownership interest in charter . in may 2013 , the company acquired its initial investment in legacy charter . upon acquisition , the company allocated the excess basis , between the book basis of legacy charter and fair value of the shares acquired , and ascribed remaining useful lives of 7 years and 13 years to property and equipment and customer relationships , respectively , and indefinite lives to franchise fees , trademarks and goodwill . outstanding debt is amortized over the contractual period using the effective interest rate method . amortization related to debt and intangible assets with identifiable useful lives is included in the company 's share of earnings ( losses ) from affiliates line item in the accompanying consolidated statements of operations and aggregated $ 119 million , $ 277 million , and $ 42 million , net of related taxes , for the years ended december 31 , 2018 , 2017 and 2016 , respectively . on may 18 , 2016 , the time warner cable merger and bright house transaction were completed . the time warner cable merger resulted in legacy charter and time warner cable becoming wholly owned subsidiaries of charter , which was a wholly owned subsidiary of legacy charter at the time . as a result of the time warner cable merger and bright house transaction , liberty broadband exchanged its shares of time warner cable for shares of charter and purchased additional shares of charter . as a result , and pursuant to proxy agreements with gci liberty , inc. and a/n , liberty broadband controls 25.01 % of the aggregate voting power of charter following the completion of the transactions . the increase in share of earnings from affiliates during 2016 is attributable to the earnings of charter subsequent to the time warner cable merger and bright house transaction . see note 5 in the accompanying notes to the consolidated financial statements for additional discussion of the company 's investment in charter . ii-8 the following is a discussion of charter 's stand alone results of operations . in order to provide a better understanding of charter 's operations , we have included a summarized presentation of charter 's results from operations . charter is a separate publicly traded company and additional information about charter can be obtained through its website and public filings , which are not incorporated by reference . the amounts included in the table below , derived from charter 's public filings , represent charter 's results for each of the years ended december 31 , 2018 , 2017 and 2016 , as well as a year over year comparison on a pro forma basis as if the transactions were completed on january 1 , 2015. replace_table_token_8_th ( 1 ) income from operations for the year ended december 31 , 2016 has been reduced from what was previously reported to reflect the adoption of pension accounting guidance by $ 899 million and $ 915 million on an actual and pro forma basis , respectively . ( 2 ) pro forma information was determined assuming the transactions occurred as of january 1 , 2015. charter 's revenue increased $ 2.1 billion and $ 12.6 billion during the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior years . revenue growth primarily reflects increases in the number of residential internet and commercial business customers , price adjustments as well as the launch of charter 's mobile service in 2018 offset by a decrease in limited basic video customers . the transactions increased revenue for the year ended december 31 , 2017 as compared to 2016 by approximately $ 11.4 billion . actual revenue increased $ 1.6 billion for the year ended december 31 , 2017 as compared to the pro forma revenue for the year ended december 31 , 2016. the increase in revenue during 2018 and 2017 was partially offset by the net impact of an increase in operating expenses , excluding stock-based compensation , of $ 1.2 billion and $ 7.2 billion respectively . the increase in operating expenses in 2017 was primarily due to the transactions . operating costs also increased due to an increase in programming costs as a result of contractual rate adjustments , including renewals and increases in amounts paid for retransmission consents partly offset by lower video customers , pay-per-view and one-time programming benefits during the year ended december 31 , 2018. charter expects programming expenses to continue to increase in future periods due to a variety of factors , including annual increases imposed by programmers with additional selling power as a result of media consolidation , increased demands by owners of broadcast stations for payment for retransmission consent or linking carriage of other services to retransmission consent , and additional programming , particularly new services .
| the decrease in legal expenses during 2017 was due to a decrease in activity associated with license sales , as well as a significant decrease in legal expenses related to the time warner cable merger in 2016. stock-based compensation stock-based compensation expense increased $ 415 thousand and decreased $ 421 thousand for the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods . the increase in stock-based compensation during 2018 was primarily due to an increase in the fair value of outstanding awards under skyhook 's long-term incentive plans as of december 31 , 2018 as compared to december 31 , 2017 , coupled with additional grants of awards and the ongoing vestings of outstanding grants . the decrease in 2017 is due to a decrease in the fair value of outstanding awards under ii-6 skyhook 's long-term incentive plans as of december 31 , 2017 as compared to december 31 , 2016 , coupled with adjustments made to certain outstanding awards in 2016 that increased their fair value , partially offset by additional grants of awards and the ongoing vesting of outstanding grants . depreciation and amortization depreciation and amortization decreased $ 991 thousand and $ 235 thousand for the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods . the decrease in depreciation and amortization expense during 2018 and 2017 was due to certain assets becoming fully depreciated . operating income ( loss ) operating income ( loss ) improved $ 13.5 million and declined $ 4.3 million for the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods , due to the items discussed above . adjusted oibda we define adjusted oibda as revenue less operating expenses and selling , general and administrative expenses ( excluding stock compensation ) . our chief operating decision maker and management team use this measure
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using imprint smart mapping , the roomba i7+ learns the home 's floor plan , giving customers total control to choose which rooms to clean and when . when the roomba i7+ robot vacuum is finished cleaning , it empties its own dust bin into the clean base , which holds 30 bins of dirt . 23 the roomba i7 and i7+ further extend our product ecosystem , bringing a new level of intelligence and automation to robotic vacuum cleaners with the ability to learn , map and adapt to a home 's floor plan . in the third quarter of 2018 , the company also introduced the roomba e5 in the u.s. , a highly-featured product at a more accessible price , to our lineup . in the fourth quarter of 2018 , we also introduced the roomba e5 in markets outside of the u.s. in advance of the holiday season . as of december 29 , 2018 , we had 1,032 full-time employees . we have developed expertise in the disciplines necessary to design and build durable , high-performance and cost-effective robots through the close integration of software , electronics and hardware . our core technologies serve as reusable building blocks that we adapt and expand to develop next generation and new products , reducing the time , cost and risk associated with product development . our significant expertise in consumer needs , robot design , engineering and smart home technologies and trends positions us to capitalize on the growth we expect in the market for robot-based consumer products . our continued success depends upon our ability to respond to a number of future challenges . we believe the most significant of these include increasing competition and our ability to successfully develop and introduce products and product enhancements into both new and existing markets . our total revenue for 2018 was $ 1,092.6 million , which represents a 23.6 % increase from 2017 revenue of $ 883.9 million . domestic revenue grew $ 108.4 million , primarily as a result of strong sales of the roomba 900 and 600 series robots , as well as the significant investments in advertising media and national promotions . international revenue grew by $ 100.2 million in 2018 with increases in most markets . fiscal periods we operate and report using a 52-53 week fiscal year ending on the saturday closest to december 31. accordingly , our fiscal quarters will end on the saturday that falls closest to the last day of the third month of each quarter . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements . these estimates and judgments , include but are not limited to , revenue recognition including performance obligations , variable consideration and other obligations such as product returns and incentives ; warranty costs ; valuation of goodwill and acquired intangible assets ; valuation of financial instruments ; accounting for business combinations ; evaluating loss contingencies ; accounting for stock-based compensation including performance-based assessments ; and accounting for income taxes and related valuation allowances . we base these estimates and judgments on historical experience , market participant fair value considerations , projected future cash flows and various other factors that we believe are reasonable under the circumstances . actual results may differ from our estimates . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we primarily derive our revenue from product sales . we sell products directly to consumers through on-line stores and indirectly through resellers and distributors . revenue is recognized upon transfer of control of promised products or services to customers , generally as title and risk of loss pass , in an amount that reflects the consideration we expect to receive in exchange for those products or services . taxes collected from customers , which are subsequently remitted to governmental authorities , are excluded from revenue . shipping and handling expenses are considered fulfillment activities and are expensed as incurred . our product portfolio includes various consumer robots , many of which are wi-fi connected . the consumer robots are generally highly dependent on , and interrelated with , the embedded software and can not function without the software . as such , the consumer robots are accounted for as a single performance obligation , and the revenue is recognized at a point in time when the control is transferred to distributors , resellers or directly to end customers through online stores . for consumer robots with wi-fi capability ( `` connected robots '' ) , each sale represents an arrangement with multiple promises consisting of the robot , an app , cloud services and potential future unspecified software upgrades . we have determined that the app , cloud services and potential future unspecified software upgrades represent one promised service to the customer to enhance the functionality and interaction with the robot ( referred to collectively as `` cloud services '' ) . under the previous revenue accounting standard , revenue allocated to the app and future unspecified software upgrades was deferred and recognized on a straight-line basis over the expected life of the connected robot . upon the adoption of asu no . story_separator_special_tag 2014-09 , `` revenue from contracts with customers , '' ( `` asc 606 '' ) as of the beginning of fiscal year 2018 , we concluded that , on a quantitative and qualitative basis , the cloud services did not constitute a material 24 performance obligation for the then existing products and , as such , these services were not considered a separate performance obligation that required allocation of transaction price . during the third quarter of 2018 , we launched roomba i7 and i7+ which have the ability to learn , map and adapt to a home 's floor plan . we have concluded that the cloud services related to these new products are a material performance obligation . for contracts that contain multiple performance obligations , the transaction price is allocated to each performance obligation based on a relative standalone selling price ( `` ssp '' ) . the ssp reflects our best estimate of what the selling prices of elements would be if they were sold regularly on a standalone basis . revenue allocated to the robots is recognized at a point in time when control is transferred . revenue allocated to the cloud services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and services are expected to be provided . our products generally carry a one-year limited warranty that promises customers that delivered products are as specified . we do not consider these assurance-type warranties as a separate performance obligation and therefore , we account for such warranties under asc 460 , `` guarantees . '' we provide limited rights of returns for direct-to-consumer sales generated through our on-line stores as well as certain resellers and distributors . in addition , we may provide other credits or incentives , including price protection , which are accounted for as variable consideration when estimating the amount of revenue to recognize . where appropriate , these estimates take into consideration relevant factors such as our historical experience , current contractual requirements , specific known market events and trends and forecasted customer buying and payment patterns . overall , these reserves reflect our best estimates , and the actual amounts of consideration ultimately received may differ from our estimates . returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur . as of december 29 , 2018 , we had reserves for product returns of $ 53.9 million and other credits and incentives of $ 97.7 million . as of december 30 , 2017 , we had reserves for product returns of $ 42.7 million and other credits and incentives of $ 61.4 million . business combinations we account for transactions that represent business combinations under the acquisition method of accounting . we allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition , including identifiable intangible assets . we base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions determined by management and which consider management 's best estimates of inputs and assumptions that a market participant would use . while we use best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date , the estimates and assumptions are inherently uncertain and subject to refinement . as a result , during the measurement period , which is generally one year from the acquisition date , any adjustment to the assets acquired and liabilities assumed is recorded against goodwill in the period in which the amount is determined . any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined . inventory inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in , first-out ( `` fifo '' ) method . we maintain a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory . warranty we typically provide a one -year warranty ( with the exception of european consumer products , which typically have a two -year warranty period ) against defects in materials and workmanship and will either repair the goods , provide replacement products at no charge to the customer or refund amounts to the customer for defective products . we record estimated warranty costs , based on historical experience by product , at the time revenue is recognized . actual results could differ from these estimates , which could cause increases or decreases to the warranty reserves in future periods . goodwill and other long-lived assets goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired . goodwill is not amortized but rather is assessed for impairment at the reporting unit level ( operating segment or one level below an operating segment ) annually during our fourth quarter of each fiscal year or more frequently if we believe indicators of impairment exist . goodwill impairment , if any , is determined by comparing the reporting unit 's fair value to its carrying value . an impairment loss is recognized in an amount equal to the excess of the reporting unit 's carrying value over its fair value , up to the amount of goodwill allocated to the reporting unit . other long-lived assets consist principally of completed technology , tradename , customer relationships , reacquired distribution rights and non-competition agreements . reacquired distribution rights are amortized on an accelerated basis while 25 all other intangible assets are amortized over their respective estimated useful lives on a straight-line basis , consistent with the pattern in which the economic benefits are being utilized .
| total robots shipped in fiscal 2018 were approximately 4.5 million units compared to approximately 3.7 million units in fiscal 2017. in fiscal 2018 , domestic revenue increased $ 108.4 million , or 24.0 % , and international revenue increased $ 100.2 million , or 23.2 % , compared to fiscal 2017. although the impact of the recent increases to tariffs on certain goods imported from china was not material for the year ended december 29 , 2018 , demand for our robots in 2019 could be adversely affected by these tariffs , including as a result of any tariff-related price increases we may implement . year ended december 30 , 2017 as compared to the year ended december 31 , 2016 revenue increased 33.8 % to $ 883.9 million in fiscal 2017 from $ 660.6 million in fiscal 2016. revenue increased approximately $ 227.8 million , or 34.7 % , in our consumer business while revenue decreased $ 3.1 million in our defense and security business as a result of the sale of our defense and security business unit in april 2016. the $ 227.8 million increase in revenue from our consumer business was driven by a 25.7 % increase in units shipped and a 10.8 % increase in average selling price . in fiscal 2017 , domestic consumer revenue increased $ 133.2 million , or 41.8 % , and international consumer revenue increased $ 94.6 million , or 28.1 % , compared to fiscal 2016. total consumer robots shipped in fiscal 2017 were approximately 3.7 million units compared to approximately 2.9 million units in fiscal 2016. cost of product revenue cost of product revenue includes the cost of materials , labor and overhead costs that go into the manufacture of our products . overhead primarily includes costs such as freight , import duties , depreciation , warranty , tools and quality assurance costs . material costs , which are our most significant cost items , can fluctuate materially on a periodic basis , although many components have been historically stable . there can be no assurance that our costs of materials will not increase . contract manufacturer labor costs also comprise a significant portion of our cost of materials . we outsource the manufacture of our robots to contract manufacturers in southern china . while labor costs in china traditionally have been favorable compared to labor costs elsewhere in the world , including the united states , they have been increasing for the last few years . in addition , fluctuations in currency exchange rates could increase the cost of labor . consequently , the labor costs for
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on august 3 , 2018 , we acquired storetail , a paris-based pioneering retail media technology platform enabling retailers to monetize native placements on their ecommerce sites . 57 a. operating results . basis of presentation the key elements of our results of operations include : revenue we sell personalized display advertisements featuring product-level recommendations either directly to clients or to advertising agencies . historically , the criteo model has focused solely on converting our clients ' website visitors into customers , enabling us to charge our clients only when users engage with an ad we deliver , usually by clicking on it . more recently , we have expanded our solutions to address a broader range of marketing goals for our clients . we offer two families of solutions to our commerce and brand clients : criteo marketing solutions allow commerce companies to address multiple marketing goals by engaging their consumers with personalized ads across the web , mobile and offline store environments . criteo retail media solutions allow retailers to generate advertising revenues from consumer brands , and or to drive sales for themselves , by monetizing their data and audiences through personalized ads , either on their own digital property or on the open internet , that address multiple marketing goals . we also have multiple pricing models which now include cost plus margin models in addition to cost-per-click , cost-per-install and cost-per-impression pricing models . we recognize revenues when we transfer control of promised services directly to our clients or to advertising agencies , which we collectively refer to as our clients , in an amount that reflects the consideration to which we expect to be entitled to in exchange for those services . for campaigns priced on a cost-per-click , cost-per-install basis and cost plus margin basis , we bill our clients when a user clicks on an advertisement we deliver or installs an application by clicking on an advertisement we delivered , respectively . for these pricing models , we recognize revenue when a user clicks on an advertisement or installs an application . for campaigns priced on a cost-per-impression basis , we bill our clients based on the number of times an advertisement is displayed to a user . for this pricing model , we recognize revenue when an advertisement is displayed . for campaigns with a fixed pricing component , where fixed amounts are billed to the customer at various intervals , we recognize revenue on a ratable basis , based on our completion of our performance obligation to the customer . we mainly act as principal in our arrangements because ( i ) we control the advertising inventory before it is transferred to our clients ; ( ii ) we bear sole responsibility for fulfillment of the advertising promise and inventory risks and ( iii ) we have full discretion in establishing prices . therefore , based on these factors , we report revenue earned and the related costs incurred on a gross basis . cost of revenue our cost of revenue primarily includes traffic acquisition costs and other cost of revenue . traffic acquisition costs . traffic acquisition costs consist primarily of purchases of impressions from publishers on a cpm basis . we purchase impressions directly from publishers or third-party intermediaries , such as advertisement exchanges . we recognize cost of revenue on a publisher by publisher basis as incurred . costs owed to publishers but not yet paid are recorded in our consolidated statements of financial position as trade payables . for some solutions within criteo retail media , we pay for the inventory of our retailer partners on a revenue sharing basis , effectively paying the retailers a portion of the click-based revenue generated by user clicks on the sponsored products advertisements displaying the products of our consumer brand clients . for a discussion of the trends we expect to see in traffic acquisition costs , see the section entitled `` - highlights and trends - revenue ex-tac '' in item 7.d - trend information below . 58 other cost of revenue . other cost of revenue includes expenses related to third-party hosting fees , depreciation of data center equipment , the cost of data purchased from third parties and digital taxes . the company does not build or operate its own data centers and none of its research and development employments are dedicated to revenue generating activities . as a result , we do not include the costs of such personnel in other cost of revenue . operating expenses operating expenses consist of research and development , sales and operations , and general and administrative expenses . salaries , bonuses , equity awards compensation , pension benefits and other personnel-related costs are the most significant components of each of these expense categories . the number of employees decreased from 2,764 employees at january 1 , 2018 to 2,594 employees at december 31 , 2020. we include equity awards compensation expense in connection with grants of share options , warrants , and restricted share units ( `` rsus '' ) in the applicable operating expense category based on the respective equity award recipient 's function ( research and development , sales and operations , general and administrative ) . research and development expense . research and development expense consists primarily of personnel-related costs for our employees working in the engine , platform , site reliability engineering , scalability , infrastructure , engineering program management , product , analytics and other teams , including salaries , bonuses , equity awards compensation and other personnel related costs . our research and development function was supplemented in january 2013 to include a dedicated product organization following the appointment of a chief product officer . also included are non-personnel costs such as subcontracting , consulting and professional fees to third-party development resources , allocated overhead and depreciation and amortization costs . these expenses are partially offset by the french research tax credit that is conditional upon the level of our expenditures in research and development . story_separator_special_tag our research and development efforts are focused on enhancing the performance of our solutions and improving the efficiency of the services we deliver to our clients and publisher partners . all development costs , principally headcount-related costs , are expensed until management determines that technological feasibility is reached and the preliminary project phase is completed . the company capitalizes costs associated with software developed when the preliminary project stage is completed , management implicitly or explicitly authorizes and commits to funding the project and it is probable that the project will be completed and perform as intended . capitalized costs mainly relates to internally developed internal-use software and it licenses . the number of employees in research and development functions decreased from 701 at january 1 , 2018 to 624 at december 31 , 2020. on october 7 , 2019 , in connection with the new organization structure , we announced a plan to restructure its r & d activities with the closing of our r & d operations in palo alto , and our headcount was slightly reduced in connection with the completion of this restructuring . additionally , research and development expenses slightly decreased as a percentage of our revenue . we believe our continued investment in research and development to be critical to maintaining and improving our technology within the criteo commerce media platform , our quality of service and our competitive position . sales and operations expense . sales and operations expense consists primarily of personnel-related costs for our employees working in our sales , account strategy , sales operations , publisher business development , analytics , marketing , technical solutions , creative services and other teams , including salaries , bonuses , equity awards compensation , and other personnel-related costs . additional expenses in this category include travel and entertainment , marketing and promotional events , marketing activities , provisions for doubtful accounts , subcontracting , consulting and professional fees paid to third parties , allocated overhead and depreciation and amortization costs . the number of employees in sales and operations functions declined from 1,595 at january 1 , 2018 to 1,520 at december 31 , 2020. in order to expand our business , we expect to make targeted investments in our resources in some areas of our sales and operations . yet , we expect sales and operations expenses to remain fairly flat as a percentage of revenue over time as we increase the productivity of our sales and operations teams . general and administrative expense . general and administrative expense consists primarily of personnel costs , including salaries , bonuses , equity awards compensation , pension benefits and other personnel-related costs for our administrative , legal , information technology , human resources , facilities and finance teams . additional expenses included in this category include travel-related expenses , subcontracting and professional fees , audit fees , tax services and legal fees , as well as insurance and other corporate expenses , along with allocated overhead and depreciation and amortization costs . the number of employees in general and administrative functions decreased from 468 at january 1 , 2018 to 450 at december 31 , 2020. we expect our general and administrative expense to decrease as a percentage of revenue over time as we increase the productivity of our general and administrative teams . 59 financial income ( expense ) financial income ( expense ) primarily consists of : exchange differences arising on the settlement or translation into local currency of monetary balance sheet items labeled in euros ( the company 's functional currency ) . we are exposed to changes in exchange rates primarily in the united states , the united kingdom , japan , korea and brazil . the u.s. dollar , the british pound , the korean won , the japanese yen and the brazilian real are our most significant foreign currency exchange risks . at december 31 , 2020 , our exposure to foreign currency risk was centralized at parent company level and hedged . these exchange differences in euro are then translated into u.s. dollars ( the company 's reporting currency ) according to the average euro/u.s . dollar exchange rate . interest received on our cash and cash equivalents and interest incurred on outstanding borrowings under our debt loan agreements and revolving credit facilities ( `` rcfs '' ) . we monitor foreign currency exposure and look to mitigate exposures through normal business operations and hedging strategies . provision for income taxes we are subject to potential income taxes in france , the united states and numerous other jurisdictions . we recognize tax liabilities based on estimates of whether additional taxes will be due . these tax liabilities are recognized when we believe that certain positions may not be fully sustained upon review by tax authorities , notwithstanding our belief that our tax return positions are supportable . our effective tax rates differ from the statutory rate applicable to us primarily due to valuation allowance on deferred tax assets , differences between domestic and foreign jurisdiction tax rates , research tax credit offsets , which are non-taxable items , potential tax audit provision settlements , share-based compensation expenses that are non-deductible in some jurisdictions under certain circumstances , and transfer pricing adjustments . we license access to our technology to our subsidiaries and charge a royalty fee to these subsidiaries for such access . in france , we benefit from a reduced tax rate of 10 % on a large portion of this technology royalty income . on september 27 , 2017 , we received a draft notice of proposed adjustment ( nopa ) from the internal revenue service ( `` irs '' ) audit of criteo corp. for the year ended december 31 , 2014 , confirmed by the definitive notice dated february 8 , 2018. we disagreed with the irs 's position and contested it .
| please see footnote 3 to the `` other financial and operating data '' table in “ item 6. selected financial data ” in this form 10-k for more information . below is a reconciliation of revenue ex-tac to revenue , the most directly comparable financial measure calculated and presented in accordance with u.s. gaap . replace_table_token_24_th ( 3 ) we define adjusted ebitda as our consolidated earnings before financial income ( expense ) , income taxes , depreciation and amortization , adjusted to eliminate the impact of equity awards compensation expense , pension service costs , restructuring related and transformation costs , acquisition-related costs and deferred price consideration . adjusted ebitda is not a measure calculated in accordance with u.s. gaap . please see footnote 5 to the `` other financial and operating data '' table in “ item 6. selected financial data ” in this form 10-k for more information . below is a reconciliation of adjusted ebitda to net income , the most directly comparable financial measure calculated and presented in accordance with u.s. gaap . 75 replace_table_token_25_th ( a ) excludes $ ( 2.7 ) million , $ ( 4 .8 ) million and $ ( 0.5 ) million disclosed as restructuring costs as of december 31 , 2020 , 2019 and 2018 , respectively . ( b ) for the three months ended december 31 , 2019 , respectively the company recognized accelerated amortization for manage technology due to a revised useful life ( $ 2.2 million in research and development ) and an impairment loss for manage customers relationships ( $ 4.6 million in sales and operations ) . ( c ) for the three months ended december 31 , 2020 and 2019 , respectively the company recognized restructuring charges for its new organizational structure implemented to support its multi-product platform strategy and office right sizing policy as detailed below : replace_table_token_26_th 76 replace_table_token_27_th 77 b. liquidity and capital resources . market risk we are mainly exposed to changes of foreign currency exchange rate fluctuations . the functional currency of the company is the euro , while our reporting currency is the u.s. dollar . because we incur some of our expenses
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together , we refer to these investments as our target investments . our target investments include : primary target investments senior mortgage loans . commercial mortgage loans that are secured by real estate and evidenced by a first priority mortgage . these loans may vary in term , may bear interest at a fixed or floating rate ( although our focus is floating-rate loans ) , and may amortize and typically require a balloon payment of principal at maturity . these investments may encompass a whole loan or may include pari passu participations within such a mortgage loan . these loans may finance stabilized properties or properties that are subject to a business plan that is expected to enhance the value of the property through lease-up , refurbishment , updating or repositioning . secondary target investments as part of our financing strategy , we may from time-to-time syndicate senior participations in our originated senior commercial mortgage loans to other investors and retain a subordinated debt position for our portfolio in the form of a mezzanine loan or subordinated mortgage interest , as described below . alternatively , we may opportunistically co-originate the investments described below with senior lenders , or acquire them in the secondary market . mezzanine loans . mezzanine loans are secured by a pledge of equity interests in the property . these loans are subordinate to a senior mortgage loan , but senior to the property owner 's equity . preferred equity . investments that are subordinate to any mortgage and mezzanine loans , but senior to the property owner 's common equity . subordinated mortgage interests . sometimes referred to as a b-note , a subordinated mortgage interest is an investment in a junior portion of a mortgage loan . b-notes have the same borrower and benefit from the same underlying secured obligation and collateral as the senior mortgage loan , but are subordinated in priority payments in the event of default . other real estate securities . investments in real estate that take the form of cmbs or collateralized loan obligations , or clos , that are collateralized by pools of real estate debt instruments , which are often senior mortgage loans , or other securities . these may be classified as available-for-sale , or afs , securities or held-to-maturity , or htm , securities . based on current market conditions , we expect that the majority of our investments will continue to consist of senior commercial mortgage loans directly originated by us and secured by cash-flowing properties located in the united states . these investments typically pay interest at rates that are determined periodically on the basis of a floating base lending rate , primarily libor plus a premium , and have an expected term between three and five years . we may opportunistically adjust our capital allocation to our target investments , with the proportion and types of investments changing over time depending on our views on , among other things , the current economic and credit environment . in addition , we may invest in assets other than our target investments , in each case subject to maintaining our qualification as a reit for u.s. federal income tax purposes and our exclusion from regulation under the investment company act . overview our 2018 efforts focused on four strategic objectives that we believe have positioned us for long-term success . efficiently deploying capital available either from capital markets activities or repayments of our investments . over the second half of 2017 , we successfully and prudently invested the capital we raised in our june 2017 ipo . to provide additional growth capital , in december 2017 we accessed the capital markets via the private issuance of 5 year senior unsecured convertible notes . as a result , we began 2018 with significant investable funds allowing us to further grow our business . over the course of the year , we prudently deployed our investable capital into assets with an attractive risk-return profile . by the end of the third quarter of 2018 , our capital was substantially fully invested , at which point , in october 2018 , we again successfully accessed the capital markets via the public issuance of 5 year senior unsecured convertible notes to provide us with additional funds to further grow our business . diversifying capital structure and financing sources . we are focused on actively managing the funding sources we use to finance our investments . over the course of 2018 we engaged in various activities to diversify and expand our financing sources . in april 2018 , established a short-term secured financing facility to help us manage our liquidity and our loan closing process . additionally , in may 2018 , we issued our inaugural clo securitization , which provided us with efficiently priced , term-matched , non-recourse , and non-mark-to-market financing . both initiatives further diversified our liabilities structure , which remains one of our ongoing strategic objectives . managing a portfolio of commercial real estate debt and related instruments to generate attractive returns with balanced risks . we are a long-term , fundamental value-oriented investor in floating senior commercial real estate loans and other debt related instruments . we construct our investment portfolio on a loan-by-loan basis , emphasizing rigorous credit underwriting , selectivity and diversification , and assess each investment from a fundamental value 47 perspective relative to other opportunities available in the market . we believe this approach enables us to deliver attractive risk-adjusted returns to our stockholders while preserving our capital base through diverse business cycles . maintaining “ best in class ” investment , corporate governance , investor relations and disclosure practices . we have established effective controls in the areas of operations , accounting , information technology and investor relations . story_separator_special_tag factors affecting our operating results the results of our operations are affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets , credit performance of our assets and the supply of , and demand for , commercial real estate loans , other commercial real estate debt instruments and other financial assets available for investment in the market . our net interest income , which reflects the amortization of origination fees and direct costs , is recognized based on the contractual rate and the outstanding principal balance of the loans we originate . the objective of the interest method is to arrive at periodic interest income that yields a level rate of return over the loan term . interest rates vary according to the type of loan or security , conditions in the financial markets , credit worthiness of our borrowers , competition and other factors , none of which can be predicted with any certainty . our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers . loan originations our business model is mainly focused on directly originating , investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments . as a result of this strategy , our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments . we manage originations and acquisitions of our target investments by diversifying our investment portfolio across geographical regions and local markets , property types , borrower types , loan structures and types . we do not limit our investments to any number of geographical areas or property types for our originations and will continue to develop a well-diversified investment portfolio . additionally , our cre team has extensive experience originating and acquiring commercial real estate loans and other debt and debt-like commercial real estate investments , through a network of long-standing relationships with borrowers , sponsors and industry brokers . financing availability we are subject to availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders . much of our financing is in the form of repurchase agreements or other types of credit facilities provided to us by our lender counterparties . we mitigate this counterparty risk by seeking to diversify our lending partners , focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight . additionally , as part of our broader risk management strategy , and to the extent available in the market , we finance our business through other means which may include , but not be limited to , securitizations , note sales and issuance of unsecured debt and equity instruments . we will continue to actively explore additional types of funding facilities in order to further diversify our financing sources . in october 2018 , we closed an underwritten public offering of $ 131.6 million aggregate principal amount of convertible senior notes due 2023. the net proceeds from the offering were approximately $ 127.7 million after deducting underwriting discounts and expenses . the notes are unsecured , pay interest semiannually at a rate of 6.375 % per annum and are convertible at the option of the holder into shares of our common stock . the notes will mature in october 2023 , unless earlier converted or repurchased in accordance with their terms . we do not not have the right to redeem the notes prior to maturity , but may be required to repurchase the notes from holders under certain circumstances . as of december 31 , 2018 , the notes had a conversion rate of 48.8496 shares of common stock per $ 1,000 principal amount of the notes . in the second quarter of 2018 , we financed a pool of our commercial real estate loans through a collateralized loan obligation , or clo , retaining the subordinate securities in our investment portfolio . the securitization was accounted for as a financing with the non-retained securitized debt obligations recognized on our balance sheet . the net proceeds from the securitized debt obligations were used to repay a portion of the outstanding balances of our repurchase facilities , to re-invest in our target assets and for other general corporate purposes . on december 12 , 2017 , we closed a private placement of $ 125.0 million aggregate principal amount of convertible senior notes due 2022. on january 10 , 2018 , an additional $ 18.8 million in notes were issued in connection with the exercise of the initial purchaser 's option . the notes are unsecured , pay interest semiannually at a rate of 5.625 % per annum and are convertible at the option of the holder into shares of our common stock . the notes will mature in december 2022 , unless earlier converted or repurchased in accordance with their terms . we do not have the right to redeem the notes prior to maturity , but may be required to repurchase the notes from holders under certain circumstances . as of december 31 , 2018 , the notes had a conversion rate of 50.1610 shares of common stock per $ 1,000 principal amount of the notes . the net proceeds from the offering were approximately $ 139.5 million after deducting underwriting discounts and estimated offering expenses . we intend to use these proceeds to originate and acquire our target assets and for general corporate purposes . 48 during 2017 , a portion of our portfolio was financed through a note payable to th insurance holdings company llc , or th insurance , a captive insurance company and indirect subsidiary of two harbors and a member of the federal home loan bank of des moines , or the fhlb .
| ( 2 ) loans primarily secured by a first priority lien on commercial real property and related personal property and also includes , when applicable , any companion subordinate loans . the increase in yields on both senior loans and subordinated loans for the three and twelve months ended december 31 , 2018 , as compared to the same periods in 2017 , was driven by increases in libor , as the majority are floating-rate loans . the increase in cost of funds on both senior loans and subordinated loans for the three and twelve months ended december 31 , 2018 , as compared to the same periods in 2017 , was primarily the result of an increase in the proportion of total borrowings financed through repurchase agreements , revolving credit facilities , securitized debt obligations ( relative to the note payable to th insurance ) and increases in borrowing rates due to increases in libor . the cost of funds associated with our repurchase agreements , revolving credit facilities and securitized debt obligations also includes amortization of deferred debt issuance costs . the increase in yields on afs and htm securities for the three and twelve months ended december 31 , 2018 , as compared to the same periods in 2017 , was driven by increases in libor , as these cmbs are floating-rate assets . the increase in cost of funds associated with the financing of afs and htm securities for the three and twelve months ended december 31 , 2018 , as compared to the same periods in 2017 , was the result of increases in borrowing rates due to increases in libor . our convertible senior notes were issued in december 2017 and october 2018 , are unsecured and pay interest semiannually at a rate of 5.625 % and 6.375 % , respectively , per annum . the cost of funds associated with our convertible senior notes also includes amortization of deferred debt issuance costs . fee income during the
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until late 2020 we were engaged in the research , development , manufacture , distribution , marketing and sale of otc consumer healthcare products and dietary supplements in the united states . however , in december 2020 , we also began to offer covid-19 and other respiratory pathogen panel ( rpp ) molecular tests through our new diagnostic services business . our wholly-owned subsidiary , pmi , is a full-service contract manufacturer and private label developer of a broad range of non-gmo , organic and natural-based cough drops and lozenges and otc drug and dietary supplement products . the dietary supplements are developed and marketed under the tk supplements ® brand name . our wholly-owned subsidiary , prophase diagnostics , formed on october 9 , 2020 , offers a variety of important medical tests , including covid-19 and ( rpp ) molecular tests . on october 23 , 2020 , we completed the acquisition of all of the issued and outstanding shares of capital stock of confucius plaza medical laboratory corp. ( “ cpm ” ) for approximately $ 2.5 million in cash , subject to certain adjustments , pursuant to the terms of a stock purchase agreement , by and among the company , cpm , pride diagnostics and other parties named therein cpm ( which is now known as prophase diagnostics nj , inc. ) is the owner of a 4,000 square foot clia accredited laboratory located in old bridge , new jersey , which prophase diagnostics acquired as part of the transaction . as a result of the acquisition of cpm in october 2020 , we entered into a new business line , diagnostic services . in december 2020 , we expanded our diagnostic services business with the signing of a lease and the recent build out of a second , larger clia accredited laboratory in garden city , new york . operations at this second facility commenced in january 2021. we continue to actively pursue acquisition opportunities for other companies , technologies and products within and outside the consumer healthcare products and diagnostics services industries . 25 story_separator_special_tag style= '' font-family : times new roman , times , serif '' > in october 2020 , we acquired our first clia accredited laboratory that offers a variety of important medical tests , including , among others , covid-19 diagnostic testing services . in december 2020 , we acquired our second diagnostic testing facility . while we expect revenues to continue to increase as result of our new business line , we will need to continue to make substantial investments to secure the necessary equipment , supplies and personnel to provide these services . there can be no assurance that our efforts to offer and perform covid-19 testing will be successful and that we will be able to generate a profit . the ultimate impact of covid-19 on our business will depend on many factors beyond our knowledge or control , including the duration and severity of the outbreak , the timing , scope and effectiveness of federal , state and local governmental responses to the covid-19 pandemic , and the extent of business disruptions caused by the pandemic , including as a result of travel restrictions , quarantines , social distancing requirements and business closures in the united states and other countries in order to contain and treat the virus . we may also be impacted by changes in the severity of the covid-19 pandemic at different times in the various cities and regions where we operate and offer diagnostic testing services . also , there can be no assurance that demand for our covid-19 testing services will continue to exist in the future due to successful containment efforts , the successful vaccination of a majority of americans , or due to other events . if there is no demand for our covid-19 testing services , and we are unable to generate sufficient profits from other rpp molecular tests , our business could be materially harmed . for these reasons , we are unable to estimate the extent to which covid-19 will negatively impact our financial results or liquidity . the covid-19 pandemic has had a negative impact on the global capital markets and economies worldwide and could ultimately have a material adverse impact on our ability to raise capital needed to develop and commercialize products . september 2020 notes on september 15 , 2020 , we issued two unsecured , partially convertible promissory notes ( the “ september 2020 notes ” ) for an aggregate principal amount of $ 10 million to two investors . we intend to use the proceeds from the september 2020 notes for working capital and general corporate purposes , which may include capital expenditures , product development and commercialization expenditures , and acquisitions of companies , businesses , technologies and products . september 2020 notes on september 15 , 2020 , we issued two unsecured , partially convertible , promissory notes ( the “ september 2020 notes ” ) for an aggregate principal amount of $ 10 million to two investors . we used the proceeds from the september 2020 notes for working capital and general corporate purposes , which included capital expenditures and acquisitions of companies , businesses . january 2021 offerings in january 2021 , we completed two separate equity offerings whereby we issued a total of 3,550,000 shares of our common stock for net proceeds of $ 40.6 million . the net proceeds derived from these equity offerings will be used principally for the expansion of our diagnostics services business . story_separator_special_tag 26 general management is not aware of any other trends , events or uncertainties that have or are reasonably likely to have a material negative impact upon our ( i ) short-term or long-term liquidity , or ( ii ) revenue or income from continuing operations . any challenge to our trademark rights could have a material adverse effect on our future ; however , we are not aware of any condition that would make such an event probable . our business is subject to seasonal variations that impact our liquidity and working capital during the course of our fiscal year and is now subject to the demand for covid testing in our diagnostic services business . to the extent that we do not generate sufficient cash from operations , our cash balances will decline . we may also use our cash to explore and or acquire new product technologies , applications , product line extensions , new contract manufacturing applications and other new business opportunities . in the event that our available cash is insufficient to support such initiatives and the development of our new diagnostic service business , we may need to incur indebtedness or issue common stock to finance plans for growth . volatility in the credit markets and the liquidity of major financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings , under either existing or newly created loan instruments , or the sale of securities in the public or private markets on terms that we believe to be reasonable , if at all . 27 impact of inflation we are subject to normal inflationary trends and anticipate that any increased costs would be passed on to our customers . inflation has not had a material effect on our business . critical accounting policies and estimates our significant accounting policies are described in note 2 of the notes to consolidated financial statements included under item 8 of this part ii . however , certain accounting policies are deemed “ critical ” , as they require management 's highest degree of judgment , estimates and assumptions . these accounting policies , estimates and disclosures have been discussed with the audit committee of our board of directors . a discussion of our critical accounting policies and estimates , the judgments and uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions are as follows : use of estimates the preparation of financial statements and the accompanying notes thereto , in conformity with generally accepted accounting principles in the united states of america ( “ gaap ” ) , requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the respective reporting periods . examples include the provision for bad debt , sales returns and allowances , inventory obsolescence , useful lives of property and equipment , impairment of goodwill , intangibles and property and equipment , income tax valuations and assumptions related to accrued advertising . the estimates and assumptions are based on historical experience , current trends and other factors that management believes to be relevant at the time the financial statements are prepared . management reviews the accounting policies , assumptions , estimates and judgments on a quarterly basis . actual results could differ from those estimates . revenue recognition and accounts receivables we generate revenue principally through two types of revenue streams , diagnostic services and consumer products with two types of customers , contract manufacturing customers and retail customers . the process for estimating revenues and the ultimate collection of receivables involves assumptions and judgments . revenue from our diagnostic services are recognized when the lab test is complete and the diagnostic test result is provided to the customer . revenue from our consumer products is recognized when the shipments to contract manufacturing and retailer customers are recognized at the time ownership is transferred to the customer . in 2020 , we had $ 14.5 million of net sales of which approximately $ 12.3 million were from contract manufacturing customers , $ 1.0 million of our sales were from retailer sales and $ 1.2 million were from diagnostic services . we bill the providers at standard price and take into consideration for negotiated discounts and an anticipated reimbursement remittance adjustments based on , the payer portfolio , when revenue is recorded . we use the most expected value method to estimate the transaction price for reimbursements that may vary from the listed contract price . revenue recognition – sales allowances when providing for the appropriate sales returns , allowances , cash discounts and cooperative incentive promotion costs ( “ sales allowances ” ) , we apply a uniform and consistent method for making certain assumptions for estimating these provisions . these estimates and assumptions are based on historical experience , current trends and other factors that management believes to be relevant at the time the financial statements are prepared . management reviews the accounting policies , assumptions , estimates and judgments on a quarterly basis . actual results could differ from those estimates . our return policy accommodates returns for ( i ) discontinued products , ( ii ) store closings and ( iii ) products that have reached or exceeded designated expiration date .
| administrative expense increased $ 2.2 million for fiscal 2020 to $ 6.7 million as compared to $ 4.5 million in fiscal 2019. the increase in administrative expense for fiscal 2020 as compared to fiscal 2019 was principally due to greater professional and legal fees resulting from , in part , our entry into the diagnostic services business . in addition , share-based compensation expense increased by $ 715,000. research and development costs for fiscal 2020 and 2019 were $ 663,000 and $ 332,000 , respectively . the increase of $ 301,000 in research and development costs for fiscal 2020 as compared to fiscal 2019 was principally due to validation costs associated with diagnostic services in the current period . net interest income for fiscal 2020 was $ 62,000 as compared to $ 133,000 for fiscal 2019. the decrease in interest income in fiscal 2020 as compared to fiscal 2019 is principally due to a lower average account balance in our investment account . interest expense for fiscal 2020 was $ 295,000 as compared to $ 0 for fiscal 2019. the increase in interest expenses in fiscal 2020 as compared to fiscal 2019 is principally due to the interest on the unsecured promissory notes issued in september 2020. as a result of the effects of the above , the loss from continuing operations for fiscal 2020 was $ 2.33 million , or ( $ 0.18 ) per share , as compared to a loss from continuing operations of $ 3.1 million , or ( $ 0.27 ) per share , for fiscal 2019. in fiscal 2020 , we recognized a $ 1.9 million gain on the sales of real estate that contributed to a lower loss from operation . the gain from discontinued operations for fiscal 2020 was $ 201,000 , or $ 0.02 per share , as compared to a loss of $ 40,000 , or ( $ 0.00 ) per share , for fiscal 2019. net loss for fiscal 2020 was $ 2.1 million , or ( $ 0.18 ) per share , as compared to $ 3.1 million , or ( $ 0.27 ) per share for fiscal 2019. liquidity and capital resources our aggregate cash and cash equivalents and
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other income ( expenses ) in 2010 , other income ( expense ) was $ ( 4 ) compared to $ ( 220 ) in 2009. the other income ( expense ) for 2009 primarily related to the costs associated with the acquisition of datrix . the 2010 other income ( expense ) primarily related to the losses on foreign currency exchange as a result of the exchange rate changes in the singapore dollar and euro . income taxes income taxes were as follows : replace_table_token_12_th the expense ( benefit ) in 2010 and 2009 was primarily due to foreign taxes on german and singapore operations . the company is in a net operating loss position ( nol ) for us federal income tax purposes and , consequently , minimal income tax expense from the current period domestic operations was recognized . our deferred tax asset related to the nol carryforwards has been offset by a full valuation allowance . discontinued operations we recorded a loss from discontinued operations ( electronics business ) as follows : replace_table_token_13_th the 2010 net loss of $ ( 294 ) , or $ ( 0.05 ) per diluted share , was primarily due to loss in operations , net of the $ 35 gain on sale of the electronics business . the 2009 net loss of $ ( 2,119 ) , or $ ( 0.39 ) per diluted share , was primarily due to an impairment charge associated with challenges in the economic environment and industry conditions resulting in the decision to not commit to future investments , including research and development , in the electronics products segment , and ultimately divest the segment . liquidity and capital resources our primary sources of cash have been cash flows from operations , bank borrowings , and other financing transactions . for the last three years , cash has been used for repayments of bank borrowings , the datrix and tibbetts acquisitions , purchases of equipment , establishment of an additional asian manufacturing facility and working capital to support research and development , including product offerings under our hi healthinnovations agreement . 26 as of december 31 , 2011 , we had approximately $ 119 of cash on hand . sources and uses of our cash for the year ended december 31 , 2011 have been from our operations , as described below . consolidated net working capital decreased to $ 8,200 at december 31 , 2011 from $ 8,600 at december 31 , 2010. our cash flows from operating , investing and financing activities , as reflected in the statement of cash flows for the years ended december 31 , are summarized as follows : replace_table_token_14_th operating activities . the most significant items that contributed to the $ 3 of cash used by continuing operations were increases in inventory and receivables offset by non-cash depreciation and amortization of $ 2,258 and increases in accounts payable . days sales in inventory increased from 68 at december 31 , 2010 to 95 at december 31 , 2011 due to inventory ramp up associated with the hi health innovations agreement . days payables outstanding increased from 35 days at december 31 , 2010 to 64 days at december 31 , 2011. investing activities . net cash used by investing activities consisted of purchases of property , plant and equipment of $ 2,582. a significant portion of the purchases of the property , plant and equipment related to the cash invested to fund the indonesia facility build and capital to support the ramp up associated with the hi health innovations agreement . financing activities . net cash provided by financing activities of $ 2,420 was comprised primarily of net borrowings of bank debt of $ 2,540 to support the costs related to establishing the company 's indonesian facility and ramp up associated with the hi healthinnovations agreement . cash generated from operations may be affected by a number of factors . see forward looking statements and item 1a : risk factors contained in this form 10-k for a discussion of some of the factors that can negatively impact the amount of cash we generate from our operations . we had the following bank arrangements at december 31 , : replace_table_token_15_th domestic credit facilities to finance a portion of the company 's acquisition of jon barron , inc. doing business as datrix ( datrix ) and replace the company 's existing credit facilities with bank of america , including capital leases , the company and its domestic subsidiaries entered into a credit facility with the privatebank and trust company on august 13 , 2009. the credit facility , as amended , provides for : § an $ 8,000 revolving credit facility , with a $ 200 subfacility for letters of credit . under the revolving credit facility , the availability of funds depends on a borrowing base composed of stated percentages of the company 's eligible trade receivables and eligible inventory , and eligible equipment less a reserve ; and § a term loan in the original amount of $ 3,500. in august 2011 , the company amended the credit facility with the privatebank . per the terms of the amended agreement , the maturity of both the term loan and the revolving credit facility was extended to expire on august 13 , 2014. further , the term loan was increased from its then current balance of $ 2,225 to $ 4,000. in addition , the amendment reset certain financial covenants . 27 loans under the credit facility are secured by a security interest in substantially all of the assets of the company and its domestic subsidiaries including a pledge of the stock of its domestic subsidiaries . story_separator_special_tag loans under the credit facility bear interest at varying rates based on the company 's leverage ratio of funded debt / ebitda , at the option of the company , at : § the london interbank offered rate ( libor ) plus 3.00 % - 4.00 % , or § the base rate , which is the higher of ( a ) the rate publicly announced from time to time by the lender as its prime rate and ( b ) the federal funds rate plus 0.5 % , plus 0.25 % - 1.25 % depending on the company 's leverage ratio . interest is payable monthly in arrears , except that interest on libor based loans is payable at the end of the one , two or three month interest periods applicable to libor based loans . intricon is also required to pay a non-use fee equal to 0.25 % per year of the unused portion of the revolving line of credit facility , payable quarterly in arrears . weighted average interest on our domestic credit facilities ( including prior facilities ) was 3.93 % , 5.06 % and 4.07 % for 2011 , 2010 and 2009 , respectively . the outstanding balance of the revolving credit facility was $ 5,369 and $ 3,920 at december 31 , 2011 and 2010 , respectively . the total remaining availability on the revolving credit facility was approximately $ 1,935 and $ 2,072 at december 31 , 2011 and 2010 , respectively . the credit facility expires on august 13 , 2014 and all outstanding borrowings will become due and payable . the outstanding principal balance of the term loan , as amended , is payable in quarterly installments of $ 250 , commencing with the calendar quarter ended september 30 , 2011. any remaining principal and accrued interest is payable on august 13 , 2014. intricon is also required to use 100 % of the net cash proceeds of certain asset sales ( excluding inventory and certain other dispositions ) , sale of capital securities or issuance of debt to pay down the term loan . during 2011 , the company entered into interest rate swaps with the privatebank which are accounted for as effective cash flow hedges . the interest rate swaps had a combined initial notional amount of $ 5,500 , with a portion of the swap amortizing on a basis consistent with the $ 250 quarterly installments required under the term loan . the interest rate swaps fix the company 's one month libor interest rate on the notional amounts at rates ranging from 4.33 % - 4.62 % . the interest rate swaps expire on august 13 , 2014. interest rate swaps , which are considered derivative instruments , of $ 93 are reported in the balance sheets at fair value in other current liabilities at december 31 , 2011. the impact of the interest rate swaps and related additional disclosure is not considered material to the financial statements for 2011. the borrowers are subject to various covenants under the credit facility , including financial covenants relating to minimum ebitda , funded debt to ebitda , fixed charge coverage ratio and capital expenditure financial covenants . under the credit facility , except as otherwise permitted , the borrowers may not , among other things : incur or permit to exist any indebtedness ; grant or permit to exist any liens or security interests on their assets or pledge the stock of any subsidiary ; make investments ; be a party to any merger or consolidation , or purchase of all or substantially all of the assets or equity of any other entity ; sell , transfer , convey or lease all or any substantial part of its assets or capital securities ; sell or assign , with or without recourse , any receivables ; issue any capital securities ; make any distribution or dividend ( other than stock dividends ) , whether in cash or otherwise , to any of its equityholders ; purchase or redeem any of its equity interests or any warrants , options or other rights to equity ; enter into any transaction with any of its affiliates or with any director , officer or employee of any borrower ; be a party to any unconditional purchase obligations ; cancel any claim or debt owing to it ; make payment on or changes to any subordinated debt ; enter into any agreement inconsistent with the provisions of the credit facility or other agreements and documents entered into in connection with the credit facility ; engage in any line of business other than the businesses engaged in on the date of the credit facility and businesses reasonably related thereto ; or permit its charter , bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the lender . in march 2012 , the company entered into an amendment with the privatebank to waive certain covenant violations at december 31 , 2011 and reset certain covenant thresholds defined in the agreement . after giving effect to the waiver , the company was in compliance with all applicable covenants under the credit facility as of december 31 , 2011. upon the occurrence and during the continuance of an event of default ( as defined in the credit facility ) , the lender may , among other things : terminate its commitments to the borrowers ( including terminating or suspending its obligation to make loans and advances ) ; declare all outstanding loans , interest and fees to be immediately due and payable ; take possession of and sell any pledged assets and other collateral ; and exercise any and all rights and remedies available to it under the uniform commercial code or other applicable law . in the event of the insolvency or bankruptcy of any borrower , all commitments of the lender will automatically terminate and all outstanding loans , interest and fees will be immediately due and payable .
| the company is using the facilities to fund current growth opportunities , expand low-cost manufacturing footprint and meet anticipated working capital requirements . forwardlooking statements the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes appearing in item 8. of this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward- looking statements as a result of many factors , including but not limited to those under the heading risk factors in item 1a of this annual report on form 10-k. see also item 1 . businessforward-looking statements for more information . 22 results of operations : 2011 compared with 2010 consolidated net sales our net sales are comprised of three main markets : medical , hearing health , and professional audio - collectively our body-worn device segment . below is a recap of our sales by main markets for the years ended december 31 , 2011 and 2010 : replace_table_token_4_th in 2011 , we experienced a 7 percent decrease medical sales primarily due to extended regulatory lead times and anticipated fluctuations in demand . the persisting economic softness and regulatory delays has caused many patients to defer discretionary medical procedures , and hospitals and doctors to cut back on purchases of legacy med-tech products . as a result , during the course of 2011 , a few large medical customers experienced fluctuations in demand . as the year progressed , we were encouraged by the reengagement of medtronic and other key medical customers , driving four quarters of sequential growth . management believes there is an industry-wide trend toward further miniaturization and ambulatory monitoring enabled by wireless connectivity , referred to as bio-telemetry , which in the past resulted in further growth in our medical business . additionally , we are actively involved with medtronic for future development of next-generation products . we are
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our retransmission consent revenue increased in 2012 compared to 2011 due to improved terms of our retransmission consent contracts . our 2012 local and internet advertising revenue increased over 2011 amounts due primarily to an improvement in the economy in 2012 as compared to 2011. our local and national advertising revenue also benefited from an improving economy as well as increased advertising revenue earned during the super bowl and olympic games . in addition , in 2012 we continued to earn base revenue under our management contract with young broadcasting , inc. ( “ young ” ) . this agreement expired on december 31 , 2012. automotive advertisers have traditionally accounted for a significant portion of our revenue . for the years ended december 31 , 2012 and 2011 , we derived approximately 18 % and 21 % , respectively , of our total broadcast advertising revenue from customers in the automotive industry . in addition to general economic challenges in recent years , our revenue has come under pressure from the internet as a competitor for advertising spending . we continue to enhance and market our internet websites in an effort to generate additional revenue . our aggregate internet revenue is derived from two sources . the first is advertising or sponsorship opportunities directly on our websites , referred to as “ direct internet revenue. ” the other source is television advertising time purchased by our clients to directly promote their involvement in our websites , referred to as “ internet-related commercial time sales. ” we believe increased page views will result in increased internet revenue . 35 we continue to monitor our operating expenses and reduce them where possible . our total operating expenses for 2012 increased over 2011 amounts primarily due to increases in programming costs , compensation expense , pension expense and third party representation expenses resulting from increased revenue . during the year ended december 31 , 2012 , we undertook a number of significant financing transactions intended to simplify and strengthen our capital structure and balance sheet . these transactions included : · completing the repurchase of all of our outstanding series d perpetual preferred stock ; · completing the offer and sale of $ 300.0 million aggregate principal amount of 7½ % senior notes due 2020 ( the “ 2020 notes ” ) ; · completing a cash tender offer ( the “ tender offer ” ) and related redemption ( the “ redemption ” ) pursuant to which we repurchased all of our outstanding $ 365.0 million 10½ % senior secured second lien notes due 2015 ( the “ 2015 notes ” ) ; and · repaying all amounts outstanding under our prior senior credit facility ( the “ 2007 senior credit facility ” ) and entering into an amended and restated senior credit facility ( the “ 2012 senior credit facility ” ) . please see our “ results of operations ” and “ liquidity and capital resources ” sections below for further discussion of our operating results and refinancing activities . 36 revenue highlights set forth below are the principal types of revenue , less agency commissions , earned by us for the periods indicated and the percentage contribution of each to our total revenue ( dollars in thousands ) : replace_table_token_7_th risk factors the broadcast television industry is reliant primarily on advertising revenue and faces significant competition . for a discussion of certain other presently known , significant factors that may affect our business , see “ item 1a . risk factors ” included elsewhere this annual report . story_separator_special_tag 2011. the increase was due primarily to an increase in compensation expense of $ 1.6 million . compensation expense 38 increased primarily due to an increase of $ 0.7 million in non-cash stock-based compensation , an increase of $ 0.3 million in pension expense , an increase of $ 0.4 million in salary expense and an increase of $ 0.2 million in incentive compensation expense . we recorded non-cash stock-based compensation expense during 2012 and 2011 of $ 0.9 million and $ 0.1 million , respectively . non-cash stock-based compensation expense increased due to the grant and vesting of additional equity incentive awards during 2012. pension expense increased primarily due to a decrease in the discount rate used to calculate pension expense . salary expense increased due to routine increases in base compensation . incentive compensation increased as our operating income increased . depreciation depreciation of property and equipment totaled $ 23.1 million and $ 26.2 million for 2012 and 2011 , respectively . depreciation expense decreased in 2012 compared to 2011 due to reduced capital expenditures in recent years compared to that of prior years . as a result , more assets acquired in prior years have become fully depreciated than were purchased in recent years . gain on disposal of assets gain on disposal of assets decreased $ 2.9 million , or 99 % , to $ 0.0 million during 2012 as compared to 2011. on march 22 , 2011 , our primary broadcast tower for weau-tv , our station that serves the la crosse – eau claire , wisconsin market , collapsed during inclement weather . our loss of property due to the tower collapse was covered by insurance . we recorded a gain on disposal on the old tower of $ 0.8 million and $ 3.0 million during 2012 and 2011 , respectively . the decrease in the gain recorded on the disposal of the weau-tv tower was partially offset by increases in losses recorded upon the disposal of certain equipment during 2012 and 2011. interest expense interest expense decreased $ 2.3 million , or 4 % , to $ 59.4 million for 2012 compared to 2011. interest expense decreased due to a decrease in our average interest rate , offset in part by an increase in our average principal outstanding . the average interest rates on our total debt balances were 6.7 % and 7.0 % for 2012 and 2011 , respectively . the average principal balance of indebtedness for the duration of each period was $ 833.1 million and $ 832.5 story_separator_special_tag million for 2012 and 2011 , respectively . loss from early extinguishment of debt t o obtain an amendment of our credit facility and to retire our outstanding 10½ % senior secured second lien notes due 2015 , we incurred costs of approximately $ 48.5 million , including tender offer premiums , bank fees and legal fees . in connection with these transactions , we reported a loss on early extinguishment of debt of $ 46.7 million for 2012 . 39 income tax expense or benefit our effective income tax rate increased to 40.6 % for 2012 from 33.4 % for 2011. our effective income tax rates differ from the statutory rate due to the following items : replace_table_token_8_th preferred stock dividends preferred stock dividends decreased $ 3.1 million , or 43 % , to $ 4.1 million in 2012 compared to the prior year due to fewer shares being outstanding in 2012. we repurchased 259.21 shares and 133.86 shares of our series d perpetual preferred stock in 2012 and 2011 , respectively . as of december 31 , 2012 and 2011 , we had 0.00 shares and 259.21 shares of series d perpetual preferred stock outstanding , respectively . the series d perpetual preferred stock dividend rate was 17.0 % per annum for 2012 and 2011. year ended december 31 , 2011 ( “ 2011 ” ) compared to year ended december 31 , 2010 ( “ 2010 ” ) revenue total revenue decreased $ 38.9 million , or 11 % , to $ 307.1 million for 2011 compared to 2010 reflecting decreased political and national advertising revenue and consulting revenue , partially offset by increased local and internet advertising revenue and retransmission consent revenue . political advertising revenue decreased $ 44.1 million , or 77 % , to $ 13.5 million reflecting decreased advertising from political candidates and special interest groups during the “ off year ” of the two-year political advertising cycle . national advertising revenue , excluding political advertising revenue , decreased $ 1.3 million , or 2 % , to $ 56.3 million . local advertising revenue , excluding political advertising revenue , increased $ 3.9 million , or 2 % , to $ 187.0 million . internet advertising revenue increased $ 6.7 million , or 50 % , to $ 20.1 million . local and internet advertising revenue as compared to 2010 benefitted from increased spending by advertisers in an improving economic environment . our national advertising revenue also benefited from an improving economy , but national advertising revenue decreased primarily due to the change in the broadcast network carrying the super bowl in 2011 to fox from cbs and the lack of olympic games coverage in 2011. these events did not have as large a negative effect upon our local and internet advertising revenue as they did on our national advertising revenue and , as a result , we were able to grow our local and internet advertising revenue . net advertising revenue associated with the broadcast of the 2011 super bowl on our one primary fox-affiliated channel and four secondary fox-affiliated channels approximated $ 0.2 million , which was a decrease from approximately $ 0.9 million earned in 2010 on our seventeen cbs-affiliated channels . in addition , results in 2010 benefited from approximately $ 2.8 million of net revenues earned from the broadcast of the 2010 winter olympic games on our nbc-affiliated channels . there was no corresponding broadcast of olympic games during 2011. our national 40 advertising revenue also decreased in 2011 , in part , due to natural disasters affecting the operations of japanese auto manufacturers . our five largest local and national advertising categories on a combined local and national basis by customer type for 2011 demonstrated the following changes during 2011 compared to 2010 : automotive increased 6 % ; restaurant increased 1 % ; medical increased 12 % ; communications increased 3 % ; and furniture and appliances increased 7 % . retransmission consent revenue increased $ 1.5 million , or 8 % , to $ 20.2 million due to the improved terms of our retransmission contracts and an increase in the number of subscribers in 2011 compared to 2010. we continued to earn consulting revenue from our agreement with young . our consulting revenue from this agreement included a fixed base component and an incentive component that is based upon young 's actual results . we recorded base consulting revenue of $ 2.2 million for each of 2011 and 2010. pursuant to the terms of the consulting agreement , we recorded incentive consulting revenue of $ 0.0 million and $ 5.3 million for 2011 and 2010 , respectively . broadcast expenses broadcast expenses ( before depreciation , amortization and gain on disposal of assets ) decreased $ 2.2 million , or 1 % , to $ 194.2 million for 2011 compared to 2010 due primarily to a decrease in non-compensation expense of $ 3.1 million , partially offset by an increase in compensation expense of $ 0.9 million . compensation expense increased primarily due to an increase in health care expense of $ 1.1 million due to increased claims activity . non-compensation expense decreased primarily due to decreases in syndicated programming expense and national sales commission expense related to the reduction in political and national advertising revenue . corporate and administrative expenses corporate and administrative expenses ( before depreciation , amortization and gain on disposal of assets ) increased $ 0.6 million , or 5 % , to $ 14.2 million during 2011 as compared to 2010. the increase was due primarily to an increase in non-compensation expense of $ 1.3 million , partially offset by a decrease in compensation expense of $ 0.7 million . compensation expense decreased primarily due to a decrease in bonus compensation expense . the decrease in bonus compensation expense was due primarily to increased bonus compensation paid to certain executive officers in 2010. non-cash stock-based compensation expense decreased $ 0.2 million due to outstanding stock options becoming fully vested . we recorded non-cash stock-based compensation expense during 2011 and 2010 of $ 0.1 million and $ 0.3
| there were no olympic games during 2011. in addition , local and national advertising revenue was positively influenced by the broadcast of the 2012 super bowl on our ten primary nbc channels , earning us approximately $ 0.8 million , an increase of approximately $ 0.6 million compared to the broadcast of the 2011 super bowl on our then one primary fox-affiliated channel and then four secondary digital fox-affiliated channels , which earned us approximately $ 0.2 million . our five largest nonpolitical advertising categories on a combined local and national basis by customer type for 2012 demonstrated the following changes in revenue during 2012 compared to 2011 : automotive increased 16 % ; medical increased 7 % ; restaurant decreased 4 % ; communications increased 2 % ; and furniture and appliances increased 8 % . while our internet advertising revenue has also benefited from an improved economy , we continue to focus on and invest resources into our internet sales efforts , which have also resulted in increased internet revenue . other revenue increased $ 1.8 million , or 23 % , to $ 9.5 million in 2012 compared to 2011 due primarily to the receipt of certain copyright royalty payments . if any similar copyright royalty payments are received in future periods , they are likely to recur in lower amounts . we continued to earn consulting revenue from our agreement with young . our consulting revenue from this agreement , which expired on december 31 , 2012 , included a fixed base component and an incentive component that was based upon young 's actual results . we recorded base consulting revenue of $ 2.2 million for each of 2012 and 2011. pursuant to the terms of the consulting agreement , we recorded incentive consulting revenue of $ 0.2 million and $ 0.0 million in 2012 and 2011 , respectively . in accordance with gaap , the $ 0.2 million of incentive consulting revenue recorded in 2012 related to 2011. as of the date hereof , we could not estimate the amount , if any , of incentive consulting revenue earned during 2012 under our contract with young .
| 11,500 |
the net proceeds of the series b preferred stock financing have been , and will be released from escrow to us from time to time in amounts needed to finance our efforts to explore and fund , in whole or in part , certain acquisitions , whether completed or not , including reasonable attorney fees and expenses , accounting expenses , due diligence and financial advisor fees and expenses . for further information on the series b preferred stock financing , see note 9 : capital stock and derivative instruments , to the consolidated financial information in part ii , item 8 of this annual report on form 10-k . 23 wmih will continue to evaluate acquisition opportunities and work with our strategic partner , an affiliate of kkr & co. l.p. ( togeth er with its affiliates , “ kkr ” ) , to identify , consider and evaluate potential mergers , acquisitions , business combinations and other strategic opportunities . as of december 31 , 2016 , we had not consummated an acquisition and we can provide no assurances tha t we will successfully consummate a transaction and , if so , on what terms . in connection with our stated objective to consummate one or more acquisitions of an operating business , we may explore various financing alternatives to fund our external growth strategy , including further improving our capital structure , which may include increasing , reducing and or refinancing debt , amending the terms of outstanding preferred stock , pursuing capital raising activities , such as the issuance of new preferred or common equity and or a rights offering to our existing stockholders , launching an exchange offer , and pursuing other transactions involving our outstanding securities . with respect to our current operations , the company currently operates a single business through its subsidiary , wmmrc , whose sole activity is the reinsurance of mortgage insurance policies . wmmrc has been operated in runoff mode since september 26 , 2008. since that date , wmmrc has not underwritten any new policies ( and by extension any new risk ) . wmmrc , through predecessor companies , began reinsuring risks in 1997 and continued reinsuring risks through september 25 , 2008. all of wmmrc 's reinsurance agreements are on an excess of loss basis , except for certain reinsurance treaties with genworth mortgage insurance corporation and radian guaranty incorporated during 2007 and 2008 , which are reinsured on a 50 % quota share basis . pursuant to the excess of loss reinsurance agreements , wmmrc reinsures a second loss layer which ranges from 5 % to 10 % of the risk in force in excess of the primary mortgage insurer 's first loss percentages which range from 4 % to 5 % . each calendar year , or book year , is treated separately from other years when calculating losses . in return for accepting a portion of the risk , wmmrc receives , net of ceding commission , a percentage of the premium that ranges from 25 % to 40 % . wmmrc commuted three reinsurance agreements in 2009 , 2012 and 2014 , respectively , and the related trust assets were distributed in accordance with the commutation agreements . we also may seek opportunities to commute one or more of wmmrc 's remaining reinsurance agreements , with a view toward accelerating the distribution of trust assets in excess of the amounts needed to pay claims . beginning in 2006 , the u.s. housing market and related credit markets experienced a multi-year downturn . during that period , housing prices declined materially , credit guidelines tightened , delays in mortgage servicing and foreclosure activities occurred , and deterioration in the credit performance of mortgage loans occurred . in addition , the macro-economic environment during that period demonstrated limited economic growth , stubbornly high unemployment , and limited median wage gains . beginning in 2012 , home prices began to rise again . the current outlook for the housing market is optimistic with low interest rates , steady employment growth , higher household formation rates and less restrictive credit conditions . nevertheless , wmmrc 's operating environment remains somewhat uncertain as much of its results over the next several years will be directly affected by the inventory of pending defaulted mortgages at its ceding companies arising primarily from mortgages originated in calendar years 2007 through 2008. however , its financial exposure to that environment has been steadily reduced as the remaining net aggregate risk exposure has decreased due to the runoff nature of its operations and improved housing market conditions . our financial information the financial information in this annual report on form 10-k has been derived from our consolidated financial statements . critical accounting policies our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) , which requires management to make estimates and assumptions that affect reported and disclosed amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period . we believe that the critical accounting policies set forth in the accompanying consolidated financial statements describe the more significant judgments and estimates used in the preparation of our consolidated financial statements . these accounting policies pertain to premium revenues and risk transfer , valuation of investments , loss and loss adjustment expense reserves , our values under fresh start accounting , the resulting loss contract reserve and the valuation of the derivative relating to the embedded conversion feature of the series b preferred stock . if actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies , there could be a material effect on our results of operations and financial condition . the company adopted fresh start accounting in accordance with asc 852 on the effective date . story_separator_special_tag recently issued accounting standards and their impact on the company have been presented under “ new accounting pronouncements ” within note 2 : significant accounting policies to the consolidated financial information in part ii , item 8 of this annual report on form 10-k. 24 segments the company manages its business on the basis of one operating segment , mortgage reinsurance , in accordance with gaap . within the mortgage reinsurance segment , our current risks arise solely from the reinsurance of mortgage insurance policies that were placed on certain residential mortgage loans prior to bankruptcy of washington mutual , inc. ( “ wmi ” ) . the majority of these policies were required by mortgage lenders as a stipulation to approve the mortgage loans . the mortgage insurance policies protect the beneficiaries of the policy from all or a portion of default-related losses . overview of revenues and expenses because wmih has no current significant operations of its own , its cash flow is derived almost entirely from earnings on its investment portfolio , and payments it receives from , and dividends paid by , wmmrc . at this time , all dividends received by wmih from wmmrc that constitute runoff proceeds must be distributed to holders of wmih 's second lien notes in accordance with the terms of the second lien indenture as described below in this item 7 under “ notes payable. ” wmmrc 's revenues consist primarily of the following : net premiums earned on reinsurance contracts ; positive changes to ( and corresponding releases from ) loss reserves ; and net investment income and net gains ( losses ) on wmmrc 's investment portfolio . wmmrc 's expenses consist primarily of the following : underwriting expenses ; and general and administrative expenses . results of operations for the years ended december 31 , 2016 , 2015 and 2014 for the year ended december 31 , 2016 , we reported net operating income of $ 0.1 million . this result compares to a net operating loss of $ 15.1 million and to net operating income of $ 3.1 million for the years ended december 31 , 2015 and december 31 , 2014 , respectively . for the year ended december 31 , 2016 , we reported net income attributable to common and participating stockholders of $ 183.7 million . this result compares to net loss attributable to common and participating stockholders of $ 79.6 million and $ 6.4 million , respectively , for the years ended december 31 , 2015 and december 31 , 2014 , respectively . this $ 263.3 million and $ 190.1 million positive change in financial results when comparing the year ended december 31 , 2016 to the years ended december 31 , 2015 and december 31 , 2014 , respectively , is primarily due to the change in fair market value of an embedded derivative , the dividends related to the series b preferred stock for 2016 and 2015 , and changes in general and administrative expenses . the embedded derivative was recorded as a result of the variable conversion feature in our series b preferred stock and the change in fair market value is reflected as the other income or expense item “ change in fair value of derivative embedded conversion feature ” which resulted in $ 201.5 million of other income and $ 54.6 million of other expense for the years ended december 31 , 2016 and december 31 , 2015 , respectively . this item is solely attributable to a change in fair market value and is a non-cash item . it will be analyzed each period and should not be relied upon to produce a change of this magnitude on an on-going basis as it could also result in a non-cash benefit or expense in future periods . any change in fair value of the embedded conversion feature will impact other income or expense , as the case may be , in the applicable reporting period . upon conversion or redemption of the series b preferred stock , any asset or liability related to the embedded conversion feature would be eliminated . for additional details on the derivative embedded conversion feature , see note 9 : capital stock and derivative instruments and note 13 : fair value measurement to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k. the dividends related to the series b preferred stock totaled $ 18.0 million and $ 17.7 million for the years ended december 31 , 2016 and december 31 , 2015 , respectively . the series b preferred stock was issued on january 5 , 2015 , therefore , no dividend expense or change in fair value of derivative embedded conversion feature occurred during the year ended december 31 , 2014. the decrease in general and administrative expenses for the year ended december 31 , 2016 as compared to the years ended december 31 , 2015 and december 31 , 2014 is described in this part ii under “ general and administrative expenses. ” the components that gave rise to net operating income attributable to common and participating stockholders in the year ended december 31 , 2016 compared to a net loss attributable to common and participating stockholders in the years ended december 31 , 2015 and december 31 , 2014 , are described in the tables below under the net income ( loss ) section . 25 over the last three years , wmmrc has experienced decreased rev enues due to various factors , including operating in runoff mode , commutations of certain reinsurance agreements , and general economic conditions . the primary changes that gave rise to net operating income in the year ended december 31 , 2016 and net operat ing loss in the year ended december 31 , 2015 , included a significant increase in the benefit from changes in the value of our loss contract reserve and a significant decrease in general and administrative costs during the year ended december 31 , 2016 , as d escribed below .
| we regularly obtain indicative pricing from market makers and from multiple dealers and compare the level of pricing variances as a way to observe market liquidity for certain investment securities . we also obtain trade history and live market quotations from publicly quoted sources , such as bloomberg , for trade volume and frequency observation . while we obtain market pricing information from broker dealers , the ultimate fair value of our investments is based on portfolio statements provided by financial institutions that hold our accounts . during the years ended december 31 , 2016 and 2015 , we transferred $ 11.0 million and $ 9.9 million , respectively , of corporate securities that mature within 12 months from level 2 to level 1 , due to improved liquidity in capital markets for those securities . please refer to note 4 : investment securities , to the consolidated financial information in part ii , item 8 of this annual report on form 10-k for additional information regarding our investment securities . wmih wmih 's investments are valued at fair value and any unrealized gains or losses are reflected in net investment income in the consolidated statements of operations . at december 31 , 2016 and december 31 , 2015 , wmih had $ 45.0 million and $ 62.9 million , respectively , of investments in obligations of u.s. government sponsored enterprises , all of which will mature within the respective next 12 months . wmih also had $ 2.1 million and $ 7.0 million cash and cash equivalents at december 31 , 2016 and december 31 , 2015 , respectively . wmmrc wmmrc 's investments are valued at fair value and any unrealized gains or losses are reflected in net investment income ( loss ) in the consolidated statements of operations . at december 31 , 2016 , over 91 % of wmmrc 's cash and investments were held in four trusts for the benefit of primary mortgage insurers with whom wmmrc established agreements to reinsure private mortgage insurance risk . the total portfolio , excluding funds in overnight money market instruments , was valued at approximately $ 31.9 million and $ 36.2 million at december 31 , 2016 and 2015 ,
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in the watercraft recreation segment , operating expenses increased $ 210 from their levels in fiscal 2016 due primarily to higher marketing costs in 2017. operating expenses for the diving business decreased by $ 5,579 year over year due primarily to a goodwill impairment charge of $ 6,197 recognized in fiscal 2016 offset in part by higher sales volume related costs in fiscal 2017 . 24 the company 's general corporate expenses in 2017 of $ 19,959 increased $ 3,441 from $ 16,518 in 2016. the year over year increase primarily reflects approximately $ 1,100 of higher deferred compensation expense , offset with market gains on deferred compensation plan assets in other income and expense , approximately $ 1,100 of higher health care costs and approximately $ 1,200 of additional investment in digital marketing capabilities . operating results the company 's operating profit was $ 45,591 in fiscal 2017 compared to an operating profit of $ 22,894 in fiscal 2016. fishing operating profit increased by $ 15,605 to $ 58,697 from $ 43,092 in 2016 due primarily to higher sales volumes . the operating profit for camping was $ 1,946 compared to $ 2,077 and reflects the decline in consumer tent sales year over year . operating profit for the watercraft recreation business decreased by $ 489 in fiscal 2017 due to the factors noted above . operating profit for the diving business increased by $ 11,231 from fiscal 2016 due in part to the goodwill impairment charge recognized in 2016 as well as the increase in sales volume in 2017. other income and expenses interest expense in fiscal 2017 of $ 757 was comparable to the 2016 expense of $ 727. interest income of $ 316 increased from 2016 income of $ 81 due to the investment of excess cash in short-term investments in 2017. net other income of $ 3,060 in fiscal 2017 compared favorably to net other income of $ 1,407 in fiscal 2016. other income in 2017 included currency gains of $ 903 and market gains and dividends of $ 2,142 on deferred compensation plan assets . in 2016 , other income included $ 277 of currency gains as well as $ 1,092 of market gains and dividends on the deferred compensation plan assets . the dividends and market gains and losses on deferred compensation plan assets recognized in the consolidated statement of operations in “ other ( income ) expense ” are offset as compensation expense in “ operating expenses. ” pretax income and income taxes the company realized pretax income of $ 48,210 in fiscal 2017 compared to $ 23,655 in fiscal 2016. the company recorded income tax expense of $ 13,053 in 2017 , which equated to an effective tax rate of 27.1 % , compared to $ 10,154 in 2016 , which equated to an effective tax rate of 42.9 % . the fiscal 2017 tax expense reflects the impact of a foreign tax credit net tax benefit of $ 4,537 generated by the repatriation of $ 22,315 in the first quarter of fiscal 2017 from foreign jurisdictions into the u.s. additionally , the change in the comparative effective tax rate was also impacted from the result of no tax benefit being recorded on the non-deductible portion of the goodwill impairment charge recognized in the diving segment in 2016. net income the company recognized net income of $ 35,157 , or $ 3.51 per diluted common share , in fiscal 2017 compared to $ 13,501 , or $ 1.34 per diluted common share , in fiscal 2016 based on the factors discussed above . financial condition , liquidity and capital resources the company believes its existing balances of cash , cash equivalents and short-term investments will be sufficient to satisfy its working capital needs , capital asset purchases , outstanding commitments and other liquidity requirements associated with its existing operations over the next twelve months . the company currently anticipates the cash used for future dividends will come from its current cash and cash generated from ongoing operating activities . the company 's short-term investment portfolio is invested in certificates of deposit with original maturities greater than three months but less than one year , with the primary objective of minimizing the potential risk of principal loss . the company 's investment policy generally requires securities to be investment grade . 25 the company 's cash flows from operating , investing and financing activities , as reflected in the accompanying consolidated statements of cash flows , are summarized in the following table : replace_table_token_8_th operating activities the following table sets forth the company 's working capital position at the end of each of the years shown : replace_table_token_9_th cash flows provided by operations totaled $ 63,358 , $ 46,350 and $ 43,434 in fiscal 2018 , 2017 and 2016 , respectively . the increase in net income and the effect of an increase in non-cash tax expense in the current year were the primary drivers of the increase in operating cash in 2018 versus 2017. cash provided by the significant increase in net income in 2017 over 2016 was nearly offset by an increase in inventory in 2017 versus a decrease in inventory in 2016. depreciation and amortization charges were $ 13,105 , $ 13,080 and $ 11,833 in fiscal 2018 , 2017 and 2016 , respectively . investing activities cash flows provided by investing activities were $ 48 in fiscal 2018. cash flows used for investing activities were $ 58,008 and $ 20,741 in fiscal 2017 and 2016 , respectively . proceeds from the sale of short-term investments in 2018 provided cash of $ 52,682 , offset by purchases of $ 34,789 , while the purchase of short-term investments in 2017 used cash of $ 46,607. the purchases of the seabear and northport businesses in fiscal 2016 used cash of $ 9,152. expenditures for property , plant and equipment were $ 19,152 , $ 11,613 and $ 11,702 in fiscal 2018 , 2017 and 2016 , respectively . story_separator_special_tag in general , the company 's ongoing capital expenditures are primarily related to tooling for new products and facilities and information systems improvements . financing activities cash flows used for financing activities totaled $ 4,935 in fiscal 2018 compared to $ 11,551 and $ 4,736 in 2017 and 2016 , respectively . dividend payments were $ 4,350 , $ 3,559 and $ 3,169 in 2018 , 2017 and 2016 , respectively . on october 24 , 2016 , the company repaid its outstanding term loans with ridgestone bank totaling $ 7,068. the early repayment of these loans resulted in payment of a 3 % pre-payment penalty . the company 's term loans had a maturity date of september 29 , 2029. the interest rate in effect on the term loans was 5.50 % at the date of repayment . payments on long-term debt were $ 332 in fiscal 2016. the company had current maturities of its long-term debt of $ 381 as of september 30 , 2016. the company had outstanding borrowings on long-term debt ( net of current maturities ) of $ 7,008 as of september 30 , 2016 . 26 on november 15 , 2017 , the company and certain of its subsidiaries entered into a new unsecured revolving credit facility with pnc bank , national association and associated bank , n.a . ( `` the lending group '' ) . this credit facility replaced the company 's previous revolving credit agreement dated september 16 , 2013 and consists of an amended and restated revolving credit agreement dated november 15 , 2017 among the company , certain of the company 's subsidiaries , pnc bank , national association , as lender and as administrative agent , and the other lender named therein ( the `` new revolving credit agreement '' or `` new revolver '' ) . the new revolver has an expiration date of november 15 , 2022 , and provides for borrowing of up to an aggregate principal amount not to exceed $ 75,000 with a $ 50,000 accordion feature that gives the company the option to increase the maximum financing availability subject to the conditions of the new revolving credit agreement and subject to the approval of the lenders . the interest rate on the new revolver is based on libor plus an applicable margin , which margin resets each quarter . the applicable margin ranges from 1.00 % to 1.75 % and is dependent on the company 's leverage ratio for the trailing twelve month period . the interest rates on the revolvers were approximately 3.3 % at september 28 , 2018 and 2.5 % at september 29 , 2017. the new revolving credit agreement restricts the company 's ability to incur additional debt , includes maximum leverage ratio and minimum interest coverage ratio covenants and is unsecured . as of september 28 , 2018 , the company held approximately $ 40,999 of cash and cash equivalents in bank accounts in foreign jurisdictions . contractual obligations and off balance sheet arrangements the company has contractual obligations and commitments to make future payments under its operating leases and open purchase orders . the following schedule details these significant contractual obligations at september 28 , 2018. replace_table_token_10_th the company utilizes letters of credit primarily as security for the payment of future claims under its workers ' compensation insurance . letters of credit outstanding at september 28 , 2018 and september 29 , 2017 were $ 279 and were included in the company 's total loan availability . the company had no unsecured revolving credit facilities at its foreign subsidiaries as of september 28 , 2018 or september 29 , 2017. the company has no other off-balance sheet arrangements . the company anticipates making contributions of approximately $ 184 to its defined benefit pension plans through september 27 , 2019. market risk management foreign exchange risk the company has significant foreign operations , for which the functional currencies are denominated primarily in euros , swiss francs , hong kong dollars and canadian dollars . as the values of the currencies of the foreign countries in which the company has operations increase or decrease relative to the u.s. dollar , the sales , expenses , profits , losses , assets and liabilities of the company 's foreign operations , as reported in the company 's consolidated financial statements , increase or decrease , accordingly . approximately 16 % of the company 's revenues for the fiscal year ended september 28 , 2018 were denominated in currencies other than the u.s. dollar . approximately 7 % were denominated in euros and approximately 6 % were denominated in canadian dollars , with the remaining 3 % denominated in various other foreign currencies . changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs . 27 the company may mitigate the impact on its operating results of a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts . foreign currency forward contracts enable the company to lock in the foreign currency exchange rate for a fixed amount of currency to be paid or received on a specified date in the future . the company may use such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments denominated in foreign currencies . as of september 28 , 2018 and september 29 , 2017 , the company held no foreign currency forward contracts . interest rate risk the company operates in a seasonal business and experiences significant fluctuations in operating cash flow as working capital needs increase in advance of the company 's primary selling and cash generation season , and decline as accounts receivable are collected and cash is accumulated . commodities certain components used in the company 's products are exposed to commodity price changes . the company manages this risk through instruments such as purchase orders and non-cancellable supply contracts .
| the fiscal 2018 expense reflects the impact of provisional expense of $ 8,456 from the enactment of u.s. tax cuts & jobs act during our fiscal 2018 in the current year . the fiscal 2017 tax expense reflects the impact of a first quarter foreign tax credit net tax benefit of $ 4,537 generated by the repatriation of $ 22,315 in that quarter from foreign jurisdictions into the u.s. net income the company recognized net income of $ 40,669 , or $ 4.05 per diluted common share , in fiscal 2018 compared to $ 35,157 , or $ 3.51 per diluted common share , in fiscal 2018 based on the factors discussed above . fiscal 2017 vs. fiscal 2016 net sales net sales in 2017 increased by 13 % to $ 490,565 compared to $ 433,727 in 2016. foreign currency exchange had a $ 236 unfavorable impact , less than 1 % , on fiscal 2017 sales versus fiscal 2016. net sales for the fishing business increased by $ 53,266 , or 19 % during fiscal 2017. the increase from fiscal 2016 was driven primarily by exceptional new product performance in both the minn kota and humminbird product lines , which included sales of new electric steer trolling motors with redesigned i-pilot and i-pilot link systems , the new ultrex trolling motor and large display helix series fish finders . 23 camping net sales decreased $ 2,098 , or 5 % , in 2017 from 2016. an increase in sales of jetboil products during 2017 was not able to offset declines in sales of consumer tents year over year driven by a soft retail marketplace and bankruptcies in key accounts . net sales in the watercraft recreation business decreased in 2017 by $ 2,116 , or 4 % , from 2016 due to softness in the paddling market and bankruptcies in key accounts . diving net sales increased $ 7,595 , or
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we define adjusted ebitda as ebitda increased by unrealized hedging losses and decreased by unrealized hedging gains , in each case with respect to refined products and natural gas inventory , prepaid forward contracts and natural gas transportation contracts , decreased by a gain on the acquisition of a business in 2012 , increased by the write-off of deferred offering costs in 2012 and adjusted for the net impact of biofuel excise tax credits in 2013 and 2012. ebitda and adjusted ebitda are used as a supplemental financial measures by external users of our financial statements , such as investors , trade suppliers , research analysts and commercial banks to assess : the financial performance of our assets , operations and return on capital without regard to financing methods , capital structure or historical cost basis ; the ability of our assets to generate sufficient revenue , that when rendered to cash , will be available to pay interest on our indebtedness and make distributions to our equity holders ; repeatable operating performance that is not distorted by non-recurring items or market volatility ; and the viability of acquisitions and capital expenditure projects . ebitda and adjusted ebitda are not prepared in accordance with gaap and should not be considered alternatives to net income ( loss ) or operating income , or any other measure of financial performance presented in accordance with gaap . ebitda and adjusted ebitda exclude some , but not all , items that affect net income ( loss ) and operating income ( loss ) . the gaap measure most directly comparable to ebitda and adjusted ebitda is net income ( loss ) . ebitda and adjusted ebitda should not be considered as an alternative to net income ( loss ) or cash provided by ( used in ) operating activities , or any other measure of financial performance or liquidity presented in accordance with gaap . ebitda and adjusted ebitda are not presentations made in accordance with gaap and have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under gaap . because ebitda and adjusted ebitda exclude some , but not all , items that affect net income ( loss ) and is defined differently by different companies , our definitions of ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies . we recognize that the usefulness of ebitda and adjusted ebitda as an evaluative tool may have certain limitations , including : ebitda and adjusted ebitda do not include interest expense . because we have borrowed money in order to finance our operations , interest expense is a necessary element of our costs and impacts our ability to generate profits and cash flows . therefore , any measure that excludes interest expense may have material limitations ; ebitda and adjusted ebitda do not include depreciation and amortization expense . because capital assets , depreciation and amortization expense is a necessary element of our costs and ability to generate profits , any measure that excludes depreciation and amortization expense may have material limitations ; ebitda and adjusted ebitda do not include provision for income taxes . because the payment of income taxes is a necessary element of our costs , any measure that excludes income tax expense may have material limitations ; ebitda and adjusted ebitda do not reflect capital expenditures or future requirements for capital expenditures or contractual commitments ; ebitda and adjusted ebitda do not reflect changes in , or cash requirements for , working capital needs ; and ebitda and adjusted ebitda do not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss . 39 adjusted gross margin we define adjusted gross margin as net sales less cost of products sold ( exclusive of depreciation and amortization ) and decreased by total commodity derivative gains and losses included in net income ( loss ) and increased by realized commodity derivative gains and losses included in net income ( loss ) , in each case with respect to refined products and natural gas inventory , prepaid forward contracts and natural gas transportation contracts . management trades , purchases , stores and sells energy commodities that experience market value fluctuations . to manage the partnership 's underlying performance , including its physical and derivative positions , management utilizes adjusted gross margin , which is a non-gaap financial measure . adjusted gross margin is also used by external users of our consolidated financial statements to assess our economic results of operations and its commodity market value reporting to lenders . in determining adjusted gross margin , management adjusts its segment results for the impact of unrealized hedging gains and losses with regard to refined products and natural gas inventory , prepaid forward contracts and natural gas transportation contracts , which are not marked to market for the purpose of recording unrealized gains or losses in net income ( loss ) . these adjustments align the unrealized hedging gains and losses to the period in which the revenue from the sale of inventory , prepaid fixed forwards and the utilization of transportation contracts relating to those hedges is realized in net income ( loss ) . adjusted gross margin has no impact on reported volumes or net sales . adjusted gross margin is used as supplemental financial measures by management to describe our operations and economic performance to investors , trade suppliers , research analysts and commercial banks to assess : the economic results of our operations ; the market value of our inventory and natural gas transportation contracts for financial reporting to our lenders , as well as for borrowing base purposes ; and repeatable operating performance that is not distorted by non-recurring items or market volatility . story_separator_special_tag adjusted gross margin is not prepared in accordance with gaap and should not be considered as alternatives to net income ( loss ) or operating income ( loss ) or any other measure of financial performance presented in accordance with gaap . for a reconciliation of adjusted gross margin and adjusted ebitda to the gaap measures most directly comparable , see the reconciliation tables included in `` results of operations . '' see `` segment reporting '' included under note 16 to our consolidated financial statements for a presentation of our financial results by reportable segment . management evaluates our segment performance based on adjusted gross margin . based on the way we manage our business , it is not reasonably possible for us to allocate the components of operating expenses , selling , general and administrative expenses and depreciation and amortization among the operating segments . how management evaluates our results of operations our management uses a variety of financial and operational measurements to analyze our performance . these measurements include : ( 1 ) adjusted ebitda and adjusted gross margin ( described above ) , ( 2 ) operating expenses , ( 3 ) selling , general and administrative ( or sg & a ) expenses and ( 4 ) heating degree days . adjusted ebitda management believes that adjusted ebitda is an aid in assessing repeatable operating performance that is not distorted by non-recurring items or market volatility , the viability of acquisitions and capital expenditure projects and ability of our assets to generate sufficient revenue , that when rendered to cash , will be available to pay interest on our indebtedness and make distributions to our unit holders . we define adjusted ebitda as earnings before interest , taxes , and depreciation and amortization expenses that are adjusted for unrealized hedging gains and losses ( in each case with respect to refined products and natural gas inventory , prepaid forward contracts and natural gas transportation contracts ) ; gains on acquisitions of businesses ; deferred offering costs in 2012 ; and adjusted for the net impact of biofuel excise tax credits in 2012 and 2013 . 40 adjusted gross margin management trades , purchases , stores and sells energy commodities that experience market value fluctuations . to manage the partnership 's underlying performance , including its physical and derivative positions , management utilizes adjusted gross margin . in determining adjusted gross margin , management adjusts its segment results for the impact of unrealized hedging gains and losses with regard to refined products and natural gas inventory , prepaid forward contracts and natural gas transportation contracts , which are not marked to market for the purpose of recording unrealized gains or losses in net income ( loss ) . these adjustments align the unrealized hedging gains and losses to the period in which the revenue from the sale of inventory , prepaid fixed forwards and the utilization of transportation contracts relating to those hedges is realized in net income ( loss ) . operating expenses operating expenses are costs associated with the operation of the terminals and truck fleet used in our business . employee wages , pension and 401 ( k ) plan expenses , boiler fuel , repairs and maintenance , utilities , insurance , property taxes , services and lease payments comprise the most significant portions of our operating expenses . employee wages and related employee expenses included in our operating expenses are incurred on our behalf by our general partner and reimbursed by us . these expenses remain relatively stable independent of the volumes through our system but can fluctuate depending on the activities performed during a specific period . selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a ” ) include employee salaries and benefits , discretionary bonus , marketing costs , corporate overhead , professional fees , information technology and office space expenses . employee wages , related employee expenses and certain rental costs included in our sg & a expenses are incurred on our behalf by our general partner and reimbursed by us . heating degree days a “ degree day ” is an industry measurement of temperature designed to evaluate energy demand and consumption . degree days are based on how much the average temperature departs from a human comfort level of 65°f . each degree of temperature above 65°f is counted as one cooling degree day , and each degree of temperature below 65°f is counted as one heating degree day . degree days are accumulated over the course of a year and can be compared to a monthly or a long-term average ( “ normal ” ) to see if a month or a year was warmer or cooler than usual . degree days are officially observed by the national weather service and archived by the national climatic data center . for purposes of evaluating our results of operations , we use the normal heating degree day amount as reported by the noaa/national weather service for the new england oil home heating region over the period of 1981-2011. hedging activities we hedge our inventory within the guidelines set in our risk management policies . in a rising commodity price environment , the market value of our inventory will generally be higher than the cost of our inventory . for gaap purposes , we are required to value our inventory at the lower of cost or market , or lcm . the hedges on this inventory will lose value as the value of the underlying commodity rises , creating hedging losses . because we do not utilize hedge accounting , gaap requires us to record those hedging losses in our statement of operations . in contrast , in a declining commodity price market we generally incur hedging gains . gaap requires us to record those hedging gains in our statement of operations . the refined products inventory market valuation is calculated using independent bulk market price assessments from major pricing services ( generally either platts or argus ) .
| 46 analysis of operating segments year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_8_th refined products refined products net sales decreased $ 1.1 billion , or 35 % , due to combination of a 22 % decrease in the average sales price as a result of a lower commodity price environment and a 17 % reduction in product volume . refined products adjusted gross margin decreased $ 27.9 million , or 16 % , primarily as a result of lower volumes during the early part of the year driven by the milder winter weather ( 25 % reduction in heating degree days during the first quarter ) . other factors leading to the reduced volumes included a highly competitive market for discretionary volumes and the loss of some higher-volume commercial bid contracts and an improved market structure for carrying distillate inventory . sales volume was lower in all three product groups , with distillates comprising nearly two-thirds of the reduction , principally due to lower heating oil requirements . gasoline and heavy oil volumes were down comparable amounts , driven by high competitive intensity for gasoline and the continuing decline in heavy oil demand . overall unit margins were consistent with 2015 despite the competitive pressure in the early part of the year with the milder weather conditions . natural gas natural gas net sales decreased $ 13.5 million , or 4 % , as a result of an 11 % reduction in average unit sales price from the lower commodity price environment partially offset by increased sales volume as discussed below . natural gas adjusted gross margin increased $ 11.4 million , or 22 % , due to the combination of both higher volume and adjusted unit margin . the 9 % increase in volume was a result of the sbe natural gas transaction , which more than offset the reduced underlying demand during the mild winter . the higher
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digital other revenues totaled $ 79.8 million in 2019 , an approximately 61 % increase compared with 2018 , driven primarily by television and film revenue associated with our television series , “ the weekly. ” operating costs increased in 2019 to $ 1.63 billion from $ 1.56 billion in 2018 , driven by growth in the number of newsroom and product development employees , higher marketing expenses incurred to promote our brand and products and grow our subscriber base , and higher content costs , including costs related to our television series , “ the weekly , ” partially offset by lower print production and distribution costs related to our newspaper . operating costs before depreciation , amortization , severance and multiemployer pension plan withdrawal costs ( or “ adjusted operating costs , ” a non-gaap measure ) increased in 2019 to $ 1.56 billion from $ 1.49 billion in 2018 . our strategy we continue to operate during a period of transformation in our industry , which has presented both challenges to and opportunities for the company . we believe that the following priorities will be key to our strategic efforts . producing the best journalism we believe that the times 's original and high-quality reporting , storytelling and journalistic excellence across topics and formats set us apart from other news organizations and is at the heart of what makes our journalism worth paying for . during 2019 , the times again broke stories and produced investigative reports that sparked global conversations on wide-ranging topics . our ground-breaking journalism continues to be recognized , most notably in the number of pulitzer prizes the times has received — more than any other news organization . in addition , we have made significant investments in our newsroom , adding journalistic talent across a wide range of areas and continuing to invest in visual and audio journalism . our highly popular news podcast , the daily , which we launched in 2017 , reached one billion total downloads , and has laid the groundwork for a number of new podcasts . in addition , the launch of television programs based on times content has provided additional ways for audiences to experience our original and high-quality journalism . we recently announced a price increase on a subset of our digital news subscription base — the first since our launch of the digital pay model in 2011. we believe that our subscribers understand the value of high-quality independent journalism and the importance of ensuring the continued quality , breadth and depth of our report . the new york times company – p. 25 in 2020 , we expect to make significant further investments in our journalism and remain committed to providing trustworthy , interesting and relevant content that we believe sets the times apart . growing our audience and strengthening engagement to support subscription growth we continue to focus on expanding our audience reach , strengthening the engagement of users and demonstrating why independent , high-quality journalism is worth paying for . during the year , we made further enhancements to our core digital news product to optimize user experience and improve engagement . we also made significant changes to our access model , reducing the number of articles per month that users can access without registering . we believe these changes — which have led to a significant increase in registered users — have strengthened our direct relationships with readers and supported our digital subscription growth efforts . we also made further enhancements to our existing digital standalone products and services , including our crossword and cooking products and wirecutter , and invested in new formats through which to deliver our high-quality journalism and engage audiences globally . the company added over one million net digital subscriptions in 2019 , the most annual subscription additions in our history . we believe that this significant growth demonstrates the continued success of our “ subscription-first ” strategy . as of december 29 , 2019 , we had approximately 5.3 million total subscriptions to our products , more than at any point in our history , and we remain focused on our goal to reach 10 million subscriptions by 2025. we also experimented further with reaching new audiences on third-party platforms , while continuing to build direct relationships on our own platforms . during the year , we announced our participation in facebook news , which provides users access to headlines and short summaries of times articles and directs readers to our platform for access to complete stories . we believe this multi-year licensing arrangement represents a significant positive step in our relationship with large digital platforms . finally , we continued to invest in brand marketing initiatives to reinforce the importance of deeply reported independent journalism and the value of the times brand . looking ahead , we will explore additional opportunities to grow and engage our audience , further innovate our products and invest in brand marketing initiatives , while remaining committed to creating high-quality journalism that sets the times apart . improving our efficiency and effectiveness to grow our long-term profitability we are focused on becoming a more effective and efficient organization and have continued to take steps to maximize the long-term profitability of the company . in addition to increasing our digital subscription revenue , we remain focused on growing high-margin digital advertising revenue by developing innovative and compelling advertising offerings that integrate well with the user experience and provide value to advertisers . we believe we have a powerful brand that , because of the quality of our journalism , attracts educated , affluent and influential audiences , and provides a safe and trusted platform for advertisers ' brands . we will continue to focus on leveraging our brand in developing and refining our advertising offerings . in recent years , we have realigned our organizational structure to improve the speed and effectiveness of our product development process and optimize our data and technology platforms . story_separator_special_tag we are also focused on maximizing the efficiency and profitability of our print products and services , which remain a significant part of our business . looking ahead , we will apply disciplined cost-management across the organization to fund continued investment in our business and support long-term profitable growth . effectively managing our liquidity and our non-operating costs we have continued to strengthen our liquidity position and further de-leverage and de-risk our balance sheet . as of december 29 , 2019 , the company had cash and cash equivalents and marketable securities of approximately $ 684 million . in december 2019 , we repurchased a portion of the company 's leasehold condominium interest in our company headquarters for $ 245.3 million , and had no remaining debt as of december 29 , 2019 . in addition , we remain focused on managing our pension plan obligations . we have taken steps over the last several years to reduce the size and volatility of our pension obligations , including freezing accruals under all but one p. 26 – the new york times company of our qualified defined benefit pension plans , making immediate pension benefits offers in the form of lump-sum payments to certain former employees and transferring certain future benefit obligations and administrative costs to insurers . our qualified pension plans were underfunded ( meaning the present value of future benefits obligations exceeded the fair value of plan assets ) as of december 29 , 2019 , by approximately $ 12 million , compared with approximately $ 81 million as of december 30 , 2018 . we made contributions of approximately $ 10 million to certain qualified pension plans in 2019 , compared with approximately $ 8 million in 2018 . we expect to make contributions in 2020 to satisfy minimum funding requirements of approximately $ 9 million . we will continue to look for ways to reduce the size and volatility of our pension obligations . while we have made significant progress in our liability-driven investment strategy to reduce the funding volatility of our qualified pension plans , the size of our pension plan obligations relative to the size of our current operations will continue to have an impact on our reported financial results . we expect to continue to experience volatility in our retirement-related costs , including pension , multiemployer pension and retiree medical costs . the new york times company – p. 27 story_separator_special_tag increases in wages and benefits ( approximately $ 43 million ) and other production costs ( $ 10 million ) , partially offset by a decrease in raw materials expense ( approximately $ 1 million ) . the increase in wages and benefits was largely due to growth in the number of newsroom and digital product development employees . other production costs increased due to expenses incurred in connection with our television series , “ the weekly , ” partially offset by a decrease in outside printing expenses . raw materials expense decreased primarily due to lower consumption , partially offset by higher newsprint pricing . selling , general and administrative costs selling , general and administrative costs include costs associated with the selling , marketing and distribution of products as well as administrative expenses . selling , general and administrative costs increased in 2019 compared with 2018 , primarily due to an increase in wages and benefits ( approximately $ 17 million ) , other operating costs ( approximately $ 12 million ) and promotion and marketing costs ( approximately $ 8 million ) , partially offset by a decrease in distribution costs ( approximately $ 13 million ) and outside services ( approximately $ 4 million ) . wages and benefits increased primarily as a result of increased hiring to support the company 's strategic initiatives . other operating costs increased due to higher credit card fees driven by an increase in revenue , and higher computer software costs . promotion and marketing costs increased due to increased spending to promote our subscription business and brand . outside services decreased primarily due to lower consulting fees , and distribution costs decreased as a result of fewer print copies produced . depreciation and amortization depreciation and amortization costs increased in 2019 compared with 2018 due to building and software projects that were placed in service and started depreciating in the second half of 2018. other items see note 8 of the notes to the consolidated financial statements for more information regarding other items . non-operating items investments in joint ventures see note 6 of the notes to the consolidated financial statements for information regarding our joint venture investments . interest expense and other , net see note 7 of the notes to the consolidated financial statements for information regarding interest expense and other . income taxes see note 13 of the notes to the consolidated financial statements for information regarding income taxes . other components of net periodic benefit costs see note 10 and 11 of the notes the consolidated financial statements for information regarding other components of net periodic benefit costs . p. 32 – the new york times company non-gaap financial measures we have included in this report certain supplemental financial information derived from consolidated financial information but not presented in our financial statements prepared in accordance with gaap . specifically , we have referred to the following non-gaap financial measures in this report : diluted earnings per share from continuing operations excluding severance , non-operating retirement costs and the impact of special items ( or adjusted diluted earnings per share from continuing operations ) ; operating profit before depreciation , amortization , severance , multiemployer pension plan withdrawal costs and special items ( or adjusted operating profit ) ; and operating costs before depreciation , amortization , severance and multiemployer pension plan withdrawal costs ( or adjusted operating costs ) .
