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we also have other policies that we consider key accounting policies ; however , these policies typically do not require us to make estimates or judgments that are difficult or subjective . revenue recognition : we generally recognize revenue upon shipment and title passage for established products ( i.e. , those that have previously satisfied customer acceptance requirements ) that provide for full payment tied to shipment . revenue for products that have not previously satisfied customer acceptance requirements or from sales where customer payment dates are not determinable is recognized upon customer acceptance . in certain instances , customer payment terms may provide that a minority portion ( e.g . 20 % ) of the equipment purchase price be paid only upon customer acceptance . in those situations , the majority portion ( e.g . 80 % ) of revenue where payment is tied to shipment and the entire product cost of sale are recognized upon shipment and passage of title and the minority portion of the purchase price related to customer 19 acceptance is deferred and recognized upon receipt of customer acceptance . for arrangements containing multiple elements the revenue relating to the undelivered elements is deferred using the relative selling price method utilizing estimated sales prices until delivery of the deferred elements . we limit the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services , future performance obligations or subject to customer-specified return or adjustment . on shipments where sales are not recognized , gross profit is generally recorded as deferred profit in our consolidated balance sheet representing the difference between the receivable recorded and the inventory shipped . accounts receivable : we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . if the financial condition of our customers deteriorates , resulting in an impairment of their ability to make payments , additional allowances may be required . warranty : we provide for the estimated costs of product warranties in the period sales are recognized . our warranty obligation estimates are affected by historical product shipment levels , product performance , and material and labor costs incurred in correcting product performance problems . should product performance , material usage or labor repair costs differ from our estimates , revisions to the estimated warranty liability would be required . inventory : the valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality . the determination of obsolete or excess inventory requires us to estimate the future demand for our products . the demand forecast is a direct input in the development of our short-term manufacturing plans . we record valuation reserves on our inventory for estimated excess and obsolete inventory and lower of cost or market concerns equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product demand , market conditions and product selling prices . if future product demand , market conditions or product selling prices are less than those projected by management or if continued modifications to products are required to meet specifications or other customer requirements , increases to inventory reserves may be required , which would have a negative impact on our gross margin . income taxes : we estimate our liability for income taxes based on the various jurisdictions where we conduct business . this requires us to estimate our ( i ) current taxes ; ( ii ) temporary differences that result from differing treatment of certain items for tax and accounting purposes and ( iii ) unrecognized tax benefits . temporary differences result in deferred tax assets and liabilities that are reflected in the consolidated balance sheet . the deferred tax assets are reduced by a valuation allowance if , based upon all available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . establishing , reducing or increasing a valuation allowance in an accounting period generally results in an increase or decrease in tax expense in the statement of operations . we must make significant judgments to determine the provision for income taxes , deferred tax assets and liabilities , unrecognized tax benefits and any valuation allowance to be recorded against deferred tax assets . our gross deferred tax asset balance as of december 27 , 2014 was approximately $ 44.2 million , with a valuation allowance of approximately $ 37.0 million . our deferred tax assets consist primarily of reserves and accruals that are not yet deductible for tax and tax credit and net operating loss carry-forwards . goodwill , purchased intangible assets and other long-lived assets : we evaluate goodwill for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . we test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units . if the fair value is determined to be less than the book value , a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value . we estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method , taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology . forecasts of future cash flows are based on our best estimate of future net sales and operating expenses , based primarily on customer forecasts , industry trade organization data and general economic conditions . we conduct our annual goodwill impairment test as of october 1st of each year . story_separator_special_tag as of october 1 , 2014 , we concluded there was no impairment as the estimated fair values of our semiconductor equipment and microwave communications reporting units exceeded their carrying values by approximately 35 % and 17 % , respectively . subsequent to our annual goodwill impairment test , in the fourth quarter of 2014 , we determined an interim analysis was required and as of december 27 , 2014 concluded that the fair market value of our microwave 20 