| the increase was primarily driven by significant growth in the number of digital-only subscriptions , which led to digital-only subscription revenue growth of approximately 15 % , partially offset by a decline in print subscription revenue of approximately 3 % . print subscription revenue decreased due to a decline of approximately 7 % in home-delivery subscriptions and a decrease of approximately 9 % in single-copy and bulk sales revenue , partially offset by an increase of approximately 6 % in home-delivery prices for the new york times newspaper . advertising revenues advertising revenues are primarily derived from offerings sold directly to marketers by our advertising sales teams . a significantly smaller and diminishing proportion of our total advertising revenues is generated through programmatic auctions run by third-party ad exchanges . advertising revenues are primarily determined by the volume , rate and mix of advertisements . display advertising revenue is principally from advertisers promoting products , services or brands in print in the form of column-inch ads , and on our digital platforms in the form of banners and video in websites , mobile applications and emails . display advertising includes advertisements that direct viewers to branded content on the times 's platforms . other advertising primarily represents , for our print products , classified advertising revenue , including line-ads sold in the major categories of real estate , help wanted , automotive and other as well as revenue from preprinted advertising , also known as free-standing inserts . digital other advertising revenue primarily includes creative services fees , including those associated with our branded content studio ; advertising revenue from our podcasts ; and advertising revenue generated by wirecutter , our product review and recommendation website . replace_table_token_10_th print advertising revenues , which represented 51 % of total advertising revenues in 2019 , declined 9.7 % to $ 270.2 million in 2019 compared with $ 299.4 million in 2018 . the decrease was driven by a continued decline in display advertising revenue , primarily in the financial services and luxury categories . digital advertising revenues , which represented 49 % of total advertising revenues in 2019 , increased 0.6 % to $ 260.5 million in 2019 compared with $
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if the carrying amount of the goodwill exceeds the newly calculated implied fair value of that goodwill , an impairment loss is recognized in the amount required to write down the goodwill to the implied fair value . overview enterprise reported strong annual 2011 earnings results and numerous accomplishments for the year ended december 31 , 2011 . net income amounted to $ 10.9 million , or $ 1.16 on a diluted earnings per share basis , for the year ended december 31 , 2011 , compared to $ 10.6 million , or $ 1.15 , respectively , for the year ended december 31 , 2010 . the 3 % increase in net income for the year ended december 31 , 2011 , when compared to the prior year , was primarily attributed to growth in loans , resulting in an increase in net interest income . the company 's growth also contributed to increases in non-interest income and the level of operating expenses in the year ended december 31 , 2011 . in 2011 , we increased our loans outstanding by $ 107.1 million , or 9 % , versus december 31 , 2010 . our 2011 loan growth represents a 77 % increase from the $ 60.5 million in loan growth in 2010. deposits , excluding brokered deposits , have increased $ 89.2 million , or 7 % , since december 31 , 2010 . total assets under management exceeded $ 2 billion in 2011 . we believe this robust organic growth reflects our success in serving our market area , our commitment to our communities , and is the key driver of our strong earnings results . our focus remains on continued organic growth and expansion , while continuing to provide for our future by investing in our branch network , technology , progressive and technological product capabilities , and most importantly , in our people . in february 2012 , enterprise increased its geographic footprint by opening its 19th branch in pelham , nh , our fourth location in southern new hampshire . composition of earnings the company 's earnings are largely dependent on its net interest income , which is the difference between interest earned on loans and investments and the cost of funding ( primarily deposits and borrowings ) . tax equivalent net interest income expressed as a percentage of average interest earning assets is referred to as net interest margin ( “ margin ” ) . the re-pricing frequency of the company 's assets and liabilities are not identical , and therefore subject the company to the risk of adverse changes in interest rates . this is often referred to as “ interest rate risk ” and is reviewed in more detail in item 7a , “ quantitative and qualitative disclosures about market risk , ” of this form 10-k. net interest income increased $ 3.4 million , or 6 % , for the year ended december 31 , 2011 and amounted to $ 58.3 million . net interest income for the quarter ended december 31 , 2011 amounted to $ 15.3 million , an increase of $ 1.3 million , or 9 % , 36 compared to the december 2010 quarter . the increases in net interest income over the comparable 2010 periods were due primarily to loan growth . average loan balances for the year ended and three months ended december 31 , 2011 increased $ 79.8 million and $ 109.9 million , respectively , compared to the same periods in 2010 . net interest margin was 4.37 % for the year ended december 31 , 2011 compared to 4.41 % for the year ended december 31 , 2010 . tax equivalent net interest margin was 4.39 % for the quarter ended december 31 , 2011 compared to 4.33 % for the quarter ended september 30 , 2011 , and 4.31 % for the quarter ended december 31 , 2010 . for the years ended december 31 , 2011 and 2010 , the provision for loan losses amounted to $ 5.2 million and $ 5.1 million , respectively . the provision for loan losses takes into consideration the level of loan growth , adversely classified and non-performing loans , specific reserves for impaired loans , net charge-offs , and the estimated impact of current economic conditions on credit quality . the level of loan growth during 2011 was $ 107.1 million compared to $ 60.5 million during the same period in 2010 . the balance of the allowance for loan losses allocated to impaired loans amounted to $ 4.4 million at december 31 , 2011 , compared to $ 2.7 million at december 31 , 2010 . total non-performing assets as a percentage of total assets were 1.83 % at december 31 , 2011 , compared to 1.51 % at december 31 , 2010 . for the year ended december 31 , 2011 , the company recorded net charge-offs of $ 1.5 million , compared to net charge-offs of $ 3.9 million for the prior year . net charge-offs as a percentage of average loans for the year ended december 31 , 2011 amounted to 0.12 % compared to 0.36 % for 2010 . management continues to closely monitor the non-performing assets , charge-offs and necessary allowance levels , including specific reserves , and believes that current loan quality statistics are a function of the ongoing effects of the recent economic environment . the allowance for loan losses to total loans ratio was 1.85 % at december 31 , 2011 , compared to 1.70 % at december 31 , 2010 . for further information regarding loan quality statistics and the allowance for loan losses , see the sections below under the heading `` financial condition '' titled `` credit risk/asset quality '' and `` allowance for loan losses . '' story_separator_special_tag non-interest income for the year ended december 31 , 2011 amounted to $ 12.1 million , an increase of $ 503 thousand , or 4 % , compared to 2010. this increase primarily resulted from increases in investment advisory fees and deposit fee income , partially offset by a decrease in net gains on securities sales . for the year ended december 31 , 2011 , non-interest expense amounted to $ 49.1 million , an increase of $ 3.4 million , or 7 % , compared to the prior year . this increase resulted primarily from the company 's strategic growth initiatives , partially offset by reductions in the current period in fdic insurance expense and fair value adjustment of other real estate owned ( `` oreo '' ) . increases in other operating expenses of $ 738 thousand for year-end period included increases in foreclosed real estate costs , workout and delinquent loan expenses , and security expenses . sources and uses of funds the company 's primary sources of funds are deposits , brokered deposits , fhlb borrowings , current earnings and proceeds from the sales , maturities and paydowns on loans and investment securities . these funds are used to originate loans , purchase investment securities , conduct operations , expand the branch network , and pay dividends to shareholders . total assets amounted to $ 1.49 billion at december 31 , 2011 , an increase of 7 % since december 31 , 2010 . the core asset strategy is to grow loans , primarily high quality commercial loans . total loans increased 9 % since december 31 , 2010 and amounted to $ 1.25 billion , or 84 % of total assets . commercial loans amounted to $ 1.08 billion , or 86 % of gross loans at december 31 , 2011 . the investment portfolio is the other key component of earning assets and is primarily used to invest excess funds , provide liquidity and to manage the company 's asset-liability position . the carrying value of total investments amounted to $ 140.4 million at december 31 , 2011 , or 9 % of total assets . the carrying value of the portfolio is relatively flat since december 31 , 2010 . management 's preferred strategy for funding asset growth is to grow low cost deposits ( comprised of demand deposit accounts , interest and business checking accounts and traditional savings accounts ) . asset growth in excess of low cost deposits is typically funded through higher cost deposits ( comprised of money market accounts , commercial tiered rate or “ investment savings ” accounts and certificates of deposit ) , wholesale funding ( brokered deposits and borrowed funds ) , and investment portfolio cash flow . 37 at december 31 , 2011 , total deposits , excluding brokered deposits , amounted to $ 1.33 billion , representing , an increase of $ 89.2 million , or 7 % , over december 31 , 2010 balances . at december 31 , 2011 , non-interest bearing checking account balances increased $ 78.8 million , or 34 % , compared to balances at december 31 , 2010 , while money market account balances increased $ 17.5 million , or 4 % over this same period . the deposit growth is primarily attributed to our focused sales and marketing efforts to attract relationship customers seeking an alternative to the larger regional and national banks , mutual funds and other investment alternatives , as well as the general inflow of funds into the deposit marketplace . the company had no brokered deposits as december 31 , 2011 and amounts were minimal at december 31 , 2010 . wholesale funding amounted to $ 4.5 million at december 31 , 2011 , compared to $ 15.6 million at december 31 , 2010 . wholesale funding was primarily comprised of borrowed funds in both periods . the declines in wholesale funding were achieved due to the strong deposit growth during the period . opportunities and risks while the current economic environment continues to present significant challenges for all companies , management also believes that it has created opportunities for growth and customer acquisition . notwithstanding the competition discussed above under the heading `` competition , '' in item 1 , `` business '' , management believes that customers continue to migrate from larger , national and regional banks to local , stable community banks , choosing to do business with local professional bankers who can offer them the flexibility , responsiveness and personalized service that a community bank such as enterprise provides . management views the company 's product offerings , its customer service culture , and its investments in the communities we serve , as key elements in positioning enterprise to take advantage of these market opportunities created by the current challenging banking landscape and recent industry consolidation within the local market . the company 's ability to achieve its long-term growth and market share objectives will depend upon the company 's continued success in differentiating itself in the market place . management believes that the company has built a reputation within its market area based on consistently superior customer service and supporting the local communities , differentiating itself through its people , who act as trusted advisors to clients , and uphold the company 's core values , including significant community involvement , which has led to a strong network with local business and community leaders . management believes the enterprise business model of providing a full range of diversified financial products , services and the latest technology , delivered by experienced local banking professionals , who possess strong technical skills , an in-depth knowledge of our markets and a trusted reputation within the community , creates opportunities for the company to be the leading provider of banking and investment management services in its growing market area . the company seeks to increase deposit share , in both existing and
| net interest income the company 's net interest income was $ 55.0 million for the year ended december 31 , 2010 , an increase of $ 6.5 million , or 13 % , over the prior year . the increase was primarily due to strong loan growth . interest income total interest income for the year ended december 31 , 2010 was $ 65.0 million , an increase of $ 2.7 million from the prior year . the increase resulted primarily from growth in the average balance of interest earning assets of $ 112.9 million , or 10 % , for the year ended december 31 , 2010 , partially offset by a 28 basis point decline in the average tax equivalent yield on interest earning assets , due to the lower interest rate environment during 2010 . interest income on loans , which accounts for the majority of interest income , increased $ 3.5 million , or 6 % compared to the prior period . average loan balances increased $ 92.2 million , or 9 % , compared to the prior year , and amounted to $ 1.1 billion , while the average yield on loans declined 16 basis points compared to the prior period and amounted to 5.53 % for the year ended december 31 , 2010 . total investment income , which represents the remainder of interest income , amounted to $ 4.2 million for the year ended december 31 , 2010 a decrease of $ 765 thousand , or 15 % , compared to the prior year . the decrease resulted primarily from the impact of the 101 basis point decrease in the average yield on investments as a result of lower market interest rates and the impact of higher levels of lower yielding fed funds investments in 2010 as compared to 2009 . partially offsetting this decrease was an increase of $ 20.7 million , or 14 % , in the average balance of investments over the year ended december 31 , 2009 . interest expense total interest expense amounted to $ 10.1 million ,
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further , we provide other games , content and services that are available only via electronic delivery , such as internet-only games and game services , and games for mobile devices . advances in mobile technology have resulted in a variety of new and evolving devices that are being used to play games by an ever-broadening base of consumers . we have responded to these advances in technology and consumer acceptance of digital distribution by offering different sales models , such as subscription services , online downloads for a one-time fee , and advertising-supported free-to-play games and game sites . in addition , we offer our consumers the ability to play a game across platforms on multiple devices . we significantly increased the revenues that we derive from online-delivered products and services from $ 432 million in fiscal year 2009 , to $ 522 million in fiscal year 2010 and $ 743 million in fiscal year 2011 and we expect this portion of our business to continue to grow in fiscal 2012 and beyond . wireless and other emerging platforms . advances in technology have resulted in a variety of platforms for interactive entertainment . examples include wireless technologies , streaming gaming services , and internet-connected televisions . our efforts in wireless interactive entertainment are focused in two areas games for handheld game systems and downloadable games for mobile devices . these platforms grow the consumer base for our business while also providing competition to existing established video game platforms . we expect sales of games for wireless and other emerging platforms to continue to be an important part of our business . concentration of sales among the most popular games . we see a larger portion of packaged goods games sales concentrated on the most popular titles , and that those titles are typically sequels of prior games . we have responded to this trend by significantly reducing the number of games that we produce to provide greater focus on our most promising intellectual properties from 67 primary titles in fiscal year 2009 to 54 in fiscal year 2010 and 36 primary titles in fiscal year 2011. in fiscal year 2012 , we expect to release approximately 22 primary titles . consequently , we have decreased the number of games that we distribute , which have lower margins , as well as reduced our exposure to the declining music games genre . catalog sales . the video game industry is experiencing a change in retail sales patterns , which is decreasing revenue from catalog sales ( sales of games in the periods following the launch quarter ) . currently , many console games experience sales cycles that are shorter than in the past . to mitigate this trend , we offer our consumers a direct-to-consumer service ( such as head-to-head play or other multiplayer options ) and or additional content available through online services to further enhance the gaming experience and extend the time that consumers play our games after their initial purchase . we anticipate that in some cases these additional online services will also generate revenue to mitigate the effect of reduced catalog sales . used games . some retailers sell used video games , which are generally priced lower than new video games and do not result in revenue to the publisher of the games from the sale . we have observed that the market for used video games has been growing . if retailers continue to increase their sales of used video games , it could negatively affect our sales of new video games and have an adverse impact on our operating results . 29 recent developments stock repurchase program . in february 2011 , we announced that our board of directors authorized a program to repurchase up to $ 600 million of our common stock over the next 18 months . as of march 31 , 2011 , we had repurchased $ 58 million of our common stock , or approximately 3 million shares , in the open market since the commencement of the program , including pursuant to a pre-arranged stock trading plan . under the program , we may purchase stock in the open market or through privately negotiated transactions in accordance with applicable securities laws , including pursuant to pre-arranged stock trading plans . the timing and actual amount of the stock repurchases will depend on several factors including price , capital availability , regulatory requirements , alternative investment opportunities , and other market conditions . we are not obligated to repurchase any specific number of shares under the program and the repurchase program may be modified , suspended or discontinued at any time . fiscal 2011 restructuring . in fiscal year 2011 , we announced a plan focused on the restructuring of certain licensing and developer agreements in an effort to improve the long-term profitability of our packaged goods business . under this plan , we amended certain licensing and developer agreements . to a much lesser extent , as part of this restructuring we had workforce reductions and facilities closures through march 31 , 2011. substantially all of these exit activities were completed by march 31 , 2011. since the inception of the fiscal 2011 restructuring plan through march 31 , 2011 , we have incurred charges of $ 148 million , consisting of ( 1 ) $ 104 million related to the amendment of certain licensing agreements and other intangible asset impairment costs , ( 2 ) $ 31 million related to the amendment of certain developer agreements , and ( 3 ) $ 13 million in employee-related expenses . in fiscal year 2012 , we anticipate incurring less than $ 10 million of restructuring and other charges related to the fiscal 2011 restructuring ( primarily interest expense accretion ) . sale of ubisoft investment . we purchased approximately 19.9 percent of the then-outstanding ordinary shares ( representing approximately 18 percent of the voting rights at the time ) of ubisoft entertainment ( ubisoft ) in february 2005 for $ 91 million . story_separator_special_tag in july 2010 , we sold our investment in ubisoft for approximately $ 121 million and realized a gain of $ 28 million , net of costs to sell . international operations and foreign currency exchange impact . international sales ( revenue derived from countries other than canada and the united states ) , are a fundamental part of our business . net revenue from international sales accounted for approximately 49 percent of our total net revenue during fiscal year 2011 and approximately 45 percent of our total net revenue during fiscal year 2010. our net revenue is impacted by foreign exchange rates during the reporting period associated with net revenue before revenue deferral , as well as the foreign exchange rates associated with the recognition of deferred net revenue of online-enabled packaged goods and digital content that were established at the time we recorded this deferred net revenue on our consolidated balance sheets . the foreign exchange rates during the reporting period may not always move in the same direction as the foreign exchange rate impact associated with the recognition of deferred net revenue of online-enabled packaged goods and digital content . during the fiscal year ended march 31 , 2011 , foreign exchange rates had an overall unfavorable impact on our net revenue of approximately $ 71 million , or 2 percent . in addition , our international investments and our cash and cash equivalents denominated in foreign currencies are subject to fluctuations in foreign currency exchange rates . if the u.s. dollar strengthens against these currencies , then foreign exchange rates may have an unfavorable impact on our results of operations and our financial condition . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , contingent assets and liabilities , and revenue and expenses during the reporting periods . the policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations , but also because application and interpretation of these policies requires both management judgment and estimates of matters that are inherently uncertain and unknown . as a result , actual results may differ materially from our estimates . 30 revenue recognition , sales returns , allowances and bad debt reserves we derive revenue principally from sales of interactive software games ( 1 ) on video game consoles ( such as the playstation 3 , xbox 360 and wii ) , pcs , and handheld game players ( such as the psp and nintendo ds and 3ds ) , ( 2 ) on mobile devices ( such as cellular and smart phones including the apple iphone ) , ( 3 ) on tablets such as the apple ipad , and ( 4 ) from software products and content and online services associated with these products . we evaluate revenue recognition based on the criteria set forth in financial accounting standards board ( fasb ) accounting standards codification ( asc ) 985-605 , software : revenue recognition , and staff accounting bulletin ( sab ) no . 104 , revenue recognition . we evaluate and recognize revenue when all four of the following criteria are met : evidence of an arrangement . evidence of an agreement with the customer that reflects the terms and conditions to deliver products that must be present in order to recognize revenue . delivery . delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have been transferred to the customer . for online game services , delivery is considered to occur as the service is provided . for digital downloads that do not have an online service component , delivery is generally considered to occur when the download is made available . fixed or determinable fee . if a portion of the arrangement fee is not fixed or determinable , we recognize revenue as the amount becomes fixed or determinable . collection is deemed probable . we conduct a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer . collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due . if we determine that collection is not probable , we recognize revenue when collection becomes probable ( generally upon cash collection ) . determining whether and when some of these criteria have been satisfied often involves assumptions and management judgments that can have a significant impact on the timing and amount of revenue we report in each period . for example , for multiple element arrangements , we must make assumptions and judgments in order to ( 1 ) determine whether and when each element has been delivered , ( 2 ) determine whether undelivered products or services are essential to the functionality of the delivered products and services , ( 3 ) determine whether vendor specific objective evidence ( vsoe ) exists for each undelivered element , and ( 4 ) allocate the total price among the various elements we must deliver . changes to any of these assumptions or management judgments , or changes to the elements in a software arrangement , could cause a material increase or decrease in the amount of revenue that we report in a particular period . depending on the type of product , we may offer an online service that permits consumers to play against others via the internet and or receive additional updates or content from us . for those games that consumers can play via the internet , we may provide a matchmaking service that permits consumers to connect with other consumers to play against each other online .
| revenue deferral in this net revenue section includes the unrecognized revenue from ( 1 ) bundled sales of certain online-enabled packaged goods and pc digital downloads for which either we do not have vsoe for the online service that we provide in connection with the sale of the software or we have an obligation to provide future incremental unspecified digital content , ( 2 ) certain packaged goods sales of massively-multiplayer online role-playing games , and ( 3 ) sales of certain incremental digital content associated with our games , which are types of micro-transactions. fluctuations in the revenue deferral are largely dependent upon the amounts of products that we sell with the online features and services previously discussed , while the recognition of revenue deferral for a period is also dependent upon ( 1 ) the period of time the online features and services are to be provided and ( 2 ) the timing of the sale . for example , most revenue deferrals incurred in the first half of a fiscal year are recognized within the same fiscal year ; however , substantially all of the revenue deferrals incurred in the last month of a fiscal year will be recognized in the subsequent fiscal year . 37 from a geographical perspective , our total net revenue for the fiscal years ended march 31 , 2011 and 2010 was as follows ( in millions ) : replace_table_token_5_th worldwide for fiscal year 2011 , net revenue before revenue deferral was $ 3,828 million , driven by fifa 11 , madden nfl 11 , and need for speed hot pursuit . net revenue before revenue deferral for fiscal year 2011 decreased $ 331 million , or 8 percent , as compared to fiscal year 2010. this decrease was driven by a $ 572 million decrease from the rock band franchise and decreases from the left 4 dead , battlefield , and army of two franchises , which had no comparable releases in fiscal year 2011. this decrease was partially offset by an increase of $ 292 million from releases
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) of expenses during 2019 to extinguish notes payable in certain asset-backed securitizations prior to the notes ' contractual maturities ; and 36 an increase of $ 15.8 million ( $ 12.0 million after tax ) in gains from the sale of consumer loans in 2020 as compared to 2019. these factors were partially offset by the following items : an increase of $ 35.2 million ( $ 26.8 million after tax ) in non-cash losses related to the company 's solar investments in 2020 as compared to 2019 ; the recognition of $ 24.7 million ( $ 18.8 million after tax ) of net provision and impairment charges in 2020 related to the company 's beneficial interest in consumer loan securitizations and certain venture capital investments , respectively , due to adverse economic conditions resulting from the covid-19 pandemic ; an increase of $ 24.4 million ( $ 18.5 million after tax ) in the provision for loan losses in 2020 as compared to 2019. the provision for loan losses in 2020 was negatively impacted due to the covid-19 pandemic ; a decrease of $ 20.4 million ( $ 15.5 million after tax ) in net income due to the decrease in the average balance of loans in 2020 as compared to 2019 as a result of the amortization of the ffelp loan portfolio ; and a decrease of $ 18.2 million in net income from the company 's loan servicing and systems operating segment in 2020 as compared to 2019 due to a decrease in revenue as a result of the covid-19 pandemic and incurring additional costs to meet increased service and security standards under the department servicing contracts . operating results the company earns net interest income on its loan portfolio , consisting primarily of ffelp loans in its asset generation and management ( `` agm '' ) operating segment . this segment is expected to generate a stable net interest margin and significant amounts of cash as the ffelp portfolio amortizes . as of december 31 , 2020 , agm had a $ 19.6 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.8 years . the company actively works to maximize the amount and timing of cash flows generated by its ffelp portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow . however , due to the continued amortization of the company 's ffelp loan portfolio , over time , the company 's net income generated by the agm segment will continue to decrease . the company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the ffelp loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio . in addition , the company earns fee-based revenue through the following reportable operating segments : loan servicing and systems ( `` lss '' ) - referred to as nelnet diversified services ( `` nds '' ) education technology , services , and payment processing ( `` ets & pp '' ) - referred to as nelnet business services ( `` nbs '' ) further , the company earned communications revenue through allo , formerly a majority owned subsidiary of the company prior to a recapitalization of allo resulting in the deconsolidation of allo from the company 's financial statements on december 21 , 2020. the recapitalization of allo is not considered a strategic shift in the company 's involvement with allo , and allo 's results of operations , prior to the deconsolidation , are presented by the company as a reportable operating segment . on november 2 , 2020 , the company obtained final approval from the federal deposit insurance corporation ( `` fdic '' ) for federal deposit insurance and for a bank charter from the utah department of financial institutions ( `` udfi '' ) in connection with the establishment of nelnet bank , and nelnet bank launched operations . nelnet bank operates as an internet utah-chartered industrial bank franchise focused on the private education loan marketplace , with a home office in salt lake city , utah . nelnet bank 's operations are presented by the company as a reportable operating segment . other business activities and operating segments that are not reportable are combined and included in corporate and other activities ( `` corporate '' ) . corporate and other activities also includes income earned on certain investments and interest expense incurred on unsecured and other corporate related debt transactions . in addition , the corporate segment includes direct incremental costs associated with nelnet bank prior to the udfi 's approval for its bank charter and certain shared service and support costs incurred by the company that will not be reflected in nelnet bank 's operating results through 2023 ( the bank 's de novo period ) . such nelnet bank-related costs included in the corporate segment totaled $ 5.9 million ( pre-tax ) and $ 1.7 million ( pre-tax ) in 2020 and 2019 , respectively . 37 the information below provides the operating results for each reportable operating segment ( excluding nelnet bank ) for the years ended december 31 , 2020 and 2019 ( dollars in millions ) . see `` results of operations '' for each such reportable operating segment under this item 7 for additional detail . lss ( a ) ets & pp allo ( c ) agm ( b ) ( a ) revenue includes intersegment revenue . ( b ) total revenue includes `` net interest income '' and `` total other income/expense '' from the company 's segment statements of income , excluding the impact from changes in fair values of derivatives . net income excludes changes in fair values of derivatives , net of tax . story_separator_special_tag for information regarding the exclusion of the impact from changes in fair values of derivatives , see `` gaap net income and non-gaap net income , excluding adjustments '' above . ( c ) on december 21 , 2020 , the company deconsolidated allo from the company 's consolidated financial statements . accordingly , the 2020 operating results for the communications operating segment in the table above are for the period january 1 , 2020 through december 21 , 2020. certain events and transactions from 2020 , which have impacted , will impact , or could impact the operating results of the company , are discussed below . recapitalization and additional funding for allo on october 1 , 2020 , the company entered into various agreements with sdc allo holdings , llc ( “ sdc ” ) , a third party global digital infrastructure investor , and allo , then a majority owned communications subsidiary of the company , to recapitalize and provide additional funding for allo . on october 15 , 2020 , allo received proceeds of $ 197.0 million from sdc for the issuance of membership units of allo , and redeemed $ 160.0 million of non-voting preferred membership units of allo held by the company . as a result of the receipt of required regulatory approvals on december 21 , 2020 , sdc , the company , and members of allo 's management own approximately 48 percent , 45 percent , and 7 percent , respectively , of the outstanding voting membership interests of allo , and the company deconsolidated allo from the company 's consolidated financial statements . upon the deconsolidation of allo , the company recorded its 45 percent voting membership interests in allo at fair value , and accounts for such investment under the hypothetical liquidation at book value ( “ hlbv ” ) method of accounting . in addition , the company recorded its remaining non-voting preferred membership units in allo at fair value , and accounts for such investment as a separate equity investment . as a result of the deconsolidation of allo , the company recognized a gain of $ 258.6 million in the fourth quarter of 2020. on january 19 , 2021 , allo closed on certain private debt financing facilities from unrelated third-party lenders providing for aggregate financing of up to $ 230.0 million . with proceeds from this transaction , allo redeemed a portion of its non-voting preferred membership units held by the company in exchange for an aggregate redemption price payment to the company of $ 100.0 million . 38 the agreements among the company , sdc , and allo provide that they will use commercially reasonable efforts ( which expressly excludes requiring allo to raise any additional equity financing or sell any assets ) to cause allo to redeem , on or before april 2024 , the remaining non-voting preferred membership units of allo held by the company , plus the amount of accrued and unpaid preferred return on such units . as of january 19 , 2021 , the outstanding preferred membership units of allo held by the company was $ 129.7 million . the preferred membership units earn a preferred annual return of 6.25 percent . as discussed above , subsequent to the recapitalization and deconsolidation of allo , the company will account for its investment in allo under the hlbv method of accounting . the hlbv method of accounting is used by the company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests . the company applies the hlbv method using a balance sheet approach . a calculation is prepared at each balance sheet date to determine the amount that the company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities . the difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period , after adjusting for capital contributions and distributions , is the company 's share of the earnings or losses from the equity investment for the period . because the company will be able to utilize certain tax losses related to allo 's operations , the equity investment agreements for the company have liquidation rights and priorities that are sufficiently different from the voting membership interests percentages such that the hlbv method of accounting was deemed appropriate . accordingly , the recognition of earnings or losses during any reporting period related to the company 's equity investment in allo may or may not reflect its voting membership interests percentage and could vary substantially from those calculated based on the company 's voting membership interests in allo . assuming allo continues its planned growth in existing and new communities , it will continue to invest substantial amounts in property and equipment to build the network and connect customers . the resulting recognition of depreciation and development costs could result in net operating losses by allo under generally accepted accounting principles . applying the hlbv method of accounting , the company will recognize a significant portion of allo 's anticipated losses over the next several years . for additional information , see note 2 , “ recent developments - allo recapitalization , ” of the notes to consolidated financial statements included in this report . impacts of covid-19 pandemic beginning in march 2020 , the coronavirus 2019 or covid-19 ( “ covid-19 ” ) pandemic resulted in many businesses and schools closing or reducing hours throughout the u.s. to combat the spread of covid-19 , and states and local jurisdictions implementing various containment efforts , including lockdowns on non-essential business and other business restrictions , stay-at-home orders , and shelter-in-place orders . the covid-19 pandemic has caused significant disruption to the u.s. and world economies , including significantly higher unemployment and underemployment , significantly lower interest rates , and extreme volatility in the u.s. and world markets .
| net interest income 289,585 249,350 see table below for additional analysis . less provision for loan losses 63,360 39,000 increase was due to provision expense recognized in the first quarter of 2020 as a result of an increase in expected defaults due to the covid-19 pandemic and an increased provision for loan losses on loans acquired in 2020 to reflect life of loan expected losses as compared to loans acquired in 2019 for which the provision for loan losses was recognized based upon an incurred loss methodology . see agm operating segment - results of operations . net interest income after provision for loan losses 226,225 210,350 other income/expense : lss revenue 451,561 455,255 see lss operating segment - results of operations . ets & pp revenue 282,196 277,331 see ets & pp operating segment - results of operations . communications revenue 76,643 64,269 see communications operating segment - results of operations . other 57,561 47,918 see table below for components of “ other income. ” gain on sale of loans 33,023 17,261 gain on sale of loans is from the sale of consumer loans . gain from deconsolidation of allo 258,588 — on december 21 , 2020 , the company deconsolidated allo from the company 's consolidated financial statements as a result of allo 's recapitalization . see “ overview - recapitalization and additional funding for allo ” above for additional information . impairment expense and provision for beneficial interests ( 24,723 ) — during the first quarter of 2020 , the company recognized a provision expense of $ 26.3 million and an impairment charge of $ 7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments , respectively . such charges were the result of impacts from the covid-19 pandemic . during the fourth quarter of 2020 , the company reversed $ 9.7 million of the provision related to beneficial interest in consumer loan securitization investments due to improved
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the following actions began in the second quarter of 2020 : reduced interim ceo and senior executives ' base salaries by 20 percent and other executives ' base salaries by 10 percent , began on may 1 , 2020 and ended on december 1 , 2020 ; 20 reduced cash retainer for its board of directors by 20 percent beginning with the second-quarter 2020 , and reduced the value of the board 's annual equity grant by 20 percent , this was reinstated to its full amount going forward on december 1 , 2020 ; suspended the company 's 401 ( k ) plan matching contributions for salaried employees , effective june 1 and will be reinstated as of march 1 , 2021 ; implemented unpaid rolling furloughs for approximately 90 percent of salaried employees , with an average 5 weeks of unpaid furloughs per employee , beginning in early april 2020 and ending in late july 2020 ; deferred social security payroll tax remittance as permitted by the cares act ; continued to maintain flexible production schedules at all plants to align operations with customer demand , resulting in the temporary layoff of manufacturing employees ; and reduced 2020 capital expenditures to $ 16.9 million which was below planned spending of approximately $ 30 million at the beginning of 2020. since implementation in the second quarter of 2020 , the company 's covid-19 related actions saved approximately $ 15 million in cash and reduced administrative expenses by approximately $ 8 million in total . despite the negative impact of covid-19 on our business , total liquidity was $ 314.1 million as of december 31 , 2020 , as a result of the above covid-19 related actions as well as other working capital management efficiency improvement activities . we believe this level of liquidity is sufficient to meet the company 's needs for at least the next 12 months . the company will continue to take actions such as those described above in order to preserve liquidity for the duration of this pandemic . impact of raw material prices 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 when pricing products to our customers , which 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 . story_separator_special_tag new roman ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > net sales adjusted to exclude surcharges the table below presents net sales by end-market sector , adjusted to exclude surcharges , which represents a financial measure that has not been determined in accordance with accounting principles generally accepted in the united states ( 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 . replace_table_token_7_th 25 liquidity and capital resources amended credit agreement on october 15 , 2019 , the company entered into a third amended and restated credit agreement ( the amended credit agreement ) with jp morgan chase bank , n.a. , as administrative agent , bank of america , n.a. , as syndication agent , and the other lenders party thereto , which further amended and restated the company 's second amended and restated credit agreement dated as of january 26 , 2018. the amended credit agreement increased capacity to $ 400 million compared to $ 300 million in the previous facility and extended the maturity date to october 15 , 2024. furthermore , the amended credit agreement provided for an enhanced asset base with reappraised fixed assets and investment grade foreign accounts receivable collateral in the borrowing base ( up to $ 30 million ) , improved interest rate spread pricing by 50 basis points , and reduced the unused commitment fee to a fixed 25 basis points from the previous 37.5 to 50 basis point range . the amended credit agreement also requires the company to ( i ) unless certain conditions are met , maintain certain minimum liquidity as specified in the amended credit agreement during the period commencing on march 1 , 2021 and ending on june 1 , 2021 and ( ii ) maintain a minimum specified fixed charge coverage ratio on a springing basis if minimum availability requirements as specified in the amended credit agreement are not maintained . the minimum liquidity requirement for the period commencing on march 1 , 2021 and ending on june 1 , 2021 requires the company to maintain a liquidity amount above the sum of the aggregate outstanding principal amount of the convertible senior notes due 2021 plus an amount equal to 12.5 % of the lesser of the borrowing base and the total capacity of $ 400 million . the company expects to be compliant with this minimum liquidity requirement during the applicable time period . refer to “ note 14 - financing arrangements ” in the notes of the consolidated financial statements for additional information . convertible notes in may 2016 , the company issued $ 75.0 million aggregate principal amount of convertible senior notes due 2021 , plus an additional $ 11.3 million principal amount to cover over-allotments . story_separator_special_tag the convertible senior notes due 2021 bear cash interest at a rate of 6.0 % per year , payable semiannually on june 1 and december 1 , beginning on december 1 , 2016. the convertible senior notes due 2021 will mature on june 1 , 2021 , unless earlier repurchased or converted . the net proceeds received from the offering were $ 83.2 million , after deducting the initial underwriters ' discount and fees and paying the offering expenses . we used the net proceeds to repay a portion of the amounts outstanding under our credit agreement . in december 2020 , the company entered into separate , privately negotiated exchange agreements with a limited number of holders of the company 's currently outstanding convertible senior notes due 2021. pursuant to the exchange agreements , the company exchanged $ 46.0 million aggregate principal amount of convertible senior notes due 2021 for $ 46.0 million aggregate principal amount of its new convertible senior notes due 2025. the company did not receive any cash proceeds from the issuance of the convertible senior notes due 2025. the convertible senior notes due 2025 bear cash interest at a rate of 6.0 % per year , payable semiannually on june 1 and december 1 , beginning on june 1 , 2021. the convertible senior notes due 2025 will mature on december 1 , 2025 , unless earlier repurchased or converted . the net amount of this exchange was $ 44.5 million , after deducting the initial underwriters ' fees and paying other transaction costs . refer to “ note 14 - financing arrangements ” in the notes of the consolidated financial statements for additional information . 26 additional liquidity considerations the following represents a summary of key liquidity measures under the credit agreement in effect as of december 31 , 2020 and december 31 , 2019 : replace_table_token_8_th ( 1 ) as of december 31 , 2020 , timkensteel had less than $ 400 million in collateral assets to borrow against . our principal sources of liquidity are cash and cash equivalents , cash flows from operations and available borrowing capacity under our credit agreement . as of december 31 , 2020 , taking into account our view of mobile , industrial , and energy market demands for our products , and our 2021 operating and long-range plan , we believe that our cash balance as of december 31 , 2020 , projected cash generated from operations , and borrowings available under the amended credit agreement , will be sufficient to satisfy our working capital needs , capital expenditures and other liquidity requirements associated with our operations , including servicing our debt obligations , as well as our convertible senior notes due 2021 with a maturity date of june 1 , 2021 , for at least the next twelve months . regarding the convertible senior notes due 2021 , we plan to repay the remaining outstanding principal balance of $ 40.2 million upon maturity with available cash , or a combination of available cash and credit facility borrowings . the full extent to which the covid-19 pandemic will impact our operations and financial results is uncertain and ultimately will depend on , among other factors , the duration of the pandemic , further federal and state government actions and the speed of economic recovery . to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated , and cash on hand or credit availability is insufficient , we would seek additional financing to provide additional liquidity . we regularly evaluate our potential access to the equity and debt capital markets as sources of liquidity and we believe additional financing would likely be available if necessary , although we can make no assurance as to the form or terms of any such financing . we would also consider additional cost reductions and restructuring , changes in working capital management and further reductions of capital expenditures . regardless , we will continue to evaluate additional financing or may seek to refinance outstanding borrowings under the amended credit agreement to provide us with additional flexibility and liquidity . any additional financing beyond that incurred to refinance existing debt would increase our overall debt and could increase interest expense . on march 27 , 2020 , the president of the united states signed the coronavirus aid , relief , and economic security ( `` cares '' ) act , an economic stimulus package intended to provide support , principally in the form of tax benefits and additional liquidity , to companies and individuals negatively impacted by the covid-19 pandemic . although the majority of the provisions included in the cares act did not immediately benefit the company from a cash tax perspective due to its significant net operating losses , the company has taken advantage of the deferral of the employer share ( 6.2 % of employee wages ) of social security payroll taxes that would otherwise have been owed from the date of enactment of the legislation through december 31 , 2020 , as afforded by the act . for the year ended december 31 , 2020 , the company deferred approximately $ 6.4 million of payroll taxes as permitted by the cares act , all of which will be paid in two equal installments at december 31 , 2021 and december 31 , 2022. additionally , the company expects to file for and accrued a benefit of approximately $ 2.3 million related to the employee retention credit in 2021. for additional details regarding the amended credit agreement and the convertible notes , please refer to “ note 14 - financing arrangements ” in the notes to the consolidated financial statements , and for our discussion regarding risk factors related to our business and our debt , see risk factors in this annual report on form 10-k. 27 cash flows the following table reflects the major categories of cash flows for the years ended december 31 , 2020 , 2019 , and 2018. for additional details , please refer
| gross profit the chart below presents the drivers of the gross profit variance from the year ended december 31 , 2019 to december 31 , 2020. gross profit for the year ended december 31 , 2020 decreased $ 7 million , or 31.0 % , compared with the year ended december 31 , 2019. the decrease was driven primarily by lower volumes , partially offset by favorable manufacturing costs , raw material spread , and inventory adjustments . the primary driver in the decrease in volume was lower customer demand across all end-markets primarily as a result of the covid-19 pandemic and a weak energy market . favorable manufacturing costs in 2020 were primarily due to the company 's significant cost reduction actions and lower annual shutdown maintenance , slightly offset by the unfavorable impact of lower production levels on fixed cost leverage . raw material spread was favorable due to higher scrap spread specifically during the second half of the year . 22 selling , general and administrative expenses the charts below present selling , general and administrative ( sg & a ) expense for the years ended december 31 , 2020 , 2019 and 2018. sg & a expense for the year ended december 31 , 2020 decreased by $ 15.1 million , or 16.4 % , compared with the year ended december 31 , 2019. the decrease in 2020 is primarily due to lower wages and benefits expense which are a result of a reduction in employee headcount following the company 's recent restructuring actions , as well as unpaid rolling furloughs for salaried employees during the second and third quarters . additional reductions in sg & a are due to other covid-19 related cost reduction actions , lower controllable spend as well as lower bad debt expense . the decrease is partially offset by an increase in variable compensation . restructuring charges during 2019 and throughout 2020 , timkensteel made organizational changes to streamline its organizational structure to drive enhanced profitability and sustainable growth . these company-wide actions included the restructuring of its business support functions , the reduction of management layers throughout the organization , the closure of the tms facility in houston , texas and other domestic and international actions to further improve the company 's overall cost structure . through these restructuring efforts , to date the company has eliminated approximately 215
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at december 31 , 2011 , abbott 's long-term debt rating was aa by standard and poor 's corporation and a1 by moody 's investors service . in 2012 , abbott will focus on several key initiatives . in the proprietary pharmaceutical business , abbott will continue maximizing the market potential for humira and other products , including androgel , as well as continuing to build its global presence . pharmaceutical research and development efforts will continue to focus a significant portion of expenditures on compounds for immunology , oncology , neuroscience , pain management , hcv , chronic kidney disease and women 's health . current research and development projects are described in the research and development programs section . in the established pharmaceutical business which includes international sales of branded generic products , abbott will continue to focus on obtaining additional product approvals across numerous countries and expanding its presence in emerging markets . in the vascular business , abbott will continue to focus on marketing products in the xience franchise , obtaining regulatory review of the mitraclip device in the u.s. , and increasing international mitraclip sales as well as further clinical development of absorb , its bioresorbable vascular scaffold ( bvs ) device and a further roll-out of absorb in ce mark countries . in abbott 's other segments , abbott will focus on developing or acquiring differentiated technologies in higher growth segments of those markets . critical accounting policies sales rebates approximately 54 percent of abbott 's consolidated gross revenues are subject to various forms of rebates and allowances that abbott records as reductions of revenues at the time of sale . 29 most of these rebates and allowances are in the proprietary pharmaceutical products segment and the nutritional products segment . abbott provides rebates to pharmacy benefit management companies , state agencies that administer the federal medicaid program , insurance companies that administer medicare drug plans , state agencies that administer the special supplemental nutrition program for women , infants , and children ( wic ) , wholesalers , group purchasing organizations , and other government agencies and private entities . rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product . factors used in the rebate calculations include the identification of which products have been sold subject to a rebate , which customer or government agency price terms apply , and the estimated lag time between sale and payment of a rebate . using historical trends , adjusted for current changes , abbott estimates the amount of the rebate that will be paid , and records the liability as a reduction of gross sales when abbott records its sale of the product . settlement of the rebate generally occurs from two to 24 months after sale . abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs . rebates and chargebacks charged against gross sales in 2011 , 2010 and 2009 amounted to approximately $ 5.5 billion , $ 4.9 billion and $ 4.4 billion , respectively , or 22.2 percent , 23.1 percent and 23.8 percent , respectively , based on gross sales of approximately $ 24.8 billion , $ 21.1 billion and $ 18.4 billion , respectively , subject to rebate . a one-percentage point increase in the percentage of rebates to related gross sales would decrease net sales by approximately $ 248 million in 2011. abbott considers a one-percentage point increase to be a reasonably likely increase in the percentage of rebates to related gross sales . other allowances charged against gross sales were approximately $ 409 million , $ 415 million and $ 414 million for cash discounts in 2011 , 2010 and 2009 , respectively , and $ 490 million , $ 537 million and $ 456 million for returns in 2011 , 2010 and 2009 , respectively . cash discounts are known within 15 to 30 days of sale , and therefore can be reliably estimated . returns can be reliably estimated because abbott 's historical returns are low , and because sales returns terms and other sales terms have remained relatively unchanged for several periods . management analyzes the adequacy of ending rebate accrual balances each quarter . in the domestic nutritional business , management uses both internal and external data available to estimate the level of inventory in the distribution channel . management has access to several large customers ' inventory management data , and for other customers , utilizes data from a third party that measures time on the retail shelf . these sources allow management to make reliable estimates of inventory in the distribution channel . except for a transition period before or after a change in the supplier for the wic business in a state , inventory in the distribution channel does not vary substantially . management also estimates the states ' processing lag time based on claims data . in addition , internal processing time is a factor in estimating the accrual . in the wic business , the state where the sale is made , which is the determining factor for the applicable price , is reliably determinable . estimates are required for the amount of wic sales within each state where abbott has the wic business . external data sources utilized for that estimate are participant data from the u.s. department of agriculture ( usda ) , which administers the wic program , participant data from some of the states , and internally administered market research . the usda has been making its data available for many years . internal data includes historical redemption rates and pricing data . at december 31 , 2011 , abbott had the exclusive wic business in 23 states . in the domestic proprietary pharmaceutical business , the most significant charges against gross sales are for medicaid and medicare rebates , pharmacy benefit manager rebates and wholesaler chargebacks . story_separator_special_tag in order to evaluate the adequacy of the ending accrual balances , management uses both internal and external data to estimate the level of inventory in the distribution channel and the rebate claims processing lag time . external data sources used to estimate the inventory in the distribution channel include inventory levels periodically reported by wholesalers and third party market data purchased by abbott . management estimates the processing lag time based on periodic sampling of claims data . to estimate the price rebate percentage , systems and calculations are used to track sales by product by customer and to estimate the contractual or statutory price . abbott 's systems and calculations have developed over time as rebates have become more significant , and abbott believes they are reliable . 30 the following table is an analysis of the four largest rebate accruals , which comprise approximately 68 percent of the consolidated rebate provisions charged against revenues in 2011. remaining rebate provisions charged against gross sales are not significant in the determination of operating earnings . ( dollars in millions ) replace_table_token_3_th historically , adjustments to prior years ' rebate accruals have not been material to net income . abbott employs various techniques to verify the accuracy of claims submitted to it , and where possible , works with the organizations submitting claims to gain insight into changes that might affect the rebate amounts . for medicaid , medicare and other government agency programs , the calculation of a rebate involves interpretations of relevant regulations , which are subject to challenge or change in interpretation . income taxes abbott operates in numerous countries where its income tax returns are subject to audits and adjustments . because abbott operates globally , the nature of the audit items are often very complex , and the objectives of the government auditors can result in a tax on the same income in more than one country . abbott employs internal and external tax professionals to minimize audit adjustment amounts where possible . in accordance with the accounting rules relating to the measurement of tax contingencies , in order to recognize an uncertain tax benefit , the taxpayer must be more likely than not of sustaining the position , and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit . application of these rules requires a significant amount of judgment . in the u.s. , abbott 's federal income tax returns through 2008 are settled except for one item , and the income tax returns for years after 2008 are open . abbott does not record deferred income taxes on earnings reinvested indefinitely in foreign subsidiaries . pension and post-employment benefits abbott offers pension benefits and post-employment health care to many of its employees . abbott engages outside actuaries to assist in the determination of the obligations and costs under these programs . abbott must develop long-term assumptions , the most significant of which are the health care cost trend rates , discount rates and the expected return on plan assets . the discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits . the health care cost trend rates represent abbott 's expected annual rates of change in the cost of health care benefits and is a forward projection of health care costs as of the measurement date . a difference between the assumed rates and the actual rates , which will not be known for decades , can be significant in relation to the obligations and the annual cost recorded for these programs . low asset returns due to poor market conditions and low interest rates have significantly increased actuarial losses for these plans . at december 31 , 2011 , pretax net actuarial losses and prior service costs and ( credits ) recognized in accumulated other comprehensive income ( loss ) for abbott 's defined benefit plans and medical and dental plans were losses of $ 3.8 billion and $ 237 million , respectively . actuarial losses and gains are amortized over the remaining service 31 attribution periods of the employees under the corridor method , in accordance with the rules for accounting for post-employment benefits . differences between the expected long-term return on plan assets and the actual annual return are amortized over a five-year period . note 4 to the consolidated financial statements describes the impact of a one-percentage point change in the health care cost trend rate ; however , there can be no certainty that a change would be limited to only one percentage point . valuation of intangible assets abbott has acquired and continues to acquire significant intangible assets that abbott records at fair value . transactions involving the purchase or sale of intangible assets occur with some frequency between companies in the health care field and valuations are usually based on a discounted cash flow analysis . the discounted cash flow model requires assumptions about the timing and amount of future net cash flows , risk , the cost of capital , terminal values and market participants . each of these factors can significantly affect the value of the intangible asset . abbott engages independent valuation experts who review abbott 's critical assumptions and calculations for acquisitions of significant intangibles . abbott reviews definite-lived intangible assets for impairment each quarter using an undiscounted net cash flows approach . if the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset , the intangible asset is written down to its fair value , which is usually the discounted cash flow amount . where cash flows can not be identified for an individual asset , the review is applied at the lowest group level for which cash flows are identifiable .
| u.s. proprietary product sales in 2009 were impacted by decreased sales of depakote due to generic competition , partially offset by increased sales of humira and the addition of lupron sales from the conclusion of the tap joint venture in april 2008. u.s. sales of depakote were $ 148 million , $ 161 million and $ 331 million in 2011 , 2010 and 2009 , respectively . worldwide sales of kaletra in all three years were negatively affected by market competition . international proprietary product sales in all three years were favorably impacted by increased sales of humira . the increases in established pharmaceutical sales in 2011 and 2010 are primarily due to the acquisitions of solvay pharmaceuticals and piramal and growth in emerging markets . u.s. pediatric nutritionals sales in 2011 and 2010 were affected by the voluntary recall of certain similac-brand powder infant formulas in september 2010 and the subsequent recovery in market share in 2011. international pediatric and adult nutritionals sales increases over the three years were due primarily to volume growth in developing countries . international proprietary pharmaceuticals , international adult nutritionals and immunochemistry sales in 2011 and 2010 were positively impacted by the effect of the relatively weaker u.s. dollar and were negatively impacted in 2009 by the effect of the relatively stronger u.s. dollar . abbott has periodically sold product rights to non-strategic products and has recorded the related gains in net sales in accordance with abbott 's revenue recognition policies as discussed in note 1 to the consolidated financial statements . related net sales were approximately $ 58 million and $ 120 million in 2010 and 2009 , respectively , while there were no significant sales in 2011. the expiration of licenses , patent protection and generic competition can affect the future revenues and operating income of abbott . there are currently no significant patent or license expirations in the next three years . under a license agreement for tricor 145 mg , generic competition is not expected before july 2012. under a license agreement for trilipix 45 mg and 135 mg , generic competition may begin in january 2014 except that under certain circumstances the license may commence
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we anticipate that , over time , our research and development expenses may increase as we : ( 1 ) continue our product development efforts for the cleartrace system ; ( 2 ) continue to develop enhancements to our clearpoint system ; and ( 3 ) expand our research to apply our technologies to additional product applications . from our inception through december 31 , 2012 , we have incurred approximately $ 37 million in research and development expenses . product development timelines , likelihood of success and total costs vary widely by product candidate . at this time , given the stage of development of the cleartrace system and due to the risks inherent in the product clearance and approval process , we are unable to estimate with any certainty the costs that we will incur in the continuing development of that product candidate for commercialization . selling , general and administrative expenses our selling , general and administrative expenses consist primarily of : salaries , sales incentive payments , travel and benefits ; share-based compensation ; professional fees , including fees for attorneys and outside accountants ; occupancy costs ; insurance ; marketing costs ; and other general and administrative expenses , which include corporate licenses , director fees , hiring costs , taxes , postage , office supplies and meeting costs . our selling , general and administrative expenses are expected to increase due to costs associated with the commercialization of our clearpoint system , increased headcount necessary to support our continued growth in operations , and the operational and regulatory burdens and costs associated with operating as a public company . critical accounting policies and significant judgments and estimates our management 's 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 united states , or gaap . the preparation of these 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 as of the date of the financial statements as well as the reported expenses during the reporting periods . the accounting estimates that require our most significant , difficult and subjective judgments include revenue recognition , impairment of long-lived assets , computing the fair value of our derivative liability and the determination of share-based compensation and financial instruments . we evaluate our estimates and judgments on an ongoing basis . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . 54 revenue recognition . our revenues arise from : ( 1 ) the sale of clearpoint system reusable components , including associated installation services ; ( 2 ) the sale of clearpoint disposable products ; and ( 3 ) license and development arrangements . we evaluate the various elements of our arrangements based upon gaap for multiple element arrangements to determine whether the various elements represent separate units of accounting . this evaluation requires subjective determinations about the fair value or estimated selling price of each element and whether delivered elements have stand-alone value and , therefore , are separable from the undelivered contract elements for revenue recognition purposes . we recognize revenue , in accordance with the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 605-10-s99 , “ revenue recognition , ” when persuasive evidence of an arrangement exists , the fee is fixed or determinable , collection of the fee is probable and delivery has occurred . for all sales , we require either a purchase agreement or a purchase order as evidence of an arrangement . ( 1 ) sale of clearpoint system reusable components — revenues related to clearpoint system sales are recognized upon installation of the system and the completion of training of at least one of the customer 's physicians , which typically occurs concurrently with the clearpoint system installation . clearpoint system reusable components include software . this software is integral to the utility of the clearpoint system as a whole , and as such , the provisions of fasb asc 985-605 , “ software revenue recognition , ” are not applicable . sales of reusable components that have stand-alone value to the customer are recognized when risk of loss passes to the customer . sales of reusable components to a distributor that has been trained to perform clearpoint system installations are recognized at the time risk of loss passes to the distributor . ( 2 ) sales of clearpoint disposable products — revenues from the sale of clearpoint disposable products utilized in procedures performed using the clearpoint system , which occurs after the system installation is completed for a given customer , are recognized at the time risk of loss passes , which is generally at shipping point or the customer 's location , based on the specific terms with that customer . ( 3 ) license and development arrangements — historically we have evaluated revenue recognition on an agreement-by-agreement basis , which has principally involved two license agreements with boston scientific . both agreements provide for various potential revenue streams for us , including an up-front licensing fee for one of the licenses , various milestone payments , payments for research and development and consulting services , and royalties . in both license agreements , we concluded that all of the contract elements should be treated as a single unit of accounting . as such , all amounts received were initially recorded as deferred revenue and thereafter recognized as revenue over our estimated period of performance on a straight-line basis . story_separator_special_tag in the case of the license with a possible repayment obligation provision , revenue was not recognized until the repayment obligation period expired ; the revenue that had been deferred was recognized in the year ended december 31 , 2012. note 2 to our financial statements , “ significant accounting policies—revenue recognition , ” more fully describes the deliverables under these license agreements including our rights , obligations and cash flows . inventory . inventory is carried at the lower of cost ( first-in , first-out ( “ fifo ” ) method ) or net realizable value . all items included in inventory relate to the company 's clearpoint system . software license inventory that is not expected to be utilized within the next twelve months is classified as a non-current asset . we periodically review our inventory for obsolete items and provide a reserve upon identification of potential obsolete items . share-based compensation . we account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments ( including options and warrants ) in accordance with fasb asc 718 , “ compensation – stock compensation. ” under asc 718 , the fair value of each award is estimated and amortized as compensation expense over the requisite vesting period . the fair value of our share-based awards is estimated on the grant date using the black-scholes valuation model . this valuation model requires the input of highly subjective assumptions , including the expected stock volatility , estimated award terms and risk-free interest rates during the expected terms . to estimate the expected terms , we utilize the “ simplified ” method for “ plain vanilla ” options discussed in the sec 's staff accounting bulletin 107 , or sab 107. we believe that all factors listed within sab 107 as pre-requisites for utilizing the simplified method apply to us and for our share-based compensation arrangements . we intend to utilize the simplified method for the foreseeable future until more detailed information about exercise behavior becomes available . we based our estimate of expected volatility on the average of historical volatilities of publicly traded companies we deemed similar to us because we lack adequate relevant historical volatility data . we will consistently apply this methodology until a sufficient amount of historical information regarding the volatility of our share prices becomes available . we utilize risk-free interest rates based on zero-coupon united states treasury instruments , the terms of which are consistent with the expected terms of the share-based awards . we have not paid and do not anticipate paying cash dividends on shares of our common stock ; therefore , the expected dividend yield is assumed to be zero . the fair value of share-based payments are generally amortized on a straight-line basis over the requisite service periods of the awards , which are generally the vesting periods . we believe there is a high degree of subjectivity involved when using option pricing models to estimate share-based compensation under asc 718. currently , there is not a market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models , nor is there a means to compare and adjust the estimates to actual values . although the fair value of share-based awards is determined in accordance with asc 718 using an option pricing model , that value may not be indicative of the fair value observed in a market transaction between a willing buyer and a willing seller . if factors change and we employ different assumptions in the application of asc 718 in future periods than those currently applied under asc 718 , the compensation expense we record in future periods under asc 718 may differ significantly from what we have historically reported . 55 total share-based compensation expense for the years ended december 31 , 2012 , 2011 and 2010 was $ 2.0 million , $ 990,000 and $ 245,000 , respectively . as of december 31 , 2012 there was $ 1.9 million of unrecognized compensation cost related to nonvested share-based compensation arrangements . that cost is expected to be recognized over a weighted-average period of approximately 1.8 years . research and development costs . expenses related to research , design and development of products are charged to research and development costs as incurred . these expenditures include direct salary and employee benefit related costs for research and development personnel , costs for materials used in research and development activities and costs for outside services . since most of the expenses associated with our development service revenues relate to existing internal resources , these amounts are included in research and development costs . story_separator_special_tag december 31 , 2012 with the year ended december 31 , 2011. other expense , net . net interest expense for the year ended december 31 , 2012 was $ 2.6 million , compared with $ 2.5 million for the year ended december 31 , 2011 , an increase of $ 86,000. interest expense which was accrued during the year ended december 31 , 2012 was $ 534,000 , compared to $ 1.2 million for the year ended december 31 , 2011. the reduction in interest that was accrued related to the conversion of convertible notes payable into shares of our common stock in february 2012 , which notes payable were outstanding for all or part of the year ended december 31 , 2011. the remainder of the interest expense recorded during year ended december 31 , 2012 was mostly related to the $ 1.9 million write-off of deferred debt issuance costs and unamortized debt discounts associated with the conversion of convertible notes payable into shares of our common stock in february 2012. the remainder of interest expense recorded during the year ended december 31 , 2011 related to amortization of debt discounts and deferred debt issuance costs . interest income was approximately $ 14,000 for the year ended december 31 , 2012 , compared with $ 3,000 for the year ended december 31 , 2011 .
| margins on the sale of our clearpoint system disposable components are typically significantly higher than on the sale of our clearpoint system 's reusable components . the decrease due to the change in sales mix was partially offset an increase of $ 110,000 in depreciation expense for loaned systems installed under our clearpoint placement program , which was driven by the additional number of loaned systems installed at customer facilities during the year ended december 31 , 2012 , compared with the year ended december 31 , 2011 . 56 research and development costs . research and development costs were $ 2.5 million for the year ended december 31 , 2012 , compared to $ 4.3 million for the year ended december 31 , 2011 , a decrease of $ 1.8 million , or 42 % . the primary driver of the decrease was a reduction in spending related to our cleartrace development program , as we incurred $ 750,000 in expense for cleartrace related sponsored research during the year ended december 31 , 2011 , compared to none for the year ended december 31 , 2012. a reduction of $ 584,000 in consulting and personnel costs , again mostly related to cleartrace system development , also contributed to the decrease . we scaled back our cleartrace development program spending while we were seeking additional funding and as we focused more time and resources on clearpoint commercialization efforts . we experienced a decrease in research and development costs of $ 362,000 related to our key personnel incentive program ( see the explanation of reversal of r & d obligation below ) when comparing the year ended december 31 , 2012 with the year ended december 31 , 2011. in addition , we recorded a credit of $ 97,000 during the year ended december 31 , 2012 related to sponsored research as we negotiated with a research partner to reduce amounts we were invoiced prior to december 31 , 2011 , but which we had not yet paid , in
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24 following is an analysis of operating expenses for the years ended december 31 ( in millions ) : replace_table_token_11_th * the sum of the components for operating expenses , as adjusted may not agree to totals , as presented , due to rounding . selling , general , and administrative expenses increase d $ 26.5 million , or 1.4 % , in 2015 , on a sales increase of 2.3 % , compared with the year-earlier period . selling , general , and administrative expenses , as a percentage of sales , was 8.5 % and 8.6 % , for 2015 and 2014 , respectively . adjusted for the impact of changes in foreign currencies and acquisitions , operating expenses for 2015 increase d 2.8 % , on a sales increase , as adjusted , of 2.9 % , due to the company 's ability to efficiently manage operating costs . restructuring , integration , and other charges 2016 charges in 2016 , the company recorded restructuring , integration , and other charges of $ 73.6 million . included in the restructuring , integration , and other charges for 2016 is a restructuring and integration charge of $ 32.9 million related to initiatives taken by the company to improve operating efficiencies , which includes personnel costs of $ 25.8 million , facilities costs of $ 5.8 million , and other costs of $ 1.3 million . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . integration costs are primarily related to the integration of acquired businesses within the company 's pre-existing business and the consolidation of certain operations . also included is a charge of $ 3.6 million related to restructuring and integration actions taken in prior periods . included in restructuring , integration , and other charges for 2016 are other expenses of $ 37.1 million , which include the following charges and credits . in 2016 , the company recorded a pension settlement charge of $ 12.2 million ( see note 13 ) , additional expense of $ 11.8 million to increase its accrual for the wyle laboratories ( `` wyle '' ) environmental obligation ( see note 15 ) , acquisition related charges of $ 8.7 million related to contingent consideration for acquisitions completed in prior years , and a fraud loss , net of insurance recoveries , of $ 4.3 million . also in 2016 , the company released a $ 2.4 million legal reserve related to the tekelec matter ( see note 15 ) . 2015 charges in 2015 , the company recorded restructuring , integration , and other charges of $ 68.8 million . included in the restructuring , integration , and other charges for 2015 is a restructuring and integration charge of $ 39.1 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2015 is a charge of $ 4.1 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses and other charges of $ 25.6 million . the restructuring and integration charge of $ 39.1 million in 2015 includes personnel costs of $ 33.9 million , facilities costs of $ 4.2 million , and other costs of $ 1.0 million . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . integration costs are primarily related to the integration of acquired businesses within the company 's pre-existing business and the consolidation of certain operations . 25 2014 charges in 2014 , the company recorded restructuring , integration , and other charges of $ 39.8 million . included in the restructuring , integration , and other charges for 2014 is a restructuring and integration charge of $ 38.3 million related to initiatives taken by the company to improve operating efficiencies . also included in the restructuring , integration , and other charges for 2014 is a charge of $ 1.1 million related to restructuring and integration actions taken in prior periods and acquisition-related expenses of $ 0.4 million . the restructuring and integration charge of $ 38.3 million in 2014 includes personnel costs of $ 29.3 million , facilities costs of $ 5.6 million , and other costs of $ 3.5 million . these restructuring initiatives are due to the company 's continued efforts to lower cost and drive operational efficiency . integration costs are primarily related to the integration of acquired businesses within the company 's pre-existing business and the consolidation of certain operations . as of december 31 , 2016 , the company does not anticipate there will be any material adjustments relating to the aforementioned restructuring plans . refer to note 9 , `` restructuring , integration , and other charges '' of the notes to the consolidated financial statements for further discussion of the company 's restructuring and integration activities . trade name impairment charge the company tests goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter , or more frequently if indicators of potential impairment exist . during the fourth quarter of 2014 , in connection with the company 's global re-branding initiative to brand certain of its businesses under the arrow name , the company made the decision to discontinue the use of a trade name of one of its businesses within the global ecs business segment . as no future cash flows will be attributed to the impacted trade name , the entire book value was written-off , resulting in a non-cash impairment charge of $ 78.0 million as of december 31 , 2014 in the company 's consolidated statements of operations . fair value was determined using unobservable ( level 3 ) inputs . the impairment charge did not impact the company 's consolidated cash flows , liquidity , capital resources , and covenants under its existing revolving credit facility , asset securitization program , and other outstanding borrowings . story_separator_special_tag no impairment existed as of december 31 , 2014 with respect to the company 's other identifiable intangible assets . operating income following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_12_th * the sum of the components for consolidated operating income , as adjusted , may not agree to totals , as presented , due to rounding . the company recorded operating income of $ 858.5 million , or 3.6 % of sales , in 2016 compared with operating income of $ 824.5 million , or 3.5 % of sales , in 2015 . included in operating income for 2016 and 2015 were the previously discussed identifiable intangible asset amortization of $ 54.9 million and $ 51.0 million , respectively , and restructuring , integration , and other charges of $ 73.6 million and $ 68.8 million , respectively . excluding these items , operating income , as adjusted , was $ 987.0 million , or 4.1 % of sales , in 2016 compared with operating income , as adjusted , of $ 944.3 million , or 4.1 % of sales , in 2015 . 26 following is an analysis of operating income for the years ended december 31 ( in millions ) : replace_table_token_13_th the company recorded operating income of $ 824.5 million , or 3.5 % of sales , in 2015 compared with operating income of $ 762.3 million , or 3.3 % of sales , in 2014 . included in operating income for 2015 and 2014 were the previously discussed identifiable intangible asset amortization of $ 51.0 million and $ 44.1 million , respectively , and restructuring , integration , and other charges of $ 68.8 million and $ 39.8 million , respectively , and an impairment charge of $ 78.0 million in 2014. excluding these items operating income , as adjusted , was $ 944.3 million , or 4.1 % of sales , in 2015 compared with operating income , as adjusted , of $ 924.2 million , or 4.1 % of sales , in 2014 . gain on sale of investment during 2015 , the company recorded a gain on sale of investment of $ 2.0 million . during 2014 , the company sold its 1.9 % equity ownership interest in wpg holdings co. , ltd. for proceeds of $ 40.5 million and accordingly recorded a gain on sale of investment of $ 29.7 million . loss on prepayment of debt during 2015 , the company recorded a loss on prepayment of debt of $ 2.9 million related to the redemption of $ 250.0 million principal amount of its 3.375 % notes due november 2015. interest and other financing expense , net net interest and other financing expense increased 11.3 % in 2016 to $ 150.7 million , compared with $ 135.4 million in 2015 , primarily due to higher average debt outstanding and an increase in variable interest rates . net interest and other financing expense increased by 16.7 % in 2015 to $ 135.4 million , compared with $ 116.0 million in 2014 , primarily due to higher average debt outstanding that was used to refinance the company 's 3.375 % notes due november 1 , 2015 before maturity and for general corporate purposes . income taxes the company recorded a provision for income taxes of $ 190.7 million , an effective tax rate of 26.7 % for 2016 . the company 's provision for income taxes and effective tax rate for 2016 were impacted by the previously discussed restructuring , integration , and other charges and identifiable intangible asset amortization . excluding the impact of the aforementioned items , the company 's effective tax rate for 2016 was 27.4 % . the company recorded a provision for income taxes of $ 191.7 million , an effective tax rate of 27.7 % for 2015 . the company 's provision for income taxes and effective tax rate for 2015 were impacted by the previously discussed restructuring , integration , and other charges , identifiable intangible asset amortization , loss on prepayment of debt , gain on sale of investment , and loss on investment . excluding the impact of the aforementioned items , the company 's effective tax rate for 2015 was 27.1 % . the company recorded a provision for income taxes of $ 184.9 million , an effective tax rate of 27.1 % for 2014 . the company 's provision for income taxes and effective tax rate for 2014 were impacted by the previously discussed restructuring , integration , 27 and other charges , identifiable intangible asset amortization , gain on sale of investment , and trade name impairment charge . excluding the impact of the aforementioned items , the company 's effective tax rate for 2014 was 27.2 % . the company 's provision for income taxes and effective tax rate are impacted by , among other factors , the statutory tax rates in the countries in which it operates and the related level of income generated by these operations . net income attributable to shareholders following is an analysis of net income attributable to shareholders for the years ended december 31 ( in millions ) : replace_table_token_14_th * the sum of the components for net income attributable to shareholders , as adjusted , may not agree to totals , as presented , due to rounding . the company recorded net income attributable to shareholders of $ 522.8 million for 2016 , compared with net income attributable to shareholders of $ 497.7 million in the year-earlier period . net income attributable to shareholders , as adjusted , was $ 609.8 million for 2016 , compared with $ 592.3 million in the year-earlier period . following is an analysis of net income attributable to shareholders for the years ended december 31 ( in millions ) : replace_table_token_15_th * the sum of the components for net income attributable to shareholders , as adjusted , may not agree to totals , as presented , due to rounding .
| certain non-gaap financial information in addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) , the company also discloses certain non-gaap financial information , including : sales , income , or expense items as adjusted for the impact of changes in foreign currencies ( referred to as `` impact of changes in foreign currencies '' ) and the impact of acquisitions by adjusting the company 's prior periods to include the operating results of businesses acquired , including the amortization expense related to acquired intangible assets , as if the acquisitions had occurred at the beginning of the earliest period presented ( referred to as `` impact of acquisitions '' ) ; operating income as adjusted to exclude identifiable intangible asset amortization , restructuring , integration , and other charges , and impairment charge ; and net income attributable to shareholders as adjusted to exclude identifiable intangible asset amortization , restructuring , integration , and other charges , impairment charge , gain on sale of investment , loss on investment , loss on prepayment of debt , and settlement of certain international tax matters . management believes that providing this additional information is useful to the reader to better assess and understand the company 's operating performance , especially when comparing results with previous periods , primarily because management typically monitors the business adjusted for these items in addition to gaap results . however , analysis of results on a non-gaap basis should be used as a complement to , and in conjunction with , data presented in accordance with gaap . 21 sales substantially all of the company 's sales are made on an order-by-order basis , rather than through long-term sales contracts . as such , the nature of the company 's business does not provide for the visibility of material forward-looking information from its customers and suppliers beyond a few months . following is an analysis of net sales by business segment for the years ended december 31 ( in millions ) : replace_table_token_6_th * the sum of the components for sales , as adjusted , may not agree to totals , as presented , due to rounding . consolidated sales for 2016 increase d by $ 543.2 million , or 2.3 % , compared with the year-earlier period . the increase in 2016 was driven by an increase in global components business segment sales of $ 1.0 billion , or 7.0 % , offset partially by a decrease in global ecs business segment sales of $ 459.8 million , or 5.2 % , compared with the year-earlier period . adjusted for the impact of changes in foreign currencies
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in circumstances where either title or risk of loss pass upon destination , acceptance or cash payment , we defer revenue recognition until such events occur . our equipment has non-software and software components that function together to deliver the equipment 's essential functionality . revenue is recognized upon shipment or at delivery destination point , provided that customer acceptance criteria can be demonstrated prior to shipment . certain contracts require us to perform tests of the product to ensure that performance meets the published product specifications or customer requested specifications , which are generally conducted prior to shipment . where the criteria can not be demonstrated prior to shipment , revenue is deferred until customer acceptance has been received . we also defer the portion of the sales price that is not due until acceptance , which represents deferred profit . for multiple element arrangements , we allocate revenue to all deliverables based on their relative selling prices . in such circumstances , a hierarchy is used to determine the selling price for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of selling price ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) , and ( iii ) best estimate of the selling price ( besp ) . for a delivered item to be considered a separate unit , the delivered item must have value to the customer on a standalone basis and the delivery or performance of the undelivered item must be considered probable and substantially in our control . our post-shipment obligations include installation , training services , one-year standard warranties , and extended warranties . installation does not alter the product capabilities , does not require specialized skills or tools and can be performed by the customers or other vendors . installation is typically provided within five days of product shipment and is completed within one to two days thereafter . training services are optional and do not 21 affect the customers ' ability to use the product . we defer revenue for the selling price of installation and training . extended warranties constitute warranty obligations beyond one year and we defer revenue in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) 605-20 , separately priced extended warranty and product maintenance contracts. our products are generally subject to warranty and related costs of the warranty are provided for in cost of revenue when product revenue is recognized . we classify shipping and handling costs in cost of revenue . service revenue is recognized over the contractual period or as the services are performed . we generally do not provide our customers with contractual rights of return for any of our products . for transactions involving the sale of software , revenue is recognized in accordance with asc 985-605 , software revenue recognition. we recognize revenue when there is persuasive evidence of an arrangement , delivery has occurred , the sales price is fixed or determinable and collectability is probable . in instances where an arrangement contains multiple elements , revenue related to the undelivered elements is deferred to the extent that vendor-specific objective evidence of fair value ( vsoe ) exists for such elements . in instances where vsoe does not exist for one or more of the undelivered elements of an arrangement , all revenue related to the arrangement is deferred until all elements have been delivered . vsoe is the price charged when the element is sold separately . revenue for the separate elements is only recognized where the functionality of the undelivered element is not essential to the delivered element . for certain contracts eligible for contract accounting under asc 605-35 , revenue recognition construction-type and production-type contracts , revenue is recognized using the percentage-of-completion accounting method based upon the percentage of incurred costs to estimated total costs . these arrangements require significant production , modification , or customization . in all cases , changes to total estimated costs and anticipated losses , if any , are recognized in the period in which they are determined . with respect to contract change orders , claims or similar items , judgment must be used in estimating related amounts and assessing the potential for realization . such amounts are only included in the contract value when they can be reliably estimated and realization is reasonably assured , generally upon receipt of a customer approved change order . inventories inventories , which include materials , labor , and manufacturing overhead , are stated at the lower of cost ( first-in , first-out basis ) or net realizable value . on a quarterly basis , we use consistent methodologies to evaluate all inventories for net realizable value . we record a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process . the inventory valuation is based upon assumptions about future demand , product mix , and possible alternative uses . equity incentive and stock purchase plans stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of asc 718-10 compensationstock compensation . as required by asc 718-10 , we have made an estimate of expected forfeitures and are recognizing compensation costs only for those stock-based compensation awards expected to vest . income taxes on a quarterly basis , we evaluate the realizability of our deferred tax assets by jurisdiction and assess the need for a valuation allowance . we consider the probability of future taxable income and our historical profitability , among other factors , in assessing the amount of the valuation allowance . as a result of this review , undertaken at december 31 , 2002 , we concluded under applicable accounting criteria that it was more likely than not that our deferred tax assets would not be realized and established a valuation allowance in several jurisdictions , most notably the united states . story_separator_special_tag at december 31 , 2011 , we reassessed this judgment and concluded 22 that it is more likely than not that a substantial majority of our deferred tax assets will be realized through consideration of both the positive and negative evidence . the evidence consisted primarily of our three year u.s. historical cumulative profitability , projected future taxable income , forecasted utilization of the deferred tax assets and the fourth quarter of 2011 acquisition of litepoint offset by the volatility of the industries we operate in , primarily the semiconductor industry . as such , we reduced the valuation allowance by $ 190.2 million , which was recorded as a tax benefit in the year ended december 31 , 2011. we maintain a valuation allowance for certain deferred tax assets of $ 51.1 million , primarily related to excess stock compensation deductions associated with pre-2006 activity , state net operating losses and state tax credit carryforwards , due to uncertainty regarding their realization . adjustments could be required in the future if we estimate that the amount of deferred tax assets to be realized is more or less than the net amount we have recorded . investments we account for our investments in debt and equity securities in accordance with the provisions of asc 320-10 , investmentsdebt and equity securities . on a quarterly basis , we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment . factors considered in determining whether a loss is other-than-temporary include : the length of time and the extent to which the market value has been less than cost ; the financial condition and near-term prospects of the issuer ; and the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value . goodwill , intangible and long-lived assets in september 2011 , the fasb issued asu no . 2011-08 , intangibles-goodwill and other ( topic 350 ) : testing goodwill for impairment . this new guidance is intended to simplify goodwill impairment testing by allowing companies to first assess qualitative factors to determine if it is more likely than not that goodwill might be impaired and whether it is necessary to perform the current two-step goodwill impairment test . we adopted this guidance in the fourth quarter of 2011 and determined that it is not more likely than not that the fair value of our reporting unit is less than its carrying value . we assess the impairment of identifiable intangibles , long-lived assets , and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results , significant changes in the manner that we use the acquired asset and significant negative industry or economic trends . when we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the associated risks . we assess goodwill for impairment at least annually in the fourth quarter , on a reporting unit basis , or more frequently , when events and circumstances occur indicating that the recorded goodwill may be impaired . if the book value of a reporting unit exceeds its fair value , the implied fair value of goodwill is compared with the carrying amount of goodwill . if the carrying amount of goodwill exceeds the implied fair value , an impairment loss is recorded in an amount equal to that excess . 23 selected relationships within the consolidated statements of operations replace_table_token_5_th story_separator_special_tag to wireless test . during the year ended december 31 , 2010 , we recorded an inventory provision of $ 6.0 million included in cost of revenues , due to the downward revisions to previously forecasted demand levels . of the $ 6.0 million of total excess and obsolete provisions recorded in 2010 , $ 4.5 million was related to semiconductor test and $ 1.5 million was related to systems test group . during the year ended december 31 , 2009 , we recorded an inventory provision of $ 24.8 million included in cost of revenues , due to the following factors : downward revisions to previously forecasted demand levels as a result of worsening economic conditions experienced in the semiconductor and automotive industries primarily in the first half of 2009 resulted in an inventory provision of $ 13.5 million for inventory not expected to be consumed ; a decline in demand versus forecast for our liquid crystal display ( lcd ) test product due to the global economic downturn , lower product pricing by competitors , the introduction of a new product by a competitor and consolidation among a number of the expected buyers of the product , resulted in an inventory provision of $ 8.6 million ; and during late 2008 , we introduced the next versions of our nextest magnum memory test product . at that time , it was anticipated that demand would continue for the existing version of the product within its installed base of customers . an overall decline in the memory market combined with a portion of our customers accelerating their purchasing of the newer version of the product resulted in an inventory provision of $ 2.7 million . of the $ 24.8 million of total excess and obsolete provisions recorded in 2009 , $ 20.3 million was related to semiconductor test and $ 4.5 million was related to systems test group .
| our three reportable segments accounted for the following percentages of consolidated net revenue for each of the last three years : replace_table_token_8_th net revenue by region as a percentage of total revenue was as follows : replace_table_token_9_th 25 the breakout of product and service revenue for the past three years was as follows : replace_table_token_10_th our product revenue decreased $ 170.8 million or 13 % in 2011 from 2010 primarily due to lower sales of soc semiconductor test products . semiconductor test product sales demand can fluctuate significantly from year to year based upon semiconductor device unit growth and installed base utilization . the 2011 decrease was due to lower volume from reduced demand . the decrease was partially offset by an increase in sales of storage test systems , which was driven by new customers and new product applications . the litepoint acquisition which was completed in october of 2011 added $ 27.8 million of product revenue in 2011. service revenue , which is derived from the servicing of our installed base of products and includes maintenance contracts , repairs , extended warranties , parts sales , and applications support , increased $ 33.7 million or 14 % due to higher volume . our product revenue increased $ 754.5 million or 131 % in 2010 from 2009 primarily due to higher sales across all semiconductor test products . the increase was partially offset by a decrease in sales of storage test systems and mil/aero systems and instruments . service revenue increased $ 34.3 million or 17 % , due to higher volume . in fiscal year 2011 and 2010 , no single customer accounted for more than 10 % of our consolidated net revenue . in 2009 , revenues from one customer accounted for 13 % of our consolidated net revenue . in each of the years 2011 , 2010 and 2009 , our three largest customers in aggregate accounted for 19 % , 21 % and 27 % of our consolidated net revenue , respectively . gross profit replace_table_token_11_th gross profit as a percentage of revenue decreased from 2010 to 2011 by 4.8 percentage points . this decrease was the result of a decrease of 2.9 points related to product mix primarily from higher storage test system sales , a
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in accordance with the tax cuts and jobs act of 2017 ( the “ tax act ” ) , the company re-measured its net deferred tax assets which resulted in a one-time non-cash write-down of its net deferred tax assets and recognized an additional income tax expense of $ 3.9 million for the year ended december 31 , 2017. effective in 2018 , the change in tax law reduced the company 's statutory federal tax rate from 35 % to 21 % . recent accounting developments see note 3 – recently issued and adopted accounting standards to the audited consolidated financial statements for details of recently issued and adopted accounting pronouncements and their expected impact on the company 's financial statements . story_separator_special_tag and the adoption of asu 2017-07 for the presentation of net periodic pension costs and net periodic postretirement benefit costs in 2018. the retrospective application of asu 2017-07 for the twelve months ended december 31 , 2017 resulted in a decrease in salaries and employee benefits and an increase in other expenses of approximately $ 252,000. the increase of $ 609,000 in marketing was due to costs related to cambridge trust 's rebranding efforts , which included the development of a new brand , website , and advertising campaign . the increase of $ 221,000 in data processing expense was due to investments made in technology . the merger expenses of $ 201,000 were professional services related to the pending acquisition of optima . noninterest expense increases were partially offset by lower other expenses of $ 880,000 , primarily due to the other components of net periodic pension cost , and net periodic postretirement benefit cost recorded in other expenses for the twelve months ended december 31 , 2018 , as compared to the twelve months ended december 31 , 2017 . 29 income tax expense . in accordance with the ta x cuts and jobs act of 2017 , the company 's federal statutory corporate tax rate decreased from 35 % to 21 % effective january 1 , 2018. the company recorded a provision for income taxes of $ 7.2 million for the year ended december 31 , 2018 , as compared to $ 13 . 4 million for the same period in 2017 , reflecting effective tax rates of 23.2 % and 47.4 % , respectively . results of operations for the years ended december 31 , 2017 and 2016 general . net income decreased by $ 2.1 million , or 12.3 % , to $ 14.8 million for the year ended december 31 , 2017 , from $ 16.9 million for the year ended december 31 , 2016. the decrease was primarily due to a $ 4.8 million increase in income tax expense and a $ 2.5 million increase in noninterest expense , partially offset by a $ 3.7 million increase in net interest and dividend income after the provision for loan losses , and a $ 1.6 million increase in noninterest income . the increase in income tax expense was mainly due to the enactment of the tax act . the change in tax law will reduce the statutory federal tax rate from 35 % to 21 % effective in 2018 and required the company to take a one-time non-cash write-down of its net deferred tax assets of $ 3.9 million , as these deferred tax assets were required to be re-measured using the new lower tax rate in 2017. net interest and dividend income . net interest and dividend income after provision for loan losses increased by $ 3.7 million , or 6.9 % to $ 57.2 million for the year ended december 31 , 2017 , from $ 53.5 million for the year ended december 31 , 2016. the increase in net interest and dividend income after provision for loan losses was primarily due to higher average loan balances . interest on loans increased by $ 3.0 million , or 6.1 % for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016. total average interest-earning assets increased $ 97.9 million , or 5.7 % , to $ 1.8 billion for the year ended december 31 , 2017 from $ 1.7 billion in 2016. the company 's net interest margin , on a fully tax equivalent basis , increased four basis points to 3.25 % for the year ended december 31 , 2017 , as compared to 3.21 % in 2016 , and the net interest rate spread increased four basis points to 3.16 % for the year ended december 31 , 2017 , compared to 3.12 % in 2016. interest and dividend income . total interest and dividend income increased by $ 4.2 million , or 7.3 % , to $ 61.2 million for the year ended december 31 , 2017 , from $ 57.0 million in 2016. the increase in interest and dividend income was primarily due to a $ 3.0 million increase in interest income on loans and a $ 1.0 million increase in interest income on investment securities . total average interest-earning assets increased $ 97.9 million , or 5.7 % , to $ 1.8 billion for the year ended december 31 , 2017 from $ 1.7 billion in 2016. interest expense . interest expense increased by $ 232,000 , or 6.9 % , to $ 3.6 million for the year ended december 31 , 2017 , from $ 3.4 million in 2016. the increase was primarily the result of a $ 69.5 million increase in the average balance of interest-bearing liabilities . the average cost of interest bearing liabilities remained unchanged from 2016 and stood at 0.29 % . provision for loan losses . story_separator_special_tag the company recorded a provision for loan losses of $ 362,000 for the year ended december 31 , 2017 , compared to a provision for loan losses of $ 132,000 in 2016. we recorded net charge-offs of $ 303,000 for the year ended december 31 , 2017 , compared to net charge-offs of $ 62,000 during 2016. the allowance for loan losses was $ 15.3 million , or 1.13 % of total loans outstanding at december 31 , 2017 , as compared to $ 15.3 million , or 1.16 % of total loans outstanding at year end 2016. noninterest income . noninterest income increased by $ 1.6 million , or 5.5 % , to $ 30.2 million for the year ended december 31 , 2017 , as compared to $ 28.7 million for the year ended december 31 , 2016 , primarily as a result of higher wealth management revenue . the company 's wealth management revenue is the largest component of noninterest income and increased by $ 2.6 million , or 12.9 % , to $ 23.0 million for the year ended 2017 , as compared to $ 20.4 million in 2016 due to a combination of market appreciation and net new business . assets under management combined with assets under administration were $ 3.1 billion at december 31 , 2017 compared to $ 2.7 billion at december 31 , 2016. the categories of wealth management revenues are shown in the following table : replace_table_token_7_th 30 the following table presents the changes in wealth management assets under management : replace_table_token_8_th there were no significant changes to the average fee rates and fee structure for the year ended december 31 , 2017 and 2016. noninterest expense . noninterest expense increased by $ 2.5 million , or 4.5 % , to $ 59.3 million for the year ended december 31 , 2017 , as compared to $ 56.8 million in 2016 , primarily driven by higher salaries and benefits expense and professional services . the increase in salaries and benefits expense of $ 1.9 million is primarily due to annual merit increases , increased staffing to support business initiatives , and higher employee benefit costs . the increase in professional services of $ 980,000 is a result of increased recruitment fees , legal costs , audits and exams , compensation consulting , marketing consulting , training and development , and costs associated with the registration of our securities with the sec . noninterest expense increases were partially offset by decreases in occupancy and equipment expense of $ 217,000 and lower fdic insurance expense of $ 205,000 for the year ended december 31 , 2017 , as compared to 2016. income tax expense . in accordance with the tax act , the company re-measured its net deferred tax assets which resulted in a one-time non-cash write-down of its net deferred tax assets and recognized an additional income tax expense of $ 3.9 million for the year ended december 31 , 2017. the company recorded a provision for income taxes of $ 13.4 million for the year ended december 31 , 2017 , compared to a provision for income taxes of $ 8.6 million for 2016 , reflecting effective tax rates of 47.41 % , and 33.62 % , respectively . the company also recognized $ 221,000 of tax benefit resulting from the adoption of new accounting guidance for share-based payments during 2017. results of operations for the years ended december 31 , 2016 and 2015 general . net income increased $ 1.2 million , or 7.7 % , to $ 16.9 million for the year ended december 31 , 2016 , from $ 15.7 million for the year ended december 31 , 2015. the increase was primarily due to a $ 3.0 million increase in net interest and dividend income after the provision for loan losses , a $ 2.8 million increase in noninterest income , partially offset by a $ 3.6 million increase in noninterest expense , and a $ 1.0 million increase in income tax expense . net interest and dividend income . net interest and dividend income after provision for loan losses increased by $ 3.0 million to $ 53.5 million for the year ended december 31 , 2016 , from $ 50.6 million for the year ended december 31 , 2015. the increase in net interest and dividend income after provision for loan losses was primarily due to strong loan growth in both 2016 and 2015. interest income on loans increased by $ 3.4 million , or 7.5 % . total average interest-earning assets increased to $ 1.7 billion for the year ended december 31 , 2016 , from $ 1.6 billion for the year ended december 31 , 2015. the company 's net interest margin , on a fully taxable basis , decreased 11 basis points to 3.21 % for the year ended december 31 , 2016 , compared to 3.32 % for the year ended december 31 , 2015 , and our net interest rate spread decreased 12 basis point to 3.12 % for the year ended december 31 , 2016 , compared to 3.24 % for the year ended december 31 , 2015. interest and dividend income . total interest and dividend income increased $ 2.7 million , or 4.9 % , to $ 57.0 million for the year ended december 31 , 2016 , from $ 54.3 million for the year ended december 31 , 2015. the increase in interest and dividend income was primarily due to a $ 3.4 million increase in interest income on loans , partially offset by a $ 720,000 decrease in interest income on investment securities . the increase in interest income on loans resulted primarily from a $ 119.2 million increase in the average balance of loans . interest expense .
| interest on loans increased by $ 6.6 million , or 12.7 % for the year ended december 31 , 2018 , as compared to the same period in 2017. total average interest-earning assets increased $ 106.1 million , or 5.8 % , to $ 1.9 billion for the year ended december 31 , 2018 from $ 1.8 billion in 2017. the company 's net interest margin , on a fully tax equivalent basis , increased eight basis points to 3.33 % for the year ended december 31 , 2018 , as compared to 3.25 % in 2017 , and the net interest rate spread increased three basis points to 3.19 % for the year ended december 31 , 2018 , as compared to 3.16 % in 2017. interest and dividend income . total interest and dividend income increased by $ 7.9 million , or 12.9 % , to $ 69.1 million for the year ended december 31 , 2018 , from $ 61.2 million in 2017 , primarily due to a $ 6.6 million increase in interest income on loans and a $ 940,000 increase in interest income on investment securities . interest expense . interest expense increased by $ 1.9 million , or 52.4 % to $ 5.5 million for the year ended december 31 , 2018 , from $ 3.6 million in 2017 , primarily due to a combination of higher interest rates and higher average interest bearing liabilities . average cost of funds increased eight basis points to 0.28 % for the year ended december 31 , 2018 , from 0.20 % in 2017. average interest bearing liabilities increased $ 42.6 million to $ 1.3 billion at december 31 , 2018 , primarily driven by an increase in average savings account balances of $ 52.8 million , higher average money market accounts of $ 24.6 million , higher average checking accounts of $ 15.0 million , partially offset by lower average certificates of deposits of $ 32.4 million , and lower average other borrowed funds of $ 17.4 million . we experienced an increase in the average cost of savings and money market accounts during 2018 , as the company continues to offer competitively priced products to attract new clients and deepen existing client relationships . 28 provision for loan losses . the company recorded a provision for loan losses of $ 1.5 million for the year ended december 31 , 2018 , compared to a provision for loan losses of $ 362,000 in 2017. the increase in the provision was primarily driven by stro ng loan growth during the year totaling $ 208.9 million .
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total cecony ( 0.18 ) ( 28 ) o & r ( a ) changes in rate plans and regulatory charges — 1 operations and maintenance expenses 0.06 19 reflects lower pension costs of $ 0.04 a share and higher operating costs of $ ( 0.02 ) a share . includes the charge-off of certain regulatory assets of $ ( 0.04 ) a share in 2015. depreciation , property taxes and other tax matters ( 0.03 ) ( 10 ) reflects primarily higher property taxes of $ ( 0.03 ) a share . other ( 0.01 ) ( 3 ) includes the impairment of certain assets held for sale in 2015 of $ 0.01 a share and the dilutive effect of con edison 's stock issuances . total o & r 0.02 7 clean energy businesses operating revenues less energy costs 0.14 43 reflects higher revenues from renewable electric production projects and energy services . includes $ 0.01 a share net after-tax mark-to market gains in 2016. substantially , all the mark-to-market effects in the 2016 periods were related to the retail electric business sold in september 2016. gain on sale of the clean energy businesses ' retail electric supply business 0.19 56 operations and maintenance expenses ( 0.06 ) ( 18 ) reflects primarily higher energy service costs . net interest expense ( 0.05 ) ( 14 ) other ( 0.03 ) ( 8 ) includes the dilutive effect of con edison 's stock issuances . total clean energy businesses 0.19 59 con edison transmission 0.07 20 reflects income from equity investments and the dilutive effect of con edison 's stock issuances . other , including parent company expenses ( 0.02 ) ( 6 ) reflects primarily certain income tax benefits in 2015. total $ 0.08 52 a. under the revenue decoupling mechanisms in the utilities ' new york electric and gas rate plans and the weather-normalization clause applicable to their gas businesses , revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved . in general , the utilities recover on a current basis the fuel , gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers . accordingly , such costs do not generally affect con edison 's results of operations . con edison annual report 2017 51 the companies ' other operations and maintenance expenses for the years ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_26_th ( a ) includes demand side management , system benefit charges and public service law 18a assessments which are collected in revenues . ( b ) includes parent company and consolidation adjustments . con edison 's principal business segments are cecony 's regulated utility activities , o & r 's regulated utility activities , the clean energy businesses and con edison transmission . cecony 's principal business segments are its regulated electric , gas and steam utility activities . a discussion of the results of operations by principal business segment for the years ended december 31 , 2017 , 2016 and 2015 follows . for additional business segment financial information , see note n to the financial statements in item 8 . 52 con edison annual report 2017 year ended december 31 , 2017 compared with year ended december 31 , 2016 the companies ' results of operations in 2017 compared with 2016 were : cecony o & r clean energy businesses con edison transmission other ( a ) con edison ( b ) ( millions of dollars ) increases ( decreases ) amount increases ( decreases ) percent increases ( decreases ) amount increases ( decreases ) percent increases ( decreases ) amount increases ( decreases ) percent increases ( decreases ) amount increases ( decreases ) percent increases ( decreases ) amount increases ( decreases ) percent increases ( decreases ) amount increases ( decreases ) percent operating revenues $ 303 3.0 % $ 53 6.5 % $ ( 397 ) ( 36.4 ) % $ 3 — % $ ( 4 ) large $ ( 42 ) ( 0.3 ) % purchased power ( 153 ) ( 9.8 ) ( 6 ) ( 3.0 ) ( 677 ) large — — ( 2 ) — ( 838 ) ( 34.4 ) fuel 44 25.6 — — — — — — — — 44 25.6 gas purchased for resale 191 59.9 26 55.3 114 large — — — — 331 69.4 other operations and maintenance ( 136 ) ( 4.8 ) 15 5.0 149 90.9 7 large ( 1 ) ( 20.0 ) 34 1.0 depreciation and amortization 89 8.0 4 6.0 32 76.2 1 — ( 1 ) large 125 10.3 taxes , other than income taxes 125 6.5 3 3.8 ( 4 ) ( 20.0 ) — — — — 124 6.1 gain on sale of retail electric supply business ( 2016 ) and solar electric production project ( 2017 ) — — — — ( 103 ) ( 99.0 ) — — — — ( 103 ) ( 99.0 ) operating income 143 6.3 11 8.5 ( 114 ) ( 62.3 ) ( 5 ) large — — 35 1.4 other income less deductions 7 — — — 11 50.0 37 86.0 ( 3 ) large 52 81.3 net interest expense 20 3.3 — — 9 26.5 10 large ( 6 ) ( 35.3 ) 33 4.7 income before income tax expense 130 7.8 11 11.6 ( 112 ) ( 65.5 ) 22 64.7 3 18.8 54 2.8 income tax expense 82 13.6 6 16.7 ( 326 ) large ( 2 ) ( 14.3 ) 14 large ( 226 ) ( 32.4 ) net income $ 48 4.5 % $ 5 8.5 % $ 214 large $ 24 large $ ( 11 ) large $ 280 22.5 % ( a ) includes parent company and consolidation adjustments . ( b ) represents the consolidated results of operations of con edison and its businesses . story_separator_special_tag con edison annual report 2017 53 cecony replace_table_token_27_th electric cecony 's results of electric operations for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 is as follows : replace_table_token_28_th cecony 's electric sales and deliveries in 2017 compared with 2016 were : replace_table_token_29_th ( a ) revenues from electric sales are subject to a revenue decoupling mechanism , as a result of which , delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved . ( b ) “ residential/religious ” generally includes single-family dwellings , individual apartments in multi-family dwellings , religious organizations and certain other not-for-profit organizations . ( c ) other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company 's rate plans . see note b to the financial statements in item 8 . ( d ) after adjusting for variations , primarily weather and billing days , electric delivery volumes in cecony 's service area decreased 1.1 percent in 2017 compared with 2016 . operating revenues decreased $ 134 million in 2017 compared with 2016 due primarily to lower purchased power expenses ( $ 154 million ) , offset in part by higher fuel expenses ( $ 23 million ) . purchased power expenses decreased $ 154 million in 2017 compared with 2016 due to lower unit costs ( $ 86 million ) and purchased volumes ( $ 68 million ) . 54 con edison annual report 2017 fuel expenses increased $ 23 million in 2017 compared with 2016 due to higher unit costs . other operations and maintenance expenses decreased $ 156 million in 2017 compared with 2016 due primarily to lower costs for pension and other postretirement benefits ( $ 126 million ) and other employee benefits related to a rabbi trust ( $ 22 million ) . depreciation and amortization increased $ 60 million in 2017 compared with 2016 due primarily to higher electric utility plant balances . taxes , other than income taxes increased $ 78 million in 2017 compared with 2016 due primarily to higher property taxes ( $ 97 million ) and the absence in 2017 of a favorable state audit settlement in 2016 ( $ 5 million ) , offset in part by deferral of under-collected property taxes due to new property tax rates for fiscal year 2017 – 2018 ( $ 21 million ) and lower state and local taxes ( $ 4 million ) . gas cecony 's results of gas operations for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 is as follows : replace_table_token_30_th cecony 's gas sales and deliveries , excluding off-system sales , in 2017 compared with 2016 were : replace_table_token_31_th ( a ) revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism , as a result of which , delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved . ( b ) after adjusting for variations , primarily billing days , firm gas sales and transportation volumes in the company 's service area increased 5.9 percent in 2017 compared with 2016 , reflecting primarily increased volumes attributable to the growth in the number of gas customers . ( c ) includes 3,816 thousands and 4,708 thousands of dt for 2017 and 2016 , respectively , which are also reflected in firm transportation and other . ( d ) other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company 's rate plans . see note b to the financial statements in item 8. operating revenues increased $ 393 million in 2017 compared with 2016 due primarily to increased gas purchased for resale expense ( $ 191 million ) and higher revenues from the gas rate plan and growth in the number of customers ( $ 182 million ) . gas purchased for resale increased $ 191 million in 2017 compared with 2016 due to higher unit costs ( $ 176 million ) and purchased volumes ( $ 15 million ) . con edison annual report 2017 55 other operations and maintenance expenses increased $ 28 million in 2017 compared with 2016 due primarily to higher pension and other postretirement benefits costs ( $ 12 million ) , health and life insurance expenses ( $ 7 million ) and surcharges for assessments and fees that are collected in revenues from customers ( $ 5 million ) . depreciation and amortization increased $ 26 million in 2017 compared with 2016 due primarily to higher gas utility plant balances . taxes , other than income taxes increased $ 33 million in 2017 compared with 2016 due primarily to higher property taxes ( $ 25 million ) , state and local taxes ( $ 7 million ) and payroll taxes ( $ 4 million ) , offset in part by deferral of under-collected property taxes due to new property tax rates for fiscal year 2017 – 2018 ( $ 4 million ) . steam cecony 's results of steam operations for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 is as follows : replace_table_token_32_th cecony 's steam sales and deliveries in 2017 compared with 2016 were : replace_table_token_33_th ( a ) other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company 's rate plan . see note b to the financial statements in item 8 . ( b ) after adjusting for variations , primarily weather and billing days , steam sales and deliveries decreased 3.8 percent in 2017 compared with 2016 . operating revenues increased $ 44 million in 2017 compared with 2016 due primarily to higher fuel expenses ( $ 21 million ) , the weather impact on revenues ( $ 10 million ) , a property tax refund incentive in 2017 ( $ 5 million ) and lower regulatory reserve related to steam earnings sharing ( $ 3 million ) .
| the amount recognized in net income for the clean energy 48 con edison annual report 2017 businesses , con edison transmission and the parent company was $ 269 million , $ 11 million and $ ( 21 ) million , respectively . see “ other regulatory matters ” in note b and note l to the financial statements in item 8 . ( d ) other includes parent company and consolidation adjustments . ( e ) earnings per share on a diluted basis were $ 4.94 a share , $ 4.12 a share and $ 4.05 a share in 2017 , 2016 and 2015 , respectively . the companies ' results of operations for 2017 , as compared with 2016 , and for 2016 , as compared with 2015 , reflect changes in the utilities ' rate plans and regulatory charges and the impact of weather on steam revenues . the results of operations also reflect income from renewable investments at the clean energy businesses . the results of operations for 2017 , as compared with 2016 , reflect income from equity investments at con edison transmission , and for 2016 , as compared with 2015 , reflect higher electric retail gross profit at the clean energy businesses . operations and maintenance expenses for cecony for 2017 , as compared with 2016 , primarily reflect lower costs for pensions and other postretirement benefits . for 2016 , as compared with 2015 , operations and maintenance expenses reflect lower costs for uncollectible expenses ; and for the utilities reflect lower surcharges for assessments and fees that are collected in revenues from customers . in addition , the utilities ' rate plans provide for revenues to cover expected changes in certain operating costs including depreciation , property taxes and other tax matters . the following tables present the estimated effect on earnings per share and net income for 2017 as compared with 2016 , and 2016 as compared with 2015 , resulting from these and other major factors : con edison annual report 2017 49 variation for the years ended december 31 , 2017 vs. 2016 earnings per share net
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the allowance for loan losses is established via a process that includes historical delinquency and credit loss experience , together with analyses that reflect current trends and conditions . management also considers overall portfolio indicators , including historical credit losses , delinquent , non-performing and classified loans , trends in volumes , terms of loans , an evaluation of overall credit quality and the credit process , including lending policies and procedures and economic factors . for a further description of our estimation process in determining the allowance for loan losses , see “ asset quality ” below . general northeast bancorp ( the `` company '' ) is a maine corporation and a bank holding company registered with the federal reserve bank of boston ( `` frb ” ) under the bank holding company act of 1956. the company also is a registered maine financial institution holding company . the frb is the primary regulator of the company and the company is also subject to regulation and examination by the superintendent of the maine bureau of financial institutions . we conduct business from our headquarters in lewiston , maine and , as of june 30 , 2009 , from 11 banking offices , one financial center and 13 insurance agency offices located in western and south-central maine , one insurance agency office located in rochester , new hampshire , and a mortgage loan production office in portsmouth , new hampshire . at june 30 , 2009 , we had consolidated assets of $ 598.1 million and consolidated stockholders ' equity of $ 47.3 million . northeast bancorp 's principal asset is all the capital stock of northeast bank ( the `` bank '' ) , a maine state-chartered universal bank . accordingly , the company 's results of operations are primarily dependent on the results of the operations of the bank . in addition to the bank 's eleven branch offices , its investment brokerage division has an office in falmouth , maine from which investment , insurance and financial planning products and services are offered . the bank 's wholly-owned subsidiary , northeast bank insurance group , inc. ( “ nbig ” ) , offers personal and commercial property and casualty insurance products . four of nbig 's fourteen insurance agency offices operate in our auburn , augusta , bethel , and south paris , maine branches . business strategy the principal business of the bank consists of attracting deposits from the general public and applying those funds to originate or acquire residential mortgage loans , commercial loans , commercial real estate loans , indirect consumer loans and consumer loans . the bank sells residential mortgage and commercial real estate loans into the secondary market . the bank also invests in mortgage-backed securities , securities issued by united states government-sponsored enterprises and municipal securities . the bank emphasizes the growth of noninterest sources of income from sale of residential mortgage loans , trust management , financial planning , investment brokerage and insurance commissions . the bank 's profitability depends primarily on net interest income , which is the difference between interest income earned from interest-earning assets ( i.e . loans and investments ) and interest expense incurred on interest-bearing liabilities ( i.e . customer deposits and borrowed funds ) . our net interest margin ( net interest income as a percentage of average interest earning assets ) is lower than our peers primarily due to our cost of funds . the bank has focused on increasing the mix of demand deposit and non-maturing , interest-bearing deposit accounts which have a lower cost compared to certificates of deposit . our goal is to continue modest , but profitable , growth by increasing our loan and deposit market share in our existing markets in western and south-central maine , closely managing the yields on interest earning assets and rates on interest-bearing liabilities , introducing new financial products and services , increasing the number of bank services per household , increasing noninterest income from expanded trust , investment and insurance brokerage services and controlling the growth of noninterest expenses . it also is part of our business strategy to make targeted acquisitions in our current market areas from time to time when opportunities present themselves . for the twelve months ended june 30 , 2009 , we acquired one insurance agency . the company 's profitability is affected by the bank 's net interest income , which is affected by the measure known as interest rate spread , which is the difference between the average yield earned on its interest-earning assets and the average rate paid on its interest-bearing liabilities , or alternatively by interest margin , which is net interest income as a percentage of average interest-earning assets . net income is also affected by the level of the provision for loan losses , noninterest income and noninterest expense of northeast bancorp and the bank , and the effective tax rate . noninterest income consists primarily of loan and deposit service fees , trust , investment brokerage and insurance commission revenue and gains on the sales of loans and investments . noninterest expenses consist of compensation and benefits , occupancy related expenses , deposit insurance premiums paid to the fdic , and other operating expenses , which include advertising , computer services , supplies , telecommunication and postage expenses . economic conditions we believe that our market area has generally witnessed an economic decline and a decrease in residential and commercial real estate values from 2008 through 2009. the economy and real estate markets in our market areas will continue to be significant determinants of the quality of our assets in future periods and our results of operations , liquidity and financial condition . we believe future 28 economic activity will significantly depend on consumer confidence , consumer spending and business expenditures for new capital equipment , all of which are tied to strong employment . story_separator_special_tag story_separator_special_tag style= '' page-break-after : always '' > 30 noninterest income noninterest income for the fiscal years ended june 30 , 2009 and 2008 was $ 11,533,251 and $ 10,803,224 , respectively , an increase of $ 730,027 , or 7 % , in fiscal 2009. most of this increase was due to the increase in insurance commission income and gain from sale of loans . fees for other services to customers of $ 1,103,681 increased $ 9,638 , or 1 % , during fiscal 2009. this increase was due to higher overdraft , atm and debit card fee revenue as compared to fiscal 2008. net securities gains , of $ 268,373 , decreased $ 24,728 , or 8 % , during fiscal 2009. the gains in fiscal 2009 primarily resulted from restructuring the bond portfolio by selling mortgage-backed securities with significant extension risk in a rising rate environment . extension risk is the increase in average lives of mortgage-backed securities based on the estimated reduction in loan principal prepayments as interest rates increase . gains from the sale of equity and bond securities are subject to market and economic conditions , and there can be no assurance that gains reported in prior periods will be achieved in the future . gains on the sales of loans of $ 1,519,226 increased $ 904,632 , or 147 % , during fiscal 2009. this increase was due to increased volume of residential real estate loans sold as the bank increased the number of mortgage loan originators during fiscal 2009. sold loan volume is subject to changing interest rates . fixed rate residential real estate loans are sold to reduce our exposure to interest rate risk . investment commission revenue of $ 1,588,656 decreased $ 634,279 , or 29 % , during fiscal 2009. this decrease was primarily due to the equity market conditions in 2009. insurance commissions of $ 5,864,743 increased $ 500,463 , or 9 % , during the fiscal year 2009. the increase resulted from the full year impact of the acquisition of the hartford , spence & mathews and hyler insurance agencies acquired in fiscal 2008 , accounting for $ 950,198 , and the goodrich associates acquisition , accounting for $ 12,062 , with these increases partially offset by a decrease in net bonus payments of $ 377,807 and a decrease in commission revenue of $ 83,990 from agency offices acquired prior to fiscal 2008. bank owned life insurance ( boli ) income of $ 491,309 increased $ 34,111 , or 7 % , during fiscal 2009. this increase was due to a full year impact of additional policies purchased in fiscal 2008. the average interest yield , net of mortality cost , was 3.98 % in fiscal 2009 compared to 4.07 % in fiscal 2008. the additions to cash surrender value are based on this average interest yield . these interest rates are determined by the life insurance companies and are reset quarterly or annually . each policy is subject to minimum interest rates . other noninterest income of $ 651,926 decreased $ 69,663 , or 10 % , during fiscal 2009. this decrease was primarily due to decreases in trust income of $ 59,263 and gains from the trading of covered call options of $ 34,558 , partially offset by the increase in loan servicing fees of $ 37,580. noninterest expense noninterest expense for fiscal years ended june 30 , 2009 and 2008 was $ 25,153,569 and $ 21,854,454 , respectively , an increase of $ 3,299,115 , or 15 % . our efficiency ratio , which is noninterest expense as a percentage of the total of net interest income and noninterest income , increased to 88.8 % during fiscal 2009 from 86.9 % in fiscal 2008. the increase in operating expenses , resulting from the full year impact of the insurance agencies acquired in fiscal 2008 and increases in group medical benefits claims expense , fdic insurance expense and collection expense in 2009 compared to the prior year , offset the increases in net interest income and noninterest income resulting in the increase in the efficiency ratio . salaries and employee benefits expense of $ 14,442,398 increased $ 1,423,000 , or 11 % , during the fiscal year 2009. this increase includes the salary and employee benefits full year impact from insurance agency acquisitions in fiscal 2008 of $ 631,365 , an increase in group medical benefits expense for our insurance agency and bank of $ 695,326 due to increased claims in our self-insured group medical plan and an increase in temporary help , deferred compensation and other benefits of $ 96,309. total full-time equivalent employees were 248 compared to 244 at june 30 , 2009 and 2008 , respectively . occupancy expense of $ 1,810,019 increased $ 17,192 , or 1 % , during the fiscal 2009. this increase was primarily due to increased ground maintenance , utilities , janitorial , and depreciation expense related to the insurance agencies offices acquired in fiscal 2008 and the new building added to the south paris branch totaling $ 85,331. these increases were partially offset by a decrease in rent expense and building repair and maintenance expense of $ 68,139. equipment expense of $ 1,603,519 increased $ 16,222 , or 1 % , during the fiscal 2009. the increase was due to depreciation and computer repairs and maintenance expense . these expenses were partially offset by decreases in software and vehicle depreciation expense and personal property tax expense compared to fiscal 2008 .
| · net income decreased to $ 958,989 for fiscal 2009 compared to $ 1,931,289 for fiscal 2008 , a decrease of $ 972,300. increased net interest income and noninterest income were more than offset by increases in the provision for loan losses from higher net credit losses and noninterest expense from higher fdic insurance costs , collection expenses and investment security impairment expense . results of operations comparison of fiscal years ended june 30 , 2009 and 2008 overview for the fiscal year ended june 30 , 2009 ( `` fiscal 2009 '' ) , we reported net income of $ 958,989 , or $ 0.36 per diluted share , as compared to $ 1,931,289 , or $ 0.82 per diluted share , for the fiscal year ended june 30 , 2008 ( `` fiscal 2008 '' ) , an decrease of $ 972,300 , or 50 % . this decrease was attributable to an increase in the provision for loan losses and an increase in noninterest expense partially offset by an increases in net interest income and noninterest income . the return on average assets was 0.16 % in fiscal 2009 compared to 0.33 % in fiscal 2008. the return on average equity was 2.1 % in fiscal 2009 compared to 4.63 % in fiscal 2008. the decrease in our return on average assets and return on average equity was primarily due to the decrease in net income . average assets increased $ 31.7 million in fiscal 2009 compared to fiscal 2008 , also contributing to the decrease in the return on average assets . similarly , average equity increased $ 3.0 million primarily from the sale of preferred stock and contributed to the decrease in the return on average equity . net interest income increased by 17 % in fiscal 2009 as compared to fiscal 2008. this increase was primarily due to an increase in our net interest margin of 29 basis points compared to fiscal 2008. average interest earning assets increased approximately $ 28.7 million as compared to the average interest earning assets in fiscal
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in february 2015 , our indiana subsidiary , managed health services , began operating under an expanded contract with the indiana family & social services administration to provide medicaid services under the state 's healthy indiana plan 2.0 program . in april 2015 , managed health services began operating under an expanded contract with the indiana family & social services administration to provide services to its abd medicaid enrollees who qualify for the new hoosier care connect program . louisiana . in february 2015 , our louisiana subsidiary , louisiana healthcare connections , began operating under a new contract with the louisiana department of health and hospitals to serve healthy louisiana ( medicaid ) beneficiaries . members previously served under the shared savings program were transitioned to the at-risk program on february 1 , 2015. in december 2015 , louisiana healthcare connections began operating under an expanded contract to include behavioral health benefits . in july 2016 , louisiana healthcare connections began serving medicaid expansion members . michigan . in may 2015 , we completed the acquisition of fidelis securecare of michigan , inc. ( fidelis ) . fidelis began operating under a new contract with the michigan department of community health and cms to provide integrated healthcare services to members who are dually eligible for medicare and medicaid in macomb and wayne counties in may 2015. mississippi . in july 2014 , our mississippi subsidiary , magnolia health , began operating as one of two contractors under a new statewide managed care contract serving members enrolled in the mississippi coordinated access network program . program expansion began in december 2014 and continued through july 2015. in july 2015 , magnolia health began operating under a two-year chip contract with the state of mississippi . in december 2015 , magnolia health began operating under an expanded contract to include the inpatient benefit for medicaid and abd members . new hampshire . in january 2016 , we began serving members enrolled in the federally facilitated health insurance marketplace in the state of new hampshire . in january 2016 , we started operating under a contract with the new hampshire department of health and human services to participate in the medicaid expansion model that new hampshire has adopted ( referred to as the “ premium assistance program ” ) . oregon . in september 2015 , we completed the acquisition of agate resources , inc. , a diversified holding company , that offers primarily medicaid and other healthcare products and services to oregon residents through trillium community health plan . south carolina . in february 2015 , our south carolina subsidiary , absolute total care , began operating under a new contract with the south carolina department of health and human services and cms to serve dual-eligible members as part of the state 's dual demonstration program . texas . in march 2015 , we began operating under an expanded star+plus contract with the texas health and human services commission ( hhsc ) to include nursing facility benefits . in march 2015 , we also began operating under a new contract with the texas hhsc and cms to serve dual-eligible members in three counties as part of the state 's dual demonstration program . in november 2016 , our subsidiary , superior healthplan , inc. , began operating under a new contract with the texas hhsc to serve star kids medicaid population in seven delivery areas , more than any other successful bidder . washington . in april 2016 , our subsidiary , coordinated care of washington , began operating as the sole contractor with the washington state health care authority to provide foster care services through the apple health foster care contract . 44 we expect the following items to contribute to our future growth potential : we expect to realize the full year benefit in 2017 from the health net acquisition completed on march 24 , 2016. we expect to realize the full year benefit in 2017 of business commenced during 2016 in florida , louisiana , new mexico , texas , and washington as discussed above . in january 2017 , we signed a joint venture agreement with the north carolina medical society , working in conjunction with the north carolina community health center , to collaborate on a patient-focused approach to medicaid under the reform plan enacted in the state of north carolina . the newly created health plan , carolina complete health , was created to establish , organize and operate a physician-led health plan to provide medicaid managed care services in north carolina . in january 2017 , our pennsylvania subsidiary , pennsylvania health & wellness , was selected by the pennsylvania department of human services to serve medicaid recipients enrolled in the healthchoices program in three zones . pending regulatory approval and successful completion of a readiness review , the three-year agreement is expected to commence june 1 , 2017. in january 2017 , our indiana subsidiary , managed health services , began operating under a contract with the indiana family & social services administration to provide risk-based managed care services for enrollees in the healthy indiana plan and hoosier healthwise programs . in january 2017 , our nebraska subsidiary , nebraska total care , began operating under a contract with the nebraska department of health and human services ' division of medicaid and long term care as one of three managed care organizations to administer its new heritage health program for medicaid , abd , chip , foster care and ltc enrollees . in january 2017 , we continued our participation as a qualified health plan issuer in the arizona health insurance marketplace and exited the health net preferred provider organization offerings in arizona . in november 2016 , our georgia subsidiary , peach state health plan , was awarded a statewide managed care contract to continue serving members enrolled in the georgia families managed care program , including peachcare for kids and planning for healthy babies . story_separator_special_tag through the new contract , peach state health plan will be one of four managed care organizations providing medical , behavioral , dental and vision health benefits for its members . the contract is expected to become effective july 1 , 2017. in november 2016 , our nevada subsidiary , silver summit health plan , was selected to serve medicaid recipients enrolled in nevada 's medicaid managed care program . the contract is expected to commence on july 1 , 2017 , pending regulatory approval and successful completion of a readiness review . in october 2016 , our missouri subsidiary , home state health , was selected to provide managed care services to mo healthnet managed care beneficiaries . under the new contract , home state health expects to serve mo healthnet managed care beneficiaries in each of the state 's 114 counties and the city of st. louis . the contract is expected to commence may 1 , 2017. in september 2016 , the alabama legislature approved the funding needed to create its regional care organization ( rco ) structure . our subsidiary , aha administrative services , has contracted with five nonprofit rcos in alabama to provide management services . operations are expected to commence october 1 , 2017. in august 2016 , our pennsylvania subsidiary , pennsylvania health & wellness , was selected by the department of human services and aging to serve enrollees in the community healthchoices program statewide . expected contract commencement dates vary by zone , starting january 2018 , and will be fully implemented by january 2019 , pending regulatory approval . 45 in july 2016 , it was announced that the department of defense awarded our wholly-owned subsidiary , health net federal services , the tricare west region contract . we currently administer services for the tricare program in the north region . in connection with this latest generation of tricare contracts , the department of defense has consolidated the prior north , south and west tricare regions into two : the west and east regions ( the east combining the current north and south regions ) . we expect health care delivery for this new contract to begin in the second half of 2017. in may 2016 , our specialty solutions division , envolve , inc. was selected by maryland care inc. d/b/a maryland physicians care mco to provide health plan management services for its medicaid operations in maryland effective july 1 , 2017. membership from december 31 , 2014 to december 31 , 2016 , we increased our managed care membership by 7.4 million , or 182 % . the following table sets forth our membership by state : replace_table_token_11_th 46 the following table sets forth our membership by line of business : december 31 , 2016 2015 2014 medicaid : tanf , chip & foster care 5,630,000 3,763,400 2,981,900 abd & ltc 785,400 478,600 438,700 behavioral health 466,600 456,800 197,000 commercial 1,239,100 146,100 93,500 medicare & duals ( 1 ) 334,300 37,400 10,400 correctional 139,400 59,300 41,000 total at-risk membership 8,594,800 4,941,600 3,762,500 tricare eligibles 2,847,000 — — non-risk membership — 166,300 298,400 total 11,441,800 5,107,900 4,060,900 ( 1 ) membership includes medicare advantage , medicare supplement , special needs plans , and medicare-medicaid plans . at december 31 , 2016 , we served 1,080,500 members in medicaid expansion programs in ten states compared to 449,000 members in eight states at december 31 , 2015 , and 201,300 members in six states at december 31 , 2014. at december 31 , 2016 , we served 372,800 dual-eligible members , compared to 204,800 and 164,600 at december 31 , 2015 and 2014 , respectively . at december 31 , 2016 , we served 537,200 members in health insurance marketplaces , compared to 146,100 and 74,500 at december 31 , 2015 and 2014 , respectively . from december 31 , 2015 to december 31 , 2016 , our membership increased as a result of : the acquisition of health net ; organic growth in many of our states , including florida , georgia , oregon , and texas ; product and geographic expansions in louisiana and washington ; market growth and additional penetration in the health insurance marketplace , which included a private option medicaid expansion in new hampshire ; and the commencement of correctional healthcare service contracts in florida and new mexico . from december 31 , 2014 to december 31 , 2015 , our membership increased as a result of : product and geographic expansions in arizona , florida , louisiana , mississippi , and texas ; the acquisition of agate resources , inc. , our oregon subsidiary ; the commencement of hip 2.0 program in indiana ; the commencement of health insurance marketplaces in certain regions of illinois , and oregon ; organic growth in california , georgia , illinois , ohio ; and the commencement of correctional healthcare service contracts in mississippi and vermont . 47 results of operations the following discussion and analysis is based on our consolidated statements of operations , which reflect our results of operations for each of the three years ended december 31 , 2016 , prepared in accordance with generally accepted accounting principles in the united states ( $ in millions , except per share data ) : replace_table_token_12_th n.m. : not meaningful 48 year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenues total revenues increased 78 % in the year ended december 31 , 2016 , over the corresponding period in 2015 , primarily as a result of the acquisition of health net , growth in the health insurance marketplace business , and the impact from expansions , acquisitions or new programs in many of our states in 2016 and 2015 . during the year ended december 31 , 2016 , we received medicaid premium rate adjustments which yielded a net 1 % composite change across all of our markets .
| during the year ended december 31 , 2015 , we received medicaid premium rate adjustments which yielded a net 1 % composite change across all of our markets . operating expenses medical costs the consolidated hbr for the year ended december 31 , 2015 of 88.9 % was a decrease of 40 basis points over the comparable period in 2014 . the decrease compared to the previous year is primarily attributable to improvement in medical expense in the high acuity populations ( ltc/mmp ) and membership growth in medicaid expansion programs and health insurance marketplace , which operate at a lower hbr than traditional medicaid businesses . cost of services cost of services increased by $ 341 million in the year ended december 31 , 2015 , compared to the corresponding period in 2014 . this was primarily due to growth in the acariahealth business . the cost of service ratio for the year ended december 31 , 2015 , was 86.4 % compared to 87.1 % in 2014 . selling , general and administrative expenses sg & a increased by $ 504 million in the year ended december 31 , 2015 , compared to the corresponding period in 2014 . this was primarily due to expenses for additional staff and facilities to support our membership growth . during the year ended december 31 , 2015 , we recorded approximately $ 27 million of health net acquisition related expenses , which reduced our diluted earnings per share by $ 0.14 . during the first quarter of 2015 , we recorded a gain of $ 10 million on the settlement of contingent consideration related to the community health solutions ( chs ) transaction . we also recorded expense of $ 10 million for a contribution to our charitable foundation during the first quarter of 2015. also during 2015 , we experienced higher than anticipated opt-out rates and member attrition in the new michigan dual demonstration program , resulting in lower than expected membership and lower blended premium rates . as a result , the fair value of
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many companies are looking to replace their older in-house dsps due to the power and performance requirements outlined above . furthermore , the programmable nature of our audio/voice dsp combined with a large ecosystem of audio partners developing software enable our customers to significantly differentiate their products and feature sets . our proven track record in audio/voice , with more than 4 billion audio chips shipped to date , puts us in a strong position to power audio roadmaps across this new range of addressable end markets . the market potential for vision processing in the iot offers a new growth segment for the company . our ceva-mm3101 platform is the most mature technology today that offers a unified software-based vision platform that can support these future developments . as a testament to this , we have fifteen customers to date addressing this new growth segment with our ceva-mm3101 platform , including three mobile oems . per abi research , one billion cameras were shipped in 2012 , and this number is predicted to grow to 2.7 billion in 2017 . 80 % of this volume is attributable to smartphones , where we already have a strong foothold through our other technologies . mobile oems are looking for new dslr features such as smarter autofocus , best picture using super resolution algorithms , and better image capture in low-light environments . furthermore , with the addition of video analytics support , cameras will enable new services like augmented reality , gesture recognition and advanced safety capabilities in cars . we see this new revolution as an opportunity for us to significantly expand our footprint in smartphones and further into tablets , pcs and automotive applications . as a result of our diversification strategy beyond cellular baseband and our progress in addressing these new markets under the umbrella of the internet-of-things , we expect significant growth in our unit shipments for non-cellular baseband applications over the next few years , up from approximately 86 million royalty-bearing units annually in 2014 to 700-900 million units annually by 2018. this will be in addition to our existing cellular baseband business , which we believe will continue to be a significant growth driver for us . moreover , we currently anticipate that as a result of our acquisition of rivierawaves and our existing dsp products that our quarterly licensing revenues will be in the range of $ 6 million to $ 7.5 million , as compared to our historical revenue figures in the range of $ 5 million to $ 6 million per quarter . notwithstanding the various growth opportunities we have outlined above , our business operates in a highly competitive and cyclical environment . the maintenance of our competitive position and our future growth are dependent on our ability to adapt to ever-changing technologies , short product life cycles , evolving industry standards , changing customer needs and the trend towards internet-of-things , cellular baseband , connectivity , and voice , audio and video convergence in the markets that we operate . also , our business relies significantly on revenues derived from a limited number of customers . the discontinuation of product lines or market sectors that incorporate our technology by our significant customers or a change in direction of their business and our inability to adapt our technology to their new business needs could have material negative implications for our future royalty revenues . for example , the shift away from feature phones by our customer intel and the exiting of the handset baseband market by our customer broadcom , as well as the slower than expected market adoption of lte technologies , have negatively impacted our royalty revenues . moreover , competition has historically increased pricing pressures for our products and decreased our average selling prices . royalty payments under our existing license agreements also could be lower than currently anticipated for a variety of reasons , including decreased royalty rates triggered by larger volume shipments , lower royalty rates negotiated with customers due to competitive pressure or consolidation among our customers . some of our competitors have reduced their licensing and royalty fees to attract customers and expand their market share . in order to penetrate new markets and maintain our market share with our existing products , we may need to offer our products in the future at lower prices which may result in lower profits . in addition , our future growth is dependent not only on the 32 continued success of our existing products but also the successful introduction of new products , which requires the dedication of resources into research and development which in turn may increase our operating expenses . furthermore , since our products are incorporated into end products of our oem and semiconductor customers , our business is very dependent on their ability to achieve market acceptance of their end products in the handset and consumer electronic markets , which are similarly very competitive . in addition , macroeconomic trends may significantly affect our operating results . for example , consolidation among our customers may negatively affect our revenue source , increase our existing customers ' negotiation leverage and make us more dependent on a limited number of customers . also , since we derive a significant portion of our revenues from the handset market , any negative trends in that market would adversely affect our financial results . moreover , the semiconductor and consumer electronics industries remain volatile , which makes it extremely difficult for our customers and us to accurately forecast financial results and plan for future business activities . our license arrangements have not historically provided for substantial ongoing license payments so revenue recognized from licensing arrangements vary significantly from period to period , depending on the number and size of deals closed during a quarter , and is difficult to predict . story_separator_special_tag moreover , our royalty revenues are based on the sales of products incorporating the semiconductors or other products of our customers , and as a result we do not have direct access to information that will help us anticipate the timing and amount of future royalties . we have very little visibility into the timetable of product shipments incorporating our technology by our customers . as a result , our past operating results should not be relied upon as an indication of future results . critical accounting policies , estimates and assumptions our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( u.s. 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 . to the extent there are material differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition ; business combinations and valuation of goodwill and other acquired intangible assets ; income taxes ; equity-based compensation ; and impairment of marketable securities ; in many cases , the accounting treatment of a particular transaction is specifically dictated by u.s. gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting among available alternatives would not produce a materially different result . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management 's estimates change on the basis of development of business or market conditions . management 's judgments and estimates have been applied consistently and have been reliable historically . 33 we generate our revenues from ( 1 ) licensing intellectual property , which in certain circumstances is modified for customer-specific requirements , ( 2 ) royalty revenues and ( 3 ) other revenues , which include revenues from support , training and sale of development systems . we license our ip to semiconductor companies throughout the world . these semiconductor companies then manufacture , market and sell custom-designed chipsets to oems of a variety of consumer electronics products . we also license our technology directly to oems , which are considered end users . we account for our ip license revenues and related services in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) no . 985-605 , software revenue recognition. revenues are recognized when persuasive evidence of an arrangement exists and no further obligation exists , delivery has occurred , the license fee is fixed or determinable , and collection is reasonably assured . a license may be perpetual or time limited in its application . revenue earned on licensing arrangements involving multiple elements are allocated to each element based on the residual method when vendor specific objective evidence ( vsoe ) of fair value exists for all undelivered elements and vsoe does not exist for one of the delivered elements . vsoe of fair value of the undelivered elements is determined based on the substantive renewal rate as stated in the agreement . extended payment terms in a licensing arrangement may indicate that the license fees are not deemed to be fixed or determinable . if the fee is not fixed or determinable , revenue is recognized as payments become due from the customer unless collection is not considered reasonably assured , then revenue is recognized as payments are collected from the customer , provided all other revenue recognition criteria have been met . revenues from license fees that involve significant customization of our ip to customer-specific specifications are recognized in accordance with the principles set out in fasb asc no . 605-35-25 , construction-type and production-type contracts recognition , using contract accounting on a percentage of completion method . the amount of revenue recognized is based on the total license fees under the agreement and the percentage of completion achieved . the percentage of completion is measured by the actual time incurred to date on the project compared to the total estimated project requirements , which correspond to the costs related to earned revenues . provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined , in the amount of the estimated loss on the entire contract . revenues that are derived from the sale of a licensee 's products that incorporate our ip are classified as royalty revenues . royalty revenues are recognized during the quarter in which we receive a report from the licensee detailing the shipment of products that incorporate our ip , which receipt is in the quarter following the licensee 's sale of such products to its customers . royalties are calculated either as a percentage of the revenues received by our licensees on sales of products incorporating our ip or on a per unit basis , as specified in the agreements with the licensees . non-refundable payments on account of future royalties ( prepaid royalties ) are included within our licensing and related revenue line on the consolidated statements of operations .
| with respect to our royalty revenues , three royalty paying customers each representing 10 % or more of our total royalty revenues for 2014 , and collectively represented 79 % of our total royalty revenues for 2014 , compared to four royalty paying customers each represented 10 % or more of our total royalty revenues for 2013 and 2012 , and collectively representing 81 % and 74 % of our total royalty revenues for 2013 and 2012 , respectively . we expect that a significant portion of our future revenues will continue to be generated by a limited number of customers . the concentration of our customers is explainable in part by consolidation in the semiconductor industry . the loss of any significant customer could adversely affect our near-term future operating results . the following table sets forth the products and services that represented 10 % or more of our total revenues in each of the periods set forth below : replace_table_token_9_th * ) less than 10 % we expect these products will continue to generate a significant portion of our revenues for 2015. the remaining amount consists of other families of products and services , some of which are relatively new like the mm3k and connectivity ip product lines that each currently represented less than 10 % of our total revenues . our total revenues derived from cellular baseband market represented 49 % , 60 % and 62 % of our total revenues for 2014 , 2013 and 2012 , respectively . licensing and related revenue replace_table_token_10_th the increase in licensing and related revenue from 2013 to 2014 principally reflected higher revenues from our connectivity ip products , mainly from the bluetooth ip , due to our acquisition of rivierawaves , and higher revenue from our dsp core family of products licensed to non-baseband applications like vision , audio , voice and sensing . in 2014 , we signed 36 license agreements , of which 32 were for non-baseband applications , and 17 were with new first time ceva customers . the combination of advanced technologies and complimentary software of our new non-baseband technologies lead to strong
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· the economic conditions for commercial real estate developers in the des moines metropolitan area deteriorated over the past several years and contributed to the company 's level of non-performing loans , other real estate owned and related costs in 2011 and 2010. in 2011 and 2010 , there were no significant additional impaired real estate development loans in the des moines market . presently , the company has $ 2.2 million in impaired loans with two des moines development companies with specific reserves totaling $ 165,000. the company has additional customer relationships with real estate developers in the des moines area that may become impaired in the future if economic conditions do not improve or become worse . the company has a limited number of such credits and is actively engaged with the customers to minimize credit risk . · other real estate owned amounted to $ 9.5 million and $ 10.5 million as of december 31 , 2011 and 2010 , respectively . other real estate owned costs amounted to $ 434,000 , $ 95,000 and $ 4,048,000 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . management obtains independent appraisals or performs evaluations to determine that these properties are carried at the lower of the new cost basis or fair value less cost to sell . it is at least reasonably possible that change in fair values will occur in the near term and that such changes could have a negative impact on the company 's earnings . 31 · the fdic imposes an assessment against all depository institutions for deposit insurance . the fdic has the authority to increase insurance assessments . fdic insurance assessments amounted to $ 739,000 , $ 1,120,000 and $ 1,675,000 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . in 2011 , 92 banks failed compared to 161 bank failures in 2010 and 140 in 2009. an increase in fdic deposit assessments will have a negative impact on the company 's earnings . · the company operates in a highly regulated environment and is subject to extensive regulation , supervision and examination . the compliance burden and impact on the company 's operations and profitability with respect to the dodd-frank act are currently unknown , as the dodd-frank act delegates to various federal agencies the task of implementing its many provisions through regulation . hundreds of new federal regulations , studies and reports addressing all of the major areas of the new law , including the regulation of financial institutions and their holding companies , will be required , ensuring that federal rules and policies in this area will be further developing for months and years to come . based on the provisions of the dodd-frank act and anticipated implementing regulations , it is highly likely that financial institutions as well as their holding companies will be subject to significantly increased regulation and compliance obligations that expose them to noncompliance risk and consequences . the bureau of financial consumer protection ( “ bcfp ” ) has broad rulemaking authority to administer and carry out the purposes and objectives of the new federal consumer protection laws , and to prevent “ evasions thereof , ” with respect to all financial institutions that offer financial products and services to consumers . the bcfp is also authorized to prescribe rules , applicable to any covered person or service provider , identifying and prohibiting acts or practices that are “ unfair , deceptive , or abusive ” in connection with any transaction with a consumer for a consumer financial product or service , or the offering of a consumer financial product or service ( “ udap authority ” ) . the full reach and impact of the bcfp 's broad new rulemaking powers and udap authority on the operations of financial institutions offering consumer financial products or services is currently unknown . notwithstanding , insured depository institutions with assets of $ 10 billion or less will continue to be supervised and examined by their primary federal regulators , rather than the bcfp , with respect to compliance with the federal consumer protection laws . regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities , including but not limited to the imposition of restrictions on the operation of an institution , the classification of assets by the institution and the adequacy of an institution 's allowance for loan losses . any change in such regulation and oversight , whether in the form of restrictions on activities , regulatory policy , regulations , or legislation , including but not limited to changes in the regulations governing banks , could have a material impact on the company 's operations . it is unknown at this time to what extent legislation will be passed into law or regulatory proposals will be adopted , or the effect that such passage or adoption will have on the banking industry or the company . applicable laws and regulations may change , and there is no assurance that such changes will not adversely affect the company 's business . key performance indicators certain key performance indicators for the company and the industry are presented in the following chart . the industry figures are compiled by the federal deposit insurance corporation ( fdic ) and are derived from 7,357 commercial banks and savings institutions insured by the fdic . 32 management reviews these indicators on a quarterly basis for purposes of comparing the company 's performance from quarter to quarter against the industry as a whole . selected indicators for the company and the industry replace_table_token_6_th key performance indicators include : · return on assets this ratio is calculated by dividing net income by average assets . it is used to measure how effectively the assets of the company are being utilized in generating income . the company 's return on assets ratio is higher than that of the industry , primarily as a result of the company 's lower provision for loan losses and non-interest expense relative to the industry . story_separator_special_tag · return on equity this ratio is calculated by dividing net income by average equity . it is used to measure the net income or return the company generated for the shareholders ' equity investment in the company . the company 's return on equity ratio is higher than the industry primarily as a result of the company 's lower provision for loan losses and non-interest expense relative to the industry . · net interest margin this ratio is calculated by dividing net interest income by average earning assets . earning assets consist primarily of loans and investments that earn interest . this ratio is used to measure how well the company is able to maintain interest rates on earning assets above those of interest-bearing liabilities , which is the interest expense paid on deposit accounts and other borrowings . the company 's net interest margin is comparable to that of the industry . · efficiency ratio this ratio is calculated by dividing noninterest expense by net interest income and noninterest income . the ratio is a measure of the company 's ability to manage noninterest expenses . the company 's efficiency ratio is lower than the industry average . the company 's efficiency ratio is lower than the industry primarily as a result of the company 's lower non-interest expense . 33 · capital ratio the capital ratio is calculated by dividing average total equity capital by average total assets . it measures the level of average assets that are funded by shareholders ' equity . given an equal level of risk in the financial condition of two companies , the higher the capital ratio , generally the more financially sound the company . the company 's capital ratio is significantly higher than the industry average . story_separator_special_tag on loan sales ( down $ 4.8 billion ) , and lower income from service charges on deposit accounts , which fell by $ 2.1 billion ( 5.9 % ) . realized gains on securities and other assets were $ 3.6 billion ( 39.5 % ) lower than in 2010. insured institutions paid $ 77.9 billion in dividends during 2011 , an increase of $ 24 billion ( 44.5 % ) from 2010 , but below the record level of $ 110.3 billion paid out in 2007. loan losses fall to lowest level in 15 quarters net charge-offs totaled $ 25.4 billion in the fourth quarter , a decline of $ 17.1 billion ( 40.2 % ) from a year ago . the fourth-quarter total represents the lowest level for quarterly charge-offs since first quarter 2008. this is the sixth consecutive quarter in which charge-offs have posted a year-over-year decline . improvements occurred across all major loan types . the largest declines were in credit cards ( down $ 5.4 billion , or 42.2 % ) , real estate construction and land development loans ( down $ 3.3 billion , or 62.4 % ) , residential mortgage loans ( down $ 2.4 billion , or 31.8 % ) and loans to commercial and industrial ( c & i ) borrowers ( down $ 2 billion , or 43.5 % ) . noncurrent loan balances decline in most major loan categories the amount of loan balances that were noncurrent ( 90 days or more past due or in nonaccrual status ) declined for the seventh quarter in a row , falling by $ 4.3 billion ( 1.4 % ) . the decline was led by real estate construction and land development loans , where noncurrent balances fell by $ 4.9 billion ( 13.2 % ) , c & i loans , where noncurrents declined by $ 1.8 billion ( 9.5 % ) , and nonfarm nonresidential real estate loans , where noncurrent balances fell by $ 1.6 billion ( 4 % ) . the only significant increase in noncurrent loans occurred in residential mortgage portfolios , where noncurrent balances rose by $ 5.2 billion ( 3.1 % ) . this increase reflected the addition of $ 6.3 billion in rebooked “ gnma loans ” that were 90 days or more past due . reductions in reserves continue to track declines in noncurrent loans loan-loss reserves fell for a seventh consecutive quarter , declining by $ 6.3 billion ( 3.2 % ) , as net charge-offs of $ 25.4 billion exceeded loss provisions of $ 19.5 billion . as has been the case throughout the recent period of reserve reductions , most of the declines have been concentrated among large institutions . half of all banks increased their reserves during the fourth quarter , whereas 70 % of the 50 largest banks reduced their reserves . the industry 's “ coverage ratio ” of reserves to noncurrent loans and leases declined slightly , from 63.7 % to 62.5 % during the quarter . 35 equity capital registers a small decline lower unrealized gains on available-for-sale securities and other financial instruments contributed to a $ 7.7 billion ( 0.5 % ) decline in the industry 's total equity capital during the fourth quarter . unrealized gains are not included in regulatory capital , and tier 1 leverage capital increased by $ 2.4 billion ( 0.2 % ) . this is the smallest quarterly increase in leverage capital in the past 13 quarters . retained earnings contributed $ 3.7 billion to capital growth in the quarter , as banks paid $ 22.6 billion of their $ 26.3 billion in quarterly earnings in dividends . loan balances post largest real growth in four years total assets of insured institutions increased by $ 76.1 billion ( 0.6 % ) in the fourth quarter , as loan balances rose by $ 130.1 billion ( 1.8 % ) . this is the third consecutive quarter in which total loan balances have increased and , apart from first quarter 2010 when accounting rule changes caused a $ 221 billion increase in reported balances , it represents the largest quarterly increase since fourth quarter 2007.3 as in the prior two quarters , overall loan growth was led by c & i loans , which rose by $ 62.8
| gains on loan sales were $ 1.9 billion ( 53 % ) below the level of a year ago , servicing income was $ 1.4 billion ( 29.9 % ) lower , and trading income fell by $ 812 million ( 23.5 % ) . increases in the market values of some large bank liabilities produced accounting losses in the fourth quarter that reversed some of the related gains in noninterest income that occurred in third quarter 2011.1 net interest income increased year over year for the first time in four quarters , rising by $ 609 million ( 0.6 % ) . 34 full-year net income rises to five-year high for all of 2011 , net income totaled $ 119.5 billion , an increase of $ 34 billion ( 39.8 % ) from full-year 2010 earnings . this is the highest annual net income total since the industry earned $ 145.2 billion in 2006. more than two out of every three banks ( 66.9 % ) reported improved earnings in 2011 , and only 15.5 % reported a net loss for the year . in 2010 , 22.1 % of all banks reported full-year net losses . the average roa was 0.88 % , up from 0.65 % in 2010. the improvement in full-year net income was made possible by an $ 81.1 billion reduction in loan loss provisions . full-year operating revenues are lower than in 2010 both net interest income and noninterest income were lower than in 2010 , as full-year net operating revenue declined for only the second time since 1938 ( the only other decline occurred in 2008 ) . net interest income posted its first full-year decline since 1971 , falling by $ 7.5 billion ( 1.7 % ) . the average net interest margin in 2011 was 3.6 % , down from 3.76 % in 2010. interest-bearing assets increased by 4.4 % in 2011 , but more than a third of this growth ( 35.7 % ) consisted of low-yielding balances with federal reserve banks . total noninterest income fell for a second consecutive year and the fourth time in the last five years , declining by $ 5.3 billion ( 2.3 % ) . income from trust operations and trading income were higher than in 2010 ( by $ 1.6
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proceeds from both the term credit agreement and abl credit agreement were used to repay our 11 % senior secured note due november 5 , 2022 ( the `` 11 % senior notes '' ) and repay all outstanding borrowings and obligations under our then existing bank credit agreement . both the note-purchase agreement related to the 11 % senior note and the then existing bank credit agreement were terminated . to fund its growth , during the first half of 2018 , cclp enhanced its long-term debt structure through the issuance of the cclp 7.50 % senior secured first lien notes due 2025 ( the `` cclp senior secured notes '' ) , repaying and terminating cclp 's prior credit facility ( the `` cclp prior credit facility '' ) , and entering into a loan and security agreement ( the `` cclp credit agreement '' ) , which provides up to $ 50.0 million to fund ongoing working capital and letter of credit needs and for general business purposes . as of december 31 , 2018 , and subject to compliance with the covenants , borrowing base , and other provisions of the agreements that may limit borrowings under the cclp credit agreement , cclp had availability of $ 27.1 million . as of march 1 , 2019 , no borrowings are outstanding under the abl credit agreement or the cclp credit agreement . key objectives associated with our separate capital structures include the ongoing management of amounts outstanding and available under our abl credit agreement and term credit agreement , and the cclp credit agreement . we do not analyze or manage our capital structure on a consolidated basis , as there are no cross default provisions , cross collateralization provisions , or cross guarantees between cclp 's long-term debt and tetra 's long-term debt . approximately $ 633.0 million of our consolidated debt balance carrying value is owed by cclp and serviced by cclp 's existing cash balances and cash provided by cclp 's operations ( less its capital expenditures ) and $ 343.2 million of which is secured by certain assets of cclp . the following table provides condensed consolidating balance sheet information reflecting our net assets , excluding cclp ( `` tetra '' ) , and cclp 's net assets that service our respective capital structures . 27 replace_table_token_5_th tetra 's debt is serviced by existing cash balances and cash provided from operating activities ( excluding cclp ) and the distributions we receive from cclp in excess of our cash capital expenditures ( excluding cclp ) . during the year ended december 31 , 2018 , consolidated cash provided from operating activities was $ 46.6 million , which included approximately $ 30.1 million generated by cclp . during 2018 , we received $ 12.1 million from cclp as our share of cclp distributions . in december 2018 , cclp announced a significant reduction , for a period of up to four quarters , in the level of cash distributions to its common unitholders , including us , reducing the distribution to $ 0.04 per common unit per year . cclp intends to use the cash savings from the reduced distributions to redeem the remaining cclp preferred units outstanding . despite this reduced level of cash distributions from cclp to us , we believe that current increased levels of operating activity will allow us and cclp to continue to meet our respective financial obligations and fund our respective future growth plans as needed . future demand for our products and services depends primarily on activity in the oil and natural gas exploration and production industry , particularly including the level of expenditures for the exploration and production of oil and natural gas reserves , and natural gas compression infrastructure . the future growth of certain of our businesses is dependent on improved future pricing levels of oil and natural gas . when oil and natural gas prices increase , we believe that there are growth opportunities for our products and services , supported primarily by : increases in technologically driven deepwater oil and gas well completions in the gulf of mexico ; applications for many of our products and services in the continuing exploitation and development of shale reservoirs ; and increases in selected international oil and gas exploration and development activities . 28 our completion fluids & products division generates revenues and cash flows by manufacturing and marketing clear brine fluids ( `` cbfs '' ) , additives , and associated products and services to the oil and gas industry for use in well drilling , completion , and workover operations in the united states and in certain countries in latin america , europe , asia , the middle east , and africa . the completion fluids & products division also markets liquid and dry calcium chloride products manufactured at its production facilities or purchased from third-party suppliers to a variety of markets outside the energy industry . completion fluids & products division revenues decreased $ 0.4 million during 2018 compared to 2017 , primarily due to product and services sales revenues during 2017 associated with a tetra cs neptune completion fluid project , and despite improving demand for cbfs and associated product sales in the u.s. gulf of mexico during 2018. while offshore rig counts remain low , we have seen an increase in demand from our customers . in addition , international offshore fluid sales and onshore manufactured product sales increased compared to the prior year . our water & flowback services division provides oil and gas operators with comprehensive water management services as well as frac flowback , production well testing , offshore rig cooling , and other associated services in many of the major oil and gas producing regions in the united states , mexico , and canada , as well as in oil and gas basins in certain regions in south america , africa , europe , the middle east , and australia . story_separator_special_tag the water & flowback services division 's operations are generally driven by the demand for natural gas and oil and the resulting levels of drilling and completion activities in the markets that the water & flowback services division serves . many of the markets served by the water & flowback services division are characterized by high lifting costs for oil and natural gas , such as in certain unconventional shale gas and oil reservoirs located in certain basins in the u.s. , canada , and certain other international markets . north american onshore rig counts increased during 2018 compared to the prior year . the water & flowback services division 's revenues increased by $ 131.5 million in 2018 compared to 2017 , due to increased activity in certain domestic and international markets and due to the impact of acquired water management services businesses , particularly from the february 28 , 2018 acquisition of swiftwater . onshore u.s. activity levels in certain markets have reflected increased rig counts compared to the prior year , although customer demand for services during the fourth quarter of 2018 has been reduced due to the recent decline in oil prices . our compression division , through cclp , generates revenues and cash flows by providing compression services and equipment for natural gas and oil production , gathering , transportation , processing , and storage . the compression division 's equipment sales business includes the fabrication and sale of standard compressor packages and custom-designed compressor packages designed and fabricated at the compression division 's facilities . the compression division 's aftermarket business provides a wide range of services including operation , maintenance , overhaul and reconfiguration services as well as the sale of compressor package parts and components manufactured by third-party suppliers . the compression division provides its services and equipment to a broad base of natural gas and oil exploration and production , midstream , transmission , and storage companies operating throughout many of the onshore producing regions of the united states as well as in a number of foreign countries , including mexico , canada and argentina . compression division revenues increased $ 143.1 million in 2018 as compared to 2017 , primarily due to a significant increase in revenues from sales of compressor equipment , as well as increased compression and related services revenues . the overall utilization of the compression division 's compression fleet has improved sequentially for the past two years , reflecting increasing demand for compression services . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements . we prepared these financial statements in conformity with u.s. gaap . in preparing our consolidated financial statements , we make assumptions , estimates , and judgments that affect the amounts reported . we base these estimates on historical experience , available information , and various other assumptions that we believe are reasonable . we periodically evaluate these estimates and judgments , including those related to potential impairments of long-lived assets ( including goodwill ) , the fair value of financial instruments ( our outstanding stock warrants ( the `` warrants '' ) and cclp preferred units ) , the collectability of accounts receivable , the current cost of future asset retirement obligations , the allocation of acquisition purchase price consideration and the fair value of contingent acquisition consideration . note b – `` summary of significant accounting policies ” to the consolidated financial statements contains the accounting policies governing each of these matters . the fair values of portions of our total assets and liabilities are measured using significant unobservable inputs . the combination of these factors forms the basis for our judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources . these judgments and estimates may change as new events occur , as new information is acquired , and as changes in our operating environments 29 are encountered . actual results are likely to differ from our current estimates , and those differences may be material . the following critical accounting policies reflect the most significant judgments and estimates used in the preparation of our financial statements . fair value of financial instruments during 2016 , we issued the warrants and cclp issued the cclp preferred units as part of equity offerings to generate proceeds that were used to reduce long-term debt outstanding . the warrants are accounted for as a derivative liability in accordance with financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 815 `` derivatives and hedging '' and therefore they are classified as a long-term liability on our consolidated balance sheet at their fair value . the cclp preferred units may be settled using a variable number of common units , and therefore the fair value of the cclp preferred units is classified as a long-term liability on our consolidated balance sheet in accordance with asc 480 `` distinguishing liabilities and equity . '' changes in fair value of these financial instruments during each quarterly period are charged to earnings in the accompanying consolidated statements of operations . the warrants are valued using the black scholes option valuation model that includes estimates of the volatility of the warrants based on their trading prices . the cclp preferred units are valued using market information related to debt instruments , the trading price of the cclp common units , and lattice modeling techniques . the fair values of the warrants and the cclp preferred units will generally increase or decrease with the trading price and volatility of our common stock and the cclp common units , respectively . increases ( or decreases ) in the fair value of these financial instruments will increase ( decrease ) the associated liability , resulting in future adjustments to earnings for the associated valuation losses ( gains ) , and resulting in future volatility of our earnings during the period the financial instruments are outstanding .
| 33 consolidated interest expense , net , increased in 2018 compared to the prior year primarily due to increased compression division interest expense . compression division interest expense increased due to higher cclp outstanding debt balances and a higher interest rate on the cclp senior secured notes , a portion of the proceeds of which were used to repay the balance outstanding under the cclp prior credit facility . increased interest expense is expected to continue compared to prior years . corporate interest expense also increased due to the term credit agreement and abl credit agreement , which were entered into in september 2018 and replaced the 11 % senior note and the previous bank credit agreement . interest expense during 2018 and 2017 includes $ 4.3 million and $ 4.7 million , respectively , of finance cost amortization . the warrants are accounted for as a derivative liability in accordance with asc 815 and therefore they are classified as a long-term liability on our consolidated balance sheet at their fair value . increases ( or decreases ) in the fair value of the warrants are generally associated with increases ( or decreases ) in the trading price of our common stock , resulting in adjustments to earnings for the associated valuation losses ( gains ) , and resulting in future volatility of our earnings during the period the warrants are outstanding . the cclp preferred units may be settled using a variable number of cclp common units , and therefore the fair value of the cclp preferred units is classified as a long-term liability on our consolidated balance sheet in accordance with asc 480. because the cclp preferred units are convertible into cclp common units at the option of the holder , the fair value of the cclp preferred units will generally increase or decrease with the trading price of the cclp common units , and this increase ( decrease ) in cclp preferred unit fair value
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cash flows for acquisitions include $ 8.3 million for the reacquisition of ten franchised restaurants and one former franchised restaurant and $ 4.1 million for real estate associated with the relocation of two high-performing company restaurants due to the impending loss of property control . 20 during 2017 , we repurchased a total of 6.8 million shares of our common stock for $ 82.9 million , thus completing the 2016 repurchase program . in addition , we recorded 0.5 million shares and $ 6.9 million in treasury stock as a result of settling a $ 25 million accelerated share repurchase program that we entered into during 2016. since initiating our share repurchase programs in november 2010 , we have repurchased a total of 43.2 million shares of our common stock for $ 355.6 million . as of december 27 , 2017 , there was $ 196.3 million remaining under the current repurchase program . to maximize the flexibility of our use of cash , during the fourth quarter of 2017 , we refinanced our credit facility . the terms of the new credit facility extend the maturity date from march 2020 to october 2022 and increase the borrowing capacity from $ 325 million to $ 400 million . factors impacting comparability for 2017 , 2016 and 2015 , the following items impacted the comparability of our results : company restaurant sales have increased from $ 353.1 million in 2015 to $ 390.4 million in 2017 , primarily as a result of the increase in same-store sales and acquisitions of restaurants from franchisees . royalty income , which is included as a component of franchise and license revenue , has increased from $ 94.8 million in 2015 to $ 100.6 million in 2017 , primarily as a result of the increase in same-store sales and a higher average royalty rate . initial and other franchise fees , included as a component of franchise and license revenue , are generally recognized in the period in which a restaurant is sold to a franchisee or when a new restaurant is opened . these initial and other fees are completely dependent on the number of restaurants sold to or opened by franchisees during a particular period and , as a result , can cause fluctuations in our total franchise and license revenue from year to year . occupancy revenues , also included as a component of franchise and license revenue , result from leasing or subleasing restaurants to franchisees . when restaurants are sold and leased or subleased to franchisees , the occupancy costs related to these restaurants move from costs of company restaurant sales to costs of franchise and license revenue to match the related occupancy revenue . as leases or subleases with franchisees expire , franchise occupancy revenue and costs could decrease if franchisees enter into direct leases with landlords . occupancy revenue has decreased from $ 41.0 million in 2015 to $ 35.7 million in 2017 , primarily as a result of lease expirations . at the end of 2017 , we had 266 franchise restaurants that are leased or subleased from denny 's , compared to 315 at the end of 2015. during 2014 , our board of directors approved the termination and liquidation of the advantica pension plan ( the “ pension plan ” ) . during 2016 , we completed the liquidation of the pension plan . accordingly , we made a final contribution of $ 9.5 million to the pension plan and recognized a pre-tax settlement loss of $ 24.3 million , reflecting the recognition of unamortized actuarial losses that were recorded in accumulated other comprehensive income . expected impact of revenue recognition adoption in may 2014 , the financial accounting standards board issued accounting standards update 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” . the new guidance clarifies the principles used to recognize revenue for all entities and requires companies to recognize revenue when it transfers goods or service to a customer in an amount that reflects the consideration to which a company expects to be entitled . the fasb has subsequently amended this guidance by issuing additional asus that provide clarification and further guidance around areas identified as potential implementation issues , including principal versus agent considerations , licensing and identifying performance obligations , assessing collectability , presentation of sales taxes received from customers , noncash consideration , contract modification and clarification of using the full retrospective approach upon adoption . all of the standards are effective for annual and interim periods beginning after december 15 , 2017 ( our fiscal 2018 ) . the guidance allows for either a retrospective or cumulative effect transition method with early application permitted . we will use the modified retrospective method of adoption . the guidance is not expected to impact the recognition of company restaurant sales or royalties from franchised restaurants . however , the adoption will have an impact on initial franchise fees , advertising arrangements with franchisees , certain other franchise fees and gift card breakage . 21 upon adoption , initial franchise fees , which are currently recognized upon the opening of a franchise restaurant , will be deferred and recognized over the term of the underlying franchise agreement . the effect of the required deferral of initial franchise fees received in a given year will be mitigated by the recognition of revenue from fees retrospectively deferred from prior years . upon adoption , we expect to record approximately $ 21.0 million as a cumulative effect adjustment increasing opening deficit and deferred revenue as of december 28 , 2017 ( the first day of fiscal 2018 ) related to previously recognized initial franchise fees . the deferred revenue resulting from the cumulative effect adjustment will be amortized over the lives of the individual franchise agreements . story_separator_special_tag during 2017 , 2016 and 2015 , we recorded initial and other fees of $ 2.5 million , $ 2.7 million and $ 2.5 million , respectively , as a component of franchise and license revenue in our consolidated statements of income . currently , we record advertising expense net of contributions from franchisees to our advertising programs , including local co-operatives . additionally , certain other franchise expenses are also recorded net of the related fees received from franchisees . under the new guidance , we will include these revenues and expenditures on a gross basis within the consolidated statements of income . while this change will materially impact the gross amount of reported franchise and license revenue and costs of franchise and license revenue , the impact will generally be an offsetting increase to both revenue and expense such that there will not be a significant , if any , impact on operating income and net income . franchisee contributions to our advertising programs , including local co-operatives , for 2017 , 2016 and 2015 were $ 79.7 million , $ 76.5 million and $ 72.5 million , respectively . other franchise fees recorded net of expenses for 2017 , 2016 and 2015 were $ 2.9 million , $ 3.6 million and $ 2.9 million , respectively . currently , we record breakage income as a benefit to our advertising fund or reduction to other operating expenses , depending on where the gift cards were sold , and breakage is recognized when the likelihood of redemption is remote . upon adoption , gift card breakage income will be presented within revenue and breakage will be recognized proportionately as redemptions occur . we recognized $ 0.3 million in breakage on gift cards during 2017 , 2016 and 2015 . 22 statements of income replace_table_token_9_th ( a ) costs of company restaurant sales percentages are as a percentage of company restaurant sales . costs of franchise and license revenue percentages are as a percentage of franchise and license revenue . all other percentages are as a percentage of total operating revenue . ( b ) equivalent units are calculated as the weighted average number of units outstanding during a defined time period . ( c ) same-store sales include sales from restaurants that were open the same period in the prior year . ( d ) prior year amounts have not been restated for 2017 comparable restaurants . 23 unit activity replace_table_token_10_th company restaurant operations company same-store sales increase d 1.0 % in 2017 and 1.1 % in 2016 compared with the respective prior year . company restaurant sales for 2017 increased $ 23.0 million , or 6.3 % , primarily resulting from the increase in same-store sales and an eight equivalent unit increase in company restaurants . company restaurant sales for 2016 increased $ 14.2 million , or 4.0 % , primarily resulting from the increase in same-store sales and a four equivalent unit increase in company restaurants . total costs of company restaurant sales as a percentage of company restaurant sales were 83.2 % in 2017 , 82.2 % in 2016 and 83.4 % in 2015 . product costs were 25.1 % in 2017 , 24.6 % in 2016 and 25.4 % in 2015 . the changes in both years were primarily due to commodity costs . payroll and benefits were 39.2 % in 2017 , 38.9 % in 2016 and 38.7 % in 2015 . the increase in 2017 was primarily due to a 0.8 percentage point increase in labor costs , partially offset by a 0.2 percentage point decrease in incentive compensation and a 0.2 percentage point decrease in workers ' compensation costs . group insurance costs remained flat compared to the prior year period . the increase in 2016 was primarily due to a 0.8 percentage point increase in labor costs , a 0.3 percentage point increase in group insurance and a 0.2 percentage point increase in workers ' compensation costs , partially offset by a 1.1 percentage point decrease in incentive compensation costs . contributing to the increase in 2016 labor costs was the impact of the california paid sick leave law , which became effective in july 2015. occupancy costs were 5.3 % in 2017 , 5.3 % in 2016 and 5.8 % in 2015 . the 2016 decrease is primarily related to a 0.3 percentage point decrease in general liability costs and a 0.2 percentage point decrease in rent and property taxes due to an increase in capital leases during the year . 24 other operating expenses were comprised of the following amounts and percentages of company restaurant sales : replace_table_token_11_th franchise operations franchise and license revenue and costs of franchise and license revenue were comprised of the following amounts and percentages of franchise and license revenue for the periods indicated : replace_table_token_12_th royalties increase d by $ 2.2 million , or 2.3 % , in 2017 primarily resulting from a 1.1 % increase in domestic same-store sales and a higher average royalty rate as compared to 2016 . equivalent units remained flat for 2017 as compared to 2016. royalties increased by $ 3.7 million , or 3.9 % , in 2016 primarily resulting from an 18 equivalent unit increase in franchised and licensed restaurants , a 0.8 % increase in domestic same-store sales and a higher average royalty rate as compared to 2015 . the higher average royalty rates for both periods resulted as certain restaurants transitioned to a higher rate structure . the average royalty rate was 4.14 % , 4.11 % and 4.02 % for 2017 , 2016 and 2015 , respectively . initial and other fees decrease d by $ 0.3 million , or 9.2 % , in 2017 as a higher number of restaurants were opened by franchisees during the prior year period . initial and other fees increased by $ 0.2 million , or 9.6 % , in 2016 as a higher number of restaurants were opened by franchisees and sold to franchisees compared to the prior year period .
| million , partially offset by net long-term debt borrowings of $ 37.2 million . our working capital deficit was $ 53.6 million at december 27 , 2017 compared with $ 57.5 million at december 28 , 2016 . the decrease in working capital deficit is primarily related to the decrease in accrued incentive compensation . we are able to operate with a substantial working capital deficit because ( 1 ) restaurant operations and most food service operations are conducted primarily on a cash ( and cash equivalent ) basis with a low level of accounts receivable , ( 2 ) rapid turnover allows a limited investment in inventories and ( 3 ) accounts payable for food , beverages and supplies usually become due after the receipt of cash from the related sales . refinancing of credit facility on october 26 , 2017 , denny 's corporation and certain of its subsidiaries refinanced our credit facility ( the “ old credit facility ” ) and entered into a new five-year $ 400 million senior secured revolver ( with a $ 30 million letter of credit sublimit ) ( the “ new credit facility ” ) . the new credit facility includes an accordion feature that would allow us to increase the size of the revolver to $ 450 million . a commitment fee , initially set at 0.30 % , is paid on the unused portion of the revolving credit facility . borrowings under the credit facility bear a tiered interest rate , which is based on the company 's consolidated leverage ratio and was initially set at libor plus 200 basis points . the maturity date for the credit facility is october 26 , 2022 . the new credit facility was used to refinance the old credit facility and will also be available for working capital , capital expenditures and other general corporate purposes . the new credit facility is guaranteed by the company and its material subsidiaries
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the mobile bay properties accounted for 37 % of our production measured on an mmboe basis in 2020. income tax benefit ( expense ) . deferred tax assets are recorded related to net operating losses ( “ nol ” ) and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods . the realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or nols are deductible . in assessing the need for a valuation allowance on our deferred tax assets , we consider whether it is more likely than not that some portion or all of them will not be realized . the reduction of the valuation allowance in recent years has resulted in increases to net income that may not be indicative of future periods . see financial statements and supplementary data – note 12 – income taxes under part ii , item 8 in this form 10-k for additional information . known trends and uncertainties covid-19 . due to circumstances related to the outbreak of covid-19 , various measures have been taken by federal , state and local governments to reduce the rate of spread of covid-19 . these measures and other factors have resulted in a decrease of general economic activity and a corresponding decrease in global and domestic energy demand impacting commodity pricing . in addition , actions by the organization of petroleum exporting countries and other high oil exporting countries like russia ( “ opec+ ” ) have negatively impacted crude oil prices in early 2020. these rapid and unprecedented events pushed crude oil storage near capacity and drove prices down significantly in the second quarter of 2020. these events have been the primary cause of the significant supply-and-demand imbalance for oil , significantly lowering oil pricing in 2020 compared to the prior year . through february 2021 , covid-19 outbreak levels continued and , in some cases , increased in some areas of the united states . should these conditions continue in future periods , they could constrain our ability to store and move production to downstream markets , delay or curtail development activity or temporarily shut-in production , any or all of which could further reduce our cash flow . volatility in oil , ngl and natural gas prices . our realized sales prices received for our crude oil , ngls and natural gas production are affected by not only domestic production activities and political issues , but more importantly , international events , including both geopolitical and economic events . during 2020 , crude oil , ngls and natural gas average realized prices were below 2019 realized prices , decreasing 35.8 % , 36.0 % and 20.1 % , respectively . prolonged period of weak commodity prices like we experienced during 2020 may create uncertainties in our financial condition and results of operations . such uncertainties may include : ● ceiling test write-downs of the carrying value of our oil and gas properties ; ● reductions in our proved reserves and the estimated value thereof ; ● additional supplemental bonding and potential collateral requirements ; ● reductions in our borrowing base under the credit agreement ; and ● our ability to fund capital expenditures needed to replace produced reserves , which must be replaced on a long-term basis to provide cash to fund liquidity needs described above . 40 selected issues and data points related to crude oil , ngls and natural gas markets are described below . as reported by the u.s. energy information administration ( “ eia ” ) in their short-term energy outlook issued in february 2021 ( “ steo ” ) , worldwide production of petroleum and other liquids was estimated to have decreased by 6.4 % in 2020 over the prior year , as compared to no year-over-year production growth for 2019 and a 3.1 % increase in year-over-year production growth for 2018. the decrease was due primarily to lower levels of drilling and production curtailments by opec and other producers in response to lower oil prices . consumption for 2020 decreased 8.4 % over 2019 , largely due to reduced economic activity from the covid-19 pandemic . eia 's forecasts for production , consumption , crude oil prices and natural gas prices for 2021 remain subject to heightened levels of uncertainty because responses to covid-19 continue to evolve . the eia forecasts worldwide production of petroleum and other liquids year-over-year increases for 2021 and 2022 to be 3.3 % and 3.6 % , respectively . the expected increase is due primarily to increases in drilling activity in the u.s. in recent months . consumption for 2021 and 2022 is estimated to increase year-over-year by 5.8 % and 3.6 % , respectively , as a result of the roll-out of covid-19 vaccines . according to eia , u.s. crude oil production ( excluding other petroleum liquids ) decreased 7.6 % in 2020 over 2019 , and is expected to decrease year-over-year in 2021 by 2.6 % and increase year-over-year in 2022 by 4.6 % . for the u.s. , net imports of crude oil in the u.s. fell by 28.9 % in 2020 compared to 2019 and are expected to increase by 36.2 % in 2021 from 2020. the two primary benchmarks for our average realized crude oil sales prices are the prices for wti and brent crude oil . as reported by the eia , wti crude oil prices averaged $ 39.17 per barrel for 2020 , down from $ 56.98 barrel for 2019 ( 31.3 % decrease ) . during january and february of 2021 , wti crude oil prices have ranged from as low as $ 47.47 per barrel to as high as $ 63.43 per barrel , brent crude oil prices averaged $ 41.69 per barrel for 2020 , down from $ 64.28 per barrel for 2019 ( 35.1 % decrease ) . story_separator_special_tag during january and february of 2021 , brent crude oil prices have ranged from as low as $ 50.37 per barrel to as high as $ 66.85 per barrel , the eia projects average crude oil prices for wti to increase approximately $ 11.00 per barrel in 2021 compared to 2020 , and increase in 2022 by approximately $ 1.00 per barrel . the eia projects average brent crude oil prices to increase approximately $ 11.00 per barrel in 2021 compared to 2020 , and to increase approximately $ 2.00 per barrel in 2022. for 2020 , our average realized crude oil sales price was $ 38.45 per barrel . our average realized crude oil sales price differs from the wti benchmark average crude price due primarily to premiums or discounts , crude oil quality adjustments , volume weighting ( collectively referred to as differentials ) and other factors . crude oil quality adjustments can vary significantly by field . for example , crude oil from our east cameron 321 field normally receives a positive quality adjustment , whereas crude oil from our mahogany field normally receives a negative quality adjustment . all of our crude oil is produced offshore in the gulf of mexico and is characterized as poseidon , mars , thunder horse , light louisiana sweet ( “ lls ” ) , heavy louisiana sweet ( “ hls ” ) and others . wti is frequently used to value domestically produced crude oil , and the majority of our crude oil production is priced using the spot price for wti as a base price , then adjusted for the type and quality of crude oil and other factors . similar to crude oil prices , the differentials for our offshore crude oil have also experienced volatility in the past . the monthly average differentials of wti versus poseidon , lls and hls for 2020 d eclined on average by approximately $ 3.40 - $ 4.70 per barrel compared to 2019 for these types of crude oils with the poseidon having a negative differential and the lls and hls having positive differentials as measured on an index basis . during 2020 , our average realized ngls sales price per barrel decreased by 36.0 % compared to 2019. two major components of our ngls , ethane and propane , typically make up approximately 70 % of an average ngl barrel . during 2020 , average prices for domestic ethane decreased by 8 % and average domestic propane prices decreased by 13 % from 2019 as measured using a price index for mount belvieu . the changes in the average price for other domestic ngls components in 2020 ranged from a decrease of 10 % to 38 % year-over-year . per eia , production of ethane increased 10 % in 2020 compared to 2019 and is expected to increase year-over-year by 9 % and 15 % for 2021 and 2022 , respectively . propane production increased 6 % in 2020 compared to 2019 and is expected to increase year-over-year by 1 % for 2021 and decrease 1 % for 2022. ethane and propane inventories increased 10 % and decreased 14 % , respectively as of december 31 , 2020 compared to december 31 , 2019. ethane usage is not impacted by weather , but primarily by demand from petrochemical plants . propane usage is affected by weather as it is used for house heating fuel in certain areas and for crop drying , along with other uses . heating degree days decreased approximately 9 % in 2020 compared to 2019. during 2020 , our average realized natural gas sales price decreased 20.1 % compared to 2019. according to data from eia , spot prices for natural gas at henry hub ( the primary u.s. price benchmark ) were 20.7 % lower in 2020 compared to 2019. during january and february of 2021 , spot prices for natural gas have ranged from as low as $ 2.54 per mcf to as high as $ 24.74 per mcf , natural gas prices are more affected by domestic issues ( as compared to crude oil prices ) , such as weather ( particularly extreme heat or cold ) , supply , local demand issues , other fuel competition ( coal ) and domestic economic conditions , and they have historically been subject to substantial fluctuation . natural gas inventories at the end of 2020 were 5.2 % higher than at the end of 2019. eia projects natural gas supply to be slightly less than consumption in 2021 and forecasts henry hub spot prices to increase by 45 % year-over-year to $ 3.07 per mcf . 41 eia reports that electrical power generation sourced by natural gas consumption increased to 39 % in 2020 compared to 37 % in 2019 and forecasts this percentage to remain at approximately the same level in 2021 and 2022. the percentage of electrical power generation sourced from coal fell in 2020 to 20 % compared to 24 % 2019 and is expected to remain at approximately the same levels in 2021 and 2022. the percentage of electrical power sourced from renewable sources , such as hydropower and wind , increased to 20 % in 2020 as compared to 17.4 % in 2019 and is forecast to exceed 22 % by 2022. according to baker hughes , as of december 31 , 2020 , there were 351 working rigs drilling for oil and natural gas in the u.s. 805 working rigs as of december 31 , 2019. the oil rig counts at the end of december 2020 and december 2019 were 267 and 677 , respectively . the u.s. natural gas rig counts at the end of december 2020 and december 2019 were 83 and 125 , respectively . in the gulf of mexico , the number of working rigs was 17 rigs ( 17 oil and no natural gas rigs ) at the end of december 2020 and 23 rigs ( 22 oil and one natural gas rigs ) at the end of december 2019. deferred production .
| production for 2020 was also negatively impacted by a record number of named storms , maintenance , well issues and pipeline outages that collectively resulted in deferred production of 2.8 mmboe , compared to 2.1 mmboe in 2019. revenues from oil and liquids as a percent of our total revenues were 67.9 % for 2020 compared to 78.9 % for 2019. the average realized sales price per barrel of ngls as a percent of average realized price of crude oil per barrel decreased to 29.3 % for 2020 compared to 29.4 % for 2019. lease operating expenses . lease operating expenses , which include base lease operating expenses , insura nce premiums , workovers , and facilities maintenance expenses , decreased $ 21.4 million , or 11.63 % , to $ 162.9 million in 2020 compared to $ 184.3 million in 2019. on a per boe basis , lease operating expenses decreased to $ 10.58 per boe during 2020 compared to $ 12.43 per boe during 2019. on a component basis , base lease operating expenses decreased $ 7.7 million , workover expenses decreased $ 12.0 million and facilities maintenance expenses decreased $ 6.8 million . these decreases were partially offset by an increase in hurricane repair expenses of $ 4.7 million and an increase of $ 0.3 million in insurance premiums . base lease operating expenses decreased primarily due to reduced expenses of $ 24.1 million from shutting in certain fields ; and credits to expense due to prior period royalty adjustments of $ 6.0 million . these decreases were partially offset by $ 13.4 million increases due to the acquisitions of interests in the mobile bay properties in august 2019 and december 2020 , and a $ 9 million increase related to the acquisition of garden banks 783/784 ( `` magnolia '' ) field in december 2019. the decreases in workover expense and facility maintenance were due to fewer projects undertaken in 2020 as compared to 2019. production taxes . production taxes were $ 4.9 million in 2020 , an increase of $ 2.4 million as compared to 2019 , due to the acquisition of the mobile bay properties . most of our production is from federal waters where no production taxes are imposed . the mobile bay properties and
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a transaction can fail to be completed for many reasons , including failure of parties to agree upon final terms with the counterparty , to secure necessary board or shareholder approvals , to secure necessary financing or to achieve necessary regulatory approvals . in the case of bankruptcy engagements , fees are subject to approval of the court . placement fees – our fund placement services are provided within park hill group and primarily serve private equity , real estate and hedge funds . our team advises on all aspects of the fundraising process , including competitive positioning and market assessment , marketing materials and related documentation and partnership terms and conditions most prevalent in the current environment . we also provide private placement fundraising services to our corporate clients and earn placement fees based on successful completion of the transaction . 1 source : thomson reuters . aggregate mergers and acquisitions values extracted from the official thomson reuters mergers & acquisitions review for full year 2017 , based on figures extracted from thomson reuters databases as of december 29 , 2017 . 31 fund placement fees earned for services provided to alternative asset managers are typically recognized as earned upon accept ance by a fund of capital or capital commitments ( referred to as a “ closing ” ) , in accordance with terms set forth in individual agreements . for commitment based fees , revenue is recognized as commitments are accepted . fees for such closed-end fund arrangem ents are generally paid in quarterly installments over three or four years and interest is charged to the outstanding balance at an agreed upon rate ( typically libor plus a market-based margin ) . for funds with multiple closings , each closing is treated as a separate performance obligation . as a result , we recognize revenue at each closing as our performance obligations are fulfilled . for open-end fund structures , placement fees are typically calculated as a percentage of a placed investor 's month-end net as set value ( “ nav ” ) . typically , we earn fees for such ope n-end fund structures over a 48 month period . for these arrangements , revenue is recognized monthly as the amounts become fixed or determinable . we may receive non-refundable up-front fees upon execution of agreements with clients to provide placement services , which are recorded as revenues in the period over which services are provided . revenues from affiliates – for periods presented prior to october 1 , 2015 , we reported revenues earned from services provided to portfolio companies owned or controlled by blackstone as well as funds managed by blackstone as revenues from affiliates in our consolidated and combined statements of operations . advisory fees from such assignments were 1.5 % of our total advisory fees for the year ended december 31 , 2015. placement fees from such assignments were 12.6 % of our total placement fees for the year ended december 31 , 2015. there were no revenues earned from affiliates for the years ended december 31 , 2017 and 2016. interest income and other – interest income and other represents interest typically earned on cash and cash equivalents , investments in u.s. treasury securities and outstanding placement fees receivable ; miscellaneous income ; foreign exchange gains and losses arising on transactions denominated in currencies other than u.s. dollars ; sublease income ; and the adjustment related to the amount due pursuant to tax receivable agreement . interest on placement fees receivable is earned from the time revenue is recognized and is calculated based upon libor plus an additional percentage as mutually agreed upon with the receivable counterparty . interest receivable is included in accounts receivable in the consolidated and combined statements of financial condition . expenses compensation and benefits – compensation and benefits expense includes salaries , bonuses , benefits , employer taxes and equity-based compensation associated with the grants of equity-based awards to employees and partners . changes in this expense are driven by fluctuations in the number of employees , business performance , increases in wages as a result of inflation or labor market conditions , changes in rates for employer taxes and other cost increases affecting benefit plans . in addition , this expense is affected by the composition of our work force . the expense associated with our bonus and equity plans can also have a significant impact on this expense category and may vary from year to year . we maintain compensation programs , including salaries , annual incentive compensation ( that may include components of cash , restricted cash and or restricted stock units ) and benefits programs . we manage compensation to estimates of competitive levels based on market conditions and performance . our level of compensation reflects our plan to maintain competitive compensation levels to retain key personnel and it reflects the impact of newly-hired senior professionals , including related grants of equity awards that are generally valued at their grant date fair value . increasing the number of high-caliber , experienced senior level employees is critical to our growth efforts . in our advisory businesses , these hires generally do not begin to generate significant revenue in the year they are hired . our remaining expenses are the other costs typical to operating our business , which generally consist of : occupancy and related – consisting primarily of costs related to leased property , including rent , maintenance , real estate taxes , utilities and other related costs . story_separator_special_tag our company headquarters are located in new york , new york , and we maintain additional offices in the u.s. and throughout the world ; travel and related – consisting of costs for our partners and employees to render services where our clients are located ; professional fees – consisting primarily of consulting , audit and tax , recruiting and legal and other professional services ; 32 communications and information services – consisting primarily of costs for our technology infrastructure and telecommunications co sts ; depreciation and amortization – consisting of depreciation and amortization on our furniture , equipment , leasehold improvements and intangible assets ; and other expenses – consisting primarily of bad debt , regulatory fees , insurance , fees paid for access to external market data , advertising , other general operating expenses and transaction-related payable to blackstone . income taxes – pjt partners inc. is a corporation subject to u.s. federal , state and local income taxes in jurisdictions where it does business . the company 's businesses generally operate as partnerships for u.s. federal and state purposes and as corporate entities in non-u.s. jurisdictions . in the u.s. federal and state jurisdictions , taxes related to income earned by these entities generally represent obligations of the individual members and partners . prior to october 1 , 2015 , these taxes were not reflected in the company 's consolidated and combined financial statements . the operating entities have generally been subject to new york city unincorporated business tax ( “ ubt ” ) and to entity-level income taxes imposed by non-u.s. jurisdictions , as applicable . these taxes have been reflected in the company 's consolidated and combined financial statements . prior to october 1 , 2015 , the company 's operations were included in the income tax returns of blackstone 's subsidiaries , except for certain entities that were classified as partnerships for u.s. tax purposes . these partnerships were subject to new york city ubt and certain other foreign , state and local taxes , as applicable . in connection with the spin-off from blackstone on october 1 , 2015 , pjt partners inc. became subject to u.s. corporate federal , state and local income tax on its allocable share of results of operations from the operating partnership ( pjt partners holdings lp ) . tax legislation was signed into law on december 22 , 2017 , which lowers the u.s. corporate income tax rate to 21 % as of january 1 , 2018. the estimated impact of the tax legislation was an increase in income tax expense of $ 24.7 million due to the effects of the remeasurement of u.s. deferred tax assets at a lower enacted corporate tax rate . additionally , the company recorded an adjustment related to a decrease in the amount due pursuant to tax receivable agreement in the amount of $ 1.6 million in interest income and other . the impact of the tax legislation may differ from the estimated amounts recorded , possibly materially , due to , among other things , further refinement of the company 's calculations , changes in interpretations and assumptions the company has made , guidance that may be issued and actions the company may take as a result of the tax legislation . non-controlling interests pjt partners inc. is a holding company and its only material asset is its controlling equity interest in pjt partners holdings lp , and certain cash and cash equivalents it may hold from time to time . as the sole general partner of pjt partners holdings lp , pjt partners inc. operates and controls all of the business and affairs and consolidates the financial results of pjt partners holdings lp and its operating subsidiaries . prior to october 1 , 2017 , the ownership interests of holders of partnership units ( other than pjt partners inc. ) were considered redeemable non-controlling interests . redeemable non-controlling interests were presented separately from equity in the consolidated and combined statements of financial condition and the portion of net income ( loss ) attributable to the redeemable non-controlling interests was presented separately in the consolidated and combined statements of operations . on october 1 , 2017 , certain of the restrictive covenants entered into in connection with the spin-off expired . previously , the ability to settle exchanges of partnership units in shares of the company 's class a common stock was not entirely within the company 's control . consequently , the value of these interests has been reclassified from redeemable non-controlling interests to non-controlling interests at their redemption value as of october 1 , 2017. the portion of net income ( loss ) attributable to the non-controlling interests is presented separately in the consolidated and combined statements of operations . 33 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 35 expenses expenses were $ 484.9 million for the year ended december 31 , 2016 , an increase of $ 73.1 million compared with $ 411.9 million for the year ended december 31 , 2015. the increase in expenses was primarily attributable to increases in compensation and benefits and other expenses of $ 65.8 million and $ 17.2 million , respectively , and partially offset by a decrease in occupancy and related of $ 6.9 million . the increase in compensation and benefits was primarily due to a full year of amortization of equity compensation related to the spin-off , as well as an increase in headcount and improved business performance .
| 34 the following table provides r evenue statistics for the years ended december 31 , 2017 , 2016 and 201 5 : replace_table_token_6_th expenses expenses were $ 489.2 million for the year ended december 31 , 2017 , an increase of $ 4.3 million compared with $ 484.9 million for the year ended december 31 , 2016. the increase in expenses was primarily attributable to increases in compensation and benefits of $ 10.5 million , travel and related of $ 2.1 million and communications and information services of $ 1.9 million ; partially offset by decreases in depreciation and amortization of $ 5.9 million and other expenses of $ 5.8 million . the increase in compensation and benefits was primarily due to increased headcount . the decrease in depreciation and amortization was primarily due to a decrease in amortization expense related to certain intangible assets identified in connection with the spin-off that were fully amortized in the prior year . other expenses were lower in the year ended december 31 , 2017 primarily due to the absence of a non-recurring charge recorded during 2016 and lower bad debt expense . provision for taxes the company 's provision for taxes for the year ended december 31 , 2017 and 2016 was $ 38.4 million and $ 9.4 million , respectively . this resulted in an effective tax rate of 381.7 % and 64.8 % , respectively , based on our income before provision for taxes of $ 10.1 million and $ 14.5 million for the years ended december 31 , 2017 and 2016 , respectively . the effective tax rate increased in the year ended december 31 , 2017 compared with the year ended december 31 , 2016 primarily due to the remeasurement of the company 's deferred tax assets at a lower corporate tax rate due to the tax legislation as well as permanent differences related to equity-based compensation and return to provision adjustments . non-controlling interests net income ( loss ) attributable to non-controlling interests is derived from the income ( loss ) before provision for taxes and the percentage allocation of the income ( loss ) between the holders of
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intangible assets , goodwill and other long-lived assets we completed our acquisitions of pv powered in may 2010 and solvix in november 2012 for total costs of $ 90.3 million and $ 21.2 million , respectively . the total cost of the solvix acquisition includes $ 5.3 million of contingent consideration to be paid out over a three-year period upon completion of specific milestones . as a result of our acquisitions , we recorded intangible assets and goodwill . goodwill and indefinite-lived intangible assets are subject to annual impairment testing , as well as testing upon the occurrence of any event that indicates a potential impairment . the annual impairment test can be performed using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired . if this assessment indicates that it is more likely than not that goodwill is impaired the next step of impairment testing compares the fair value of a reporting unit to its carrying value . goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill . we have performed an assessment of qualitative factors for our annual impairment test in 2011 and 2012. the factors reviewed included macroeconomic conditions , industry and 28 market conditions , cost factors , and overall financial performance of our solar inverter business . this assessment resulted in the conclusion that there is no impairment of goodwill . finite-lived intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows and other fair value measurements . the carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use . if our expectations of future results and cash flows are significantly diminished , intangible assets , long-lived assets , and goodwill may be impaired and the resulting charge to operations may be material . additionally , the estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control . changes in these estimates could result in significant revisions to our carrying value of these assets and may result in material charges to our results of operations . income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . when structuring our operations , we have considered the impact on our effective tax rate . our effective tax rates differs from the us statutory rate due to factors such as foreign operations taxed at different tax rates , research and development tax credits , and non-deductible compensation . our effective tax rate was 32.3 % , 27.0 % , and 20.5 % for 2012 , 2011 , and 2010 , respectively . our determination of our tax liability requires estimation and significant judgment and is always subject to audit and review by applicable domestic and foreign tax authorities . our income tax rate is significantly affected by the tax rates that apply to our foreign earnings . in addition to local country tax laws and regulations , our income tax rate depends on the extent that our earnings are indefinitely reinvested outside the u.s. indefinite reinvestment is determined by management 's judgment about and intentions concerning our future operations . at december 31 , 2012 , $ 84.1 million of earnings had been indefinitely reinvested outside the u.s. , primarily in active non-u.s. business operations . we do not intend to repatriate these earnings to fund u.s. operations and , accordingly , we do not provide for u.s. federal income and foreign withholding tax on these earnings . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . although we believe our reserves are reasonable , no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different from the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . the provision for income taxes includes the effect of reserves and any changes to the reserves that are considered appropriate , as well as the related net interest and penalties , if applicable . significant judgment is required in determining any valuation allowance recorded against deferred tax assets . in assessing the need for a valuation allowance , we consider all available evidence , including past operating results , estimates of future taxable income , and the feasibility of tax planning strategies . in the event that we change our determination as to the amount of deferred tax assets that can be realized , we will adjust our valuation allowance with a corresponding effect to the provision for income taxes in the period in which such determination is made . business environment and trends semiconductors investment in semiconductor capital equipment spending decreased overall worldwide by roughly 10 % vs. 2011. with the maturing integrated circuit end-markets largely correlated to worldwide gross domestic product and continuing consolidation at both the integrated circuit company level and the semiconductor equipment level , a relatively strong semiconductor capital investment rate experienced in the first half of 2012 fell to lower levels in the second half of the year . story_separator_special_tag in the second half of 2012 there were push-outs and reductions in spending plans on new investment as integrated circuit inventories and foundry utilization rates rose while there was uncertainty over large end-users integrated circuit foundry strategy and the macroeconomic environment . larger semiconductor equipment manufacturers are faced with increasing research and development challenges as they develop sub-22 nanometer ( `` nm '' ) technology node products and processes while simultaneously developing phase i prototype 450 mm tools for evaluation by consortia and end-users . these two drivers have sped innovation and increased the 29 number of new highly capable power generator and matching network opportunities . smaller semiconductor equipment manufacturers continue to emerge in korea developing both plasma-enhanced chemical vapor ( “ pecvd ” ) and etch technologies initially for memory processes with new penetrations into leading edge foundries . we believe that we are well positioned to offer both the depth and breadth of products required for the leading edge of product development at the larger oems and have the localization and customization positioning necessary to take advantage of the emerging asia-based semiconductor equipment companies . looking forward , we believe that semiconductor equipment investment will be largely flat with optimism for an increase in the second half of 2013. we believe foundries and logic integrated circuit customers will continue to invest for leading edge capability and to develop sub 22 nm capacity and to capture shifts in fabless and “ fab-lite ” supply chain shifts . we believe memory investments will likely continue to remain suppressed in the first half of 2013 , with capital investments perhaps beginning in the second half of the year . volatility will continue as shifts in buying preferences for tablets vs. personal computers and the introduction of new mobility technologies will open opportunities that will be pursued by semiconductor equipment manufacturers with leading technologies , shortest lead times , and aggressive pricing . we believe we are one of the leaders in advanced rf technologies and matching networks with enabling tune-while-pulsing extra space capabilities for plasma control and should be well positioned to continue market penetration in etch , pecvd , and physical vapor deposition ( “ pvd ” ) applications . flat panel display growth in our flat panel display ( `` fpd '' ) market is driven by both capacity expansion and investment in new technologies , particularly in the development of next-generation high-definition televisions , smart phones and tablet computers . in 2012 , fpd investment paused significantly as the end market for displays absorbed the generation 8 liquid crystal display ( “ lcd ” ) capital that equipment manufacturers procured in 2011. the pause was exacerbated by lower manufacturer profitability , which limited new lcd equipment purchases . in addition , technical issues limited the deployment of robust manufacturing processes for next-generation amoled displays . overall , we expect flat panel display sales to improve throughout most of 2013 as customers are now investing in generation 5.5 and 6 amoled capacity and plan to migrate to generation 8 amoled as soon as the technology is proven . we believe we are well-positioned to benefit from growth in both etch and pvd process technologies where we hold strong technology and market positions . similar to the semiconductor market , new korean equipment suppliers are emerging and capturing market share in fpd . our continued investment in expanded localized korean capabilities brings us closer to our customers and enhances our responsiveness to their evolving needs . thin film renewables demand for our crystalline silicon ( `` c-si '' ) pv products in europe and china , which drove strength in renewables sales in 2011 , decreased significantly in 2012. declines in pv module prices , along with an oversupply of panel and capital equipment , negatively impacted thin-film renewables sales throughout 2012. as a result of this oversupply and uncertain demand in the major pv markets , wafer , cell and module production capacity is likely to stall until 2014 at the earliest . many of the largest suppliers of pv products , along with smaller chinese solar companies , will most likely run their plants below capacity , and many may cease production completely . this scenario will have an adverse impact on our sales in this market for the foreseeable future . thin-film solar manufacturing process for copper indium gallium selenide ( `` cigs '' ) and cadmium telluride ( `` cdte '' ) , will drive increased capacity as the technology matures ; therefore , the relative market share of thin-film renewables in cigs and cdte should remain constant for the foreseeable future . our power conversion technologies for both ac and dc sputtering are well-positioned in these markets and we will benefit from increased demand due to more rigorous customer requirements and an increased manufacturing focus on production output and costs relative to yield . industrial markets throughout 2012 , demand for our products used in many industrial thin-film coating markets increased , particularly in industrial manufacturing areas for products such as automotive parts , machine tools , electro-magnetic interference ( “ emi ” ) films , and optical and tribilogical coatings . we expect this demand to continue in 2013. the acquisition of the solvix product line of industrially hardened dc , pulsed dc and arc supplies strengthens our position in these markets . the solvix products will also allow us to participate in emerging , precision hard-coating markets as hardware manufacturers in these markets seek longer lasting films , improved process control and require more flexibility to address diverse hard coating applications . 30 inverter global power needs are expected to grow significantly in the next ten years . to meet these demands , suppliers and users of electricity are continuously seeking renewable sources of energy . this has resulted in growth opportunities in the solar energy market . continued advances in inverter technology and greater scale has made solar energy more economically viable and resulted in more rapid expansion of its use worldwide .
| therefore , except for revenue , segment information based on the two new business units for 2010 has not been reported as it is impracticable to do so . the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of operations : replace_table_token_4_th 31 the following table sets forth , for the periods indicated , the percentage of sales represented by certain items reflected in our consolidated statements of operations : replace_table_token_5_th sales the following tables summarize annual net sales , and percentages of net sales , by segment for each of the years ended 2012 , 2011 , and 2010 : replace_table_token_6_th replace_table_token_7_th total sales total sales for the twelve months ended december 31 , 2012 decreased 12.6 % to $ 451.9 million from $ 516.8 million for the twelve months ended december 31 , 2011 . the decrease in sales was driven by a significant decline in capital spending in all the thin-film markets that we serve . although there was softness in the semiconductor market throughout 2012 , the non-semiconductor market , particularly flat panel displays and thin film renewables , was the primary driver behind the decline in sales from 2011. excess manufacturing capacity and overall uncertainty in these markets significantly reduced demand in late 2011 and throughout 2012. the decline in sales for our thin films business unit was partially offset by increased sales in solar energy , which were driven by increased sales in the utility market . total sales increased 12.5 % to $ 516.8 million in 2011 as compared to $ 459.4 million in 2010 . the increase in sales was driven by a significant increase in inverter sales by our solar energy business unit . the increase in inverter sales in 2011 was due to growth in overall demand in north america for commercial and utility-scale solar applications . the increase in solar energy was partially offset by a slight decline in sales of our thin films business unit caused by a slowdown in
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” our global delivery network , which includes highly trained industry and process specialists across the united states , latin america , south africa , europe and asia ( primarily india and the philippines ) , is a key asset . we have operations centers in india , the u.s. , the philippines , bulgaria , colombia , south africa , romania and the czech republic . consistent with our growth strategy , on july 1 , 2016 , september 1 , 2016 and october 22 , 2016 , we acquired liss systems limited ( the “ liss acquisition ” ) , iqr consulting inc. ( the “ iqr acquisition ” ) and datasource consulting , llc ( the “ datasource acquisition ” ) , respectively . the july 2016 acquisition of liss is included in the insurance reportable segment and the september 2016 acquisition of iqr along with the october 2016 acquisition of datasource are included in the analytics reportable segment . liss is a provider of policy administration services for the life insurance and pensions industry , combining both depth of life insurance industry knowledge with expertise in the design and delivery of core system offerings . liss 's `` lissia '' platform combined with our platforms ' such as lifepro ® will enable expansion of our solutions set for the insurance market , and is expected to strengthen our end-to-end offering . iqr is a provider of marketing and risk analytics services to super-regional banks and credit unions and specializes in data analytics and related consulting services . iqr 's industry focus aligns with our analytics strengths and we anticipate that the acquisition will bring even more value to our clients by enhancing customer satisfaction , increasing revenue growth and minimizing risk . datasource specializes in enterprise data management and business intelligence . the acquisition enhances our capabilities to advise clients on data management and governance strategies , architect and implement their data infrastructures , and manage their data assets on an ongoing basis . 32 revenues for the year ended december 31 , 2016 , we had revenues of $ 686.0 million compared to revenues of $ 628.5 million for the year ended december 31 , 2015 , an increase of $ 57.5 million or 9.1 % . we serve clients mainly in the u.s. and the u.k. , with these two regions generating approximately 80.9 % and 16.0 % , respectively , of our total revenues for the year ended december 31 , 2016 and approximately 79.0 % and 17.3 % , respectively , of our revenues for the year ended december 31 , 2015. for the years ended december 31 , 2016 and 2015 , our total revenues from our top ten clients accounted for 40.1 % and 40.5 % of our total revenues , respectively . our revenue concentration with our top clients remains consistent year-over-year and we continue to develop relationships with new clients to diversify our client base . we believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance . our business we provide operations management and analytics services . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by key industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the u.s. , europe and australia . operations management services : we provide our clients with a range of operations management services principally in the insurance , healthcare , travel , transportation and logistics , banking and financial services and utilities sectors , among others , as well as cross-industry operations management services , such as finance and accounting services . we also provide services related to operations management , through our consulting services that provide advice regarding transformational initiatives . our operations management services typically involve the transfer to the company of select business operations of a client such as claims processing , clinical operations , or financial transaction processing , after which we administer and manage the operations for our client on an ongoing basis . as part of this transfer , we hire and train employees to work at our operations centers on the relevant business operations , implement a process migration to these operations centers and then provide services either to the client or directly to the client 's customers . each client contract has different terms based on the scope , deliverables and complexity of the engagement . we have been observing a shift in industry pricing models toward transaction-based pricing , outcome-based pricing and other pricing models . we believe this trend will continue and we have begun to use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based or other pricing model . these pricing models place the focus on operating efficiency in order to maintain our gross margins . in addition , we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs . we believe that the trend toward multi-vendor relationships will continue . a multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor , which can result in significantly reduced gross margins from the provision of services to such client for each vendor . to the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors , our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition . story_separator_special_tag our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business , however , we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients . similarly , new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle , however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base . analytics : our analytics services focus on driving improved business outcomes for our customers by generating data-driven insights across all parts of our customers ' business . our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management , risk underwriting and pricing , operational effectiveness , credit and operational risk monitoring and governance , regulatory reporting , and data management . we actively cross-sell and , where appropriate , integrate our analytics services with other operations management services as part of a comprehensive offering set for our clients . 33 we anticipate that revenues from our analytics services will grow as we expand our service offerings and client base , both organically and through acquisitions . expenses cost of revenues our cost of revenues primarily consists of : employee costs , which include salary , bonus and other compensation expenses ; recruitment and training costs ; employee insurance ; transport and meals ; rewards and recognition for certain employees ; and non-cash stock compensation expense ; and costs relating to our facilities and communications network , which include telecommunication and it costs ; facilities and customer management support ; operational expenses for our outsourcing centers ; rent expenses ; and travel and other billable costs to our clients . the most significant components of our cost of revenues are salaries and benefits ( including stock based compensation ) , recruitment , training , transport , meals , rewards and recognition and employee insurance . salary levels , employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues . salary increases for most of our operations personnel are generally awarded each year effective april 1. accordingly , employee costs are generally lower in the first quarter of each year compared to the rest of the year . we make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements . although we generally have been able to reallocate our employees as client demand has fluctuated , a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees , which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount . a significant increase in the turnover rate among our employees , particularly among the highly skilled workforce needed to execute certain services , would increase our recruiting and training costs and decrease our operating efficiency , productivity and profit margins . in addition , cost of revenues also includes non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients . we expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally . in particular , we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets . there is significant competition for professionals with skills necessary to perform the services we offer to our clients . as our existing competitors continue to grow , and as new competitors enter the market , we expect competition for skilled professionals in each of these areas to continue to increase , with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals . however , a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues . see item 1a- “ risk factors-employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin. ” we generally experience a higher cost of revenues as a percentage of revenues during the initial 12 months to 18 months in a long-term bpm contract due to upfront investments in infrastructure , resource hiring and training during migration . the cost of revenues as a percentage of revenues improve as we scale up , achieve operational efficiencies and complete the migration . selling , general and administrative expenses ( `` sg & a '' ) our general and administrative expenses are comprised of expenses relating to salaries and benefits ( including stock based compensation ) as well as costs related to recruitment , training and retention of senior management and other support personnel in enabling functions , telecommunications , utilities , travel and other miscellaneous administrative costs . general and administrative ( “ g & a ” ) expenses also include acquisition-related costs , legal and professional fees ( which represent the costs of third party legal , tax , accounting and other advisors ) , bad debt allowance and non-cash amortization of stock compensation expenses related to our issuance of equity awards to members of our board of directors . we expect our g & a costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development , performance management and training programs . selling and marketing expenses primarily consist of salaries and benefits ( including stock based compensation ) and other compensation expenses of sales and marketing and client management personnel , sales commission , travel and brand building , client events and conferences .
| revenue growth in finance and accounting ( `` f & a '' ) of $ 0.9 million was driven by net volume increases from our new and existing clients of $ 1.5 million , partially offset by $ 0.6 million impact due to the depreciation of the indian rupee against the u.s. dollar during 2016 compared to 2015. f & a revenues were 11.6 % and 12.5 % of our total revenues in 2016 and 2015 , respectively . revenue growth in analytics of $ 43.5 million was driven by net volume increases in our recurring and project based engagements from our new and existing clients of $ 28.6 million and incremental revenues of $ 17.3 million from our rpm acquisition in 2015 and the iqr and datasource acquisitions in 2016. the increase was partially offset by a decrease of $ 2.4 million due to the depreciation of the u.k. pound sterling against the u.s. dollar during 2016 compared to 2015. analytics revenues were 24.2 % and 19.4 % of our total revenues in 2016 and 2015 , respectively . revenue decline in all other of $ 14.0 million was driven primarily by lower revenue in our consulting and utilities businesses , partially offset by higher revenue in our banking and financial services business aggregating to $ 10.1 million and $ 3.9 million impact due to the depreciation of the indian rupee and the u.k. pound sterling against the u.s. dollar during 2016 compared to 2015 across operating segments included in that category . all other revenues were 14.1 % and 17.6 % of our total revenues in 2016 and 2015 , respectively . 41 cost of revenues and gross margin : the following table sets forth cost of revenues and gross margin of our reportable segments . replace_table_token_4_th for the year ended december 31 , 2016 , cost of revenues was $ 448.0 million compared to $ 402.9 million for the year ended december 31 , 2015 , an increase of $ 45.1 million or 11.2 % . our overall gross margin for 2016 was 34.7 % compared to 35.9 % for 2015 , a decrease of 1.2 % or 120 basis points ( bps ) . the increase in cost of revenues in insurance of $ 12.0 million was primarily due to increase in employee-related costs of $ 12.4
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the quality of schlumberger 's results in the fourth quarter of 2020 validates the progress of our performance strategy and the reinvention of schlumberger in this new chapter for the industry . building from the swift execution and scale of our cost-out program , we exited the year with quarterly margins reset to 2019 levels as the upcycle begins . leveraging our high-graded and restructured business portfolio , we see a clear path to achieve double-digit margins in north america and visible international margin improvement in 2021. given the depth , diversity , and executional capability of our international business , we believe we are uniquely positioned to benefit as international spending accelerates in the near- and mid-term . by leveraging our new structure , schlumberger is fully prepared to capitalize on the growth drivers of the future of our industry , particularly as we accelerate our digital growth ambition and lead in the production and recovery market . finally , to meet our long-term ambition to bring lower carbon and carbon-neutral energy sources and technology to market , we are visibly expanding our new energy portfolio , to contribute to the transformation of a more resilient , sustainable , and investable energy services industry . story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > due to the pandemic . international revenue decreased 19 % year-on-year , due to covid-19-related disruptions , the drop in offshore activity , and reduced customer discretionary spending . digital & integration full-year 2020 revenue of $ 3.1 billion decreased 26 % year-on-year primarily due to lower multiclient and software sales as customers reduced activity due to covid-19 and cut discretionary spending . year-on-year pretax operating margin increased 249 bps to 24 % largely due to improved aps margins as a result of reduced amortization expense following the asset impairment charges that were recorded in the second quarter of 2020 and the effects of cost cutting efforts . reservoir performance full-year 2020 revenue of $ 5.6 billion decreased 40 % year-on-year . a little more than half of this revenue decrease was attributable to the sharp drop in onestim pressure pumping activity in north america land . the remaining portion of the revenue decline resulted from covid-19 disruptions that caused international activity to be cancelled or suspended . year-on-year pretax operating margin decreased 435 bps to 6 % due to the steep revenue decline . well construction full-year 2020 revenue of $ 8.6 billion decreased 28 % year-on-year primarily due to the activity decline in us land as the rig count decreased significantly , while covid-19 disruptions caused drilling activities to be cancelled or suspended in several international markets . year-on-year pretax operating margin only decreased 196 bps to 10 % as the effects of the revenue decline were partially mitigated by prompt cost cutting measures . production systems full-year 2020 revenue of $ 6.7 billion decreased 19 % year-on-year primarily driven by lower sales of valves and surface systems in north america . year-on-year pretax operating margin decreased 101 bps to 9 % due to the revenue decline . full-year 2019 results replace_table_token_5_th 20 ( 1 ) comprised principally of certain corporate expenses not allocated to the segments , stock-based compensation costs , amortization expense associated with certain intangible assets , certain centrally managed initiatives and other nonoperating items . ( 2 ) excludes interest income included in the segments ' income ( 2019 : $ 8 million ; 2018 : $ 8 million ) . ( 3 ) excludes interest expense included in the segments ' income ( 2019 : $ 38 million ; 2018 : $ 38 million ) . ( 4 ) charges and credits are described in detail in note 3 to the consolidated financial statements . full-year 2019 revenue of $ 32.9 billion was essentially flat year-on-year with north america revenue decreasing 11 % and international revenue increasing 7 % . the international results were underpinned by increased investment levels . in contrast , the north america result reflected a slowing production growth rate on land as operators maintained capital discipline and reduced drilling and hydraulic fracturing activity . digital & integration full-year 2019 revenue of $ 4.1 billion increased 9 % year-on-year primarily driven by increased aps activity . year-on-year pretax operating margin decreased 181 bps to 21 % primarily as a result of a less favorable revenue mix . reservoir performance full-year 2019 revenue of $ 9.3 billion decreased 7 % year-on-year primarily driven by lower onestim activity in north america as customers reduced spending due to higher cost of capital , lower borrowing capacity and expectations of better return from their shareholders . year-on-year pretax operating margin decreased 97 bps to 11 % primarily due to reduced profitability in onestim in north america . well construction full-year 2019 revenue of $ 11.9 billion increased 5 % year-on-year primarily due to higher demand for drilling services , largely in the international markets . year-on-year pretax operating margin decreased 93 bps to 12 % despite higher revenue as margins were affected by competitive pricing and higher costs associated with a number of integrated drilling contracts internationally . production systems full-year 2019 revenue of $ 8.2 billion was essentially flat year-on-year as lower revenue for onesubsea and valves and process systems was offset by higher surface system and completion sales . year-on-year pretax operating margin was essentially unchanged at 10.4 % . interest and other income interest & other income consisted of the following : replace_table_token_6_th the increase in earnings of equity method investments in 2020 as compared to 2019 is primarily related to higher income associated with schlumberger 's equity investments in rig- and seismic-related businesses , while the decrease in 2019 as compared to 2018 was primarily related to lower income from those same businesses . the decrease in interest income in 2019 compared to 2018 is primarily attributable to lower cash and short-term investment balances . story_separator_special_tag 21 the unrealized gain on marketable securities in 2020 relates to an investment in a start-up company that schlumberger previously invested in that completed an initial public offering during the fourth quarter of 2020 . as a result , schlumberger recognized an unrealized gain of $ 39 million to increase the carrying value of this investment to its fair value of $ 43 million as of december 31 , 2020 . see note 3 to the consolidated financial statements . interest expense interest expense of $ 563 million in 2020 decreased $ 46 million compared to 2019. this decrease was primarily due to certain debt being refinanced with lower interest rate debt . interest expense of $ 609 million in 2019 increased $ 34 million compared to 2018. this increase is primarily due to an increase in the weighted average debt balance during 2019 as compared to 2018. other research & engineering and general & administrative expenses , as a percentage of revenue , were as follows : replace_table_token_7_th income taxes the schlumberger effective tax rate is sensitive to the geographic mix of earnings . when the percentage of pretax earnings generated outside of north america increases , the schlumberger effective tax rate generally decreases . conversely , when the percentage of pretax earnings generated outside of north america decreases , the schlumberger effective tax rate generally increases . the schlumberger effective tax rate was 7 % in 2020 as compared to 3 % in 2019. the charges and credits described in note 3 to the consolidated financial statements , reduced the effective tax rate by approximately 12 and 13 points in 2020 and 2019 , respectively , as a significant portion of these charges were not tax effective . changes in the geographic mix of pretax earnings accounted for the remaining increase in the effective tax rate in 2020 as compared to 2019. the schlumberger effective tax rate was 3 % in 2019 as compared to 17 % in 2018. the lower effective tax rate was almost entirely due to the 2019 charges and credits described in note 3 to the consolidated financial statements , which primarily related to non-deductible goodwill . 22 charges and credits schlumberger recorded significant charges and credits during 2020 , 2019 and 2018. these charges and credits , which are summarized below , are more fully described in note 3 to the consolidated financial statements . the following is a summary of the 2020 charges and credits . replace_table_token_8_th as a result of the first quarter 2020 impairment charges , commencing with the second quarter of 2020 , depreciation and amortization expense was reduced by approximately $ 95 million on a quarterly basis . approximately $ 33 million of this quarterly reduction is reflected in the digital & integration division and $ 12 million is reflected in the reservoir performance division . the remaining $ 50 million is reflected in the “ corporate & other ” line item . as a result of the second quarter 2020 restructuring and impairment charges , commencing with the third quarter of 2020 , depreciation and amortization expense was reduced by approximately $ 80 million and lease expense was reduced by $ 25 million on a quarterly basis . approximately $ 51 million of this quarterly reduction is reflected in the digital & integration division and $ 31 million is reflected in the reservoir performance division , with the remaining $ 23 million reflected among the well construction division and production systems division . as a result of the third quarter 2020 restructuring charges , commencing with the fourth quarter of 2020 , depreciation and lease expense was reduced by $ 15 million on a quarterly basis . this quarterly reduction is reflected among all of the divisions . 23 the following is a summary of the 2019 charges and credits . replace_table_token_9_th a significant portion of the third-quarter impairment charges were recorded effective august 31 , 2019. accordingly , the 2019 results reflect a $ 108 million reduction in depreciation and amortization expense for the last four months of 2019. approximately $ 64 million of this amount is reflected in the reservoir performance division and $ 20 million is reflected in the production systems division . the remaining $ 24 million is reflected in the “ corporate & other ” line item . the following is a summary of the 2018 charges and credits . the $ 215 million gain on the sale of the marine seismic acquisition business is classified in gains on sale of businesses in the consolidated statement of income ( loss ) , while the $ 356 million of charges are classified in impairments & other . replace_table_token_10_th liquidity and capital resources the effects of the covid-19 pandemic have resulted in a significant and swift reduction in international and us economic activity . these effects have adversely affected the demand for oil and natural gas , as well as for schlumberger 's products and services , and caused significant volatility and disruption of the financial markets . this period of extreme economic disruption , low oil prices and reduced demand for schlumberger 's products and services has had , and is likely to continue to have , a material adverse impact on schlumberger 's business , results of operations , financial condition and , at times , access to sources of liquidity . in view of the uncertainty of the depth and extent of the contraction in oil demand due to the covid-19 pandemic combined with the weaker commodity price environment , schlumberger turned its strategic focus to cash conservation and protecting its balance sheet . as a result , in april 2020 schlumberger announced a 75 % reduction to its quarterly cash dividend . the revised dividend supports schlumberger 's value proposition through a balanced approach of shareholder distributions and organic investment , while providing flexibility to address the uncertain environment .