communications reporting unit goodwill was lower than its carrying value . as a result , we recorded a non-cash , pre-tax impairment charge in the fourth quarter of 2014. additional information is included in note 3 , microwave communications equipment segment impairment and restructuring in part iv , item 15 ( a ) of this form 10-k. long-lived assets , other than goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable . for long-lived assets , impairment losses are only recorded if the asset 's carrying amount is not recoverable through its undiscounted , probability-weighted future cash flows . we measure the impairment loss based on the difference between the carrying amount and estimated fair value . contingencies : we are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset . if a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable , we accrue a charge to operations in the period such conditions become known . share-based compensation : share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date , which we estimate using the black-scholes valuation model . share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date , reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit . share-based compensation on performance stock units with market-based goals is calculated using a monte carlo simulation model on the date of the grant . recent accounting pronouncements : for a description of accounting changes and recent accounting pronouncements , including the expected dates of adoption and estimated effects , if any , on our consolidated financial statements , see note 1 , recent accounting pronouncements in part iv , item 15 ( a ) of this form 10-k. story_separator_special_tag required to assess whether a valuation allowance should be recorded against their deferred tax assets ( dtas ) based on the consideration of all available evidence , using a more likely than not realization standard . the four sources of taxable income that must be considered in determining whether dtas will be realized are , ( 1 ) future reversals of existing taxable temporary differences ( i.e . offset of gross deferred tax assets against gross deferred tax liabilities ) ; ( 2 ) taxable income in prior carryback years , if carryback is permitted under the tax law ; ( 3 ) tax planning strategies and ( 4 ) future taxable income exclusive of reversing temporary differences and carryforwards . in assessing whether a valuation allowance is required , significant weight is to be given to evidence that can be objectively verified . we have evaluated our dtas each reporting period , including an assessment of our cumulative income or loss over the prior three-year period and future periods , to determine if a valuation allowance was required . a significant negative factor in our assessment was cohu 's three-year cumulative u.s. loss history at the end of various fiscal periods including 2014. as a result of our cumulative , three-year u.s. gaap pretax loss from continuing operations of approximately $ 43.2 million at the end of 2014 , and our u.s. loss in 2014 , we were unable to conclude at december 27 , 2014 that it was more likely than not that our u.s. dtas would be realized . we will evaluate the realizability of our dtas at the end of each quarterly reporting period in 2015 and should circumstances change it is possible the remaining valuation allowance , or a portion thereof , will be reversed in a future period . our valuation allowance on dtas at december 27 , 2014 and december 28 , 2013 was approximately $ 37.0 million and $ 36.1 million , respectively . the remaining gross dtas for which a valuation allowance was not recorded are realizable primarily through future reversals of existing taxable temporary differences . as the realization of dtas is determined by tax jurisdiction , the significant deferred tax liabilities recorded as part of the 2008 acquisition of rasco , a german corporation , and the fiscal 2013 acquisition of ismeca , a swiss corporation , were not a source of taxable income in assessing the realization of our dtas in the u.s. the american taxpayer relief act of 2012 , which reinstated the united states federal research and development tax credit retroactively from january 1 , 2012 through december 31 , 2013 , was not enacted into law until the first quarter of 2013. therefore , the tax benefit from the credits for 2012 and 2013 are reflected in our 2013 income tax provision .
| our gross margin , as a percentage of net sales , increased to 33.7 % in 2014 from 27.4 % in 2013. improvement in our gross margin , as compared to the prior year , was generated by our semiconductor equipment segment and resulted from better operating leverage as a result of increased business volume , the benefits from the transition of our supply chain and manufacturing activities to asia , favorable product mix and lower charges to cost of sales related to excess , obsolete and lower of cost or market inventory adjustments . in addition , prior year gross margin was negatively impacted by $ 1.0 million of inventory step-up costs recorded during the year and a one-time impact that resulted from the adoption of cohu 's revenue recognition policy . our gross margin has been impacted by charges to cost of sales related to excess , obsolete and lower of cost or market inventory issues . we compute the majority of our excess and obsolete inventory reserve requirements using a one-year inventory usage forecast . during 2014 and 2013 , we recorded net charges to cost of sales of approximately $ 3.9 million and $ 7.8 million , respectively , for excess and obsolete inventory . while we believe our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known exposures at december 27 , 2014 , reductions in customer forecasts or continued modifications to products , as a result of our failure to meet specifications or other customer requirements , may result in additional charges to operations that could negatively impact our gross margin in future periods . research and development expense ( r & d expense ) r & d expense consists primarily of salaries and related costs of employees engaged in ongoing research , product design and development activities , costs of engineering materials and supplies and professional consulting expenses . our future operating results depend , to a considerable extent on our ability to maintain a competitive advantage in the products we provide and historically we have maintained our commitment to investing in r & d in order to be able to continue to offer new products to our customers . r & d expense in 2014 was