| 18 digital & integration pretax operating margin of 32 % expanded by 507 basis points ( “ bps ” ) sequentially . the margin expansion was primarily in the international markets and was largely driven by improved profitability across aps projects . reservoir performance fourth-quarter revenue of $ 1.2 billion , 73 % of which came from the international markets , increased 3 % sequentially . international revenue declined 3 % while north america revenue increased 23 % sequentially . the revenue increase was primarily driven by higher onestim activity in north america . onestim fourth-quarter revenue of $ 274 million increased 25 % sequentially . this increase , however , was partially offset by seasonality in russia and reduced activity in the middle east & asia . reservoir performance pretax operating margin of 8 % decreased 84 bps sequentially driven by seasonality in russia , despite improved north american activity . well construction fourth-quarter revenue of $ 1.9 billion , 84 % of which came from the international markets , increased 2 % sequentially . international and north america revenue increased 1 % and 7 % , respectively . the revenue increase was due to higher activity in north america , latin america , and the middle east & asia , partially offset by seasonality in russia . well construction pretax operating margin of 10 % improved by 42 bps sequentially . north america margin improved due to higher drilling activity on land while international margin was essentially flat . production systems fourth-quarter revenue of $ 1.6 billion , 74 % of which came from the international markets , increased 8 % sequentially . international and north america revenue increased 7 % and 11 % , respectively , due to higher activity across all areas . production systems pretax operating margin of 9 % increased by 82 bps sequentially due to a higher contribution from the long-cycle business of subsea , and improved profitability in surface production systems due to cost reduction measures and higher activity . full-year 2020 results replace_table_token_4_th ( 1 ) comprised principally of certain corporate expenses not allocated to the segments , stock-based compensation costs , amortization expense associated with
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in 2018 , net income totaled $ 135.3 million , or $ 4.92 per diluted share , including a one-time benefit of $ 9.5 million , or $ 0.35 per diluted share , for the re-measurement of our net deferred tax liability due to the tax cuts and jobs act of 2017 ( “ tax act ” ) . in 2017 , net income totaled $ 115.3 million , or $ 4.20 per diluted share , including the multiemployer pension after-tax charge of $ 11.5 million , or $ 0.42 per diluted share , compared to $ 121.8 million , or $ 4.44 per diluted share , in 2016 . looking forward for 2019 , we expect volume-driven growth in our retail segment with support from recent and upcoming new product introductions . we also anticipate continued progress with net price realization from the price increases that began in the second half of 2018 and better-optimized trade spending in the retail segment . in the foodservice segment , we anticipate volume growth from select national chain restaurant accounts and distributors of our branded products , as well as continued benefits from foodservice segment price increases that were implemented early in the third quarter of 2018. we will also continue to consider acquisition opportunities that are consistent with our growth strategy and represent good value or otherwise provide significant strategic benefits . among the many factors that may impact our ability to improve sales and operating margins in the coming year are the success of our continued investment in innovation and new products , growth from existing product lines , the level of net price realization in the retail segment and the extent of efficiency gains and cost savings resulting from our lean six sigma program and other supply chain initiatives . based on current market conditions , commodity costs are projected to remain unfavorable in fiscal 2019 , although to a lesser extent than we experienced in fiscal 2018. freight costs are also expected to persist as a headwind through the first half of the fiscal year . we have initiatives in place or planned for both the short- and long-term to address these higher freight and commodity costs including pricing actions , a more optimized distribution network and tactical procurement . future changes in ingredient costs , as well as other material costs , will be influenced by the size of agricultural harvests in both the united states and other parts of the world and related global demand , economic conditions , tariffs and the regulatory environment . overall , we continue to limit some of our exposure to volatile swings in food commodity costs through a structured forward purchasing program for certain key materials such as soybean oil and flour . for a more-detailed discussion of the effect of commodity costs , see the “ impact of inflation ” section of this md & a below . changes in other notable recurring costs , such as marketing , transportation , production costs and introductory costs for new products , may also impact our overall results . the tax act was signed into law on december 22 , 2017 with an effective date of january 1 , 2018. most notably , the tax act reduced the statutory federal income tax rate for corporations from 35 % to 21 % . the statutory federal income tax rate for our 2019 tax return will be 21 % , a reduction from the blended rate of 28.1 % for our 2018 federal tax return . we expect an overall effective tax rate of approximately 24 % for 2019. we will adopt new accounting guidance for revenue recognition on july 1 , 2018. the adoption of this standard will not have a material impact on our financial position or results of operations . however , there will be additional required disclosures in the notes to the consolidated financial statements upon adoption . see further discussion in note 1 to the consolidated financial statements . we will adopt new accounting guidance for changes in the presentation of net periodic pension cost and net periodic postretirement benefit cost on july 1 , 2018. the amendments will require retrospective application for the income statement presentation provisions . we expect only changes in classification on the income statement . see further discussion in note 1 to the consolidated financial statements . we will continue to periodically reassess our allocation of capital to ensure that we maintain adequate operating flexibility while providing appropriate levels of cash returns to our shareholders . 18 story_separator_special_tag recognition of windfall tax benefits and shortfall tax deficiencies in our income tax expense , instead of equity . for 2018 , the impact of net windfall tax benefits reduced our effective tax rate by 0.4 % . this adoption may result in increased volatility to our quarterly and annual income tax expense and resulting net income , dependent upon , among other variables , the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards . this adoption is discussed in further detail under the caption “ recently adopted accounting standards ” in note 1 to the consolidated financial statements . net income as influenced by the factors discussed above , particularly the impact of the tax act in 2018 and the multiemployer pension charge in 2017 , net income for 2018 of $ 135.3 million increased from the 2017 net income of $ 115.3 million , which had decreased from 2016 net income of $ 121.8 million . diluted weighted average common shares outstanding for each of the years ended june 30 , 2018 , 2017 and 2016 have remained relatively stable . as a result , and due to the change in net income for each year , diluted net income per share totaled $ 4.92 in 2018 , an increase from the 2017 total of $ 4.20 per diluted share . story_separator_special_tag the 2016 net income per share totaled $ 4.44 per diluted share . in 2018 , the tax act resulted in a one-time deferred tax benefit of $ 0.35 per diluted share . in 2017 , the estimated impact of the multiemployer pension charge was $ 0.42 per diluted share . results of operations - segments retail segment replace_table_token_9_th 2018 to 2017 in 2018 , net sales for the retail segment reached $ 650.2 million , a 1 % increase from the prior-year total of $ 641.4 million . this increase was driven by increased sales volumes for shelf-stable dressings and sauces sold under license agreements , the incremental sales from the angelic bakehouse business acquired in november 2016 , pricing actions , reduced trade spending and lower coupon expense , partially offset by reduced sales of frozen garlic bread products in the second and 21 third quarters of 2018 due to a supply disruption . pricing actions were implemented starting in the second half of 2018 with a resulting net impact of less than 1 % of retail net sales for 2018 . in 2018 , retail segment operating income and related margins decreased due to the impact of increased commodity and freight costs , investments in personnel and business growth initiatives and incremental amortization expense and other recurring noncash charges attributed to angelic during the first half of the year . these higher costs were partially offset by supply chain savings realized from our lean six sigma program , some net price realization , lower consumer promotional and other trade spending and lower brokerage costs due to the mid-year realignment of our retail broker network . the prior-year operating income and related margins reflected a significant benefit from lower ingredient costs in the first half of the year . 2017 to 2016 in 2017 , net sales for the retail segment reached $ 641.4 million , a 4 % increase from the 2016 total of $ 619.4 million with sprouted grain bakery products , shelf-stable dressings sold under license agreements and frozen bread products among the most notable contributing product lines . higher trade promotion costs served to limit retail sales growth . the impact of pricing on retail net sales was minimal for 2017 . in 2017 , retail segment operating income increased while related margins were essentially flat as the influence of overall lower raw-material costs , primarily for eggs , but also for flour , honey and certain packaging materials , were partially offset by higher retail trade spending , investments in key leadership personnel and strategic business initiatives during the second half of 2017 and the transaction costs , incremental amortization expense and other recurring noncash charges attributed to the angelic business . foodservice segment replace_table_token_10_th 2018 to 2017 in 2018 , foodservice net sales increased 2 % to $ 572.7 million from the 2017 total of $ 560.4 million reflecting improvements due to pricing actions that were taken beginning in the third quarter and higher volumes for frozen breads and frozen pasta . this increase was partially offset by the impact of general softness in the restaurant industry in the first half of 2018. inflationary pricing totaled 1 % of foodservice net sales for 2018 . in 2018 , the decline in foodservice segment operating income and related margins was driven by increased commodity and freight costs and our investments in personnel and business growth initiatives . these higher costs were partially offset by supply chain savings realized from our lean six sigma program and inflationary pricing . the 2017 operating income and related margins reflected a significant benefit from lower ingredient costs in the first half of the year . with regard to the impact of commodity and freight costs on foodservice segment operating income , most of our supply contracts with national chain restaurant accounts incorporate pricing adjustments to account for changes in ingredient and freight costs . these supply contracts may vary by account with regard to the time lapse between the actual change in ingredient and freight costs we incur and the effective date of the associated price increase or decrease . as a result , the reported operating margins of the foodservice segment are subject to increased volatility during periods of rapidly rising or falling ingredient and or freight costs because at least some portion of the change in ingredient and or freight costs is reflected in the segment 's results prior to the impact of any associated change in pricing . in addition , the foodservice segment has an inherently higher degree of margin volatility from changes in ingredient costs when compared to the retail segment due to its overall lower margin profile and higher ratio of ingredient pounds to net sales . 2017 to 2016 in 2017 , net sales for the foodservice segment reached $ 560.4 million , a 2 % decrease from the 2016 total of $ 571.7 million as influenced by our targeted business rationalization efforts with certain national chain restaurants that began in the third quarter of 2016 and deflationary pricing , primarily from lower egg costs . in 2017 , foodservice segment operating income and related margins increased due to the influence of overall lower raw-material costs , primarily for eggs , but also for flour , honey and certain packaging materials , partially offset by deflationary pricing and investments in key leadership personnel and strategic business initiatives during the second half of 2017 . 22 financial condition liquidity and capital resources we maintain sufficient flexibility in our capital structure to ensure our capitalization is adequate to support our future internal growth prospects , acquire food businesses consistent with our strategic goals , and maintain cash returns to our shareholders through cash dividends and opportunistic share repurchases . our balance sheet maintained fundamental financial strength during 2018 as we ended the year with $ 206 million in cash and equivalents , along with shareholders ' equity of $ 652 million and no debt .
| these increased costs were partially offset by supply chain savings realized from our lean six sigma program and pricing actions taken in our retail and foodservice segments primarily in the second half of 2018. excluding the impact of pricing , total raw-material costs were estimated to have negatively affected our gross margins by 1 % of net sales . we estimate higher freight costs to have negatively affected our gross margins by nearly 1 % of net sales . the prior-year results reflected a notable benefit from significantly lower ingredient costs in the first half of 2017 with only a modest offset from deflationary pricing . 2017 to 2016 consolidated net sales for the year ended june 30 , 2017 increased 1 % to a then record of $ 1,202 million from the prior-year record total of $ 1,191 million . this growth was driven by higher retail net sales as partially offset by lower foodservice net sales . excluding angelic , our overall sales volume , as measured by pounds shipped , improved by 1 % . pricing had a net deflationary impact of nearly 1 % of net sales for 2017. as a percentage of total net sales , retail net sales increased slightly to 53 % from 52 % in 2016 . our gross margin increased to 26.5 % in 2017 compared with 25.2 % in 2016 due to the influence of overall lower raw-material costs , primarily for eggs , but also for flour , honey and certain packaging materials . margins also benefited from a more favorable sales mix , partially offset by higher retail trade spending and deflationary pricing in the foodservice segment . excluding pricing actions , total raw-material costs were estimated to have positively affected our gross margins by 2 % of net sales . 19 selling , general and administrative expenses replace_table_token_6_th the 2018 increase in selling , general and administrative ( “ sg & a ” ) expenses reflected a higher level of investments in personnel and business growth initiatives , incremental amortization expense and other recurring noncash charges attributed to angelic during the first half of 2018 , and the impact of a prior-year one-time benefit from the full settlement of a class-action lawsuit related to a provider of in-store promotional advertising . the higher
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the existing loan was scheduled to mature in december 2016 and had a weighted average interest rate of 5.35 % . we have entered into interest rate swap agreements , to fix the one-month libor to a weighted average rate of 1.84 % . these swaps have maturity dates ranging between december 2020 and december 2022. the weighted average interest rate on the $ 1.0 billion mortgage loan was 3.54 % as of december 31 , 2015 . 47 story_separator_special_tag > ( 239,716 ) defeasance and debt breakage - 25,717 total non-core income ( 26,805 ) ( 86,289 ) less non-core income attributable to noncontrolling interests in : consolidated joint ventures and funds 6,447 3,847 operating partnership 3,987 16,117 non-core income attributable to common stockholders $ ( 16,371 ) $ ( 66,325 ) per diluted share $ ( 0.08 ) $ ( 0.31 ) 48 year ended december 31 , 2015 net loss attributable to common stockholders was $ 4,419,000 , or $ 0.02 per diluted share , for the year ended december 31 , 2015 , compared to net income of $ 57,308,000 , or $ 0.27 per diluted share , for the period from november 24 , 2014 to december 31 , 2014. ffo attributable to common stockholders was $ 209,349,000 , or $ 0.99 per diluted share , for the year ended december 31 , 2015 , compared to $ 82,425,000 , or $ 0.39 per diluted share , for the period from november 24 , 2014 to december 31 , 2014. ffo includes the impact of certain “ non-core ” items that affect comparability , which are listed in the table below . the aggregate of these items , net of amounts attributable to noncontrolling interests , increased ffo attributable to common stockholders by $ 36,553,000 , or $ 0.18 per diluted share , for the year ended december 31 , 2015 , compared to $ 66,325,000 , or $ 0.31 per diluted share , for the period from november 24 , 2014 to december 31 , 2014. core funds from operations ( “ core ffo ” ) attributable to common stockholders , which excludes the impact of these items , was $ 172,796,000 , or $ 0.81 per diluted share , for the year ended december 31 , 2015 , compared to $ 16,100,000 , or $ 0.08 per diluted share , for the period from november 24 , 2014 to december 31 , 2014. see “ non-gaap financial measures – funds from operations ( “ ffo ” ) and core funds from operations ( “ core ffo ” ) . ” the company period from year ended november 24 , 2014 ( amounts in thousands , except per share amounts ) december 31 , 2015 to december 31 , 2014 non-core ( income ) expense : unrealized gain on interest rate swaps $ ( 75,760 ) $ ( 15,084 ) transfer taxes due in connection with the sale of shares by a former joint venture partner 5,872 - acquisition , transaction and formation related costs 4,483 143,437 severance costs 3,315 - pro rata share of unrealized gain on interest rate swaps of unconsolidated joint ventures ( 2,112 ) ( 643 ) gain on consolidation of an unconsolidated joint venture ( 239,716 ) defeasance and debt breakage - 25,717 predecessor income tax true-up 721 - total non-core income ( 63,481 ) ( 86,289 ) less non-core income attributable to noncontrolling interests in : consolidated joint ventures and funds 18,028 3,847 operating partnership 8,900 16,117 non-core income attributable to common stockholders $ ( 36,553 ) $ ( 66,325 ) per diluted share $ ( 0.18 ) $ ( 0.31 ) 49 portfolio operations and leasing activity as of december 31 , 2015 , our portfolio consisted of 12 class a office properties aggregating approximately 10.4 million square feet that was 95.3 % leased . during the three months ended december 31 , 2015 , we leased 647,828 square feet at a weighted average initial rent of $ 79.80 per square foot . this leasing activity , offset by lease expirations during the three months , increased portfolio wide leased percentage by 240 basis points from september 30 , 2015. of the 647,828 square feet leased in the three months , 443,336 square feet represents second generation space ( space that has been vacant for less than twelve months ) for which we achieved rental rate increases of 17.3 % on a cash basis and 19.4 % on a gaap basis . the weighted average lease term for leases signed during the three months was 13.0 years and tenant improvements and leasing commissions on these leases were $ 7.46 per square foot per annum , or 9.4 % of initial rent . the following table presents additional details on the leases signed during the three months ended december 31 , 2015 and is not intended to coincide with the commencement of rental revenue in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . three months ended december 31 , 2015 total new york washington , d.c. san francisco total square feet leased 647,828 478,451 - 169,377 pro rata share of total square feet leased : 561,446 478,451 - 82,995 initial rent ( 1 ) $ 79.80 $ 78.90 $ - $ 85.01 weighted average lease term ( in years ) 13.0 14.2 - 5.9 tenant improvements and leasing commissions : per square foot $ 96.77 $ 107.03 $ - $ 37.63 per square foot per annum $ 7.46 $ 7.54 $ - $ 6.40 percentage of initial rent 9.4 % 9.6 % - 7.5 % rent concessions : average free rent period ( in months ) 10.0 11.0 - 3.9 average free rent period per annum ( in months ) 0.8 0.8 - 0.7 second generation space : square feet 443,336 360,341 - 82,995 cash basis : initial rent ( 1 ) $ 79.68 $ 78.45 $ - $ 85.01 prior escalated rent ( 2 ) $ 67.95 $ 70.51 $ - $ 56.81 percentage increase 17.3 % 11.3 % - 49.6 % gaap basis : straight-line rent story_separator_special_tag $ 80.75 $ 79.83 $ - $ 84.72 prior straight-line rent $ 67.61 $ 70.51 $ - $ 55.00 percentage increase 19.4 % 13.2 % - 54.0 % ( 1 ) represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent . ( 2 ) represents the weighted average cash basis rents ( including reimbursements ) per square foot at expiration . ( 3 ) the leasing statistics ( excluding square feet leased ) include the effect of a lease extension for the parking garage at 31 west 52nd street . 50 during the year ended december 31 , 2015 , we leased 1,393,770 square feet at a weighted average initial rent of $ 78.48 per square foot . this leasing activity , offset by lease expirations during the year , increased portfolio wide leased percentage by 140 basis points from december 31 , 2014. of the 1,393,770 square feet leased in the year , 930,514 square feet represents second generation space ( space that has been vacant for less than twelve months ) for which we achieved rental rate increases of 15.6 % on a cash basis and 16.0 % on a gaap basis . the weighted average lease term for leases signed during the year was 11.9 years and tenant improvements and leasing commissions on these leases were $ 7.55 per square foot per annum , or 9.6 % of initial rent . the following table presents additional details on the leases signed during year ended december 31 , 2015 and is not intended to coincide with the commencement of rental revenue in accordance with gaap . year ended december 31 , 2015 total new york washington , d.c. san francisco total square feet leased 1,393,770 1,074,761 49,633 269,376 pro rata share of square feet leased : 1,220,654 1,039,027 49,633 131,994 initial rent ( 1 ) $ 78.48 $ 78.37 $ 56.58 $ 87.64 weighted average lease term ( in years ) 11.9 12.6 11.1 6.2 tenant improvements and leasing commissions : per square foot $ 89.71 $ 95.80 $ 92.63 $ 40.70 per square foot per annum $ 7.55 $ 7.57 $ 8.35 $ 6.60 percentage of initial rent 9.6 % 9.7 % 14.8 % 7.5 % rent concessions : average free rent period ( in months ) 9.6 10.4 10.3 3.2 average free rent period per annum ( in months ) 0.8 0.8 0.9 0.5 second generation space : square feet 930,514 787,585 20,770 122,159 cash basis : initial rent ( 1 ) $ 79.52 $ 78.31 $ 78.62 $ 87.47 prior escalated rent ( 2 ) $ 68.78 $ 70.59 $ 64.86 $ 57.79 percentage increase 15.6 % 10.9 % 21.2 % 51.3 % gaap basis : straight-line rent $ 79.60 $ 78.54 $ 77.00 $ 86.85 prior straight-line rent $ 68.62 $ 70.95 $ 51.72 $ 56.48 percentage increase 16.0 % 10.7 % 48.9 % 53.8 % ( 1 ) represents the weighted average cash basis starting rent per square foot and does not include free rent or periodic step-ups in rent . ( 2 ) represents the weighted average cash basis rents ( including reimbursements ) per square foot at expiration . ( 3 ) the leasing statistics ( excluding square feet leased ) include the effect of a lease extension for the parking garage at 31 west 52nd street . 51 our predecessor our predecessor is not a legal entity but a combination of entities under common control as they were entities controlled by members of the otto family that held various assets , including interests in ( i ) 15 private equity real estate funds controlled by our predecessor ( which included nine primary funds and six parallel funds ) ( collectively , the “ funds ” ) that owned interests in 12 properties , ( ii ) a wholly-owned property , waterview , in rosslyn , virginia and ( iii ) three partially owned properties in new york , ny . below is a summary of the 15 private equity real estate funds that were controlled by our predecessor prior to the completion of the formation transactions . the following funds are collectively referred to herein as the “ property funds ” : paramount group real estate fund i , l.p. ( “ fund i ” ) paramount group real estate fund ii , l.p. ( “ fund ii ” ) paramount group real estate fund iii , l.p. ( “ fund iii ” ) paramount group real estate fund iv , l.p. ( “ fund iv ” ) pgref iv parallel fund ( cayman ) , l.p. ( “ fund iv cayman ” ) paramount group real estate fund v ( cip ) , l.p. ( “ fund v cip ” ) paramount group real estate fund v ( core ) , l.p. ( “ fund v core ” ) pgref v ( core ) parallel fund ( cayman ) , l.p. ( “ fund v cayman ” ) paramount group real estate fund vii , lp ( “ fund vii ” ) paramount group real estate fund vii-h , lp ( “ fund vii-h ” ) the following fund was formed to acquire , develop and manage the residential development project at 75 howard street : paramount group residential development fund , lp ( “ residential fund ” ) the following funds are collectively referred to herein as the “ alternative investment funds ” : paramount group real estate special situations fund , l.p. ( “ pgress ” ) paramount group real estate special situations fund–h , l.p. ( “ pgress–h ” ) paramount group real estate special situations fund–a , l.p. ( “ pgress–a ” ) paramount group real estate fund viii , l.p. ( “ fund viii ” ) the property funds and residential fund owned interests in the following properties : 1633 broadway , new york , ny 60 wall street , new york , ny 900 third avenue , new york , ny 31 west 52nd street , new york , ny 1301 avenue of the americas , new york , ny
| the period from november 24 , 2014 to december 31 , 2014. core funds from operations ( “ core ffo ” ) attributable to common stockholders , which excludes the impact of these items , was $ 45,188,000 , or $ 0.21 per diluted share , for the three months ended december 31 , 2015 , compared to $ 16,100,000 , or $ 0.08 per diluted share , for the period from november 24 , 2014 to december 31 , 2014. see “ non-gaap financial measures – funds from operations ( “ ffo ” ) and core funds from operations ( “ core ffo ” ) . ” the company period from three months ended november 24 , 2014 ( amounts in thousands , except per share amounts ) december 31 , 2015 to december 31 , 2014 non-core ( income ) expense : unrealized gain on interest rate swaps $ ( 26,263 ) $ ( 15,084 ) pro rata share of unrealized gain on interest rate swaps of unconsolidated joint ventures ( 1,065 ) ( 643 ) acquisition , transaction and formation related costs 523 143,437 gain on consolidation of an unconsolidated joint venture -
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how we evaluate our operations we use a number of financial and operational measures to routinely analyze and evaluate the performance of our business , including revenue , adjusted ebitda , adjusted ebitda margin and safety performance . revenue we analyze our revenue growth by comparing actual monthly revenue to our internal projections for each month to assess our performance . we also assess incremental changes in our monthly revenue across our operating segments to identify potential areas for improvement . adjusted ebitda and adjusted ebitda margin we define adjusted ebitda as net income ( loss ) before interest income , net , depreciation and amortization , income tax benefit or expense , asset impairments , gain or loss on disposal of assets , foreign currency gain or loss , equity-based compensation , unrealized and realized gain or loss , the effects of the tra , other non-cash adjustments and other charges or credits . adjusted ebitda margin reflects our adjusted ebitda as a percentage of our revenues . we review adjusted ebitda and adjusted ebitda margin on both a consolidated basis and on a segment basis . we use adjusted ebitda and adjusted ebitda margin to assess our financial performance because it allows us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure ( such as varying levels of interest expense ) , asset base ( such as depreciation and amortization ) , items outside the control of our management team ( such as income tax and foreign currency exchange rates ) and other charges outside the normal course of business . adjusted ebitda and adjusted ebitda margin have limitations as analytical tools and should not be considered as an alternative to net income ( loss ) , operating income ( loss ) , cash flow from operating activities or any other measure of financial performance presented in accordance with generally accepted accounting principles in the u.s. ( `` gaap '' ) . 38 the following table presents a reconciliation of adjusted ebitda and adjusted ebitda margin to net income ( loss ) for each of the periods presented ( in thousands ) : replace_table_token_4_th ( 1 ) please see note 13 - related party transactions in the notes to the consolidated financial statements for further discussion . ( 2 ) comprised of equity-based compensation expense ( 2017 : $ 13,862 ; 2016 : $ 15,978 ; 2015 : $ 26,318 ) , mergers and acquisition expense ( 2017 : $ 459 ; 2016 : $ 13,784 ; 2015 : none ) , severance and other charges ( 2017 : $ 75,354 ; 2016 : $ 46,406 ; 2015 : $ 35,484 ) , changes in value of contingent consideration ( 2017 : none ; 2016 : none ; 2015 : $ ( 1,532 ) ) unrealized and realized losses ( 2017 : $ 2,791 ; 2016 : $ 110 ; 2015 : none ) , investigation-related matters ( 2017 : $ 6,143 ; 2016 : $ 6,397 ; 2015 : $ 1,446 ) and other adjustments ( 2017 : $ 487 ; 2016 : none ; 2015 : none ) . safety performance safety is our primary core value . maintaining a strong safety record is a critical component of our operational success . many of our customers have safety standards we must satisfy before we can perform services . as a result , we continually monitor and improve our safety performance through the evaluation of safety observations , job and customer surveys , and safety data . the primary measure for our safety performance is the tracking of the total recordable incident rate ( `` trir '' ) . trir is a measure of the rate of recordable workplace injuries , normalized on the basis of 100 full time employees for an annual period . the factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 and dividing this value by the total hours actually worked in the year . a recordable injury includes occupational death , nonfatal occupational illness , and other occupational injuries that involve loss of consciousness , lost time injuries , restriction of work or motion cases , transfer to another job , or medical treatment cases other than first aid . the table below presents our worldwide trir for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_5_th 39 results of operations the following table presents our consolidated results for the periods presented ( in thousands ) : replace_table_token_6_th ( 1 ) for the year ended december 31 , 2016 , $ 45,336 and $ 11,579 have been reclassified from general and administrative expenses to services and products , respectively , and $ 80,369 and $ 15,830 , respectively , for the year ended december 31 , 2015 . see note 1 - basis of presentation and significant accounting policies in the notes to consolidated financial statements . ( 2 ) please see note 13 - related party transactions in the notes to consolidated financial statements for further discussion . 40 story_separator_special_tag december 31 , 2016 decreased by $ 13.9 million , or 8.0 % , primarily as a result of declining activity and pricing pressures , offset by internal cost initiatives , which included workforce reductions and lease terminations . also , equity-based compensation expense decreased by $ 10.3 million as the ipo grants for retirement-eligible employees had a two year service requirement , which was completed during the third quarter of 2015. the decreased costs were partially offset by an increase in professional fees , which included costs related to our ongoing global corporate initiatives and the investigation mentioned in note 18 - commitments and contingencies in the notes to consolidated financial statements . depreciation and amortization . story_separator_special_tag depreciation and amortization for the year ended december 31 , 2016 increased by $ 5.3 million , or 4.8 % , to $ 114.2 million from $ 109.0 million for the year ended december 31 , 2015. the increase was primarily attributable to our acquisitions of timco services , inc. and blackhawk , as well as a higher depreciable base resulting from property and equipment additions . severance and other charges . severance and other charges for the year ended december 31 , 2016 were $ 46.4 million as we continued to take steps to adjust our workforce to meet the depressed demand in the industry in addition to the retirement of fixed assets of $ 29.9 million . 42 mergers and acquisition expense . mergers and acquisition expense for the year ended december 31 , 2016 were $ 13.8 million as a result of our blackhawk acquisition as mentioned in note 3 - acquisition and divestitures in the notes to consolidated financial statements . foreign currency loss . foreign currency loss for the year ended december 31 , 2016 increased by $ 4.5 million to $ 10.8 million from $ 6.4 million for the year ended december 31 , 2015. the increase was primarily due to the devaluation of the nigerian naira . income tax expense ( benefit ) . income tax expense ( benefit ) for the year ended december 31 , 2016 decreased by $ 63.0 million , or 168.7 % , to $ ( 25.6 ) million from $ 37.3 million for the year ended december 31 , 2015 primarily as a result of a decrease in taxable income and a change in jurisdictional mix . we are subject to many u.s. and foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities . our operations in these jurisdictions are taxed on various bases such as income before taxes , deemed profits ( which is generally determined using a percentage of revenues rather than profits ) and withholding taxes based on revenues ; consequently , the relationship between our pre-tax income from operations and our income tax provision varies from period to period . operating segment results the following table presents revenues and adjusted ebitda by segment ( in thousands ) : replace_table_token_7_th ( 1 ) adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . ( for a reconciliation of our adjusted ebitda , see `` —adjusted ebitda and adjusted ebitda margin . '' ) ( 2 ) amounts previously reported as corporate and other of $ 478 and $ 96 for 2016 and 2015 , respectively , have been reclassified to u.s. services to conform to the current presentation . year ended december 31 , 2017 compared to year ended december 31 , 2016 international services revenue for the international services segment decreased by $ 30.5 million , or 12.8 % , compared to 2016 , primarily due to lower offshore rig counts globally and increased pricing pressure on new contracts . revenue declines in our africa , europe , and asia pacific regions were mostly attributable to our major customers reducing the amount of work they do in the regions , which was partially offset by our attempts to expand into countries with drilling activity where 43 we have historically had a smaller presence and increases in canada and the middle east due to higher activity with key customers . adjusted ebitda for the international services segment decreased by $ 2.5 million , or 7.4 % , compared to 2016 , primarily due to the decrease in revenue , which was partially offset by lower expenses due to reduced activity and cost-cutting measures . u.s. services revenue for the u.s. services segment decreased by $ 34.0 million , or 22.3 % , compared to 2016 primarily due to a decrease in offshore services revenue of $ 51.4 million as a result of overall lower activity from weaknesses seen in the gulf of mexico due to rig cancellations and delays , coupled with downward pricing pressures . this was partially offset by an increase in onshore services revenue of $ 17.4 million as a result of improved activity due to increased oil prices , which has led to higher rig counts and more favorable pricing . adjusted ebitda for the u.s. services segment decreased by $ 28.3 million , or 257.4 % , compared to 2016 primarily due to higher pricing concessions , increased asset related expenses and higher labor costs to support increased land activity , as well as higher corporate and other costs , which were attributable to ongoing global corporate initiatives . tubular sales revenue for the tubular sales segment decreased by $ 29.3 million , or 33.5 % , compared to 2016 , primarily as a result of lower deepwater activity in the gulf of mexico . adjusted ebitda for the tubular sales segment increased by $ 1.4 million , or 82.7 % , compared to 2016 , due to cost cutting measures and lower product costs , offset by an increase in freight costs associated with project work . blackhawk the blackhawk segment is comprised solely of the assets we acquired on november 1 , 2016. revenues and adjusted ebitda for the segment were $ 71.0 million and $ 11.1 million , respectively , for the year ended december 31 , 2017 , compared to $ 10.0 million and $ 1.0 million , respectively , for the two months ended december 31 , 2016. see note 3 - acquisition and divestitures in the notes to consolidated financial statements for additional information on our blackhawk acquisition .
| general and administrative ( `` g & a '' ) expenses for the year ended december 31 , 2017 decreased by $ 8.2 million , or 4.8 % , to $ 163.7 million from $ 171.9 million for the year ended december 31 , 2016 , primarily due to the bad debt expense related to venezuelan receivables in 2016 , a reduction in compensation and benefit related expenses , and one-time property tax credits earned in 2017 , partially offset by higher it expenses and increased g & a expense related to the blackhawk acquisition . expense related to the write-off of venezuelan receivables in 2017 is included in severance and other charges . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2017 increased by $ 7.9 million , or 6.9 % , to $ 122.1 million from $ 114.2 million for the year ended december 31 , 2016 . the increase was primarily attributable to our blackhawk acquisition , partially offset by a lower depreciable base as a result of asset retirements during the fourth quarter of 2016. severance and other charges . severance and other charges for the year ended december 31 , 2017 increased $ 28.9 million , or 62.4 % , to $ 75.4 million , primarily due to impairments of our pipe and connectors inventory of $ 51.2 million and accounts receivable write offs of $ 15.0 million related to venezuela , nigeria and angola . during the fourth quarter of 2017 , management decided to significantly reduce our footprint in nigeria and angola by exiting certain bases and temporarily abandoning our investment in venezuela . this was partially offset by lower severance and other costs of $ 13.8 million and lower fixed asset retirements and abandonments of $ 23.4 million as compared to the prior year . see note 19 - severance and other charges in the notes to consolidated financial statements for additional information . foreign currency gain ( loss ) . foreign currency gain ( loss ) for the year ended december 31 , 2017
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in addition , our historical investment results may not necessarily be indicative of future performance . due to the nature of our reinsurance and investment strategies , our operating results will likely fluctuate from period to period . due to influx of new risk capital from alternative capital market participants such as hedge funds and pension funds , we believe that the reinsurance industry is currently over-capitalized and will continue in this trend for the foreseeable future . the over-capitalization of the market is not uniform as there are a number of insurers and reinsurers that have suffered and continue to suffer from capacity issues . we continue to assess the opportunities that may be available to us with insurance and reinsurance companies with this profile . if the reinsurance market continues to soften , our strategy is to reduce premium writings rather than accept mispriced risk and conserve our capital for a more opportune environment . significant rate increases could occur if financial and credit markets experience adverse shocks that result in the loss of capital of insurers and reinsurers , or if there are major catastrophic events , especially in north america . the persistent low interest rate environment has reduced the earnings of many insurance and reinsurance companies and we believe that the continuation of low interest rates , coupled with the reduction of prior years ' reserve redundancies , could cause the industry to adopt overall higher pricing . 32 recent developments in 2017 on november 12 , 2017 , the company 's board of directors decided to suspend the company 's regular $ 0.12 quarterly cash dividend , with the suspension to commence with the dividend that would have otherwise been payable for the third quarter of 2017. the board of directors intends to reconsider in the future the payment of a quarterly cash dividend , but the timing of such reconsideration has not been determined , and there is no intention to resume dividend payments in the foreseeable future , if at all . any decision to resume dividend payments will be dependent upon a variety of factors , including the state of the company 's business as well as general market conditions at the time of reconsideration , and there is no assurance that dividend payments will recommence . additionally , and in recognition of its dividend suspension , the company had decided to suspend the payment of non-employee director fees , effective october 1 , 2017 , which had been $ 30,000 per director per annum , and such fee suspension will continue until otherwise determined by the board of directors . principal revenue and expense items revenues we derive our revenues from two principal sources : ● premiums assumed from reinsurance on property and casualty business ; and ● income from investments . premiums assumed include all premiums received by a reinsurance company during a specified accounting period , even if the policy provides coverage beyond the end of the period . premiums are earned over the term of the related policies . at the end of each accounting period , the portion of the premiums that are not yet earned are included in the unearned premiums reserve and are realized as revenue in subsequent periods over the remaining term of the policy . our policies typically have a term of twelve months . thus , for example , for a policy that is written on july 1 , 2017 , typically one-half of the premiums will be earned in 2017 and the other half will be earned during 2018. however , in the event of limit losses on our policies , as we have experienced during the quarter ended september 30 , 2017 , premium recognition has been accelerated to match losses incurred in the period , when there is no possibility of any future treaty-year losses under the contracts . premiums from reinsurance on property and casualty business assumed are directly related to the number , type and pricing of contracts we write . premiums assumed are recorded net of change in loss experience refund , which consists of changes in amounts due to the cedants under two of our reinsurance contracts . these contracts contain retrospective provisions that adjust premiums in the event losses are minimal or zero . we recognize a liability pro-rata over the period in which the absence of loss experience obligates us to refund premiums under the contracts , and we will derecognize such liability in the period in which a loss experience arises . the change in loss experience refund is negatively correlated to loss and loss adjustment expenses described below . income from our investments is primarily comprised of interest income , dividends and net realized gains on investment securities . such income is primarily from the company 's investments , which includes investments held in trust accounts that collateralize the reinsurance policies that we write . the investment parameters for trust accounts are generally be established by the cedant for the relevant policy . 33 expenses our expenses consist primarily of the following : ● losses and loss adjustment expenses ; ● policy acquisition costs and underwriting expenses ; and ● general and administrative expenses . loss and loss adjustment expenses are a function of the amount and type of reinsurance contracts we write and of the loss experience of the underlying coverage . as described below , loss and loss adjustment expenses are based on the claims reported by our company 's ceding insurers , and may include an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . depending on the nature of the contract , loss and loss adjustment expenses may be paid over a period of years . policy acquisition costs and underwriting expenses consist primarily of brokerage fees , ceding commissions , premium taxes and other direct expenses that relate to our writing of reinsurance contracts . story_separator_special_tag we amortize deferred acquisition costs over the related contract term . general and administrative expenses consist of salaries and benefits and related costs , including costs associated with our professional fees , rent and other general operating expenses consistent with operating as a public company . 34 story_separator_special_tag million at december 31 , 2016. the decrease is due primarily to the successful placement of reinsurance contracts for the treaty year effective june 1 , 2017 more than offsetting by the acceleration of premium recognition due to the full limit losses on all of our contracts . liquidity and capital resources general we are organized as a holding company with substantially no operations at the holding company level . our operations are conducted through our reinsurance subsidiary , oxbridge reinsurance limited , which underwrites risks associated with our property and casualty reinsurance programs . we have minimal continuing cash needs at the holding company level , with such expenses principally being related to the payment of administrative expenses , and shareholder dividends , if any . there are restrictions on oxbridge reinsurance limited 's ability to pay dividends which are described in more detail below . sources and uses of funds our sources of funds primarily consist of premium receipts ( net of brokerage fees and federal excise taxes , where applicable ) and investment income , including interest , dividends and realized gains . we use cash to pay losses and loss adjustment expenses , other underwriting expenses , dividends , and general and administrative expenses . substantially all of our surplus funds , net of funds required for cash liquidity purposes , are invested in accordance with our investment guidelines . our investment portfolio is primarily comprised of cash and highly liquid securities , which can be liquidated , if necessary , to meet current liabilities . we believe that we have sufficient flexibility to liquidate any long-term securities that we own in a rising market to generate liquidity . 38 as of december 31 , 2017 , we believe we had sufficient cash flows from operations to meet our liquidity requirements . we expect that our operational needs for liquidity will be met by cash , investment income and funds generated from underwriting activities . we have no plans to issue debt and expect to fund our operations for the foreseeable future from operating cash flows , as well as from potential future equity offerings . however , we can not provide assurances that in the future we will not incur indebtedness to implement our business strategy , pay claims or make acquisitions . although oxbridge re holdings limited is not subject to any significant legal prohibitions on the payment of dividends , oxbridge reinsurance limited is subject to cayman islands regulatory constraints that affect its ability to pay dividends to us and include a minimum net worth requirement . currently , the minimum net worth requirement for oxbridge reinsurance limited is $ 500. as of december 31 , 2017 , oxbridge reinsurance limited exceeded the minimum required . by law , oxbridge reinsurance limited is restricted from paying a dividend if such a dividend would cause its net worth to drop to less than the required minimum . our reinsurance operations exposed us to claims arising out of unpredictable catastrophic events during the third quarter of 2017. the incidence and severity of catastrophes are inherently unpredictable , but the loss experience of property catastrophe reinsurers has been generally characterized as low frequency and high severity . claims from catastrophic events have reduced our earnings and caused substantial volatility in our results of operations , and adversely affected our financial condition . the corresponding reduction in our surplus level will impact our ability to write new reinsurance policies at future renewal periods . cash flows our cash flows from operating , investing and financing activities for the years ended december 31 , 2017 and 2016 are summarized below . cash flows for the year ended december 31 , 2017 ( in thousands ) net cash used in operating activities for the year ended december 31 , 2017 totaled $ 26,310 , which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses and net loss payments . net cash provided by investing activities of $ 24,983 was primarily due to the net sales of available for sale securities and collateral withdrawals from trust accounts to settle losses arising during the year . net cash used in financing activities totaled $ 3,152 representing net cash dividend payments and cash used to repurchase ordinary shares under the company 's share repurchase plan . cash flows for the year ended december 31 , 2016 ( in thousands ) net cash provided by operating activities for the year ended december 31 , 2016 totaled $ 416 , which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses . net cash provided by investing activities of $ 6,869 was primarily due to the net sales of available for sale securities and collateral withdrawals from trust accounts . net cash used in financing activities totaled $ 3,627 representing net cash dividend payments and cash used to repurchase ordinary shares under the company 's share repurchase plan . share repurchase program on may 12 , 2016 , the board of directors of the company authorized a share repurchase program ( the “ share repurchase program ” ) , pursuant to which the company had been authorized , from time to time , to purchase shares of its common stock for an aggregate repurchase price not to exceed $ 2 million . the share repurchase program was set to expire on december 31 , 2017. on september 28 , 2017 , the company discontinued the share repurchase program . through september 28 , 2017 , the company had repurchased an aggregate of 326,413 shares for an aggregate of $ 1.8 million under the share repurchase program .
| net premiums earned for the year ended december 31 , 2017 increased $ 5.5 million , to $ 23.6 million , from $ 18.1 million for the year ended december 31 , 2016. the increase is due to both the higher deployment of capital during 2017 , and consequentially higher premiums , as well as the acceleration of premium recognition due to full limit losses being incurred on all of our reinsurance contracts during the year ended december 31 , 2017. losses incurred . losses incurred for the year ended december 31 , 2017 increased $ 27.6 million to $ 42.4 million , from $ 14.8 million for the year ended december 31 , 2016. the increase is wholly due to the triggering of limit losses on all of our reinsurance contracts , due to the individual and collective impact of hurricane harvey , hurricane irma and hurricane maria on our book of business , as well as adverse development on prior year claims , compared with nominal loss and loss adjustment expenses during the prior fiscal year . policy acquisition costs and underwriting expenses . acquisition costs represent the amortization of the brokerage fees and federal excise taxes incurred on reinsurance contracts placed . policy acquisition costs and underwriting expenses for the year ended december 31 , 2017 increased by $ 395 thousand , to $ 681 thousand from $ 286 thousand for the year ended december 31 , 2016. the increase is due both to the higher policy acquisition costs resulting from more capital deployed , as well as the acceleration of premium recognition as mentioned above , and the resulting acceleration of policy acquisition costs . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2017 decreased marginally by $ 95 thousand . the decrease is not considered material . 36 measurement of results we use various measures to analyze the growth and profitability of business operations . for our reinsurance business , we measure growth in terms of premiums assumed and we measure underwriting profitability by examining our loss , underwriting expense and combined ratios . we analyze and measure profitability in terms of net income and return on average equity . premiums assumed . we use gross premiums assumed to measure our sales of reinsurance products . gross premiums assumed also correlates to our ability to generate net premiums
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this estimate reflects continued uncertainty associated with the potential for the covid-19 pandemic to continue to constrain operating hours in our sawmills . in our timberlands segment , northern sawlog prices benefitted from idaho sawlogs prices being indexed to lumber prices which reached record levels in the second half of the year , while southern pine sawlog prices remained stable during 2020. our harvest volume of 6.0 million tons in 2020 was higher than 2019 due to more favorable harvest conditions . we expect to harvest approximately 6.0 million tons during 2021 , with approximately 70 % of the volume in the southern region . in the fourth quarter of 2020 our real estate segment benefitted from the sale of 72,440 acres of rural timberland in minnesota to the conservation fund ( tcf ) for nearly $ 48.0 million . this sale was a significant milestone in our long-term strategy to sell minnesota land at a premium to timberland values . for 2021 , we expect to sell approximately 20,000 acres of rural land . residential and commercial sales in our chenal valley development mainly follow the national housing market trends but do experience microeconomic factors for the area including economic growth and the availability of builders , contractors and workforce to support development efforts . we anticipate selling approximately 145 residential lots in 2021 . 30 consolidated results the following table sets forth year-over-year changes in items included in our consolidated statements of operations . our story_separator_special_tag style= '' width:3.57 % ; white-space : nowrap '' valign= '' top '' > harvest volume : we harvested 4.2 million tons in the southern region during 2020 , which was up 12.6 % compared to 2019. the increase was primarily because the 2019 harvest was disrupted by wet weather . wood products segment replace_table_token_8_th 1 prior to elimination of intersegment fiber costs of $ 138.4 million and $ 114.9 million in 2020 and 2019 , respectively . 2 management uses adjusted ebitdda to evaluate the performance of the segment . see note 3 : segment information in the notes to consolidated financial statements . 34 wood products segment statistics replace_table_token_9_th 1 mbf stands for thousand board feet . wood products adjusted ebitdda the following table summarizes adjusted ebitdda variances for the year ended december 31 , 2020 , compared with the year ended december 31 , 2019 : replace_table_token_10_th 2020 compared with 2019 wood products adjusted ebitdda for 2020 was $ 176.1 million , an increase of $ 163.2 million compared to 2019 primarily due to the following : lumber price : average lumber sales prices increased to $ 522 per mbf from $ 371 per mbf during 2019 driven by the historic run in lumber prices during the second half of 2020. lumber volume : lumber shipments increased 29.6 million board feet during 2020 driven by increased demand for both new housing construction and repair and remodeling projects . manufacturing costs per unit : higher manufacturing costs per unit year over year was a result of reduced operating hours in 2020 due to labor-related constraints and lost productivity in april at two arkansas mills due to hurricane-caused power outages . log costs per unit : log costs per unit were higher in 2020 as a result of increased indexed log costs in idaho which more than offset the impact of lower log costs for our southern sawmills . i nventory charge : ending inventory at december 31 , 2019 was written down $ 3.4 million to net realizable value as a result of declines in lumber prices . there were no such write-downs at december 31 , 2020. residual sales , panels and other : lower residual sales and h igher incentive compensation related to divisional performance more than offset the effect of higher panel prices . 35 real estate segment replace_table_token_11_th 1 management uses adjusted ebitdda to evaluate the performance of the segment . see note 3 : segment information in the notes to consolidated financial statements . real estate segment statistics rural real estate replace_table_token_12_th development real estate replace_table_token_13_th real estate adjusted ebitdda the following table summarizes adjusted ebitdda variances for the year ended december 31 , 2020 , compared with the year ended december 31 , 2019 : ( in thousands ) 2020 vs 2019 adjusted ebitdda - prior year $ 62,650 rural real estate sales 32,232 real estate development sales ( 6,688 ) selling , general and administrative expenses ( 1,101 ) other costs , net ( 617 ) adjusted ebitdda - current year $ 86,476 36 2020 compared with 2019 real estate adjusted ebitdda for 2020 was $ 86.5 million , an increase of $ 23.8 million compared with 2019 primarily due to the following : rural real estate sales : during 2020 , we sold 72,440 acres to tcf for nearly $ 48 million . during 2019 , we sold 1,787 acres of recreation real estate outside of little rock , arkansas for $ 19.6 million . rural real estate sales vary period-to-period with the average price per acre fluctuating based on both the geographic area of the real estate and product mix . development real estate sales : during 2020 we sold 138 lots at an average lot price of $ 85,922 compared with 148 lots at an average lot price of $ 87,215 during 2019. in addition , we sold 4 acres of commercial land in chenal valley for $ 817,629 per acre during 2020 compared to 38 acres for $ 248,443 per acre during 2019. liquidity and capital resources overview changes in significant sources of cash for the years ended december 31 , 2020 and 2019 are presented by category as follow : replace_table_token_14_th net cash flows from operating activities net cash provided by operating activities increased $ 196.2 million in 2020 compared to 2019 primarily as a result of the following : cash received from customers increased $ 233.5 million as a result of historically high lumber prices during the second half of the year , increased harvest activities , increased lumber shipments and the 72,440 acre story_separator_special_tag rural land sale to tcf . these increases were partially offset by 2019 activity that included an arkansas rural land sale for $ 19.6 million and 1.5 months of activity at the deltic mdf facility prior to its sale . cash payment to vendors increased $ 18.1 million primarily due to increased harvest activities and increased lumber shipments . the increase was partially offset by the reduced operations of our industrial plywood mill during the second quarter of 2020 and by 1.5 months of activity at the deltic mdf facility in 2019 prior to its sale . cash contributions to our pension and other postretirement employee benefit plans increased $ 4.3 million . net cash paid for interest decreased $ 3.7 million primarily due to increased patronage dividends from our lenders and lower net interest costs as a result of refinancing our $ 150.0 million senior notes during the first quarter of 2019. net tax payments increased $ 18.6 million as a result of increased income generated from our potlatchdeltic trs operations . net cash flows from investing activities changes in cash flows from investing activities were primarily a result of the following : we spent $ 38.9 million on capital expenditures for property , plant and equipment , timberlands reforestation and road construction projects during 2020 compared to $ 56.8 million during 2019 . 37 we spent $ 6.9 million on timberland acquisitions in 2020 compared to $ 0.6 million in 2019. we received $ 58.8 million of net cash proceeds from the deltic mdf facility sale in february 2019 additionally , we received $ 1.0 million in the first quarter of 2020 related to the satisfaction of certain covenants associated with the deltic mdf facility sale . net cash flows from financing activities changes in cash flows from financing activities were primarily a result of the following : we paid dividends of $ 107.9 million in 2020 and $ 107.7 million in 2019. during 2020 we repurchased 489,850 shares of our common stock totaling $ 15.4 million compared to 686,240 shares repurchased totaling $ 25.2 million during 2019. during 2019 we refinanced $ 150.0 million of senior notes and $ 40.0 million of term loans . upon refinancing the senior notes , we paid a redemption premium of $ 4.9 million . future sources and uses of cash on february 12 , 2021 , the board of directors approved a quarterly cash dividend of $ 0.41 per share payable on march 31 , 2021 to stockholders of record as of march 5 , 2021. we invest cash in maintenance and discretionary capital expenditures at our wood products facilities . we also invest cash in the reforestation of timberlands and construction of roads in our timberlands operations and to develop land in our real estate development operations . we evaluate discretionary capital improvements based on an expected level of return on investment . we expect to spend a total of approximately $ 55.0 to $ 60.0 million for capital expenditures during 2021. on august 30 , 2018 , the board of directors authorized the repurchase up to $ 100.0 million of common stock with no time limit set for the repurchase ( the repurchase program ) . at december 31 , 2020 , we had remaining authorization of $ 59.5 million for future stock repurchase under the repurchase program . the timing , manner , price and amount of repurchases will be determined according to the trading plan adopted in accordance with rule 10b5-1 of the securities exchange act of 1934 ( the trading plan ) , and , subject to the terms of the trading plan . the repurchase program may be suspended , terminated or modified at any time for any reason . we are deferring payments of approximately $ 3.8 million for our 2020 employer portion of social security payroll tax as allowed under the coronavirus aid , relief , and economic security act ( cares act ) . these payments will be funded in 2021 and 2022 as required under the cares act . capital structure replace_table_token_15_th 1 market capitalization is based on outstanding shares of 66.9 million and 67.2 million times closing share prices of $ 50.02 and $ 43.27 at december 31 , 2020 and 2019 , respectively . 2 dividend yield is based on annualized dividends per share of $ 1.64 and $ 1.60 divided by share prices of $ 50.02 and $ 43.27 at december 31 , 2020 and 2019 , respectively . 3 weighted-average cost of debt excludes deferred debt costs and credit facility fees and includes estimated annual patronage credit on term loan debt . 38 liquidity and performance measures the discussion below is presented to enhance the reader 's understanding of our operating performance , ability to generate cash and satisfy rating agency and creditor requirements . this information includes two measures : adjusted ebitdda and cash available for distribution ( cad ) . these measures are not defined by gaap and the discussion of adjusted ebitdda and cad is not intended to conflict with or change any of the gaap disclosures described herein . adjusted ebitdda is a non-gaap measure that management uses in evaluating performance and to allocate resources between segments , and that investors can use to evaluate the operational performance of the assets under management . it removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis . this measure should not be considered in isolation from and is not intended to represent an alternative to our results reported in accordance with gaap . management believes that this non-gaap measure , when read in conjunction with our gaap financial statements , provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented , the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their gaap results with non-gaap financial measures .
| loss on extinguishment of debt as part of the $ 150.0 million senior notes redemption in january 2019 we incurred a redemption premium of $ 4.9 million and wrote off certain unamortized debt costs . pension settlement charge in february 2020 , we purchased a group annuity contract from an insurance company to transfer $ 101.1 million of our outstanding pension benefit obligation related to our qualified pension plans . this transaction was funded with plan assets . in connection with this transaction , we recorded a non-cash pretax settlement charge of $ 43.0 million . non-operating pension and other postretirement benefit costs non-operating pension and other postretirement benefit costs increased $ 10.5 million compared with 2019 primarily because prior service credits of $ 7.6 million per year were fully amortized at the end of 2019. a decrease in expected plan assets and a decrease in the discount rate used to determine the benefit obligations also resulted in an increase in non-operating pension and other postretirement benefit costs . income taxes income tax expense was $ 27.1 million for 2020 compared with $ 1.0 million for 2019. income taxes are primarily due to income or loss generated from our potlatchdeltic trs . for 2020 , our potlatchdeltic trs 's income before income tax was $ 113.2 million , which included the pension settlement charge . for 2019 , our potlatchdeltic trs 's income before income tax was $ 2.9 million , which included the gain on sale of the deltic mdf facility . total adjusted ebitdda total adjusted ebitdda for 2020 increased $ 203.3 million compared to 2019. the increase in total adjusted ebitdda was driven primarily by historically high lumber prices during the second half of 2020 , increased sawlog prices in idaho and the 72,440 acre conservation land sale to tcf . refer to the business segment results below for further discussions on activities for each of our segments . see liquidity and performance measures for a reconciliation
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2014-15. accounting for warrants we determine the accounting classification of warrants we issue , as either liability or equity classified , by first assessing whether the warrants meet liability classification in accordance with asc 480-10 , accounting for certain financial instruments with characteristics of both liabilities and equity , then in accordance with asc 815-40 , accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock . under asc 480 , warrants are considered liability classified if the warrants are mandatorily redeemable , obligate us to settle the warrants or the underlying shares by paying cash or other assets , and warrants that must or may require settlement by issuing variable number of shares . if warrants do not meet the liability classification under asc 480-10 , we assess the requirements under asc 815-40 , which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value , irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature . if the warrants do not require liability classification under asc 815-40 , in order to conclude equity classification , we also assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under asc 815-40 or other gaap . after all such assessments , we conclude whether the warrants are classified as liability or equity . liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations . equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date . we do not have any liability classified warrants as of any period presented . see note 7 to our financial statements included elsewhere in this report . stock-based compensation we recognize compensation expense related to share-based payments in accordance with asc 718 , compensation - stock compensation ( “ asc 718 ” ) , which requires the measurement and recognition of compensation expense for share-based payment awards made to directors and employees based on estimated fair values . we estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value over the requisite service period on a straight-line basis . for stock-based awards that vest only upon the attainment of one or more performance goals , compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be , or have been , achieved . we utilize the black-scholes option pricing model for determining the fair value of stock options . our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include , but are not limited to , expected stock price volatility over the term of the awards , and actual and projected employee stock option exercise behaviors . for the years ended december 31 , 2019 and 2018 , we estimated the expected volatility using our own stock price volatility to the extent applicable or a combination of our stock price volatility and the stock price volatility of stock of peer companies , for a period equal to the expected term of the options . the expected term of options granted is based on our own experience and , in part , based upon the “ simplified method ” provided under staff accounting bulletin , topic 14 , or sab topic 14 , as necessary . the risk-free rate is based on the u.s. treasury rates in effect during the corresponding period of grant . although the fair value of employee stock options is determined in accordance with fasb guidance , the key inputs and assumptions may change as we develop our own company estimates , experience and key inputs including our expected term , and stock price volatility based on the trading history of our stock on the nyse american . changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our financial statements . leases on january 1 , 2019 , we adopted accounting standards update 2016-02 , leases ( topic 842 , “ asc 842 ” ) and its subsequent amendments affecting oncocyte : ( i ) asu 2018-10 , codification improvements to topic 842 , leases , and ( ii ) asu 2018-11 , leases ( topic 842 ) : targeted improvements , using the modified retrospective method . under asc 842 , we are required to recognize right-of-use ( “ rou ” ) assets and lease liabilities on the balance sheet for those leases classified as operating leases , by present valuing the lease payments using a discount rate determined in accordance with asc 842. under the standard , we are also required to make certain disclosures to meet the objective of enabling users of financial statements to assess the amount , timing , and uncertainty of cash flows arising from leases . we determine if an arrangement is a lease at inception . leases are classified as either financing or operating , with classification affecting the pattern of expense recognition in the statements of operations . when determining whether a lease is a finance lease or an operating lease , asc 842 does not specifically define criteria to determine “ major part of remaining economic life of the underlying asset ” and “ substantially all of the fair value of the underlying asset. story_separator_special_tag ” for lease classification determination , we continue to use ( i ) 75 % or greater to determine whether the lease term is a major part of the remaining economic life of the underlying asset and ( ii ) 90 % or greater to determine whether the present value of the sum of lease payments is substantially of the fair value of the underlying asset . we use either the rate implicit in the lease or our incremental borrowing rate as the discount rate in lease accounting , as applicable , to present value the operating lease payments . 40 upon adoption of asc 842 and based on the available practical expedients under that standard , we did not reassess any expired or existing contracts , reassess the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases . we also elected not to capitalize leases that have terms of twelve months or less . the adoption of asc 842 did not have a material impact to our financial statements because we did not have any significant operating leases at the time of adoption . our accounting for financing leases ( previously referred to as “ capital leases ” ) remained substantially unchanged . during the year ended december 31 , 2019 , we entered into various operating leases and an embedded operating lease in accordance with asc 842 discussed in notes 5 and 10 to our financial statements included elsewhere in this report . impairment of long-lived assets we assess the impairment of long-lived assets , which consists primarily of long-lived intangible assets , machinery and equipment , whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable . if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset , an impairment loss equal to the excess of the asset 's carrying value over its fair value is recorded . income taxes we account for income taxes in accordance with asc 740 , income taxes , which prescribes the use of the asset and liability method , whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect . valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized . our judgments regarding future taxable income may change over time due to changes in market conditions , changes in tax laws , tax planning strategies or other factors . if our assumptions and consequently our estimates change in the future , the valuation allowance may be increased or decreased , which may have a material impact on our statements of operations . the guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not sustainable upon examination by taxing authorities . we will recognize accrued interest and penalties , if any , related to unrecognized tax benefits as income tax expense . no amounts were accrued for the payment of interest and penalties as of the financial statement periods presented herein . we account for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities . we are currently unaware of any tax issues under review . see note 9 to our financial statements included elsewhere in this report . shared facilities agreement from october 2009 through december 2019 , oncocyte and lineage were parties to a shared facilities and services agreement ( the “ shared facilities agreement ” ) pursuant to which oncocyte used a portion of lineage 's office and laboratory facilities and equipment and the services of lineage administrative personnel . since october 1 , 2019 , oncocyte has relied on its own administrative personnel rather than the services of lineage personnel , and effective december 31 , 2019 oncocyte terminated its use of lineage 's office and laboratory facilities and equipment . under the shared facilities agreement , lineage charged oncocyte a “ use fee ” for services rendered and oncocyte 's use of lineage facilities , equipment , and supplies . use fees were determined based upon an allocation of lineage 's costs for providing personnel , equipment , insurance , office and laboratory space , professional services , software , supplies and utilities , plus a 5 % markup . in addition to the use fees , oncocyte reimbursed lineage for any out of pocket costs incurred by lineage for the purchase of office supplies , laboratory supplies , and other goods and materials and services for the account or use of oncocyte based on invoices documenting such costs . oncocyte 's research and development expenses and general and administrative expenses for the periods presented in this report include allocations of use fees and other amounts paid to lineage under the shared facilities agreement , in addition to costs incurred directly by oncocyte for its own personnel , service providers , equipment , supplies , insurance , and similar expense , and for use and operation of its own leased facilities . 41 research and development expenses research and development expenses include both direct expenses incurred by oncocyte and indirect overhead costs allocated to us by lineage that benefit or support our research and development functions of oncocyte . direct research and development expenses consist primarily of personnel costs and related benefits , including stock-based compensation , outside consultants and suppliers .
| we have hired our own accounting and administrative personnel and we are now bearing the full cost of their compensation and employee benefits , and we have acquired our own leased office and laboratory facilities and are bearing directly lease and other operating costs related to those facilities . our general and administrative expenses are expected to increase as we replace services from lineage with services from our own employees and lease and operate our own office and laboratory facilities . sales and marketing expenses sales and marketing expenses for the year ended december 31 , 2019 increased to $ 2.2 million from $ 1.7 million during 2018. this $ 0.5 million increase was primarily attributable to consulting expenses for marketing , commercialization and rebranding activities we commenced in the latter part of 2019 , mainly for the commercial launch of determarx . although we had a relatively small increase in our sales and marketing expenses during the year ended december 31 , 2019 , in late may 2019 , we hired a sr. vice president of marketing and market access , and in late 2019 and january 2020 we hired sales representatives and increased sales and marketing related activities for our determarx commercialization efforts . as a result , we expect that our sales and marketing expenses will increase significantly as we continue to pursue the commercialization of determarx , and begin commercialization of determadx , determaio tm , and any other diagnostic tests that we may successfully develop or acquire . our sales and marketing efforts , and the amount of related expenses that we will incur in the near term will largely depend upon the degree of success we have in commercializing determarx , and whether we can successfully complete the development and commercialization of determadx and determaio tm . our commercialization efforts and expenses will also depend on the amount of capital that we are able to raise to finance commercialization of our diagnostic tests . our current cash resources will require
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we also expect to present a new technology & manufacturing reportable segment , that will combine our high tech industry group and the legacy gca and abm industrial & manufacturing ( “ i & m ” ) businesses . abm 's legacy i & m business was included in the b & i segment . we anticipate cost synergies relating to the gca acquisition of approximately $ 20– $ 30 million annually within two years . in connection with the acquisition , we expect to incur one-time transaction and integration related expenses of approximately $ 70 million , which includes approximately $ 19 million of financing costs that are being amortized over the term of the new credit facility . we will also incur higher interest expense as a result of an increased level of debt and higher amortization expense . 21 government services business in connection with the held-for-sale classification of the government services business in 2016 , we wrote down goodwill and long-lived assets of this business by $ 22.5 million to reflect our best estimate of fair value less costs to sell , using all information available at that time . during the second quarter of 2017 , we received an offer from a strategic buyer to purchase this business for approximately $ 35.0 million , which was higher than our previous estimate of fair value less costs to sell . as a result , we recorded a $ 17.4 million impairment recovery to adjust the fair value of certain previously impaired assets to the valuation of the assets as implied by the agreed-upon sales price , less estimated costs to sell . on may 31 , 2017 , we sold this business for $ 35.5 million . legal on july 6 , 2017 , abm security services , inc. , a wholly-owned subsidiary of abm industries incorporated , entered into a class action settlement and release to settle the consolidated cases of augustus , hall , and davis , et al . v. american commercial security services , on a class-wide basis for $ 110.0 million , as approved by the superior court of california , los angeles county . the first payment of $ 55.0 million was made on july 19 , 2017 , and the second payment of $ 55.0 million , plus an additional payment of $ 4.8 million for payroll taxes , was made on august 29 , 2017 , both of which were funded from operating cash flows and borrowings under our credit facility . in connection with karapetyan v. abm industries incorporated and abm security services , inc. , et al . ( the “ karapetyan case ” ) , we entered into a class action settlement and release with plaintiff vardan karapetyan , on behalf of himself and the settlement class members , to settle the karapetyan case on a class-wide basis for $ 5.0 million . the united states district court for the central district of california granted final approval of the settlement on september 7 , 2017. the full settlement payment in the amount of $ 5.0 million , plus an additional $ 0.2 million in payroll taxes , was made on october 13 , 2017 . as these settlements were related to the former security business , the amounts are reflected in discontinued operations throughout this md & a . these settlements are tax deductible and will result in an estimated $ 50 million in cash tax savings , the majority of which we expect to receive in 2018. insurance during 2017 , we performed actuarial studies of our casualty insurance programs that considered changes in claim developments and claim payment activity for the period commencing may 1 , 2016 and ending april 30 , 2017 for all policy years in which open claims existed . based on the results of these studies , which included analyzing recent loss development patterns , comparing the loss development patterns against benchmarks , and applying actuarial projection methods to estimate the ultimate losses , we increased our total reserves for known claims as well as our estimate of the loss amounts associated with claims incurred but not reported ( “ ibnr claims ” ) for years prior to 2017 by $ 22.0 million during 2017. this adjustment was $ 10.9 million lower than the total adjustment related to prior year claims of $ 32.9 million in 2016 . 2020 vision restructuring and related costs in connection with the execution of our 2020 vision , we originally anticipated total pre-tax restructuring and related charges would range from $ 45 million to $ 60 million . additional costs were incurred , mainly related to additional use of external advisors for initial pricing and furthering of procurement efforts to enhance and support our 2020 vision initiatives . as a result , our total pre-tax restructuring and related charges were slightly higher than the range we originally estimated . we do not expect to incur significant 2020 vision restructuring and related expenses in the future . replace_table_token_3_th 22 united states tax reform the tax cuts and jobs act of 2017 was approved by congress on december 20 , 2017 , and as of the filing of this report , it is awaiting signature by president donald j. trump . the law includes significant changes to the u.s. corporate income tax system , including a federal corporate rate reduction from 35 % to 21 % , limitations on the deductibility of interest expense and executive compensation , and the transition of u.s. international taxation from a worldwide tax system to a territorial tax system . this change may result in a u.s. tax liability on those earnings which have not previously been repatriated to the u.s. , with future foreign earnings potentially not subject to u.s. income taxes when repatriated . the majority of the provisions will have an impact on abm beginning in fiscal years 2018 and 2019. we are in the process of analyzing the final legislation and determining an estimate of the financial impact . story_separator_special_tag story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > * not meaningful replace_table_token_6_th b & i revenues increased by $ 43.4 million , or 1.5 % , during 2017 , as compared to 2016 . the increase was primarily attributable to new janitorial business , including new contract wins in the u.k. and additional tag revenue , as well as expansion of existing facility services accounts . management reimbursement revenues for this segment totaled $ 234.2 million and $ 227.8 million during 2017 and 2016 , respectively . operating profit increased by $ 18.6 million , or 13.7 % , during 2017 , as compared to 2016 . operating profit margin increased by 56 bps to 5.1 % in 2017 from 4.6 % in 2016 . the increase in operating profit margin was primarily 26 associated with higher margin revenues , cost control savings from our 2020 vision initiatives , and lower legal settlement costs . this increase was partially offset by reserves recorded for multiemployer union benefit obligations from previous years and by lower profit margins associated with certain leased location arrangements . replace_table_token_7_th aviation revenues increased by $ 136.3 million , or 16.0 % , during 2017 , as compared to 2016 . the increase was primarily attributable to organic growth in parking , transportation , passenger services , cabin cleaning , and facility services . management reimbursement revenues for this segment totaled $ 80.4 million and $ 78.2 million during 2017 and 2016 , respectively . operating profit increased by $ 1.1 million , or 3.8 % , during 2017 , as compared to 2016 . operating profit margin decreased by 34 bps to 2.9 % in 2017 from 3.3 % in 2016 . the decrease in operating profit margin was primarily attributable to a contract termination during 2017 and operational issues in certain geographic markets . this decrease was partially offset by lower allocated costs from our 2020 vision initiatives and the absence of both a penalty imposed by a regulatory agency and a specific reserve established for a client receivable in 2016. replace_table_token_8_th emerging industries group revenues decreased by $ 24.8 million , or 3.1 % , during 2017 , as compared to 2016 . the decrease was primarily related to the losses of certain high tech and education facility services accounts . the decrease in revenues for this segment was partially offset by net new janitorial business in the healthcare and education industry groups . operating profit decreased by $ 15.1 million , or 24.9 % , during 2017 , as compared to 2016 . operating profit margin decreased by 171 bps to 5.9 % in 2017 from 7.6 % in 2016 . the decrease in operating profit margin was primarily attributable to lower contribution margin from certain high tech contracts , including the loss of a multi-location janitorial account , higher allocated costs from our 2020 vision initiatives , and reserves recorded for multiemployer union benefit obligations from previous years . replace_table_token_9_th technical solutions revenues increased by $ 14.3 million , or 3.4 % , during 2017 , as compared to 2016 . the increase was primarily attributable to incremental revenues from acquisitions of $ 18.1 million and higher project revenues , partially offset by the completion of a large espc project . operating profit increased by $ 10.1 million , or 34.8 % , during 2017 , as compared to 2016 . operating profit margin increased by 207 bps to 8.9 % in 2017 from 6.8 % in 2016 . the increase in operating profit margin was primarily attributable to the completion of a relatively lower margin espc project that started in 2016 , the management of our 27 selling , general and administrative expenses , a reduction in bad debt , and higher operational tax credits for energy efficient government building projects . replace_table_token_10_th corporate expenses increased by $ 17.8 million , or 10.7 % , during 2017 , as compared to 2016 . the increase in corporate expenses was primarily related to : $ 24.2 million of transaction expenses related to the gca acquisition ; an $ 8.1 million increase in costs associated with 2020 vision technology investments ; a $ 5.8 million increase in other costs to support our 2020 vision initiatives ; a $ 5.1 million increase in legal settlement costs , including a settlement relating to a case alleging certain minimum wage violations ; and a $ 2.3 increase in legal expenses . this increase was partially offset by : a $ 10.9 million decrease in self-insurance expense related to prior year claims as a result of an actuarial evaluation completed during 2017 ; a $ 7.8 million decrease in restructuring and related costs as a result of the completion of our 2020 vision organizational realignment ; the absence of a $ 5.2 million specific reserve established during 2016 for a portion of a client receivable that is the subject of ongoing litigation ; a $ 3.2 million reimbursement during 2017 of previously expensed fees associated with a concluded internal investigation into a foreign entity formerly affiliated with a joint venture ; and a $ 1.9 million decrease in sales tax reserve . 28 the year ended october 31 , 2016 compared with the year ended october 31 , 2015 consolidated replace_table_token_11_th * not meaningful revenues revenues increased by $ 246.9 million , or 5.0 % , during 2016 , as compared to 2015 . the increase in revenues was attributable to organic growth in aviation , b & i , technical solutions , and emerging industries group and to $ 101.9 million of incremental revenues from acquisitions . this increase was partially offset by the completion of certain government services contracts . operating expenses operating expenses increased by $ 211.1 million , or 4.8 % , during 2016 , as compared to 2015 . gross margin increased by 20 bps to 10.5 % in 2016 from 10.3 % in 2015 .
| this increase was partially offset by the sale of our government services business on may 31 , 2017 , the loss of certain contracts in our emerging industries group , and the completion of a large energy savings performance contract ( “ espc ” ) . operating expenses operating expenses increased by $ 277.8 million , or 6.0 % , during 2017 , as compared to 2016 . gross margin remained flat at 10.5 % in 2017 and 2016 . gross margin was positively impacted by a lower self-insurance adjustment related to prior year claims and savings from our 2020 vision initiatives . however , gross margin was negatively impacted by a contract termination within our aviation business and the loss of a multi-location janitorial account in our emerging industries group . selling , general and administrative expenses selling , general and administrative expenses increased by $ 26.5 million , or 6.5 % , during 2017 , as compared to 2016 . the increase in selling , general and administrative expenses was primarily related to : $ 24.2 million of transaction expenses related to the gca acquisition ; an $ 8.1 million increase in costs associated with 2020 vision technology investments ; 24 $ 5.8 million of higher compensation and related expenses primarily related to hiring additional personnel to support our 2020 vision initiatives , which was reduced by a reversal of certain expenses related to incentive plans ; $ 4.1 million of incremental selling , general and administrative expenses related to the gca acquisition ; and a $ 2.3 million increase in legal expenses . this increase was partially offset by : an $ 8.8 million reduction in bad debt expense primarily associated with the absence of specific reserves for certain client receivables that were recorded in 2016 ; a $ 3.2 million reimbursement during 2017 of previously expensed fees associated with a concluded internal investigation into a foreign entity formerly affiliated with a joint venture ; a $ 2.7 million decrease in sales tax reserve compared with the sales tax reserve in 2016 ; and organizational savings from our 2020 vision initiatives . restructuring and related expenses
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we are currently in the process of ramping up our third manufacturing site in penang , malaysia . it is expected that in 2013 our site in malaysia will produce around 15 % to 20 % of our total production and will focus primarily on making existing products transferred from our hungarian production facility to support anticipated growth in our business . our product manufacturing operations can be divided into four areas : electronic circuit card and module assembly ; chassis and cable assembly ; technical manuals and product support documentation ; and software duplication . we manufacture most of the electronic circuit card assemblies , modules and chassis in-house , although subcontractors are used from time to time . we manufacture some of our electronic cable assemblies in-house , but many assemblies are produced by subcontractors . we primarily subcontract our software duplication , our technical manuals and product support documentation . we believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis . accordingly , we focus significant efforts on research and development . we focus our research and development efforts on enhancing existing products and developing new products that incorporate appropriate features and functionality to be competitive with respect to technology , price and performance . our success also is dependent on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products . we have engaged in litigation and where necessary , will likely engage in future litigation to protect our intellectual property rights . in monitoring and policing our intellectual property rights , we have been and may be required to spend significant resources . our operating results fluctuate from period to period due to changes in global economic conditions and a number of other factors . as a result , we believe our historical results of operations should not be relied upon as indications of future performance . there can be no assurance that our net sales will grow or that we will remain profitable in future periods . story_separator_special_tag style= '' margin:0pt ; font-family : times new roman ; font-family : times ; font-size : 10pt '' > we expect sales outside of the americas to continue to represent a significant portion of our revenue . we intend to continue to expand our international operations by increasing our presence in existing markets , adding a presence in some new geographical markets and continuing the use of distributors to sell our products in some countries . we anticipate that sales growth in asia may continue to be strong relative to the americas and europe and continue to grow as a percentage of our total net sales . almost all of the sales made by our direct sales offices in the americas , outside of the u.s. , europe , east asia , and emerging asia row are denominated in local currencies , and accordingly , the u.s. dollar equivalent of these sales is affected by changes in foreign currency exchange rates . for 2012 , in local currency terms , our total sales increased by $ 13 8 million or 13 % , americas sales increased by $ 45 million or 11 % , european sales increased by $ 4.6 million or 1 % , sales in east asia increased by $ 63 million or 29 % , and sales in emerging asia row increased by $ 25 million or 28 % . during this same period , the change in exchange rates had the effect of decreasing our total sales by $ 20 million or 2 % , decreasing americas sales by $ 1.8 million or 0.4 % , decreasing european sales by $ 18 million or 6 % , increasing east asia by $ 4.0 million or 2 % and decreasing emerging asia row sales by $ 4.9 million or 6 % . for 2011 , in local currency terms , our total sales increased by $ 128 million or 15 % , americas sales increased by $ 50 million or 14 % , european sales increased by $ 37 million or 16 % , and sales in east asia increased by $ 27 million or 15 % , and sales in emerging asia row increased by $ 14 million or 19 % . during this same period , the change in exchange rates had the effect of increasing our total sales by $ 27 million or 3 % , increasing americas sales by $ 1 million or 0.4 % , increasing european sales by $ 13 million or 5 % , increasing east asia by $ 7.4 million or 4 % and increasing emerging asia row sales by $ 5.7 million or 8 % . to help protect against a reduction in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales , we have instituted a foreign currency cash flow hedging program . we hedge portions of our forecasted revenue denominated in foreign currencies with forward and purchased option contracts . during 2012 , these hedges had the effect of increasing our consolidated sales by $ 2.9 million . during 2011 , these hedges had the effect of decreasing our consolidated sales by $ 3.9 million . ( see note 4 - derivative instruments and hedging activities of notes to consolidated financial statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales for 2012 and 2011 ) . gross profit . for the years ended december 31 , 2012 , 2011 and 2010 , gross profit was $ 863 million , $ 783 million and $ 673 million , respectively . as a percentage of sales , gross profit was 76 % , 77 % and 77 % in 2012 , 2011 and 2010 , respectively . story_separator_special_tag during the year ended december 31 , 2012 , gross margin was negatively impacted by the decline in our european business as a result of the weakness of the european industrial economy and the weaker euro as well as the lower than average gross margin on our largest order . we continued to focus on cost control and cost reduction measures throughout our manufacturing cycle . these cost control and cost reduction measures along with sales growth have helped us to maintain relative stability in our gross margin . during 2012 and 2011 , the change in exchange rates had the effect of decreasing our cost of sales by $ 1.2 million or 1 % and increasing our cost of sales by $ 4.7 million or 2 % , respectively . to help protect against changes in our cost of sales caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows , we have a foreign currency cash flow hedging program . we hedge portions of our forecasted costs of sales denominated in foreign currencies with forward contracts . during 2012 and 2011 , these hedges had the effect of decreasing our cost of sales by $ 402,000 and decreasing our cost of sales by $ 1.4 million , respectively . ( see note 4 - derivative instruments and hedging activities of notes to consolidated financial statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales for 2012 and 2011 ) . operating expenses . for the years ended december 31 , 2012 , 2011 and 2010 , operating expenses were $ 746 million , $ 670 million and $ 545 million , respectively , an increase of 11 % in 2012 , following an increase of 23 % in 2011. during 2012 , our operating expenses grew 16 % during the first half of the year , compared to the first half of 2011 and grew by 8 % during the second half of the year , compared to the second half of 2012. the 8 % growth in the second half of the year includes an adjustment to the accrual related to our awr acquisition of $ 6.8 million as a result of awr 's performance exceeding our prior expectations . overall , the increase in our operating expenses in 2012 was due to higher personnel related expenses of $ 51 million which included commissions , variable compensation and benefits , higher expenses for building , equipment and supplies of $ 9 million , higher expenses related to marketing and outside services of $ 8 million , higher travel related expenses of $ 7.3 million and higher equity based compensation of $ 4 . 6 million . over the same period , the net impact of changes in foreign currency exchange rates decreased our operating expense by $ 5.8 million . the increase in personnel expenses is related to a net increase in our headcount of 634 employees during 2012 . 27 the increase in our operating expenses in 2011 was due to higher personnel related expenses of $ 48 million which included commissions , variable compensation and benefits as well as the fact that temporary cost cutting measures enacted in 2009 were still in place in january 2010 , higher expenses related to marketing and outside services of $ 25 million , higher expenses for building , equipment and supplies of $ 12 million , higher travel related expenses of $ 11 million , higher equity based compensation of $ 4.2 million and higher software development costs of $ 3.7 million . over the same period , the net impact of changes in foreign currency exchange rates increased our operating expense by $ 19 million . for the years ended december 31 , 2012 , 2011 and 2010 , operating expenses as a percentage of net sales were 65 % , 66 % and 62 % , respectively . the year over year decrease in our operating expenses as a percentage of net sales in 2012 compared to 2011 is attributed to the fact that we grew our overall operating expenses by 11 % while our net sales grew by 12 % . for 2011 , the increase in our operating expenses as a percent of sales was due to the fact that we grew our overall operating expense by 23 % while our net sales grew by 17 % . we believe that our long-term growth and success depends on developing high quality software and hardware products and delivering those products to our customers on a timely basis . to that end , we made investments in research and development and our field sales force a priority . for the years ended december 31 , 2012 and 2011 , our research and development expenses were $ 223 million and $ 199 million , respectively , an increase of 12 % following an increase of 26 % in 2011. from a regional perspective , the increase in research and development in 2012 , had a larger impact on the operating income of the americas as the americas absorbed $ 21 million of the overall $ 24 million increase . the overall increase in research and development expense was due to an increase in our research and development headcount to 2,007 at december 31 , 2012 from 1,868 at december 31 , 2011. this increase in headcount is consistent with our stated plan to make investment in research and development a priority to support our long-term growth . operating income . for the years ended december 31 , 2012 , 2011 and 2010 , operating income was $ 117 million , $ 113 million and $ 128 million , respectively , an increase of 4 % in 2012 , following an decrease of 12 % in 2011. as a percentage of net sales , operating income was 10 % , 11 % and 15 % , respectively , over the three year period .
| the revenue increase in 2012 compared to 2011 is attributed to increases in sales volume in the americas , east asia and emerging asia rest of world ( row ) . in 2011 , the revenue increase is attributed to increases in sales volume across all regions of our business . we did not take any significant action with regard to pricing during the years ended december 31 , 2012 , 2011 and 2010. large orders , defined as orders with a value greater than $ 100,000 , grew by 67 % , during 2012 following growth of 38 % during 2011. during 2012 , 2011 and 2010 , these large orders were 21 % , 14 % and 12 % , respectively , of our total orders . during 2012 , we received a series of orders totaling $ 59 million for a large graphical system design application from one customer of which $ 56 million was recognized in revenue during 2012. including this order , we received a total of $ 76 million in orders from this customer in 2012 , of which $ 72 million or 6 % of our total net sales was recognized as revenue in 2012. larger orders may be more sensitive to changes in the global industrial economy , may be subject to greater discount variability and may contract at a faster pace during an economic downturn . for the years ended december 31 , 2012 , 2011 and 2010 , net sales in the americas were $ 455 million , $ 411 million and $ 360 million , respectively , an increase of 11 % in 2012 following an increase of 14 % in 2011. sales in the americas , as a percentage of consolidated sales were 40 % , 40 % and 41 % , respectively , over the three year period . in europe , net sales were $ 298 million , $ 309 million and $ 261 million , respectively , a decrease of 4 % in 2012 following an increase of 18 % in 2011. the decrease in 2012 was mainly the result of changes in foreign currency exchange rates . sales in europe , as a percentage
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some of these businesses remain closed while others opened with scaled back operations in mid-september , which reduced and will continue to reduce gcu 's revenues and thus the service revenues earned by gce until these businesses are fully reopened ; ● limited residential students remained on campus during the summer semester , which reduced gcu 's dormitory and ancillary revenues and thus the service revenues earned by gce ; ● gcu 's doctoral students are required to attend two residencies on the university 's campus and at its hotel in phoenix , arizona as part of their dissertation . on an annual basis approximately 3,000 learners attend the week-long residency , most of whom have historically attended in the summer . most of the residencies who were scheduled for the last week of march through the end of july were cancelled . the doctoral residencies scheduled for august through december were held at another location with lower than normal attendance resulting in lower gcu revenues including at its hotel , and thus reduced the service revenues earned by gce ; ● gcu shifted its start date for the fall semester for its traditional ground students from august 24 , 2020 to september 8 , 2020 , which had the effect of moving tuition revenue for all gcu traditional students , and certain ancillary revenue for residential students , from the third quarter of 2020 to the fourth quarter of 2020 ; and ● gcu shifted its move-in date for its residential students to the week of september 21 , 2020 , which reduced housing revenue and certain ancillary revenue for residential students by three weeks . in addition , approximately 4,900 of gcu 's traditional campus students elected to attend the fall semester entirely in the online modality . residential enrollment for the fall of 2020 was approximately 11,500 whereas residential bed capacity is approximately 14,500. this reduction in residential students caused a reduction in gcu 's revenue and thus the service revenues earned by gce . in january 2021 , gcu announced the first week of the spring 2021 semester would be completed in an online modality to provide greater flexibility for students returning to campus after the holidays . face-to-face instruction for the spring semester for its traditional ground students commenced on january 11 , 2021. approximately 3,500 traditional ground students have elected to complete the spring semester entirely in the online modality . spring semester face-to-face instruction will end april 1 , 2021 for approximately 80 % of classes , followed by two weeks of online instruction from april 5 , 2021 through april 16 , 2021 with spring break from april 19 , 2021 to april 25 , 2021. these changes will have the effect of reducing gcu 's dormitory and ancillary revenues in the spring of 2021 and thus the service revenues earned by gce . 48 the changes described above at gcu have impacted or will impact gce 's service revenue under the master services agreement . in addition , due to the limited operating expenses that we incur to deliver those services , there has been or will be a direct reduction in our operating profit and operating margin . gce also has long-term services agreements with numerous other university partners across the united states . the majority of these other university partners ' students are studying in the accelerated bachelor of science in nursing program which is offered in a 12-16 month format in three or four academic semesters . the spring , summer and fall 2020 semesters were completed without interruption and each university partner has started its spring 2021 semester . some students who were scheduled to start their program in the summer 2020 semester delayed their start until the fall 2020 which resulted in lower enrollments and revenues in the summer 2020 semester than was planned . in a number of locations , the demand to start in the fall 2020 semester was greater than initially planned but a number of our university or healthcare partners chose not to increase the fall 2020 cohort size to compensate for the summer 2020 start shortfall due to concerns about clinical availability . the fall 2020 enrollment was only slightly lower than our original expectations as the summer 2020 new start shortfall was offset by higher retention rates and slightly higher than expected fall 2020 new starts . no other changes are currently anticipated related to the spring 2021 semester that would have an impact on gce 's service revenue , operating profit and operating margins . however , if gcu determines that it must send its students home prior to the end of the spring semester and elects to give partial refunds for dormitory and meal payments or if one of our other university partners closes a location prior to the end of the spring semester , such an event would reduce the service revenues earned by gce . the covid-19 outbreak also presents operational challenges to gce as approximately 90 % of our workforce is currently working remotely and is expected to continue doing so for the foreseeable future . this degree of remote working could increase risks in the areas of internal control , cyber security and the use of remote technology , and thereby result in interruptions or disruptions in normal operational processes . it is not possible for us to completely predict the duration or magnitude of the adverse results of the covid-19 pandemic and its effects on our business , results of operations or financial condition at this time , but such effects may be material in future quarters . we estimate that the reduction in service revenue attributable to reduced tuition , fees and ancillary revenues of our university partners resulting from covid-19 will be $ 4.5 million in the first quarter of 2021 with a comparable reduction in operating profit . story_separator_special_tag critical accounting policies and estimates the discussion of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . during the preparation of these consolidated financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions , including those discussed below . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of our analysis form the basis for making assumptions 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 , and the impact of such differences may be material to our consolidated financial statements . we believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . starting july 1 , 2018 , gce generates all of its revenue through services agreements with its university partners ( “ services agreements ” ) , pursuant to which gce provides integrated technology and academic 49 services , marketing and communication services , and as applicable , certain back office services to its university partners in return for a percentage of tuition and fee revenue . gce 's services agreements have a single performance obligation , as the promises to provide the identified services are not distinct within the context of these agreements . the single performance obligation is delivered as our partners receive and consume benefits , which occurs ratably over a series of distinct service periods ( daily or semester ) . service revenue is recognized over time using the output method of measuring progress towards complete satisfaction of the single performance obligation . the output method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the time elapsed which is consumed evenly over the service period and is a direct measurement of the value provided to our partners . the service fees received from our partners over the term of the agreement are variable in nature in that they are dependent upon the number of students attending the university partner 's program and revenues generated from those students during the service period . due to the variable nature of the consideration over the life of the service arrangement , gce considered forming an expectation of the variable consideration to be received over the service life of this one performance obligation . however , since the performance obligation represents a series of distinct services , gce recognizes the variable consideration that becomes known and billable because these fees relate to the distinct service period in which the fees are earned . gce meets the criteria in the standard and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period . gce does not disclose the value of unsatisfied performance obligations because the directly allocable variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation . the service fees are calculated and settled per the terms of the services agreements and result in a settlement duration of less than one year for all partners . there are no refunds or return rights under the services agreements . business combinations , intangible assets , and goodwill . we apply the purchase accounting standards for “ business combinations , ” to acquisitions . the purchase price of an acquisition is allocated to individual tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date . any excess purchase price over the assigned values of net assets acquired is recorded as goodwill . on january 22 , 2019 , gce acquired , by merger , all of the outstanding equity interests of orbis education for $ 361.2 million , net of cash acquired . as a result of this acquisition , gce recorded $ 210.3 million of intangible assets , primarily customer relationships , and $ 157.8 million of goodwill . refer to note 3 – acquisition within the footnotes to the consolidated financial statements for additional information . the acquired goodwill was allocated to the entity level reporting unit . the determination of the fair value and useful lives of the intangible assets acquired involves certain judgements and estimates . these judgments can include , but are not limited to , the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital . income taxes . we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be realized . our deferred tax assets are subject to periodic recoverability assessments . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount that more likely than not will be realized . realization of the deferred tax assets is principally dependent upon achievement of projected future taxable income offset by deferred tax liabilities . we evaluate the realizability of the deferred tax assets annually . since becoming a taxable corporation in august 2005 , we have not recorded any valuation allowances to date on our deferred income tax assets . we evaluate and account for uncertain tax positions using a two-step approach .
| partner enrollments totaled 115,997 at december 31 , 2020 as compared to 106,861 at december 31 , 2019. enrollments at gcu grew to 111,624 at december 31 , 2020 , an increase of 8.3 % over enrollments at december 31 , 2019 , while enrollments at our other university partners were 4,373 , an increase of 16.6 % over enrollments at december 31 , 2019. the decrease in revenue per student is primarily due to the service revenue impact of the lower room , board , fee and ancillary revenues at gcu caused by covid-19 ( see - impact of covid-19 above ) . this was partially offset by the fact that our services agreements with our other university partners generally generate a higher revenue per student than our agreement with gcu . this higher revenue is due to our service agreements with other partners generally provide us with a higher revenue share percentage , the partners have higher tuition rates than gcu and the majority of their students are studying in the accelerated bachelor of science in nursing program so these students take more credits on average per semester . in addition , we opened seven new off-campus classroom and laboratory sites in the third quarter of 2020 bringing the total number of these sites to 30 as compared to 23 at december 31 , 2019. last , we generated slightly more revenues in 2020 as compared to the same period in 2019 due to the timing of the acquisition on january 22 , 2019 , and due to 2020 being a leap year and thus providing an extra day of revenue in 2020 as compared to 2019. technology and academic services . our technology and academic services expenses for the year ended december 31 , 2020 were $ 116.0 million , an increase of $ 25.5 million , or 28.2 % , as compared to technology and academic services expenses of $ 90.5 million for the year ended december 31 , 2019. this increase was primarily due to increases in employee compensation and related expenses including share-based compensation , in occupancy and depreciation including lease expenses , and
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if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back , or discontinue the development and commercialization of one or more of our programs . because of the numerous risks and uncertainties associated with pharmaceutical development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenues from the sale of our medicines , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce our operations . financial operations overview revenue to date , we have not generated any revenue from the sale of potential mrna medicines . our revenue has been primarily derived from strategic alliances with strategic collaborators and government-sponsored and private organizations to discover , develop , and commercialize potential mrna medicines . the following is a summary of revenue recognized for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_11_th _ ( 1 ) includes collaboration revenue from an affiliate . total revenue for the years ended december 31 , 2018 , 2017 and 2016 was $ 135.1 million , $ 205.8 million and $ 108.4 million , respectively . cash received from strategic alliances was $ 57.6 million , $ 43.1 million and $ 324.2 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . the timing of revenue recognition is not directly correlated to the timing of cash receipts . total deferred revenue related to our strategic alliances as of december 31 , 2018 and 2017 was $ 274.4 million and $ 339.7 million , respectively . 202 the following table summarizes collaboration revenue for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_12_th collaboration revenue for the years ended december 31 , 2018 , 2017 and 2016 was generated primarily from our strategic alliances with astrazeneca , merck , vertex and alexion . our arrangements with alexion were terminated in october 2017 and all rights to mrna researched , developed , or supplied as part of the programs with alexion reverted to us . grant revenue is generated primarily from contracts with darpa , barda , and the bill & melinda gates foundation , to develop mrna medicines . for further information on our revenue recognition policies , see the section of this annual report on form 10-k titled “ critical accounting policies and significant judgments and estimates—revenue recognition. ” our ability to generate revenue from sales of mrna medicines and become profitable depends upon our ability to successfully develop and commercialize mrna medicines . for the foreseeable future , we do not expect to generate revenue from product sales . to the extent that existing or potential future strategic alliances generate revenue , our revenue may vary due to many uncertainties in the development of our mrna medicines under these strategic alliances and other factors . we expect to incur losses for the foreseeable future , and we expect these losses to increase as we continue our research and development efforts . we expect our programs to mature and advance to later stage clinical development , and we expect expenses to increase as we seek regulatory approvals for our investigational medicines and begin to commercialize any approved mrna medicines . research and development expenses the nature of our business and primary focus of our activities generate a significant amount of research and development costs . research and development expenses represent costs incurred by us for the following : cost to develop our platform ; discovery efforts leading to development candidates ; preclinical , nonclinical , and clinical development costs for our programs ; cost to develop our manufacturing technology and infrastructure ; and digital infrastructure costs . the costs above comprise the following categories : personnel-related expenses , including salaries , benefits , and stock-based compensation expense ; expenses incurred under agreements with third parties , such as consultants , investigative sites , contract research organizations , or cros , that conduct our preclinical and clinical studies , and in-licensing arrangements ; costs of acquiring , developing , and manufacturing materials for preclinical and clinical studies , including both internal manufacturing and third-party contract manufacturing organizations , or cmos ; expenses incurred for the procurement of materials , laboratory supplies , and non-capital equipment used in the research and development process ; and facilities , depreciation , and amortization , and other direct and allocated expenses incurred as a result of research and development activities . 203 we use our employee and infrastructure resources for the advancement of our platform , and for discovering and developing programs . due to the number of ongoing programs and our ability to use resources across several projects , indirect or shared operating costs incurred for our research and development programs are not recorded or maintained on a program- or modality-specific basis . the following table reflects our research and development expenses , including direct program specific expenses summarized by modality and indirect or shared operating costs summarized under other research and development expenses during the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_13_th ( 1 ) includes a total of 21 , 18 and 12 development candidates at december 31 , 2018 , 2017 and 2016 , respectively . as of february 15 , 2019 , we have a total of 20 development candidates , as there will be no further development of our first zika candidate , mrna-1325 . program-specific expenses include external costs and allocated manufacturing costs of mrna supply and consumables , and reflect these expenses beginning in the period the program was internally advanced to development . story_separator_special_tag ( 2 ) relates to in-licensing agreements entered into in june 2017 with cellscript , llc and its affiliate mrna ribotherapeutics , inc. to sublicense certain patent rights . a “ modality ” refers to a group of programs with common product features and the associated combination of enabling mrna technologies , delivery technologies , and manufacturing processes . the program-specific expenses by modality summarized in the table above include expenses we directly attribute to our programs , which consist primarily of external costs , such as fees paid to outside consultants , central laboratories , investigative sites , and cros in connection with our preclinical studies and clinical trials , and allocated manufacturing costs of mrna supply and consumables . costs to acquire and manufacture mrna supply for preclinical studies and clinical trials are recognized and included in unallocated manufacturing expenses when incurred , and subsequently allocated to program-specific manufacturing costs after completion of the program-specific production . the timing of allocating manufacturing costs to program-specific costs varies depending on the program development and production schedule . we do not allocate personnel-related costs , including stock-based compensation , costs associated with our general platform research , technical development , and other shared costs on a program-specific basis . these costs were therefore excluded from the summary of program-specific expenses summary by modality . discovery program expenses are costs associated with research activities for our programs in the preclinical discovery stage , and primarily consist of external costs for cros and lab services , and allocated manufacturing cost of preclinical mrna supply and consumables . platform research expenses are mainly costs to develop technical advances in mrna science , delivery science , and manufacturing process design . these costs include personnel-related costs , computer equipment , facilities , preclinical mrna supply and consumables , and other administrative costs to support our platform research . technology development and unallocated manufacturing expenses are primarily related to non-program-specific manufacturing process development and manufacturing costs . 204 shared discovery and development expenses are research and development costs such as personnel-related costs and other costs , which are not otherwise included in development programs , discovery programs , platform research , technical development and unallocated manufacturing expenses , stock-based compensation , and other expenses . we have developed six modalities . as of february 15 , 2019 , we had 11 programs in clinical trials and a total of 20 development candidates , summarized by modality as follows : prophylactic vaccines included eight development candidates : rsv vaccine ( mrna-1777 ) , cmv vaccine ( mrna-1647 ) , hmpv+piv3 vaccine ( mrna-1653 ) , vzv vaccine ( mrna-1278 ) , h10n8 vaccine ( mrna-1440 ) , h7n9 vaccine ( mrna-1851 ) , zika vaccine ( mrna-1893 ) , and chikungunya vaccine ( mrna-1388 ) . we currently have seven programs for which the phase 1 trial is either ongoing or has been completed ; cancer vaccines included two development candidates : personalized cancer vaccine , or pcv , ( mrna-4157 ) and kras vaccine ( mrna-5671 ) . we are collaborating with merck on both programs . pcv is in a phase 1 clinical trial and we and merck have submitted a protocol to the fda for a randomized phase 2 clinical trial of mrna-4157 , and the kras vaccine has an open ind ; intratumoral immuno-oncology included three development candidates : ox40l ( mrna-2416 ) , ox40l+il23+il36γ ( triplet ) ( mrna-2752 ) , and il12 ( medi1191 ) . the ox40l and ox40l+il23+il36γ programs are currently in phase 1 clinical trials and the ind for a phase 1 clinical trial of il12 is open ; localized regenerative therapeutics included one development candidate , vegf-a ( azd8601 ) . the program is being led by astrazeneca through clinical development and is in a phase 2a clinical trial ; systemic secreted therapeutics included three development candidates : antibody against chikungunya virus ( mrna-1944 ) , relaxin ( azd7970 ) , and fabry disease ( mrna-3630 ) . the antibody against chikungunya virus development candidate is in collaboration with darpa and the program is in a phase 1 clinical trial . the relaxin program in collaboration with astrazeneca and the fabry disease program are both in preclinical development ; and systemic intracellular therapeutics included three development candidates : mma ( mrna-3704 ) , pa ( mrna-3927 ) , and pku ( mrna-3283 ) . the mma program has an open ind , and the pa and pku programs are in preclinical development . the largest component of our total operating expenses has historically been our investment in research and development activities , including development of our platform , mrna technologies , and manufacturing technologies . we expense research and development costs as incurred and can not reasonably estimate the nature , timing , and estimated costs required to complete the development of the development candidates and investigational medicines we are currently developing or may develop in the future . there are numerous risks and uncertainties associated with the research and development of such development candidates and investigational medicines , including , but not limited to : scope , progress , and expense of developing ongoing and future development candidates and investigational medicines ; entry in and completion of related preclinical studies ; enrollment in and completion of subsequent clinical trials ; safety and efficacy of investigational medicines resulting from these clinical trials ; changes in laws or regulations relevant to the investigational medicines in development ; receipt of the required regulatory approvals ; and commercialization , including establishing manufacturing and marketing capabilities . a change in expectations or outcomes of any of the known or unknown risks and uncertainties may materially impact our expected research and development expenditures . continued research and development is central to the ongoing activities of our business . investigational medicines in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials .
| 211 operating expenses the following table summarizes our operating expenses for each period presented ( in thousands ) : replace_table_token_16_th research and development expenses research and development expenses increased by $ 43.6 million , or 11 % in 2018 , primarily attributable to an increase in personnel related costs of $ 26.6 million , an increase in stock-based compensation of $ 16.0 million , an increase in consulting and outside services of $ 13.1 million , an increase in facility and equipment related costs of $ 12.4 million , and an increase in depreciation and amortization expense of $ 4.3 million . the increases in personnel related costs and stock-based compensation were largely driven by an increase in the number of employees supporting our research and development programs . these increases were partially offset by a decrease of $ 31.0 million in costs related to in-licensing agreements executed in 2017 with cellscript , llc and its affiliate mrna ribotherapeutics , inc. to sublicense certain patent rights . research and development expenses increased by $ 135.7 million , or 49 % in 2017 , primarily attributable to $ 53.0 million in costs related to in-licensing agreements executed in 2017 with cellscript , llc and its affiliate mrna ribotherapeutics , inc. to sublicense certain patent rights , an increase in clinical trial and manufacturing costs of $ 45.1 million for our preclinical studies and clinical trials , and an increase in personnel related costs of $ 36.5 million due to an increase in the number of employees supporting our research and development programs . general and administrative expenses general and administrative expenses increased by $ 29.5 million , or 46 % in 2018 , primarily due to an increase in stock-based compensation of $ 16.5 million , an increase in personnel related costs of $ 7.2 million , and an increase in consulting and outside services of $ 3.5 million . the increase in stock-based compensation was mainly attributable to certain performance-based equity awards with vesting or commencement contingent on our ipo and an increase in the number of employees . the increase
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we plan to enroll up to 120 individuals in this study which is designed to evaluate the safety and tolerability , immune response markers and overall response rates achieved with edp1503 in combination with keytruda . in november 2019 , we announced that the microsatellite stable colorectal cancer cohort has been fully recruited . several individuals in this cohort have shown extended stable disease although no formal clinical responses have been evident . cellular infiltration biomarker changes were also observed in tumor biopsies taken from these individuals during the edp1503 monotherapy period , which we believe are consistent with preclinical observations for edp1503 . we continue to monitor individuals in this cohort . given newly approved treatments for triple-negative breast cancer , we anticipate that the majority of individuals with triple negative breast cancer to be recruited will have relapsed following prior pd-1/l1 therapy , similar to those in the pd-1 relapsed cohort . we expect to report further clinical data from this trial in the first half of 2020 . - edp1066 , a monoclonal microbial candidate for inflammatory diseases : in april 2018 we initiated a phase 1b placebo-controlled dose-escalating safety and tolerability study of edp1066 in 36 healthy volunteers and up to 96 subjects with mild to moderate psoriasis or atopic dermatitis which is now complete . edp1066 was well tolerated with no overall difference reported from placebo in both mild to moderate atopic dermatitis and mild to moderate psoriasis . we observed changes in biomarkers of inflammation , an exploratory endpoint , consistent with a pharmacodynamic effect in a cohort of individuals with mild-to-moderate atopic dermatitis treated with a high dose of the new formulation of edp1066 which were greater than those previously observed in a cohort of individuals with mild-to-moderate psoriasis treated with a high dose of the original formulation of edp1066 . no effects were observed in either cohort in the secondary endpoints of clinical measures of disease . based on this data , we have decided to discontinue development of edp1066 . preclinical programs beyond our first set of clinical product candidates , we have identified several other potential candidates from our discovery program , and we are continuing to invest in the discovery of additional potential candidates . for example , we expect to initiate a phase 1b clinical trial in asthma for edp1867 , a new clinical candidate for inflammatory diseases , in the second half of 2020. we have also nominated our first clinical candidate based on a reduced form of monoclonal microbials , edp2939 , which we are advancing through preclinical development . financing we were incorporated and commenced operations in 2014. since our incorporation , we have devoted substantially all of our resources to developing our clinical and preclinical candidates , building our intellectual property portfolio and process development and manufacturing function , business planning , raising capital and providing general and administrative support for these operations . to date , we have financed our operations primarily with proceeds from sales of common and convertible preferred stock to our equity investors and borrowings under a loan and security agreement , as amended , with a financial institution . on may 11 , 2018 , we completed our initial public offering ( the `` ipo '' ) of 5,312,500 shares of our common stock at a public offering price of $ 16.00 per share . the shares began trading on the nasdaq global select market on may 9 , 2018 under the symbol `` evlo . '' the gross proceeds from the ipo were $ 85.0 million and the net proceeds were approximately $ 75.8 million , after deducting underwriting discounts and commissions and other estimated offering expenses payable by us . upon the closing of the ipo all of the company 's outstanding shares of convertible preferred stock automatically converted into 22,386,677 shares of common stock at the applicable conversion rate then in effect . on april 27 , 2018 , we effected a 1-for-4.079 reverse stock split of our common stock . stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares . these cash payments were not material . all share and per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split . the financial statements have also been retroactively adjusted to reflect adjustments to the conversion ratio for each series of convertible preferred stock effected in connection with the reverse stock split . on july 19 , 2019 we entered into a loan and security agreement , as amended , with k2hv providing for up to $ 45.0 million in potential debt financing , the proceeds of which were used to prepay our entire existing outstanding loan balance , and additional amounts are intended for the advancement of our research and development activities related to our pipeline of oral biologics and for general corporate purposes . under terms of the 2019 credit facility , the aggregate principal amount of $ 45.0 million is available in three tranches of term loans of $ 20.0 million , $ 10.0 million , and $ 15.0 million , respectively . at closing on july 19 , 2019 , we 61 borrowed $ 20.0 million , representing the first tranche under the 2019 credit facility . the second tranche will be available to us between december 1 , 2019 and june 1 , 2020. the third tranche will be available to us through january 15 , 2021 , subject to the achievement of certain clinical development milestones . interest on the outstanding loan balance will accrue at a variable rate equal to the greater of ( i ) 8.65 % and ( ii ) the prime rate as published in the wall street journal , plus 3.15 % . story_separator_special_tag we are required to make monthly interest-only payments through february 2022. if we elect to draw the third tranche , the interest-only period is extended through august 2022. subsequent to the interest-only period , we are required to make equal monthly principal payments plus any accrued interest until the loans mature in august 2024. upon final payment or prepayment of the loans , we are required to pay a final payment equal to 4.3 % of the loans borrowed . through december 31 , 2019 , we received gross proceeds of $ 262.9 million from sales of common stock at the ipo , convertible preferred stock and borrowings under our loan and security agreement . we are a development stage company and have not generated any revenue . all of our product candidates are in early clinical or preclinical development . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since our inception , we have incurred significant operating losses and we continue to incur significant research and development and other expenses related to our ongoing operations . for the years ended december 31 , 2019 , 2018 and 2017 , our net loss was $ 85.5 million , $ 56.9 million and $ 28.0 million , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 198.9 million . we do not expect to generate revenue from sales of any products for the foreseeable future , if at all . we expect that our expenses will increase substantially in connection with our ongoing activities , particularly as we : continue the ongoing proof of concept trials for edp1815 and edp1503 ; potentially initiate additional clinical trials for edp1815 and edp1867 ; initiate or advance the clinical development of any additional monoclonal microbial product candidates ; conduct research and continue preclinical development of potential product candidates ; make strategic investments in manufacturing capabilities , including potentially planning and building our own manufacturing facility ; maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property ; increase research and development employees and employee-related expenses including salaries , benefits , travel and stock-based compensation expense ; and seek to obtain regulatory approvals for our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . because of the numerous risks and uncertainties associated with drug development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2019 , our principal source of liquidity is cash and cash equivalents , which totaled approximately $ 77.8 million . we expect that our existing cash and cash equivalents will enable us to fund our planned operating expenses and capital expenditure requirements to the end of 2020. we have based these estimates on assumptions that may prove to be wrong , and we may use our available capital resources sooner than we currently expect . see “ liquidity and capital resources . '' based on our current operating plan , we believe we do not have sufficient cash and cash equivalents on hand to support current operations for at least one year from the date of issuance of the financial statements appearing within this annual report on form 10-k. to finance our operations beyond that point , we will need to raise additional capital , which can not be assured . we have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern for at least one year from the date that our consolidated financial statements for the year ended december 31 , 2019 were issued . as such , we plan to seek to raise capital from time to time this year through future equity financings , debt financings or partnerships to fund 62 our future operations and remain as a going concern . to the extent that we raise additional capital through future equity offerings , the ownership interest of common stockholders will be diluted , which dilution may be significant . see note 1 of the notes to our consolidated financial statements appearing at the end of this annual report on form 10-k for additional information on our assessment . financial operations overview revenue we have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future if at all .
| personnel costs increased by $ 3.5 million due primarily to increases in general and administrative headcount to build an infrastructure supporting r & d . professional fees increased $ 1.3 million , reflecting an increase in legal , patent and other professional consulting fees . we expect to incur general and administrative expenses at a similar or increasing level due to personnel and related costs , professional , legal , and patent fees and consulting expenses in support of the continued growth of the company . other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2019 was income of $ 1.1 million compared to $ 1.2 million for the year ended december 31 , 2018 . this decrease was primarily driven by additional interest expense due to the higher debt balance under the 2019 credit facility , as well as loss on extinguishment of debt incurred upon the prepayment of our 2016 credit facility , partially offset by a research and development tax credit from our operations in the united kingdom . liquidity and capital resources to date , we have financed our operations primarily with the proceeds from the initial public offering of our common stock combined with proceeds from previous sales of our convertible preferred stock to our equity investors and borrowings under the loan and security agreement . from our inception through december 31 , 2019 , we have received gross proceeds of $ 262.9 million from such transactions , including $ 20.0 million borrowed under the 2019 credit facility . as of december 31 , 2019 , we had cash and cash equivalents of $ 77.8 million and an accumulated deficit of $ 198.9 million . we expect that our existing cash and cash equivalents will enable us to fund our planned operating expenses and capital expenditure requirements to the end of 2020. on june 3 , 2019 , the company filed a registration statement on form s-3 ( file no . 333-231911 ) ( the “ shelf ” ) with the sec under which we can offer from
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while it is difficult to predict , we expect our attrition rate to remain in this range as we continue to expand our enterprise business and invest in customer success and related programs . we expect marketing and sales costs , which were 47 percent of our total revenues for the fiscal year ended january 31 , 2017 and 49 percent for the same period a year ago , to continue to represent a substantial portion of total revenues in the future as we seek to grow our customer base , sell more products to existing customers , and build greater brand awareness . in july 2016 we acquired demandware , an industry-leading provider of enterprise cloud commerce solutions in the digital commerce market . we acquired demandware to expand our position in customer relationship management and to pursue the digital commerce market segment with the new salesforce commerce cloud . the financial results of demandware are included in our consolidated financial statements from the date of acquisition . the total purchase price for demandware was approximately $ 2.9 billion . in july 2016 , we entered into a credit agreement ( the “ term loan credit agreement ” ) which provides for a $ 500.0 million term loan ( the “ term loan ” ) that matures on july 11 , 2019. all amounts borrowed under the term loan were used to pay a portion of the total purchase price for demandware . additionally , we entered into an amended and restated credit agreement ( the “ revolving loan credit agreement ” ) with wells fargo bank , national association , and certain other institutional lenders that increased our existing revolving credit facility dated october 2014 to $ 1.0 billion . as of january 31 , 2017 , there was $ 200.0 million of borrowings outstanding under the revolving credit facility . in august 2016 , we acquired the outstanding stock of quip , inc. ( “ quip ” ) . quip combines content and communication to create living documents to allow work-teams to write , edit and discuss documents , spreadsheets and checklists in a single experience . the total purchase price for quip was approximately $ 412.0 million . in november 2016 , we acquired the outstanding stock of krux digital , inc. ( “ krux ” ) . krux is a leading data management platform that unifies , segments and activates audiences to increase engagement with users , prospects and customers . the total purchase price for krux was approximately $ 741.8 million . prior to these and other acquisitions during fiscal 2017 , our most significant acquisition was exacttarget , inc in fiscal 2014. fiscal year our fiscal year ends on january 31. references to fiscal 2017 , for example , refer to the fiscal year ending january 31 , 2017 . operating segments we operate as one operating segment . operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker , who in our case is the chief executive officer , in deciding how to allocate resources and assess performance . over the past few years , including fiscal 2017 , we have completed a number of acquisitions . these acquisitions have allowed us to expand our offerings , presence and reach in various market segments of the enterprise cloud computing market . while we have offerings in multiple enterprise cloud computing market segments , including as a result of the company 's acquisitions , our business operates in one operating segment because 33 the majority of our offerings operate on a single platform and are deployed in an identical way , and our chief operating decision maker evaluates our financial information and resources and assesses the performance of these resources on a consolidated basis . since we operate as one operating segment , all required financial segment information can be found in the consolidated financial statements . sources of revenues we derive our revenues from two sources : ( 1 ) subscription revenues , which are comprised of subscription fees from customers accessing our enterprise cloud computing services and from customers paying for additional support beyond the standard support that is included in the basic subscription fees ; and ( 2 ) related professional services such as process mapping , project management , implementation services and other revenue . “ other revenue ” consists primarily of training fees . subscription and support revenues accounted for approximately 92 percent of our total revenues for fiscal 2017 . subscription revenues are driven primarily by the number of paying subscribers , varying service types , the price of our service and renewals . we define a “ customer ” as a separate and distinct buying entity ( e.g. , a company , a distinct business unit of a large corporation , a partnership , etc . ) that has entered into a contract to access our enterprise cloud computing services . we define a “ subscription ” as a unique user account purchased by a customer for use by its employees or other customer-authorized users , and we refer to each such user as a “ subscriber. ” the number of paying subscriptions at each of our customers ranges from one to hundreds of thousands . none of our customers accounted for more than five percent of our revenues during fiscal 2017 , 2016 or 2015 . subscription and support revenues are recognized ratably over the contract terms beginning on the commencement dates of each contract . the typical subscription and support term is 12 to 36 months , although terms range from one to 60 months . our subscription and support contracts are non-cancelable , though customers typically have the right to terminate their contracts for cause if we materially fail to perform . we generally invoice our customers in advance , in annual installments , and typical payment terms provide that our customers pay us within 30 days of invoice . story_separator_special_tag amounts that have been invoiced are recorded in accounts receivable and in deferred revenue , or in revenue depending on whether the revenue recognition criteria have been met . in general , we collect our billings in advance of the subscription service period . professional services and other revenues consist of fees associated with consulting and implementation services and training . our consulting and implementation engagements are billed on a time and materials , fixed fee or subscription basis . we also offer a number of training classes on implementing , using and administering our service that are billed on a per person , per class basis . our typical professional services payment terms provide that our customers pay us within 30 days of invoice . in determining whether professional services can be accounted for separately from subscription and support revenues , we consider a number of factors , which are described in “ critical accounting policies and estimates—revenue recognition ” below . revenue by cloud service offering the information below is provided on a supplemental basis to give additional insight into the revenue performance of our individual core service offerings . all of the cloud offerings that we offer to customers are grouped into four major core cloud service offerings . subscription and support revenues consisted of the following ( in millions ) : replace_table_token_5_th subscription and support revenues from the analytics cloud , community cloud , iot cloud , commerce cloud and salesforce quip were not significant . analytics cloud , iot cloud and salesforce quip revenue is included with salesforce platform and other in the table above . community cloud revenue is included in either sales cloud , service cloud or salesforce platform and other revenue depending on the primary service offering purchased . commerce cloud revenue , 34 resulting from our demandware acquisition in july 2016 , is included in marketing cloud . as required under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) , we recorded deferred revenue related to acquired contracts from demandware at fair value . as a result , we did not recognize certain revenues related to these acquired contracts that demandware would have otherwise recorded as an independent entity . of the $ 933.3 million subscription and support revenue for marketing cloud for the fiscal year 2017 , approximately 11 percent was attributed to our demandware acquisition . to the extent demandware contracts are renewed following the acquisition , we will recognize the revenues for the full values of the contracts over the respective contractual periods . in situations where a customer purchases multiple cloud offerings , such as through an enterprise license agreement , we allocate the contract value to each core service offering based on the customer 's estimated product demand plan and the service that was provided at the inception of the contract . we do not update these allocations based on actual product usage during the term of the contract . we have allocated approximately 13 percent of our total subscription and support revenues for fiscal 2017 and 10 percent for fiscal 2016 , based on customers ' estimated product demand plans and these allocated amounts are included in the table above . additionally , some of our service offerings have similar features and functions . for example , customers may use the sales cloud , the service cloud or our salesforce platform to record account and contact information , which are similar features across these core service offerings . depending on a customer 's actual and projected business requirements , more than one core service offering may satisfy the customer 's current and future needs . we record revenue based on the individual products ordered by a customer , and not according to the customer 's business requirements and usage . in addition , as we introduce new features and functions within each offering and refine our allocation methodology for changes in our business , we do not expect it to be practical to adjust historical revenue results by core service offering for comparability . accordingly , comparisons of revenue performance by service offering over time may not be meaningful . our sales cloud service offering is our most widely distributed service offering and has historically been the largest contributor of subscription and support revenues . as a result , sales cloud has the most international exposure and foreign exchange rate exposure , relative to the other cloud service offerings . conversely , revenue for marketing cloud is primarily derived from the americas , with little impact from foreign exchange rate movement . the revenue growth rates of each of our core service offerings fluctuate from quarter to quarter and over time . while we are a market leader in each core offering , we manage the total balanced product portfolio to deliver solutions to our customers . accordingly , the revenue result for each cloud service offering is not necessarily indicative of the results to be expected for any subsequent quarter . seasonal nature of deferred revenue , accounts receivable and operating cash flow deferred revenue primarily consists of billings to customers for our subscription service . over 90 percent of the value of our billings to customers is for our subscription and support service . we generally invoice our customers in annual cycles . approximately 80 percent of all subscription and support invoices were issued with annual terms during fiscal 2017 , which is consistent with fiscal 2016 . occasionally , we bill customers for their multi-year contract on a single invoice which results in an increase in noncurrent deferred revenue . we typically issue renewal invoices in advance of the renewal service period , and depending on timing , the initial invoice for the subscription and services contract and the subsequent renewal invoice may occur in different quarters . this may result in an increase in deferred revenue and accounts receivable . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns .
| revenue resulting from our july 2016 acquisition of demandware contributed $ 120.4 million to total revenues for fiscal 2017 . revenues from other acquired businesses in fiscal 2017 were not material . we continue to invest in a variety of customer programs and initiatives , which , along with increasing enterprise adoption , have helped keep our attrition rate consistent as compared to the prior year . our attrition rate also played a role in the increase in subscription and support revenues . changes in our pricing have not been a significant driver of revenue growth for the periods presented . professional services and other revenues were $ 635.8 million , or eight percent of total revenues , for fiscal 2017 , compared to $ 461.6 million , or seven percent of total revenues , for the same period a year ago , an increase of $ 174.2 million , or 38 percent . the increase is primarily due to the growth in our subscription professional services . 43 revenues by geography were as follows ( in thousands ) : replace_table_token_14_th replace_table_token_15_th revenues in europe and asia pacific accounted for $ 2.2 billion , or 26 percent of total revenues , for fiscal 2017 , compared to $ 1.8 billion , or 26 percent of total revenues , during the same period a year ago , an increase of $ 410.5 million , or 23 percent . the increase in revenues on a total dollar basis outside of the americas was the result of the increasing acceptance of our service , our focus on marketing our services internationally , additional resources and consistent attrition rates as a result of the reasons stated above . revenues outside of the americas increased on a total dollar basis in fiscal 2017 despite an overall strengthening of the u.s. dollar , which reduced aggregate international revenues by $ 103.8 million compared to fiscal 2016. americas revenue attributed to the united states was approximately 96 percent , 95 percent
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we manufacture pharmaceutical products in the form of dry powder injectables , liquid injectables , tablets , capsules , and cephalosporin oral solutions . the majority of our pharmaceutical products are sold on a prescription basis and all have been approved for at least one or more therapeutic indications by the nmpa based upon demonstrated safety and efficacy . china 's consistency evaluation of generic drugs has continued to proceed in 2019. the supporting policies from central and provincial governments have been constantly issued . we have always taken the tasks of facilitating the consistency evaluation as our top priority , and worked on them actively . however , due to the continuous dynamic changes of the detailed policies , future market , expected investment , and return of investment ( “ roi ” ) for each drug 's consistency evaluation , the whole industry , including us , has been making slow progresses in terms of the consistency evaluation . 35 on one hand , since initiated in 2018 , two rounds of “ 4 + 7 ” ( refers to 11 selected pilot cities , including 4 municipalities and 7 other cities ) group purchasing organization ( “ gpo ” ) activities have been carried out by the end of 2019 , which significantly reduced the price of the drugs that won the bids . on the other hand , the consistency evaluation has been adopted as one of the qualification standards for gpo . in this context , we have to take a more cautious and flexible attitude towards the initiating and progressing any project for an existing product 's consistency evaluation and to cope with the changing macro environment of drug sales in china . in addition , we continue to explore in the field of comprehensive healthcare . comprehensive healthcare is a general concept proposed according to the development of the times , social needs and changes in disease spectrum . it focuses on people 's daily life , aging and disease , pays attention to all kinds of risk factors and misunderstandings affecting health , calls for self-health management , and advocates the comprehensive care of the entire process of life . it covers all kinds of health-related information , products and services , as well as actions taken by various organizations to meet the health needs . we launched a noni enzyme , a natural , healthy and nutrition-rich food supplement at the end of 2018 , and a wash-free sanitizer in early 2020 to address the market needs caused by covid-19 in china . we will continue to optimize our product structure and actively respond to the current health needs of human beings . market trends according to the data of the chinese national bureau of statistics , from january to november 2019 , the number of chinese pharmaceutical manufacturing enterprises was 7,346 ; the operating revenue was rmb2159.65 billion ( approximately usd313 billion ) , which represented an increase of 8.9 % from the same period last year . as the medical reform deepens , the gpo has been expanded from pilot cities to the whole country , which pressed hospitals to control drug prices to reduce overall costs . the pressure of price reduction has been further transmitted to pharmaceutical manufacturers . we believe that the price control is still one of the key themes in the pharmaceutical industry in the future ; and pharmaceutical manufacturing companies ' revenue is under obvious pressure . novel coronavirus pneumonia ( covid-19 ) refers to the pneumonia caused by the 2019 novel coronavirus infection . hospitals in wuhan , hubei , china , have found increasing cases of unexplained pneumonia with a history of exposure to a market named south china seafood market since december 2019 , which has then been confirmed as an acute respiratory infection caused by covid-19 . according to the government 's daily announcement , the cumulative number of confirmed cases of covid-19 infection had reached 80,695 with 3,097 deaths in china by march 8 , 2020. tan desai , director-general of who , said at a regular press conference in geneva on march 11 , 2020 , that the extent and severity of the spread of the outbreak was deeply worrying , “ so we assess that the outbreak of new coronary pneumonia has become a pandemic ” . 36 we believe that several new development opportunities are emerging in china 's healthcare sector in connection with this outbreak due to the following reasons : there is a gap between prevention and treatment of diseases ; the level of treatment skills and conditions of primary medical institutions need to be improved ; large hospitals are overcrowded ; and there are too many restrictions on the internet healthcare service . the impact of the pandemic will bring more governmental and social attention to china 's health care industry , which we believe will promote its overall development , and trigger potential adjustments in products and service , and sales channel in the health care industry . as a generic drug company we are presented with a huge domestic market . we believe that through further upgrades and consistency evaluations , we will be able to meet the european and american production standards , which enables us to export our products to overseas markets . in the future , cost management and control ability will gradually become an important factor in determining the competitiveness of generic pharmaceutical enterprises . although price control leads to a decline in the profitability , the gpo 's winning enterprise has a good chance of achieving price-for-volume in order to increase its market share and support its continuous innovation transformation . as a separate note , consumption upgrading in china drives the increase of optional consumption . with the improvement of residents ' quality of life , the healthcare demand is also changing . story_separator_special_tag we believe that there are a large number of unmet demands in comprehensive healthcare and internet healthcare sectors . in addition , the office of the state council issued “ pilot plan for marketing authorization holders ” on may 24 , 2016 , allowing eligible drug research and development institutions and scientific researchers 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 an mah to produce pharmaceuticals itself or to consign production to other pharmaceutical manufacturers . this policy not only transitions our production practices to meet the 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 . the drug administration law of the people 's republic of china ( hereinafter referred to as the drug administration law ) was amended and adopted by the 12 th session of the standing committee of the 13 th national people 's congress of the people 's republic of china on august 26 , 2019 , and came into effect on december 1 , 2019. chapter iii of the drug administration act contains the interpretation and regulation of mah . this marks that mah has been officially introduced as a national system after four years of pilot work . we believe this will have a profound impact on the future pharmaceutical industry and drug management . furthermore the promotion of this policy presents us the opportunity to use our professional pharmaceutical production facilities in haikou , hainan , china , to carry out the contract manufacturing . 37 in general , demand for pharmaceutical products is still experiencing steady growth in china . we believe 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 the national policy guidance and further evaluate market conditions for our existing products , and competition in the market in order to optimize our development strategy . results of operations for the fiscal year ended december 31 , 2019 revenue revenue decreased by 11.4 % to $ 11.0 million for the year ended december 31 , 2019 , as compared to $ 12.3 million for the year ended december 31 , 2018. this decrease in sales revenue was mainly due to the increased standards of drug tender procurement of gpo ( drugs have to pass the consistency evaluation in order to participate in the gpo ) , and the decreased “ drug ratio ” ( the ratio of drug expenditure to patients ' total hospital expenditure ) from 60 % a few years ago to approximately 30 % in 2019 , which were promoted by the healthcare insurance cost control policy . set forth below are our revenues by product category in millions ( usd ) for the years ended december 31 , 2019 and 2018 : replace_table_token_2_th the most significant revenue decrease in terms of dollar amount was in our “ other ” product category , which generated $ 1.86 million in sales revenue in 2019 compared to $ 2.44 million in 2018 , a decrease of $ 0.58 million . this decrease was mainly due to a decrease in sales of our vitamin b6 , which was a result of the implementation of the gpo policy , a stricter drug pricing control policy , as well as market fluctuation . sales in anti-viral/infection & respiratory ” product category was $ 6.33 million in sales revenue in 2019 , which represented a decrease of $ 0.43 million compared to $ 6.76 million in 2018. this decrease was mainly due to a decrease in sales of our cefaclor dispersible tablets , which was a result of the implementation of gpo policy , a stricter drug pricing control policy , as well as market fluctuation . our “ digestive diseases ” category generated $ 0.46 million of sales in 2019 , which represented a decrease of $ 0.26 million compared to $ 0.72 million in 2018. this decrease was mainly due to a decrease in sales of our omeprazole . 38 sales revenue in the “ cns cerebral & cardio vascular ” category was $ 2.35 million in 2019 , compared to $ 2.41 million in 2018. replace_table_token_3_th for the year ended december 31 , 2019 , revenue breakdown by product category experienced certain variances compared with that of the prior year . sales in the “ anti-viral/infection & respiratory ” product category represented 58 % and 55 % of total sales in the years ended december 31 , 2019 and 2018 , respectively . the “ cns cerebral & cardio vascular ” category represented 21 % of total revenue in 2019 , compared to 19 % in 2018. the “ digestive diseases ” category represented 4 % and 6 % of total revenue in 2019 and 2018 , respectively . the “ other ” category represented 17 % and 20 % of revenues in 2019 and 2018 , respectively . cost of revenue for the year ended december 31 , 2019 , our cost of revenue was $ 9.4 million , or 86.4 % of total revenue , which represented a decrease of $ 0.9 million from $ 10.4 million , or 84.0 % of total revenue , in 2018. the increase in the percentage of cost-to-income is mainly due to the stability of fixed costs , which makes it difficult to result in the proportional decline in cost when the revenue declines .
| the management determined to impair all advances at december 31 , 2019 , but may resume the development of these formulas in the future if sufficient funding and other favorable conditions arise . bad debt expenses our bad debt expenses for the year ended december 31 , 2019 was $ 0.003 million , which represented a decrease of $ 0.601 million compared to $ 0.604 million in 2018. the decrease in our bad debt expenses was mainly due to the company 's adjustment of its credit policies to customers and the request of more advance payment from customers prior to the shipping of the products for the years ended december 31 , 2019 compared to december 31 , 2018. in general , our normal customer credit or payment terms are 90 days . this has not changed in recent years . due to the peculiar environment affecting the chinese pharmaceutical market , deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are common . the amount of net accounts receivable that were past due ( or the amount of accounts receivable that were more than 180 days old ) was $ 0.15 million and $ 0.22 million as of december 31 , 2019 and 2018 , respectively . 40 the following table illustrates our accounts receivable aging distribution in terms of the percentage of the total accounts receivable as of december 31 , 2019 and 2018 : replace_table_token_4_th our bad debt allowance estimate practice is that we consider accounts receivable balances aged within 180 days current , except for any individual uncollectible account assessed by management . we account for the following respective percentage as bad debt allowance based on age of the accounts receivables : 10 % of accounts receivable that are between 180 days and 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 . we recognize bad debt expenses
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the terms of these agreements contain multiple deliverables which may include ( i ) licenses , ( ii ) research and development activities , and ( iii ) the manufacture of api and development materials for the collaborative partner . payments to us may include one or more of the following : nonrefundable license fees ; payments for research and development activities , payments for the manufacture of api and development materials , payments based upon the achievement of certain milestones and royalties on product sales . revenue from our human therapeutics segment is shown in our consolidated statements of operations as collaborative arrangements revenue . revenue from our biomanufacturing segment was generated by our former subsidiary , microbia , which had entered into research and development service agreements with various third parties . these agreements generally provided for fees for research and development services rendered . as a result of the sale of our interest in microbia , revenue from our biomanufacturing segment is included in net income ( loss ) from discontinued operations . we expect our revenue to fluctuate for the foreseeable future as our collaborative arrangements revenue is principally based on the achievement of clinical and commercial milestones . research and development expense . research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of compensation , benefits and other employee related expenses , research and development related facility costs and third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities . the costs of revenue related to the 44 microbia services contracts and costs associated with microbia 's research and development activities are included in net income ( loss ) from discontinued operations . we charge all research and development expenses to operations as incurred . under our forest collaboration agreement we are reimbursed for certain research and development expenses and we net these reimbursements against our research and development expenses as incurred . our lead product candidate is linaclotide and it represents the largest portion of our research and development expense for our product candidates . linaclotide is a first-in-class compound being developed for the treatment of ibs-c and cc and is our only product candidate that has demonstrated clinical proof of concept . linaclotide achieved positive results in each of our two phase 3 ibs-c trials and in each of our two phase 3 cc trials . an nda for linaclotide with respect to both ibs-c and cc was submitted to the fda and accepted for review in october 2011 , and the pdufa target action date is expected to occur in june 2012. additionally , an maa for linaclotide for ibs-c was submitted to the ema by almirall in september 2011. we have a pipeline of early development candidates in multiple therapeutic areas , including gastrointestinal disease , cns disorders and respiratory disease . we are also conducting discovery research in these therapeutic areas , as well as in the area of cardiovascular disease . the following table sets forth our research and development expenses related to our product pipeline for the years ended december 31 , 2011 , 2010 and 2009. these expenses relate primarily to external costs associated with manufacturing , including supply chain development , preclinical studies and clinical trial costs . costs related to facilities , depreciation , share-based compensation and research and development support services are not directly charged to programs . replace_table_token_5_th we began tracking program expenses for linaclotide in 2004 , and research and development program expenses from inception to december 31 , 2011 were approximately $ 148.1 million . the expenses for linaclotide include both reimbursements to us by forest as well as our portion of costs incurred by forest for linaclotide and invoiced to us under the cost-sharing provisions of our collaboration agreement . the lengthy process of securing fda approvals for new drugs requires the expenditure of substantial resources . any failure by us to obtain , or any delay in obtaining , regulatory approvals would materially adversely affect our product development efforts and our business overall . accordingly , we can not currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on linaclotide or our other product candidates prior to their regulatory approval , if such approval is ever granted . as a result of these uncertainties surrounding the timing and outcome of any approvals , we are currently unable to estimate precisely when , if ever , linaclotide , or any of our other product candidates will generate revenues and cash flows . we invest carefully in our pipeline , and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear , supportive data . in addition , we are actively engaged in evaluating externally-discovered drug candidates at all stages of development . in evaluating potential assets , we apply the same criteria as those used for investments in internally-discovered assets . 45 the majority of our external costs are spent on linaclotide , as costs associated with later stage clinical trials are , in most cases , more significant than those incurred in earlier stages of our pipeline . we expect external costs related to the linaclotide program to begin decreasing provided that no other clinical trials are necessary to obtain regulatory approval in the u.s. if our other product candidates are successful in early stage clinical trials , we would expect external costs to increase as the programs progress through later stage clinical trials . the remainder of our research and development expense is not tracked by project as it consists primarily of our internal costs , and it benefits multiple projects that are in earlier stages of development and which typically share resources . story_separator_special_tag the successful development of our product candidates is highly uncertain and subject to a number of risks including , but not limited to : the duration of clinical trials may vary substantially according to the type , complexity and novelty of the product candidate . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity . data obtained from these activities also are susceptible to varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a product candidate and are difficult to predict . the costs , timing and outcome of regulatory review of a product candidate may not be favorable . the emergence of competing technologies and products and other adverse market developments may negatively impact us . as a result of the uncertainties discussed above , we are unable to determine the duration and costs to complete current or future preclinical and clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . development timelines , probability of success and development costs vary widely . we anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate , as well as ongoing assessments of such product candidate 's commercial potential . we expect our research and development costs to continue to be substantial for the foreseeable future and to increase with respect to our product candidates other than linaclotide as we advance those product candidates through preclinical studies and clinical trials . additionally , our research and development costs will increase as we will fund full-time equivalents for research and development activities under our external collaboration and license agreements that are not related to linaclotide . general and administrative expense . general and administrative expense consists primarily of compensation , benefits and other employee related expenses for personnel in our administrative , finance , legal , information technology , business development , commercial and human resource functions . other costs include the legal costs of pursuing patent protection of our intellectual property , general and administrative related facility costs and professional fees for accounting and legal services . we anticipate substantial increases in expenses related to developing the organization necessary to commercialize linaclotide . 46 critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the u.s. , or gaap . the preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reported periods . these estimates and assumptions , including those related to revenue recognition , research and development expenses and share-based compensation are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . these critical estimates and assumptions are based on our historical experience , our observance of trends in the industry , and various other factors that are believed to be reasonable under the circumstances and 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 our estimates under different assumptions or conditions . we believe that our application of the following accounting policies , each of which require significant judgments and estimates on the part of management , are the most critical to aid in fully understanding and evaluating our reported financial results . our significant accounting policies are more fully described in note 2 , summary of significant accounting policies , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. revenue recognition our revenue is generated primarily through collaborative research and development and license agreements . the terms of these agreements contain multiple deliverables which may include ( i ) licenses , ( ii ) research and development activities , and ( iii ) the manufacture of api and development materials for the collaborative partner . payments to us under these agreements may include non-refundable license fees , payments for research and development activities , payments for the manufacture of api and development materials , payments based upon the achievement of certain milestones and royalties on product sales . in addition , prior to september 2010 , we generated services revenue through agreements that generally provided for fees for research and development services rendered . we evaluate revenue from agreements that have multiple elements under the guidance of accounting standards update , or asu , no . 2009-13 , multiple-deliverable revenue arrangements , or asu 2009-13 , which we adopted in january 2011. we identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting . we account for those components as separate elements when the following criteria are met : the delivered items have value to the customer on a stand-alone basis ; if there is a general right of return relative to the delivered items , delivery or performance of the undelivered items is considered probable and within our control . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units .
| the increase in research and development expense of approximately $ 8.6 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was primarily due to an increase of approximately $ 8.0 million in compensation , benefits , and employee related expenses associated mainly with increased headcount , an increase of approximately $ 2.0 million in share-based compensation expense primarily related to our new hire grants and our annual stock option grant made in february 2011 , an increase of approximately $ 6.0 million in external research costs related to the research and development fees paid in connection with our licensing agreements that are not related to linaclotide , offset by a decrease of approximately $ 7.4 million in support of linaclotide , primarily resulting from lower clinical trial and collaboration expenses as we completed the efficacy portion of linaclotide 's development program . general and administrative expense . the increase in general and administrative expense of approximately $ 18.8 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was primarily due to an increase of approximately $ 7.4 million in compensation , benefits and other employee related expenses associated with increased headcount , an increase of approximately $ 2.3 million in share-based compensation expense primarily related to our new hire grants and our annual stock option grant made in february 2011 , an increase of approximately $ 2.5 million in general and administrative related facilities costs primarily due to increased depreciation expense associated with the amortization of leasehold improvements at our 301 binney street facility and improvements in our it infrastructure , an increase in external consulting costs of approximately $ 4.9 million primarily associated with developing the infrastructure to commercialize and support linaclotide and an increase of approximately $ 0.9 million in the net expense from forest on our collaborative commercial activities . 53 other income ( expense ) , net replace_table_token_9_th interest expense . the decrease in interest expense of approximately $ 0.1 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was primarily the result of a
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we expect to generate non-operating income in the form of interest income on cash and marketable securities held in the trust account at ubs financial services , inc. in new york , new york with continental stock transfer & trust company acting as trustee ( the “ trust account ” ) , which was funded after the offering to hold an amount of cash and marketable securities equal to that raised in the offering . d u e to t h e r ec e n t i mp act f r o m t h e c ov i d -1 9 p a nd e m ic t h at s ta r ted in ma r ch 202 0 , m a n y i nv e s t or s s o ld u . s. t r ea s ur ies to m eet t h eir i nv e s t m e n t ob jecti v e s , i n cl ud i n g b u t not li m ited t o , t h e p ur c h a s e o f d e pr e ss ed e qu itie s , t h e f o r ced s ale b y l o ss es o n o t h er po s iti on s , a n d t h e n eed to s ettle s hor t - te r m d e b t s . th is c r eated vo latility in t h e f i n a n cial m a r k ets a n d r e du c ed r et u r n o n i n v e s t m e n ts in u . s. t r ea s ur y b ill s . as a r e s u lt , we s h i f ted ou r i n v e s t m e n t p or t fo lio h eld in t h e t r u s t acc oun t fro m u . s. t r ea s ur y b ills to mon e y m a rk et f und s i n may 2 020 . we expect to incur increased expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . f o r t h e y ear e nd e d december 31 , 2020 , we had a net loss of $ 3,198,141 , which consisted of op e r ati n g e xp e n s es o f $ 3,949,600 a n d a prov i s i o n f o r i n c om e ta x es o f $ 271,087 p a r tially of f s et b y interest income on marketable securities held in the trust account of $ 1,022,546 . 41 for the period from march 6 , 2019 ( date of inception ) through december 31 , 2019 , we h ad a n et i n c o m e o f $ 360,451 w h ich c on s i s ted o f i n te r e s t i n c om e o n m a rk eta b le s ec ur ities h eld in t h e t ru s t acc oun t o f $ 1,872,701 , which was partially offset by operating expense s of $ 953,436 and a provision for income taxes of $ 558,814 . liquidity and capital resources on june 10 , 2019 , we consummated the initial closing of the offering with the delivery of 15,000,000 units at a price of $ 10.00 per unit , generating gross proceeds of $ 150,000,000. simultaneously with the initial closing of the offering , we consummated the initial closing of the private placement with the sale of 492,500 private placement units at a price of $ 10.00 per unit and the sale of 100,000 private underwriter shares at a price of $ 10.00 per share , generating aggregated gross proceeds of $ 5,925,000. on june 13 , 2019 , in connection with the underwriters ' exercise in full of their option to purchase an additional 2,250,000 units solely to cover over-allotments , if any ( the “ over-allotment option ” ) , we consummated the sale of an additional 2,250,000 units at a price of $ 10.00 per unit , generating gross proceeds of $ 22,500,000. simultaneously with the closing of the sale of such additional units , the company consummated the second closing of the private placement resulting in the sale of an additional 75,000 private placement units at a price of $ 10.00 per unit and the sale of 20,000 private underwriter shares at a price of $ 10.00 per share , generating aggregated gross proceeds of $ 950,000. following the initial and second closings of the offering and the private placement , a total of $ 172,500,000 was placed in the trust account . we incurred $ 4,332,430 in offering related costs , including $ 3,450,000 of underwriting fees and $ 882,430 of other costs . as of december 31 , 2020 , we held cash and marketable securities in the trust account of $ 168,384,949 ( including $ 2,895,247 of interest income earned , less $ 1,152,958 withdrawn from the interest earned on the trust account to pay tax obligations and $ 5,857,340 on redemptions ) in the trust account . story_separator_special_tag the marketable securities consisted of mon ey m a r k et fu n ds m eeti n g ce r tain c ond iti on s u n d er r u le 2a- 7 und er t h e i n v e s t m ent c omp a n y act o f 194 0 w h ich i nv e s t on ly in d i r ect u . s. gov e r nm e n t o b li g ati on s. interest income earned from the funds held in the trust account may be used by us to pay taxes . for the year ended december 31 , 2020 , we withdrew $ 774,840 from the interest earned on the trust account to pay tax obligations . as of december 31 , 2019 , we held cash and marketable securities in the trust account of $ 173,994,583 ( including $ 1,872,701 of interest earned ) in the trust account . the marketable securities consisted of u.s. treasury bills with a maturity of 180 days or less . interest income earned from the funds held in the trust account may be used by us to pay taxes . for the period march 6 , 2019 ( date of inception ) through december 31 , 2019 , we withdrew $ 378,118 from the interest earned on the trust account to pay tax obligations . f o r t h e y ear e nd e d dece m b er 31 , 2 020 , ca s h u s ed i n o p e r a ti n g act iv ities was $ 2,064,391 , c on s i s ti n g o f a n et l o s s o f $ 3,198,141 , i n te r e s t ea rn ed o n m a rk eta b le s ec ur iti e s h eld in t h e tru s t acc oun t o f $ 1,022,546 , partially offset by changes in op e r ati n g a ss ets a n d lia b iliti e s o f $ 2,156,296 , including the increase in accrued liabilities of $ 2,153,000 and decreases in prepaid expenses , receivable from related party and other non-current assets of $ 132,797 and an increase in accounts payable of $ 52,135 partially offset by decreases in payable to related party and other current liabilities of $ 181,636 . 42 for the period march 6 , 2019 ( date of inception ) through december 31 , 2019 , cash used in operating activities was $ 1,477,400 , consisting of interest earned on marketable securities held in the trust account of $ 1,872,701 , partially offset by net income of $ 360,451 and changes in operating assets and liabilities of $ 34,850 . we intend to use substantially all of the funds held in the trust account , including any amounts representing interest earned on the trust account ( which interest shall be net of taxes payable by us ) , to acquire a target business or businesses to complete our initial business combination and to pay our expenses relating thereto . we may withdraw interest to pay taxes . we estimate our annual franchise tax obligations to be approximately $ 200,000. our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account . to the extent that our capital stock is used in whole or in part as consideration to effect our initial business combination , the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business or businesses . such working capital funds could be used in a variety of ways including continuing or expanding the target business ' operations , for strategic acquisitions and for marketing , research and development of existing or new products . such funds could also be used to repay any operating expenses or finders ' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses . as of december 31 , 2020 and 2019 , we had cash of $ 478,737 and $ 1,576,508 , respectively , held outside the trust account . in december 2020 , we r ai s ed a dd iti on al f u n d s to e n s ur e the proceeds not held in the trust account will be sufficient to allow us to operate for at least 24 months from the closing date of the offering , assuming that a business combination is not consummated during that time . over this time period , we intend to use these funds primarily for identifying and evaluating prospective acquisition candidates , performing business due diligence on prospective target businesses , traveling to and from the offices , plants or similar locations of prospective target businesses , reviewing corporate documents and material agreements of prospective target businesses , selecting the target business to acquire and structuring , negotiating and consummating the business combinations . if our estimates of the costs of undertaking in-depth due diligence and negotiating our initial business combination are less than the actual amount necessary to do so , we may have insufficient funds available to operate our business prior to our initial business combination .
| ” the issuance of additional shares of common stock or the creation of one or more classes of preferred stock during our initial business combination : may significantly dilute the equity interest of investors in the offering who would not have pre-emption rights in respect of any such issue ; may subordinate the rights of holders of common stock if the rights , preferences , designations and limitations attaching to the preferred shares are senior to those afforded our shares of common stock ; could cause a change in control if a substantial number of shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and could result in the resignation or removal of our present officers and directors ; may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us ; and may adversely affect prevailing market prices for our shares of common stock . similarly , if we issue debt securities or otherwise incur significant indebtedness , it could result in : default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations ; acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant ; our immediate payment of all principal and accrued interest , if any , if the debt is payable on demand ; our inability to obtain necessary additional financing if any document governing such debt contains covenants restricting our ability to obtain such financing while the debt security is outstanding ; 40 our inability to pay dividends on our shares of c ommon s tock ; using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if
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net sales and product contribution margin are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance . we define product contribution margin as net sales less cost of sales and advertising and promotion expenses . product contribution margin excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period . for additional information on our reportable segments , see note 15 , segments , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. 29 fiscal year ended may 26 , 2019 compared to fiscal year ended may 27 , 2018 net sales and product contribution margin ( dollars in millions ) replace_table_token_3_th net sales lamb weston 's net sales for fiscal 2019 increased $ 332.8 million , or 10 % , to $ 3,756.5 million , compared with $ 3,423.7 million in fiscal 2018. net sales in fiscal 2019 reflect a 5 % increase in volume and 5 % increase in price/mix , primarily driven by growth in our global segment . global net sales increased $ 217.3 million , or 12 % , to $ 1,961.5 million , compared with $ 1,744.2 million in fiscal 2018. net sales in fiscal 2019 reflect a 7 % increase in sales volumes , driven by growth in sales to strategic customers in the u.s. and key international markets , as well as the benefit of limited time product offerings . price/mix increased 5 % , largely reflecting pricing actions and favorable customer mix . foodservice net sales increased $ 57.0 million , or 5 % , to $ 1,156.1 million , compared with $ 1,099.1 million in fiscal 2018. net sales in fiscal 2019 reflect a 5 % increase primarily reflecting pricing actions initiated in the fall of 2018 , as well as improved mix . sales volume declined nominally , as the loss of some distributor and operator-label product volumes essentially offset growth in branded products . retail net sales increased $ 49.1 million , or 11 % , to $ 498.3 million , compared with $ 449.2 million in fiscal 2018. net sales in fiscal 2019 reflect a 7 % increase in sales volume , primarily driven by distribution gains of grown in idaho and other branded products . price/mix increased 4 % , largely due to improved mix and pricing actions . net sales in our other segment increased $ 9.4 million , or 7 % , to $ 140.6 million , compared with $ 131.2 million in fiscal 2018. the increase primarily reflects higher price/mix in our vegetable business . product contribution margin lamb weston 's product contribution margin for fiscal 2019 increased $ 123.2 million , or 15 % , to $ 971.1 million , compared with $ 847.9 million in fiscal 2018. global product contribution margin increased $ 70.6 million , or 19 % , to $ 446.3 million in fiscal 2019 , as a result of favorable price/ mix , volume and supply chain efficiency savings which more than offset input , manufacturing and transportation cost inflation , as well as higher depreciation expense primarily associated with the new production line in richland , washington . global cost of sales was $ 1,508.4 million , or 11 % higher in fiscal 2019 , as compared to fiscal 2018 , largely due to higher sales volume , cost inflation , and higher depreciation expense , partially offset by supply chain efficiency savings . advertising and promotion spending was modestly higher in 2019 , as compared to fiscal 2018. foodservice product contribution margin increased $ 36.5 million , or 10 % , to $ 402.4 million in fiscal 2019 , primarily as a result of favorable price/mix and supply chain efficiency savings , which more than offset input , manufacturing and transportation cost inflation , as well as higher depreciation expense primarily associated with the new richland production line . cost of sales was $ 746.0 million , or 3 % higher in fiscal 2019 , as compared to fiscal 2018 , largely 30 due to cost inflation and higher depreciation expense , partially offset by supply chain efficiency savings . advertising and promotion spending declined approximately $ 1 million in fiscal 2019 , compared with fiscal 2018. retail product contribution margin increased $ 11.5 million , or 13 % , to $ 98.8 million in fiscal 2019 due to volume growth and favorable price/mix , more than offsetting input , manufacturing and transportation cost inflation . cost of sales was $ 381.9 million , or 10 % higher in fiscal 2019 as compared to fiscal 2018 , largely due to higher sales volume and cost inflation . advertising and promotion spending was $ 1.6 million higher in fiscal 2019 , compared with fiscal 2018 , primarily in support of grown in idaho and other branded products . other product contribution margin increased $ 4.6 million to $ 23.6 million in fiscal 2019 , as compared to $ 19.0 million in fiscal 2018. these amounts include a $ 3.3 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in fiscal 2019 , and a $ 1.1 million gain related to the contracts in fiscal 2018. excluding these adjustments , other segment product contribution margin increased $ 9.0 million , largely due to improved price/mix in our vegetable business . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses increased $ 35.7 million , or 12 % , in fiscal 2019 compared with fiscal 2018. fiscal 2018 included $ 8.7 million ( $ 5.7 million after-tax ) for costs related to the separation , primarily related to professional fees and other employee-related costs . excluding the separation costs , fiscal 2019 sg & a expenses increased $ 44.4 million , or 15 % , versus the prior year . story_separator_special_tag the increase in sg & a expenses , excluding comparability items , was largely driven by higher expenses related to information technology services and infrastructure , as well as investments in our sales , marketing and operating capabilities . the increase was also driven by approximately $ 8 million of unfavorable foreign exchange ( reflecting an approximate $ 3 million expense in fiscal 2019 compared to an approximate $ 5 million benefit in fiscal 2018 ) , an approximate $ 2 million increase in incentive compensation expense that primarily reflected an increase in stock price and absolute shares outstanding , and an approximate $ 1 million increase in advertising and promotional support , partially offset by an approximate $ 4 million benefit from an insurance settlement . interest expense , net interest expense , net was $ 107.1 million in fiscal 2019 , a decrease of $ 1.7 million compared with fiscal 2018. the decrease in interest expense , net was the result of lower average total debt versus the prior year . for more information , see note 9 , debt and financing obligations , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. for the period prior to the separation , interest expense was included for only the legal entities that comprised the lamb weston business , and did not include any allocated interest expense from conagra . income taxes income tax expense in both fiscal 2019 and 2018 was impacted by the tax act enacted in december 2017. notably , the tax act reduced the u.s. statutory tax rate from 35 % to 21 % , assessed a one-time transition tax on earnings of non-u.s. subsidiaries that have not been taxed previously in the u.s. , limited the tax deductibility of interest , provided for immediate deductions for certain new investments instead of deductions for depreciation expense over time , modified or repealed many business deductions and credits , and created new taxes on certain future foreign-sourced earnings . 31 a reconciliation of income tax expense , including the impact of the comparability items recorded in fiscal 2019 and 2018 , related to the tax act , is as follows ( in millions ) : replace_table_token_4_th ( a ) in fiscal 2019 , we completed our analysis of the one-time impacts of the tax act and we recorded a $ 2.4 million benefit for the true-up of the transition tax on previously untaxed foreign earnings . in connection with our analysis of the impact of the tax act in fiscal 2018 , we decreased income tax expense and increased net income $ 28.4 million , including a $ 39.9 million net provisional tax benefit from the estimated impact of remeasuring our net u.s. deferred tax liabilities with the new lower federal tax rate , partially offset by an $ 11.5 million transition tax on previously untaxed foreign earnings . ( b ) since our fiscal year end is the last sunday of may , in fiscal 2018 , we phased in the impact of the lower tax rate , which after excluding comparability items , resulted in an effective tax rate of 27.0 % . in fiscal 2019 , the rate varies from the u.s. statutory rate of 21.0 % , primarily due to the impact of u.s. state and foreign taxes . for further information on the tax act and its impact , see note 5 , income taxes , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. equity method investment earnings we conduct meaningful business through unconsolidated joint ventures and include our share of the earnings based on our economic ownership interest in them . lamb weston 's share of earnings from its equity method investments was $ 59.5 million and $ 83.6 million for fiscal 2019 and 2018 , respectively . these amounts included a $ 2.6 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2019 , and a nominal unrealized loss related to the contracts in fiscal 2018. excluding these adjustments , earnings from equity method investments declined $ 21.6 million , compared to fiscal 2018 , largely reflecting higher raw potato prices and lower sales volumes associated with a poor crop in europe . for more information about our joint ventures , see note 7 , investments in joint ventures , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. acquisition of remaining 50.01 % interest in lamb weston bsw on november 2 , 2018 , we entered into a membership interest purchase agreement ( the “ bsw agreement ” ) with ochoa ag unlimited foods , inc. ( “ ochoa ” ) to acquire the remaining 50.01 % interest in lamb weston bsw , a potato processing joint venture . we paid ochoa approximately $ 65 million in cash attributable to our contractual right to purchase the remaining equity interest in lamb weston bsw , plus $ 13.2 million attributable to ochoa 's interest in expected earnings of the joint venture through our fiscal year ended may 26 , 2019. prior to entering into the bsw agreement , lamb weston bsw was considered a variable interest entity , and we determined that we were the primary beneficiary of the entity . accordingly , we consolidated the financial statements of lamb weston bsw and deducted 50.01 % of the operating results of the noncontrolling interests to arrive at “ net income 32 attributable to lamb weston holdings , inc. ” on our combined and consolidated statements of earnings . the combined and consolidated statements of earnings include 100 % of lamb weston bsw 's earnings beginning november 2 , 2018 , the date we entered into the bsw agreement .
| · diluted earnings per share increased $ 0.36 , or 13 % , to $ 3.18. the increase largely reflects growth in income from operations , partially offset by lower equity method investment earnings and an approximate $ 0.02 net decrease related to the bsw acquisition . fiscal 2019 included a $ 0.17 incremental tax benefit related to a lower tax rate that was offset by a $ 0.17 decrease in tax benefit comparability items related to the tax act . · adjusted diluted eps increased $ 0.56 , or 21 % , to $ 3.22. the increase was driven by growth in income from operations , a $ 0.17 incremental benefit related to a lower tax rate , and an approximate $ 0.05 benefit from the bsw acquisition , partially offset by lower equity method investment earnings . · adjusted ebitda including unconsolidated joint ventures increased $ 83.9 million , or 10 % , to $ 904.3 million , reflecting growth in income from operations , partially offset by lower equity method investment earnings . · gross profit increased $ 124.0 million , or 14 % , to $ 1,003.5 million , due to favorable price/mix , volume and supply chain efficiency savings . the increase was partially offset by transportation , warehousing , input and manufacturing cost inflation , as well as higher depreciation expense primarily associated with our french fry production line in richland , washington , that became operational in the second quarter of fiscal 2018. gross profit included a $ 10.8 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current year , compared with a nominal gain related to these items in the prior year . · equity method investment earnings decreased $ 24.1 million to $ 59.5 million , and included a $ 2.6 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2019 and a nominal unrealized loss related to these items in fiscal 2018. excluding these adjustments , earnings from equity method investments declined $ 21.6 million compared to fiscal 2018 , largely reflecting higher raw potato prices and lower sales volumes associated with a poor crop in europe . · net cash provided by operating
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in addition , the company also agreed , for a period of four ( 4 ) years from the date of the non-compete agreement , not to , among other things , directly or indirectly ( i ) solicit , induce , or attempt to induce customers , suppliers , licensees , licensors , franchisees , consultants of the restricted business as conducted by the company , cleanspark or the surviving company to cease doing business with the surviving company or cleanspark or ( ii ) solicit , recruit , or encourage any of the surviving company 's or cleanspark 's employees , or independent contractors to discontinue their employment or engagement with the surviving company or cleanspark . the merger resulted in the deconsolidation of pcpi and a gain of $ 4.2 million in the first quarter of 2019. the fair value of the investment in the common stock of cleanspark was determined using quoted market prices and warrants were established using a black scholes model . from the date of sale through december 31 , 2019 , the estimated fair value of the warrants and common stock decreased to $ 1.4 million and an unrealized mark to market loss of $ 2.8 million was recognized within other expense for the year ended december 31 , 2019. sale of transformer business units on june 28 , 2019 , the company entered into a stock purchase agreement ( the “ stock purchase agreement ” ) , by and among the company , electrogroup canada , inc. , a wholly owned subsidiary of the company ( “ electrogroup ” ) , jefferson electric , inc. , a wholly owned subsidiary of the company ( “ jefferson ” ) , je mexican holdings , inc. , a wholly owned subsidiary of the company ( “ je mexico , ” and together with electrogroup and jefferson , the “ disposed companies ” ) , nathan mazurek ( chief executive officer of the company ) , pioneer transformers l.p. ( the “ us buyer ” ) and pioneer acquireco ulc ( the “ canadian buyer , ” and together with the us buyer , the “ buyer ” ) . pursuant to the terms of the stock purchase agreement , the company agreed to sell ( i ) all of the issued and outstanding equity interests of electrogroup to the canadian buyer and ( ii ) all of the issued and outstanding equity interests of jefferson and je mexico to the us buyer ( the “ equity transaction ” ) , for a purchase price of $ 68.0 million . included in the purchases price , the company received two subordinated promissory notes , issued by the buyer , in the aggregate principal amount of $ 5.0 million and $ 2.5 million , for a total aggregate principal amount of $ 7.5 million . during the fourth quarter of 2019 , the company and the buyer , pursuant to the stock purchase agreement , completed the net working capital adjustment , which resulted in the company paying the buyer $ 1.7 million in cash and reducing the principal amount of the $ 5.0 million seller note to $ 3.3 million . the company has revalued the notes for an appropriate imputed interest rate , resulting in a reduction to the value of the notes at december 31 , 2019 of $ 651 , for a carrying value of $ 5.1 million , which is included within other long term assets . after certain adjustments and expenses of sale , the company received net consideration from the sale of $ 45.2 million . subsequent to finalizing the working capital adjustment during the fourth quarter of 2019 the gain recognized on the equity transaction amounted to $ 13.7 million and is reflected within discontinued operations . 19 the transaction was consummated on august 16 , 2019. pioneer sold to the buyer all of the assets and liabilities associated with its liquid-filled transformer and dry-type transformer manufacturing businesses within the company 's t & d solutions segment . pioneer power retained its switchgear manufacturing business within the t & d solutions segment , as well as all of the operations associated with its critical power segment . for presentation within these statements , the disposed companies are being presented as discontinued operations for all periods presented . critical accounting policies use of estimates . the preparation of financial statements in accordance with generally accepted accounting principles in the u.s. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances . significant estimates in these financial statements include , inventory provisions , useful lives and impairment of long-lived assets , warranty accruals , income tax provision , goodwill impairment analysis , stock-based compensation , and allowance for doubtful accounts . changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions . revenue recognition . revenue is recognized when ( 1 ) a contract with a customer exists , ( 2 ) performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer , ( 3 ) the transaction price is determined based on the consideration to which the company will be entitled in exchange for transferring products or services to the customer , ( 4 ) the transaction price is allocated to the performance obligations in the contract and ( 5 ) the company satisfies performance obligations . substantially all of our product revenue is recognized at a point of time , as the promised product passes to the customer . story_separator_special_tag service revenues include maintenance contracts that are recognized over time based on the contract term and repair services which are recognized as services are delivered . inventories . we value inventories at the lower of cost or net realizable value . if a write down to the current market value is necessary , the market value can not be greater than the net realizable value , which is defined as selling price less costs to complete and dispose , and can not be lower than the net realizable value less a normal profit margin . we also continually evaluate the composition of our inventory and identify obsolete , slow-moving and excess inventories . inventory items identified as obsolete , slow-moving or excess are evaluated to determine if reserves are required . if we were not able to achieve our expectations of the net realizable value of the inventory at current market value , we would have to adjust our reserves accordingly . we attempt to accurately estimate future product demand to properly adjust inventory levels for our standard products . however , significant unanticipated changes in demand could have a significant impact on the value of inventory and of operating results . impairment of long-lived assets . we review long-lived assets for impairment including intangible assets with determinable useful lives whenever events or changes in circumstances indicate that the carrying value of the corresponding asset group may not be realizable . if an evaluation is required , the estimated future undiscounted cash flows associated with the asset group are compared to the asset group 's carrying amount to determine if an impairment of such asset is necessary . this requires us to make long-term forecasts of the future revenues and costs related to the assets groups subject to review . forecasts require assumptions about demand for our products and future market conditions . estimating future cash flows requires significant judgment , and our projections may vary from cash flows eventually realized . future events and unanticipated changes to assumptions could require a provision for impairment in a future period . the effect of any impairment would be reflected in operating income in the consolidated statements of operations . in addition , we estimate the useful lives of our long-lived assets and other intangibles and periodically review these estimates to determine whether these lives are appropriate . goodwill and indefinite lived intangible assets . goodwill and other intangible assets with indefinite useful lives are not amortized , but are evaluated for impairment annually , or immediately if conditions indicate that impairment could exist . the evaluation requires an impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss . the test compares the fair value of a reporting unit with its carrying amount , including goodwill . if the carrying amount of a reporting unit exceeds its fair value , the company measures the amount of the impairment loss . the goodwill impairment testing involves significant estimates . the company recorded an impairment charge of $ 3.0 million to the goodwill at the tesi business unit in 2019 , based in part by the loss of the verizon agreement , which is recorded in continuing operations within selling , general , and administrative expense . the company recorded a $ 1.4 million impairment to intangible assets during the year ended december 31 , 2018 at the pcep business unit . at december 31 , 2019 the company reported no intangible assets . income taxes . we account for income taxes under the asset and liability method , based on the income tax laws and rates in the countries in which operations are conducted and income is earned . this approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using expected rates in effect for the tax year in which the differences are expected to reverse . developing the provision for income taxes requires significant judgment and expertise in federal , international and state income tax laws , regulations and strategies , including the determination of deferred tax assets and liabilities and , if necessary , any valuation allowances that may be required for deferred tax assets . a valuation allowance was recorded to reduce our deferred tax assets to zero at december 31 , 2019. if we were to subsequently determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount , an adjustment to deferred tax assets would increase net income for the period in which such determination was made . we will continue to assess the adequacy of the valuation allowance on a quarterly basis . our judgments and tax strategies are subject to audit by various taxing authorities . 20 changes in accounting principles on january 1 , 2018 , the company adopted accounting standards update 2014-09 , revenue from contracts with customers ( topic 606 ) and accounting standards update 2016-02 , leases ( topic 842 ) . the effects of the adoptions are described in note 2 to the consolidated financial statements . rounding all dollar amounts ( except share and per share data ) presented are stated in thousands of dollars , unless otherwise noted . amounts may not foot due to rounding . 21 results of operations story_separator_special_tag font : 10pt times new roman , times , serif ; '' > 25 working capital/ ( deficit ) . as of december 31 , 2019 , we had working capital of $ 10.1 million , including $ 8.2 million of cash and cash equivalents , compared to a working capital deficit of $ 5.5 million , including $ 211 of cash and cash equivalents at december 31 , 2018. at december 31 , 2019 , we no longer had a revolving credit facility as it was paid in full in august 2019 with the proceeds from the sale of the transformer business units .
| gross profit and gross margin the following table represents our gross profit by reporting segment for the periods indicated ( in thousands , except percentages ) : replace_table_token_5_th for the year ended december 31 , 2019 , our gross margin percentage was 5.7 % of revenues , compared to 9.4 % during the year ended december 31 , 2018. the 3.7 % reduction in our consolidated gross margin percentage is explained predominantly by the results of our t & d solutions segment . t & d solutions . the reduction in our t & d solutions gross margin resulted primarily from taking on lower margin jobs , providing customer discounts and an increase in wage rates for our skilled labor force . gross profit for the year ended december 31 , 2019 also includes write downs of inventory amounting to $ 414. critical power . the 11.9 % increase in our critical power segment gross margin was driven primarily by increased sales of service which provide higher margins than our equipment sales . 23 operating expenses the following table represents our operating expenses by reportable segment for the periods indicated ( in thousands , except percentages ) : replace_table_token_6_th selling , general and administrative expense . for the year ended december 31 , 2019 , consolidated selling , general and administrative expense , before depreciation and amortization , increased by approximately $ 3.2 million , or 33.6 % , to $ 12.7 million , as compared to $ 9.5 million during the year ended december 31 , 2018. as a percentage of our consolidated revenue , selling , general and administrative expense increased to 61.6 % in 2019 , as compared to 47.2 % in 2018. the selling , general and administrative expense in our t & d solutions segment decreased by $ 1.7 million , or 39.9 % , during the year ended december 31 , 2019 , as compared to 2018 primarily due to lower intangible impairment write-offs and payroll related costs . the selling , general and administrative expense in our critical power segment increased by $ 3.5 million , or 217.6 % as compared to 2018 primarily due to an increase in intangible impairment write-offs and legal costs . depreciation and amortization expenses . depreciation and amortization
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we intend to continue to make the required investments to support the technological demands of our customers that we believe will position the company for future growth . in support of this effort , we expect capital expenditure payments to be approximately $ 100 million in fiscal year 2020. the manufacture of photomasks for use in fabricating ics , fpds , and other related products built using comparable photomask-based process technologies has been , and continues to be , capital intensive . our employees and our integrated global manufacturing network represent a significant portion of our fixed operating cost base . should our revenue decrease as a result of a decrease in design releases from our customers , we may have excess or underutilized production capacity , which could significantly impact our operating margins , or result in write-offs from asset impairments . recent developments in the first quarter of fiscal 2020 , we acquired the remaining 0.2 % of noncontrolling interests in pk , ltd. for $ 0.6 million . in the first quarter of fiscal 2020 , we adopted asu 2016-02 and all subsequent amendments , collectively codified in accounting standards codification topic 842 - “ leases ” ( “ topic 842 ” ) . this guidance requires modified retrospective adoption , either at the beginning of the earliest period presented or at the beginning of the period of adoption ; we elected to apply the guidance at the beginning of the period of adoption , and recognized right-of-use leased assets of approximately $ 6.7 million , and corresponding lease liabilities , which were discounted at our incremental borrowing rates , on our november 1 , 2019 , consolidated balance sheet to reflect our adoption of the guidance . we do not expect our adoption of topic 842 to affect our cash flows or our ability to comply with covenants under our credit agreements . in the fourth quarter of fiscal 2019 , our board of directors declared a dividend of one preferred stock purchase right ( a “ right ” ) , payable on or about october 1 , 2019 , for each share of common stock , par value $ 0.01 per share , of the company outstanding on september 30 , 2019 , to the stockholders of record on that date . in connection with the distribution of the rights , we entered into a section 382 rights agreement ( the “ rights agreement ” ) , dated as of september 23 , 2019 , between the company and computershare trust company , n.a. , a federally chartered trust company , as rights agent . the purpose of the rights agreement is to deter trading of our common stock that would result in a change in control ( as defined in internal revenue control section 382 ) , thereby preserving our future ability to use our historical federal net operating losses and other tax attributes ( as defined in the rights agreement ) . each right entitles the registered holder to purchase from the company one one-thousandth of a share of series a preferred stock , par value $ 0.01 per share , at a price of $ 33.63 , subject to adjustment . the rights , which are described in the company 's current report on form 8-k filed on september 24 , 2019 , are in all respects subject to and governed by the provisions of the rights agreement . the rights will expire at the earliest to occur of ( i ) the close of business on the day following the certification of the voting results of the company 's 2020 annual meeting of stockholders , if at that meeting , or any other meeting of stockholders of the company duly held prior to september 22 , 2020 , a proposal to approve this rights agreement is not passed by the affirmative vote of the majority of the voting interests ; ( ii ) the date on which our board of directors determines , in its sole discretion , that the rights agreement is no longer necessary for the preservation of material valuable tax attributes , or the tax attributes have been fully utilized and may no longer be carried forward , and ( iii ) the close of business on september 22 , 2022 . 20 in the fourth quarter of fiscal 2019 , pdmc , the company 's majority-owned ic subsidiary in taiwan , paid a dividend of which 49.99 % , or approximately $ 18.9 million , was paid to noncontrolling interests . in the fourth quarter of fiscal 2019 , upon our request , a financing entity made an advance payment of $ 3.5 million to an equipment vendor . we entered into a master lease agreement ( “ mla ” ) with this financing entity , which became effective in july 2019. the mla enables us to request advance payments or other funds to finance equipment to be leased or purchased in the u.s. in connection with this mla , we have been approved for financing of $ 35 million for the purchase of a high-end lithography tool . interest on this borrowing is payable monthly at thirty-day libor plus 1 % ( 2.76 % at october 31 , 2019 ) , and will continue to accrue until the borrowing is repaid or , as allowed under the mla , we enter into a lease for the equipment . we intend to enter into a lease agreement for the related equipment in fiscal year 2020. in the fourth quarter of fiscal 2019 , the company 's board of directors authorized the repurchase of up to $ 100 million of its common stock , pursuant to a repurchase plan under rule 10b5-1 of the securities act of 1933 ( as amended ) . as of october 31 , 2019 , we had repurchased 1.0 million shares at a cost of $ 11.0 million ( an average price of $ 11.05 per share ) . the repurchase program may be suspended or discontinued at any time . story_separator_special_tag in the second quarter of fiscal 2019 , we repaid , upon maturity , the entire $ 57.5 million principal amount of the convertible senior notes we issued in april 2016. in the first quarter of fiscal 2019 , pdmc paid a dividend , of which 49.99 % , or approximately $ 26.1 million , was paid to noncontrolling interests . in the first quarter of fiscal 2019 , pdmcx was approved for credit of $ 50 million , subject to certain limitations related to pdmcx registered capital at the time of the initial approval , pursuant to which pdmcx has and will enter into separate loan agreements ( “ the project loans ” ) for intermittent borrowings . the project loans , which are denominated in chinese renminbi ( rmb ) , are being used to finance certain capital expenditures in china . pdmcx granted liens on its land , building , and certain equipment as collateral for the project loans . as of october 31 , 2019 , pdmcx had borrowed 243.4 million rmb ( $ 34.5 million ) against this approval . payments on these borrowings are due semi-annually through december 2025 ; the initial payment is scheduled for june 2020. see note 6 of the financial statements for additional information on these loans . in the first quarter of fiscal 2019 , pdmcx received approval for unsecured credit of $ 25.0 million , pursuant to which pdmcx may enter into separate loan agreements . under this credit agreement ( the “ working capital loans ” ) , pdmcx can borrow up to 140.0 million rmb to pay value-added taxes ( “ vat ” ) and up to 60.0 million rmb to fund operations ; combined total borrowings are limited to $ 25.0 million . as of october 31 , 2019 , pdmcx had outstanding 36.8 million rmb ( $ 5.2 million ) to fund operations , with repayments due one year from the borrowing dates of the separate loan agreements . as of october 31 , 2019 , pdmcx had outstanding 67.3 million rmb ( $ 9.5 million ) borrowed to pay vat . payments on these borrowings are due semiannually , at an increasing rate , through january 2022. see note 6 of the consolidated financial statements for additional information on these loans . in the fourth quarter of fiscal 2018 , we entered into a five-year amended and restated credit agreement ( the “ credit agreement ” ) , with jpmorgan chase bank , n.a. , as administrative agent and collateral agent , bank of america , n.a. , as syndication agent , each of jpmorgan chase bank , n.a . and merrill , lynch , pierce , fenner & smith incorporated as joint bookrunners and joint lead arrangers , and each of jpmorgan chase bank , n.a. , bank of america , n.a. , citizens bank , n.a. , and td bank , n.a . as lenders from time to time party thereto . the credit agreement has a $ 50 million borrowing limit , with an expansion capacity to $ 100 million , and is secured by substantially all of our assets located in the united states and common stock we own in certain foreign subsidiaries . the credit agreement includes minimum interest coverage ratio , total leverage ratio , and minimum unrestricted cash balance covenants ( all of which we were in compliance with at october 31 , 2019 ) , and limits the amount of dividends , distributions , and redemptions we can pay on our common stock to an aggregate amount in 2019 of $ 100 million and $ 50 million annually thereafter . we had no outstanding borrowings against the credit agreement at october 31 , 2019 , and $ 50 million was available for borrowing . the interest rate on the credit agreement ( 2.78 % at october 31 , 2019 ) is based on our total leverage ratio at libor plus a spread , as defined in the credit agreement . in the fourth quarter of fiscal 2018 , the company 's board of directors authorized the repurchase of up to $ 25 million of its common stock , to have been executed in open-market transactions or in accordance with a repurchase plan under rule 10b5-1 of the securities act of 1933 ( as amended ) . the share repurchase program commenced , under rule 10b5-1 , on october 22 , 2018 , and was terminated on february 1 , 2019. in total , we repurchased 1.5 million shares at a cost of $ 13.8 million ( an average of $ 9.41 per share ) under this authorization . 21 in the third quarter of fiscal 2018 , the company 's board of directors authorized the repurchase of up to $ 20 million of its common stock , which was effectuated in open-market transactions or in accordance with a repurchase plan under rule 10b5-1 of the securities act of 1933 ( as amended ) . the share repurchase program commenced on july 10 , 2018 , and ended in october 2018. in total , under this authorization , we repurchased 2.2 million shares at a cost of $ 20.0 million ( an average of $ 8.97 per share ) . in the third quarter of fiscal 2018 , pdmc paid a dividend , of which 49.99 % , or approximately $ 8.2 million , was paid to noncontrolling interests . in the first quarter of fiscal 2018 , we announced the successful closing of the china joint venture agreement with dai nippon printing co. , ltd. ( “ dnp ” ) , which we had agreed to enter into and announced in the third quarter of fiscal 2017. under the agreement , our wholly-owned singapore subsidiary owns 50.01 % of the joint venture , which is named xiamen american japan photronics mask co. , ltd. ( pdmcx ) , and a subsidiary of dnp owns the remaining 49.99 % .
| while some of the china-based revenue reflected a 77.5 % increase in revenue at our fpd plant in china , much of the increase was due to increased shipments into china from ic facilities in taiwan and korea , both of which operated at full capacity during q4 fy19 . our ic facility in china was , and is expected to be for a significant part of fiscal 2020 , in the qualification stage with many of its customers ; however , revenues increased significantly from q3 fy19 . revenue increased 8.0 % in q4 fy19 , compared with q4 fy18 , primarily as a result of increased mainstream and high-end fpd growth , both of which increased over twenty-nine percent from the prior year quarter . high-end ic revenue also contributed to the increase , growing at 14.0 % . our expansion into china , as a ship-to destination from our taiwan and korea facilities , and from local production was a significant driver of the increase . year-over-year changes in revenue by product type . replace_table_token_9_th 24 year-over-year changes in revenue by geographic origin replace_table_token_10_th revenue increased 2.9 % in fy19 , compared with fy18 , to a record high of $ 550.7 million . a 29.9 % increase in high-end fpd sales was primarily responsible for the increase , with strong demand for mobile displays driving much of the increase . our china fpd facility , which commenced production late in the second quarter , contributed 11.4 % of our total fpd revenue . overall ic revenues decreased from fy18 by 2.4 % , as both mainstream and high-end ic revenues fell between 2 to 3 % . the decrease was geographically broad-based , with our taiwan ic facility being a notable exception , as its revenue grew 3.8 % . we anticipate a softening of the demand for g10.5+ fpd photomasks , which we expect to be offset to some extent by a strengthening of the demand for amoled photomasks . we expect our customers to continue to focus on improving mobile displays , including the development of
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we recognize the importance of developing our capital resource base in order to pursue our objectives . however , subsequent to our last public offering in 1980 , debt financing has been the sole source of external funding . in addition to our routine production-related costs , general and administrative expenses and , when necessary , debt repayment requirements , we require capital to fund our exploratory and development drilling efforts and the acquisition of additional properties as well as the enhancement of held and newly acquired properties . we have received numerous inquiries regarding the possibility of funding our efforts through equity contributions or debt instruments . given strong cash flows , and the relatively modest nature of our current drilling projects , we have thus far declined these overtures . our primary concern in this area is the dilution of our existing shareholders . however , going forward , given that one of the key components of our growth strategy is to expand our oil and natural gas reserve base through drilling and or acquisitions , if we were presented with a significant opportunity and available cash and bank debt financing were insufficient , it is possible we would consider alternative forms of additional financing . 20 hedging . during the years ended march 31 , 2013 and 2012 , we did not participate in any hedging activities , nor did we have any open futures or option contracts . additional information concerning our hedging activities appears in note 1 to the consolidated financial statements . working capital . as of march 31 , 2013 , we had a working capital surplus of $ 775,000 ( a current ratio of 1.14:1 ) compared to a working capital surplus as of march 31 , 2012 of $ 6,572,000 ( a current ratio of 2.91:1 ) . the decrease in current ratio is primarily a result of the use of cash for the acquisition , development and exploration of oil and gas properties . cash flow . cash provided by operating activities decreased from $ 5,278,000 for the year ended march 31 , 2012 to $ 3,867,000 for the year ended march 31 , 2013. this change related primarily to the timing and collection of accounts receivable and the timing and payment of accounts payable and accrued liabilities . overall , net cash used in investing activities increased from the previous year from $ 2,467,000 for the year ended march 31 , 2012 to $ 12,417,000 for the year ended march 31 , 2013. during the year ended march 31 , 2013 , $ 12,243,000 was expended on the acquisition of producing properties , new horizontal bakken wells in the williston basin and on additional acreage , as compared to $ 7,687,000 during the year ended march 31 , 2012. investing activities in the year ended march 31 , 2012 were offset by receipt of $ 5,404,000 from the sale of its colorado properties . net cash provided by financing activities for the year ended march 31 , 2013 was $ 3,952,000 due to borrowings on the company 's credit facility , offset by certain fees and costs for that borrowing . net cash used in financing activities for the year ended march 31 , 2012 was $ 84,000 , utilized entirely for treasury share acquisition . the company 's share buyback program was adopted in october 2008 and will terminate in october 2013 , if not extended before then . capital expenditures the amounts presented herein are presented on an accrual basis , and as such may not be consistent with the amounts presented on the consolidated statements of cash flows under investing activities for expenditures on oil and gas property , which are presented on a cash basis . during the year ended march 31 , 2013 , we spent $ 13,900,000 on various projects . this compares to $ 8,757,000 for the year ended march 31 , 2012. during the year ended march 31 , 2013 , capital expenditures were comprised of drilling and completions of wells producing as of year-end ( 57 % ) , drilling of wells to be completed as of calendar year end ( 39 % ) , and leaseholds ( 4 % ) . the majority ( 97 % ) of capital expenditures occurred in the williston basin . the remainder was spent in other areas on property improvements and leasehold acreage . as of march 31 , 2013 , we have afes totaling $ 6,500,000 for our share in completion costs of new wells in which we share a working interest . at present cash flow levels , we expect to have sufficient funds available for our share of both the outstanding afes and any additional acreage , seismic and or drilling cost requirements that might arise from our existing opportunities . we may alter or vary all or part of any planned capital expenditures for reasons including , but not limited to changes in circumstances , unforeseen opportunities , the inability to negotiate favorable acquisition , farmout , joint venture or divestiture terms , commodity prices , lack of cash flow , and lack of additional funding . we are continually evaluating drilling and acquisition opportunities for possible participation . typically , at any one time , several opportunities are in various stages of evaluation . our policy is to not disclose the specifics of a project or prospect , nor to speculate on such ventures , until such time as those various opportunities are finalized and undertaken . we caution that the absence of news and or press releases should not be interpreted as a lack of development or activity 21 divestitures/abandonments on january 31 , 2012 , we completed the divestiture and sale of the company 's working and or override interests in 38 wells in weld county , colorado to an unrelated third party for $ 5,900,000. after customary adjustments and expenses , the net proceeds from story_separator_special_tag we recognize the importance of developing our capital resource base in order to pursue our objectives . however , subsequent to our last public offering in 1980 , debt financing has been the sole source of external funding . in addition to our routine production-related costs , general and administrative expenses and , when necessary , debt repayment requirements , we require capital to fund our exploratory and development drilling efforts and the acquisition of additional properties as well as the enhancement of held and newly acquired properties . we have received numerous inquiries regarding the possibility of funding our efforts through equity contributions or debt instruments . given strong cash flows , and the relatively modest nature of our current drilling projects , we have thus far declined these overtures . our primary concern in this area is the dilution of our existing shareholders . however , going forward , given that one of the key components of our growth strategy is to expand our oil and natural gas reserve base through drilling and or acquisitions , if we were presented with a significant opportunity and available cash and bank debt financing were insufficient , it is possible we would consider alternative forms of additional financing . 20 hedging . during the years ended march 31 , 2013 and 2012 , we did not participate in any hedging activities , nor did we have any open futures or option contracts . additional information concerning our hedging activities appears in note 1 to the consolidated financial statements . working capital . as of march 31 , 2013 , we had a working capital surplus of $ 775,000 ( a current ratio of 1.14:1 ) compared to a working capital surplus as of march 31 , 2012 of $ 6,572,000 ( a current ratio of 2.91:1 ) . the decrease in current ratio is primarily a result of the use of cash for the acquisition , development and exploration of oil and gas properties . cash flow . cash provided by operating activities decreased from $ 5,278,000 for the year ended march 31 , 2012 to $ 3,867,000 for the year ended march 31 , 2013. this change related primarily to the timing and collection of accounts receivable and the timing and payment of accounts payable and accrued liabilities . overall , net cash used in investing activities increased from the previous year from $ 2,467,000 for the year ended march 31 , 2012 to $ 12,417,000 for the year ended march 31 , 2013. during the year ended march 31 , 2013 , $ 12,243,000 was expended on the acquisition of producing properties , new horizontal bakken wells in the williston basin and on additional acreage , as compared to $ 7,687,000 during the year ended march 31 , 2012. investing activities in the year ended march 31 , 2012 were offset by receipt of $ 5,404,000 from the sale of its colorado properties . net cash provided by financing activities for the year ended march 31 , 2013 was $ 3,952,000 due to borrowings on the company 's credit facility , offset by certain fees and costs for that borrowing . net cash used in financing activities for the year ended march 31 , 2012 was $ 84,000 , utilized entirely for treasury share acquisition . the company 's share buyback program was adopted in october 2008 and will terminate in october 2013 , if not extended before then . capital expenditures the amounts presented herein are presented on an accrual basis , and as such may not be consistent with the amounts presented on the consolidated statements of cash flows under investing activities for expenditures on oil and gas property , which are presented on a cash basis . during the year ended march 31 , 2013 , we spent $ 13,900,000 on various projects . this compares to $ 8,757,000 for the year ended march 31 , 2012. during the year ended march 31 , 2013 , capital expenditures were comprised of drilling and completions of wells producing as of year-end ( 57 % ) , drilling of wells to be completed as of calendar year end ( 39 % ) , and leaseholds ( 4 % ) . the majority ( 97 % ) of capital expenditures occurred in the williston basin . the remainder was spent in other areas on property improvements and leasehold acreage . as of march 31 , 2013 , we have afes totaling $ 6,500,000 for our share in completion costs of new wells in which we share a working interest . at present cash flow levels , we expect to have sufficient funds available for our share of both the outstanding afes and any additional acreage , seismic and or drilling cost requirements that might arise from our existing opportunities . we may alter or vary all or part of any planned capital expenditures for reasons including , but not limited to changes in circumstances , unforeseen opportunities , the inability to negotiate favorable acquisition , farmout , joint venture or divestiture terms , commodity prices , lack of cash flow , and lack of additional funding . we are continually evaluating drilling and acquisition opportunities for possible participation . typically , at any one time , several opportunities are in various stages of evaluation . our policy is to not disclose the specifics of a project or prospect , nor to speculate on such ventures , until such time as those various opportunities are finalized and undertaken . we caution that the absence of news and or press releases should not be interpreted as a lack of development or activity 21 divestitures/abandonments on january 31 , 2012 , we completed the divestiture and sale of the company 's working and or override interests in 38 wells in weld county , colorado to an unrelated third party for $ 5,900,000. after customary adjustments and expenses , the net proceeds from
| on an equivalent barrel basis , sales were 141,000 boe for the year ended march 31 , 2013 compared to 142,000 boe for the year ended march 31 , 2012. oil sales volumes increased 7 % from 114,960 barrels for the year ended march 31 , 2012 to 122,655 barrels for the year ended march 31 , 2013 , while the average price per barrel decreased 7 % from $ 90.47 for the year ended march 31 , 2012 to $ 83.84 for the year ended march 31 , 2013. the rise in oil volumes resulted from production from newly producing wells offset , partially , by declines in existing wells . natural gas sales volumes decreased 33 % from 160,409 mcf for the year ended march 31 , 2012 to 107,076 mcf for the year ended march 31 , 2013 , while the average price per mcf decreased 9 % , from $ 7.20 for the year ended march 31 , 2012 to $ 6.53 for the year ended march 31 , 2013. the decrease in volumes is primarily related to the sale of our working and or override interests in 38 wells in weld county , colorado completed on january 31 , 2012. production expenses . production expenses are comprised of the following items : replace_table_token_8_th oil and natural gas production expense decreased $ 56,000 ( 1 % ) for the year ended march 31 , 2013 , as compared to the year ended march 31 , 2012. the two principal components of oil and gas production expense are routine lease operating expenses ( “ loe ” ) and workovers . routine expenses typically include such items as daily well maintenance , utilities , fuel , water disposal and minor surface equipment repairs . workovers primarily include downhole repairs and are generally random in nature . although workovers are expected , they can be much more frequent in some wells than others and their associated costs can be significant . therefore , workovers account for more dramatic fluctuations in oil and gas expense from period to period . loe , production taxes , and transportation and other
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adjustments to these reserves may be required if actual market conditions for our products are substantially different than the assumptions underlying our estimates . long-lived assets . we review long-lived assets , which consist principally of property , plant and equipment , for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be fully recoverable . recoverability of long-lived assets to be held and used is measured based on the future net undiscounted cash flows expected to be generated by the related asset or asset group . if it is determined that an impairment loss has been incurred , the impairment loss is recognized during the period incurred and is calculated based on the difference between the carrying value and the present value of estimated future net cash flows or comparable market values . assets to be disposed of by sale are recorded at the lower of the carrying value or fair value less cost to sell when we have committed to a disposal plan , and are reported separately as assets held for sale on our consolidated balance sheet . unforeseen events and changes in circumstances and market conditions could negatively affect the value of assets and result in an impairment charge . 13 self-insurance . we are self-insured for certain losses relating to medical and workers ' compensation claims . self-insurance claims filed and claims incurred but not reported are accrued based upon management 's estimates of the discounted ultimate cost for uninsured claims incurred using actuarial assumptions followed by the insurance industry and historical experience . these estimates are subject to a high degree of variability based upon future inflation rates , litigation trends , changes in benefit levels and claim settlement patterns . because of uncertainties related to these factors as well as the possibility of changes in the underlying facts and circumstances , future adjustments to these reserves may be required . litigation . from time to time , we may be involved in claims , lawsuits and other proceedings . such matters involve uncertainty as to the eventual outcomes and the potential losses that we may ultimately incur . we record expenses for litigation when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated . we estimate the probability of such losses based on the advice of legal counsel , the outcome of similar litigation , the status of the lawsuits and other factors . due to the numerous factors that enter into these judgments and assumptions , it is reasonably likely that actual outcomes will differ from our estimates . we monitor our potential exposure to these contingencies on a regular basis and may adjust our estimates as additional information becomes available or as there are significant developments . stock-based compensation . we account for stock-based compensation arrangements , including stock option grants , restricted stock awards and restricted stock units , in accordance with the provisions of financial standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 718 , compensation — stock compensation . under these provisions , compensation cost is recognized based on the fair value of equity awards on the date of grant . the compensation cost is then amortized on a straight-line basis over the vesting period . we use the monte carlo valuation model to determine the fair value of stock options at the date of grant . this model requires us to make assumptions such as expected term , volatility and forfeiture rates that determine the stock options ' fair value . these assumptions are based on historical information and judgment regarding market factors and trends . if actual results differ from our assumptions and judgments used in estimating these factors , future adjustments to these estimates may be required . assumptions for employee benefit plans . we account for our defined employee benefit plans , the insteel wire products company retirement income plan for hourly employees , wilmington , delaware ( the “ delaware plan ” ) and the supplemental employee retirement plans ( each , a “ serp ” ) in accordance with fasb asc topic 715 , compensation – retirement benefits . under the provisions of asc topic 715 , we recognize net periodic pension costs and value pension assets or liabilities based on certain actuarial assumptions , principally the assumed discount rate and the assumed long-term rate of return on plan assets . the discount rates we utilize for determining net periodic pension costs and the related benefit obligations for our plans are based , in part , on current interest rates earned on long-term bonds that receive one of the two highest ratings assigned by recognized rating agencies . our discount rate assumptions are adjusted as of each valuation date to reflect current interest rates on such long-term bonds . the discount rates are used to determine the actuarial present value of the benefit obligations as of the valuation date as well as the interest component of the net periodic pension cost for the following year . the discount rate for the delaware plan and serps was 4 % , 4.75 % and 5.25 % for 2012 , 2011 and 2010 , respectively . the assumed long-term rate of return on plan assets for the delaware plan represents the estimated average rate of return expected to be earned on the funds invested or to be invested in the plan 's assets to fund the benefit payments inherent in the projected benefit obligations . unlike the discount rate , which is adjusted each year based on changes in current long-term interest rates , the assumed long-term rate of return on plan assets will not necessarily change based upon the actual short-term performance of the plan assets in any given year . story_separator_special_tag the amount of net periodic pension cost that is recorded each year is based on the assumed long-term rate of return on plan assets for the plan and the actual fair value of the plan assets as of the beginning of the year . we regularly review our actual asset allocation and , when appropriate , rebalance the investments in the plan to more accurately reflect the targeted allocation . for 2012 , 2011 and 2010 , the assumed long-term rate of return utilized for plan assets of the delaware plan was 8 % . we currently expect to use the same assumed rate for the long-term return on plan assets in 2013. in determining the appropriateness of this assumption , we considered the historical rate of return of the plan assets , the current and projected asset mix , our investment objectives and information provided by our third-party investment advisors . the projected benefit obligations and net periodic pension cost for the serps are based in part on expected increases in future compensation levels . our assumption for the expected increase in future compensation levels is based upon our average historical experience and management 's intentions regarding future compensation increases , which generally approximates average long-term inflation rates . 14 assumed discount rates and rates of return on plan assets are reevaluated annually . changes in these assumptions can result in the recognition of materially different pension costs over different periods and materially different asset and liability amounts in our consolidated financial statements . a reduction in the assumed discount rate generally results in an actuarial loss , as the actuarially-determined present value of estimated future benefit payments will increase . conversely , an increase in the assumed discount rate generally results in an actuarial gain . in addition , an actual return on plan assets for a given year that is greater than the assumed return on plan assets results in an actuarial gain , while an actual return on plan assets that is less than the assumed return results in an actuarial loss . other actual outcomes that differ from previous assumptions , such as individuals living longer or shorter lives than assumed in the mortality tables that are also used to determine the actuarially-determined present value of estimated future benefit payments , changes in such mortality tables themselves or plan amendments will also result in actuarial losses or gains . under gaap , actuarial gains and losses are deferred and amortized into income over future periods based upon the expected average remaining service life of the active plan participants ( for plans for which benefits are still being earned by active employees ) or the average remaining life expectancy of the inactive participants ( for plans for which benefits are not still being earned by active employees ) . however , any actuarial gains generated in future periods reduce the negative amortization effect of any cumulative unamortized actuarial losses , while any actuarial losses generated in future periods reduce the favorable amortization effect of any cumulative unamortized actuarial gains . the amounts recognized as net periodic pension cost and as pension assets or liabilities are based upon the actuarial assumptions discussed above . we believe that all of the actuarial assumptions used for determining the net periodic pension costs and pension assets or liabilities related to the delaware plan are reasonable and appropriate . the funding requirements for the delaware plan are based upon applicable regulations , and will generally differ from the amount of pension cost recognized under asc topic 715 for financial reporting purposes . during 2012 and 2011 , we made contributions totaling $ 206,000 and $ 478,000 , respectively , to the delaware plan . no contributions were required to be made to the delaware plan during 2010. we currently expect net periodic pension costs for 2013 to be $ 28,000 for the delaware plan and $ 916,000 for the serps . cash contributions to the plans during 2013 are expected to be $ 362,000 for the delaware plan and $ 244,000 for the serps . a 0.25 % decrease in the assumed discount rate for the delaware plan would have increased our projected and accumulated benefit obligations as of september 29 , 2012 by approximately $ 101,000 and have no impact on the expected net periodic pension cost for 2013. a 0.25 % decrease in the assumed discount rate for our serps would have increased our projected and accumulated benefit obligations as of september 29 , 2012 by approximately $ 266,000 and $ 195,000 , respectively , and the net periodic pension cost for 2013 by approximately $ 23,000. a 0.25 % decrease in the assumed long-term rate of return on plan assets for the delaware plan would have increased the expected net periodic pension cost for 2013 by approximately $ 4,000. recent accounting pronouncements . future adoptions in june 2011 , the fasb issued an update that amends the guidance provided in asc topic 220 , comprehensive income , by requiring that all nonowner changes in shareholders ' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements . this update becomes effective for us in the first quarter of fiscal 2013 . 15 story_separator_special_tag inline ; font-family : times new roman ; font-size : 10pt '' > acquisition costs acquisition costs of $ 3.5 million were incurred in 2011 for the advisory , accounting , legal and other professional fees directly related to the ivy acquisition . the accounting requirements for business combinations require the expensing of acquisition costs in the period in which they are incurred . we did not incur any additional acquisition costs related to the ivy acquisition in 2012. bargain purchase gain a bargain purchase gain of $ 500,000 was recorded in 2011 based on the excess of the fair value of the net assets acquired in the ivy acquisition over the purchase price .
| the cash surrender value of life insurance policies increased $ 710,000 in the current year compared with a decrease of $ 265,000 in the prior year due to the related changes in the value of the underlying investments . these reductions in sg & a expense were partially offset by higher employee benefit costs ( $ 278,000 ) and bad debt expense ( $ 142,000 ) . the increase in employee benefit costs expense was primarily related to an increase in supplemental retirement plan expense . gain on early extinguishment of debt a gain on the early extinguishment of debt of $ 425,000 was recorded in 2012 for the discount on our prepayment of the remaining balance outstanding on the subordinated note that was issued in connection with the ivy acquisition . 16 restructuring charges , net net restructuring charges decreased 90.0 % to $ 832,000 in 2012 from $ 8.3 million in 2011. the year-over-year decrease is primarily due to reduced restructuring activities associated with the ivy acquisition during 2012. net restructuring charges for 2012 included $ 744,000 for equipment relocation costs and $ 139,000 for facility closure costs less $ 11,000 of net proceeds from the sale of decommissioned equipment and a $ 40,000 adjustment related to the remaining employee separation costs associated with plant closures and other staffing reductions . net restructuring charges of $ 8.3 million in the prior year included $ 3.8 million for impairment charges related to plant closures and the decommissioning of equipment , $ 2.3 million for employee separation costs associated with plant closures and other staffing reductions , $ 1.2 million for equipment relocation costs , $ 533,000 for the future lease obligations associated with the closed houston , texas facility and $ 464,000 for facility closure costs . the plant closure costs were incurred in connection with the consolidation of our texas and northeast operations , which involved the closure of facilities in houston , texas and wilmington , delaware , and the absorption of the business by other insteel facilities . the plant closure costs are net of a $ 1.6 million gain on the
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our solutions include both hardware and software . we refer to hardware revenue as device revenue , which includes revenue from sales of our communication badges , badge accessories , including batteries , battery chargers , lanyards , clips and other ancillary badge components . software revenue is derived primarily from the sale of perpetual licenses to our vocera communication system . we derive additional software revenue from the sale of term licenses or services provided , which can be renewed on a subscription basis . product revenue is generally recognized upon shipment of hardware and perpetual licenses and , in the case of term licenses or subscription services , ratably over the applicable term . service . we receive service revenue from sales of software maintenance , extended hardware warranties and professional services . software maintenance is typically invoiced annually in advance , recorded as deferred revenue , and recognized as revenue ratably over the service period . our professional services revenue is based on both time and materials , and fixed price contracts , and is recognized as the services are provided . extended warranties are invoiced in advance , recorded as deferred revenue , and recognized ratably over the extended warranty period . cost of revenue . cost of revenue is comprised of the following : cost of product . cost of product is comprised primarily of materials costs , software license costs , write-offs for excess and obsolete inventory , warranty , and manufacturing overhead costs for test engineering , material requirements planning and our shipping and receiving functions . these overhead costs also include facilities , equipment depreciation , amortization of developed technology and stock-based compensation expenses . we expect material costs to vary with the product life cycle of our devices . cost of service . cost of service is comprised primarily of employee wages , benefits and related personnel expenses of our technical support team , our professional consulting personnel and our training teams . cost of service also includes facility and information technology costs . we expect our cost of service will increase as we continue to invest in support services to meet the needs of our customer base . operating expenses . operating expenses are comprised of the following : research and development . research and development expenses consist primarily of employee wages , benefits and related personnel expenses , hardware materials , and consultant fees and expenses related to the design , development , testing and enhancements of our solutions . we intend to continue to invest in improving the functionality of our solutions and the development of new solutions . as a result , we expect research and development expense to increase for the foreseeable future . sales and marketing . sales and marketing expenses consist primarily of employee wages , benefits and related personnel expenses , as well as trade shows , marketing programs and collateral and public relations programs . sales commissions are earned when an order is received from a customer , and as a result , in some cases these commissions are expensed in an earlier period than the period in which the related revenue is recognized . historically , our bookings have tended to peak in the fourth quarter of each year driving higher sales commissions , and to be lowest in the first quarter . we intend to continue to expand our direct sales force , invest in sales support functions and new marketing programs for the foreseeable future , and accordingly , expect sales and marketing expenses to increase . general and administrative . general and administrative expenses consist primarily of employee wages , benefits and related personnel expenses , consulting , accounting fees , legal fees and other general corporate expenses . we expect general and administrative expense to increase for the foreseeable future due to the significant costs we expect to incur as we continue to build and maintain the infrastructure necessary to comply with the regulatory requirements of being a public company and as we add personnel to support our growth . interest income , interest expense and other income ( expense ) , net . interest income . interest income consists primarily of interest income earned on our cash , cash equivalent and short-term investment balances . our interest income will vary each reporting period depending on our average cash , cash equivalent and short-term investment balances during the period and market interest rates . 33 interest expense . interest expense includes interest expense related to debt and financing obligations resulting from our credit facility and security agreement , which was paid off in full on april 3 , 2012. since then interest expense has been immaterial , but could potentially fluctuate in the future with changes in our borrowings . other income ( expense ) , net . other income ( expense ) , net consists primarily of income from a stipend for market research regarding the industry in which our company operates that we provided to a market research firm , and the change in the fair value of our convertible preferred stock warrants . our convertible preferred stock warrants were classified as liabilities and , as such , were marked-to-market at each balance sheet date with the corresponding gain or loss from the adjustment recorded as other income ( expense ) , net . upon the consummation of our initial public offering , on april 2 , 2012 , these warrants converted into warrants to purchase common stock and are no longer marked-to-market . other income ( expense ) , net also includes any foreign exchange gains and losses . provision for income taxes . we are subject to income taxes in the countries where we sell our solutions . we anticipate that in the future as we expand our sale of solutions to customers outside the united states , we will become subject to taxation based on the foreign statutory rates in the countries where these sales took place and our effective tax rate could fluctuate accordingly . story_separator_special_tag currently , each of our international subsidiaries is operating under cost plus agreements where the u.s. parent company reimburses the international subsidiary for its costs plus an arm 's length profit . income taxes are computed using the asset and liability method , under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income . valuation allowances have been established to reduce deferred tax assets to the amount reasonably expected to be realized . changes in valuation allowances are reflected as component of provision for income taxes . at december 31 , 2013 , we held a $ 21.0 million valuation allowance against our deferred tax assets . we review on a quarterly basis our conclusions about the appropriate amount of its deferred income tax asset valuation allowance . 34 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > interest expense decreased $ 0.1 million from 2012 to 2013 as we paid all outstanding debt upon completion of our initial public offering . other income ( expense ) , net . other expense decreased $ 1.4 million from 2012 to 2013 as 2012 included $ 1.6 million of expense related to the fair market value of convertible preferred stock warrants . this decrease was offset by a $ 0.1 million increase in interest expense related to our lease financing program and a $ 0.1 million increase in foreign exchange losses . provision for income taxes . the $ 0.1 million provision on $ 10.4 million of pretax loss in 2013 represented a negative effective tax rate of 1.1 % . for 2012 , the provision of $ 0.6 million on the consolidated pretax income of $ 3.5 million represented an effective tax rate of 17.8 % . the negative effective tax rate for 2013 was due primarily to the impact of pre-tax losses in the u.s. operations , offset by income taxes from foreign operations . the effective tax rate of 17.8 % for 2012 is due primarily to the impact of the utilization of the valuation allowance on net deferred tax assets , together with permanent tax adjustments for stock options . years ended december 31 , 2012 compared to december 31 , 2011 revenue : replace_table_token_12_th 37 total revenue increased $ 21.5 million , or 27.0 % , from 2011 to 2012. product revenue increased $ 14.7 million , or 29.2 % in 2012. device revenue increased $ 10.6 million , or 28.7 % , and software revenue increased $ 4.1 million , or 30.7 % . the 2012 increase in device revenue , which related entirely to our vocera communication solution , was driven by an increase in unit sales of badges and related accessories from new customers making initial purchases , existing customers expanding deployments within their facilities to new departments and users , and customers replacing badges . the list prices for our products did not change substantially in 2012. the 2012 increase in software revenue was comprised of $ 3.5 million from an increase in the sale of licenses of our vocera communication solution to new and existing customers and $ 0.6 million from other software revenue . service revenue increased $ 6.7 million , or 23.1 % in 2012. software maintenance and support revenue increased $ 4.8 million , or 22.4 % , and professional services and training revenue increased $ 2.0 million , or 25.2 % . the 2012 increase in software maintenance and support revenue was primarily a result of a larger customer base but also included $ 1.0 million from extended warranty contracts and $ 0.3 million from other software services . the 2012 increase in professional services and training revenue included $ 0.9 million as a result of an increase in the number of new deployments and expansions of our vocera communication solution . the remaining increase in professional services and training revenue of $ 0.9 million was from other service offerings . cost of revenue : replace_table_token_13_th cost of product revenue increased $ 4.1 million , or 23.4 % , from 2011 to 2012. this increase was primarily due to the higher product revenue , offset by decreases due to lower per unit material and manufacturing costs as a result of increased unit volume and lower warranty expenses in 2012 due to lower return rates on our b3000 badge compared to the b2000 badge and to lower cost estimates for refurbishment and replacement alternatives . in 2011 , we recorded a $ 0.6 million provision for excess inventory of the vocera wi-fi smartphone due to quantities-on-hand exceeding forecast demand . excluding the excess inventory charge , product gross margins in 2011 would have been only 0.4 % lower than those realized in 2012. cost of service revenue increased $ 1.0 million , or 7.3 % , from 2011 to 2012. this increase was primarily due to a $ 0.9 million increase in employee wages and other personnel costs in our technical support and professional services organizations to support growth in customer deployments and in our installed base . headcount in our services organization increased from 71 employees at december 31 , 2011 to 80 employees at december 31 , 2012. operating expenses : replace_table_token_14_th research and development expense . research and development expense increased $ 2.3 million , or 24.5 % , from 2011 to 2012. this increase was primarily due to an increase in employee wages and other personnel related costs of $ 1.6 million , a $ 0.3 38 million increase in stock compensation expenses and $ 0.4 million increase in other support costs . headcount in our research and development organization increased from 50 employees at december 31 , 2011 to 59 employees at december 31 , 2012. sales and marketing expense .
| the 2013 decrease in professional services and training revenue was due to a reduction in the number of deployments completed in 2013 , particularly related to our existing customer base . cost of revenue : replace_table_token_9_th cost of product revenue increased $ 0.2 million , or 0.8 % , from 2012 to 2013. this increase was primarily due to a $ 1.4 million increase in warranty expenses and a $ 0.7 million increase in overhead expenses , offset by decreases in product costs of $ 2.3 million due to lower per unit material and manufacturing costs as a result of increased unit volume . the increase in warranty expenses was primarily based on a manufacturing defect impacting a discrete batch of badges , resulting in an increase in warranty expense of $ 0.7 million . cost of service revenue increased $ 1.5 million , or 10.1 % , from 2012 to 2013. this increase was primarily due to a $ 1.2 million increase in employee wages and other personnel costs in our technical support and professional services organizations to support growth in customer deployments and in our installed base . operating expenses : replace_table_token_10_th research and development expense . research and development expense increased $ 3.3 million , or 28.4 % , from 2012 to 2013. this increase was primarily due to an increase in employee wages and other personnel related costs of $ 2.3 million , a $ 0.4 million increase in stock compensation expenses and $ 0.4 million increase in other support costs . headcount in our research and development organization increased from 59 employees at december 31 , 2012 to 71 employees at december 31 , 2013. sales and marketing expense . sales and marketing expense increased $ 11.5 million , or 34.4 % , from 2012 to 2013. this increase was primarily due to a $ 6.6 million increase in employee wages and other personnel costs , a $ 1.7 million increase in 36 stock compensation expenses , a $ 1.3 million increase in travel , a $ 1.6
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we expect that over the long term , international online travel growth rates will follow a similar trend to that experienced in the united states . in addition , the base of hotel properties in europe and asia is particularly fragmented compared to that in the united states , where the hotel market is dominated by large hotel chains . we believe online reservation systems like ours may be more appealing to small chains and independent hotels more commonly found outside of the united states . we believe these trends and factors have enabled us to become the leading online accommodation reservation service provider in the world as measured by room nights booked . we believe that the opportunity to continue to grow our business exists for the markets in which we operate . our growth has primarily been generated by our worldwide accommodation reservation service brand , booking.com , which is our most significant brand , and has been due , in part , to the availability of a large and growing number of directly bookable properties through booking.com . booking.com included over 1,115,000 properties on its website as of december 31 , 2016 , which included over 568,000 vacation rental properties ( updated property counts are available on the booking.com website ) , and compares to over 852,000 properties ( including over 390,000 vacation rental properties ) as of december 31 , 2015 . we intend to continue to invest in adding accommodations available for reservation on our websites , including hotels , bed and breakfasts , hostels and vacation rentals . vacation rentals generally consist of , among others , properties categorized as single-unit and multi-unit villas , apartments , `` aparthotels '' ( which are apartments with a front desk and cleaning service ) and chalets and are generally self-catered ( i.e. , include a kitchen ) , directly bookable properties . many of the newer accommodations we add to our travel reservation services , especially in highly penetrated markets , may have fewer rooms or higher credit risk and may appeal to a smaller subset of consumers ( e.g. , hostels and bed and breakfasts ) . because a vacation rental is typically either a single unit or a small collection of independent units , vacation rental accommodations represent more limited booking opportunities than non-vacation rental properties , which generally have more units to rent per property . our vacation rental accommodations in general may be subject to increased seasonality due to local tourism seasons , weather or other factors . our vacation rental accommodation business may also experience lower profit margins due to certain additional costs related to offering these accommodations on our websites . as we increase our vacation rental accommodation business , these different characteristics could negatively impact our profit margins ; and , to the extent these properties represent an increasing percentage of the properties added to our websites , we expect that our gross bookings growth rate and property growth rate will continue to diverge over time ( since each such property has fewer booking opportunities ) . as a result of the foregoing , as the percentage of vacation rental properties increases , we expect that the number of reservations per property will likely continue to decrease . we believe that continuing to expand the number and variety of accommodations available through our services , in particular booking.com , will help us to continue to grow our accommodation reservation business . 35 as part of our strategy to increase the number and variety of accommodations available on booking.com , booking.com is increasingly processing transactions on a merchant basis where it facilitates payments on behalf of customers . this allows booking.com to process transactions for properties that do not accept credit cards and to increase its ability to offer flexible transaction terms to consumers , such as the form and timing of payment . although we will incur additional payment processing costs and chargebacks related to these transactions , which are recorded as sales and marketing expenses in our statement of operations and which will negatively impact our operating margins , we believe that adding these types of properties and service offerings will benefit our customers and our gross bookings , room night and earnings growth rates . concerns persist about the outlook for the global economy in general , including uncertainty in the european union and china . perceived or actual adverse economic conditions , including slow , slowing or negative economic growth , unemployment rates and weakening currencies and concerns over government responses such as higher taxes and reduced government spending , could impair consumer spending and adversely affect travel demand . further , uncertainty regarding the future of the european union following the united kingdom 's vote to leave ( “ brexit ” ) and concerns regarding certain e.u . members with sovereign debt default risks could also negatively affect consumer spending and adversely affect travel demand . at times , we have experienced volatility in transaction growth rates , increased cancellation rates and weaker trends in hotel adrs across many regions of the world , particularly in those countries that appear to be most affected by economic uncertainties , which we believe are due at least in part to macro-economic conditions and concerns . for more detail , see part i item 1a risk factors - `` declines or disruptions in the travel industry could adversely affect our business and financial performance . '' these and other macro-economic uncertainties , such as sovereign default risk becoming more widespread , declining oil prices , geopolitical tensions and differing central bank monetary policies , have led to significant volatility in the exchange rates between the u.s. dollar and the euro , the british pound sterling and other currencies . significant fluctuations in currency exchange rates , stock markets and oil prices can also impact consumer travel behavior . as noted earlier , our international business represents a substantial majority of our financial results . story_separator_special_tag therefore , because we report our results in u.s. dollars , we face exposure to adverse movements in currency exchange rates as the financial results of our international businesses are translated from local currency ( principally euros and british pounds sterling ) into u.s. dollars . throughout 2015 , the u.s. dollar strengthened significantly year-over-year relative to substantially all currencies in which we transact , most notably the euro , brazilian real , british pound sterling , russian ruble and australian dollar . in 2016 , the u.s. dollar continued to be stronger year-over-year relative to the british pound sterling , russian ruble and many other major currencies in which we transact . since the `` brexit '' referendum in the united kingdom in june 2016 , the u.s. dollar has strengthened significantly against the british pound sterling . as a result of these currency exchange rate changes , our foreign currency denominated net assets , gross bookings , gross profit , operating expenses and net income have been negatively impacted as expressed in u.s. dollars , although to a much lesser extent in 2016 than in 2015. for example , gross profit from our international operations grew 22.3 % for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , but , without the negative impact of changes in currency exchange rates , grew year-over-year on a constant-currency basis by approximately 25 % . since our expenses are generally denominated in foreign currencies on a basis similar to our revenues , our operating margins are not significantly impacted by currency fluctuations . the aggregate principal value of our euro-denominated 2022 notes , 2024 notes and 2027 notes , and accrued interest thereon , provide a natural hedge of the net assets of certain of our euro functional currency subsidiaries . for more information , see part i item 1a risk factors - `` we are exposed to fluctuations in currency exchange rates . '' we generally enter into derivative instruments to minimize the impact of short-term currency fluctuations on the translation of our consolidated operating results into u.s. dollars . however , such derivative instruments are short term in nature and not designed to hedge against currency fluctuations that could impact growth rates for our gross bookings , revenues or gross profit ( see note 5 to the consolidated financial statements for additional information on our derivative contracts ) . we compete globally with both online and traditional providers of travel and restaurant reservation and related services . the markets for the services we offer are intensely competitive and current and new competitors can launch new services at a relatively low cost . some of our current and potential competitors , such as google , apple , alibaba , amazon and facebook , have access to significantly greater and more diversified resources than we do , and they may be able to leverage other aspects of their businesses ( e.g. , search or mobile device businesses ) to enable them to compete more effectively with us . for example , google has entered various aspects of the online travel market , including by establishing a flight meta-search product ( “ google flights ” ) and a hotel meta-search business ( `` hotel ads '' ) that are growing rapidly , as well as its `` book on google '' reservation functionality . our markets are also subject to rapidly changing conditions , including technological developments , consumer behavior changes , regulatory changes and travel service provider consolidation . we expect these trends to continue . for example , we have experienced a significant shift of both direct and indirect business to mobile platforms and our advertising partners are also seeing a rapid shift of traffic to mobile platforms . advertising and distribution 36 opportunities may be more limited on mobile devices given their smaller screen sizes . in addition , the gross profit earned on a mobile transaction may be less than a typical desktop transaction due to different consumer purchasing patterns . for example , accommodation reservations made on a mobile device typically are for shorter lengths of stay and are not made as far in advance . for more detail regarding the competitive trends and risks we face , see part i item 1 business - `` competition '' , part i item 1a risk factors - `` intense competition could reduce our market share and harm our financial performance. `` and `` consumer adoption and use of mobile devices creates new challenges and may enable device companies such as apple to compete directly with us. `` and `` we may not be able to keep up with rapid technological changes . '' we have observed an increase in promotional pricing to closed user groups ( such as loyalty program participants or consumers with registered accounts ) , including through mobile apps . for example , marriott international , hilton , hyatt hotels , intercontinental hotel group and choice hotels international have launched additional initiatives to encourage consumers to book accommodations directly through their websites , with increased discounting and incentives . in addition to providing retail travel reservation services , our priceline.com brand is a leading provider of discounted opaque travel reservation services in the united states through its name your own price ® and express deals ® offerings . these discounted services are referred to as `` opaque '' because certain elements of the reservation , including the name of the travel service provider , are not made known to the traveler until after the reservation is made .
| we believe that unit growth rates and total gross bookings and gross profit growth on a constant-currency basis , each of which exclude the impact of foreign exchange rate fluctuations , are important measures to understand the fundamental performance of the business . agency gross bookings are derived from travel-related transactions where we do not facilitate payments for the travel services provided . agency gross bookings increased by 22.2 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to growth in gross bookings from booking.com agency retail accommodation room night reservations . merchant gross bookings are derived from services where we facilitate payments for the travel services provided . merchant gross bookings increased by 25.0 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to growth in gross bookings from the merchant accommodation reservation services for booking.com and agoda.com , the merchant rental car reservation service for rentalcars.com and the merchant airline ticket reservation service for priceline.com . accommodation room nights , rental car days and airline tickets reserved through our services for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_5_th accommodation room night reservations increased by 28.7 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to strong execution by our brand teams to add accommodations to our websites , 41 advertise our brands to consumers and provide a continuously improving experience for customers on our desktop and mobile platforms . rental car day reservations increased by 11.2 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , due to an increase in rental car day reservations for rentalcars.com . airline ticket reservations decreased by 5.2 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , due to a decline in priceline.com 's retail airline ticket reservations and the discontinuation
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the aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in straight-line rents receivable on the consolidated balance sheet . leases also generally contain provisions under which the tenants reimburse the company for a portion of property operating expenses and real estate taxes incurred ; such income is recognized in the periods earned . in addition , certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent . the company defers recognition of contingent rental income until those specified targets are met . 28 the company must make estimates as to the collectability of its accounts receivable related to base rent , straight-line rent , expense reimbursements and other revenues . management analyzes accounts receivable by considering tenant creditworthiness , current economic conditions , and changes in tenants ' payment patte rns when evaluating the adequacy of the allowance for doubtful accounts receivable . these estimates have a direct impact on net income , because a higher bad debt allowance would result in lower net income , whereas a lower bad debt allowance would result in higher net income . real estate investments real estate investments are carried at cost less accumulated depreciation . the provision for depreciation is calculated using the straight-line method based on estimated useful lives . expenditures for maintenance , repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred . expenditures for betterments that substantially extend the useful lives of real estate assets are capitalized . real estate investments include costs of development and redevelopment activities , and construction in progress . capitalized costs , including interest and other carrying costs during the construction and or renovation periods , are included in the cost of the related asset and charged to operations through depreciation over the asset 's estimated useful life . the company is required to make subjective estimates as to the useful lives of its real estate assets for purposes of determining the amount of depreciation to reflect on an annual basis . these assessments have a direct impact on net income . a shorter estimate of the useful life of an asset would have the effect of increasing depreciation expense and lowering net income , whereas a longer estimate of the useful life of an asset would have the effect of reducing depreciation expense and increasing net income . a variety of costs are incurred in the acquisition , development and leasing of a property , such as pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs , and other costs incurred during the period of development . after a determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . the company ceases capitalization on the portions substantially completed and occupied , or held available for occupancy , and capitalizes only those costs associated with the portions under construction . the company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but not later than one year from cessation of major development activity . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the effect of a longer capitalization period would be to increase capitalized costs and would result in higher net income , whereas the effect of a shorter capitalization period would be to reduce capitalized costs and would result in lower net income . the company allocates the fair value of real estate acquired to land , buildings and improvements . in addition , the fair value of in-place leases is allocated to intangible lease assets and liabilities . the fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant , which value is then allocated to land , buildings and improvements based on management 's determination of the fair values of such assets . in valuing an acquired property 's intangibles , factors considered by management include an estimate of carrying costs during the expected lease-up periods , such as real estate taxes , insurance , other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand . management also estimates costs to execute similar leases , including leasing commissions , tenant improvements , legal and other related costs . the values of acquired above-market and below-market leases are recorded based on the present values ( using discount rates which reflect the risks associated with the leases acquired ) of the differences between the contractual amounts to be received and management 's estimate of market lease rates , measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions . such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal period ( s ) . the fair values associated with below-market rental renewal options are determined based on the company 's experience and the relevant facts and circumstances that existed at the time of the acquisitions . the values of above-market leases are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible assets ( including leasing commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . story_separator_special_tag if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be recognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( 1 ) above-market and below-market lease intangibles are amortized to rental income , and ( 2 ) the value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability 29 and other intangibles would result in highe r rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . story_separator_special_tag style= '' font-weight : normal ; '' > ecrease of $ 0.6 million in other operating expenses , primarily bad debt expense , repairs and maintenance , and non-billable expenses , and ( 3 ) a decrease of $ 0.1 million in payroll and payroll related costs , partially offset by an increase of $ 1.4 million in property operating expenses attributable to properties acquired in 2015 and 2014. general and administrative costs were higher primarily as a result of increased costs across various administrative departments . acquisition pursuit costs in 2015 relate to the purchase of lawndale plaza , located in philadelphia , pennsylvania and east river park , located in washington , d.c. acquisition pursuit costs in 2014 relate to the purchase of quartermaster plaza , located in philadelphia , pennsylvania . depreciation and amortization expenses were lower primarily as a result of ( 1 ) a decrease of $ 1.1 million in depreciation and amortization expenses attributable to properties that were sold in 2015 and 2014 , and ( 2 ) a decrease of $ 0.5 million in depreciation and amortization expenses attributable to the company 's same-center properties , partially offset by an increase of $ 1.3 million in depreciation and amortization expenses attributable to properties acquired in 2015 and 2014. gain on sales in 2014 relates to the sales of carbondale plaza , located in carbondale , pennsylvania , and virginia little creek , located in norfolk , virginia . impairment reversals / ( charges ) in 2015 and 2014 relate to properties that were sold or held for sale in 2015 and 2014 that did not qualify for discontinued operations treatment . interest expense was lower primarily as a result of ( 1 ) $ 2.0 million as a result of a decrease in the overall outstanding principal balance of debt , ( 2 ) $ 1.8 million as a result of a decrease in the overall weighted average interest rate , and ( 3 ) $ 0.6 million as a result of a decrease in amortization of deferred financing costs , partially offset $ 0.3 million as a result of a decrease in capitalized interest . early extinguishment of debt costs in 2015 and 2014 relates to defeasement fees and the accelerated write-off of unamortized fees associated with the prepayment of certain mortgage loans payable . discontinued operations for 2015 and 2014 include the results of operations , impairment reversals , gain on extinguishment of debt obligations , and gain on sales attributable to properties that qualified for treatment as discontinued operations . same-property net operating income same-property net operating income ( “ same-property noi ” ) is a widely-used non-gaap financial measure for reits that the company believes , when considered with financial statements prepared in accordance with gaap , is useful to investors as it provides an indication of the recurring cash generated by the company 's properties by excluding certain non-cash revenues and expenses , as well as other infrequent items such as lease termination income which tends to fluctuate more than rents from year to year . properties are included in same-property noi if they are owned and operated for the entirety of both periods being compared , except for properties undergoing significant redevelopment and expansion until such properties have stabilized , and properties classified as held for sale . consistent with the capital treatment of such costs under gaap , tenant improvements , leasing commissions and other direct leasing costs are excluded from same-property noi . the most directly comparable gaap financial measure is consolidated operating income . same-property noi should not be considered as an alternative to consolidated operating income prepared in accordance with gaap or as a measure of liquidity .
| acquisition pursuit costs in 2016 relate to ( 1 ) $ 1.7 million of transfer taxes relating to the buyout of a ground lease and acquisition of the fee interest in a currently owned property , ( 2 ) $ 0.6 million for the purchase of glenwood village , located in bloomfield , new jersey , ( 3 ) $ 0.5 million for the purchase of the shoppes at arts district , located in hyattsville , maryland , ( 4 ) $ 0.4 million for additional real estate transfer taxes assessed on a property which was purchased in 2014 , and ( 5 ) $ 0.3 million of other costs . acquisition pursuit costs in 2015 relate to the purchase of lawndale plaza , located in philadelphia , pennsylvania . depreciation and amortization expenses were higher primarily as a result of ( 1 ) an increase of $ 3.1 million in depreciation and amortization expenses attributable to properties acquired in 2016 and 2015 , and ( 2 ) an increase of $ 0.2 million in depreciation and amortization expenses attributable to the company 's redevelopment properties , partially offset by ( 1 ) a decrease of $ 0.6 million in depreciation and amortization expenses attributable to properties that were sold or held for sale in 2016 and 2015 , and ( 2 ) a decrease of $ 0.5 million in depreciation and amortization expenses attributable to the company 's same-center properties . impairment charges in 2016 relate to the sale of upland square , located in pottstown , pennsylvania . impairment reversals in 2015 relate to properties that were initially classified as held for sale in 2015. interest expense was lower primarily as a result of ( 1 ) $ 1.9 million as a result of a decrease in the overall weighted average interest rate , and ( 2 ) $ 0.3 million as a result of additional capitalized interest , partially offset by ( 1 ) $ 0.4 million as a result of an increase in the overall outstanding principal balance of debt , and ( 2 ) $ 0.1 million as a result of an increase in amortization
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the appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses , including collective impairment as recognized under the financial accounting standards board accounting standards codification topic ( “ asc ” ) 450 , “ contingencies ” ( “ asc 450 ” ) . collective impairment is calculated based on loans grouped by grade . another component of the allowance is losses on loans assessed as impaired under asc 310 , “ receivables ” ( “ asc 310 ” ) . the balance of the loans determined to be impaired under asc 310 and the related allowance is included in management 's estimation and analysis of the allowance for loan losses . the determination of the appropriate level of the allowance is sensitive to a variety of internal factors , primarily historical loss ratios and assigned risk ratings , and external factors , primarily the economic environment . additionally , the estimate of the allowance required to absorb credit losses in the entire portfolio may change due to shifts in the mix and level of loan balances outstanding and in prevailing economic conditions , as evidenced by changes in real estate demand and values , interest rates , unemployment rates and energy costs . while no one factor is dominant , each could cause actual loan losses to differ materially from originally estimated amounts . for a discussion of other considerations in establishing the allowance for loan losses and our loan policies and procedures for addressing credit risk , please refer to the disclosures in this item under the heading “ risk management – credit risk and allowance for loan losses. ” certain loans acquired in acquisitions or mergers are accounted for under asc 310-30 , “ loans and debt securities acquired with deteriorated credit quality ” ( “ asc 310-30 ” ) . asc 310-30 prohibits the carryover of an allowance for loan losses for loans acquired in which the acquirer concludes that it will not collect the contractual amount . as a result , these loans are carried at values which represent management 's estimate of the future cash flows of these loans . increases in expected cash flows to be collected from the contractual cash flows are required to be recognized as an adjustment of the loan 's yield over its remaining life , while decreases in expected cash flows are required to be recognized as an impairment . a more detailed discussion of loans accounted for under asc 310-30 , which were acquired in connection with our mergers with heritage in 2015 , first m & f in 2013 , capital bancorp , inc. in 2007 and with heritage financial holding corporation in 2005 and our acquisitions of crescent and american trust in fdic-assisted transactions in 2010 and 2011 , respectively , is set forth below under the heading “ risk management – credit risk and allowance for loan losses ” and in note d , “ loans and the allowance for loan losses , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . other-than-temporary-impairment on investment securities on a quarterly basis , we evaluate our investment portfolio for other-than-temporary-impairment ( “ otti ” ) in accordance with asc 320 , “ investments – debt and equity securities. ” an investment security is considered impaired if the fair value of the security is less than its cost or amortized cost basis . impairment is considered to be other-than-temporary if the company intends to sell the investment security or if the company does not expect to recover the entire amortized cost basis of the security before the company is required to sell the security or the security 's maturity . when impairment of an equity security is considered to be other-than-temporary , the security is written down to its fair value and an impairment loss is recorded in earnings . when impairment of a debt security is considered to be other-than-temporary , the security is written down to its fair value . the amount of otti recorded as a loss in earnings depends on whether we intend to sell the debt security and whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis . if we intend to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis , the entire difference between the security 's amortized cost basis and its fair value is recorded as an impairment loss in earnings . if we do not intend to sell the debt security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis , otti is separated into the amount representing credit loss and the amount related to all other market factors . the amount related to credit loss is recognized in earnings . the amount related to other market factors is recognized in other comprehensive income , net of applicable taxes . the amount of otti recorded in earnings as a credit loss is dependent upon management 's estimate of discounted future cash flows expected from the investment security . the difference between the expected cash flows and the amortized cost basis of the security is considered to be credit loss . the remaining difference between the fair value and the amortized cost basis of the security is considered to be related to all other market factors . our estimate of discounted future cash flows incorporates a number of assumptions based on both qualitative and quantitative factors . performance indicators of the security 's underlying assets , including credit ratings and current and projected default and deferral rates , as well as the credit quality and capital ratios of the issuing institutions are considered in the analysis . story_separator_special_tag changes in these assumptions could impact the amount of otti recognized as a credit loss in earnings . for additional information regarding the evaluation of our securities portfolio for otti , please refer to note a , “ significant accounting policies , ” and note c , “ securities , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . intangible assets our intangible assets consist primarily of goodwill , core deposit intangibles , and customer relationship intangibles . goodwill arises from business combinations and represents the value attributable to unidentifiable intangible elements of the business acquired . we review the goodwill of each of our reporting units ( that is , our reportable segments for financial accounting purposes ) for impairment on an annual basis , or more often , if events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is below the carrying value of its equity . in determining the fair value of our reporting units , we use both the market and discounted cash flow approaches . the market approach averages the values derived by applying a market multiple , based on observed purchase transactions , to the book value , tangible book value , loan and or deposit balances and the last twelve months adjusted and unadjusted net income . the discounted cash flow approach requires assumptions about short and long-term net cash flow growth rates for each reporting unit , as well as discount rates . long-term net cash flow forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives , market share changes , anticipated loan and deposit growth , historical performance , and industry and economic trends , among other considerations . we assess the reasonableness of the estimated fair value of the reporting units by reference to our market capitalization ; however , due to the significant volatility in the equity markets with respect to the financial institution sector since 2008 , we also consulted supplemental information based on observable market multiples , adjusting to reflect our specific factors , as well as current market conditions . the estimated fair value of a reporting unit is highly sensitive to changes in the estimates and assumptions . in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value . we perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values . if the carrying value of a reporting unit 's equity exceeds its estimated fair value , we then calculate the fair value of the reporting unit 's implied goodwill . implied goodwill is the excess fair value of a reporting unit ( as determined using the above-described methodology ) over the fair value of its net assets and is calculated by determining the fair value of the reporting unit 's assets and liabilities , including previously unrecognized intangible assets , on an individual basis . this calculation is performed in the same manner as goodwill is recognized in a business combination . significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of the reporting unit . other identifiable intangible assets , primarily core deposit intangibles and customer relationship intangibles , are reviewed at least annually for events or circumstances which could impact the recoverability of the intangible asset , such as loss of core deposits , increased competition or adverse changes in the economy . to the extent any other identifiable intangible asset is deemed unrecoverable , an impairment loss would be recorded as a noninterest expense to reduce the carrying amount . these events or circumstances , when or if they occur , could be material to our operating results for any particular reporting period . benefit plans and stock based compensation our independent actuary firm prepares actuarial valuations of our pension cost under asc 715 , “ compensation – retirement benefits ” ( “ asc 715 ” ) . the discount rate utilized in the december 31 , 2015 valuation was 4.00 % , compared to 4.83 % in 2014 . actual plan assets as of december 31 , 2015 were used in the calculation and the expected long-term return on plan assets assumed for this valuation was 8.00 % . changes in these assumptions and estimates can materially affect the benefit plan obligation and the funded status of the plan which in turn may impact shareholders ' equity through an adjustment to accumulated other comprehensive income and future pension expense . the pension plan covered under asc 715 was frozen as of december 31 , 1996 . 36 the company recognizes compensation expense for all share-based payments to employees in accordance with asc 718 , “ compensation – stock compensation. ” we utilize the black-scholes model for determining fair value of our options . determining the fair value of , and ultimately the expense we recognize related to , our stock options requires us to make assumptions regarding dividend yields , expected stock price volatility , estimated forfeitures and the expected life of the option . changes in these assumptions and estimates can materially affect the calculated fair value of stock-based compensation and the related expense to be recognized . due to the low historical forfeiture rate , the company did not estimate any forfeitures in determining the fair value of options granted in 2015 , 2014 and 2013 . changes in this assumption in the future could result in lower expenses related to the company 's stock options . for a description of our assumptions utilized in calculating the fair value of our share-based payments , please refer to note n , “ employee benefit and deferred compensation plans , ” in the notes to consolidated financial statements in item 8 , financial statements and supplementary data .
| additional interest income recognized in connection with the acceleration of pay downs and payoffs from acquired loans increased our net interest margin by 14 basis points for the twelve months ended december 31 , 2015 compared to an increase of 17 basis points and 5 basis points in 2014 and 2013 , respectively . net interest margin and net interest income are influenced by internal and external factors . internal factors include balance sheet changes on both volume and mix and pricing decisions . external factors include changes in market interest rates , competition and the shape of the interest rate yield curve . interest income , on a tax equivalent basis , was $ 270,278 for 2015 compared to $ 233,246 for 2014 , an increase of $ 37,032 . interest income , on a tax equivalent basis , was $ 186,428 for 2013 . the increase in interest income , on a tax equivalent basis , is due primarily to the acquisitions of heritage in july 2015 and first m & f in september 2013 offset by a decrease in loan yields which is a result of replacing higher rate maturing loans with new or renewed loans at current market rates which are generally lower due to the current interest rate environment . excluding the contribution from heritage , the company has also experienced a decrease in the average balance of the securities portfolio from 2014 as proceeds from maturities and calls were used to fund loan growth rather than be reinvested in the securities portfolio . 44 the following table presents the percentage of total average earning assets , by type and yield , for 2015 , 2014 and 2013 : replace_table_token_20_th in 2015 loan income , on a tax equivalent basis , increased $ 36,564 to $ 237,408 from $ 200,844 in 2014 . loan income , on a tax equivalent basis , was $ 159,587 in 2013 . the average balance of loans was $ 4,836,002 in 2015 compared
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” under this standard , goodwill and indefinite lived intangible assets are not amortized , but are required to be assessed for impairment at least annually . under this standard , we annually have the option to first assess qualitatively whether it is more likely than not that there is an impairment , or perform a quantitative analysis . our definite lived intangible assets are amortized over their estimated useful lives . the company performed its annual qualitative analysis of goodwill and performed a qualitative analysis of intangible assets at december 31 , 2015 , and determined that these assets were not impaired . stock-based compensation we account for stock-based compensation in accordance with asc topic 718 , “ compensation - stock compensation , ” by recognizing the fair value of stock-based compensation as an operating expense over the service period of the award or term of the corresponding contract , as applicable . stock option awards are valued using a black-scholes option pricing model , which requires the input of subjective assumptions including expected stock price volatility and the estimated life of each award . restricted stock awards are valued using the fair value of our common stock at the date the common stock is granted . fair value of contingent obligations management continues to analyze and quantify contingent obligations ( expected earn-out payments ) over the applicable pay-out period . management will assess no less frequently than each reporting period the fair value of contingent obligations . any change in the expected obligation will result in an expense or income recognized in the period in which it is determined the fair market value of the obligation has changed . in addition to the company 's contingent obligations measured at fair value on a recurring basis under asc 820-10 , we also recognized a contingent obligation in connection with the acquisition of judith ripka trademarks in the prior year . asc 805-50-30 requires that , when accounting for asset acquisitions , when the fair value of the assets acquired is greater than the consideration paid , any contingent obligations shall be recognized and recorded as the positive difference between the fair value of the assets acquired and the consideration paid for the acquired assets . in addition , we also recognized a contingent obligation in connection with our acquisition of the c wonder trademarks . asc 805-50-30 requires that when the fair value of the assets acquired are equal to the consideration paid , any contingent obligations shall be recognized based upon the company 's best estimate of the amount that will be paid to settle the liability . income taxes income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities . deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . asc topic 740 , “ accounting for income taxes ” clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements . tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority , assuming full knowledge of the position and all relevant facts . 27 recently issued accounting standards in may 2014 , the fasb issued asu no . 2014-09 , “ revenue from contracts with customers ” ( asu 2014-09 ) . asu 2014-09 provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets , and supersedes the current revenue recognition requirements in topic 605 , “ revenue recognition , ” and most industry-specific guidance . the core principle of asu 2014-09 is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services . asu 2014-09 defines a five-step process to achieve this core principle and , in doing so , will require greater use of judgment and estimates than under the current guidance . in august 2015 , the fasb delayed the effective date of this standard by one year , such that the guidance is now effective for fiscal years beginning after december 15 , 2017 and interim periods therein . early adoption is permitted as of the original effective date , december 15 , 2016. we are currently evaluating the method and impact the adoption of asu 2014-09 will have on our consolidated financial statements and disclosures . in april 2015 , the fasb issued asu no . 2015-03 , “ interest – imputation of interest ” ( asu 2015-03 ) . asu 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability , consistent with debt discounts or premiums . the company early adopted the provisions of asu 2015-03 during the fourth quarter of 2015 on a retrospective basis , and the adoption did not have a material impact on the company 's consolidated financial statements . as a result of the adoption of asu 2015-03 , $ 624,000 of deferred finance costs were reclassified within the december 31 , 2014 consolidated balance sheet . in november 2015 , the fasb issued asu no . 2015-17 , “ balance sheet classification of deferred taxes ” ( asu 2015-17 ) . story_separator_special_tag asu 2015-17 removes the reporting requirement to classify deferred income taxes between current and non-current on the balance sheet . instead , the new accounting guidance in asu 2015-17 will require that all deferred income taxes are reported and classified as non-current . the company early adopted the provisions of asu 2015-07 during the fourth quarter of 2015 on a retrospective basis , and the adoption did not have a material impact on the company 's consolidated financial statements . as a result of the adoption of asu 2015-17 , $ 633,000 of deferred tax assets were reclassified within the december 31 , 2014 consolidated balance sheet . in february 2016 , the fasb issued asu no . 2016-02 , “ leases ” ( asu 2016-02 ) . the core principle of asu 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease . in accordance with that principle , asu 2016-02 requires that a lessee recognize a liability to make lease payments ( the lease liability ) and a right-of-use asset representing its right to use the underlying leased asset for the lease term . the recognition , measurement , and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as a finance or operating lease . this new accounting guidance is effective for public companies for fiscal years beginning after december 15 , 2018 ( i.e. , calendar years beginning on january 1 , 2019 ) , including interim periods within those fiscal years . early adoption is permitted . we are currently evaluating the impact the adoption of asu 2016-02 will have on our consolidated financial statements . management does not believe that any other recently issued , but not yet effective , accounting pronouncements , if currently adopted , would have a material effect on the company 's consolidated financial statements . story_separator_special_tag million includes an income tax benefit of $ 0.20 million and $ 0.70 million , respectively net income ( loss ) we had net income of $ 2.57 million for the current year , compared with a net loss of $ 1.03 million for the prior year . non-gaap net income , non-gaap diluted eps and adjusted ebitda we had non-gaap net income of $ 6.27 million , or $ 0.36 per share ( “ non-gaap diluted eps ” ) for the current year , compared with non-gaap net income of $ 5.18 million , or non-gaap diluted eps of $ 0.40 , for the prior year . non-gaap net income is a non-gaap unaudited term , which we define as net income , exclusive of stock-based compensation , non-cash interest expense from discounted debt related to acquired assets , gain on the reduction of contingent obligations , loss on extinguishment of debt , other non-cash adjustments , and loss from discontinued operations , net . non-gaap net income and non-gaap diluted eps do not include the tax effect of the reconciling items . 29 we had adjusted ebitda of approximately $ 9.30 million for the current year , compared with adjusted ebitda of approximately $ 7.01 million for the prior year . adjusted ebitda is a non-gaap unaudited measure , which we define as net income before stock-based compensation , interest expense and other financing costs ( including gain ( loss ) on extinguishment of debt ) , income taxes , other state and local franchise taxes , depreciation and amortization , gain on the reduction of contingent obligations , other non-cash adjustments and loss on discontinued operations of our retail business . management uses non-gaap net income , non-gaap diluted eps and adjusted ebitda as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to our results of operations . management believes non-gaap net income , non-gaap diluted eps and adjusted ebitda are also useful because they provide supplemental information to assist investors in evaluating our financial results . non-gaap net income , non-gaap diluted eps and adjusted ebitda should not be considered in isolation or as alternatives to net income , earnings per share or any other measure of financial performance calculated and presented in accordance with gaap . given that non-gaap net income , non-gaap diluted eps and adjusted ebitda are financial measures not deemed to be in accordance with gaap and are susceptible to varying calculations , our non-gaap net income , non-gaap diluted eps and adjusted ebitda may not be comparable to similarly titled measures of other companies , including companies in our industry , because other companies may calculate non-gaap net income , non-gaap diluted eps and adjusted ebitda in a different manner than we calculate these measures . in evaluating non-gaap net income , non-gaap diluted eps and adjusted ebitda , you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this presentation . our presentation of non-gaap net income , non-gaap diluted eps and adjusted ebitda does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items . when evaluating our performance , you should consider non-gaap net income , non-gaap diluted eps and adjusted ebitda alongside other financial performance measures , including our net income ( loss ) and other gaap results , and not rely on any single financial measure . the following table is a reconciliation of net income ( loss ) ( our most directly comparable financial measure presented in accordance with gaap ) to non-gaap net income : replace_table_token_3_th the following table is a reconciliation of diluted income ( loss ) per share ( our most directly comparable financial measure presented in accordance with gaap ) to non-gaap diluted eps : replace_table_token_4_th 30 we report net income ( loss ) for each period presented and in accordance with gaap , diluted weighted average shares outstanding were 17,223,240 and 12,816,674 for the years ended december 31 , 2015 and 2014 , respectively .
| the increase of approximately $ 4.48 million was primarily driven by an increase in compensation expense of $ 2.72 million , an increase in other design and marketing costs of $ 1.29 million , an increase in other selling , general and administrative expenses of $ 0.54 million , and an increase in depreciation and amortization of $ 0.44 million , partially offset by a decrease in stock-based compensation of $ 0.51 million . the increase in compensation expense and other design and marketing costs was a result of increased staffing levels for the ripka brand acquired in april 2014 , the h halston brands acquired in december 2014 , and the c wonder brand acquired in july 2015. depreciation and amortization expense also increased by $ 0.44 million due to the amortization of intangible assets associated with the recently acquired brands . other expenses ( income ) other income for the current year consisted of a $ 3.0 million gain on the reduction of contingent obligations , partially offset by a $ 1.37 million loss on extinguishment of debt . the gain on the reduction of contingent obligations in the current year was a result of the reduction in the fair value of our contingent obligation to the seller of the isaac mizrahi brand . this reduction in the earn-out obligation for the current year was based on a shortfall of achieving minimum net royalty income related to the isaac mizrahi business for the twelve months ended september 30 , 2015. the loss on extinguishment of debt in the current year was due to our satisfaction of $ 5.40 million principal amount of ripka seller notes by issuing 600,001 shares of our common stock in march and april 2015. the maturity date of the ripka seller notes was originally march 31 , 2019. the carrying value , net of the discount , of the ripka seller notes at the redemption date was $ 4.03 million , resulting in a loss of $ 1.37 million . other income for the prior year consisted of a $ 0.6 million gain on the reduction of contingent obligations , as a result of the reduction in the fair value of our contingent obligation to the seller of the
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export revenue as a percentage of total revenue declined in 2015 due to the decline in sales of smt systems and electronic assembly alignment sensors , which tend to have a higher proportion of sales outside the united states compared to our other products . export revenue as a percentage of total revenue declined in 2014 because ldi generates a proportionately higher percentage of its revenue from domestic customers . cost of revenues and gross margin cost of revenue decreased by $ 2.3 million , or 9 % , to $ 23.0 million in 2015 from $ 25.3 million in 2014 , and increased by $ 6.6 million , or 36 % , in 2014 from $ 18.7 million in 2013 . the decrease in cost of revenues in 2015 was due to the corresponding sales decrease of 12 % , while the increase in cost of revenue in 2014 was due to the corresponding sales increase of 40 % . items included in cost of revenue that fluctuate with the level of sales include materials and components , direct labor and factory overhead costs . total gross margin as a percentage of sales was 44 % in 2015 , 46 % in 2014 and 44 % in 2013. the decrease in gross margin percentage in 2015 compared to 2014 was attributable to sales price erosion for our 2d aoi and spi systems , reflecting competitive market conditions , and a slight change in product mix . the increase in gross margin percentage in 2014 compared to 2013 was due to increased revenue from higher margin smt and 3d oem sensor products , and more sales of smt inspection systems in geographic areas where higher gross margins are available . sales of 3d scanning solutions and services resulting from our acquisition of ldi in march 2014 did not have a significant impact on our overall gross margin percentage . our markets are highly price competitive , particularly the electronic assembly market , resulting in continual pressure on our gross margins . we compensate for pricing pressure by introducing new products with more features and improved performance and through manufacturing cost reduction programs . many products that we have recently introduced or are about to introduce , including our sq3000 3d aoi system , cybergage360 scanning system , mrs sensor subsystems and wafersense and reticlesense sensors , have more favorable margins than many of our existing products . operating expenses operating expenses decreased by $ 2.4 million , or 10 % , to $ 20.3 million in 2015 from $ 22.7 million in 2014 , and increased by $ 1.8 million , or 9 % , in 2014 , from $ 20.8 million in 2013 . 24 research and development expenses were $ 7.6 million or 18 % of revenue in 2015 , $ 8.8 million or 19 % of revenue in 2014 , and $ 7.5 million or 23 % of revenue in 2013 . research and development expenses were lower in 2015 due to substantial completion of several critical development programs that required significant investment in 2014 , including our new sq3000 3d aoi system . current research and development expenditures are focused on continued development of our mrs technology and related products , including 3d sensor subsystems , cybergage360 scanning system and wafersense and reticlesense product lines . the increase in research and development expenses in 2014 resulted from our acquisition of ldi , continued development of our mrs technology , and 3d aoi and post-singulation memory inspection systems , offset in part by cost savings from a workforce reduction in the fourth quarter of 2013. selling , general and administrative expenses were $ 12.6 million , or 31 % , of revenue in 2015 , $ 13.8 million , or 30 % , of revenue in 2014 and $ 12.3 million , or 37 % , of revenue in 2013 . the expense reductions in 2015 were due to lower professional fees , lower incentive compensation costs due to financial results below expectations , and cost savings from selective reductions in smt system sales and marketing personnel that were implemented in the last six months of 2014. these reductions were offset in part by the impact of the ldi acquisition , which accounted for $ 600,000 of additional expense in 2015 , because our results include ldi for the entire year , as compared to only a partial year in 2014. expenses for incentive compensation were higher in 2014 due to our improved financial performance . our acquisition of ldi added $ 2.3 million to selling , general and administrative expenses in 2014. these cost increases were offset in part by cost efficiencies resulting from a workforce reduction in the fourth quarter of 2013. interest income and other interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions , including intercompany financing transactions associated with our subsidiaries in the united kingdom , singapore and china . because we maintain our investments in instruments designed to avoid risk of loss of principal , in the current interest rate environment , we have generated very little interest income . we recognized gains from foreign currency transactions , primarily intercompany financing transactions , of $ 103,000 in 2015 and $ 130,000 in 2014. provision for income taxes and effective income tax rate we recorded income tax expense of $ 28,000 in 2015 , $ 133,000 in 2014 , and an income tax benefit of $ 186,000 in 2013. at december 31 , 2015 , we continue to have a valuation allowance recorded against all of our united states and singapore based deferred tax assets . the valuation allowances may be reversed once our operations and outlook become materially stronger . income tax expense in 2015 and 2014 reflects an increase in our valuation allowances , state income tax expense and foreign income tax expense associated with our subsidiaries in the united kingdom and china . story_separator_special_tag the reduction in income tax expense in 2015 was due to lower current state and foreign tax expenses resulting from our lower level of financial performance , and reduced deferred income tax expense resulting from fluctuations in the level of valuation allowances . income tax expense was higher in 2014 due to a 2013 reduction in our reserve for income taxes resulting from the expiration of the statute of limitations for various income tax exposures . we file income tax returns in the u.s. federal jurisdiction , and various state and foreign jurisdictions . our federal income tax returns for years after 2011 are still subject to examination by the internal revenue service . we are no longer subject to state and local income tax examinations by tax authorities for years prior to 2011. our 2012 income tax return for singapore is currently being audited by the inland revenue authority of singapore . we do not presently anticipate that the outcome of this audit will have a significant impact on our financial position or results of operations . liquidity and capital resources our cash and cash equivalents decreased by $ 897,000 in 2015 , principally resulting from $ 2.4 million of cash used by operating activities , purchases of fixed asset and capitalized patent costs totaling $ 797,000 , offset in part by $ 1.8 million of proceeds from maturities and sales of marketable securities , net of purchases of marketable securities , and $ 636,000 of proceeds from stock option exercises and share purchases under our employee stock purchase plan . our cash and cash equivalents fluctuate in part because of maturities of marketable securities , and investment of cash balances in marketable securities , or from other sources of cash . accordingly , we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity . combined balances of cash and marketable securities decreased by $ 2.7 million to $ 17.6 million as of december 31 , 2015 from $ 20.3 million as of december 31 , 2014 . 25 operating activities used $ 2.4 million of cash in 2015. cash used by operations included our net loss of $ 2.1 million , which included non-cash expenses totaling $ 2.2 million for depreciation and amortization , provision for doubtful accounts , deferred taxes , non-cash gains from foreign currency transactions and stock compensation expenses . changes in operating assets and liabilities providing cash included an increase in accounts payable of $ 1.1 million . changes in operating assets and liabilities using cash included increases in inventories of $ 2.5 million , accounts receivable of $ 161,000 and a decrease in accrued expenses of $ 1.0 million . the increase in inventories and accounts payable was related to the timing of inventory purchases needed for higher customer demand , as reflected in our large year end backlog , and new large orders received subsequent to year end . accounts receivable increased because it took us slightly longer to collect for products sold in the fourth quarter of 2015 compared to the fourth quarter of 2014. accrued expenses decreased due to payment of calendar year 2014 incentive compensation accruals and ldi stay bonuses in 2015 , and lower warranty accruals resulting from the reduced level of sales . operating activities provided $ 827,000 of cash in 2014. cash provided by operations included our net loss of $ 1.5 million , which included non-cash expenses totaling $ 2.2 million for depreciation and amortization , provision for doubtful accounts , deferred taxes , non-cash gains from foreign currency transactions , realized gains on available-for-sale securities and stock compensation expenses . changes in operating assets and liabilities providing cash included increases in accounts payable of $ 1.5 million and accrued expenses of $ 503,000. changes in operating assets and liabilities using cash included increases in accounts receivable of $ 646,000 , inventories of $ 647,000 and a decrease in advance customer payments of $ 534,000. the increase in accounts payable and inventories was due to the timing of fourth quarter inventory purchases to meet anticipated future demand . accounts payable was also driven higher by the timing of vendor payments at year end . the increase in accounts receivable was due to higher sales in the fourth quarter of 2014 compared to the fourth quarter of 2013. accrued expenses increased due to higher warranty and incentive compensation accruals , offset in part by payment of the remaining balance of the 2013 restructuring accrual in 2014. our warranty accruals increased due to higher sales levels and because we increased the warranty period for some products to three years . advance customer payments declined due to recognition of revenue for transactions that were previously collected and deferred at december 31 , 2013. investing activities provided $ 954,000 of cash in 2015 , compared to providing $ 513,000 of cash in 2014. changes in the level of investment in marketable securities , resulting from the purchases , sales and maturities of those securities provided $ 1.8 million of cash in 2015 , compared to $ 5.0 million of cash in 2014. we used $ 797,000 of cash in 2015 for the purchase of fixed assets and capitalized patent costs , compared to using $ 1.4 million of cash for these types of purchases in 2014. the higher level of fixed asset purchases in 2014 was for new sales demonstration and services equipment to enhance our 3d scanning solutions and services offerings . financing activities from stock option exercises and employee share purchases under our employee stock purchase plan provided $ 636,000 of cash in 2015 , compared to providing $ 741,000 of cash in 2014. our board of directors has authorized a $ 2.0 million share repurchase program . the common stock may be acquired from time to time in open market transactions , block purchases and other transactions complying with the securities and exchange commission 's rule 10b-18 . we adopted a 10b5-1 trading plan to implement the repurchase program .
| we also have entered into an agreement to supply nordson corporation ( nordson ) with high-precision 3d sensor subsystems for the smt market and have sold initial units for testing and demonstration purposes . the sensor subsystems are based on the new mrs technology that we have been developing for the past several years . we intend to expand sales of mrs technology into both the smt market and adjacent markets that require high precision 3d optical inspection . we also plan to sell products based on our mrs technology to oems . sales of high-precision 3d sensor subsystems have started to increase in recent months . our 3d mrs technology has also been deployed in our new 3d aoi system , the sq3000 , which is designed to expand our presence in markets requiring high precision inspection . in these markets identifying defects has become highly challenging and critical due to smaller electronics packaging and increasing component density on circuit boards . we believe the combination of our mrs technology and sophisticated 3d fusing algorithms allows us to offer microscopic quality images at production speeds . we recognized initial revenues from sales of the sq3000 in the second quarter of 2015 , and since the start of the fourth quarter of 2015 have received follow-on orders totaling approximately $ 4.7 million for the sq3000 from a key customer . our recent success and the competitive advantages offered by our mrs technology causes us to be very optimistic about the future sales potential of the sq3000 . ldi represents another aspect of our 3d strategy . we are incorporating our mrs technology into a new 3d scanning system , cybergage360 , which we believe will serve a wide range of inspection applications in the general purpose 3d metrology market . beta testing for cybergage360 commenced in the first quarter of 2016. we believe customer interest in this product is high , and we presently anticipate initial cybergage360 sales in 2016. we believe the unique performance characteristics of mrs that inhibit reflections
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these increases were partially offset by lower expenses related to incentive compensation plans resulting from lower levels of achievement on performance plans that were set at the beginning of the year . these annual incentive compensation plans will be reset with relevant performance goals for 2020 , which would result in higher expense if the targeted achievements are met . rd & e expenses as a percentage of revenue were 16 % in 2019 compared to 14 % in 2018. we believe that a continued commitment to rd & e activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings , as well as to provide engineering support for large customers . in addition , we consider our ability to accelerate time to market for new products to be critical to our revenue growth . therefore , we expect to continue to make significant rd & e investments in the future , and currently intend to continue our product development plans during periods of lower revenue levels , which would result in a higher level of rd & e expenses as a percentage of revenue in the first quarter of 2020 than the 16 % in 2019. selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2019 increased by $ 11,143,000 , or 4 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_4_th sg & a expenses increased due to higher personnel-related costs resulting primarily from headcount additions , principally sales personnel . in addition to salaries and fringe benefits , these personnel-related costs included sales commissions and travel expenses related to the additional headcount . these increases were partially offset by lower expenses related to incentive compensation plans resulting from lower levels of achievement on performance plans that were set at the beginning of the year . these annual incentive compensation plans will be reset with relevant performance goals for 2020 , which would result in higher expense if the targeted achievements are met . changes in foreign currency exchange rates also resulted in a lower level of expenses , as costs denominated in foreign currencies 20 were translated to u.s. dollars at a lower rate . expenses were also lower due to project costs incurred in 2018 related to the company 's new enterprise resource planning ( erp ) system . this system was placed into service during the third quarter of 2018 , and therefore , similar costs were not incurred in 2019. non-operating income ( expense ) the company recorded foreign currency losses of $ 509,000 in 2019 and $ 1,064,000 in 2018. foreign currency gains and losses result primarily from the revaluation and settlement of accounts receivable , accounts payable , and intercompany balances that are reported in one currency and collected in another . investment income increased by $ 4,974,000 or 34 % , from the prior year . the increase was due to higher yields on the company 's portfolio of debt securities , and to a lesser extent , higher average investment balances . the company recorded other income of $ 1,212,000 in 2019 and other expense of $ 219,000 in 2018. other income ( expense ) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions . a higher level of fair value adjustments to income was recorded in 2019 related to the company 's acquisition of gvi ventures , inc. , resulting from a lower level of revenue in the americas ' automotive industry . income tax expense the company 's effective tax rate was a benefit of 25 % of pre-tax income in 2019 compared to an expense of 7 % in 2018. the european union has enacted a series of tax reform legislation over the past few years regarding low tax structures . the company made changes to its international tax structure in the fourth quarter of 2019 as a result of this legislation , and as a result , recorded a net discrete tax benefit of $ 87,500,000. management expects its current effective tax rate excluding discrete events to increase slightly in future years as a result of this change . on october 16 , 2019 , the company acquired sualab co. , ltd. , a provider of deep learning-based vision software based in korea . the company migrated acquired intellectual property to certain subsidiaries in the fourth quarter of 2019 , and as a result , recorded a discrete tax expense of $ 28,528,000. in addition , the effective tax rate included a decrease in tax expense of $ 6,472,000 in 2019 and $ 8,488,000 in 2018 related to stock options , primarily from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises . the company can not predict the level of stock option exercises by employees in future periods . other discrete tax events included a net decrease in tax expense of $ 1,932,000 in 2019 and $ 1,847,000 in 2018 , consisting primarily of the expiration of the statutes of limitations for certain reserves for income tax uncertainties and the final true-up of the prior year 's tax accrual upon filing the related tax returns . excluding the impact of these discrete events , the company 's effective tax rate was an expense of 16 % of pre-tax income in 2019. this represents an increase in the effective tax rate excluding discrete events from 14 % in 2018 due to more of the company 's profits being earned and taxed in higher tax jurisdictions . year ended december 31 , 2018 compared to year ended december 31 , 2017 revenue revenue for the year ended december 31 , 2018 was $ 806,338,000 compared to $ 766,083,000 for the prior year , representing an increase of $ 40,255,000 , or 5 % . story_separator_special_tag revenue in 2018 was impacted by lower sales in the consumer electronics industry primarily due to significantly lower revenue from a few large customers in oled ( organic light-emitting diode ) display and smartphone manufacturing following a high level of investment from these customers in 2017. excluding sales to customers in the consumer electronics industry , revenue increased by approximately 18 % from the prior year , driven by growth in the logistics industry of over 50 % . changes in foreign currency exchange rates accounted for approximately 2 % of the revenue increase from 2017 to 2018 , primarily related to the translation of euro-denominated and chinese yuan-denominated revenue to u.s. dollars . revenue from customers based in the americas increased by 24 % in 2018 from the prior year driven by strong sales in the logistics industry . revenue from customers based in greater china increased by 14 % in 2018 from 2017 , although this business was relatively flat in the fourth quarter of 2018 over the fourth quarter of 2017. revenue from customers based in europe decreased by 5 % and revenue from customers based in other asia regions decreased by 8 % in 2018 from the prior year . revenue for both the europe and asia regions outside of greater china was impacted by the lower sales in the consumer electronics industry noted above . 21 gross margin gross margin as a percentage of revenue was 74.4 % in 2018 compared to 75.6 % in 2017. the decrease in gross margin was due primarily to a higher percentage of total revenue from the logistics industry . certain sales in this industry are for application-specific customer solutions , which typically have lower gross margins due to deployment services . unfavorable product mix for sales in the logistics industry also contributed to the lower gross margin percentage . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2018 increased by $ 17,240,000 , or 17 % , from the prior year as detailed in the table below ( in thousands ) . rd & e expenses in 2017 $ 99,205 personnel-related costs 10,173 stock-based compensation expense 3,493 other 3,574 rd & e expenses in 2018 $ 116,445 rd & e expenses increased due to higher personnel-related costs resulting primarily from headcount additions to support new product initiatives . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted , as well as a decrease in the estimated forfeiture rate in 2018. selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2018 increased by $ 41,971,000 , or 19 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_5_th sg & a expenses increased due to higher personnel-related costs resulting primarily from headcount additions , principally sales personnel . in addition to salaries and fringe benefits , these personnel-related costs included sales commissions and travel expenses related to the additional headcount . stock-based compensation expense was higher than the prior year due to a higher valuation of stock options granted , as well as a decrease in the estimated forfeiture rate in 2018. depreciation expense increased from the prior year due primarily to information technology investments in infrastructure , security , and business applications , including a new enterprise resource planning ( erp ) system that was placed into service in the middle of 2018. offsetting these increases were lower expenses related to incentive compensation plans , including company bonuses and sales commissions , resulting from lower levels of achievement on performance plans that were set at the beginning of the year . non-operating income ( expense ) the company recorded foreign currency losses of $ 1,064,000 in 2018 and $ 1,601,000 in 2017. the foreign currency gains and losses result primarily from the revaluation and settlement of accounts receivable , accounts payable , and intercompany balances that are reported in one currency and collected or paid in another . investment income increased by $ 5,173,000 , or 54 % , from the prior year . the increase was primarily due to higher yields on the company 's portfolio of debt securities . the company recorded other expense of $ 219,000 in 2018 and $ 338,000 in 2017. other income ( expense ) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions , as well as rental income , net of associated expenses , from leasing space in buildings adjacent to the company 's corporate headquarters . income tax expense the company 's effective tax rate was 7 % of the company 's pre-tax income in 2018 compared to 34 % in 2017 . 22 the tax act on december 22 , 2017 , the tax cuts and jobs act of 2017 ( tax act ) was signed into law . the tax act resulted in a decrease in the u.s. federal statutory corporate tax rate from 35 % to 21 % . as a result of the reduction in anticipated tax rate , the company remeasured its deferred tax positions as of december 31 , 2017 at the new enacted tax rate , and accordingly , recorded tax expense of $ 12,523,000 in 2017 from the associated write-down of its deferred tax assets . in 2018 , the company recorded an increase in tax expense of $ 3,240,000 from the write-down of its deferred tax assets primarily relating to guidance under the tax act regarding stock-based compensation .
| the impact to our business was most significant in our two largest markets , consumer electronics and automotive , which together represent approximately half of our total revenue . consumer electronics revenue was approximately 30 % lower than the prior year , with the majority of this decrease related to smartphone manufacturing , while automotive revenue was approximately 10 % lower than the prior year . these decreases were only partially offset by higher revenue in the logistics industry , which increased by approximately 15 % from the prior year . this growth rate was slower than 2018 due to a major customer delaying deliveries for new facilities until mid-2020 after building adequate capacity for 2019 by upgrading existing facilities . excluding revenue from this major customer , logistics revenue increased by approximately 50 % from the prior year . we expect this customer to grow at a lower rate than our total logistics business in 2020. from a geographic perspective , revenue from customers based in the americas increased by 5 % driven by higher sales in the logistics industry , partially offset by lower sales in the automotive industry . revenue from customers based in europe decreased by 27 % driven by lower sales in the consumer electronics industry , and to a lesser extent , the automotive industry . revenue from customers based in greater china decreased by 7 % across a variety of industries . the decline would have been larger in greater china , and less extreme in europe , if not for procurement changes made by certain consumer electronics customers , shifting their purchases to china from europe . revenue from customers based in other regions in asia were relatively flat . 19 as of the date of this report , we expect revenue for the first quarter of 2020 to be lower than the fourth quarter of 2019 due to continued weakness in the automotive industry and the estimated impact of the recent coronavirus outbreak on our business . this decrease is expected to be partially offset by higher sales to customers in the logistics industry from the
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monthly increases in payroll employment averaged 204,000 jobs per month for the fourth quarter of 2017 , above the average of 171,000 over the last twelve months . monthly payrolls are forecasted to increase by 170,000 jobs per month in 2018. inflation remained subdued , with the u.s. personal consumption expenditure core price index continuing to register below the federal reserve 's inflation target of 2 % . despite benign inflation readings in 2017 , the federal reserve 's open market committee raised the federal funds target rate three times during the year , causing yields on shorter maturity treasuries to increase sharply while yields on longer maturity treasuries fell ( commonly referred to as a `` flattening '' of the yield curve ) . the inflation outlook continues to have meaningful implications for future federal reserve monetary policy . we expect the rate environment to remain relatively volatile , as the federal reserve continues to signal a willingness to increase the federal funds rate . during 2017 , the performance of agency rmbs was positive . both fixed-rate agency rmbs and hybrid arm agency rmbs outperformed similar duration treasuries , even as the federal reserve began to taper their reinvestment activity in agency rmbs . the outlook for agency rmbs remains mixed , as the potential for increased interest rate volatility and the continued tapering of reinvestment activity by the federal reserve weighs on the market . on the positive side , a higher interest rate environment has the potential to spur investment demand on the part of both foreign and domestic banks , while at the same time keeping refinancing activity muted . during 2017 , spreads ( defined as the yield in excess of risk-free rates ) on cmbs and gse crt securities tightened , reflecting improving real estate values , strong investor demand and steady financial conditions . financing markets remained accommodating in the fourth quarter , though repurchase agreement rates moved higher in line with increases in the federal funds rate and typical year end bank balance sheet pressures . as we move into 2018 , we expect that the u.s. will continue to experience moderate economic growth , and that core inflation will remain below the federal reserve 's policy objective of 2 % , which should allow the federal reserve to continue its efforts to tighten monetary policy . investor concerns include historically high valuations across both the equity and fixed income markets , the potential for additional protectionist trade policies , and the prospect of further increases in interest rates and price volatility . other concerns include the actions of central banks , and their impact on the global economy , the sustainability of china 's economic growth , and the potential impact of the brexit process and resulting stress in the european banking system . in addition , the regulatory landscape for our repurchase agreement counterparties continues to evolve which may affect their funding methods and lending practices . while we are not directly subject to compliance with the implementation of rules regarding financial institutions , the effect of these regulations and others could impact our ability to finance our assets in the future . replace_table_token_43_th investment activities the table below shows the allocation of our equity as of december 31 , 2017 and 2016 : replace_table_token_44_th ( 1 ) cmbs , commercial loans and investments in unconsolidated ventures ( which are included in other assets ) , are considered commercial credit . ( 2 ) non-agency rmbs and gse crt are considered residential credit . the table below shows the breakdown of our investment portfolio as of december 31 , 2017 and 2016 : replace_table_token_45_th during 2017 , we purchased $ 5.4 billion of 30 year fixed-rate agency rmbs and $ 827.0 million of cmbs . we funded our purchases through a modest increase in leverage , reinvestment of cash flows from principal repayments and sales of securities , and proceeds from our series c preferred stock offering in august 2017. we increased our holdings of 30 year fixed-rate agency rmbs and cmbs as the return on equity profile for these securities remained attractive . as of december 31 , 2017 our holdings of 30 year fixed-rate agency rmbs represented 42 % of our total investment portfolio versus 20 % of our total investment portfolio as of december 31 , 2016 . we have also increased our allocation to cmbs based on our view that these assets benefit from property price appreciation and limited supply . available returns in non-agency rmbs have declined relative to agency rmbs and cmbs as a result of credit spread tightening , limiting our reinvestment in the sector . we have continued to hold 15 year fixed-rate agency rmbs securities and commercial real estate loans that have relatively lower interest rate risk , which reduces our book value per diluted common share volatility . additionally , we hold hybrid arm agency rmbs and arm agency rmbs that we believe have lower durations and better cash flow certainty relative to current coupon 30 year fixed-rate agency rmbs . further , we own agency collateralized mortgage obligations ( “ cmos ” ) , some of which are interest-only securities ( “ ios ” ) . our portfolio of investments that have credit exposure include cmbs , non-agency rmbs , gse crts and commercial real estate loans . rather than relying on the rating agencies , we utilize proprietary models as well as third party applications to quantify and monitor the credit risk associated with our portfolio holdings . our analysis generally begins at the underlying asset level , where we gather detailed information on loan , borrower , and property characteristics that inform our expectations for future performance . in addition to base case cash flow projections , we perform a range of scenario stresses to gauge the sensitivity of returns to potential deviations in underlying asset behavior . we perform this detailed credit analysis at the time of initial purchase and regularly throughout the holding period of each investment . story_separator_special_tag replace_table_token_46_th our cmbs portfolio generally consists of assets originated during and after 2010. these assets continued to benefit from rating agency upgrades , property price appreciation and limited supply . cmbs investments represent approximately 17 % of our total investment portfolio as of december 31 , 2017 . with respect to our non-agency rmbs portfolio , we primarily invest in rmbs collateralized by prime and alt-a loans . in addition , we have invested in re-securitizations of real estate mortgage investment conduit ( `` re-remic '' ) rmbs and reperforming mortgage loans that we believe provide attractive risk adjusted returns . we also invest in gse crts , which have the added benefit of paying a floating rate coupon and reduce our need to hedge interest rate risk . the majority of our gse crt holdings are concentrated in 2013 and 2014 vintages , where reference loans have significant embedded home price appreciation . from a fundamental perspective , we continue to view gse crt as an attractive asset class based on the strength of the u.s. housing market and the strong performance of reference mortgage loans to date . as of december 31 , 2017 , our commercial real estate loan portfolio includes eight mezzanine loans that we either purchased or originated . our commercial real estate loan portfolio represents approximately 1 % of our total investment portfolio and 7 % of our allocated equity and has a weighted average maturity of 1.2 years . our largely floating rate commercial real estate loan portfolio continues to benefit from favorable fundamentals and increasing libor . the commercial real estate loan portfolio 's weighted average loan-to-value ratio is approximately 69 % , based on the most recently attained independent property appraisals and the relevant loan amounts . for further details on our commercial loan portfolio , refer to note 5 - `` commercial loans held-for-investment '' of our consolidated financial statements in part iv , item 15 of this report . we evaluate the collectibility of our commercial loans held-for investment using the factors described in note 2 - `` summary of significant accounting policies '' of our consolidated financial statements in part iv , item 15 of this report . we determined that no provision for loan losses for our commercial loans was required as of december 31 , 2017 . new credit risk retention rules for commercial mortgage-backed securities became effective under the dodd-frank wall street reform and consumer protection act on december 24 , 2016. the credit risk retention rules require originators and or an investor to retain at least 5 % of the fair market value of the cmbs or sell all or a portion of this amount to a qualified third-party purchaser ( “ b-piece investor ” ) . there is a minimum five year holding period for the retained investment . despite the implementation of the credit risk retention rules , issuance volumes in 2017 finished higher than the prior year . portfolio characteristics the table below illustrates the vintage distribution of our non-agency rmbs , gse crt and cmbs portfolio as of december 31 , 2017 as a percentage of fair value : replace_table_token_47_th ( 1 ) for re-remics , the table reflects the year in which the resecuritizations were issued . the vintage distribution of the securities that collateralize our re-remic investments is 8.4 % for 2005 , 8.1 % for 2006 and 83.5 % for 2007. replace_table_token_48_th the tables below represent the geographic concentration of the underlying collateral for our non-agency rmbs , gse crt and cmbs portfolio as of december 31 , 2017 : replace_table_token_49_th financing and other liabilities . we enter into repurchase agreements to finance the majority of our target assets . these agreements are secured by our agency rmbs , cmbs , non-agency rmbs and gse crts . in addition , these agreements are generally settled on a short-term basis , usually ranging from one to twelve months , and bear interest at rates that have historically moved in close relationship to libor . at each settlement date , we refinance each repurchase agreement at the market interest rate at that time . as of december 31 , 2017 , we had entered into repurchase agreements totaling $ 14.1 billion ( 2016 : $ 11.2 billion ) . we increased our investment portfolio and related repurchase agreement borrowings throughout 2017 as market conditions improved and residential and commercial credit fundamentals remained strong . our higher repurchase agreements balance as of december 31 , 2017 also reflects incremental borrowings associated with leveraging the proceeds of our august 2017 preferred c stock offering . our wholly-owned subsidiary , ias services llc , is a member of the fhlbi . as a member of the fhlbi , ias services llc has borrowed funds from the fhlbi in the form of secured advances . as of december 31 , 2017 , ias services llc had $ 1.65 billion in outstanding secured advances . for the year ended december 31 , 2017 , ias services llc had weighted average borrowings of $ 1.65 billion with a weighted average borrowing rate of 1.17 % and a weighted average maturity of 6.3 years . on january 12 , 2016 , new fhfa rules were adopted that exclude captive insurance companies from federal home loan bank membership . under the new rules , ias services llc is permitted to remain a member of the federal home loan bank until february 2021 , and the fhlbi is permitted to honor the contractual maturity of our existing advances . accordingly , we do not expect there to be any impact to our existing fhlbi borrowings under the fhfa rule . replace_table_token_50_th the following table presents the amount of collateralized borrowings outstanding under repurchase agreements and secured loans as of the end of each quarter , the average amount outstanding during the quarter and the maximum balance outstanding during the quarter : replace_table_token_51_th in 2013 , our wholly-owned subsidiary , ias operating partnership lp , issued $ 400.0 million in exchangeable senior notes ( the “ notes ” ) .
| average earning assets declined during the year ended december 31 , 2016 compared to 2015 primarily due to the deconsolidation of our residential securitizations in december 2015. we earned interest income of $ 545.1 million ( 2016 : $ 478.7 million ; 2015 : $ 650.1 million ) during 2017 . our interest income consists of coupon interest and net premium amortization on mbs and gse crts as well as interest income on residential and commercial loans as shown in the table below . replace_table_token_60_th replace_table_token_61_th total interest income increased $ 66.4 million during the year ended december 31 , 2017 compared to 2016 , primarily due to higher coupon interest on mbs and gse crt earning assets . mbs and gse crt average earning assets rose $ 1.4 billion to $ 17.0 billion in 2017 as detailed in the table above . lower net premium amortization increased interest income by $ 23.1 million during the year ended december 31 , 2017 primarily due to slower prepayment speeds . interest income on our floating rate commercial real estate loans increased $ 1.3 million during the year ended december 31 , 2017 primarily due to increasing libor rates . total interest income declined during the year ended december 31 , 2016 compared to 2015 primarily due to the deconsolidation of our residential securitizations in december 2015. coupon interest on our mbs and gse crt declined for the year ended december 31 , 2016 compared to 2015 due to lower average earning assets . average earning mbs and gse crt assets decreased by $ 1.3 billion as of and for the year ended december 31 , 2016 compared to 2015 as paydowns on securities were primarily reinvested into share repurchases . the yield on our average investment portfolio during the year ended december 31 , 2017 was 3.20 % ( 2016 : 3.07 % ; 2015 : 3.25 % ) . our average earning asset yields increased during the year ended december 31 , 2017 compared to 2016 primarily due to slower prepayment speeds and higher index rates on floating and adjustable rate
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sale of vacation ownership products we recognize revenues from the sale of vacation ownership products when all of the following conditions exist : a binding sales contract has been executed ; the statutory rescission period has expired ; the receivable is deemed collectible ; and the remainder of our obligations are substantially completed . sales of vacation ownership products may be made for cash or we may provide financing . for sales where we provide financing , we defer revenue recognition until we receive a minimum down payment equal to ten percent of the purchase price plus the fair value of certain sales incentives provided to the purchaser . these sales incentives typically include marriott rewards points or an alternative sales incentive that we refer to as plus points . these plus points are redeemable for stays at our resorts , generally within one to two years from the date of issuance . sales incentives are only awarded if the sale is closed . as a result of the down payment requirements with respect to financed sales and the statutory rescission periods , we often defer revenues associated with the sale of vacation ownership products from the date of the purchase agreement to a future period . when comparing results year-over-year , this deferral frequently generates significant variances , which we refer to as the impact of revenue reportability . finally , as more fully described in the financing section below , we record an estimate of expected uncollectibility on all vacation ownership notes receivable ( also known as a vacation ownership notes receivable reserve or a sales reserve ) from vacation ownership purchases as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale . we report , on a supplemental basis , contract sales for each of our three segments . contract sales represent the total amount of vacation ownership product sales under purchase agreements signed during the period where we have received a down payment of at least ten percent of the contract price , reduced by actual rescissions during the period . contract sales differ from revenues from the sale of vacation ownership products that we report on our statements of operations due to the requirements for revenue recognition described above . we consider contract sales to be an important operating measure because it reflects the pace of sales in our business . total contract sales include sales from company-owned projects and , for periods prior to 2012 , also included sales generated under a marketing and sales arrangement with a joint venture . revenue associated with company-owned contract sales is reflected as sale of vacation ownership products while revenue associated with joint venture contract sales is reflected on the equity in earnings line on the statements of operations . cost of vacation ownership products includes costs to develop and construct our projects ( also known as real estate inventory costs ) as well as other non-capitalizable costs associated with the overall project development process . for each project , we expense real estate inventory costs in the same proportion as the revenue recognized . consistent with the applicable accounting guidance , to the extent there is a change in the estimated sales revenues or real estate inventory costs for the project in a period , a non-cash adjustment is recorded on our statements of operations to true-up revenues and costs in that period to those that would have been recorded historically if the revised estimates had been used . these true-ups , which we refer to as product cost true-ups , will have a positive or negative impact on our statements of operations . we refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin . development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products . resort management and other services our resort management and other services revenues include revenues generated from fees we earn for managing each of our resorts . in addition , we earn revenue for providing ancillary offerings , including food and beverage , retail , and golf and spa offerings at our various resorts . we also receive annual club dues and certain transaction-based fees from owners and other third parties , including our guests , for services provided . we provide day-to-day-management services , including housekeeping services , operation of reservation systems , maintenance , and certain accounting and administrative services for property owners ' associations . we receive compensation for these management services ; this compensation is generally based on either a percentage of total costs to operate the resorts or a fixed fee arrangement . we earn these fees regardless of usage or occupancy . 31 resort management and other services expenses include costs to operate the food and beverage and other ancillary operations and overall customer support services , including reservations . financing we offer financing to qualified customers for the purchase of most types of our vacation ownership products . the average fico score of customers who were u.s. citizens or residents who financed a vacation ownership purchase was as follows : replace_table_token_9_th the typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the vacation ownership note receivable , which is generally ten years . the interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as financing revenues on our statements of operations . financing revenues include interest income earned on vacation ownership notes receivable as well as fees earned from servicing the existing vacation ownership notes receivable portfolio . financing expenses include costs in support of the financing , servicing and securitization processes . story_separator_special_tag the amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable , which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections . due to weakened economic conditions and our elimination of financing incentive programs , the percentage of customers choosing to finance their vacation ownership purchase with us ( which we refer to as financing propensity ) declined significantly through 2009 and has leveled out since then . as a result , we expect that interest income will continue to decline over the next few years until new originations outpace the decline in principal of the existing vacation ownership notes receivable portfolio . in the event of a default , we generally have the right to foreclose on or revoke the mortgaged vacation ownership interest . we return vacation ownership interests that we reacquire through foreclosure or revocation back to real estate inventory . as discussed above , we record a vacation ownership notes receivable reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our statements of operations . historical default rates , which represent annual defaults as a percentage of each year 's beginning gross vacation ownership notes receivable balance , were as follows : replace_table_token_10_th rental we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory . we obtain rental inventory from : unsold inventory ; and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs . rental revenues are primarily the revenues we earn from renting this inventory . we also recognize rental revenue from the utilization of plus points under the mvcd program when those points are redeemed for rental stays at one of our resorts or upon expiration of the points . rental expenses include : maintenance fees on unsold inventory ; costs to provide alternative usage options , including marriott rewards points and explorer collection , for owners who elect to exchange their inventory ; subsidy payments to property owners ' associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the resort ; marketing costs and direct operating and related expenses in connection with the rental business ( such as housekeeping , credit card expenses and reservation services ) ; and costs associated with the banking and borrowing usage option that is available under our mvcd program . 32 rental metrics , including the average daily transient rate or the number of transient keys rented , may not be comparable between periods given fluctuation in available occupancy by location , unit size ( such as two bedroom , one bedroom or studio unit ) , and owner use and exchange behavior . further , as our ability to rent certain luxury inventory and inventory in our asia pacific segment is often limited on a site-by-site basis , rental operations may not generate adequate rental revenues to cover associated costs . our vacation units are either full villas or lock-off villas . lock-off villas are units that can be separated into a master unit and a guest room . full villas are non-lock-off villas because they can not be separated . a key is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas . lock-off villas represent two keys and non-lock-off villas represent one key . the transient keys metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system . other we also record other revenues and expenses which are primarily comprised of fees received from and expenses relating to our external exchange company and settlement fees and expenses from the sale of vacation ownership products . cost reimbursements cost reimbursements include direct and indirect costs that property owners ' associations and joint ventures in which we participate reimburse to us . in accordance with the accounting guidance for gross versus net presentation , we record these revenues and expenses on a gross basis . we recognize cost reimbursements when we incur the related reimbursable costs . these costs primarily consist of payroll and payroll related expenses for management of the property owners ' associations and other services we provide where we are the employer , and for development and marketing and sales services that joint ventures contract with us to perform . cost reimbursements consist of actual expenses with no added margin . consumer financing interest expense consumer financing interest expense represents interest expense associated with the debt from our warehouse credit facility and from the securitization of our vacation ownership notes receivable in the abs market . we distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us . interest expense interest expense consists of all interest expense other than consumer financing interest expense . other items we measure operating performance using the following key metrics : contract sales from the sale of vacation ownership products ; development margin percentage ; and vpg , which we calculate by dividing contract sales , excluding fractional and residential sales , telesales and other sales that are not attributed to a tour at a sales location , by the number of sales tours in a given period . we believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase . rounding percentage changes presented in our public filings are calculated using whole dollars .
| the decline in tours was driven by an increase in weeks-based owner utilization of the mvcd program , with owners taking advantage of the program 's flexibility to take vacations of shorter duration and exercise alternative usage options . this has reduced our existing owner tour flow because fewer owners are in our resorts , and their stays in our resorts are shorter , than in prior years . we intend to increase tour flow through new programs aimed at generating existing owner tours and developing new sales channels targeted toward first-time buyers . 2012 compared to 2011 replace_table_token_13_th the $ 30 million increase in total company-owned gross contract sales ( before cancellation reversals ) was driven by $ 52 million ( 10 percent ) of higher contract sales in our key north america segment , partially offset by $ 13 million of lower contract sales in our asia pacific segment and $ 9 million of lower contract sales in our europe segment as we continued to sell through developer inventory . the lower sales in our asia pacific segment were driven mainly by the closure of our off-site sales locations in hong kong and japan in the fourth quarter of 2012 in accordance with our strategy to use more efficient on-site sales locations rather than off-site sales locations . the increase in contract sales in our north america segment reflected an 18 percent increase in vpg to $ 2,963 in 2012 from $ 2,504 in the prior year . this increase in vpg in 2012 was due to a 2 percentage point increase in closing efficiency , resulting from improved marketing and sales execution , and a 2 percent price increase . this increase was partially offset by lower sales of our ritz-carlton inventory , which reflects the decision to scale back separate development activity for the luxury market and to aggregate future marketing and sales efforts for upscale and luxury inventory . development margin 2013 compared to 2012 replace_table_token_14_th 36 the increase in revenues from the sale of vacation ownership products was due to $
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as a consequence , among other things , the offering , issuance and sale of our securities is likely to be more expensive and time consuming and may make our securities less attractive to investors . see “ item 1. business – nature of our business following the five star sale ” , and “ item 1a . risk factors ” . on december 19 , 2012 ( the “ closing date ” ) the company , completed the acquisition of winthrop , an investment management , financial advisory and investment research firm , pursuant to the merger agreement dated june 18 , 2012. in accordance with the merger agreement , a wholly-owned newly formed subsidiary of the company , was merged with and into winthrop and winthrop became a wholly-owned subsidiary of the company ( see note 2 to the consolidated financial statements ) . as a result of the completion of the merger described above , the company is no longer a “ shell company ” as that term is defined in rule 405 under the securities act , and rule 12b-2 under the exchange act . as more fully described below , substantially all of the company 's business operations are carried out through winthrop and its subsidiaries , the wright companies . significant developments – acquisition on the closing date , 881,206 shares of company common stock were issued by the company as merger consideration to those holders of winthrop common stock who elected to receive company common stock as merger consideration and the company paid cash totaling $ 4,852,000 to those holders of winthrop common stock who elected to receive cash as merger consideration . pursuant to the merger agreement and an investors ' rights agreement , holders of winthrop common stock who elected to receive company common stock as merger consideration are subject to a three-year transfer restriction on such company common stock . further , the company has agreed to pay contingent consideration in cash to a holder of winthrop common stock who received 852,228 shares of company common stock to the extent that such shares have a value of less than $ 1,900,000 on the expiration of the three year period based on the average closing price of the company 's common stock for the ten trading days prior to such date . the total purchase price for winthrop was $ 7,069,000 ( see note 2 to the consolidated financial statements ) . pursuant to the merger agreement , the company has entered into employment agreements with four key winthrop employees having initial terms of five years for one employee and three years for three employees which provide for compensation in the form of base salary , various bonuses and restricted stock units , representing company common stock ( “ rsus ” ) . the employment agreements provide for automatic annual renewals unless notice of non-renewal is given at least six months prior to the applicable employment period . see notes 12 and 14 ( d ) to the consolidated financial statements . the company 's results of operations for the year ended december 31 , 2012 include the operating results of winthrop for the 12 days ended december 31 , 2012. legal proceedings on or about may 17 , 2011 , the merit group , inc. ( “ merit ” ) filed for chapter 11 bankruptcy protection in the united states bankruptcy court for the district of south carolina . on or about december 14 , 2011 , the official committee of unsecured creditors of tmg liquidation company ( formerly known as the merit group , inc. ) filed in that court an adversary proceeding against the company ( the “ avoidance action ” ) now captioned cohnresnick llp , as plan administrator v. national patent development corp. ( in re tmg liquidation co. ) . the avoidance action sought , among other things , to avoid and recover the consideration paid by merit to the company for the purchase of five star products , inc. ( “ five star ” ) from the company under the stock purchase agreement , dated november 24 , 2009 ( the “ agreement ” ) , as a constructive fraudulent transfer under sections 548 , 550 , and 551 of the bankruptcy code . 20 on august 2 , 2013 , the company entered into a settlement agreement and release ( the “ settlement agreement ” ) with cohnreznick llp ( the “ plan administrator ” ) to settle the avoidance action . under the terms of the settlement agreement , the plan administrator was required to file with the bankruptcy court , no later than august 9 , 2013 , a motion to approve the settlement agreement ( the “ settlement motion ” ) and a proposed order approving relief to be requested in the settlement motion ( the “ proposed order ” ) . pursuant to the settlement agreement , the company agreed to make a settlement payment of $ 2,375,000 ( the “ settlement payment ” ) to the plan administrator conditioned upon the entry of an order ( the “ approval order ” ) by the bankruptcy court approving the settlement motion , that is in a form acceptable to the company and in substantially the same form as the proposed order . the bankruptcy court entered an order approving the settlement agreement on september 4 , 2013 , and the settlement agreement required the company to make the settlement payment within fifteen days of the approval order becoming a final , non-appealable order ( a “ final order ” ) . on october 3 , 2013 , the company made a payment of $ 2,375,000 to the plan administrator pursuant to the terms of the settlement agreement . story_separator_special_tag the settlement agreement also provides for general mutual releases by each of the parties , including a general release in favor of the company and its affiliates , and the company 's and its affiliates ' officers , directors , employees , agents , and professionals . the mutual releases became effective upon entry of the final order and receipt of the settlement payment by the plan administrator . in addition , pursuant to the terms of the settlement agreement , on october 9 , 2013 the plan administrator made the requisite filings to dismiss , with prejudice , the avoidance action and a second pending adversary complaint against the company . upon entry of the final order by the bankruptcy court , the company resolved all claims and causes of action that have been or could have been asserted against it by the plan administrator . as a result of entering into the settlement agreement , during the year ended december 31 , 2013 , the company recorded a loss of $ 2,375,000 in connection with the avoidance action , which has been charged to discontinued operations . in addition , legal expenses of $ 773,000 incurred during the year ended december 31 , 2013 , in connection with the matter have also been charged to discontinued operations . investments investment in undeveloped land s the company owns certain non-strategic assets , including an investment and interests in land and flowage rights in undeveloped property in killingly , connecticut . investment in mxl operation the company holds 19.9 % equity investments in mxl operations inc. ( mxl ) , which acquired the assets of its former subsidiary , which was engaged in the plastic molding and precision coating businesses . the investment is included in other assets and accounted for at cost of $ 275,000 under asc 325 , investments- other . on february 3 , 2014 mxl industries notified the company that pursuant to section 2.2 of the put and call option agreement dated june 14 , 2008 , mxl industries will exercise its right to purchase the company 's 19.9 % interest in mxl industries . the transaction was completed on march 26 , 2014 and the company received $ 994,000 for its 19.9 % interest , r esulting in a gain of approximately $ 700,000. the company monitors these investments for impairment by considering current factors , including the economic environment , market conditions , operational performance and other specific factors relating to the business underlying the investment , and records impairments in carrying values when necessary . management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include stock based compensation and accounting for income taxes which are summarized below . 21 principle of consolidations the consolidated financial statements include the accounts of the company and its subsidiaries all of which are wholly-owned . all significant intercompany accounts and transactions have been eliminated in consolidation . cash and cash equivalents and fair value of financial instruments . the carrying value of cash and cash equivalents and accounts payable approximate estimated fair values because of short maturities . cash equivalents are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets . at december 31 , 2013 , the company 's winthrop subsidiary has certain tradable marketable securities . short-term investments , principally in company managed mutual funds and separate securities accounts , are stated at the net asset value of the funds or the year-end closing price of the underlying security . all investments are classified as level 1 investments . see note 5 to the consolidated financial statements . employees ' stock based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . the valuation provisions of asc 718 apply to new grants and to grants that were outstanding as of the effective date of asc 718 and are subsequently modified . see note 12 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes income taxes are provided for based on the asset and liability method of accounting . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled .
| the winthrop products include equity , fixed income and balanced portfolios for various plan types , including defined benefit , annuity , self-directed and 401 ( k ) , health and welfare and education and training plans . in addition , wright helps bank trust departments and trust companies satisfy part or all of their investment management functions . winthrop delivers fiduciary level investment management services to these institutions ' clients by providing active oversight of each account 's asset allocation and security selection . its offerings include investment management solutions utilizing individual securities or mutual funds . mutual fund models developed by winthrop utilize a combination of wright mutual funds as well as mutual funds from other investment managers . wpam offers programs to support high net worth investors and other individual investors . wpam manages a variety of accounts including : discretionary investment accounts , individual retirement accounts ( iras ) , 401k plans and accounts for non-corporate fiduciaries , such as trustees , executors , guardians , personal representatives , attorneys and other professionals who are responsible for the assets of others and must manage those assets in accordance with the prudent investor act . this investment process , developed and monitored by the wright investment committee , and related investment strategies , are utilized to address the objectives of wpam clients . winthrop , through its wisdi affiliate , offers a diversified family of mutual funds . wright mutual funds are utilized by the wright companies and others to build or supplement managed investment portfolios designed to address clients ' financial objectives . following is a brief description of the five wright-managed mutual funds revenue from investment management services was $ 2,663,000 for the year ended december 31 , 2013 and $ 89,000 for the 12 days ended december 31 , 2012. within this category , winthrop primarily bills clients based on aum values as of calendar quarters . revenues are primarily from fees from ; ( i ) taft-hartley clients , ( ii ) personal investment managed accounts , ( iii ) and other client serviced accounts . revenue from other investment advisory services was $ 2,632,000 for the year ended december 31 , 2013 and $ 85,000 for the 12 days
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the computation of diluted earnings per common share for all periods through december 31 , 2013 was calculated using the shares distributed on february 28 , 2014. see note 15. earnings per share of the notes to our consolidated financial statements under item 8 , `` financial statements and supplementary data `` for information regarding earnings per share . 31 revenues revenues for the year ended december 31 , 2014 were $ 1,141.3 million , compared with $ 1,214.8 million for the year ended december 31 , 2013 , a decrease of $ 73.5 million or 6.1 % . this was due to a decrease in mce revenues of $ 93.1 million , partially offset by an increase in sc revenues of $ 19.5 million . mce revenues were negatively impacted by a hold on production and shipments of one new version of our mems microphone for a specific platform at one key oem customer due to a low level defect beginning in the third quarter of 2014. in february 2015 , the oem customer provided us notification that our microphone for this platform was requalified . we expect to resume production and related shipments no later than the second quarter of 2015. as a result , we expect this microphone issue will continue to negatively impact mce revenues in 2015 due to lost shipments and price reductions on this microphone . the decrease in mce revenues for the year ended december 31 , 2014 compared to the year ended december 31 , 2103 was also due to lower average selling prices on mature products , reduced shipments to three oem customers in connection with their lower share of the handset market and a design change at one smartphone oem customer . the decreases in mce revenues were partially offset by an increase in revenues from other mobile customers , including chinese oems , who gained market share year-over-year . the increase in sc revenues was primarily due to improved demand for precision devices as a result of strength in the wireless communication infrastructure market , particularly in china , as well as increased market penetration . in addition , sc revenues increased due to new product introductions and broad-based demand among our hearing health customers . these increases in sc revenues were partially offset by lower pricing . foreign currency translation negatively impacted consolidated revenues by a negligible amount . cost of goods sold cost of goods sold for the year ended december 31 , 2014 were $ 885.3 million , compared with $ 779.1 million for the year ended december 31 , 2013 , an increase of $ 106.2 million or 13.6 % . the increase was primarily driven by higher fixed asset accelerated depreciation and related inventory charges of $ 32.6 million , mainly associated with the cessation of manufacturing operations at our vienna , austria facility and shorter product life cycles at our beijing , china facility . the increase was also due to warranty and inventory charges , as well as unfavorable fixed overhead absorption related to the mems microphone that was placed on hold and ramp-up costs associated with new product introductions . lastly , the increase was due to higher production transfer costs of $ 15.6 million to support the migration of operations into new and existing asian lower-cost manufacturing facilities and a $ 15.0 million charge related to the resolution of customer claims for products no longer produced . these increases were partially offset by the impact of lost shipments of the mems microphone that was placed on hold and cost savings from restructuring actions . restructuring charges we undertake restructuring programs from time to time to better align our operations with current market conditions . such activities include targeted facility consolidations , headcount reductions and other measures to further optimize operations . it is likely that we will have restructuring charges in the future as we execute on our strategy to consolidate our manufacturing footprint . details regarding restructuring programs undertaken during the reporting period are as follows : 2014 during the year ended december 31 , 2014 , the board of directors authorized the cessation of manufacturing operations at our vienna , austria facility as part of our previously announced plan to consolidate our manufacturing footprint . as a result of the vienna restructuring action , which was substantially complete by the end of the second quarter of 2014 , we recorded restructuring charges of $ 20.7 million . this included $ 16.0 million related to severance pay and benefits and $ 4.7 million related to contract termination and other costs . of the total $ 20.7 million in restructuring charges , $ 14.5 million were classified as cost of goods sold and $ 6.2 million were classified as operating expenses . in conjunction with this restructuring action , we also accelerated depreciation on fixed assets and recorded inventory charges of $ 18.8 million and incurred production transfer costs of $ 6.2 million bringing the total recorded costs related to the vienna restructuring action to $ 45.7 million . we anticipate incurring an additional $ 1 to $ 2 million of restructuring and related charges associated with this action , primarily during the first quarter of 2015. of the total pre-tax costs of $ 47 to $ 48 million , we expect approximately $ 28 to $ 30 million will be cash expenditures , the majority of which was paid during 2014. we anticipate annual savings of $ 25 to $ 30 million associated with this action mainly due to reduced salary and fixed asset depreciation expenses . 32 in line with our previously announced plans to consolidate our manufacturing footprint , we also recorded restructuring charges of $ 8.9 million during year ended december 31 , 2014 related to other actions . these actions included programs to transfer our hearing health business and certain of our capacitor businesses into new and existing lower-cost asian manufacturing facilities , as well as to reduce headcount in the consumer electronics business . 2013 in 2013 , we incurred restructuring charges of $ 16.3 story_separator_special_tag million relating to programs to integrate activities within the consumer electronics business , to migrate the company 's u.k.-based capacitor production into our existing lower-cost asian manufacturing facilities and to reduce in headcount within our german and north american operations that serve the telecom infrastructure market in order to better align the business with current market dynamics . gross profit and non-gaap gross profit gross profit for the year ended december 31 , 2014 was $ 232.7 million , compared with $ 427.9 million for the year ended december 31 , 2013 , a decrease of $ 195.2 million or 45.6 % . gross profit margin ( gross profit as a percentage of revenues ) for the year ended december 31 , 2014 was 20.4 % , compared with 35.2 % for the year ended december 31 , 2013 . the decline was primarily due to lower average selling prices on mature products and lost production and shipments , as well as warranty and inventory charges , related to the mems microphone that was placed on hold . gross profit margin in 2015 is expected to be negatively impacted due to lost production , lower shipments and price reductions on this microphone . the decrease in gross profit margin for the year ended december 31 , 2014 compared to the year ended december 31 , 2103 was also driven by higher fixed asset accelerated depreciation and related inventory charges and restructuring charges of $ 48.1 million , mainly associated with the cessation of manufacturing operations at our vienna , austria facility and shorter product life cycles at our beijing , china facility . lastly , the decrease was due to ramp-up costs associated with new product introductions , higher production transfer costs of $ 15.6 million to support the migration of operations into new and existing asian lower-cost manufacturing facilities and a $ 15.0 million charge related to the resolution of customer claims for products no longer produced . these decreases were partially offset by cost savings from overall restructuring actions . non-gaap gross profit for the year ended december 31 , 2014 was $ 335.8 million , compared with $ 450.1 million for the year ended december 31 , 2013 , a decrease of $ 114.3 million or 25.4 % . non-gaap gross profit margin ( non-gaap gross profit as a percentage of revenues ) for the year ended december 31 , 2014 was 29.4 % , as compared with 37.1 % for the year ended december 31 , 2013 . the decline was primarily due to lower average selling prices on mature products , the impacts of the mems microphone that was placed on hold and ramp-up costs associated with new product introductions . these decreases were partially offset by cost savings from overall restructuring actions . research and development expenses research and development expenses for the years ended december 31 , 2014 and 2013 were $ 83.0 million and $ 82.6 million , respectively . research and development expenses as a percentage of revenues for the years ended december 31 , 2014 and 2013 were 7.3 % and 6.8 % , respectively . selling and administrative expenses selling and administrative expenses for the year ended december 31 , 2014 were $ 196.5 million , compared with $ 193.0 million for the year ended december 31 , 2013 , an increase of $ 3.5 million or 1.8 % . selling and administrative expenses as a percentage of revenues for the year ended december 31 , 2014 were 17.2 % , compared with 15.9 % for the year ended december 31 , 2013 . included in selling and administrative expenses were corporate allocations from our former parent of $ 3.4 million and $ 23.6 million for the years ended december 31 , 2014 and 2013 , respectively , which represent administration of treasury , employee compensation and benefits , public and investor relations , internal audit , corporate income tax , supply chain and legal services through the separation date . in 2014 , we also incurred our own costs related to such support functions as part of being an independent company for the majority of the year . the increase in selling and administrative expenses was mainly due to increased legal expenses primarily in connection with the goertek intellectual property litigation . 33 ( loss ) earnings before interest and income taxes and adjusted earnings before interest and income taxes ebit for the year ended december 31 , 2014 was $ ( 48.5 ) million , compared with $ 143.5 million for the year ended december 31 , 2013 , a decrease of $ 192.0 million . the decrease was primarily due to lower average selling prices on mature products , the impacts of the mems microphone that was placed on hold and higher fixed asset accelerated depreciation and related inventory charges and restructuring charges of $ 45.9 million , mainly associated with the cessation of manufacturing operations at our vienna , austria facility and shorter product life cycles at our beijing , china facility . additionally , the decrease was due to ramp-up costs associated with new product introductions , higher production transfer costs of $ 16.1 million to support the migration of operations into new and existing asian lower-cost manufacturing facilities and a $ 15.0 million charge related to the resolution of customer claims for products no longer produced . these decreases were partially offset by cost savings from overall restructuring actions . adjusted ebit for the year ended december 31 , 2014 were $ 113.4 million , compared with $ 222.3 million for the year ended december 31 , 2013 , a decrease of $ 108.9 million or 49.0 % . adjusted ebit margin ( adjusted ebit as a percentage of revenues ) for the year ended december 31 , 2014 was 9.9 % , as compared with 18.3 % for the year ended december 31 , 2013 .
| capital expenditures , primarily to support capacity expansion , innovation and cost savings , were $ 83.9 million , $ 105.2 million and $ 132.1 million , or 7.4 % , 8.7 % and 11.8 % as a percentage of revenue , for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the large drivers of the capital expenditures have been ongoing investment in mems manufacturing capacity expansion to support growth in the handset market as well as manufacturing footprint optimization projects . construction and customization of a new manufacturing facility in cebu , philippines started in 2012 and continued throughout 2013. fully operational in 2014 , this 215,000 square foot facility supports several growth and productivity initiatives for us . capitalization of patent defense costs . we capitalize external legal costs incurred in the defense of our patents when it is believed that a significant , discernible increase in value will result from the defense and a successful outcome of the legal action is probable . these costs are amortized over the remaining estimated useful life of the patent , which is typically seven to ten years . during the year ended december 31 , 2014 , 2013 and 2012 we paid $ 16.0 million , $ 8.6 million and $ 13.1 million , respectively , in gross legal costs related to the defense of our patents . capitalized patent defense costs increased in 2014 due primarily to legal expenses incurred in connection with the goertek intellectual property litigation . acquisitions and sales of investments . we paid $ 8.0 million and $ 5.0 million during the years ended december 31 , 2014 and 2012 , respectively , to acquire a non-controlling interest in a mems timing device company and subsequently received proceeds of $ 14.5 million during the year ended december 31 , 2014 from the sale of our non-controlling interest in the same mems timing device company . 46 financing activities the cash used in financing activities during the year ended december 31 , 2014 was primarily due to cash payments to our former parent as a result of the separation , partially offset by proceeds from entering into
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· avocados : the increase in fiscal year 2016 was primarily due to increased production partially offset by lower prices . the california avocado crop typically experiences alternating years of high and low production due to plant physiology . during fiscal years 2016 and 2015 , 11.4 million and 7.0 million pounds of avocados were sold at average per pound prices of $ 0.95 and $ 1.02 , respectively . lower prices in fiscal year 2016 were primarily due to increased supply in the marketplace . · navel and valencia oranges : the increase in fiscal year 2016 was primarily due to higher volume of oranges sold partially offset by lower prices . during fiscal years 2016 and 2015 , orange sales were $ 6.1 million and $ 5.6 million , respectively , on 1,049,000 and 744,000 40-pound carton equivalents of oranges sold at average per carton prices of $ 5.86 and $ 7.56 , respectively . · specialty citrus and other crops : the increase in fiscal year 2016 was primarily due to higher volume of specialty citrus sold partially offset by lower prices . in fiscal years 2016 and 2015 , we sold 349,000 and 253,000 40-pound carton equivalents of specialty citrus at average per carton prices of $ 8.33 and $ 10.79 , respectively . additionally , we sold approximately 200 tons of wine grapes for $ 0.3 million in fiscal year 2016 compared to zero in fiscal year 2015. rental operations revenue was $ 5.6 million in fiscal year 2016 compared to $ 5.1 million in fiscal year 2015. the increase in fiscal year 2016 was primarily due to a full year of rental revenue from 65 newly completed agricultural workforce housing units that we began renting in may 2015. real estate development revenue was $ 0.1 million in fiscal years 2016 and 2015 , comprised primarily of incidental alfalfa sales at our windfall farms property . costs and expenses total costs and expenses for fiscal year 2016 were $ 102.6 million compared to $ 95.7 million for fiscal year 2015. this 7 % increase of $ 6.9 million was primarily attributable to increases in our agribusiness costs . costs associated with our agribusiness division include packing costs , harvest costs , growing costs , costs related to the lemons we procure from third-party growers and depreciation expense . these costs are discussed further below : replace_table_token_9_th · packing costs : packing costs consist of the costs to pack lemons for sale such as labor and benefits , cardboard cartons , fruit treatments , packing and shipping supplies and facility operating costs . the increase in fiscal year 2016 was primarily due to higher volume of cartons packed , partially offset by lower average per carton costs compared to fiscal year 2015. in fiscal years 2016 and 2015 , we packed and sold 2.9 million and 2.7 million cartons of lemons at average per carton costs of $ 7.22 and $ 7.31 , respectively . additionally , packing costs include $ 1.0 million of shipping costs in fiscal year 2016 compared to $ 0.9 million in fiscal year 2015 . · harvest costs : the increase in fiscal year 2016 was primarily attributable to higher lemon , avocado , orange and specialty citrus harvest volumes compared to fiscal year 2015 . 36 · growing costs : growing costs , also referred to as cultural costs , consist of orchard maintenance costs such as cultivation , fertilization and soil amendments , pest control , pruning and irrigation . the decrease in fiscal year 2016 is primarily due to decreased lease expense and fertilization and soil amendments of $ 0.8 million and $ 0.6 million , respectively , compared to fiscal year 2015 . · third-party grower costs : we sell lemons that we grow and lemons that we procure from other growers . the cost of procuring lemons from other growers is referred to as third-party grower costs . the increase is primarily due to higher volume of third-party grower lemons sold , partially offset by lower prices . of the 2.9 million and 2.7 million cartons sold during fiscal years 2016 and 2015 , respectively , 1.2 million ( 42 % ) and 0.9 million ( 36 % ) were procured from third-party growers at average per carton prices of $ 20.59 and $ 22.36 , respectively . additionally , we incurred $ 0.6 million of costs for purchased , packed fruit for resale compared to $ 1.2 million in fiscal year 2015 . · depreciation expense in fiscal year 2016 was $ 1.0 million higher than fiscal year 2015 primarily due to the acquisition of sheldon ranches in december 2015 and placement of our new , expanded lemon packing facility into service in march 2016. real estate development expenses for fiscal year 2016 were $ 2.1 million compared to $ 1.3 million in fiscal year 2015. the increase was primarily due to $ 1.2 million of transaction costs paid upon entering into a joint venture with lewis group of companies for the residential development of our east area i project . selling , general and administrative expenses for fiscal year 2016 were $ 13.3 million compared to $ 13.8 million for fiscal year 2015. this 3 % decrease of $ 0.5 million was primarily attributable to the following : · $ 1.2 million decrease in legal and consulting expenses associated with our east area i real estate development project , which resulted in entering into a real estate development joint venture with the lewis group of companies on november 10 , 2015 ; and · $ 1.0 million net increase in salaries , benefits and incentive compensation primarily due to incentive compensation increases as a result of an increase in operating results in fiscal year 2016 . · $ 0.3 million net decrease in other selling , general and administrative expenses , including certain corporate overhead expenses . story_separator_special_tag other income ( expense ) other income for fiscal year 2016 was $ 4.1 million compared to $ 6.5 million for fiscal year 2015. the $ 2.3 million decrease in income is primarily the result of : · $ 1.3 million increase in net interest expense ; · $ 0.4 million increase in earnings from equity investments ; · $ 1.6 million decrease in gain on the sales of stock in calavo growers , inc. ; · $ 1.0 million sale of a conservation easement in fiscal year 2016 ; and · $ 0.9 million sale of wilson ranch in fiscal year 2015. income taxes we recorded an income tax provision of $ 5.3 million for fiscal year 2016 on pre-tax income of $ 13.3 million compared to an income tax provision of $ 4.0 million for fiscal year 2015 on pre-tax income of $ 11.1 million . our effective tax rate is 39.5 % for fiscal year 2016 compared to an effective rate of 35.9 % for fiscal year 2015. the increase in our effective tax rate in fiscal year 2016 is primarily attributable to decreased domestic production activities deduction resulting from the current year federal net operating loss . the federal net operating loss was primarily generated by accelerated federal tax depreciation related to new lemon packinghouse assets . 37 fiscal year 2015 compared to fiscal year 2014 revenues total revenue for fiscal year 2015 was $ 100.3 million compared to $ 103.5 million for fiscal year 2014. the 3 % decrease of $ 3.2 million was primarily the result of decreased agribusiness revenues , as detailed below : replace_table_token_10_th · lemons : the decrease in fiscal year 2015 was primarily the result of decreased volume of fresh lemons sold partially offset by higher prices and increased lemon by-product and other lemon sales . during fiscal years 2015 and 2014 , fresh lemon sales were $ 67.0 million and $ 69.8 million , respectively , on 2.7 million and 2.9 million cartons of lemons sold at average per carton prices of $ 24.81 and $ 24.07 , respectively . the higher average per carton price in fiscal year 2015 compared to fiscal year 2014 was primarily due to more favorable overall market conditions . additionally , lemon by-products , shipping and handling , commissions and other lemon sales were $ 12.0 million in fiscal year 2015 compared to $ 9.9 million in fiscal year 2014 . · avocados : the decrease in fiscal year 2015 was primarily due to lower prices partially offset by increased production . the california avocado crop typically experiences alternating years of high and low production due to plant physiology . during fiscal years 2015 and 2014 , 7.0 million and 6.7 million pounds of avocados were sold at average per pound prices of $ 1.02 and $ 1.10 , respectively . lower prices in fiscal year 2015 were primarily due to increased supply in the marketplace . additionally , fiscal year 2014 revenue included a $ 0.1 million avocado crop insurance claim settlement . · navel and valencia oranges : the decrease in fiscal year 2015 was primarily due to lower prices and decreased volume of oranges sold . during fiscal years 2015 and 2014 , orange sales were $ 5.6 million and $ 7.6 million , respectively , on 744,000 and 754,000 40-pound carton equivalents of oranges sold at average per carton prices of $ 7.56 and $ 10.08 , respectively . the higher prices in fiscal year 2014 were primarily due to decreased market supply resulting from a period of freezing temperatures in california 's san joaquin valley during december 2013 . · specialty citrus and other crops : the decrease in fiscal year 2015 was primarily due to lower price and volume of pistachios sold . in fiscal years 2015 and 2014 , we sold 70,000 and 111,000 pounds of pistachios at average per pound prices of $ 4.33 and $ 6.15 , respectively . rental operations revenue was $ 5.1 million in fiscal year 2015 compared to $ 4.6 million in fiscal year 2014. the increase in fiscal year 2015 was primarily due to additional rental revenue from 65 newly completed agricultural workforce housing units that we began renting in may 2015 and increased organic recycling and other revenue . real estate development revenue was $ 0.1 million in fiscal year 2015 compared to $ 0.3 million in fiscal year 2014. the decrease in fiscal year 2015 revenue compared to fiscal year 2014 was primarily due to lower alfalfa production at our windfall farms development property . in fiscal years 2015 and 2014 , we removed approximately 200 acres of alfalfa and planted vineyards . costs and expenses total costs and expenses for fiscal year 2015 were $ 95.7 million compared to $ 93.6 million for fiscal year 2014. this 2 % increase of $ 2.1 million was primarily attributable to increases in our agribusiness costs of $ 2.9 million partially offset by decreases in our real estate development costs and selling , general and administrative expenses of , in aggregate , $ 1.1 million . costs associated with our agribusiness division include packing costs , harvest costs , growing costs , costs related to the lemons we procure from third-party growers and depreciation expense . these costs are discussed further below : replace_table_token_11_th 38 · packing costs : packing costs consist of the costs to pack lemons for sale such as labor and benefits , cardboard cartons , fruit treatments , packing and shipping supplies and facility operating costs . the increase in fiscal year 2015 was primarily due to $ 2.5 million of costs at our yuma , arizona packinghouse which was acquired in june 2014 and higher per carton packing costs . in fiscal years 2015 and 2014 , we packed and sold 2.7 million and 2.9 million cartons of lemons at average per carton costs of $ 7.31 and $ 6.11 , respectively .
| · third-party grower costs for fiscal year 2016 were $ 4.0 million higher than fiscal year 2015. other agribusiness for fiscal year 2016 , our other agribusiness segment revenue was $ 20.9 million compared to $ 16.1 million for fiscal year 2015. the 29 % increase of $ 4.8 million primarily consists of the following : · avocado revenue for fiscal year 2016 was $ 3.7 million higher than fiscal year 2015 . · navel and valencia orange revenue in fiscal year 2016 was $ 0.5 million higher than in fiscal year 2015 . · specialty citrus and other crop revenue for fiscal year 2016 was $ 0.6 million higher than fiscal year 2015. costs and expenses associated with our other agribusiness segment include harvest and growing costs . our other agribusiness costs and expenses for fiscal year 2016 were $ 12.7 million compared to $ 12.1 million for fiscal year 2015. the 5 % increase of $ 0.6 million primarily consists of the following : 41 · harvest costs for fiscal year 2016 were $ 1.3 million higher than fiscal year 2015 . · growing costs for fiscal year 2016 were $ 0.7 million lower than fiscal year 2015. lemon and other agribusiness depreciation and amortization for fiscal year 2016 were $ 4.3 million compared to $ 3.3 million for fiscal year 2015. the 29 % increase of $ 1.0 million was primarily due to the acquisition of sheldon ranches in december 2015 and placement of our new , expanded lemon packing facility into service in march 2016. rental operations our rental operations segment had revenues of approximately $ 5.6 million and $ 5.1 million in fiscal years 2016 and 2015 , respectively . the $ 0.5 million increase in fiscal year 2016 was primarily due to a full year of rental revenue from 65 additional agriculture workforce housing units that we began renting in may 2015. costs and expenses in our rental operations segment were approximately $ 3.6 million and $ 3.4 million in fiscal years 2016 and
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individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible . a portion of the reward may be based upon individual performance against a series of non-financial measures . credit towards the variable portion of an executive search consultant 's compensation is earned by generating net revenue for winning and executing work . each quarter , we review and update the expected annual performance of all executive search consultants and accrue variable compensation accordingly . the amount of variable compensation that is accrued for each executive search consultant is based on a tiered payout model . overall company performance determines the amount available for total variable compensation . the more net revenue that is generated by the consultant , the higher the percentage credited towards the consultant 's variable compensation and thus accrued by our company as expense . the mix of individual consultants who generate the revenue can significantly affect the total amount of compensation expense recorded , which directly impacts operating margin . as a result , the variable portion of the compensation expense may fluctuate significantly from quarter to quarter . the total variable compensation is discretionary and is based on company-wide financial targets approved by the human resources and compensation committee of the board of directors . a portion of our executive search consultants ' and management cash bonuses is deferred and paid over a three-year vesting period . the compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period . this service period begins on january 1 of the respective fiscal year and continues through the deferral date , which coincides with our bonus payments in the first quarter of the following year , and for an additional three year vesting period . the deferrals are recorded in accrued salaries and employee benefits and other non-current liabilities in the consolidated balance sheets . 2014 overview consolidated net revenue was $ 494.3 million for the year ended december 31 , 2014 , an increase of $ 32.3 million or 7.0 % compared to december 31 , 2013. consultant productivity measured by net executive search and leadership consulting revenue per consultant was $ 1.5 million for the year ended december 31 , 2014 , compared to $ 1.4 million in the prior year . average revenue per executive search was $ 116,000 for the year ended december 31 , 2014 compared to $ 113,400 for the year ended december 31 , 2013. operating income as a percentage of net revenue was 5.4 % in 2014 compared to 3.4 % in 2013. the operating income was driven by an increase in net revenue of $ 32.3 million , offset by increases in salaries and employee benefits expense of $ 17.9 million and general and administrative expense of $ 3.3 million . salaries and employee benefits expense as a percentage of net revenue was 68.3 % in 2014 and 69.2 % in 2013. general and administrative expense as a percentage of net revenue was 26.3 % in 2014 and 27.5 % in 2013. we ended the year with combined cash and cash equivalents of $ 211.4 million , an increase of $ 29.8 million compared to $ 181.6 million at december 31 , 2013. the increase is primarily due to strong cash collections due to increased operating performance and a decline in our days sales outstanding . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately $ 108 million in bonuses related to 2014 performance in march and april 2015. in february 2015 , we paid approximately $ 9 million in cash bonuses deferred in prior years . 2015 outlook we are currently forecasting 2015 first quarter net revenue of between $ 108 million and $ 118 million . our 2015 first quarter guidance is based upon , among other things , management 's assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects , the current backlog , consultant productivity , consultant retention , the seasonality of our business and no change in future currency rates . our 2015 first quarter guidance is subject to a number of risks and uncertainties , including those disclosed under risk factors ( see item 1a . risk factors ) and management 's discussion and analysis of financial condition and results of operations included in this form 10-k. as such , actual results could vary from these projections . 20 story_separator_special_tag . executive search and leadership consulting americas the americas segment reported operating income of $ 57.7 million in 2014 , a decrease of $ 2.5 million compared to $ 60.2 million in 2013. the decrease in operating income was due to an increase in salaries and employee benefits of $ 6.8 million , which was partially offset by an increase in net revenue of $ 4.1 million and a decrease in general and administrative expense of $ 0.2 million . the increase in salaries and employee benefits expense was due to a $ 8.8 million increase in performance-related compensation partially offset by a decline of $ 2.0 million in fixed compensation . performance-related compensation increased primarily due to increased production and higher global net revenue . the increase in net revenue was primarily within the consumer markets , global technology & services and financial services practices , but was partially offset by declines in the industrial , healthcare & life sciences and education , nonprofit & social enterprise practices . fixed compensation declined due to lower average headcount during the year . the decrease in general and administrative expense was primarily due to lower internal travel expenses , partially offset by increased hiring and staffing fees . story_separator_special_tag the number of consultants was 140 as of december 31 , 2014 , compared to 126 as of december 31 , 2013. europe the europe segment reported operating income of $ 4.8 million in 2014 , an increase of $ 11.3 million compared to a $ 6.5 million operating loss in 2013. the increase in operating income was due to an increase in net revenue of $ 18.9 million , partially offset by increases in salaries and employee benefits expense of $ 6.6 million and general and administrative expense of $ 1.0 million . the increase in net revenue was across all industry practices , except the education , nonprofit & social enterprise practice . the number of consultants was 89 and 83 as of december 31 , 2014 and 2013 , respectively . the increase in salaries and employee benefits expense was due to a $ 8.1 million increase in performance-related compensation associated with increases in production and net revenue and a $ 1.5 million decrease in fixed compensation . the decrease in fixed costs was due to $ 0.9 million of lower severance costs and pension benefits , partially offset by impacts of exchange rate fluctuations . the increase in general and administrative expense of $ 1.0 million was due to $ 0.6 million of hiring and staffing fees and $ 0.5 million related to a value added tax charge . 24 asia pacific asia pacific reported operating income of $ 4.9 million in 2014 , an increase of $ 1.2 million compared to operating income of $ 3.7 million in 2013. the improvement is due to a decrease of $ 1.9 million in salaries and employee benefits , partially offset by a decline in net revenue of $ 0.7 million . the decrease in salaries and employee benefits expense reflects a $ 1.1 million decrease in performance-related compensation due primarily to declines in average consultant headcount and productivity , partially offset by company performance . the decrease in net revenue was primarily due to a decline in the industrial practice , partially offset by increases in the financial services , global technology & services , and education , nonprofit & social enterprise practices . the number of executive search and leadership consulting consultants was 78 as of december 31 , 2014 and 84 as of december 31 , 2013. general and administrative expense was $ 25.3 million in 2014 and 2013. culture shaping the culture shaping segment reported operating income of $ 4.6 million in 2014 , an improvement of $ 8.8 million compared to an operating loss of $ 4.2 million in 2013. the improvement was due to an increase in net revenue of $ 10.0 million and a decrease in general and administrative expense of $ 0.8 million , partially offset by an increase in salary and employee benefits expense of $ 2.0 million . net revenue increased due to higher volumes of client work . net revenue in the prior year excluded $ 4.1 million of pre-acquisition deferred revenue that we were unable to recognize as a result of purchase accounting . the decrease in general and administrative costs was due to lower amortization and accretion expense . the increase in salary and benefit expenses was due to higher consultant costs for additional staffing related to increased projects . global operations support global operations support expenses in 2014 increased $ 7.8 million or 20.9 % to $ 45.3 million from $ 37.5 million in 2013. salaries and employee benefits expense increased $ 4.4 million and general and administrative expense increased $ 3.4 million . the increase in general and administrative expense was primarily due to $ 1.8 million related to a global partners meeting , a state franchise tax matter of $ 1.3 million and higher it systems contracts , partially offset by lower professional legal fees . the increase in salaries and employee benefits expense was due to a $ 4.4 million increase in performance-related compensation associated with higher net revenue and more participants in the bonus plan . fixed compensation remained flat due to a $ 3.3 million decrease for an executive severance in the prior year , offset by an increase in support staff headcount . 2013 compared to 2012 total revenue . consolidated total revenue increased $ 15.9 million , or 3.4 % , to $ 481.0 million in 2013 from $ 465.1 million in 2012. the increase in total revenue was primarily due to the increase in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue increased $ 18.2 million , or 4.1 % , to $ 462.0 million in 2013 from $ 443.8 million in 2012. the negative impact of exchange rate fluctuations resulted in approximately a one percentage point decrease in 2013. executive search and leadership consulting net revenue was $ 437.2 million , a decline of $ 6.6 million compared to 2012. all search industry groups , except healthcare & life sciences and global technology & services declined . culture shaping net revenue was $ 24.8 million in 2013. the number of confirmed executive searches decreased less than one percent compared to 2012. the number of executive search and leadership consulting consultants was 293 as of december 31 , 2013 compared to 342 as of december 31 , 2012. productivity , as measured by annualized net executive search and leadership consulting revenue per average consultant was $ 1.4 million for the year ended december 31 , 2013 compared to $ 1.3 million for the year ended december 31 , 2012 , and average revenue per executive search was $ 113,400 for the year ended december 31 , 2013 compared to $ 113,700 for the year ended december 31 , 2012. net revenue in the americas segment was $ 256.7 million in 2013 , an increase of $ 2.3 million , or 0.9 % from $ 254.4 million in 2012. the impact of exchange rate fluctuations in canada and latin america resulted in less than one percentage point of the increase in 2013. net
| consolidated net revenue increased $ 32.3 million , or 7.0 % , to $ 494.3 million in 2014 from $ 462.0 million in 2013. executive search and leadership consulting net revenue was $ 459.5 million in 2014 , an increase of $ 22.3 million , compared to 2013. increases in the financial services , global technology & services , and consumer markets search practices were the primary drivers of the increase in consolidated net revenue ; however , these increases were partially offset by declines in net revenue from the healthcare & life sciences and industrial practices . culture shaping net revenue was $ 34.8 million , an increase of $ 10.0 million compared to 2013. the number of executive search and leadership consulting consultants was 307 as of december 31 , 2014 compared to 293 as of december 31 , 2013. productivity , as measured by annualized net executive search and leadership consulting revenue per average consultant was $ 1.5 million for the year ended december 31 , 2014 compared to $ 1.4 million for the year ended december 31 , 2013. specific to executive search , our primary business , the number of confirmed searches increased 5 % compared to 2013 , and average revenue per executive search was $ 116,000 for the year ended december 31 , 2014 compared to $ 113,400 for the year ended december 31 , 2013. for executive search and leadership consulting , net revenue in the americas segment was $ 260.8 million in 2014 , an increase of $ 4.1 million , or 1.6 % , from $ 256.7 million in 2013. net revenue in the europe segment was $ 109.0 million in 2014 , an increase of $ 18.9 million , or 21.0 % , from $ 90.1 million in 2013. exchange rate fluctuations contributed approximately three percentage points of the increase in the europe segment net revenue . net revenue in the asia pacific segment was $ 89.7 million , a decrease of $ 0.7 million , or less than one percent , from $ 90.4 million in 2013. exchange rate fluctuations contributed three percentage points to the decline in net revenue in the asia pacific segment . 23 salaries and employee benefits . consolidated salaries and employee benefits expense increased $ 17.9 million , or 5.6 % , to $ 337.4 million in
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we are also collaborating with a leading transplant group at the university of regensburg in germany that has recently obtained authorization to initiate an institutional sponsored clinical trial exploring the administration of multistem in patients following a liver transplant . we plan to provide limited financial support for this investigator-sponsored phase i study and provide the product to conduct the trial . in addition to our current and anticipated clinical development activities , we are engaged in preclinical development and evaluation of multistem in other inflammatory and immune , neurological and cardiovascular disease areas , as well as certain other indications . we conduct such work both through our own internal research efforts and through a broad network of collaborations we have established with investigators at leading research institutions across the united states and in europe . we are in discussions with third parties about collaborating in the development of multistem for certain programs and may enter into one or more business partnership ( s ) to advance these programs . we have also collaborated with rti on the development of products for certain orthopedic applications in the bone graft substitutes market using our stem cell technologies . rti 's product development activities are progressing , and in 2012 , we amended our agreement to accelerate $ 2.0 million of contingent milestone payments into 2012 in connection with technical support to assist rti in its development efforts . we will also receive royalty revenue from product sales should they occur , as well as potential additional milestone payments . we are also engaged in the development of novel small molecule therapies to treat obesity and other conditions , such as schizophrenia . currently , we are focused on the development of potent , highly selective compounds that act through stimulation of a specific receptor in the brain , the 5ht2c serotonin receptor . we are conducting preclinical evaluation of novel compounds that we have developed that exhibit favorable attributes , including outstanding receptor selectivity , as well as greater potency and activity than other 5ht2c agonists . we have also demonstrated our compounds are complementary with other agents and believe these compounds could achieve best in class weight loss , as well as a superior safety and tolerability profile . furthermore , we have evaluated certain compounds in preclinical models of schizophrenia that exhibit an attractive selectivity profile and also observed that these compounds exhibit potent effects . we are in discussions with interested companies and may elect to enter into a partnership to advance the development of our 5ht2c agonist program , either for the treatment of obesity , schizophrenia , or both indications . financial we have incurred losses since inception of operations in 1995 and had an accumulated deficit of $ 234 million at december 31 , 2012. our losses have resulted principally from costs incurred in research and development , clinical and preclinical product development , acquisition and licensing costs , and general and administrative costs associated with our operations . we have used the financing proceeds from private equity and debt offerings and other sources of capital to develop our technologies , to discover and develop therapeutic product candidates , develop business collaborations and to acquire certain technologies and assets . in october 2012 , we completed a public offering generating net proceeds of approximately $ 18.3 million through the issuance of 19,802,000 shares of common stock at a price of $ 1.01 per share . in november 2012 , the underwriters exercised in full their right to purchase an additional 2,970,300 shares of common stock , solely to cover over-allotments . the exercise of the full over-allotment option generated an additional $ 2.8 million of net proceeds . 39 in march 2012 , we completed a private placement financing generating net proceeds of approximately $ 8.1 million through the issuance of 4,347,827 shares of common stock and five-year warrants to purchase 4,347,827 shares of common stock with an exercise price of $ 2.07 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase one share of common stock at an offering price of $ 2.07 per fixed combination . the warrants have anti-dilution price protection , subject to certain exceptions . as a result of the october 2012 public offering and in accordance with the terms of the warrants , we sought and obtained stockholder approval in february 2013 to reduce the exercise price of these warrants to $ 1.01 per share . in november 2011 , we entered into an equity purchase agreement , which provides that aspire capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock over a two-year term , subject to our election to sell any such shares . under the agreement , we have the right to sell shares , subject to certain volume limitations and a minimum floor price , at a modest discount to the prevailing market price . during the quarter ended december 31 , 2012 , we sold no shares under the aspire purchase agreement , and during the year ended december 31 , 2012 , we sold 800,000 shares to aspire capital at an average price of $ 1.57 per share . as of march 1 , 2013 , we received aggregate proceeds of approximately $ 2.9 million under the aspire purchase agreement since its inception . in february 2011 , we completed a registered direct offering with net proceeds of $ 11.8 million through the issuance of 4,366,667 shares of common stock and five-year warrants to purchase 1,310,000 shares of common stock with an exercise price of $ 3.55 per share . the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.3 of a share of common stock at an offering price of $ 3.00 per fixed combination . story_separator_special_tag in 2012 , we were awarded grant funding aggregating $ 3.6 million to further advance our multistem programs and cell therapy platform , including further development of multistem for the treatment of tbi and further development of our cell therapy formulations and manufacturing capabilities . the sources of funding including federal , state and european organizations and are generally focused on the advancement of our preclinical multistem programs , as well as process development and manufacturing activities . story_separator_special_tag year ended december 31 , 2010 revenues . revenues increased to $ 10.3 million for the year ended december 31 , 2011 from $ 8.9 million for 2010. contract revenue increased $ 2.3 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 primarily as a result of our arrangements with pfizer and rti . our contract revenues reflect the amortization of pfizer payments , including a $ 6.0 million non-refundable up-front license fee , over the estimated performance period , as well as the amortization of a $ 3.0 million guaranteed license fee from the rti collaboration over the estimated performance period that ended in 2011. our contract revenues may also include license fees , milestone payments and royalties on compounds developed by bristol-myers squibb using one of our technologies . grant revenue decreased $ 0.9 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 primarily due to the timing of expenditures that are reimbursed with grant proceeds and a grant received in october 2010 from the internal revenue service under section 48d of the internal revenue code aggregating $ 733,000 for qualifying therapeutic discovery investments . research and development expenses . research and development expenses increased to $ 18.9 million for the year ended december 31 , 2011 from $ 14.8 million in 2010. the increase of approximately $ 4.1 million related primarily to an increase in clinical and preclinical development costs of $ 3.1 million , an increase in personnel costs of $ 517,000 , an increase in sponsored research costs of $ 259,000 , an increase in patent legal fees of $ 226,000 , an increase in other costs of $ 216,000 , and an increase in research supply and facilities costs of $ 172,000 for the year ended december 31 , 2011 compared to 2010. these increases were partially offset by a decrease in stock-based compensation expense of $ 340,000 , which declined as a result of a significant number of options becoming fully vested in 2010. the increase in clinical and preclinical development costs for the year ended december 31 , 2011 related primarily to costs associated with our multistem clinical trials , including increased manufacturing and process development costs . our clinical costs for the year ended december 31 , 2011 and 2010 are reflected net of angiotech 's cost-sharing amount of $ 312,000 and $ 628,000 , respectively . the angiotech collaboration was terminated late in 2011. the increase in personnel costs related to the addition over the past twelve months of personnel supporting our preclinical and clinical programs , and annual merit increases in salaries . sponsored research costs increased primarily due to an increase in grant-funded programs that require collaboration with certain academic research institutions . patent legal fees increased related to international patent prosecution activities . other than external expenses for our clinical and preclinical programs , we do not track our research expenses by project ; rather , we track such expenses by the type of cost incurred . 42 general and administrative expenses . general and administrative expenses decreased to $ 4.9 million in 2011 from $ 5.4 million in 2010. the $ 471,000 decrease in 2011 compared to 2010 was due primarily to a decrease in stock-based compensation expense of $ 574,000 from a significant number of options becoming fully vested in 2010 , partially offset by an increase in other expenses of $ 81,000. depreciation . depreciation expense remained fairly consistent at $ 278,000 in 2011 and $ 284,000 in 2010. other income ( expense ) , net . other income ( expense ) , net , includes increases and decreases in our warrant liabilities , cash and stock-based milestone payments to our former lenders in connection with our equity offerings , foreign currency gains and losses related to our activities in europe , and any realized gains and losses on the sale of our assets . we recognized income of $ 0.8 million in 2011 from the valuation of our warrant liabilities . cash and stock-based milestone payments to our former lenders were $ 0.9 million in 2011. interest income . interest income represents interest earned on our cash and available-for-sale securities . interest income decreased to $ 85,000 in 2011 from $ 203,000 in 2010 due to the decline in our investment balances as they were used to fund our operations . liquidity and capital resources our sources of liquidity include our cash balances and available-for-sale securities . at december 31 , 2012 , we had $ 25.5 million in cash and cash equivalents . we have primarily financed our operations through equity financings , business collaborations and grant funding . we conduct all of our operations through our subsidiary , abt holding company . consequently , our ability to fund our operations depends on abt holding company 's financial condition and its ability to make dividend payments or other cash distributions to us . there are no restrictions such as government regulations or material contractual arrangements that restrict the ability of abt holding company to make dividend and other payments to us . in october 2012 , we completed a public offering generating net proceeds of approximately $ 18.3 million through the issuance of 19,802,000 shares of common stock at a price of $ 1.01 per share . in november 2012 , the underwriters exercised in full their right to purchase an additional 2,970,300 shares of common stock , solely to cover over-allotments .
| our contract revenues reflect the amortization of pfizer payments , including a $ 6.0 million non-refundable up-front license fee , over the estimated performance period that ended in june 2012 , as well as the amortization of a $ 3.0 million guaranteed license fee from the rti collaboration over the estimated performance period that ended in 2011 , and also include the final $ 2.0 million license payments from rti that was recognized in the fourth quarter of 2012. our contract revenues may also include license fees , milestone payments and royalties on compounds developed by bristol-myers squibb using one of our technologies . as a result of the end of these performance periods and absent any new collaborations , we expect our contract revenues to decline significantly in 2013 and to be comprised of reimbursements from pfizer for outsourced central processing costs for the clinical product , potential rti royalty payments , and potential license and milestone payments from bristol-myers squibb . grant revenue remained consistent at $ 1.3 million for the year ended december 31 , 2012 and 2011 primarily due to expiring grants being replaced with new grants . our grant revenues may fluctuate from period to period based on the timing of grant-related activities and the expiration and award of grants . research and development expenses . research and development expenses increased to $ 19.6 million for the year ended december 31 , 2012 from $ 18.9 million for the year ended december 31 , 2011. the increase of $ 0.7 million related to an increase in clinical and preclinical development costs of $ 558,000 , an increase in personnel costs of $ 456,000 and an increase in research supplies of $ 119,000 for the year ended december 31 , 2012 from the comparable period in 2011. these increases were partially offset by a decrease in patent legal fees of $ 330,000 , a decrease in sponsored research costs of $ 27,000 , and a decrease in stock compensation expense of $ 55,000. our clinical and preclinical development costs relate primarily to costs associated with our multistem clinical trials , and include increases in
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in conjunction with the commitment for the ten additional 767 aircraft leases , extensions of twenty existing boeing 767 aircraft leases and additional aircraft operations under the atsa , amazon was issued additional warrants for 14.8 million common shares which , if exercised , could expand its potential ownership in the company to approximately 33.2 % , including the warrants described above under the 2016 agreements . these new warrants will vest as existing leases are extended and additional aircraft leases are executed and added to the atsa operations . additionally , amazon can earn incremental warrant rights , increasing its potential ownership from 33.2 % up to approximately 39.9 % of the company , by leasing up to seventeen more cargo aircraft from the company before january 2026. our accounting for the warrants issued to amazon has been determined in accordance with the financial reporting guidance for financial instruments . the fair value of the warrants issued or issuable to amazon are recorded as a lease incentive asset and are amortized against revenues over the duration of the aircraft leases . the warrants are accounted for as financial instruments , and accordingly , the fair value of the outstanding warrants are measured and classified in liabilities at the end of each reporting period . the company 's earnings are impacted by the fair value re-measurement of the amazon warrants at the end of each reporting period , customer incentive amortization and the related income tax effects . for income tax calculations , the value and timing of related tax deductions will differ from the guidance described below for financial reporting . for additional information about the warrants , see note d to the accompanying consolidated financial statements . the dod comprised 34 % , 15 % and 10 % of the company 's consolidated revenues excluding directly reimbursed revenues during the years ended december 31 , 2019 , 2018 and 2017 , respectively . the company 's airlines provide passenger and cargo airlift services to the u.s. dod . due to the acquisition of oai , the dod comprises a larger portion of our 2019 consolidated revenues compared to previous years . results of operations story_separator_special_tag obligations granted to amazon . pre-tax earnings were also reduced by $ 17.2 million , $ 16.9 million and $ 14.0 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively , for the amortization of customer incentives given to asi in the form of warrants . additionally , pre-tax earnings from continuing operations included expenses of $ 9.4 million , gains of $ 8.2 million and expenses of $ 6.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively , for settlement charges , curtailments and other non-service components of retiree benefit plans . pre-tax earnings included losses of $ 17.4 million , $ 10.5 million and $ 3.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively , for the company 's share of development costs for a joint venture and the partial sale of an airline investment . pre-tax earnings for 2019 and 2018 also included expense of $ 0.4 million and $ 5.3 million , respectively , for acquisition fees incurred during the company 's acquisition of omni . after removing the effects of these items , adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings from continuing operations follows ) , were $ 128.3 million for 2019 compared to $ 104.6 million for 2018 and $ 96.5 million for 2017. adjusted pre-tax earnings from continuing operations for 2019 improved by 22.6 % compared to 2018 , driven primarily by additional revenues and the improved financial results of our airline operations , including omni . we experienced additional revenues and earnings due to the acquisition of omni in november 2018. adjusted pre-tax earnings from continuing operations also improved due to additional aircraft leases and the expansion of gateway ground operations for asi . growth in revenue was partially offset by the costs necessary to support expanded flight operations , higher costs for flight crews , higher depreciation expense and employee expenses , particularly in support of logistical services . pre-tax earnings for 2019 and 2018 included additional interest expense of $ 37.8 million and $ 11.8 million due to the acquisition of omni and the expansion of the fleet . pre-tax earnings for 2018 included contributions from the company 's former usps contracts for parcel sorting , which expired in september 2018 . 30 a summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is shown below ( in thousands ) : replace_table_token_6_th adjusted pre-tax earnings from continuing operations , a non-gaap measure , is pre-tax earnings excluding settlement charges and other non-service components of retiree benefit costs , gains and losses for the fair value re-measurement of financial instruments , customer incentive amortization , the transaction fees related to the acquisition of omni , the start-up costs of a non-consolidated joint venture and the partial sale of an airline investment . we exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities . management uses adjusted pre-tax earnings to compare the performance of core operating results between periods . presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods . adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . we adopted topic 606 using a modified retrospective approach under which financial statements are prepared under the revised guidance for the year of adoption , but not for prior years . story_separator_special_tag we determined that under topic 606 , the company is an agent for aircraft fuel and certain other costs reimbursed under its acmi and cmi contracts and for certain ground services that it arranges for asi . under the new standard , such reimbursed amounts are reported net of the corresponding expenses beginning in 2018. revenues during 2017 included $ 289.4 million for reimbursable revenues under its acmi and cmi contracts and for directly reimbursed ground services which , under the new standard , have been reported net of the related expenses in 2019 and 2018 . 31 2019 and 2018 cam cam offers aircraft leasing and related services to external customers and also leases aircraft internally to the company 's airlines . cam acquires passenger aircraft and manages the modification of the aircraft into freighters . the follow-on aircraft leases normally cover a term of five to eight years . as of december 31 , 2019 and 2018 , cam had 62 and 59 aircraft under lease to external customers , respectively . cam 's revenues grew by $ 56.3 million during 2019 compared to 2018 , primarily as a result of additional aircraft leases . revenues from external customers totaled $ 168.1 million and $ 156.5 million for 2019 and 2018 , respectively . cam 's revenues from the company 's airlines totaled $ 117.2 million during 2019 , compared to $ 72.4 million for 2018 , reflecting lease revenues for the addition of the eleven passenger aircraft acquired with omni in november 2018. cam 's aircraft leasing and related services revenues , which exclude customer lease incentive amortization , increased $ 56.1 million in 2019 compared to 2018 , primarily as a result of the addition of the eleven passenger aircraft acquired with omni in november 2018 and new aircraft leases in 2019. since the beginning of 2019 , cam has added eight boeing 767-300 aircraft to its lease portfolio . cam also added two boeing 767-200 passenger aircraft , six boeing 767-300 passenger aircraft and three boeing 777-200 passenger aircraft to its lease portfolio after the company 's acquisition of omni in november 2018. cam 's pre-tax earnings , inclusive of internally allocated interest expense , were $ 68.6 million and $ 65.6 million during 2019 and 2018 , respectively . increased pre-tax earnings reflect the eleven passenger aircraft leased to omni as well as the eight aircraft placed into service in 2019 , offset by a $ 16.5 million increase in internally allocated interest expense due to higher debt levels and $ 31.6 million more depreciation expense driven by the addition of eight boeing aircraft in 2019 compared to 2018. during 2019 , cam purchased ten boeing 767-300 passenger aircraft for freighter conversion and one boeing 767-300 freighter aircraft . three of the passenger aircraft were converted to freighters and leased to external customers during 2019 and one of the passenger aircraft was leased internally as a passenger aircraft . as of december 31 , 2019 , cam has eight boeing 767-300 aircraft being modified from passenger to freighter configuration . in addition to the eight boeing 767-300 aircraft which were in the modification process at december 31 , 2019 , cam has agreements to purchase 15 more boeing 767-300 aircraft and expects to complete their modifications through 2021. cam 's operating results will depend on its continuing ability to convert passenger aircraft into freighters within planned costs and within the time frames required by customers . during 2020 , four leases for boeing 767-200 aircraft are timed to expire . cam 's future operating results will also depend on the timing and lease rates under which these aircraft are ultimately leased or redeployed . cam 's future operating results will also be impacted by the amortization of additional warrants committed to amazon in conjunction with agreements for additional long-term aircraft leases . acmi services the acmi services segment provides airline operations to its customers , typically under contracts providing for a combination of aircraft , crews , maintenance , insurance and aviation fuel . our customers are typically responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees , ramp expenses , certain aircraft maintenance expenses and fuel procured directly by the airline . aircraft charter agreements , including those for the dod , usually require the airline to provide full service , including fuel and other operating expenses for a fixed , all-inclusive price . as of december 31 , 2019 , acmi services included 71 in-service aircraft as follows : twelve passenger aircraft and 20 freighter aircraft leased internally from cam eight cam-owned freighter aircraft which are under lease to dhl and operated by abx under the dhl cmi agreement twenty-six cam-owned freighter aircraft which are under lease to asi and operated by ati and abx under the atsa two freighter aircraft from an external lessor under lease to asi and operated by ati under the atsa another cam-owned freighter leased to a customer and operated by ati 32 two passenger aircraft leased from an external lessor as of december 31 , 2019 , acmi services revenues included the operation of seven more cam-owned aircraft compared to december 31 , 2018. total revenues from acmi services increased $ 529.4 million during 2019 compared with 2018 to $ 1,078.3 million . improved revenues were driven by the acquisition of oai and a 40 % increase in billable block hours . increased revenues for 2019 included additional aircraft operations for asi and the dod . on a combined basis , acmi services revenues for the year ended december 31 , 2018 would have been $ 980.6 million with the inclusion of oai . acmi services had pre-tax earnings of $ 32.1 million during 2019 , compared to $ 11.4 million for 2018 inclusive of internally allocated interest expense . improved pre-tax results in 2019 compared to 2018 were bolstered by expanded revenues from the acquisition of oai and the timing of scheduled airframe maintenance events .
| 28 - ati began to operate two boeing 767-300 freighter aircraft provided by our customer , asi . - cam purchased ten boeing 767-300 passenger aircraft and one boeing 767-300 freighter aircraft for the purpose of converting nine of the passenger aircraft into a standard freighter configuration . cam leased one of these aircraft to omni as a passenger aircraft . replace_table_token_5_th as of december 31 , 2019 , abx , ati and oai were leasing 32 in-service aircraft internally from cam for use in acmi services . as of december 31 , 2019 , one of cam 's 26 boeing 767-200 freighter aircraft shown in the fleet table above and seven of the 35 boeing 767-300 freighter aircraft were leased to dhl and operated by abx . additionally , 12 of cam 's 26 boeing 767-200 freighter aircraft and 14 of cam 's 35 boeing 767-300 freighter aircraft were leased to asi and operated by abx or ati . cam leased the other 13 boeing 767-200 freighter aircraft and 14 boeing 767-300 aircraft to external customers , including six boeing 767-200 aircraft to dhl that are being operated by a dhl-affiliated airline . the carrying values of the total in-service fleet as of december 31 , 2019 , 2018 and 2017 were $ 1,387.6 million , $ 1,334.9 million and $ 955.2 million , respectively . the table above does not reflect one boeing 767-200 passenger aircraft owned by cam that is not in service condition or the process of freighter modification . 29 revenue and earnings summary external customer revenues from continuing operations increased by $ 559.8 million , or 63 % , to $ 1,452.2 million during 2019 compared to 2018. revenues in 2019 primarily grew due to passenger transportation services provided to the dod as a result of our acquisition of oai in november 2018. revenues also increased due to additional aircraft leases from cam 's leasing operations , expanded cmi , aviation fuel sales and logistics services for asi . external customer revenues from
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our agreement with linkedin will terminate on march 29 , 2014. there are no post termination restrictions on our ability to sell any employers our diversity recruitment services . as part of our termination with linkedin we will provide ongoing job postings and reporting for those employers to whom linkedin sold our diversity recruitment services . we are not restricted from entering into a direct recruitment relationship with those companies that are using our products and services via the linkedin reseller agreement . recruitment advertising . diversity recruitment advertising enables recruiters to communicate their career opportunities to diverse candidates using internet banner ads and email marketing . in the past year we have provided diversity recruitment advertising services to numerous employers . we use sophisticated technology to delivery advertising targeted by geography and occupation . our targeting is based upon data that we have accumulated relevant to our audiences ' job searches on our sites and vast profiles based upon those user experiences . cost of growth in the fiscal year ended december 31 , 2012 , we began to increase our sales and marketing , as well as product development expenses . we continued making these investments in people and technology in 2013 as we refined and focused our sales , marketing and technology teams . such expenses were not capitalized under our financial statements in accordance with generally accepted accounting principles , and we do not expect to see significantly increased revenues resulting from these investments until the first quarter of 2014. therefore , as we execute our strategy to increase recruitment revenue by hiring additional personnel , expanding our marketing efforts and building a sales team , our profitability has declined and may continue to decline in the near-term . 25 story_separator_special_tag the year ended december 31 , 2012 , was primarily due to the additional costs incurred of approximately $ 661,000 during the year ended december 31 , 2013 related to being a public company , including costs associated with audit , legal , directors and officers insurance , investor relations and filing fees and registration . additionally , personnel expenses increased by $ 70,000 for the year ended december 31 , 2013 related to the hiring of additional personnel to support our initial public offering . in connection with the acquisition of the software technology from careerimp in june 2013 , we committed to pay careerimp an additional $ 200,000 contingent upon the former ceo 's continued employment with pdn through december 31 , 2013. additionally , in connection with the acquisition of psi , we committed to pay the former ceo an additional $ 100,000 on each of september 20 , 2014 and 2015 contingent upon his continued employment with pdn on each of those respective dates . we recorded $ 225,000 of these contingent liabilities during the year ended december 31 , 2013. we also experienced an increase of $ 122,000 for the year ended december 31 , 2013 in occupancy , technology and communication costs as we moved our corporate headquarters to a larger space and hired additional employees . the increase was offset by a $ 43,000 decrease in travel , meals and entertainment expense for the year ended december 31 , 2013 and a $ 49,000 decrease in bad debt expense for the year ended december 31 , 2013. depreciation and amortization expense : the increase in depreciation and amortization expense for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 , was primarily due to a $ 164,000 increase in amortization expense for the year ended december 31 , 2013 related to the costs incurred to update the technology stack of our web product platform to support emerging technologies . we switched over to the platform , dubbed “ v2 , ” at the end of 2012 , though the development continued through the first quarter of 2013. amortization expense also reflects the amortization of the software technology acquired from careerimp in june 2013. other expenses included in other expenses , net , for the years ended december 31 , 2013 and 2012 is interest expense in the amount of $ 155,000 and $ 172,000 , respectively . interest expense is primarily attributable to the amortization of the discount on the note payable to one of the note holders as the note was exchanged to equity upon our reorganization on march 4 , 2013. amortization of the discount amounted to $ 138,000 and $ 70,000 for the year ended december 31 , 2013 and 2012 , respectively , for the note . change in fair value of warrant liability the change in the fair value of the warrant liability is related to the common stock purchase warrants issued to underwriters in the company 's ipo on march 4 , 2013. during the year ended december 31 , 2013 , we recorded a non-cash gain of $ 330,000 related to changes in the fair value of our warrant liability liabilities . the change in the fair value of our warrant liability for the year ended december 31 , 2013 was primarily the result of changes in our stock price . 27 income tax ( benefit ) expense as a result of the company 's completion of its ipo , the company 's results of operations are taxed as a c corporation . prior to the ipo , the company 's operations were taxed as a limited liability company , whereby the company elected to be taxed as a partnership and the income or loss was required to be reported by each respective member on their separate income tax returns . therefore , no provision for income taxes was recorded for periods prior to march 4 , 2013. this change in tax status to a taxable entity resulted in the recognition of deferred tax assets and liabilities based on the expected tax consequences of temporary differences between the book and tax basis of the company 's assets and liabilities at the date of the ipo . story_separator_special_tag this resulted in a net deferred tax benefit of $ 381,000 being recognized and included in the tax provision for the year ended december 31 , 2013. the tax benefit was determined using an effective tax rate of 40.6 % for the period from march 4 , 2013 ( the date on which the tax status changed to a c corporation ) to december 31 , 2013. the unaudited pro forma computation of income tax benefit included in the statements of comprehensive ( loss ) income , represents the tax effects that would have been reported had the company been subject to u.s. federal and state income taxes as a corporation for all periods presented . the company provided the pro forma income tax disclosures for the years ended december 31 , 2013 and 2012 to illustrate what the company 's net ( loss ) income would have been had income tax expense been provided for at an effective tax rate of 40.6 % and 41.0 % , respectively . pro forma taxes are based upon the statutory income tax rates and adjustments to income for estimated permanent differences occurring during each period . actual rates and expenses could have differed had the company actually been subject to u.s. federal and state income taxes for all periods presented . therefore , the unaudited pro forma amounts are for informational purposes only and are intended to be indicative of the results of operations had the company been subject to u.s. federal and state income taxes as a corporation for all periods presented . critical accounting policies and estimates on april 5 , 2012 , the jobs act was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . as an “ emerging growth company , ” we may delay adoption of new or revised accounting standards applicable to public companies until the earlier of the date that ( i ) we are no longer an emerging growth company or ( ii ) we affirmatively and irrevocably opt out of the extended transition period for complying with such new or revised accounting standards . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . upon issuance of new or revised accounting standards that apply to our financial statements , we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting guidelines . our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 3 to our financial statements included at the end of this annual report , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . accounts receivable our policy is to reserve for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable . we periodically review our accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt . account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . goodwill and intangible assets we account for goodwill and intangible assets in accordance with accounting standards codification ( “ asc ” ) 350 , intangibles - goodwill and other ( “ asc 350 ” ) . asc 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value . 28 we evaluate goodwill for impairment annually ( december 31 ) and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable . triggering events that may indicate impairment include , but are not limited to , a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows . when conducting our annual goodwill impairment assessment , we apply the two-step impairment test . the first step , identifying a potential impairment , compares the fair value of the reporting unit with its carrying amount . if the carrying value exceeds its fair value , the second step would need to be conducted ; otherwise , no further steps are necessary as no potential impairment exists . the second step , measuring the impairment loss , compares the implied fair value of the goodwill with the carrying amount of that goodwill .
| revenue from our consumer advertising and consumer marketing solutions was $ 1,566,000 for the year ended december 31 , 2013 , compared to $ 2,154,000 for the year ended december 31 , 2012. the year over year decrease was primarily the result of changes in our agreements with apollo group and a decrease in media revenue as we changed our product offerings . the revenue from our apollo education to careers agreement , which consists of a fixed monthly fee of $ 116,667 , remained the same . however , the advertising and promotion campaign for apollo group 's education to education affinity networking portal site ended in june 2012 and such termination resulted in a decrease in revenue of $ 150,000 for the year ended december 31 , 2013. additionally , we mutually ended our insertion order agreement with the apollo group for lead generation for the university of phoenix in june 2013 and such termination resulted in a decrease in revenue of $ 307,000 for the year ended december 31 , 2013. our media revenue for the year ended december 31 , 2013 was $ 0 , compared to $ 126,000 for the year ended december 31 , 2012 , as our 2013 efforts focused on growing our recruitment solutions products . 26 operating expenses cost of services expense : the increase in cost of services expense for the year ended december 31 , 2013 was due to ( i ) a $ 207,000 increase in salaries and benefits for the year ended december 31 , 2013 resulting from hiring additional operations personnel in the third quarter of 2012 to support our expected revenue and traffic growth in 2013 and ( ii ) $ 203,000 of direct costs incurred in connection with our events division . due to the seasonality of the events industry and the process of integrating this business , we had expected a significant cost for this division in the fourth quarter . additionally , higher maintenance and operation expenses related to our systems and websites resulted in an increase of $ 56,000 of expenses during the year ended december 31 , 2013. the increase was offset by a $ 73,000 decrease in revenue sharing
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key business metrics our management regularly reviews financial and operating metrics , including the following key operating metrics , to evaluate the performance of our business and our success in executing our business plan , make decisions regarding resource allocation and corporate strategies , and evaluate forward-looking projections . replace_table_token_1_th atg aircraft online . we define atg aircraft online as the total number of business aircraft for which we provide atg services as of the last day of each period presented . this number excludes aircraft receiving atg service as part of the atg network sharing agreement with intelsat . satellite aircraft online . we define satellite aircraft online as the total number of business aircraft for which we provide satellite services as of the last day of each period presented . 42 average monthly connectivity servic e revenue per atg aircraft online . we define average monthly connectivity service revenue per atg aircraft online as the aggregate atg connectivity service revenue for the period divided by the number of months in the period , divided by the number of atg aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . revenue share earned from the atg network sharing agreement with intelsat is excluded from this calculation . average monthly service revenue per satellite aircraft online . we define average monthly service revenue per satellite aircraft online as the aggregate satellite service revenue for the period divided by the number of months in the period , divided by the number of satellite aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . units sold . we define units sold as the number of atg or satellite units for which we recognized revenue during the period . average equipment revenue per atg unit sold . we define average equipment revenue per atg unit sold as the aggregate equipment revenue from all atg units sold during the period , divided by the number of atg units sold . average equipment revenue per satellite unit sold . we define average equipment revenue per satellite unit sold as the aggregate equipment revenue earned from all satellite units sold during the period , divided by the number of satellite units sold . key components of consolidated statements of operations as a result of the transaction , all periods presented in this form 10-k have been conformed to present the ca business as a discontinued operation . we report the financial results of discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations . the results of operations and cash flows of a discontinued operation are restated for all comparative periods presented . refer to note 2 , “ discontinued operations , ” to our consolidated financial statements for further information . the following briefly describes certain key components of revenue and expenses as presented in our consolidated statements of operations . revenue : we generate two types of revenue : service revenue and equipment revenue . service revenue primarily consists of monthly subscription and usage fees paid by aircraft owners and operators for telecommunication , data , and in-flight entertainment services . service revenue is recognized as the services are provided to the customer . beginning december 2020 , service revenue includes revenue earned from the atg network sharing agreement with intelsat . equipment revenue primarily consists of proceeds from the sale of atg and satellite connectivity equipment and entertainment equipment . equipment revenue is generally recognized when the equipment is shipped to oems and dealers . cost of revenue : cost of service revenue consists of atg network costs , satellite provider service costs , transaction costs and costs related to network operations . before closing the transaction , we operated two divisions – business aviation ( “ ba ” ) and commercial aviation ( “ ca ” ) . in january 2019 , ba assumed responsibility for operating and maintaining our atg network and was allocated the majority of the atg network costs incurred in fiscal year 2019. in january 2020 , we adopted a new allocation methodology for the atg network costs utilizing pricing and usage for each of ca and ba . this allocation methodology has been applied retrospectively to prior periods presented as the ca business is reported in 43 discontinued operations . s ince the completion of the transaction , we ceased allocating atg network costs to the divested ca business . cost of equipment revenue primarily consists of the costs of purchasing component parts used in the manufacture of our equipment and the production , installation , technical support and quality assurance costs associated with the equipment sales . engineering , design and development expenses : engineering , design and development expenses include the costs incurred to design and develop our technologies and products and to obtain and maintain faa and other regulatory certifications . this includes the design , development and integration of our atg ground networks and airborne line replaceable units , the design and development of products and enhancements thereto , and program management activities . engineering , design and development expenses also include costs associated with enhancements to existing products . sales and marketing expenses : sales and marketing expenses consist of costs associated with activities related to customer sales ( including sales commissions ) , digital marketing and lead generation , advertising and promotions , product management , trade shows and customer service support for end users . general and administrative expenses : general and administrative expenses include personnel and related operating costs of the business support functions , including finance and accounting , legal , human resources , administrative , information technology , facilities and executive groups . depreciation and amortization : depreciation expense includes expense associated with the depreciation of our network equipment , office equipment , furniture , fixtures and leasehold improvements , which is recorded over their estimated useful lives . story_separator_special_tag amortization expense includes the amortization of our finite-lived intangible assets on a straight-line basis over their estimated useful lives , which range from three to ten years depending on the assets being amortized . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of our consolidated financial statements and related disclosures requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related exposures . we base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances . in some instances , we could reasonably use different accounting estimates , and in some instances actual results could differ significantly from our estimates . we evaluate our estimates and assumptions on an ongoing basis . to the extent that there are differences between our estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . we believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results , and that they require our most difficult , subjective or complex judgments , resulting from the need to make estimates . for a discussion of our significant accounting policies to which many of these critical estimates relate , see note 3 , “ summary of significant accounting policies , ” to our consolidated financial statements . 44 we believe that the assumptions and estimates associated with revenue recognition , indefinite-lived intangible assets and stock-based compensation expense have the greatest potential impact on our consolidated financial statements . therefore , we consider these to be our critical accounting policies and estimates . note that these critical accounting policies and estimates relate solely to our continuing operations . the accounting policies related to our discontinued operations are discussed in note 2 , “ discontinued operations , ” to our consolidated financial statements . revenue recognition : we account for revenue in accordance with accounting standards codification topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . we determine revenue recognition through the following steps : identification of the contract , or contracts , with a customer ; identification of the performance obligations in the contract ; determination of the transaction price ; allocation of the transaction price to the performance obligations in the contract ; and recognition of revenue as we satisfy the performance obligations . see note 5 , “ revenue recognition , ” to our consolidated financial statements for additional information . we sell airborne telecommunications equipment to oems and dealers , who purchase the equipment based on their planned production or aftermarket sales , or in some cases based on specific orders made by aircraft owners and operators . these distribution partners resell the equipment and install the equipment for the aircraft owners and operators . revenue for equipment sales to distribution partners is recognized upon shipment of equipment after an executed contract , purchase order or other documented agreement has been received and control of the equipment has transferred . we also provide connectivity , entertainment and voice services to the owners and operators of business aircraft for a monthly subscription fee or a usage-based fee . these services are typically contracted for a one-year period and automatically renew unless cancelled at the end of the service period . revenue is recognized on a monthly basis as services are provided . in all cases , we evaluate whether a contract exists as it relates to collectability of the contract . once a contract is deemed to exist , we evaluate the transaction price and deliverables under the contract . a limited number of contracts contain multiple equipment and service deliverables . for these contracts , we account for each distinct good or service as a separate performance obligation . we allocate the contract 's transaction price to each performance obligation using the relative standalone selling price , which is based on the actual selling price for any good or service sold separately to a similar class of customer . indefinite-lived intangible assets : we account for our indefinite-lived intangible assets in accordance with accounting standards codification topic 350-40 , intangibles-goodwill and other ( “ asc 350-40 ” ) . our indefinite-lived intangible assets consist of our fcc spectrum licenses . indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually or whenever events indicate that the carrying amount of such assets may not be recoverable . we perform our annual impairment test during the fourth quarter of each fiscal year . we assess qualitative factors to determine the likelihood of impairment . our qualitative analysis includes , but is not limited to , assessing the changes in macroeconomic conditions , regulatory environment , industry and market conditions or events , such as covid-19 , financial performance versus budget and any other events or circumstances specific to the fcc licenses . if it is more likely than not that the fair value of the 45 fcc spectrum licenses is greater than the carrying value , no further testing is required . otherwise , we apply the quantitative impairment test method . we determined that the income approach , utilizing the greenfield method , is the most appropriate way to value our indefinite-lived assets . for the greenfield method we estimate the value of our fcc spectrum licenses by calculating the present value of the cash flows of a hypothetical new market participant whose only assets are such licenses to determine the fair value of the fcc licenses . it includes all necessary costs and expenses to build the company 's infrastructure during the start-up period , projected revenue , and cash flows once the infrastructure is completed .
| cost of revenue : cost of service revenue and percent change for the years ended december 31 , 2020 and 2019 were as follows ( in thousands , except for percent change ) : replace_table_token_4_th cost of service revenue increased to $ 45.1 million for the year ended december 31 , 2020 , as compared with $ 42.1 million for the prior year , primarily due to an increase in allocated atg network costs . following the completion of the transaction , atg network costs are no longer shared with the divested ca business . we expect cost of service revenue to increase over time , primarily due to service revenue growth and increasing atg network costs associated with gogo 5g . cost of equipment revenue decreased to $ 39.3 million for the year ended december 31 , 2020 , as compared with $ 51.7 million for the prior year , primarily due to a decrease in equipment revenue . we expect that our cost of equipment revenue will vary with changes in equipment revenue and unit sold . engineering , design and development expenses : engineering , design and development expenses decreased to $ 25.2 million for the year ended december 31 , 2020 , as compared with $ 26.0 million for the prior year , due to a decrease in personnel , travel costs and miscellaneous other costs resulting from cost controls implemented by management , primarily in response to the impact of the covid-19 pandemic on our business . we expect engineering , design and development expenses to remain flat or increase slightly as a percentage of service revenue in the near term , driven by gogo 5g development costs , and decrease as a percentage of service revenue over the long term as the level of investment decreases and revenue increases . sales and marketing expenses : sales and marketing expenses decreased to $ 15.1 million for the year ended december 31 , 2020 , as compared with $ 21.2 million for the prior year , primarily due to decreased personnel and advertising expenses and cost controls implemented by management in response to the impact of the covid-19 pandemic on our business . we expect sales and
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scores revenue increased 25 % to $ 528.5 million in fiscal 2020 from $ 421.2 million in fiscal 2019 , and scores operating income increased 26 % to $ 454.3 million in fiscal 2020 from $ 361.4 million in fiscal 2019. for our applications and decision management software segments , our saas business continues to grow as we pursue our cloud-enabled , platform-based strategy . revenue derived from our cloud-enabled saas business , which includes both subscription revenue and associated professional services revenue , increased 11 % to $ 300.0 million during fiscal 2020 , from $ 270.4 million during fiscal 2019. saas subscription revenue increased 11 % to $ 236.0 million during fiscal 2020 , from $ 213.1 million during fiscal 2019. we derive a significant portion of revenues internationally , and 32 % and 34 % of total consolidated revenues were derived from clients outside the u.s. during fiscal 2020 and 2019 , respectively . a significant portion of our revenues are derived from the sale of products and services within the banking ( including consumer credit ) industry , and 86 % and 87 % of our revenues were derived from within this industry during fiscal 2020 and 2019 , respectively . in addition , a significant share of our revenues come from transactional or unit-based software license fees , transactional fees under credit scoring , data processing , data management and saas subscription services arrangements , and annual software maintenance fees . arrangements with transactional or unit-based pricing accounted for 75 % and 74 % of our revenues during fiscal 2020 and 2019 , respectively . operating income for fiscal 2020 was $ 296.0 million , an increase of 17 % from $ 253.5 million in fiscal 2019 . operating margin was 23 % and 22 % for fiscal 2020 and 2019 , respectively . net income increased 23 % to $ 236.4 million in fiscal 2020 from $ 192.1 million in fiscal 2019 primarily due to an increase in operating income . diluted earnings per share for fiscal 2020 was $ 7.90 , an increase of 25 % from $ 6.34 in fiscal 2019 . covid-19 update in march 2020 , the world health organization declared the outbreak of covid-19 a global pandemic , which has spread throughout the u.s. and the world . the covid-19 pandemic has resulted in authorities implementing numerous measures to contain the virus , including quarantines , shelter-in-place orders , travel bans and restrictions , and business limitations and shutdowns . our focus remains on promoting employee health and safety , serving our customers and ensuring business continuity . since march 2020 , our employees have been instructed to work from home in each country where we operate to support their health and well-being as well as for our customers , partners and communities . we have also substantially reduced employee travel to only essential business needs . we can not predict when or how we will begin to lift the actions put in place , but as of the date of this filing , we do not believe our work-from-home protocol has had a material adverse impact on our internal controls , financial reporting systems or our operations . our operational flexibility and strong balance sheet allowed us to successfully manage through the initial impact of covid-19 while protecting our cash flow and liquidity . however , certain areas of our business have been adversely impacted as a result of the pandemic 's global economic impact . for example , covid-19 has been adversely affecting certain purchasing decisions by our customers in our applications and decision management software segments . for our scores segment , we have seen a decline in auto and unsecured originations volumes , but an increase in mortgage volume through the 2 nd half of fiscal 2020 due to strong refinancing activities boosted by low interest rates . additionally , we have granted and may continue to grant extended payment terms to a small number of customers as a result of covid-19 . we have not and do not plan to modify our customer agreements in a manner that would materially impact our financial condition or results of operations . finally , contrary to our original expectations , a decrease in sales-related travel activity has not materially affected our ability to consummate sales . as a cost management initiative due to covid-19 , we accelerated reviews of our leased office spaces across our real estate portfolio to reshape and optimize our occupancy cost structures over the next several years . as a result , in the fourth quarter of fiscal 2020 we recorded impairment charges of $ 33.2 million on operating lease assets , property and equipment related to closing or consolidating office spaces to better align with anticipated needs . while we intend to continue to manage our costs by limiting the addition of new employees and third-party contracted services , and substantially reducing employee travel and other discretionary spending , to the extent the business disruption continues for an extended period , additional cost management actions will be considered and may become necessary . further asset impairment charges , increases in allowance for doubtful accounts , or restructuring charges may be required , depending on the severity and duration of the pandemic . we have not incurred significant financial disruptions thus far from the covid-19 outbreak , but due to numerous uncertainties , including the severity and duration of the pandemic , actions that may be taken by governmental authorities , the impact on the business of our clients , and other factors , we are unable to accurately predict the impact covid-19 will have on our results of operations , financial condition , liquidity and cash flows . story_separator_special_tag for more information , see part i , item 1a , risk factors , of this annual report on form 10-k. 32 bookings management regards the volume of bookings achieved as an important indicator of future revenues , but they are not comparable to nor a substitute for an analysis of our revenues . bookings represent contracts signed in the current reporting period that generate current and future revenue streams . while we disclose estimated revenue expected to be recognized in the future related to unsatisfied performance obligations in note 16 to the accompanying consolidated financial statements , we believe bookings amount is still a meaningful measure of our business as it includes estimated revenues omitted from note 16 , such as usage-based royalties derived from our software licenses , among others . we estimate bookings as of the end of the period in which a contract is signed and initial booking estimates are not updated in future periods for changes between estimated and actual results . our calculations have varying degrees of certainty depending on the revenue type and individual contract terms . they are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance , and estimates consider contract terms , knowledge of the marketplace and experience with our customers , among other factors . actual revenue and the timing thereof could differ materially from our initial estimates . although many of our contracts contain non-cancelable terms , most of our bookings are transactional or service-related that depend upon estimates such as volume of transactions , number of active accounts , or number of hours incurred . since these estimates can not be considered fixed or firm , we do not believe it is appropriate to characterize bookings as backlog . the following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability for each revenue type , as defined in revenue recognition in the critical accounting policies and estimates . transactional and maintenance bookings we calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract , multiplied by the contractual rate . transactional contracts generally span multiple years and require estimates of future transaction volumes or number of active accounts . we develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements . differences between estimated bookings and actual results occur due to variability in the volume of transactions or number of active accounts estimated . this variability is primarily caused by the economic trends in our customers ' industries ; individual performance of our customers relative to their competitors ; and regulatory and other factors that affect the business environment in which our customers operate . we calculate maintenance bookings directly from the terms stated in the contract . professional services bookings we calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour . we estimate the number of hours based on our understanding of the project scope , conversations with customer personnel and our experience in estimating professional services projects . estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred . license bookings licenses that are sold on a perpetual or term basis when bookings generally equal the fixed amount ( including guaranteed minimums ) stated in the contract . bookings trend analysis replace_table_token_3_th ( 1 ) bookings yield represents the percentage of revenue recognized from bookings for the periods indicated . ( 2 ) weighted-average term of bookings measures the average term over which bookings are expected to be recognized as revenue . ( a ) nm - measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update our initial booking estimates in future periods for changes between estimated and actual results . 33 transactional and maintenance bookings were 48 % of total bookings for each of the years ended september 30 , 2020 and 2019 . professional services bookings were 33 % and 39 % of total bookings for the years ended september 30 , 2020 and 2019 , respectively . license bookings were 19 % and 13 % of total bookings for the years ended september 30 , 2020 and 2019 , respectively . results of operations we are organized into the following three reportable segments : applications , scores and decision management software . although we sell solutions and services into a large number of end user product and industry markets , our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance . segment revenues , operating income , and related financial information , including disaggregation of revenue , for the years ended september 30 , 2020 , 2019 and 2018 are set forth in note 15 to the accompanying consolidated financial statements . revenues the following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2020 , 2019 and 2018 : replace_table_token_4_th replace_table_token_5_th 34 applications replace_table_token_6_th applications segment revenues decreased $ 3.0 million in fiscal 2020 from 2019 primarily attributable to a $ 17.9 million decrease in our fraud solutions and a $ 3.1 million decrease in our customer communications services , partially offset by a $ 10.8 million increase in our compliance solutions and a $ 7.7 million increase in our originations solutions . the decrease in fraud solutions was primarily attributable to a decrease in license revenue , driven by a large multi-year license renewal recognized during fiscal 2019. the decrease in customer communication services was primarily attributable to a decrease in transactional revenue . the increase in compliance solutions was primarily attributable to an increase in professional services and license revenues .
| net cash used in investing activities totaled $ 42.8 million in fiscal 2019 compared to $ 14.1 million in fiscal 2018. the $ 28.7 million increase was primarily attributable to a $ 20.0 million decrease in proceeds from the sale of cost method investment and a $ 15.9 million increase in net cash used for acquisitions , partially offset by a $ 7.3 million decrease in net cash used for purchases of property and equipment . 42 cash flows from financing activities net cash used in financing activities totaled $ 289.4 million in fiscal 2020 compared to $ 200.0 million in fiscal 2019. the $ 89.4 million increase was primarily due to a $ 338.0 million increase in payments , net of proceeds , on our revolving line of credit and a $ 49.9 million increase in taxes paid related to net share settlement of equity awards , partially offset by a $ 293.0 million increase in proceeds , net of payments , from our senior notes . net cash used in financing activities totaled $ 200.0 million in fiscal 2019 compared to $ 218.6 million in fiscal 2018. the $ 18.6 million decrease was primarily due to a $ 192.0 million decrease in payments , net of proceeds , on our revolving line of credit , a $ 113.7 million decrease in net cash used for repurchases of common stock and an $ 11.8 million increase in proceeds from issuance of treasury stock under employee stock plans , partially offset by a $ 297.0 million decrease in proceeds , net of payments , from our senior notes . repurchases of common stock in july 2019 , our board of directors approved a stock repurchase program following the completion of the previously authorized program . this program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $ 250.0 million in the open market or in negotiated transactions . in july 2020 , our board of directors approved a new stock repurchase program following the completion of the july 2019 program . this program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $ 250.0 million in
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the cost of the company 's raw materials fluctuates due to changes in the cobalt reference price , actual or perceived changes in supply and demand of raw materials , and changes in availability from suppliers . the company attempts to mitigate increases in raw material prices by passing through such increases to its customers in the prices of its products and by entering into sales contracts that contain variable pricing that adjusts based on changes in the price of cobalt . during periods of rapidly changing metal prices , however , there may be price lags that can impact the short-term profitability and cash flow from operations of the company both positively and negatively . fluctuations in the price of cobalt have historically been significant and the company believes that cobalt price fluctuations are likely to continue in the future . fluctuations in the price of copper can also impact the short-term profitability and cash flow from operations of the company both positively and negatively . declines in the selling prices of the company 's finished goods , which can result from decreases in the reference price of cobalt or other factors , can result in the company 's inventory carrying value being written down to a lower market value . executive overview the company 's advanced materials and specialty chemicals segments both achieved significantly improved year-over-year results . an increase in end market demand resulted in increased sales and product volumes , which together with higher metal prices led to improved operating results during 2010 compared to 2009. the 25 company completed the acquisition of eaglepicher technologies on january 29 , 2010. battery technologies contributed $ 113.9 million and $ 5.1 million to the company 's net sales and operating profit , respectively , during 2010. the advanced materials segment benefitted from an increase in the average cobalt reference price and favorable product mix in 2010 compared to 2009. demand for fine powders in powder metallurgy applications strengthened significantly from 2009 , partially due to customer restocking within the supply chain . these favorable items were partially offset by decreased sales of battery materials , primarily in china . the specialty chemicals segment experienced an increase in operating profit in 2010 compared with 2009 , even after excluding the 2009 goodwill impairment and restructuring charges , largely as the result of increased volume due to stronger end-market demand and favorable product mix . during 2009 , the company determined that a portion of specialty chemicals goodwill was impaired , resulting in net impairment charges of $ 37.5 million . restructuring charges related to the advanced organics business were $ 2.1 million and $ 12.7 million in 2010 and 2009 , respectively . battery technologies operating profit was $ 3.1 million in both the third and fourth quarter of 2010 compared to $ 0.4 million in the second quarter of 2010. this increase in operating profit was primarily due to timing of deliveries in defense and aerospace and $ 1.6 million of charges in the second quarter of 2010 related to purchase price accounting for acquired inventories and deferred revenue that did not recur in the third or fourth quarters of 2010 . 26 consolidated operating results for 2010 , 2009 and 2008 set forth below is a summary of the statements of consolidated operations for the years ended december 31 , replace_table_token_2_th 27 2010 compared with 2009 the following table identifies , by segment , the components of change in net sales in 2010 compared with 2009 : replace_table_token_3_th net sales increased $ 324.9 million , or 37.3 % , primarily due to increased volume , the increase in the cobalt reference price and the eaglepicher technologies acquisition . increased end-market demand drove higher volume in specialty chemicals ( $ 50.2 million ) . advanced materials achieved increased cobalt volume ( $ 30.7 million ) . the improvement in demand was partially due to customer re-stocking within the supply chain in certain end markets . the average cobalt reference price increased from $ 15.90 in 2009 to $ 18.74 in 2010 , which together with favorable product mix , resulted in higher product selling prices ( $ 68.7 million ) in advanced materials . advanced materials also benefited from an increase in cobalt metal resale ( $ 35.5 million ) primarily due to the increase in the average cobalt reference price and increased volume . advanced materials copper by-product sales also were higher ( $ 13.3 million ) due to the higher average copper price in 2010 compared with 2009 , partially offset by lower volume . favorable selling prices and mix positively affected specialty chemicals in 2010 compared to 2009 ( $ 12.3 million ) . battery technologies net sales were $ 113.9 million in 2010. excluding battery technologies , net sales increased $ 211.0 million , or 24.2 % , in 2010 compared with 2009. during 2009 , the company commenced a restructuring plan of the company 's advanced organics business within the specialty chemicals segment to better align the cost structure and asset base of its european carboxylate business to industry conditions resulting from weak customer demand , commoditization of products and overcapacity in that market . the restructuring included exiting the manchester , england manufacturing facility and disposing of the fixed assets located in the manchester facility , as well as smaller workforce reductions at other facilities . the majority of position eliminations were completed by mid-2010 . the restructuring plan does not involve the discontinuation of any material product lines or other functions for the advanced organics business as a whole . decommissioning and demolition of the manchester , england facility began during the third quarter of 2010 and is expected to be completed during the first half of 2011. the company recorded restructuring charges of $ 2.1 million and $ 12.7 million in 2010 and 2009 , respectively . story_separator_special_tag gross profit increased to $ 284.7 million in 2010 , compared with $ 165.8 million in 2009. the largest factor affecting the $ 118.9 million increase in gross profit was the increase in the average cobalt reference price that resulted in higher advanced materials selling prices , which together with favorable product mix increased gross profit by $ 48.7 million in 2010 compared with 2009. also impacting the advanced materials segment gross profit was increased cobalt volume ( $ 19.3 million ) in 2010 compared to 2009. these improvements to gross profit in the advanced materials segment were partially offset by a $ 22.1 million increase in manufacturing and distribution expenses due to the increase in cobalt volume and costs associated with the maintenance shutdown of the gtl smelter . in the specialty chemicals segment , gross profit was affected by increased volume ( $ 27.9 million ) and favorable pricing/mix ( $ 11.4 million ) and a $ 3.4 million decrease in manufacturing and distribution expenses . decreased manufacturing and distribution expenses in the advanced organics business due to the restructuring were partially offset by increased manufacturing and distribution expenses in the other specialty chemicals businesses due to increased volume . battery technologies contributed $ 18.1 million of gross profit in 2010 , after a $ 3.2 million charge related to purchase accounting adjustments that will not recur , as discussed below . the increase in gross profit as a percentage of 28 net sales ( 23.8 % in 2010 versus 19.0 % in 2009 ) was primarily due to the positive factors discussed above and the decrease in restructuring charges in 2010 compared to 2009. inventory acquired as part of the eaglepicher technologies acquisition was initially recorded at fair value , which involves stepping up the value of acquired finished goods and work-in-process from historical cost of the acquired company to its expected sales value less costs to complete and sell the inventory . as this inventory was sold in the ordinary course of business , the inventory step-up was charged to cost of products sold , which reduced gross profit by $ 2.4 million in 2010. during 2010 , the company also recorded a $ 0.8 million reduction in revenue related to amortization of the adjustment to fair value deferred revenue on the acquired balance sheet . the step-up to fair value of inventory acquired and the adjustment to fair value deferred revenue have been fully amortized as of december 31 , 2010 and will not recur in the future . selling , general and administrative expenses ( sg & a ) increased to $ 161.8 million in 2010 compared with $ 133.3 million in 2009. the increase was primarily due to $ 13.1 million of battery technologies sg & a expenses , increased employee incentive compensation expense related to the anticipated payouts under the 2010 annual bonus program , a $ 2.0 million charge in 2010 due to an other-than-temporary decline in the fair value of a cost method investment and $ 0.9 million in transaction costs associated with the eaglepicher technologies acquisition . the decrease in sg & a as a percentage of net sales ( 13.5 % in 2010 versus 15.3 % in 2009 ) was due to sg & a expenses being spread over higher net sales . in 2009 , the company recorded a non-cash charge totaling $ 37.5 million in the specialty chemicals segment for the impairment of goodwill related to the advanced organics , upc and photomasks businesses . the company recognized a $ 4.7 million gain in 2009 on the termination of its retiree medical plan . as a result of the termination , the accumulated postretirement benefit obligation has been eliminated . the gain is included as a reduction of corporate expenses . the following table identifies , by segment , the components of change in operating profit ( loss ) for 2010 compared with 2009 : replace_table_token_4_th the change in operating profit ( loss ) for 2010 as compared to 2009 was due to the factors discussed above and battery technologies operating profit , which includes purchase accounting adjustments of $ 3.2 million discussed above and $ 3.2 million of amortization of acquired intangibles . the following table summarizes the components of other expense , net : replace_table_token_5_th 29 the increase in interest expense is due to the increase in the average amount outstanding under the revolver during 2010 compared with 2009. the increase in foreign exchange loss is primarily related to the revaluation of non-functional currency cash balances at foreign sites due to changes in exchange rates ( primarily the euro , malaysian ringgit and taiwanese dollar ) . the change in income ( loss ) from continuing operations before income tax expense for 2010 compared with 2009 was due to the factors discussed above , primarily the affect of the increase in the cobalt reference price , favorable product mix and increased sales volume . the company recorded income tax expense of $ 29.7 million on income from continuing operations before income tax expense of $ 107.3 million for 2010 , resulting in an effective income tax rate of 27.6 % . the company recorded net discrete tax items netting to expense of $ 5.4 million . this amount included $ 10.1 million of discrete tax expense related to the gtl joint venture , of which the company 's share is 55 % , or $ 5.6 million . the gtl items are primarily comprised of an $ 11.5 million charge to reserve a portion of gtl 's prepaid income tax balance , and a benefit of $ 2.6 million primarily related to a return to provision adjustment . without discrete items , the effective income tax rate for 2010 would have been 22.6 % . this rate is lower than the u.s. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the u.s. ( primarily finland ) and a tax holiday in malaysia .
| 2010 includes net borrowings under the company 's revolver of $ 120.0 million to fund the eaglepicher technologies acquisition . 2009 includes repayment of debt of $ 26.1 million . replace_table_token_30_th the decrease in net cash flows from operating activities was primarily due to the $ 22.0 million loss from continuing operations in 2009 compared to $ 156.2 million of income from continuing operations in 2008 , partially offset by the following factors : the change in net working capital ( defined as inventory plus accounts receivable less accounts payable ) which contributed positive cash flows of $ 73.6 million in 2009 compared to $ 0.9 million in 2008 ; the impact of the $ 56.8 million change in refundable , prepaid and accrued income taxes . the 2008 refundable , prepaid and accrued income taxes included the impact of the tax benefit related to the recording of the tax benefit related to an election to take foreign tax credits on prior year u.s. tax returns of $ 46.6 million , which is expected to be received in 2010 ; and a $ 33.6 million change in cash flows associated with advances to suppliers . net cash used for investing activities is due primarily to capital expenditures of $ 25.7 million and $ 30.7 million in the 2009 and 2008 period , respectively . net cash used for investing activities in the 2008 period also includes proceeds from settlement of cobalt forward purchase contracts ( $ 10.7 million ) ; proceeds from loans to consolidated joint venture partners ( $ 10.3 million ) ; and cash payments made in 2008 for professional fees incurred in connection with the rem and borchers acquisitions . cash used for financing activities in 2009 is primarily repayment of all of the company 's outstanding debt of $ 26.1 million . cash used for financing activities in 2008 included $ 24.5 million net borrowings under the revolving credit agreement , partially offset by a $ 26.2 million distribution to the drc smelter
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capital appreciation is realized though growth in the value of the land over time and when , at the end of the lease , the commercial real estate property reverts to us , as landlord , and we are able to realize the value of the leasehold , which may be substantial . our leases share similarities with triple net leases because typically we are not responsible for any operating or capital expenses over the life of the lease , making the management of our portfolio relatively simple , with limited working capital needs . we have a diverse portfolio of 28 properties located in major metropolitan areas . all of the properties in our portfolio are subject to long-term leases consisting of 23 ground leases and one master lease ( covering five properties ) that provide for contractual periodic rental escalations or percentage rent participations in gross revenues generated at the relevant properties . our portfolio we have a portfolio of 28 properties that are diversified by property type and location . our portfolio is comprised of 23 ground leases and a master lease ( relating to five hotel assets that we refer to as our “ park hotels portfolio ” ) that has many of the characteristics of a ground lease , including length of lease term , percentage rent participations , triple net terms and strong ground rent coverage . 39 below is an overview of our portfolio as of december 31 , 2018 : property name location property type lease expiration / as extended rent escalation structure hollywood blvd - north los angeles , ca multi-family 2104 / 2104 cpi-linked hollywood blvd - south los angeles , ca multi-family 2104 / 2104 cpi-linked onyx on first washington , dc multi-family 2117 / 2117 fixed with future cpi adjustments the buckler apartments milwaukee , wi multi-family 2112 / 2112 fixed promenade crossing orlando , fl multi-family 2117 / 2117 fixed with future cpi adjustments novel music row nashville , tn multi-family 2117 / 2117 fixed with future cpi adjustments 3333 lifehope atlanta , ga medical office 2116 / 2176 fixed northside forsyth medical center atlanta , ga medical office 2115 / 2175 fixed with future cpi adjustments 1111 pennsylvania avenue washington , dc office 2117 / 2117 fixed with future cpi adjustments one ally center detroit , mi office 2114 / 2174 fixed with future cpi adjustments nasa/jpss headquarters washington , dc office 2075 / 2105 fixed pershing point atlanta , ga office 2117 / 2124 fixed with future cpi adjustments regency lakeview raleigh-durham , nc office 2117 / 2122 fixed with future cpi adjustments glenridge point atlanta , ga office 2117 / 2117 fixed with future cpi adjustments balboa executive center san diego , ca office 2117 / 2117 fixed with future cpi adjustments the jefferson washington , dc office 2117 / 2117 fixed with future cpi adjustments the madison phoenix , az office 2117 / 2117 fixed with future cpi adjustments hyatt centric washington , dc hotel 2035 / 2075 % rent doubletree seattle airport ( 1 ) ( 2 ) seattle , wa hotel 2025 / 2035 % rent hilton salt lake ( 1 ) salt lake city , ut hotel 2025 / 2035 % rent doubletree mission valley ( 1 ) san diego , ca hotel 2025 / 2035 % rent doubletree durango ( 1 ) durango , co hotel 2025 / 2035 % rent doubletree sonoma ( 1 ) san francisco , ca hotel 2025 / 2035 % rent dallas market center - sheraton suites dallas , tx hotel 2114 / 2114 fixed dallas market center - marriott courtyard dallas , tx hotel 2026 / 2066 % rent lock up self storage facility minneapolis , mn industrial 2037 / 2037 fixed miami airport i miami , fl industrial 2117 / 2117 fixed with future cpi adjustments miami airport ii miami , fl industrial 2117 / 2117 fixed with future cpi adjustments total / weighted average 69 / 80 yrs _ ( 1 ) property is part of the park hotels portfolio and is subject to a single master lease . ( 2 ) a majority of the land underlying this property is owned by a third party and is ground leased to us through 2044 subject to changes in the cpi ; however , our tenant at the property pays this cost directly to the third party . 40 great oaks purchase commitment in october 2017 , we entered into a commitment to acquire land subject to a ground lease on which a 301-unit , luxury multi-family project known as “ great oaks ” is currently being constructed in san jose , california . pursuant to the purchase agreement , we will acquire the ground lease on november 1 , 2020 from istar for $ 34.0 million . istar committed to provide a $ 80.5 million construction loan to the ground lessee . the ground lease has a term of 99 years . washington , dc multi-family purchase commitment in august 2018 , we entered into a commitment to acquire land and provide a ground lease for the ground lease tenant 's construction of a 315-unit multi-family property in washington , dc . the ground lease will have a term of 99 years . we have a call option to purchase the land at any time and expect to acquire the land in september 2019. we expect to fund the leasehold improvement allowance in early 2020. tenant concentration during the year ended december 31 , 2018 , the tenant under our park hotels portfolio accounted for approximately $ 13.2 million , or 27 % , of our total revenues , and the tenant who leases the land on which the one ally center in detroit , michigan is located accounted for approximately $ 5.3 million , or 11 % , of our total revenues . in addition , some of our tenants operate offices and hotels at the leased properties . story_separator_special_tag for the year ended december 31 , 2018 , 35 % and 28 % of our total revenues came from office and hotel properties , respectively . for additional information on tenant concentrations , see `` item 1a . risk factors-risks related to our portfolio and our business-tenant concentration may expose us to financial credit risk and hotel industry concentration exposes us to the financial risks of a downturn in the hotel industry generally , and the hotel operations at our specific properties . '' story_separator_special_tag consolidated and combined net income ( loss ) allocable to safety , income & growth inc. common shareholders , the most directly comparable gaap measure , to ffo and affo allocable to safety , income & growth inc. common shareholders , for the periods presented . we compute ffo in accordance with the national association of real estate investment trusts ( `` nareit '' ) , which defines ffo as net income ( loss ) ( determined in accordance with gaap ) , excluding gains or losses from sales of depreciable operating property , plus real estate-related depreciation and amortization . we compute affo by adding ( or subtracting ) to ffo the following items : straight-line rental income , the amortization of real estate-related intangibles , non-cash management fees and expense reimbursements , stock-based compensation , acquisition costs , the amortization of deferred financing costs and premiums/discounts related to debt obligations and the allocable share of noncontrolling interests ' amortization of real estate-related intangibles and straight-line rental income . for the year ended december 31 , 2018 for the period from april 14 , 2017 to december 31 , 2017 for the period from january 1 , 2017 to april 13 , 2017 ( 1 ) ( in thousands ) funds from operations the company predecessor net income ( loss ) allocable to safety , income & growth inc. common shareholders $ 11,740 $ ( 3,669 ) $ 1,846 add : depreciation and amortization 9,142 6,406 901 less : income from sales of real estate — — ( 508 ) ffo allocable to safety , income & growth inc. common shareholders $ 20,882 $ 2,737 $ 2,239 adjusted funds from operations ffo allocable to safety , income & growth inc. common shareholders $ 20,882 $ 2,737 $ 2,239 straight-line rental income ( 19,041 ) ( 4,097 ) ( 1,271 ) amortization of real estate-related intangibles , net 2,518 1,178 118 stock-based compensation 873 766 246 acquisition costs — 381 — non-cash management fees and expense reimbursements 4,421 2,627 — non-cash interest expense 1,614 465 20 allocable share of noncontrolling interests ' amortization of real estate-related intangibles and straight-line rental income 134 — — affo allocable to safety , income & growth inc. common shareholders $ 11,401 $ 4,057 $ 1,352 _ ( 1 ) operations prior to april 14 , 2017 represent the activity of safety , income & growth inc. predecessor . investors should view ffo and affo as supplemental to , and not replacements of , gaap net income ( loss ) . the utility of ffo and affo as measures of our performance is limited because , among other things , they exclude depreciation and amortization and do not capture changes in the value of our properties that result from use or market conditions , which could materially impact our results from operations . ffo and affo are not indicative of cash available to fund ongoing cash needs , including the ability to make cash distributions to our stockholders . although ffo and affo are measures used for comparability in assessing the performance of reits , the nareit white paper only provides guidelines for computing ffo ; therefore , the computation of ffo and affo may vary from one company to another . liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements , including to pay interest and repay borrowings , fund and maintain our assets and operations , complete acquisitions and originations of investments , make distributions to our 44 stockholders and meet other general business needs . in order to qualify as a reit , we are required under the internal revenue code of 1986 to distribute to our stockholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we expect to make quarterly cash distributions to our stockholders sufficient to meet reit qualification requirements . as of december 31 , 2018 , we had $ 16.4 million of unrestricted cash and the ability to borrow an additional $ 2.9 million on our 2017 revolver , subject to the conditions set forth in the applicable loan agreement ( refer to note 6 for more information on our 2017 revolver ) , without pledging any additional assets to the facility . we refer to this $ 19.3 million of unrestricted cash and additional borrowing capacity as our `` equity '' liquidity which can be used for general corporate purposes or leveraged ( a maximum of 2:1 in the case of our 2017 revolver ) to acquire new ground lease assets . our primary sources of cash to date have been proceeds of $ 205.0 million from our initial public offering , proceeds of $ 45.0 million from our private placement to istar , proceeds of $ 113.0 million from our initial capitalization by istar and two institutional investors , borrowings from our debt facilities and , cash on january 2 , 2019 of $ 250.0 million from istar 's purchase of investor units in our operating partnership ( which was used to repay in full the $ 169.5 million outstanding on our 2017 revolver ) .
| during the year ended december 31 , 2018 , we incurred interest expense from our secured financings of $ 15.4 million compared to $ 7.8 million in 2017 , and we incurred an allocation of interest expense from istar of $ 2.1 million for the predecessor period prior to the 2017 secured financing . the increase in 2018 was primarily the result of additional borrowings to fund our growing investment portfolio . real estate expense was $ 1.6 million and $ 1.5 million during the years ended december 31 , 2018 and 2017 , respectively . during the year ended december 31 , 2018 , real estate expenses consisted primarily of $ 1.0 million related to the amortization of a below market lease asset at one of our hotel properties , property appraisal fees and insurance expense . during the year ended december 31 , 2017 , real estate expenses consisted primarily of the amortization of a below market lease asset at one of our hotel properties , recoverable property taxes at one of our properties and insurance , consulting and legal fees . depreciation and amortization was $ 9.1 million and $ 7.3 million during the years ended december 31 , 2018 and 2017 , respectively , and primarily relates to our ownership of the park hotels portfolio and our ownership of the buckler multi-family property . beginning on april 14 , 2017 we accounted for the acquisition of the initial portfolio from istar in accordance with asc 805 and began recording depreciation based on the acquisition date fair values of the real estate and recognizing amortization expense resulting from in-place intangible lease assets . the amortization expense from in-place intangible lease assets during the years ended december 31 , 2018 and 2017 was $ 3.1 million and $ 2.2 million , respectively . 42 general and administrative expenses include management fees ( which our manager waived during the first year of the management agreement ) , stock-based compensation , costs of operating as a public company , research and developments costs targeted towards scaling our business and an allocation of expenses to us from our manager and istar ( which our manager
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the efficiency of our platform has , in a relatively short period of time , allowed us to advance multiple product candidates into clinical trials for a range of diseases . edp1815 , a whole-microbe candidate for inflammatory diseases edp1815 is in clinical development for psoriasis , atopic dermatitis and covid-19 . psoriasis based on previously reported positive clinical data in two cohorts of individuals with mild and moderate psoriasis in a phase 1b clinical trial , we have advanced edp1815 into a phase 2 dose ranging trial , evaluating three doses of a ' edp1815 in capsules versus placebo in approximately 225 individuals with mild and moderate psoriasis . the primary endpoint of the trial is the mean reduction in pasi score at 16 weeks . other clinical measures of psoriasis are also being evaluated . we initiated the phase 2 clinical trial in october 2020 and have completed enrollment and , therefore , now plan to report topline data in the third quarter of 2021. clinical data from this trial , if positive , may enable us to advance directly into phase 3 registrational trials , subject to end of phase 2 discussions with regulatory agencies . we intend to evaluate edp1815 in additional inflammatory disease indications , depending on the results from the phase 2 trial . potential indications include psoriatic arthritis , axial spondylarthritis and rheumatoid arthritis . atopic dermatitis in november 2018 , we initiated our ongoing phase 1b double-blind placebo-controlled dose-escalating safety and tolerability trial of edp1815 in healthy volunteers and individuals with mild and moderate psoriasis or atopic dermatitis . the primary endpoint of the phase 1b trial is safety and tolerability . in december 2020 and january 2021 , we reported positive clinical data from a cohort of patients with mild and moderate atopic dermatitis ( n=24 ) , randomized 2:1 to receive edp1815 in capsules or placebo for 56 days . atopic dermatitis is the most common type of eczema . edp1815 was well-tolerated with no treatment-related adverse events of moderate or severe intensity , and no serious adverse events . secondary endpoints included a range of established markers of clinical efficacy in atopic dermatitis , such easi , iga * bsa , and scorad scores . the data showed consistent improvements in percentage change from baseline compared to placebo for all three clinical scores : easi , iga * bsa , and scorad . in addition , 7 out of 16 ( 44 % ) patients treated with edp1815 achieved an outcome of a 50 % improvement from baseline in easi score by day 70 , compared with 0 % in the placebo group , showing sustained improvement in those patients responding to edp1815 . in addition to physician-reported clinical outcomes , this trial also assessed patient-reported outcomes . treatment with edp1815 resulted in clinically meaningful improvement in the dlqi and poem . these patient-reported outcomes capture the important impact of the disease on patients , including the domains of itch and sleep , both of which saw improvements in patients receiving edp1815 in the trial . all five measures of itch within the pruritus-nrs , scorad , poem , and dlqi showed greater improvements in the treated group at day 56 compared with placebo . these results provide further evidence that modulating sintax can drive significant clinical benefit without the need for systemic exposure . 76 subject to regulatory approval , we anticipate initiation of a phase 2 trial of edp1815 in atopic dermatitis in the third quarter of 2021. covid-19 edp1815 is being evaluated in two ongoing clinical trials for the treatment of hospitalized covid-19 patients . the first is a phase 2 double-blind , placebo-controlled clinical trial evaluating the safety and efficacy of edp1815 for the treatment of individuals diagnosed with covid-19 early in the course of their disease . the clinical trial initially will evaluate 60 individuals to determine if early intervention with edp1815 can prevent the progression of covid-19 symptoms and the development of covid-related complications . individuals who have presented at the emergency room within the last 36 hours and tested positive for sars-cov-2 are randomized 1:1 to receive the capsule formulation of edp1815 targeted for release in the small intestine or placebo for 14 days , along with the standard of care . the primary endpoint is reduced requirements for oxygen therapy , as measured by the ratio of oxygen saturation ( spo2 ) / fraction of inspired oxygen ( fio2 ) . key secondary endpoints include total symptom duration , progression along the who scale of disease severity , and mortality . the trial is led by reynold a. panettieri , jr. , m.d. , vice chancellor for translational medicine and science at rutgers biomedical and health sciences and professor of medicine at rutgers robert wood johnson medical school . edp1815 is also included as a treatment arm in the tactic-e clinical trial . tactic-e is a phase 2/3 randomized trial , sponsored by cambridge university hospitals nhs foundation trust , that is expected to evaluate up to 469 patients per arm at addenbrooke 's hospital and other leading clinical centers in the united kingdom and select international sites . the trial is investigating the safety and efficacy of certain experimental therapies in the prevention and treatment of life-threatening complications associated with covid-19 in hospitalized individuals at early stages of the disease . the trial is enrolling individuals with covid-19 who have identified risk factors for developing severe complications and are at risk of progression to the intensive care unit or death . the primary outcome measure of the trial is time to incidence ( up to day 14 ) of any one of the following : death , mechanical ventilation , extracorporeal membrane oxygenation , cardiovascular organ support , renal failure , hemofiltration or dialysis . secondary outcome measures include duration of stay in hospital , duration of oxygen therapy , changes in biomarkers associated with covid-19 progression , and time to clinical improvement . story_separator_special_tag as a result of the varying infection rates and resulting hospitalizations that have occurred with the pandemic , we experienced slower than expected enrollment early on in both trials and now expect to report data from the clinical trial conducted at the robert wood johnson university hospital and interim safety data and futility analysis from tactic-e in the second quarter of 2021. in order to expedite patient recruitment and expand access to potential therapies for covid-19 , new trial sites have been opened for tactic-e , including in the united kingdom and mexico . human experimental model of inflammation in addition to testing our product candidates in patients with inflammatory disease , we also have employed a human experimental model of inflammation in healthy volunteers . this model is very similar in design to a standard preclinical model of t cell driven inflammation . we have recently used this model to test two different concentrations of edp1815 to investigate the relative effectiveness of the different concentrations . a total of 32 volunteers were enrolled into the trial and treated with either edp1815 ( n=12 per formulation ) or placebo ( n=4 per formulation ) daily for 28 days . the participants were immunized with an antigen used in preclinical inflammation experiments . after 28 days of daily oral dosing with edp1815 or placebo , the participants were given a skin challenge with the same antigen , which causes measurable skin inflammation a day later . inflammation was determined by measuring five parameters in the skin at the challenge site . the increased concentration of drug results from improvements made in the commercial-scale manufacturing process , referred to as a2 . this is the same active drug at four times the concentration compared to a prior manufacturing process , referred to as a ' . twelve participants were dosed with a ' edp1815 . another 12 participants were given the higher concentration a2 edp185 . eight participants who received a placebo were divided between the two treatment groups . the results are in the figure below . 77 a2 edp1815 is more effective than a ' at same total dose in human experimental model of inflammation the higher concentration a2 , given in fewer capsules , resulted in numerically superior reductions across the full range of skin scores compared to a ' and placebo . a2 and a ' were given at the same total daily dose of drug . these results are consistent with preclinical data that showed increased drug concentration resulted in increased activity . this is a key advance in our understanding of how to get more benefit from sintax medicine candidates . we plan to evaluate tablets and capsules containing the higher concentration a2 edp1815 in patients with psoriasis in our on-going phase 1b trial , and expect to report data in the third quarter of 2021. results from the phase 1b trial and our on-going phase 2 trial in psoriasis will position us to go forward into phase 3 trials with an optimized dose and formulation of edp1815 , which may further improve on the positive results already seen . edp1867- a whole-microbe candidate for inflammatory diseases edp1867 is an inactivated investigational oral biologic being developed for the treatment of inflammatory diseases . edp1867 was selected from a broad screen of single strains of microbes in in vitro cellular assays and in vivo models of inflammation . in preclinical studies edp1867 was shown to resolve multiple pathways of inflammation . this observed activity suggests a number of possible initial clinical indications for edp1867 , including th2-dependent inflammation which underlies atopic diseases and a large spectrum of asthma . we initiated our first phase 1b clinical trial of edp1867 in healthy volunteers and patients with moderate atopic dermatitis in february of 2021 and expect to report interim data in the fourth quarter of 2021. edp2939- an extracellular vesicle ( ev ) candidate for inflammatory diseases edp2939 is an ev investigational oral biologic being developed for the treatment of inflammatory diseases . edp2939 is the first ev product candidate we have nominated in our inflammation program and we anticipate initiation of clinical development in 2022. edp1908- an ev candidate for oncology in december 2020 , we announced edp1908 as our lead candidate in oncology following presentation of preclinical data at the society for immunotherapy for cancer meeting in november 2020. preclinical data presented showed that orally administered edp1908 , an ev , resulted in superior tumor growth control versus the parent microbial strain or anti-pd-1 therapy , with an observed dose-dependent reduction in tumor growth . we anticipate initiation of clinical development in 2022. financing we were incorporated and commenced operations in 2014. since our incorporation , we have devoted substantially all of our resources to developing our clinical and preclinical candidates , building our intellectual property portfolio and process development and manufacturing function , business planning , raising capital and providing general and administrative support for these operations . to date , we have financed our operations 78 primarily with proceeds from sales of common and convertible preferred stock to our equity investors and borrowings under loan and security agreements with financial institutions . through december 31 , 2020 , we have received gross proceeds of $ 332.0 million through the issuance of our common stock , convertible preferred stock and borrowings under our loan and security agreements . on july 19 , 2019 we entered into a loan and security agreement , as amended , with k2hv providing for up to $ 45.0 million in potential debt financing , the proceeds of which were used to prepay our entire existing outstanding loan balance , and additional amounts are intended for the advancement of our research and development activities related to our pipeline of oral biologics and for general corporate purposes . under terms of the 2019 credit facility , the aggregate principal amount of $ 45.0 million was available in three tranches of term loans of $ 20.0 million , $ 10.0 million , and $ 15.0 million , respectively .
| general and administrative expenses ( in thousands ) : replace_table_token_3_th 83 general and administrative expenses were $ 22.3 million for the year ended december 31 , 2020 , compared to $ 23.2 million for the year ended december 31 , 2019. the decrease of $ 1.0 million was primarily driven by $ 1.2 million lower cost associated with legal , consulting and other professional fees , partially offset by higher it , facilities and other office expenses costs . we expect this decrease to be temporary and general and administrative expenses to increase due to higher personnel and related costs , professional , legal , and patent fees and consulting expenses in support of our continued growth . other ( expense ) income , net other income ( expense ) , net for the year ended december 31 , 2020 was expense of $ 1.4 million compared to income of $ 1.1 million for the year ended december 31 , 2019. this decrease was primarily driven by a decrease in interest income as a result of lower interest rates and a lower cash and cash equivalent balance and an increase in interest expense as a result of a higher interest rate on a greater principal balance from the 2019 credit facility , partially offset by foreign currency gains and a grant related to our operations in the united kingdom . net loss net loss was $ 93.7 million for the year ended december 31 , 2020 , compared to $ 85.5 million for the year ended december 31 , 2019. the increase of $ 8.2 million was primarily the result of the increase in research and development expenses and decrease in other income ( expense ) , net discussed above , partially offset by the decrease in general and administrative expenses discussed above . liquidity and capital resources to date , we have financed our operations primarily with the proceeds from issuance of our common stock combined with proceeds from previous sales of our convertible preferred stock to our equity investors and borrowings under loan and security agreements . from our inception through december 31 , 2020 , we have received gross proceeds of $ 332.0 million from
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net sales in our hearing health direct-to-consumer business for the year ended december 31 , 2016 increased due to the acquisition of hearing help express during the fourth quarter of 2016. net sales to the professional audio device sector decreased 4.2 percent in 2016 compared to the same period in 2015. gross profit gross profit , both in dollars and as a percent of sales , for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_8_th the 2016 gross profit decrease over the comparable prior year period was primarily due to lower sales volumes and unfavorable product mix . sales and marketing , general and administrative and research and development expenses sales and marketing , general and administrative and research and development expenses for the years ended december 31 , 2016 and 2015 were : replace_table_token_9_th sales and marketing and general and administrative expenses were greater than the prior year primarily due to increased support costs for our value based hearing healthcare initiatives and the addition of intricon uk and hearing help express . research and development increased over the prior year primarily due to increased use of outside service providers and support costs for our value based hearing healthcare initiatives . 27 restructuring charges during 2016 , the company incurred restructuring charges of $ 132 , related to intricon uk 's facility moving costs . interest expense interest expense for 2016 was $ 553 , an increase of $ 184 from $ 369 in 2015. the increase in 2016 was due to higher average debt outstanding and higher debt interest rates . other expense , net in 2016 , other expense , net was $ ( 602 ) compared to $ ( 261 ) in 2015 primarily due to a royalty earned in 2015 that did not occur in 2016 and $ 205 in net costs related to pursuing targeted acquisitions in 2016. income tax expense income taxes were as follows : replace_table_token_10_th the expense in 2016 and 2015 was primarily due to foreign taxes on german and indonesia operations . in 2015 , income tax expense was partially offset by a singapore tax benefit . the company is in a nol position for us federal and state income tax purposes , but our deferred tax asset related to the nol carry forwards have been largely offset by a full valuation allowance . we incur minimal income tax expense from the current period domestic operations . loss from discontinued operations loss from discontinued operations , net of income taxes , of $ 1,770 for the year ended december 31 , 2016 was due to a discontinued operations loss of $ 974 and an asset impairment of $ 796 compared to a discontinued operations loss of $ 965 for the year ended december 31 , 2015. loss allocated to non-controlling interest loss allocated to non-controlling interest of $ 157 for the year ended december 31 , 2016 was due to earventure and hearing help express losses compared to losses of $ 111 for the year ended december 31 , 2015 due to earventure losses . liquidity and capital resources our primary sources of cash have been cash flows from operations , bank borrowings , and sales of equity . for the last three years , cash has been used for repayments of bank borrowings , the acquisition of hhe , purchases of equipment and working capital to support research and development . as of december 31 , 2017 , we had approximately $ 373 of cash on hand . sources of our cash for the year ended december 31 , 2017 have been from our operating activities , as described below . consolidated net working capital decreased to $ 8,210 at december 31 , 2017 from $ 8,456 at december 31 , 2016. our cash flows from operating , investing and financing activities , as reflected in the statement of cash flows for the years ended december 31 , are summarized as follows : replace_table_token_11_th 28 operating activities . the most significant items that contributed to the $ 4,230 of cash provided by operating activities was net income of $ 864 , add backs for non-cash depreciation and stock-based compensation , and increases in accounts payable and accrued expenses partially offset by increases in accounts receivable and inventory . days sales in inventory increased from 84 at december 31 , 2016 to 89 at december 31 , 2017. days payables outstanding increased from 54 days at december 31 , 2016 to 71 days at december 31 , 2017. day sales outstanding decreased from 37 days at december 31 , 2016 to 36 days at december 31 , 2017. cash generated from operations may be affected by a number of factors . see “ forward looking statements ” and “ item 1a risk factors ” contained in this form 10-k for a discussion of some of the factors that can negatively impact the amount of cash we generate from our operations . investing activities . net cash used in investing activities of $ 4,720 consisted of $ 2,313 of purchases of property , plant and equipment , $ 650 for the purchase of the remaining 80 percent interest in hearing help express and $ 1,776 for the investment in soundperience , signison and others . financing activities . net cash used in financing activities of $ 103 comprised primarily of proceeds from debt repayments partially offset by debt borrowing . we had the following bank arrangements at december 31 : replace_table_token_12_th domestic credit facilities the company and its domestic subsidiaries are parties to a credit facility with cibc bank usa ( formerly known as the privatebank and trust company ) . the credit facility , as amended through december 31 , 2017 , provides for : ■ a $ 9,000 revolving credit facility , with a $ 200 sub facility for letters of credit . story_separator_special_tag under the revolving credit facility , the availability of funds depends on a borrowing base composed of stated percentages of the company 's eligible trade receivables and eligible inventory , and eligible equipment less a reserve ; and ■ a $ 2.5 million capital expenditure loan facility under which the company at its election , can draw up to $ 2.5 million for qualifying capital expenditures over the next twelve months , with monthly amortization commencing after such time ; ■ a term loan in the original amount of $ 6,500. in december 2017 , the company and its domestic subsidiaries entered into an eleventh amendment to the loan and security agreement and waiver with cibc bank usa ( formerly known as the privatebank and trust company ) . the amendment , among other things : ■ extended the maturity of the credit facilities from february 2019 to december 2022 ; ■ increased the term loan to $ 6,500 from its then current balance of $ 4,500 ; 29 ■ raised the inventory cap on the borrowing base from $ 4,000 to $ 4,500. under the revolving credit facility as amended , the availability of funds depends on a borrowing based composed of stated percentages of the company 's eligible trade receivables and inventory , less a reserve ; ■ increased the annual capital expenditure allowed under the facilities from its then current limit of $ 4,500 to $ 5,500 for the fiscal year ending december 31 , 2018 and in any fiscal year thereafter ; and ■ added a $ 2.5 million capital expenditure loan facility under which the company at its election , can draw up to $ 2.5 million for qualifying capital expenditures over the next twelve months , with monthly amortization commencing after such time . all of the borrowings under this agreement have been characterized as either a current or long-term liability on our balance sheet in accordance with the repayment terms described more fully below . as of december 31 , 2017 , there were no borrowings under the capital expenditure loan facility . loans under the credit facility are secured by a security interest in substantially all of the assets of the company and its domestic subsidiaries including a pledge of the stock of its domestic subsidiaries . loans under the credit facility bear interest at varying rates based on the company 's leverage ratio of funded debt / ebitda , at the option of the company , at : ■ the london interbank offered rate ( “ libor ” ) plus 2.50 % to 4.00 % , or ■ the base rate , which is the higher of ( a ) the rate publicly announced from time to time by the lender as its “ prime rate ” and ( b ) the federal funds rate plus 0.5 % , plus ( 0.25 ) % to 1.25 % ; in each case , depending on the company 's leverage ratio . interest is payable monthly in arrears , except that interest on libor based loans is payable at the end of the one , two or three month interest periods applicable to libor based loans . intricon is also required to pay a non-use fee equal to 0.25 % per year of the unused portion of the revolving line of credit facility , payable quarterly in arrears . weighted average interest on our domestic credit facilities was 5.51 % , 4.36 % , and 3.68 % for 2017 , 2016 , and 2015 , respectively . the outstanding balance of the revolving credit facility was $ 4,000 and $ 3,218 at december 31 , 2017 and 2016 , respectively . the total remaining availability on the revolving credit facility was approximately $ 5,000 and $ 5,121 at december 31 , 2017 and 2016 , respectively . the outstanding principal balance of the term loan , as amended , is payable in quarterly installments of $ 250. any remaining principal and accrued interest is payable on december 15 , 2022. intricon is also required to use 100 % of the net cash proceeds of certain asset sales ( excluding inventory and certain other dispositions ) , sale of capital securities or issuance of debt to pay down the term loan . the borrowers are subject to various covenants under the credit facility , including a maximum funded debt to ebitda , a minimum fixed charge coverage ratio and maximum capital expenditure financial covenants . under the credit facility , except as otherwise permitted , the borrowers may not , among other things : incur or permit to exist any indebtedness ; grant or permit to exist any liens or security interests on their assets or pledge the stock of any subsidiary ; make investments ; be a party to any merger or consolidation , or purchase of all or substantially all of the assets or equity of any other entity ; sell , transfer , convey or lease all or any substantial part of its assets or capital securities ; sell or assign , with or without recourse , any receivables ; issue any capital securities ; make any distribution or dividend ( other than stock dividends ) , whether in cash or otherwise , to any of its equity holders ; purchase or redeem any of its equity interests or any warrants , options or other rights to equity ; enter into any transaction with any of its affiliates or with any director , officer or employee of any borrower ; be a party to any unconditional purchase obligations ; cancel any claim or debt owing to it ; make payment on or changes to any subordinated debt ; enter into any agreement inconsistent with the provisions of the credit facility or other agreements and documents entered into in connection with the credit facility ; engage in any line of business other than the businesses engaged in on the date of the credit facility and businesses reasonably related thereto ; or permit its charter , bylaws or other organizational documents to be amended or modified in
| in december 2017 , the company and its domestic subsidiaries entered into an eleventh amendment to the loan and security agreement and waiver with cibc bank usa ( formerly known as the privatebank and trust company ) , which among other things provided an additional loan of $ 2,000 under our term note to assist with the acquisition of hhe and provided a capital expenditure loan facility for up to $ 2,500. forward–looking statements the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes appearing in item 8 of this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward- looking statements as a result of many factors , including but not limited to those under the heading “ risk factors ” in item 1a of this annual report on form 10-k. see also item 1 . “ business—forward-looking statements ” for more information . 24 results of operations : 2017 compared with 2016 consolidated net sales our net sales are comprised of two segments : our body-worn device segment ( consisting of three markets : medical , hearing health , and professional audio ) and our hearing health direct-to-consumer segment . below is a recap of our sales by main markets for the years ended december 31 , 2017 and 2016 : replace_table_token_3_th in 2017 , we experienced a 39.2 percent increase in medical sales primarily driven by higher sales to medtronic while the rest of the medical segment remained relatively stable . intricon currently serves this market by offering medical manufacturers the capabilities to design , develop and manufacture medical devices that are easier to use , are more miniature , use less power , and are lighter . intricon has a strong presence in the diabetes market with its medtronic partnership . the company believes there are growth opportunities in this market as well other emerging biotelemetry and home care markets that could benefit from
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financial highlights and outlook our revenue was $ 38.5 million in 2019 , $ 30.4 million in 2018 and $ 23.1 million in 2017. our diluted earnings per share was $ 0.78 in 2019 , $ 0.52 in 2018 and $ 0.04 in 2017. our cash provided by operations was $ 10.2 million in 2019 , $ 7.4 million in 2018 and $ 3.4 million in 2017. our estimated installed base of medical devices is as follows : replace_table_token_6_th 39 in 2020 , we expect our revenues to increase due to higher sales of our medical devices and related accessories , disposables and services through the continued execution of our critical care strategy and headcount growth of our sales team . we intend to continue targeting an increased number of hospitals and acute care facilities that have yet to adopt our technology and furthering our penetration into the intensive care unit , emergency room and other critical care locations within hospitals where there is a high probability that interventional radiology procedures will need to be performed on patients . we expect operating expenses to increase in 2020 due to growth in headcount and higher sales commission costs due to anticipated higher sales . application of critical accounting policies we prepare our financial statements in conformity with u.s. gaap . the preparation of these financial statements requires us to make estimates and use assumptions that affect the reported amounts of assets , liabilities and related disclosures at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . our significant accounting policies are more fully described in note 1 to the financial statements . however , we believe that the following critical accounting policies require the use of significant estimates , assumptions and judgments . the use of different estimates , assumptions and judgments could have a material effect on the reported amounts of assets , liabilities and related disclosures as of the date of the financial statements and revenue and expenses during the reporting period . revenue recognition we generate revenue from the sale of mri compatible medical devices and accessories , extended warranty agreements , services related to maintaining our products and the sale of disposable products used with our devices . the principal customers for our mri compatible products include hospitals and acute care facilities , both in the u.s. and internationally . in the u.s. we sell our products through our direct sales force and outside of the u.s. we sell our products through third-party distributors who resell our products to end users . for most domestic sales , we enter into agreements with healthcare supply contracting companies , commonly referred to as group purchasing organizations ( “ gpos ” ) , which enable us to sell and distribute our products to their member hospitals . our agreements with gpos typically include negotiated pricing for all group members established at time of gpo contract execution . we do not sell to gpos . hospitals , group practices and other acute care facilities that are members of a gpo , purchase products directly from us under the terms of our gpo agreements . we recognize revenue when all of the following criteria are met : we have a contract with a customer that creates enforceable rights and obligations ; promised products or services are identified ; the transaction price , or the amount we expect to receive , is determinable and we have transferred control of the promised products or services to the customer . we consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer , which is typically at a point in time , except for our extended warranty agreements . we allocate the transaction price using the relative standalone selling price method . customer sale prices for our mri compatible iv infusion pump systems and related disposables and services are contractually fixed over the gpo contract term . we recognize a receivable at the point in time we have an unconditional right to payment . payment terms are typically within 45 days after transferring control to u.s. customers . most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products . accordingly , we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract . we have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue . in certain u.s. states we are required to collect sales taxes from our customers . we have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority . contract liabilities we record contract liabilities , or deferred revenue , when we have an obligation to provide a product or service to the customer and payment is received in advance of our performance . when we sell a product or service with a future performance obligation , we defer revenue allocated to the unfulfilled performance obligation and recognize this revenue when , or as , the performance obligation is satisfied . 40 our deferred revenue consists of advance payments received from customers prior to the transfer of products or services , shipments that are in-transit at the end of a period and sales of extended warranty agreements . advance payments received from customers and shipments in-transit are recognized in revenue at the time control of the related products has been transferred to the customer or services have been delivered . story_separator_special_tag amounts related to extended warranty agreements are deferred and recognized in revenue ratably over the agreement period , which is typically one to four years after control of the related products is transferred to the customer , as we believe this recognition pattern best depicts the transfer of services being provided . deferred revenue is classified as current or long-term deferred revenue in our balance sheets , depending on the expected timing of satisfying the related performance obligations . capitalized contract costs we capitalize commissions paid to our sales managers related to contracts with customers when the associated revenue is expected to be earned over a period of time . deferred commissions are primarily related to the sale of extended warranty agreements . capitalized commissions are included in prepaid expenses and other current assets in our balance sheets when the associated expense is expected to be recognized in one year or less , or in other assets when the associated expense is expected to be recognized in greater than one year . the associated expense is included in sales and marketing expenses in our statements of operations . variable consideration most of our sales are subject to 30 to 60-day customer-specified acceptance provisions primarily for purposes of ensuring products were not damaged during the shipping process . historically , we have experienced immaterial product returns and , when experienced , we typically exchange the affected products with new products . accordingly , variable consideration from contracts with customers is immaterial to our financial statements . accounts receivable and allowance for doubtful accounts accounts receivable is recorded at the transaction price of the related products and services . we regularly assess the sufficiency of the allowance for estimated uncollectible accounts receivable . estimates are based on historical collection experience and other customer-specific information , such as bankruptcy filings or known liquidity problems of our customers . when it is determined that an account receivable is uncollectible , it is written off and relieved from the allowance . any future determination that the allowance for estimated uncollectible accounts receivable is not properly stated could result in changes in operating expense and results of operations . inventory inventory is stated at the lower of standard cost , which approximates actual cost on a first-in , first-out basis , or net realizable value . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal and transportation . we may be exposed to a number of factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage . these factors include , but are not limited to , technological changes , competitive pressures in products and prices , and the introduction of new product lines . we regularly evaluate our ability to realize the value of inventory based on a combination of factors , including historical usage rates , forecasted sales , product life cycles , and market acceptance of new products . when inventory that is obsolete or in excess of anticipated usage is identified , it is written down to net realizable value or an inventory valuation allowance is established . the estimates we use in projecting future product demand may prove to be incorrect . any future determination that our inventory is overvalued could result in increases to our cost of sales and decreases to our operating margins and results of operations . warranty we provide for the estimated cost of product warranties at the time revenue is recognized . while we engage in product quality programs and processes , including actively monitoring and evaluating the quality of our suppliers , the estimated warranty obligation is affected by ongoing product failure rates , material usage costs and direct labor incurred in correcting a product failure . actual product failure rates , material usage costs and the amount of labor required to repair products that differ from estimates result in revisions to the estimated liability . we warrant for a limited period of time that our products will be free from defects in materials and workmanship . we estimate warranty allowances based on historical warranty experience . the estimates we use in projecting future product warranty costs may prove to be incorrect . any future determination that our provision for product warranty is understated could result in increases to our cost of revenue and a reduction in our operating profits and results of operations . historically , warranty expenses have not been material to our financial statements . 41 stock-based compensation we apply the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation — stock compensation ( “ asc 718 ” ) . determining the amount of stock-based compensation to be recorded for stock options that we grant requires us to develop estimates of the fair value as of the grant date . calculating the fair value of stock option awards requires that we make highly subjective assumptions . we use the black-scholes option pricing model to value our stock option awards . use of this valuation methodology requires that we make assumptions as to the volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . as we completed our ipo in july 2014 , we utilize the historical stock price volatility from a representative group of public companies , which includes the company , to estimate expected stock price volatility . we selected companies from the medical device industry with market capitalizations that are similar to ours . we intend to continue to utilize the historical volatility of the same or similar public companies to estimate expected volatility until a sufficient amount of historical information regarding the price of our publicly traded stock becomes available .
| 43 revenue from sales in the u.s. increased $ 6.4 million , or 26.2 percent , to $ 30.9 million from $ 24.5 million for the same period in 2018. revenue from sales internationally increased $ 1.7 million , or 27.9 percent , to $ 7.6 million from $ 5.9 million for the same period in 2018. domestic sales accounted for 80.3 percent of total revenue for the year ended december 31 , 2019 , compared to 80.5 percent for the same period in 2018. revenue from sales of devices increased $ 6.6 million , or 31.0 percent , to $ 27.8 million from $ 21.2 million for the same period in 2018. revenue from sales of our disposables , services and other increased $ 1.2 million , or 15.3 percent , to $ 8.9 million from $ 7.7 million for the same period in 2018. revenue from the amortization of our extended maintenance contracts increased $ 0.3 million , or 21.3 percent , to $ 1.8 million from $ 1.5 million for the same period in 2018. cost of revenue and gross profit replace_table_token_10_th cost of revenue increased approximately $ 1.6 million , or 22.2 percent , to $ 8.8 million for the year ended december 31 , 2019 , from $ 7.2 million for the same period in 2018. gross profit increased approximately $ 6.5 million , or 27.9 percent , to $ 29.7 million for the year ended december 31 , 2019 from $ 23.2 million for the same period in 2018. the increase in cost of revenue and gross profit is due to higher sales during the year ended december 31 , 2019 , compared to the same period in 2018. gross profit margin was 77.1 percent and 76.3 percent for the years ended december 31 , 2019 and 2018 , respectively . the increase in gross profit margin is the result of favorable overhead variance adjustments , partially offset by unfavorable pricing adjustments in 2019 compared to 2018. operating expenses
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if objective and reliable evidence of fair value of any element is not available , we use an estimated selling price for purposes of allocating the total arrangement consideration among the elements . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . allowance for doubtful accounts . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . credit limits are established through a process of reviewing the financial history and stability of each customer . where appropriate , we obtain credit rating reports and financial statements of the customer when determining or modifying their credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors . when a customer 's account balance becomes past due , we initiate dialogue with the customer to determine the cause . if it is determined that the customer will be unable to meet its financial obligation to us , such as in the case of a bankruptcy filing , deterioration in the customer 's operating results or financial position or other material events impacting their business , we record a specific allowance to reduce the related receivable to the amount we expect to recover given all information presently available . actual write-offs during the past three years have not been material to our results of operations . we also record an allowance for all other customers based on certain other factors including the length of time the receivables are past due and historical collection experience with individual customers . as of december 31 , 2017 , our accounts receivable balance of $ 346.7 million is reported net of allowances for doubtful accounts of $ 7.6 million . we believe our reported allowances at december 31 , 2017 are adequate . if the financial conditions of those customers were to deteriorate , however , resulting in their inability to make payments , we may need to record additional allowances that would result in additional selling , general and administrative expenses being recorded for the period in which such determination is made . inventory . our policy is to record inventory write-downs when conditions exist that indicate that our inventories are likely to be in excess of anticipated demand or are obsolete based upon our assumptions about future demand for our products and market conditions . we regularly evaluate the ability to realize the value of our inventories based on a combination of factors including the following : historical usage rates , forecasted sales or usage , product end of life dates , estimated current and future market values and new product introductions . purchasing requirements and alternative usages are evaluated within these processes to mitigate inventory exposure . when recorded , our write-downs are intended to reduce the carrying value of our inventories to their net realizable value and establishes a new cost basis . as of december 31 , 2017 , our inventories of $ 372.2 million are stated net of inventory write-downs . if actual demand for our products deteriorates or market conditions are less favorable than those that we project , additional inventory write-downs may be required in the future . goodwill . goodwill represents the excess purchase price of an acquired enterprise over the estimated fair value of identifiable net assets acquired . we assess goodwill for potential impairment at the reporting unit level during the third quarter of each year , or whenever events or circumstances indicate that the carrying value of these assets may exceed their fair value . we may assess qualitative factors to make this determination , or bypass such a qualitative assessment and proceed directly to testing goodwill for impairment using a two-step process . qualitative factors we may consider include , but are not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for our products and services , regulatory and political developments and entity specific factors such as strategies and financial performance . if there are indicators that goodwill has been impaired we proceed to a two-step impairment test , whereby the first step is comparing the fair value of a reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds the carrying value , goodwill is not impaired and no further testing is performed . the second step is performed if the carrying value of a reporting unit exceeds its fair value . if the carrying value of a reporting unit 's goodwill exceeds its implied fair value , an impairment loss equal to the difference is recorded . our impairment test in the current year did not indicate an impairment of goodwill in any of our reporting units . product warranties . our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our products over a specified period of time , generally twelve to twenty-four months , at no cost to our customers . our policy is to record warranty liabilities at levels that represent our estimate of the costs that will be incurred to fulfill those warranty requirements at the time that revenue is recognized . we believe that our recorded liability of $ 18.1 million at december 31 , 36 2017 is adequate to cover our future cost of materials , labor and overhead for the servicing of our products sold through that date . if actual product failures or material or service delivery costs differ from our estimates , our warranty liability would need to be revised accordingly . contingencies . we are subject to the possibility of loss contingencies arising in the normal course of business . story_separator_special_tag we consider the likelihood of loss or impairment of an asset or the incurrence of a liability , as well as our ability to reasonably estimate the amount of loss in determining loss contingencies . an estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount can be reasonably estimated . we regularly evaluate current information available to us to determine whether such accruals and disclosures should be adjusted . income taxes . we account for income taxes using the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of the assets and liabilities measured using the enacted tax rates in effect in the years in which the differences are expected to reverse . valuation allowances against deferred tax assets are recorded when a determination is made that the deferred tax assets are not more likely than not to be realized in the future . in making that determination , on a jurisdiction by jurisdiction basis , we estimate our future taxable income based upon historical operating results and external market data . future levels of taxable income are dependent upon , but not limited to , general economic conditions , competitive pressures and other factors beyond our control . as of december 31 , 2017 , we have determined that a valuation allowance against our deferred tax assets of $ 3.4 million is required . if we should determine that we may be unable to realize our deferred tax assets to the extent reported , an adjustment to the deferred tax assets would be recorded in the period such determination is made . we are subject to income taxes in the united states and in numerous foreign jurisdictions , and in the ordinary course of business , there are many transactions and calculations where the ultimate tax determination is uncertain . we record a benefit on a tax position when we determine that it is more likely than not that the position is sustainable upon examination , including resolution of any related appeals or litigation processes , based on the technical merits of the position . for tax positions that are more likely than not to be sustained , we measure the tax position at the largest amount of benefit that has a greater than 50 percent likelihood of being realized when it is effectively settled , using information that is available at the reporting date . we review our tax positions as circumstances warrant , and update our liability for additional taxes as changes in available facts arise . 37 story_separator_special_tag europe and a transfer of those operations to larger facilities . we also consolidated our optics and laser manufacturing businesses to better realize the benefits of vertical integration in these areas . the benefits from these actions are reflected in our operating results . the majority of the actions in our realignment plan were completed in 2016. loss on net assets held for sale . during the fourth quarter of 2017 , we recorded a pre-tax loss on net assets held for sale of $ 23.6 million . the loss on net assets held for sale was related to the planned divestiture of our consumer and small and medium-sized visible-spectrum security business . see note 18 , `` business acquisitions and divestitures , '' to the consolidated financial statements in item 8 for additional information . interest expense . interest expense totaled $ 16.8 million , $ 18.1 million and $ 14.1 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . interest expense for the year was primarily associated with the $ 425 million aggregate principal amount of 3.125 percent senior unsecured notes that were issued in june 2016 , and amounts drawn under our credit facility , which was repaid in august 2017. the decrease in interest expense in 2017 compared to 2016 was primarily due to the $ 1.3 million loss incurred in 2016 on extinguishment of our debt . the increase in interest expense in 2016 compared to 2015 is primarily due to the 39 increased amount of interest bearing debt as well as a $ 1.3 million loss on the extinguishment of the $ 250 million aggregate principal amount of our 3.75 percent senior unsecured notes that were repaid in july 2016. other ( income ) expense , net . other income totaled $ 4.1 million for the year ended december 31 , 2017 . other expense totaled $ 3.1 million for the year ended december 31 , 2016 and other income totaled $ 12.6 million for the year ended december 31 , 2015 . the change in other ( income ) expense , net in 2017 over 2016 is primarily attributed to decreased losses on currency exchange rate fluctuations . the change in other ( income ) expenses , net in 2016 compared to 2015 is primarily attributed to the $ 20.2 million gain on the sale of our cost-basis investment in a private technology company during the year ended december 31 , 2015. income taxes . our income tax provision was $ 171.8 million , $ 109.3 million and $ 63.8 million in 2017 , 2016 and 2015 , respectively . the effective tax rates for 2017 , 2016 and 2015 were 61.6 percent , 39.6 percent and 20.9 percent , respectively . our effective tax rate in 2017 is higher than the united states federal tax rate of 35 percent mainly due to our estimate of the impact of the tax cuts and jobs act ( the `` tax act '' ) , including $ 66.5 million for deemed distributions of previously unremitted foreign earnings , $ 12.8 million for revaluation of deferred tax items and $ 15.1 million for estimated state and foreign taxes due on distribution of previously unremitted foreign earnings .
| acquisitions made during the year ended december 31 , 2016 constitute approximately 2.1 % of consolidated revenue in 2016. international revenue in 2017 totaled $ 844.0 million , representing 46.9 percent of revenue . this compares with international revenue in 2016 which totaled $ 758.6 million , representing 45.6 percent of revenue , and $ 726.6 million in 2015 , representing 46.7 percent of revenue . while the sales mix between united states and international sales may fluctuate from year to year , we expect revenue from customers outside the united states to continue to comprise a significant portion of our total revenue on a long-term basis . cost of goods sold . cost of goods sold for the years ended december 31 , 2017 and 2016 was $ 941.7 million and $ 895.0 million , respectively . the increase is primarily due to the increase in revenues year over year as discussed above and changes in product mix . 38 cost of goods sold in 2016 was $ 895.0 million , compared to cost of goods sold of $ 803.5 million in 2015 . the increase is primarily due to the increase in revenues year over year as discussed above and changes in product mix and increased manufacturing variances and period costs . cost of goods sold includes materials , labor and overhead costs incurred in the manufacturing of products and services sold in the period as well as warranty costs . material costs include raw materials , purchased components and sub-assemblies , outside processing and inbound freight costs . labor and overhead costs consist of direct and indirect manufacturing costs , including wages and fringe benefits , operating supplies , depreciation and amortization , occupancy costs , and purchasing , receiving and inspection costs . gross profit . gross profit for the year ended december 31 , 2017 was $ 858.8 million compared to $ 767.1 million in 2016 . gross margin , defined as gross profit divided by revenue , increased
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the ultimate effect of these disruptions , including the extent of their adverse effect on our financial and operational results , will be impacted by the length of time that such disruptions continue , which will , in turn , depend on the currently unknown duration of the covid-19 pandemic and the impact of governmental regulations and other restrictions that might be imposed in response to the pandemic . due to these impacts and measures , we have experienced and may continue to experience significant and unpredictable reductions in the demand for our products as healthcare customers divert medical resources and priorities towards the treatment of that disease . in addition , our customers may delay , cancel , or redirect planned capital expenditures in order to focus resources on covid-19 or in response to economic disruption related to covid-19 . for example , as covid-19 reached a global pandemic level in march through june 2020 , we experienced a significant decline in procedure volume in the u.s. , as healthcare systems diverted resources to meet the increasing demands of managing covid-19 . in addition , the american college of surgeons , u.s. surgeon general , and other public health bodies have recommended at times delaying elective surgeries during the covid-19 pandemic , and surgeons and medical societies are evaluating the risks of minimally invasive surgeries in the presence of infectious diseases , which we expect will continue to negatively impact the usage of our product . capital markets and worldwide economies have also been significantly impacted by the covid-19 pandemic , and it is possible that it could cause a local and or global economic recession . such economic recession could have a material adverse effect on our long-term business as hospitals and surgical centers curtail and reduce capital and overall spending . the covid-19 pandemic and local actions , such as “ shelter-in-place ” orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers , could further significantly affect our sales and our ability to ship our products and supply our customers in a negative manner . any of these events could negatively affect the number of surgical procedures performed using our products and have a material adverse effect on our business , financial condition , results of operations , or cash flows . the covid-19 impact on the capital markets could reduce our ability and increase our cost to borrow under financing arrangements . there are certain limitations on our ability to mitigate the adverse financial impact of these items , including the fixed costs of our businesses . covid-19 also makes it more challenging for management to estimate future performance of our businesses , particularly over the near to medium term . as a response to the ongoing covid-19 pandemic , we have implemented plans to manage our costs . we implemented a hiring freeze , a temporary reduction of base salaries for all staff with a title of director and above , implemented a reduction in personnel and significantly limited the addition of third party contracted services , limited all travel except where necessary to meet customer or regulatory needs , and acted to limit discretionary spending . to the extent the business disruption continues for an extended period , additional cost management actions will be considered . we are closely monitoring the impact of covid-19 on all aspects of our business and geographies , including its effect on our customers , employees , suppliers , business partners and distribution channels . the extent to which the covid-19 global pandemic impacts our business , results of operations , and financial condition will depend on future developments , which are highly uncertain and are difficult to predict ; these developments include , but are not limited to , the duration and spread of the outbreak , its severity , the actions to contain the virus or address its impact , u.s. and foreign government actions to respond to the reduction in global economic activity , and how quickly and to what extent normal economic and operating conditions can resume . even after the covid-19 outbreak has subsided , we may continue to experience materially adverse effects on our financial condition and results of operations . the duration and severity of the resulting economic downturn and the broader effect that covid-19 could have on our business , financial condition and operating results , remains highly uncertain . for more information , see “ item 1. business- impact of covid-19 pandemic ” and “ item 1a . risk factors . story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt '' > fiscal 2020 working capital at june 30 , 2020 was $ 47.4 million . for fiscal 2020 , cash used in operations was $ 26.7 million , mainly due to our net loss of $ 17.4 million , an increase in inventory of $ 10.9 million , an increase in accounts receivable of $ 1.8 million , and a decrease in accounts payable and accrued expenses of $ 1.0 million , offset by $ 4.7 million of non-cash expenses . cash provided by investing activities for fiscal 2020 was $ 5.1 million , primarily consisting of cash provided by the acquisition of solsys of $ 5.5 million , offset by the purchase of property , plant and equipment of $ 0.3 million and cash outflows from filing for additional patents of $ 0.1 million . - 19 - cash provided by financing activities was $ 51.7 million for fiscal 2020 , primarily consisting of net cash of $ 32 million from an offering of our equity securities , $ 1.4 million of transaction fees relating to the solsys acquisition , and net long-term debt borrowings of $ 19.8 million , in addition to $ 1.2 million in proceeds received from the exercise of stock options . as of june 30 , 2020 , we had a cash balance of approximately $ 38 million . story_separator_special_tag the covid-19 global pandemic has negatively impacted the global economy , disrupted consumer spending and created significant volatility and disruption of financial markets . as a result , we experienced a significant decline in revenue since march 2020 and the pandemic has made it more challenging for management to estimate future performance of our businesses and liquidity needs , particularly over the near to medium term . however , management currently believes that we have sufficient cash to finance operations for at least the next 12 months following the issuance date of the consolidated financial statements included herein . fiscal 2019 as of june 30 , 2019 , the company had a cash balance of approximately $ 7.8 million . working capital at june 30 , 2019 was $ 13.5 million . for fiscal 2019 , cash used in operations was $ 3.7 million , mainly due to the company 's net loss of $ 7.4 million and an increase in inventory of $ 3.2 million , offset by an increase in accounts payable and accrued expenses of $ 3.1 million , and $ 4.0 million of non-cash expenses . cash used in investing activities was $ 0.8 million , primarily consisting of the purchase of property , plant and equipment along with filing for additional patents . cash provided by financing activities was $ 1.4 million for fiscal 2019 , resulting from the exercise of stock options . financing transactions in connection with the consummation of our recent solsys acquisitions and our efforts to strengthen our balance sheet , we undertook several financing transactions in the fiscal year ended june 30 , 2020. for a detailed description of these transactions please see the notes to our audited consolidated financial statements included elsewhere herein . on september 27 , 2019 , we entered into an amended and restated credit agreement , or ( as amended and supplemented from time to time ) the swk credit agreement , with swk holdings corporation , or swk , pursuant to a commitment letter whereby swk ( a ) consented to the acquisition of solsys and ( b ) agreed to provide financing to us . through the acquisition of solsys , we became party to a $ 20.2 million note payable to swk . the swk credit facility originally provided an additional $ 5.0 million in financing , totaling approximately $ 25.1 million and a maturity date of june 30 , 2023. on december 23 , 2019 , the parties amended the swk credit agreement to , among other things , provide an additional $ 5 million of term loans , for total aggregate borrowings of up to approximately $ 30.1 million . the maturity date of the amended swk credit agreement remains june 30 , 2023. on june 30 , the parties amended the swk credit agreement , ( as so amended , the “ amended swk credit agreement ” ) to modify the minimum aggregate revenue and minimum ebitda financial covenants thereunder . the modified terms under the amended swk credit agreement reduce the minimum aggregate revenue requirements through december 31 , 2021 and reduce the minimum ebitda requirements through june 30 , 2021. as of june 30 , 2020 , the outstanding principal balance of the term loans under the amended swk credit agreement is approximately $ 30.1 million . through the acquisition of solsys , we also became party to a $ 5.0 million revolving line of credit loan agreement with silicon valley bank , originally effective january 22 , 2019 , or ( as amended and supplemented from time to time ) the prior solsys credit agreement . the line of credit had an original maturity date of january 22 , 2021. on december 26 , 2019 , we entered into a loan and security agreement , or ( as amended and supplemented from time to time ) the new loan and security agreement , among us and our wholly-owned subsidiaries , misonix opco , inc. and solsys , as borrowers , and silicon valley bank . the new loan and security agreement provides for a revolving credit facility , or the new credit facility , in an aggregate principal amount of up to $ 20.0 million , including borrowings and letters of credit . the new loan and security agreement replaces the $ 5.0 million prior solsys credit agreement . we did not incur any early termination penalties in connection with the termination of the prior solsys credit agreement . on june 30 , the parties amended the new loan and security agreement ( as so amended , the “ amended svb loan agreement ” ) to modify the minimum aggregate revenue and minimum ebitda financial covenants thereunder . the second svb modification reduces the minimum aggregate revenue requirements through december 31 , 2021 and reduces the minimum ebitda requirements through june 30 , 2021. borrowings under the new credit facility were used in part to repay the amount of $ 3.75 million outstanding under the prior solsys credit agreement , and the balance may be used by the company for general corporate purposes and working capital . the new credit facility matures on december 26 , 2022. as of june 30 , 2020 , the outstanding principal balance of the new credit facility is $ 8.4 million . on january 27 , 2020 , we completed an underwritten public offering of 1,868,750 shares of our common stock at a price to the public of $ 18.50 per share . the gross proceeds of the offering were $ 34.6 million . we intend to use the proceeds of the offering for general corporate purposes , which may include investment in sales and marketing initiatives and funding growth opportunities such as collaborations and acquisitions of complementary products or technologies . - 20 - on april 5 , 2020 , we applied for an unsecured $ 5.2 million loan under the paycheck protection program , or the ppp loan .
| % to $ 40.2 million in fiscal 2020 from $ 18.3 million in fiscal 2019. the increase is primarily due to our acquisition of solsys on september 27 , 2019. additional factors impacting selling expenses include higher compensation costs , consulting , nexus product launch costs , travel related expenses resulting from the continued build out of our direct sales force , increased freight expense on higher sales , and additional bad debt expense of $ 2.5 million , principally relating to the company 's accounts receivable from china , offset by lower commissions to distributors resulting from the transition of accounts from distributors to the direct sales force . selling expenses were lower in our fourth quarter as a result of our cost reduction efforts related to the covid-19 virus . general and administrative expenses general and administrative expenses increased $ 6.1 million to $ 18.0 million in fiscal 2020 from $ 11.9 million in fiscal 2019. the increase is primarily due to our acquisition of solsys on september 27 , 2019. in addition , during the second quarter of fiscal 2020 , we recorded a $ 960,000 non-cash reserve relating to a contract asset . this asset relates to future royalty payments from our chinese distributor of sonastar , which we believe will be uncollectible . research and development expenses research and development expenses increased by $ 0.4 million , or 10 % to $ 4.9 million in fiscal 2020 from $ 4.5 million in the prior year period . research and development expenses increased as a result of our acquisition of solsys on september 27 , 2019 , offset by a decrease in our nexus development expenses . - 18 - other expense other expense increased to $ 2.5 million in fiscal 2020 from other income of $ 0.1 million in fiscal 2019. the increase of $ 2.6 million is related to interest expense , which is primarily due to new debt facilities
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29 lease spread metrics the following table summarizes signed leases that were scheduled or expected to commence in 2015 and 2016 compared to expiring leases in the same suite , for leases where the downtime between new and previous tenant was less than 24 months , the occupied space between the previous tenant and new tenant did not change by more than 10,000 square feet and the new lease is at least a year . replace_table_token_18_th _ ( 1 ) represents initial annual rent over the lease consisting of base minimum rent and common area maintenance . ( 2 ) represents expiring rent at end of lease consisting of base minimum rent and common area maintenance . year ended december 31 , 2015 and 2014 the following table is a breakout of the components of minimum rents : replace_table_token_19_th base minimum rents decreased by $ 96.1 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 118.8 million less base minimum rents in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . the offsetting increase in base minimum rents is a result of an increase in rent steps between december 31 , 2015 and december 31 , 2014 . tenant recoveries decreased $ 49.9 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 61.5 million less tenant recoveries in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . the offsetting increase in tenant recoveries is primarily due to higher real estate tax recoveries of approximately $ 13.2 million in 2015. overage rents decreased $ 7.6 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 9.9 million less overage rents in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . the offsetting increase is a result of an increase in tenant sales between december 31 , 2015 and december 31 , 2014 . management fees and other corporate revenues increased $ 15.7 million primarily due to $ 6.3 million in fees related to the residential condominium joint venture at ala moana , $ 5.0 million in management fees related to the new ala moana center and bayside marketplace joint ventures , and $ 1.3 million in financing fees earned at 730 fifth avenue in 2015. other revenue increased $ 12.2 million primarily due to the sale of air rights at ala moana center which resulted in a $ 25.0 million gain on sale in 2015. this increase was partially offset by our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 11.3 million less other revenue in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . 30 real estate taxes decreased $ 5.1 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 11.4 million less real estate taxes in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . the offsetting increase in real estate taxes was a result of increased real estate taxes across the portfolio . property maintenance costs decreased $ 6.9 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 4.8 million less property maintenance costs in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . the remainder of the decrease is due to continued efforts to control operating expenses . other property operating costs decreased $ 30.8 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 28.7 million less other property operating costs in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . property management and other costs increased $ 6.5 million primarily due to a reduction of the self-insurance obligations in 2014. general and administrative decreased $ 13.6 million primarily due to a $ 17.9 million loss from the settlement of litigation in the second quarter of 2014 ( note 18 ) . there were provisions for impairment of $ 8.6 million in 2015 and $ 5.3 million in 2014 ( notes 2 and 5 ) . depreciation and amortization decreased by $ 64.7 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 56.1 million less depreciation and amortization in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . interest income increased $ 20.6 million primarily due to interest on notes receivable from our joint venture partners that were issued during 2015 ( note 14 ) . story_separator_special_tag interest expense decreased by $ 91.6 million primarily due to our sale of an interest in ala moana center during the first quarter of 2015 and our sale of an interest in bayside marketplace during the fourth quarter of 2014. this resulted in $ 45.8 million less interest expense in 2015 compared to 2014 as the properties are now accounted for as unconsolidated real estate affiliates . in addition , there was a $ 15.3 million decrease due to mortgage notes on four properties that were refinanced in 2014 and 2015 at lower interest rates , a $ 15.2 million decrease due to mortgage notes that were paid down during the first quarter of 2015 , and interest on the corporate loan secured by fourteen properties decreased by $ 8.2 million due to a 2014 amendment that reduced the interest rate . the loss on foreign currency is related to a note receivable denominated in brazilian reais , and received in conjunction with the sale of aliansce in the third quarter of 2013 ( note 14 ) . the gain from changes in control of investment properties and other of $ 634.4 million in 2015 is primarily due to our sale of an interest in ala moana center . also , the gain on the sale of the office portion of 200 lafayette is included in the amount ( note 3 ) . the gain from change in control of investment properties of $ 91.2 million in 2014 is due to the sale of an interest in bayside marketplace ( note 3 ) . ( provision for ) benefit from income taxes increased by $ 45.6 million primarily due to a $ 9.9 million adjustment for the impact of changes in the exchange rate on the note receivable denominated in brazilian reais , a $ 8.5 million tax benefit on the sale of air rights at ala moana in 2015 , a $ 7.1 million reversal of fin 48 liabilities in 2015 due to the expiration of the statute of limitations , a $ 6.4 million adjustment related to an internal property sale , and a $ 4.2 million benefit related to solar investment tax credits in 2015. equity in income of unconsolidated real estate affiliates increased by $ 21.8 million primarily due to our sale of an interest in ala moana center which caused the property to go from consolidated to unconsolidated , resulting in $ 32.7 million in additional equity in income of unconsolidated real estate affiliates . this was partially offset by our acquisition of 730 fifth which decreased equity in income of unconsolidated real estate affiliates by $ 13.8 million primarily due to increased deprecation and amortization and interest expense . unconsolidated real estate affiliates - gain on investment is primarily related to the sale of the additional 12.5 % interest in ala moana center during the second quarter of 2015 ( note 3 ) and the sale of our interest in a joint venture in the third quarter of 2015 ( note 6 ) . 31 year ended december 31 , 2014 and 2013 the following table is a breakout of the components of minimum rents : replace_table_token_20_th base minimum rents increased by $ 28.1 million primarily due to a 0.3 % increase in occupancy between december 31 , 2014 and december 31 , 2013 , the acquisition of an additional 50 % of quail springs mall during the second quarter of 2013 , and the acquisition of two operating properties during the fourth quarter of 2013. these increases were partially offset by our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013 , which resulted in lower base minimum rents during the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . tenant recoveries increased $ 22.5 million primarily due to higher fixed operating expense recoveries of approximately $ 11.5 million and higher real estate tax recoveries of approximately $ 9.4 million in 2014. overage rents decreased $ 4.4 million due in part to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in $ 1.2 million less overage rents in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates . real estate taxes decreased $ 11.8 million primarily due to a $ 11.1 million settlement of a multi-year real estate tax suit with a municipality during the first quarter of 2013. property maintenance costs decreased $ 2.5 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in a $ 4.9 million decrease in property maintenance costs in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates . other property operating costs decreased $ 7.8 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in a $ 5.8 million decrease in other property operating costs in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates . property management and other costs decreased $ 9.4 million primarily due to a reduction of the self-insurance obligations in 2014. general and administrative increased $ 14.8 million primarily due to a $ 17.9 million loss from the settlement of litigation in the second quarter of 2014 ( note 18 ) . there was a provision for impairment of $ 5.3 million in 2014 ( notes 2 and 5 ) . depreciation and amortization decreased by $ 41.3 million primarily due to in-place leases becoming fully amortized during the year leading to a $ 34.6 million decrease in amortization expense .
| significant components of net cash used in investing activities include : 2015 activity development of real estate and property improvements of $ ( 694.6 ) million ; 37 acquisition of marketable securities for $ ( 33.3 ) million ; acquisition of real estate and real estate interests of $ ( 384.3 ) million and loans to venture partners of $ ( 328.8 ) million ( note 3 ) ; partially offset by proceeds from the sale of joint venture interests and real estate assets of $ 1.2 billion ( note 3 ) . 2014 activity development of real estate and property improvements of $ ( 624.8 ) million ; distributions received from our unconsolidated real estate affiliates in excess of income $ 387.2 million ; contributions of $ ( 537.4 ) million to form seven new joint ventures and loans to venture partners of $ ( 137.1 ) million ( note 3 ) ; partially offset by proceeds from the disposition of one retail property and three other assets and the contribution of one property to a joint venture for $ 361.2 million ( note 3 ) . 2013 activity proceeds from the formation of a joint venture $ 411.5 million ; acquisition of our joint venture partner 's 50 % interest in quail springs for $ ( 55.5 ) million , net ; contribution to a joint venture that acquired a portfolio in san francisco 's union square area for $ ( 40.3 ) million ; proceeds from the sale of our investment in aliansce shopping centers s.a. of $ 446.3 million ( note 14 ) ; and the acquisition of two retail properties for $ ( 314.8 ) million cash flows from financing activities net cash used in financing activities was $ 767.7 million for the year ended december 31 , 2015 , $ 476.6 million for the year ended december 31 , 2014 , and $ 1.1 billion for the year ended december 31 , 2013 . significant components of net cash used in financing activities include : 2015 activity acquisition of 4.3 million shares of our common stock for $ ( 109.6 ) million ; cash distributions paid to common and preferred stockholders of $ ( 610.6 ) and $ ( 15.9 ) million , respectively ; and distributions to noncontrolling interests in consolidated real estate affiliates of $ ( 55.1 ) million . 2014 activity the acquisition of 27.6 million shares of our common stock
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ended june 30 , 2014. specifically , the provinces and their respective percentage contributed to our fertilizer revenues were : shaanxi ( 19.5 % ) , beijing ( 13.2 % ) , hebei ( 10.9 % ) , heilongjiang ( 7.3 % ) and shandong ( 6.3 % ) . as of june 30 , 2014 , we had a total of 1,189 distributors covering 27 provinces , four autonomous regions and three central government-controlled municipalities in china . jinong had 926 distributors in china . jinong 's sales are not dependent on any single distributor or any group of distributors . jinong 's top five distributors accounted for 31.2 % of its fertilizer revenues for the year ended june 30 , 2014. gufeng had 263 distributors , including some large state-owned enterprises . gufeng 's top five distributors accounted for 54.2 % of its revenues for the year ended june 30 , 2014. agricultural products through yuxing , we develop , produce and sell high-quality flowers , green vegetables and fruits to local marketplaces and various horticulture and planting companies . we also use certain of yuxing 's greenhouse facilities to conduct research and development activities for our fertilizer products . the three prc provinces that accounted for 89.6 % of our agricultural products revenue for the year ended june 30 , 2014 were shaanxi ( 84.3 % ) , qinghai ( 1.6 % ) and ningxia ( 3.7 % ) . 50 recent developments new products during the three months ended june 30 , 2014 , jinong launched two new fertilizer products . jinong 's new products generated approximately $ 110,886 , or 0.3 % of jinong 's fertilizer revenues for the three months ended june 30 , 2014. jinong also added 35 new distributors for the three months ended june 30 , 2014. jinong 's new distributors accounted for approximately $ 638,497 , or 1.9 % of jinong 's fertilizer revenues for the three months ended june 30 , 2014. jinong 's revenue attributable to the new products distributed by its new distributors was approximately $ 25,169 , or 0.07 % of jinong 's fertilizer revenues for the three months ended june 30 , 2014. during the three months ended june 30 , 2014 , gufeng launched five new fertilizer products . gufeng 's new products generated approximately $ 287,062 , or 0.3 % of gufeng 's fertilizer revenues for the three months ended june 30 , 2014. gufeng also added 11 new distributors for the three months ended june 30 , 2014. gufeng 's new distributors accounted for approximately $ 19,292,137 , or 17.3 % of gufeng 's fertilizer revenues for the three months ended june 30 , 2014. story_separator_special_tag arabic ; name : pageno -- > 53 general and administrative expenses general and administrative expenses consisted primarily of related salaries , rental expenses , business development , depreciation and travel expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred and accrued for certain litigations . general and administrative expenses were $ 14,515,884 , or 6.2 % of net sales for the year ended june 30 , 2014 , as compared to $ 9,632,523 , or 4.4 % , of net sales for the year ended june 30 , 2013 , an increase of $ 4,883,361 , or 50.7 % . the increase in general and administrative expenses was mainly due to the related expense in the stock compensation awarded to the employees which amounted to $ 8,119,724 for the year ended june 30 , 2014 as compared to $ 3,489,687 for the year ended june 30 , 2013. impairment of assets during the year ended june 30 , 2014 , we determined that the fair value of the assets held for sale deducted by disposal costs was less than the carrying amounts of the assets , hence we took an impairment charge of $ 5,161,815. such an impairment was due to the facts that : 1 ) most of jintai 's greenhouse facilities could not be used during the migration process ; 2 ) most piping systems could not be reused in the future ; 3 ) the pavement and lawn property which were sold in the asset purchase contract could not be used again . there was no such impairment charge during the year ended june 30 , 2013. total other expenses total other expenses consisted of income from subsidies received from the prc government , interest income , interest expenses and bank charges . total other expense for the year ended june 30 , 2014 was $ 1,742,019 , as compared to $ 427,426 for the year ended june 30 , 2013 , an increase in expense of $ 1,314,593 , or 307.6 % . the increase in total other expense resulted from a decrease by $ 1,114,508 in other income , to a loss of $ 501,500 during the year ended june 30 , 2014 , as compared to other income of $ 613,008 during the year ended june , 2013 , the decrease was mainly due to the $ 362,866 non operating expense ; a decrease in interest income by $ 170,413 or 54.8 % , to $ 140,310 during the year ended june 30 , 2014 as compared to $ 310,723 during the year ended june 30 , 2013 , the decrease was due to the decreased deposit in the banks ; and an increase in interest expenses by $ 29,672 or 2.2 % to $ 1,380,829 during the year ended june 30 , 2014 , as compared to $ 1,351,157 during the year ended june 30 , 2013 , the increase was mainly due to the interest expense from gufeng 's outstanding short-term loans . story_separator_special_tag income taxes jinong is subject to a preferred tax rate of 15 % as a result of its business being classified as a high-tech project under the prc enterprise income tax law ( “ eit ” ) that became effective on january 1 , 2008. jinong incurred income tax expenses of $ 249,206 for the year ended june 30 , 2014 , as compared to $ 6,654,038for the year ended june 30 , 2013 , a decrease of $ 2,404,832 , or 36.1 % . the decrease was mainly due to the increased selling expense . gufeng , subject to a tax rate of 25 % , incurred income tax expenses of $ 3,811,740 for the year ended june 30 , 2014 , as compared to $ 3,529,950 for the year ended june 30 , 2013 , an increase of $ 281,790 , or 7.98 % , which was primarily due to gufeng 's increased net income . yuxing has no income tax for the year ended june 30 , 2014 as a result of being exempted from paying income tax due to its products fall into the tax exemption list set out in the eit . net income net income for the year ended june 30 , 2014 was $ 25,514,695 , a decrease of $ 19,259,353 , or 43.0 % , compared to $ 44,774,048 for the year ended june 30 , 2013. the decrease was attributable to the increase in selling expenses and the impairment charge related to the write-down of assets held for sale . net income as a percentage of total net sales was approximately 10.9 % and 20.6 % for the year ended june 30 , 2014 and 2013 , respectively . 54 year ended june 30 , 2013 compared to the year ended june 30 , 2012. replace_table_token_16_th 55 net sales total net sales for the year ended june 30 , 2013 were $ 216,897,956 , a decrease of $ 626,249 , or 0.3 % , from $ 217,524,205 for the year ended june 30 , 2012. this decrease was largely due to the decrease in gufeng 's net sales . for the year ended june 30 , 2013 , jinong 's net sales increased $ 22,416,282 , or 25.4 % to $ 110,585,022 from $ 88,168,740 for the year ended june 30 , 2012. this increase was mainly attributable to the greater sales of humic acid fertilizer products including our liquid and powder fertilizers during this period as a result of our increased distributors and the aggressive marketing strategy . for the year ended june 30 , 2013 , net sales at gufeng were $ 102,915,414 , a decrease of $ 18,565,529 , or 15.3 % from $ 121,480,943 for the year ended june 30 , 2012. the fiscal quarter ended march 31 , 2013 fell in the “ export window ” in which no special tariff tax applied , however , due to the lower demand on nitrogen-phosphorous elemented compound fertilizer by importing countries which is arising from the backlog of their imported compound fertilizers in previous quarters , which also led to lower-than-before profit margin over the export contracts , gufeng had no export contract in the quarter ended march 31 , 2013. despite of that , gufeng has been expanding and penetrating the domestic market particularly since the fiscal quarter ended march 31 , 2012 , during which period no revenue was generated from fertilizer exportation either due to sustained special tariff tax levied by china authority or due to continuously weak demand by importing countries . jintai 's net sales was zero for the year ended june 30 , 2013 as compared to $ 5,792,002 for the year ended june 30 , 2012 due to jintai 's relocation , and its affiliated process , which commenced on march 1 , 2012 , and is in progress . therefore , jintai did not generate any sales revenue since march 1 , 2012. for the year ended june 30 , 2013 , yuxing 's net sales were $ 3,397,520 , an increase of $ 1,315,000 , from $ 2,082,520 during the year ended june 30 , 2012. the increase was mainly attributable both to the development in sales of yuxing 's top-grade flowers and the proxy sales of certain inventory from jintai . cost of goods sold total cost of goods sold for the year ended june 30 , 2013 was $ 137,514,102 , a decrease of $ 734,870 , or 0.5 % , from $ 138,248,972 for the year ended june 30 , 2012. this decrease was insignificant . cost of goods sold by jinong for the year ended june 30 , 2013 was $ 51,883,935 , an increase of $ 17,754,631 , or 52.0 % , from $ 34,129,304 for the year ended june 30 , 2012. the increase was primarily attributable to the increase in the cost of raw materials and the increase in sales of fertilizer products . cost of goods sold by gufeng for the year ended june 30 , 2013 was $ 83,020,447 , a decrease of $ 13,736,272 , or 14.2 % , from $ 96,756,719 for the year ended june 30 , 2012. the decrease was proportional to gufeng 's sales for the year ended june 30 , 2013 . 56 cost of goods sold by jintai for the year ended june 30 , 2013 was zero , comparing to $ 5,415,970 for fiscal year 2012 , because jintai 's had no operation as a result of its relocation .
| cost of goods sold by gufeng for the year ended june 30 , 2014 was $ 90,748,540 , an increase of $ 7,728,093 , or 9.3 % , from $ 83,020,447 for the year ended june 30 , 2013. the increase was proportional to gufeng 's sales increase for the year ended june 30 , 2014. for year ended june 30 , 2014 , cost of goods sold by yuxing was $ 2,825,680 , an increase of $ 215,960 , or 8.3 % , from $ 2,609,720 for the year ended june 30 , 2013. the increase was proportional to yuxing 's increased sales for the year ended june 30 , 2014. gross profit total gross profit for the year ended june 30 , 2014 increased by $ 11,814,919 to $ 91,198,773 , as compared to $ 79,383,854 for the year ended june 30 , 2013. gross profit margin was 39.1 % and 36.6 % for the year ended june 30 , 2014 and 2013 , respectively . gross profit generated by jinong increased by $ 10,375,851 , or 17.7 % , to $ 69,076,938 for the year ended june 30 , 2014 from $ 58,701,087 for the year ended june 30 , 2013. gross profit margin from jinong 's sales was approximately 58.7 % and 53.1 % for the year ended june 30 , 2014 and 2013 , respectively . the increase in gross profit margin was mainly due to the increased weight for higher-margin products sales in jinong 's total sales . for the year ended june 30 , 2014 , gross profit generated by gufeng was $ 21,262,693 , an increase of $ 1,367,726 , or 6.9 % , from $ 19,894,967 for the year ended june 30 , 2013. gross profit margin from gufeng 's sales was approximately 19.0 % and 19.3 % for the year ended june 30 , 2014 and 2013 , respectively . the decrease in gross profit percentage was not significant . for the year ended june 30 , 2014 , gross profit generated by yuxing was $ 859,142 , an increase of $ 71,342 , or 9.1 % from
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in addition , based on historical experience , we believe the current economic backdrop ( already high corporate cash balances , relatively low interest rates and availability of credit ) , provides a solid foundation for m & a . in europe , we continue to see an improvement in transaction activity . as our team of investment banking professionals expands and continues to gain traction , we expect our global collaboration will deepen and continue to resonate with clients . our current conversations with clients remain robust , and we continue to experience a growing global demand for independent advice as clients evaluate a wide range of strategic alternatives . story_separator_special_tag 0pt ; text-align : center ; line-height:100 % ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > 34 operating expenses the following table sets forth information relating to our operating expenses , which are reported net of reimbursements by our clients : replace_table_token_5_th our operating expenses are classified as compensation and benefits expenses and non‑compensation expenses , and headcount is the primary driver of the level of our expenses . compensation and benefits expenses account for the majority of our operating expenses . non‑compensation expenses , which include the costs of professional fees , travel and related expenses , communication , technology and information services , occupancy , depreciation and other expenses , generally have been less significant in comparison with compensation and benefits expenses . expenses are recorded on the consolidated statements of operations , net of any expenses reimbursed by clients . year ended december 31 , 2017 versus 2016 operating expenses were $ 520.3 million for the year ended december 31 , 2017 and represented 76 % of revenues , compared with $ 452.3 million for the same period in 2016 which represented 74 % of revenues . the increase in operating expenses was generally in-line with the growth in revenues and was primarily driven by increased compensation , including higher equity amortization as compared to the prior year , and increased non-compensation expense primarily due to business development and transaction related charges . year ended december 31 , 2016 versus 2015 operating expenses were $ 452.3 million for the year ended december 31 , 2016 and represented 74 % of revenues , compared with $ 414.4 million for the same period in 2015 which represented 75 % of revenues . the increase in operating expenses in 2016 was generally in-line with the growth in revenues and was primarily driven by higher compensation expenses due to an additional tranche of equity amortization as compared to the prior year , as well as modified vesting terms associated with that equity which have a five year pro-rata vest for managing directors as compared with awards issued in the previous two years which have a five year vest , pro-rata in years three , four and five . compensation and benefits expenses our compensation and benefits expenses are determined by management based on revenues earned , the competitiveness of the prevailing labor market and anticipated compensation requirements for our employees , the level of recruitment of new managing directors , the amount of compensation expenses amortized for equity awards and other relevant factors . our compensation expenses consist of base salary and benefits , annual incentive compensation payable as cash bonus awards , including certain amounts subject to clawback and contingent upon a required period of service ( “ contingent cash awards ” ) and amortization of equity‑based compensation awards . base salary and benefits are paid ratably throughout the year . equity awards are amortized into compensation expenses on a graded basis ( based upon the fair value of the award at the time of grant ) during the service period over which the award vests , which is typically four or five years . the awards are recorded within equity as they are expensed . contingent cash awards are amortized into compensation expenses over the required service period . cash bonuses , which are accrued each quarter , are discretionary and dependent upon a number of factors including the performance of the company and are generally paid during the first two months of each calendar year with respect to prior year performance . the equity component of the annual incentive award is determined with reference to the company 's estimate of grant date fair value , which in turn determines the number of equity awards granted subject to a vesting schedule . 35 our compensation expenses are primarily based upon revenues , prevailing labor market conditions and other factors that can fluctuate , including headcount , and as a result , our compensation expenses may fluctuate materially in any particular period . accordingly , the amount of compensation expenses recognized in any particular period may not be consistent with prior periods or indicative of future periods . year ended december 31 , 2017 versus 2016 for the year ended december 31 , 2017 , compensation‑related expenses of $ 401.4 million represented 59 % of revenues , compared with $ 360.9 million which represented 59 % of revenues in the prior year . the increase in compensation expenses was primarily driven by greater revenue and equity amortization during 2017 as compared with 2016. our fixed compensation costs , which are primarily the sum of base salaries , payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards , were $ 259.2 million and $ 232.9 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in fixed compensation expense relates to an increase in headcount ( which drives salaries and benefits ) and higher equity amortization as compared to the prior year . the aggregate amount of discretionary cash bonus expenses , which generally represents the excess amount of total compensation over base compensation and amortization of equity and contingent cash awards , was $ 142.2 million and $ 128.0 million for the years ended december 31 , 2017 and 2016 , respectively . story_separator_special_tag the combination of the discretionary and fixed compensation expenses represents the overall compensation expense pool . the increase in discretionary cash bonus expense is primarily related to higher revenues earned , partially offset by the increase in fixed compensation expense . year ended december 31 , 2016 versus 2015 for the year ended december 31 , 2016 , compensation related expenses of $ 360.9 million represented 59 % of revenues , compared with $ 311.2 million of compensation related expenses which represented 56 % of revenues in the prior year . the increase in expenses primarily relates to a combination of greater revenue and increased equity amortization during 2016 as compared with 2015. our fixed compensation costs , which are primarily the sum of base salaries , payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards , were $ 232.9 million and $ 190.1 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in fixed compensation costs relates to an additional tranche of equity amortization as compared to the prior year . the aggregate amount of discretionary cash bonus expenses , which generally represents the excess amount of total compensation over base compensation and amortization of equity and contingent cash awards , was $ 128.0 million and $ 121.1 million for the years ended december 31 , 2016 and 2015 , respectively . the combination of the discretionary and fixed compensation expenses represents the overall compensation expense pool . the increase in discretionary cash bonus expense is primarily related to higher revenues earned , partially offset by the increase in fixed compensation expense exceeding the growth in the overall compensation pool . non‑compensation expenses our non‑compensation expenses include the costs of occupancy , professional fees , communication , technology and information services , travel and related expenses , depreciation and other expenses . reimbursed client expenses are netted within the appropriate non‑compensation expense line . historically , our non compensation expenses associated with business development have increased as we have increased headcount and the related non compensation support costs which results from growing our business . this trend may continue as we expand into new sectors , geographies and products to serve our clients ' growing needs . year ended december 31 , 2017 versus 2016 non‑compensation expenses were $ 118.9 million in the year ended december 31 , 2017 , representing 17 % of revenues , compared with $ 91.4 million , or 15 % in the prior year . the increase in non-compensation expense was primarily related to increased travel and related expenses and professional fees , most of which are related to greater transaction related charges and increased business development activities . 36 year ended december 31 , 2016 versus 2015 non compensation expenses were $ 91.4 million in the year ended december 31 , 2016 , representing 15 % of revenues , down from $ 103.1 million , or 19 % in the prior year . the decrease in non compensation expenses was primarily driven by reduced professional fees due to lower consulting and recruiting fees , lower other expenses and increased collections of reimbursable expenses . income ( loss ) from equity method investments the company accounts for its equity method investments under the equity method of accounting as the company does not control these entities but has the ability to exercise significant influence . the amounts recorded on the consolidated statements of financial condition reflect the company 's share of contributions made to , distributions received from , and the equity earnings and losses of , the investments . the company reflects its share of gains and losses of the investment in income ( loss ) from equity method investments in the consolidated statements of operations . certain adjustments have been made to account for the company 's equity method investment in moelis australia under us gaap as moelis australia follows local accounting principles under australian accounting standards . moelis australia on april 1 , 2010 , we entered into a joint venture in moelis australia , investing a combination of cash and certain net assets in exchange for a 50 % interest in the venture . the remaining 50 % was owned by an australian trust established by and for the benefit of australian executives . moelis australia 's business is offering advisory services as well as equity capital markets and research business , sales and trading business covering australian public equity securities and an asset management business . advisory fees are generally recognized at key transaction milestones , so the revenues earned by moelis australia can vary significantly period to period . moelis australia has offices in sydney and melbourne . on april 10 , 2017 , moelis australia consummated their initial public offering and became listed on the australian securities exchange ( asx : moe ) . as a result of the offering , the company 's ownership interest in moelis australia was diluted to less than 50 % and the company recognized a gain of approximately $ 15.2 million recorded in other income and expenses on the consolidated statement of operations . contemporaneous with the offering , moelis australia agreed to terminate an asset management related revenue sharing agreement resulting in a payment to a third party , of which the company recognized a charge of approximately $ 2.4 million in income ( loss ) from equity method investments . see note 4 of the consolidated financial statements included in this form 10-k for further information . on september 13 , 2017 and october 30 , 2017 , moelis australia completed offerings of 11,940,000 and 10,060,000 shares of common stock , respectively , to raise additional capital . the issuance of shares further reduced moelis & company 's ownership interest in moelis australia . these shares were issued at a fair value greater than the carrying value of the ownership interest disposed , resulting in gains of approximately $ 14.4 million and $ 9.7 million , respectively , recorded in other income on the consolidated statement of operations .
| barriers to the completion of a restructuring transaction may include a lack of anticipated bidders for the assets of our client or the inability of our client to restructure its operations or indebtedness due to a failure to reach agreement with its creditors . in these circumstances , our fees are generally limited to monthly retainer fees and reimbursement of certain out‑of‑pocket expenses . we do not allocate our revenues by the type of advice we provide ( m & a , recapitalizations and restructurings or other corporate finance matters ) because of the complexity of the transactions on which we may earn revenues and our holistic approach to client service . for example , a restructuring engagement may evolve to require a sale of all or a portion of the client , m & a assignments can develop from relationships established on prior restructuring engagements and capital markets expertise can be instrumental on both m & a and restructuring assignments . year ended december 31 , 2017 versus 2016 revenues were $ 684.6 million for the year ended december 31 , 2017 compared with $ 613.4 million for the same period in 2016 , representing an increase of 12 % . this compares favorably with a 1 % decrease in the number of globally completed m & a transactions greater than $ 100 million in the same period . the increase in revenues was primarily driven by growth in m & a where we saw a larger number of completions and earned higher average fees , as well as increased capital markets advisory activity . the number of clients we advised increased year‑over‑year from 305 clients in 2016 to 311 clients in 2017 , and the number of clients who paid fees equal to or greater than $ 1 million increased from 167 clients in 2016 to 175 clients in 2017. year ended december 31 , 2016 versus 2015 revenues were $ 613.4 million for the year ended december 31 , 2016 compared with $ 551.9 million for the
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our commercial and multifamily real estate and 64 commercial business loans have increased from $ 354.5 million , or 40.8 % of total loans , at december 31 , 2018 , to $ 393.4 million , or 44.5 % of total loans , at december 31 , 2019 . the increase resulted in part from developing relationships with new loan referral sources , including our board of directors and loan brokers , pursuing loan purchase and participation opportunities , competing successfully in new and existing markets , and benefiting from the improvement of the economy in northwestern washington . increasing our portfolio of auto and other loans . we actively participate in an indirect lending program with auto dealerships within the markets where we have branch locations . we also purchase auto loans from a company that underwrites high-end and classic auto loans for borrowers with exemplary credit , which are typically longer duration but have had historically low loss rates . we have seen losses in the indirect auto loan portfolio over the past year and as a result have changed our underwriting criteria , rate , and fee structure for that program . while balances in the indirect auto loan portfolio have declined as a result of those changes , we continue to emphasize growth in our auto loan purchase program . we believe that effectively growing and managing our auto lending program will help to increase interest income , shorten maturities , and manage interest rate risk . we also intend to increase our home equity line of credit lending and other consumer loans through digital platforms over the next two years . maintaining our focus on asset quality . we believe that strong asset quality is a key to our long-term financial success . we are focused on monitoring existing performing loans , resolving nonperforming loans , and selling foreclosed assets . nonperforming assets were $ 1.8 million at december 31 , 2018 and $ 2.0 million at december 31 , 2019 . we have taken proactive steps to resolve our nonperforming loans , including negotiating repayment plans , forbearances , loan modifications and loan extensions with our borrowers when appropriate . we have also accepted short payoffs on delinquent loans , particularly when such payoffs result in a smaller loss to us than foreclosure . we also retain the services of independent firms to periodically review segments of our loan portfolio and provide comments regarding our loan policies and procedures . attracting core deposits and other deposit products . our strategy is to emphasize relationship banking with our customers to obtain a greater share of their deposits , with specific emphasis on their core transaction accounts . we believe this emphasis will help to increase our level of core deposits and locally-based retail certificates of deposit . in addition to our retail branches , we maintain state-of-the-art technology-based products , such as on-line personal financial management , business online banking , business remote deposit products , mobile remote deposit services through smartphones and tablets , account-to-account transfer services between first federal and other banks , and person to person funds transfer through smartphones and tablets that enable us to compete effectively with banks of all sizes . we enhanced our integrated mobile banking platform by introducing applications for both smartphones and tablets , upgraded our business on-line banking platform , and extended banking hours through the use of interactive teller machines . expanding our market presence and capturing business opportunities resulting from changes in the competitive environment . by delivering high quality , customer-focused products and services , we believe we can attract additional borrowers and depositors and thus increase our market share and revenue generation in our market areas . we intend to continue our franchise growth and expect that community bank consolidation will continue to take place and may consider acquiring individual branches or other banks . we do not , however , currently have any understandings or agreements regarding any specific acquisitions and will be disciplined when evaluating and deciding on future acquisitions , recognizing that there may also be opportunity for increasing our market share as a result of customer dissatisfaction from other transactions or changes in strategy of market competitors . our primary focus for expansion will be in northwestern washington , although we may consider opportunities that arise in other parts of western washington . hiring experienced employees with a customer sales and service focus . our goal is to compete by relying on the strength of our customer service and relationship building . we believe that our ability to continue to attract and retain banking professionals who have significant knowledge of existing and new market areas , possess strong business banking sales and service skills , and maintain a focus on community relationships will enhance our success . we intend to hire additional lenders and business development officers who are established in their communities to enhance our market position and add profitable growth opportunities . improving our online presence and streamlining the customer experience . we strive for our customers to have an online banking experience that is streamlined and user-friendly . by investing in and improving on the interfaces that connect customers to our products and services , we believe we will be in a better position to compete and grow in an environment that is becoming increasingly technology-driven . we intend to invest in our online presence and engage in digital strategies that will help us to successfully compete in an ever-changing digital marketplace . in 2019 , the company committed to fund $ 3.0 million in 65 an investment to identify and infuse capital into certain promising digital companies for which we may have an interest to use their services at some future date . this commitment includes management participation in meetings and events that we feel will benefit us when making decisions regarding digital services offerings and customer engagement . exploring alternative lending opportunities to improve interest income . story_separator_special_tag we strive to grow the balance sheet and leverage capital in a safe and sound manner and believe that lending opportunities outside of organic originations may be a valuable source of interest income . we have engaged with northpointe bank to participate in the interim financing for mortgage originators during the year and have increased our auto loan portfolio significantly as a result of our partnership involving the purchase of loans made to borrowers purchasing high-end automobiles and classic cars . we intend to continue to explore opportunities such as these as a means to improve net income and supplement organic originations . critical accounting policies we have certain accounting policies that are important to the assessment 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 . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . our accounting policies are discussed in detail in note 1 of the notes to consolidated financial statements included in `` item 8. financial statements and supplementary data . '' the following represent our critical accounting policies : allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio as of balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : the likelihood of default ; the loss exposure at default ; the amount and timing of future cash flows on impaired loans ; the value of collateral ; and the determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews , and the board of directors approves , at least quarterly , the level of the allowance and the provision for loan losses based on past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the fdic and the dfi , as an integral part of their examination process , periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgment about information available at the time of their examination . a large loss could deplete the allowance and require increased provisions for loan losses to replenish the allowance , which would adversely affect earnings . see note 3 of the notes to consolidated financial statements contained in `` item 8. financial statements and supplementary data . '' mortgage servicing rights . we record mortgage servicing rights on loans originated and subsequently sold into the secondary market . we stratify our capitalized mortgage servicing rights based on the type , term and interest rates of the underlying loans . mortgage servicing rights are initially recognized at fair value . the value is determined through a discounted cash flow analysis , which uses interest rates , prepayment speeds and delinquency rate assumptions as inputs . all of these assumptions require a significant degree of management judgment . if our assumptions prove to be incorrect , the value of our mortgage servicing rights could be negatively affected . see notes 1 and 6 to the notes to consolidated financial statements included in `` item 8. financial statements and supplementary data . '' income taxes . management makes estimates and judgments to calculate certain tax liabilities and to determine the recoverability of certain deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenues and expenses . we also estimate a valuation allowance for deferred tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . in evaluating the recoverability of deferred tax assets , management considers all available positive and negative evidence , including past operating results , recent cumulative losses - both capital and operating - and the forecast of future taxable income , both capital gains and operating . in determining future taxable income , management makes 66 assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require judgments about future taxable income and are consistent with the plans and estimates to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings . fair value . fair values of financial instruments are estimated using relevant market information and other assumptions . fair value estimates involve uncertainties and matters of significant judgment regarding interest rates , credit risk , prepayments , and other factors , especially in the absence of broad markets for particular items . changes in assumptions or in market conditions could significantly affect these estimates .
| this increase in higher yielding loans receivable and resulting interest income during 2019 , as compared to investment and cash alternatives , was partially offset by an increase in the cost of interest bearing liabilities to 1.26 % for the year ended december 31 , 2019 compared to 1.01 % for the year ended december 31 , 2018 , resulting in no change to our net interest margin , which remained at 3.20 % for both 2018 and 2019 . net interest income increased $ 1.1 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , of which $ 2.0 million was the result of an increase in volume , partially offset by a $ 968,000 decrease due to changes in rates . as noted above , loans receivable was the main contributor to the increase in net interest income with $ 2.1 million due to an increase in average volumes and $ 1.6 million due to increases in 70 rates . the increase to the cost of average interest-bearing liabilities for the year ended december 31 , 2019 was due primarily to higher average balances and rates paid on savings accounts and certificates of deposit , the result of promotional activity and the utilization of brokered certificates of deposit during the year . interest income . interest income increased $ 3.5 million , or 7.6 % , to $ 49.3 million for the year ended december 31 , 2019 from $ 45.8 million for the comparable period in 2018 , primarily due to an increase in the average balance of loans receivable . interest and fees on loans receivable increased $ 3.8 million and average loan yields increased 19 basis points compared to the year ended december 31 , 2018 , as we continued to increase our balance of higher yielding loans . interest income on investment securities increased $ 134,000 to $ 4.0 million for the year ended december 31 , 2019 compared to $ 3.8 million for the year ended december 31 , 2018 . while the average balance of investment
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we expect to pursue a flexible real estate investment strategy . we may invest in multifamily , office , mixed-use office , retail , industrial , healthcare or lodging properties , as well as preferred equity or debt instruments secured by mortgages on these types of properties , mezzanine loans secured by pledges of equity interests in entities that own these types of properties or other forms of subordinate debt in connection with these types of properties . recent developments nyse mkt notice of compliance on february 17 , 2015 , we filed with the sec our quarterly report on form 10-q for the third quarter of 2014 and amendments to our annual report on form 10-k/a for the 2013 fiscal year and amendments to our quarterly reports on form 10-q/a for the first and second quarters of 2014 containing restated financial statements to reflect the fact that we did not qualify as a real estate investment trust , or reit , under the internal revenue code during the 2009-2014 fiscal years . on march 6 , 2015 , we received a letter from the nyse mkt stock exchange ( the “ exchange ” ) informing us that we were back in compliance with the continued listing standards of the exchange . 19 a-iii investment partners llc transaction on november 19 , 2014 , we entered into a stock purchase agreement with a-iii . on january 30 , 2015 , we closed the transactions contemplated under the stock purchase agreement . at the closing , a-iii purchased 8,450,704 shares of our common stock at a purchase price of $ 1.42 per share , for an aggregate purchase price of $ 12,000,000 , and we issued to a-iii warrants to purchase up to an additional 26,760,563 shares of our common stock at an exercise price of $ 1.42 per share ( $ 38,000,000 in the aggregate ) . the purchase price per share and the exercise price of the warrants are subject to a potential post-closing adjustment upon completion of the sale of our four existing land parcels , which could result in the issuance of additional shares of common stock to a-iii and an increase in the number of shares of common stock issuable upon exercise of the warrants . we used a portion of the proceeds of a-iii 's investment to pay off certain of our outstanding indebtedness . immediately after the closing , we changed our name to acre realty investors inc. , and the name of the company 's operating partnership was changed to acre realty lp . on monday , february 2 , 2015 , our common stock began trading under the new ticker symbol “ aiii ” ( nyse mkt : aiii ) . our principal office was moved to 399 park avenue , 6 th floor , new york , new york 10022. as a result of the transaction , a-iii is now the largest shareholder , owning as of the date of this report approximately 42 % of our outstanding shares of common stock , or approximately 40 % on a diluted basis assuming conversion of the outstanding units of limited partnership interest in our operating partnership into common stock and assuming no exercise of the warrants . immediately following the closing , our board was expanded from five to seven members , and its composition was changed as a result of the resignations of weldon r. humphries , william jarell jones , john l. davis and charles r. elliott and the appointments of edward gellert , robert c. lieber , bruce d. frank , robert g. koen , robert l. loverd and kyle permut to fill the vacancies . charles s. roberts , who is continuing on the board , resigned as chairman , and edward gellert was appointed as the new chairman . messrs. gellert and lieber are affiliated with a-iii , and messrs. frank , koen , loverd and permut are independent directors . effective as of the closing , our management was changed and we are now externally managed by the manager , which is a wholly-owned subsidiary of a-iii , pursuant to a management agreement with the manager that was executed at the closing . immediately after the closing , the manager designated , and the board appointed , the following persons as our new executive officers : edward gellert is chief executive officer and president ; robert gellert is executive vice president , chief operating officer and treasurer ; gregory simon is executive vice president , general counsel and secretary ; mark e. chertok is chief financial officer . charles s. roberts , who previously served as our chairman , president and chief executive officer , was appointed as an executive vice president . mr. roberts is responsible for overseeing the sale of the four land parcels currently owned by us . 20 extension and renewal of bradley park land loan and sale contract on bradley park land parcel on december 22 , 2014 , we extended and renewed our $ 2,988,625 bradley park land loan , which extended the maturity date of the loan to july 3 , 2015. we subsequently extended the maturity date again to september 1 , 2015. the renewed loan requires monthly interest only payments at an interest rate equal to 350 basis points over the 30-day libor rate , with an interest rate floor of 4.75 % . at the closing of the a-iii transaction described above , $ 759,446 of the investment proceeds were used to make a partial principal payment on the bradley park land loan . story_separator_special_tag on january 26 , 2015 , we entered into a contract to sell our bradley park land parcel for $ 4,178,000 to bradley park apartments , llc ( “ purchaser ” ) , which is an affiliate of mr. charles roberts , who currently serves as an executive vice president and director of our company and previously served as our president , chief executive officer , and chairman of the board . under the terms of the sales contract , the purchaser paid a $ 10,000 earnest money deposit . the purchaser had 60 days to inspect the property and elect to proceed with the purchase , at which time the purchaser must pay an additional $ 15,000 earnest money deposit . on march 25 , 2015 , purchaser elected to proceed with the purchase and deposited an additional $ 15,000 of earnest money with the title company . our audit committee , as constituted prior to the a-iii transaction , approved the transaction in accordance with the committee 's charter and in compliance with applicable listing rules of the nyse mkt stock exchange . our board , as constituted prior to the a-iii transaction , approved the transaction in accordance with our code of business conduct and ethics . northridge land loan on january 13 , 2015 , we obtained a $ 2,000,000 loan from paul j. a. lex van hessen , the lender . the proceeds of the loan were used for working capital purposes prior to the closing of the stock purchase agreement discussed above . the $ 2,000,000 loan has a maturity date of july 13 , 2015 , and at its closing we paid a 1.0 % origination fee to the lender and a 1.0 % consulting fee to the lender 's consultant . the loan has an interest rate of 12 % per annum . we prepaid the first three months of interest in the amount of $ 60,833 at the closing . the loan is secured by the northridge land parcel , which was owned debt free before this loan closing . the loan documents contain customary representations , covenants , and default provisions , and the loan was guaranteed by both the company and the operating partnership . additionally , at the a-iii transaction closing , $ 2,040,000 of the investment proceeds were deposited into an escrow account , to repay the northridge land loan in accordance with the terms of the escrow agreement with the lender . on march 13 , 2015 , we paid off the $ 2,000,000 northridge land loan in full plus a 2 % repayment fee . north springs land loan extension on january 15 , 2015 , we paid down the $ 5,500,000 north springs land loan by $ 550,000 , which reduced the outstanding principal balance of the loan to $ 4,950,000 , and extended the maturity date to april 17 , 2015. we were required to continue to make monthly interest only payments at an interest rate of 13 % per annum . at the closing of the a-iii transaction described below , we paid off the north springs land loan in full . continuing negative operating cash flow and maturing short-term debt prior to the a-iii transaction , our primary liquidity requirements related to ( a ) our continuing negative operating cash flow and ( b ) our maturing short-term debt . as of december 31 , 2014 , we had a total of $ 10,258,625 of outstanding debt . as of the filing date of this report , we have one loan with a total principal balance of $ 2,238,625 that is scheduled to mature within the next 12 months . the bradley park land parcel which secures this loan is under contract to be sold as described in recent developments above . 21 story_separator_special_tag and interest payment , and the maturity date . for each loan , the operating partnership or its wholly owned subsidiary is the borrower and acre realty is the guarantor . the amount shown in the column titled “ balance at maturity ” assumes we do not make any required principal payments prior to maturity . the following schedule does not reflect debt repayments made in connection with or subsequent to the a-iii transaction as described under recent developments . debt summary schedule ( listed in order of maturity by type of loan ) replace_table_token_4_th ( 1 ) as of december 31 , 2014 . ( 2 ) this loan has an interest reserve account . ( 3 ) this loan has an interest rate floor of 5.0 % and an interest reserve account . ( 4 ) this loan has an interest rate floor of 4.75 % . the maturity date of this loan has been extended to september 1 , 2015 . 24 debt maturities our existing loans will be amortized with scheduled monthly payments , as well as balloon payments at maturity , through 2015 as summarized below : debt maturity schedule as of december 31 , 2014 replace_table_token_5_th short-term and long-term debt as of december 31 , 2014 we had a total of $ 10,258,625 of outstanding debt . as of the filing date of this report , we have one loan with an outstanding principal balance of $ 2,238,625 that matures within the next 12 months . effect of floating rate debt as of the filing date of this report , we have one loan that bears interest at a floating rate . this loan has an aggregate outstanding principal balance of $ 2,238,625 and bears interest at 350 basis points over the 30-day libor , with an interest rate floor of 4.75 % .
| our capital sources will include proceeds from the sale of our legacy real estate assets and the remaining portion of the $ 12,000,000 proceeds from our private offering with a-iii , which closed in january 2015. as of december 31 , 2014 , we had three loans with an aggregate outstanding principal balance of $ 10,258,625 that were scheduled to mature within the next 12 months . we utilized $ 8,143,753 of the proceeds from the january 2015 private offering to a-iii to reduce our outstanding short-term indebtedness to $ 2,238,625. as of the filing date of this report , we have one loan remaining with a total principal balance of $ 2,238,625 secured by the bradley park land parcel , which is currently under contract to be sold , as described in recent developments above . short- and long-term liquidity outlook our operating revenues are not adequate to provide short-term ( 12 months ) liquidity for the payment of all operating expenses and interest on our debt . at december 31 , 2014 , we had a cash balance of $ 238,267. we are currently using our cash balance , which was approximately $ 3,068,135 as of march 20 , 2015 , to meet our short-term liquidity requirements , including general and administrative expenses , interest on our debt , and funding the carrying costs of our existing land parcels . our primary sources of funds for liquidity going forward will consist of proceeds from the sale of our four legacy properties and or mortgage debt on our legacy properties . our potential equity sources , depending on market conditions , consist of proceeds from capital market transactions ( public and or private ) including the issuance of common , convertible and or preferred equity securities . we believe our existing sources of funds will be adequate for purposes of meeting our short-term liquidity needs . our ability to meet our long-term liquidity and capital resource requirements is subject to obtaining additional debt and equity financing . any decision by
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on june 26 , 2012 , our board of directors approved a dividend increase to an annual rate of $ 1.32 per share , an 8 percent increase from the rate paid in fiscal 2012. we expect that share repurchases will at least offset normal levels of stock option exercises in fiscal 2013. certain terms used throughout this report are defined in a glossary in item 8 of this report . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px '' > prepaid expenses and other current assets decreased $ 125 million from fiscal 2011 , mainly due to decreases in derivative receivable balances . land , buildings , and equipment increased $ 307 million from fiscal 2011 , as $ 676 million of capital expenditures and $ 252 million of additions from the acquisition of yoplait s.a.s . were partially offset by depreciation expense of $ 512 million and $ 84 million of foreign currency translation in fiscal 2012. goodwill and other intangible assets increased $ 2,323 million from fiscal 2011 primarily due to the acquisitions of yoplait s.a.s . and yoplait marques s.a.s . we recorded $ 1,617 million of goodwill and $ 1,108 million of other intangible assets related to fiscal 2012 acquisitions which were partially offset by $ 348 million of foreign currency translation . other assets increased $ 3 million from fiscal 2011. accounts payable increased $ 154 million from fiscal 2011 , primarily due to the acquisition of yoplait s.a.s . and shifts in the timing of payments . long-term debt , including current portion , and notes payable increased $ 544 million from fiscal 2011 primarily due to the consolidation of yoplait s.a.s . debt of $ 376 million and our debt refinancing activities in fiscal 2012. the current and noncurrent portions of net deferred income taxes liability increased $ 12 million from fiscal 2011 . 22 other current liabilities increased $ 105 million from fiscal 2011 , primarily driven by increases in restructuring and other exit cost reserves and consumer marketing accruals , partially offset by a decrease in accrued taxes . other liabilities increased $ 457 million from fiscal 2011 , primarily driven by an increase of $ 426 million in pension , postemployment , and postretirement liabilities . redeemable interest of $ 848 million represents the redemption value of sodiaal international 's ( sodiaal ) 49 percent interest in yoplait s.a.s . as of may 27 , 2012. please refer to note 9 to the consolidated financial statements in item 8 of this report . retained earnings increased $ 767 million from fiscal 2011 , reflecting fiscal 2012 net earnings of $ 1,567 million less dividends paid of $ 800 million . treasury stock decreased $ 33 million from fiscal 2011 , due to $ 346 million related to stock-based compensation plans partially offset by $ 313 million of share repurchases . additional paid in capital decreased $ 11 million from fiscal 2011. accumulated other comprehensive loss ( aoci ) increased by $ 733 million after-tax from fiscal 2011 , primarily driven by pension and postemployment activity of $ 423 million and foreign currency translation of $ 270 million . noncontrolling interests increased $ 214 million in fiscal 2012 primarily due to the addition of sodiaal 's 50 percent interest in yoplait marques s.a.s . please refer to note 9 to the consolidated financial statements in item 8 of this report . fiscal 2011 consolidated results of operations fiscal 2011 net sales grew 2 percent to $ 14,880 million . net earnings attributable to general mills were $ 1,798 million in fiscal 2011 , up 18 percent from $ 1,530 million in fiscal 2010 , and we reported diluted eps of $ 2.70 in fiscal 2011 , up 20 percent from $ 2.24 in fiscal 2010. fiscal 2011 results include gains from the mark-to-market valuation of certain commodity positions and grain inventories versus fiscal 2010 which included losses . fiscal 2011 results also include the net benefit from the resolution of uncertain tax matters , and fiscal 2010 results include income tax expense related to the enactment of federal health care reform . diluted eps excluding these items affecting comparability was $ 2.48 in fiscal 2011 , up 8 percent from $ 2.30 in fiscal 2010 ( see the non-gaap measures section below for our use of this measure and our discussion of the items affecting comparability ) . the components of net sales growth are shown in the following table : components of net sales growth fiscal 2011 vs. 2010 contributions from volume growth ( a ) 1 pt net price realization and mix 1 pt foreign currency exchange flat net sales growth 2 pts ( a ) measured in tons based on the stated weight of our product shipments . net sales grew 2 percent in fiscal 2011 , due to 1 percentage point of contribution from volume growth and 1 percentage point of growth from net price realization and mix . foreign exchange was flat compared to fiscal 2010. cost of sales increased $ 91 million in fiscal 2011 to $ 8,927 million . this was driven by a $ 157 million increase attributable to higher net input costs and product mix and an $ 84 million increase attributable to higher volume , partially offset by a $ 95 million net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories compared to a net increase of $ 7 million in fiscal 2010. in fiscal 2010 , we recorded a charge of $ 48 million resulting from a change in the capitalization threshold for certain equipment parts . story_separator_special_tag 23 gross margin grew 3 percent in fiscal 2011 versus fiscal 2010. gross margin as a percent of net sales increased by 40 basis points from fiscal 2010 to fiscal 2011. these improvements were primarily driven by gains from the mark-to-market valuation of certain commodity positions and grain inventories in fiscal 2011 versus losses in fiscal 2010. selling , general and administrative ( sg & a ) expenses were up $ 29 million in fiscal 2011 versus fiscal 2010 , while sg & a expenses as a percent of net sales remained essentially flat from fiscal 2010 to fiscal 2011. the increase in sg & a expenses was primarily driven by a $ 69 million increase in corporate pension expense partially offset by a 7 percent decrease in advertising and media expense . in fiscal 2010 , the venezuelan government devalued the bolivar fuerte exchange rate against the u.s. dollar . the $ 14 million foreign exchange loss resulting from the devaluation was substantially offset by a $ 13 million recovery against a corporate investment . during fiscal 2011 , we recorded a net divestiture gain of $ 17 million . we recorded a gain of $ 14 million related to the sale of a foodservice frozen baked goods product line in our international segment and a gain of $ 3 million related to the sale of a pie shell product line in our bakeries and foodservice segment . there were no divestitures in fiscal 2010. restructuring , impairment , and other exit costs totaled $ 4 million in fiscal 2011 as follows : expense , in millions discontinuation of fruit-flavored snack product line $ 1.7 charges associated with restructuring actions previously announced 2.7 total $ 4.4 in fiscal 2011 , we decided to exit an underperforming product line in our u.s. retail segment . as a result of this decision , we concluded that the future cash flows generated by this product line were insufficient to recover the net book value of the associated long-lived assets . accordingly , we recorded a non-cash charge of $ 2 million related to the impairment of the associated long-lived assets . no employees were affected by these actions . in addition , we recorded $ 3 million of charges associated with restructuring actions previously announced . in fiscal 2011 , we paid $ 6 million in cash related to restructuring actions taken in fiscal 2011 and previous years . interest , net for fiscal 2011 totaled $ 346 million , $ 55 million lower than fiscal 2010. the average interest rate on our total outstanding debt was 5.6 percent in fiscal 2011 compared to 6.3 percent in fiscal 2010 , generating a $ 45 million decrease in net interest . average interest bearing instruments increased $ 474 million in fiscal 2011 , primarily due to more share repurchases than in fiscal 2010 , leading to a $ 30 million increase in net interest . in fiscal 2010 , we also recorded a loss of $ 40 million related to the repurchase of certain notes , which represented the premium paid , the write-off of remaining discount and unamortized fees , and the settlement of related swaps . our consolidated effective tax rate for fiscal 2011 was 29.7 percent compared to 35.0 percent in fiscal 2010. the 5.3 percentage point decrease was primarily due to a $ 100 million reduction to tax expense recorded in fiscal 2011 related to a settlement with the irs concerning corporate income tax adjustments for fiscal years 2002 to 2008. the adjustments primarily relate to the amount of capital loss , depreciation , and amortization we reported as a result of the sale of noncontrolling interests in our general mills cereals , llc ( gmc ) subsidiary . fiscal 2010 income tax expense included a $ 35 million increase related to the enactment of federal health care reform ( the patient protection and affordable care act , as amended by health care and education reconciliation act of 2010 ) . this legislation changed the tax treatment of subsidies to companies that provide prescription drug benefits that are at least the equivalent of benefits under medicare part d ( see the impact of inflation section below for additional discussion of this legislation ) . after-tax earnings from joint ventures for fiscal 2011 decreased to $ 96 million compared to $ 102 million in fiscal 2010. the decrease is primarily due to higher advertising and media spending and increased service cost allocations , all in cpw . 24 the change in net sales for each joint venture is set forth in the following table : joint venture change in net sales fiscal 2011 vs. 2010 cpw 3 % hdj 4 joint ventures 4 % in fiscal 2011 , cpw net sales grew by 3 percent due to a 2 percentage point increase in volume and a 1 percentage point increase from favorable foreign exchange . net price realization and mix was flat compared to fiscal 2010. in fiscal 2011 , net sales for hdj increased 4 percent from fiscal 2010 primarily due to 9 percentage points of favorable foreign exchange , partially offset by a 5 percentage point decline in net price realization and mix . volume was flat compared to fiscal 2010. average diluted shares outstanding decreased by 18 million in fiscal 2011 from fiscal 2010 , due primarily to the repurchase of 32 million shares , partially offset by the issuance of shares upon stock option exercises . results of segment operations our businesses are organized into three operating segments : u.s. retail ; international ; and bakeries and foodservice .
| 20 cost of sales increased $ 1,686 million in fiscal 2012 to $ 10,613 million . this increase was driven by an $ 877 million increase attributable to higher volume and a $ 610 million increase attributable to higher inputs costs and product mix . we recorded a $ 104 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories as described in note 7 to the consolidated financial statements in item 8 of this report , compared to a net decrease of $ 95 million in fiscal 2011. gross margin grew 2 percent in fiscal 2012 versus fiscal 2011. gross margin as a percent of net sales decreased by 370 basis points from fiscal 2011 to fiscal 2012. this decrease was primarily driven by higher input costs and losses from mark-to-market valuation of certain commodity positions and grain inventories in fiscal 2012 versus gains in fiscal 2011. selling , general and administrative ( sg & a ) expenses were up $ 189 million in fiscal 2012 versus fiscal 2011. sg & a expenses as a percent of net sales in fiscal 2012 decreased by 1 percentage point compared to fiscal 2011. the increase in sg & a expenses was primarily driven by the acquisition of yoplait s.a.s . and an 8 percent increase in advertising and media expense . there were no divestitures in fiscal 2012. in fiscal 2011 , we recorded a net divestiture gain of $ 17 million consisting of a gain of $ 14 million related to the sale of a foodservice frozen baked goods product line in our international segment and a gain of $ 3 million related to the sale of a pie shell product line in our bakeries and foodservice segment . restructuring , impairment , and other exit costs totaled $ 102 million in fiscal 2012 as follows : expense , in millions productivity and cost savings plan $ 100.6 charges associated with restructuring
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gross margin as a percentage of revenue decreased in fiscal 2016 compared with fiscal 2015 primarily due to the large drop in revenue volume relative to supply chain costs during the year . product margin as a percentage of product revenue decreased from fiscal 2015 primarily due to supply chain costs being absorbed by a substantially smaller volume of product sales during the year and an increase in inventory write-down of $ 2.9 million . service margin as a percentage of service revenue declined primarily due to a less profitable service business in international markets . gross margin for fiscal 2015 decreased $ 4.5 million , or 5.3 % , compared with fiscal 2014 , primarily due to decreased profitability in africa , middle east , europe and latin america and a $ 2.5 million increase in foreign exchange loss , partially offset by improved profitability in north america and asia along with reduced supply chain costs compared with fiscal 2014. gross margin as a percentage of revenue decreased in fiscal 2015 compared with fiscal 2014 primarily due to lower profitability in africa , middle east , europe and latin america and increased foreign exchange losses compared with fiscal 2014 , partially offset by higher gross margin rates in north america and asia . product margin as a percentage of product revenue increased over fiscal 2014 primarily to a greater portion of the overall business coming from north america along with improved pricing in that market , and better pricing on sales in asia . service margin as a percentage of service revenue declined primarily due to a less profitable service business in international markets . research and development expenses replace_table_token_8_th 33 our r & d expenses decreased $ 4.6 million , or 18.0 % , in fiscal 2016 compared with fiscal 2015 . the decrease in r & d expenses was primarily due to a $ 4.4 million reduction in personnel and related expenses due to the restructuring programs implemented , and $ 1.8 million facility expense reassigned to restructuring accounts . the decreases were partially offset by a $ 1.7 million increase in professional services and material spending for new products . we continue to invest in new product features , new functionality and lower cost platforms that we believe will enable our product lines to retain their technology leads in a cost effective manner . our r & d expenses decreased $ 10.1 million , or 28.5 % , in fiscal 2015 compared with fiscal 2014 . the decrease in r & d expenses was primarily due to a $ 7.2 million reduction in personnel and related expenses , a $ 1.2 million decrease in new product development costs , a $ 2.0 million decrease in facility expense , a $ 0.2 million decrease in travel expense and a $ 0.2 million decrease in share-based compensation expenses . these decreases were primarily due to restructuring initiatives implemented in santa clara , california . selling and administrative expenses replace_table_token_9_th our selling and administrative expenses decreased $ 10.1 million , or 13.3 % , in fiscal 2016 compared with fiscal 2015 . the decrease was primarily due to a $ 3.8 million decrease in personnel and related expenses , a $ 6.5 million reduction in professional fees primarily associated with accounting , it , legal , and marketing consulting services , a $ 1.4 million decrease in sales commission and incentive compensation , and a $ 0.4 million decrease in share-based compensation expenses . the decreases were partially offset by a $ 1.9 million increase in professional fees primarily associated with process improvements , and a $ 0.6 million increase in bad debt expenses . we will continue to seek ways to improve our operating efficiency in fiscal 2017. our selling and administrative expenses decreased $ 12.8 million , or 14.4 % , in fiscal 2015 compared with fiscal 2014 . the decrease was due primarily to a $ 7.1 million decrease in personnel and related expenses , a $ 1.8 million decrease in it consulting expenses as result of the completion of our erp system implementation , a $ 1.7 million reduction in travel expenses , a $ 3.6 million decrease in sales commission and incentive compensation , and a $ 1.0 million decrease in share-based compensation expenses resulting from employee terminations and full vesting of prior stock awards . the decreases were partially offset by a $ 3.4 million increase in professional fees . restructuring charges during the fourth quarter of fiscal 2016 , we initiated a restructuring plan ( the “ fiscal 2016-2017 plan ” ) to streamline our operations and align expense with current revenue levels . activities under the fiscal 2016-2017 plan primarily include reductions in force in marketing , selling and general and administrative functions across the company . during the third quarter of fiscal 2015 , with the intent to bring our operational cost structure in line with the changing dynamics of the microwave radio and telecommunications markets , we initiated a restructuring plan ( “ the fiscal 2015-2016 plan ” ) to lower fixed overhead costs and operating expenses and to preserve cash flow . activities under the fiscal 2015-2016 plan primarily include reductions in force across the company , but primarily in operations outside the united states . during the third quarter of fiscal 2014 , in line with the decrease in revenue that we experienced and our reduced forecast for the immediate future , we initiated a restructuring plan ( “ the fiscal 2014-2015 plan ” ) to reduce our operating costs , primarily in north america , europe and asia . activities under the fiscal 2014-2015 plan primarily include reductions in force and additional facility downsizing of our santa clara , california headquarters . during the fourth quarter of fiscal 2013 , we initiated a restructuring plan ( the “ fiscal 2013-2014 plan ” ) that was intended to reduce our operating expenses primarily in north america , europe and asia . story_separator_special_tag activities under the fiscal 2013-2014 plan included reductions in force and the downsizing of our santa clara , california headquarters and certain international field offices . 34 our restructuring charges by plan for fiscal 2016 , 2015 and 2014 are summarized in the table below : replace_table_token_10_th our restructuring expenses consisted primarily of severance and related benefit charges , facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use , and lease termination charges . during june 2016 , we entered into a lease termination agreement for our current headquarters lease in santa clara , california . we ceased using parts of the building under the fiscal 2014-2015 plan and under the fiscal 2013-2014 plan , and recognized lease impairment liabilities in fiscal 2015 and 2014 , respectively . restructuring charges for fiscal 2016 included $ 2.5 million employee severance and benefits costs primarily related to the fiscal 2016-2017 plan and the fiscal 2015-2016 plan , a $ 1.9 million lease termination payable , offset by a $ 1.2 million deferred rent liability write-off and a net decrease of $ 0.7 million lease impairment liabilities both resulted from the termination of our santa clara headquarters building . restructuring charges for fiscal 2015 included a $ 2.9 million employee termination charge primarily related to the fiscal 2015-2016 plan , a $ 1.4 million facility charge related to ceasing to use portion of our santa clara headquarters building and a $ 0.6 million slovenia government fund penalty charge related to the workforce reduction . restructuring charges for fiscal 2014 included a $ 4.8 million facilities charge primarily related to ceasing to use a portion of our santa clara headquarters building and a $ 6.4 million employee termination charge related to our fiscal 2014-2015 plan and fiscal 2013-2014 plan . we intend to substantially complete the remaining restructuring activities under all plans by the end of fiscal 2017. interest income , interest expense and other expense replace_table_token_11_th interest income reflected interest earned on our cash equivalents which were comprised of money market funds and certificates of deposit . interest expense was primarily related to interest associated with borrowings and term loans under the silicon valley bank ( “ svb ” ) credit facility and discounts on customer letters of credit . other expense related to the foreign exchange loss on a dividend declared by our nigeria entity ( a partnership for u.s. tax purpose ) to aviat u.s. entity which was caused by a significant devaluation of the nigerian naira in june 2016. income taxes replace_table_token_12_th 35 our income tax expense ( benefit ) from continuing operations was $ 1.6 million of expense for fiscal 2016 compared to $ 1.3 million of benefit for fiscal 2015 and $ 1.5 million of expense for fiscal 2014. the difference between our income tax expense ( benefit ) from continuing operations and income tax expense at the statutory rate of 35 % was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit and increase in foreign withholding taxes . during fiscal 2015 , we released approximately $ 4.4 million of its deferred tax valuation allowance in jurisdictions where management believed the utilization of deferred tax assets was more likely than not based on the weighting of positive and negative evidence which resulted in an income tax benefit in fiscal 2015. we are subject to income taxes in the u.s. and numerous foreign jurisdictions . significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities . in the ordinary course of our business , there are many transactions and calculations where the ultimate tax determination is uncertain . income from discontinued operations replace_table_token_13_th our discontinued operations consisted of the wimax business , which was sold to eion networks , inc. ( “ eion ” ) on september 2 , 2011. we completed the business transition with eion in fiscal 2012. the income recognized in fiscal 2015 was primarily due to a $ 0.1 million write-off of accrued liabilities due to eion . the income recognized in fiscal 2016 and fiscal 2014 was primarily due to recovery of certain wimax customer receivables that were previously written down . liquidity , capital resources and financial strategies as of july 1 , 2016 , our total cash and cash equivalents and short-term investments totaled $ 30.7 million . approximately $ 18.5 million , or 60.2 % , was held by entities domiciled in the united states . the remaining balance of $ 12.2 million , or 39.8 % , was held by entities outside the united states . in june of 2016 , the nigeria central bank allowed the naira to float freely after being fixed at approximately 197 naira to one u.s. dollar . this event caused a devaluation in the naira to approximately 280 naira to one u.s. dollar and reduced our nigerian cash balance by approximately $ 1.5 million . of the amount of cash and cash equivalents held by our foreign subsidiaries at july 1 , 2016 , $ 8.2 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested , and if repatriated , would be subject to u.s. taxes . operating activities cash used in operating activities is net loss adjusted for certain non-cash items and changes in assets and liabilities . net cash used in operating activities was $ 0.1 million for fiscal 2016 , $ 9.0 million for fiscal 2015 and $ 29.3 million for fiscal 2014. for fiscal 2016 compared to fiscal 2015 , the $ 8.8 million decrease in cash used operating activities was due to changes in working capital and adjustments for non-cash items offset by a higher net loss . the adjustments for non-cash items were higher than fiscal 2015 due primarily to deferred income taxes , and inventory and customer service inventory write-downs , partially offset by lower depreciation and amortization of property , plant and equipment , amortization of identifiable intangible assets and share-based compensation .
| revenue by region for fiscal 2016 , 2015 and 2014 and the related changes were shown in the table below : replace_table_token_5_th our revenue in north america decreased $ 27.8 million , or 18.1 % , in fiscal 2016 compared with fiscal 2015 . while our order volume increased in north america compared to fiscal 2015 , we experienced a shift in the mix of business away from wireless operator customers and toward private networks operated by governments and utilities . the decrease in the north america wireless operator customers revenue was due primarily to them reaching the end of their lte network build cycle . in addition , orders from private networks generally have a longer cycle time from order placement to completion for revenue than orders from the wireless operators , owing to the larger degree of service content included with the private network projects . in fiscal 2016 we saw a decrease in revenue both from the lower volume of business with wireless operator customers and from the longer cycle time to revenue from the larger volume of business with private network customers . revenue in north america increased $ 11.2 million , or 7.9 % , in fiscal 2015 compared with fiscal 2014 . the increase in north america primarily resulted from increase of revenue from the government and utility markets , while revenue from network operator customers declined in fiscal 2015 compared with fiscal 2014. revenue in africa and middle east decreased $ 14.4 million , or 14.8 % , in fiscal 2016 compared with fiscal 2015 . the fiscal 2016 decrease in revenue came from decreased sales volume to our private network customers in the middle east and across several customers in africa . revenue with our major wireless operator customers in the region remained relatively low , and slightly down in fiscal 2016 compared to fiscal 2015. revenue in africa and middle east decreased $ 11.8 million , or 10.8 % , in fiscal
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maintenance and support services consist of on-site support , telephone and online support , and training . professional services projects may consist of multiple elements including hardware and or software installation , configuration , integration and customization services provided to customers . managed services consist of supplying , outsourcing and or maintaining systems for the benefit of customers . these systems may be company owned pursuant to a managed services arrangement or customer owned pursuant to a cap-ex arrangement . we sell our products and services through our direct sales force and through channel partners , which include resellers , distributors and systems integrators . when the software is more than incidental and is essential to the functionality of the hardware , we recognize revenue in accordance with the provisions of the american institute of certified public accountants ( `` aicpa '' ) statement of position ( `` sop '' ) 97-2 , software revenue recognition ( `` sop 97-2 '' ) , and related interpretations . we recognize revenue from the sale of products when persuasive evidence of an arrangement exists ; delivery has occurred ; the fee is fixed or determinable ; and collection is considered probable . for all sales , we use a binding contract and or a purchase order as evidence of an arrangement with the customer or channel partner . sales to our channel partners are evidenced by a master agreement governing the relationship , together with binding purchase orders for individual transactions . we consider delivery to occur when 23 we ship the product , so long as title and risk of loss have passed to the customer . at the time of a transaction , we assess whether the sale amount is fixed or determinable based upon the terms of the documented agreement . if we determine the fee is not fixed or determinable , we recognize revenue when the fee is fixed . we assess if collection is probable based on a number of factors , including past transaction history and the creditworthiness of the customer . if we determine that collection is not probable , we do not record revenue until such time as collection becomes probable , which is generally upon the receipt of cash or when payments become due . for arrangements with customers that include acceptance provisions , we recognize revenue upon the customer 's acceptance of the product , which occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period . in accordance with sop 97-2 , in some circumstances we recognize revenue on arrangements that contain certain acceptance provisions when we have historical experience that the acceptance provision is perfunctory . when an arrangement involves multiple elements , such as hardware and software products , maintenance and or professional services , we allocate the entire sale price to each respective element based on vendor specific objective evidence ( `` vsoe '' ) of fair value for each undelivered element . when arrangements contain multiple elements and vsoe of fair value exists only for all undelivered elements , we recognize revenue for the delivered elements using the residual method in accordance with the provisions of the aicpa sop 98-9 , modification of sop 97-2 , software revenue recognition , with respect to certain transactions ( `` sop 98-9 '' ) . the residual method requires that the portion of the total arrangement fee attributable to undelivered elements , as indicated by vsoe of fair value , be deferred and subsequently recognized when delivered . we establish vsoe of fair value for undelivered elements based on either substantial renewal rates of maintenance and support agreements , the price we charge when the same element is sold separately or the price established by management who have the relevant authority to set prices for an element not yet sold separately . for arrangements containing multiple elements where vsoe of fair value does not exist for all undelivered elements , we defer revenue for the delivered and undelivered elements until vsoe of fair value exists for all undelivered elements or all elements have been delivered . we reduce revenue by provisions for estimated sales returns associated with rights offered to a limited number of channel partners . these rights allow the channel partner to exchange a percentage of its inventory based on the volume of its prior purchases . we provide for these return rights each quarter in an amount equal to estimated returns . on a quarterly basis , we review our estimates and compare to our actual returns experience . our actual results have been in line with our expectations . an increase in our allowance for sales returns would reduce our revenue in the period for which the increase is recorded . we evaluate our revenue recognition policies based on the specific facts and circumstances related to each of our channel partners . when selling to resellers and distributors , we generally do not recognize revenue upon shipment , unless a credit history has been established , since many of these customers are thinly capitalized and their ability to pay is , in substance , contingent upon their resale of our product . in these cases , we defer revenue until collection is deemed probable . when revenue is deferred , if reliable reporting from the reseller or distributor exists , we will recognize revenue when the reseller or distributor sells the product to an end-user ( `` sell through '' ) . when reliable reporting does not exist , revenue will be recognized upon our receipt of payment , or in limited circumstances upon receipt of a letter of credit or similar arrangement . we further monitor the payment history of our resellers and distributors and overall days sales outstanding ( `` dso '' ) . we believe this revenue recognition policy minimizes the risk that product is shipped in excess of end-user demand and allows us to reasonably and reliably estimate any sales returns . services revenue is primarily comprised of professional services , maintenance and support services and managed services . story_separator_special_tag we recognize revenue from professional services as the services are performed . 24 service revenue represented less than 10 % of revenue for each of the years ended december 31 , 2007 , 2006 and 2005. maintenance and support services , which are typically sold separately from products , consist of on-site support , telephone and on-line support and training . we defer maintenance and support services revenue , whether sold separately or as part of a multiple element arrangement , and recognize it ratably over the term of the maintenance contract , generally twelve months . we provide managed services under long term arrangements , typically two to three years . the arrangements may contain provisions requiring customer acceptance of the set-up activities , including installation and implementation activities , prior to the commencement of the ongoing services arrangement . we recognize maintenance and support and managed services revenue in accordance with sab no . 101 , revenue recognition in financial statements , as amended by sab no . 104 , revenue recognition . accordingly , amounts are earned when all of the following conditions are satisfied : there is persuasive evidence of an arrangement ; the service has been provided to the customer ; the amount of fees to be paid by the customer is fixed or determinable ; and the collection of fees from the customer is reasonably assured . when there are shipping and handling fees , we invoice customers for such fees . we recognize the invoiced amounts as revenue and the related costs are recognized as a cost of revenue . capitalization of managed services costs . we capitalize certain costs associated with the set-up activities of a managed services arrangements . these costs represent incremental external or internal costs that are directly related to the set-up , enhancement or expansion of certain managed services offerings . the types of costs that are capitalized include labor and related fringe benefits , subcontractor costs , consulting costs , travel costs , inventory costs and third party product costs . we begin to capitalize costs in the period when there is existence of an arrangement . managed services arrangements may also require the procurement of equipment , development of internally developed software and consulting services related to system enhancements and expansions . these related costs are also capitalized . we amortize these capitalized costs upon acceptance or commercial launch of the initial set-up , enhancement or expansion of the service over the expected relationship period or the expected economic useful life , as appropriate , using the straight-line method . expenses incurred to maintain and sustain the service delivery after the initial setup , enhancement or expansion of a managed services arrangement are expensed as incurred . we evaluate the lives and realizability of the capitalized costs on a periodic basis or as needed . in the event indications exist that a capitalized managed services cost balance to a particular contract may be impaired , undiscounted estimated cash flows of the contract are projected over its remaining term , and compared to the unamortized managed services contract cost balance . if the projected cash flows are not adequate to recover the unamortized cost balance , the balance would be adjusted to equal the contract 's fair value in the period such determination is made . the primary indicator used to determine when impairment testing should be performed is when a contract is materially underperforming , or is expected to materially underperform in the future , as compared to the financial model that was developed as part of the original proposal process and subsequent annual budgets . allowance for doubtful accounts . we maintain an allowance for doubtful accounts based upon our historical experience and any specifically identified customer collection issues . we monitor and analyze accounts receivable and the composition of the accounts receivable aging , historical bad debts , and current economic trends , regional factors and other known factors when evaluating the adequacy of the allowance for doubtful accounts . based upon the analysis and estimates of the uncollectibility of our accounts receivable , we record an allowance for doubtful accounts when the prospect of collecting a specific account receivable becomes doubtful . actual results could differ from the allowances for doubtful accounts of $ 0.1 million recorded as of december 31 , 2007 , and this difference may have a material effect on our financial position and results of operations . 25 write-down of excess and obsolete inventories . we value our inventories at the lower of cost ( first-in , first-out method ) or market . we regularly review our inventories and record charges for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next twelve months . actual excess and obsolete inventory could differ from the write-down of excess and obsolete inventories of $ 2.7 million recorded as of december 31 , 2007. goodwill and other intangible assets . in accordance with statement of financial accounting standards ( `` sfas '' ) no . 142 , goodwill and other intangible assets ( `` sfas 142 '' ) , goodwill is reviewed for impairment on an annual basis , or more frequently if events or circumstances indicate that the carrying value may not be recoverable . as of december 31 , 2007 , we performed our annual test of goodwill allocated to the livewire mobile division , to determine if there was any impairment . we determined that the livewire mobile reporting unit 's fair value exceeded the carrying value of its net assets , using income valuation method modeling . accordingly , no impairment was recorded in 2007. estimating future cash flows requires us to make projections that can differ materially from actual results . management evaluated the useful lives assigned to other intangible assets , which resulted in no changes to such useful lives . other intangible assets arose from the acquisition of openera in february 2006 , which are amortized over their respective economic useful lives proportionate to their expected cash flow . discontinued operations .
| other income ( expense ) , net consists primarily of interest income , interest expense , gains or losses realized on the repurchase of convertible debt and foreign currency translation gains and losses . 29 discontinued operations . on december 21 , 2007 , we sold our ni division to verso . accordingly , the operating results of the ni division have been reclassified as a discontinued operation in the consolidated statements of operations for all historic reporting periods . the ni division had revenues of $ 5.4 million , $ 3.6 million and $ 0.9 million for the years ended december 31 , 2007 , 2006 and 2005 , respectively . net loss from the discontinued operations was $ 2.4 million ( net of income tax benefit of $ 0.1 million ) , $ 7.7 million ( net of income tax benefit of $ 0.1 million ) and $ 9.5 million ( net of income tax benefit of $ 0.2 million ) for the years ended december 31 , 2007 , 2006 and 2005 , respectively . for the year ended december 31 , 2007 , we recorded a gain on the sale of the transaction of $ 1.6 million ( net of income tax expense of $ 6 thousand ) . year ended december 31 , 2007 compared to year ended december 31 , 2006 revenues replace_table_token_7_th we experienced a decrease in the nms communications division revenues in the year ended december 31 , 2007 , as compared to the year ended december 31 , 2006. the decrease of our nms communications division sales was due primarily to continued erosion of low-end time-division multi-plex ( `` tdm '' ) solutions to standard ip computing platforms , as well as , the significant decrease of sales of our voice quality products in the first and second quarters of 2007 compared to the first and second quarters of 2006. this decrease was based primarily on deployments of our products in the 3g network of a major japanese operator that concluded in the second quarter of 2006. sales from our vqs product line were $ 6.0 million in 2007 and $ 16.0 million in 2006. we experienced strong growth in the
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these allowances include price promotion discounts , coupons , customer rebates , cooperative advertising , and product returns . price promotion discount expense is recorded as a reduction to gross sales when the discounted product is sold to the customer . coupon expense estimates are calculated and recorded as a reduction to gross sales using the number of coupons dropped to consumers and the estimated redemption percentage . estimates for customer rebates assume that customers will meet the required quantities to qualify for payment and are recorded as a reduction to gross sales . cooperative advertising expense is recorded as a reduction to gross sales based on our portion of the estimated advertising cost of the underlying program . product returns are recorded as a reduction to gross sales based on the actual returns in the week following the quarter end . if market conditions were to decline , the company may take actions to increase incentive offerings , possibly resulting in an incremental reduction of revenue . the consumer packaged goods industry has used scan-based trading technology over several years to share information between the supplier and retailer . an extension of this technology allows the retailer to pay the supplier when the consumer purchases the goods rather than at the time they are delivered to the retailer . consequently , revenue on these sales is not recognized until the product is purchased by the consumer . this technology is referred to as pbs . the company began a pilot program in fiscal 1999 , working with certain retailers to develop the technology to execute pbs , and there has been a sharp increase in its use since that time . the company believes it is a baked foods industry leader in pbs and utilizes this technology with a majority of its larger retail customers such as walmart , kroger , food lion and winn-dixie . in fiscal 2011 the company recorded $ 821.0 million in sales through pbs . the company will continue to implement pbs technology for current pbs customers as they open new retail stores during 2012. in addition , new pbs customers will begin implementation during 2012. revenue on pbs sales is recognized when the product is purchased by the end consumer because that is when title and risk of loss is transferred . non-pbs sales are recognized when the product is delivered to the customer since that is when title and risk of loss is transferred . derivative instruments . the company 's cost of primary raw materials is highly correlated to certain commodities markets . commodities , such as our baking ingredients , experience price fluctuations . if actual market conditions become significantly different than those anticipated , raw material prices could increase significantly , adversely affecting our results of operations . we enter into forward purchase agreements and other derivative financial instruments qualifying for hedge accounting to manage the impact of volatility in raw material prices . the company measures the fair value of its derivative portfolio using the fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market for that asset or liability . when quoted market prices for identical assets or liabilities are not available , the company bases fair value on internally developed models that use current market observable inputs , such as exchange-quoted futures prices and yield curves . valuation of long-lived assets , goodwill and other intangible assets . the company records an impairment charge to property , plant and equipment , goodwill and intangible assets in accordance with applicable accounting standards when , based on certain indicators of impairment , it believes such assets have experienced a decline in value that is other than temporary . future adverse changes in market conditions or poor operating results of these underlying assets could result in losses or an inability to recover the carrying value of the asset that may not be reflected in the asset 's current carrying value , thereby possibly requiring impairment charges in the future . based on management 's evaluation , no impairment charges relating to long-lived assets were recorded for fiscal years 2011 , 2010 or 2009. the company evaluates the recoverability of the carrying value of its goodwill on an annual basis or at a time when events occur that indicate the carrying value of the goodwill may be impaired using a two step process . the first step of this evaluation is performed by calculating the fair value of the business segment , or reporting unit , with which the goodwill is associated . this fair value is compared to the carrying value of the reporting unit , and if less than the carrying value , the goodwill is measured for potential impairment under step 23 two . under step two of this calculation , goodwill is measured for potential impairment by comparing the implied fair value of the reporting unit goodwill , determined in the same manner as a business combination , with the carrying amount of the goodwill . our annual evaluation of goodwill impairment requires management judgment and the use of estimates and assumptions to determine the fair value of our reporting units . fair value is estimated using standard valuation methodologies incorporating market participant considerations and management 's assumptions on revenue , revenue growth rates , operating margins , discount rates , and ebitda ( defined as earnings before interest , taxes , depreciation and amortization ) . our estimates can significantly affect the outcome of the test . we perform the fair value assessment using the income and market approach . the market approach assumes growth rates for projected ebitda and revenue applied to market participant estimates of our enterprise value to ebitda and revenue . the income approach estimates include our projected results of operations and our weighted-average cost of capital as computed each quarter . we use this data to complete a separate fair value analysis for each reporting unit . story_separator_special_tag changes in our forecasted operating results and other assumptions could materially affect these estimates . this test is performed in our fourth quarter unless circumstances require this analysis be completed sooner . the income approach is tested using a sensitivity analysis to changes in the discount rate and yield a sufficient buffer to significant variances in our estimates . the estimated fair values of our reporting segments exceeded our carrying values by over $ 325.0 million in each segment . based on management 's evaluation , no impairment charges relating to goodwill were recorded for the fiscal years 2011 , 2010 , or 2009. in connection with acquisitions , the company has acquired trademarks , customer lists and non-compete agreements , which are intangible assets subject to amortization . the company evaluates these assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . the undiscounted future cash flows of each intangible asset is compared to the carrying amount , and if less than the carrying value , the intangible asset is written down to the extent the carrying amount exceeds the fair value . the fair value is computed using the same approach described above for goodwill and includes the same risks and estimates . based on management 's evaluation , no impairment charges relating to amortizable intangible assets were recorded for the fiscal years 2011 , 2010 , or 2009. the company also owns trademarks acquired in acquisitions that are intangible assets not subject to amortization of $ 1.5 million . the company evaluates the recoverability of the carrying value of these intangible assets on an annual basis or at a time when events occur that indicate the carrying value may be impaired . in addition , the assets are evaluated to determine whether events and circumstances continue to support an indefinite life . the fair value is compared to the carrying value of the intangible asset , and if less than the carrying value , the intangible asset is written down to fair value . the fair value is computed using the same approach described above for goodwill and includes the same risks and estimates . based on management 's evaluation , no impairment charges relating to intangible assets not subject to amortization were recorded for the fiscal years 2011 , 2010 , or 2009. self-insurance reserves . we are self-insured for various levels of general liability , auto liability , workers ' compensation and employee medical and dental coverage . insurance reserves are calculated on an undiscounted basis and are based on actual claim data and estimates of incurred but not reported claims developed utilizing historical claim trends . projected settlements and incurred but not reported claims are estimated based on pending claims and historical trends and data . though the company does not expect them to do so , actual settlements and claims could differ materially from those estimated . material differences in actual settlements and claims could have an adverse effect on our financial condition and results of operations . income tax expense and accruals . the annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . changes in statutory rates and tax laws in jurisdictions in which we operate may have a material effect on the annual tax rate . the effect of these changes , if any , would be recognized when the change takes place . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenues and expenses . our income tax expense , deferred tax assets and liabilities and reserve for uncertain tax benefits reflect our best assessment of future taxes to be paid in the jurisdictions in which we operate . the 24 company records a valuation allowance to reduce its deferred tax assets if it is more likely than not that some or all of the deferred assets will not be realized . while the company has considered future taxable income and ongoing prudent and feasible tax strategies in assessing the need for the valuation allowance , if these estimates and assumptions change in the future , the company may be required to adjust its valuation allowance , which could result in a charge to , or an increase in , income in the period such determination is made . periodically we face audits from federal and state tax authorities , which can result in challenges regarding the timing and amount of deductions . we provide reserves for potential exposures when we consider it more likely than not that a taxing authority may take a sustainable position on a matter contrary to our position . we evaluate these reserves on a quarterly basis to insure that they have been appropriately adjusted for events , including audit settlements that may impact the ultimate payment of such potential exposures . while the ultimate outcome of audits can not be predicted with certainty , we do not currently believe that future audits will have a material adverse effect on our consolidated financial condition or results of operations . during fiscal 2010 , the irs completed the audit of fiscal years 2007 and 2008. the results of the audit were immaterial , and the company is no longer subject to federal examination for years prior to 2009. pension obligations . the company records pension costs and benefit obligations related to its defined benefit plans based on actuarial valuations . these valuations reflect key assumptions determined by management , including the discount rate and expected long-term rate of return on plan assets . the expected long-term rate of return assumption considers the asset mix of the plans ' portfolios , past performance of these assets , the anticipated future economic environment and long-term performance of individual asset classes , and other factors . material changes in pension costs and in benefit obligations may occur in the future due to experience different than assumed and changes in these assumptions .
| dsd segment sales replace_table_token_7_th the 9.4 % increase in sales was attributable to the following : favorable percentage point change in sales attributed to : ( unfavorable ) pricing/mix 3.3 % volume ( 0.1 ) % acquisition 6.2 % total percentage change in sales 9.4 % 29 sales category discussion branded retail sales increased primarily due to the tasty acquisition , and to a lesser extent , growth in branded soft variety . competitive pricing and heavy promotional activity continued to impact the channel . store branded retail increased primarily due to volume growth in store branded white bread and store branded buns/rolls/tortillas , as well as the acquisition contribution . non-retail and other increased primarily due to increases in foodservice , partially offset by declines in institutional . warehouse segment sales replace_table_token_8_th the 1.1 % increase in sales was attributable to the following : favorable ( unfavorable ) percentage point change in sales attributed to : pricing/mix 4.0 % volume ( 2.9 ) % total percentage change in sales 1.1 % sales category discussion the decrease in branded retail sales and the increase in store branded retail sales was primarily the result of a shift from branded multi-pak cake to store branded cake as a result of store branded cake programs introduced in mid-2010 by some of the company 's customers . the slight increase in non-retail and other sales , which include contract production and vending , was due to volume increases , partially offset by pricing/mix declines . materials , supplies , labor and other production costs ( exclusive of depreciation and amortization shown separately ) . the increase as a percent of sales was primarily due to significant increases in ingredient costs . the increase in ingredient costs was from flour , shortening/oil , cocoa and sugar . these were partially offset by sales increases and lower workforce-related costs as a percent of sales . commodities , such as our baking ingredients , periodically experience price fluctuations , and , for that reason , we continually monitor the market for these commodities . the commodities market continues to be volatile . commodity prices increased in the second half of 2010 and continued to rise in 2011. the cost of these inputs may fluctuate widely due to government policy and regulation , weather conditions , domestic and international demand or other unforeseen circumstances . we enter into
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