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throughout this period and contrary to the correlation experienced prior to the recession , sales have grown at an increased rate , while miles driven have declined or grown at a slower rate than what we have historically experienced . we believe that the impact of changes in other factors , primarily an increase in the average age of vehicles , more than offset the impact of miles driven . over the long-term , we believe that annual miles driven will return to pre-recession low single digit growth rates , and the correlation between annual miles driven and the annual sales growth of our industry should return . seven year old or older vehicles since 2008 , new vehicle sales have been significantly lower than historical levels , which we believe contributed to an increasing number of seven year old or older vehicles on the road . we estimate vehicles are driven an average of approximately 12,500 miles each year . in seven years , the average miles driven equates to approximately 87,500 miles . our experience is that at this point in a vehicle 's life , most vehicles are not covered by warranties and increased maintenance is needed to keep the vehicle operating . according to data provided by the automotive aftermarket industry association , as of december 2010 , the average age of vehicles on the road is 10.6 years as compared to 10.3 years as of december 2009. as the number of seven year old or older vehicles on the road increases , we expect an increase in demand for the products that we sell . although we have seen a slight improvement in new car sales during fiscal 2011 , in the near term , we expect the aging vehicle population to continue to increase , as consumers keep their cars longer in an effort to save money during this uncertain economy . story_separator_special_tag and 96 % at august 29 , 2009. our inventory increases are primarily attributable to an increased number of stores and to a lesser extent , our efforts to update product assortments in all of our stores . many of our vendors have supported our initiative to update our product assortments by providing extended payment terms . these extended payment terms have allowed us to continue to grow accounts payable at a faster rate than inventory . our primary capital requirement has been the funding of our continued new-store development program . from the beginning of fiscal 2009 to august 27 , 2011 , we have opened 581 new stores . net cash flows used in investing activities were $ 319.0 million in fiscal 2011 , compared to $ 307.4 million in fiscal 2010 , and $ 263.7 million in fiscal 2009. we invested $ 321.6 million in capital assets in fiscal 2011 , compared to $ 315.4 million in capital assets in fiscal 2010 , and $ 272.2 million in capital assets in fiscal 2009. the increase in capital expenditures during this time was primarily attributable to the number and types of stores opened and increased investment in our existing stores . new store openings were 188 for fiscal 2011 , 213 for fiscal 2010 , and 180 for fiscal 2009. we invest a portion of our assets held by the company 's wholly owned insurance captive in marketable securities . we acquired $ 43.8 million of marketable securities in fiscal 2011 , $ 56.2 million in fiscal 2010 , and $ 48.4 million in fiscal 2009. we had proceeds from the sale of marketable securities of $ 43.1 million in fiscal 2011 , $ 52.6 million in fiscal 2010 , and $ 46.3 million in fiscal 2009. capital asset disposals provided $ 3.3 million in fiscal 2011 , $ 11.5 million in fiscal 2010 , and $ 10.7 million in fiscal 2009. net cash used in financing activities was $ 973.8 million in fiscal 2011 , $ 883.5 million in fiscal 2010 , and $ 806.9 million in fiscal 2009. the net cash used in financing activities reflected purchases of treasury stock which totaled $ 1.467 billion for fiscal 2011 , $ 1.124 billion for fiscal 2010 , and $ 1.300 billion for fiscal 2009. the treasury stock purchases in fiscal 2011 , 2010 and 2009 were primarily funded by cash flow from operations , and at times , by increases in debt levels . proceeds from issuance of debt were $ 500.0 million for fiscal 2011 ; there were no debt issuances in fiscal 2010 and $ 500.0 million for fiscal 2009. repayments of debt for fiscal 2011 were $ 199.3 million ; there were no debt repayments for fiscal 2010 , and $ 300.7 million for fiscal 2009. in fiscal 2011 , we used the proceeds from the issuance of debt to repay our $ 199.3 million term loan in november 2010 , to repay a portion of our commercial paper borrowings and for general corporate purposes , including for working capital requirements , capital expenditures , store openings and stock repurchases . proceeds from the debt issuance in fiscal 2009 , were used to repay outstanding commercial paper indebtedness , to prepay our $ 300.0 million term loan in august 2009 and for general corporate purposes , including for working capital requirements , capital expenditures , store openings and stock repurchases . net proceeds from the issuance of commercial paper and short-term borrowings were $ 141.5 million for fiscal 2011 , $ 181.6 million for fiscal 2010 and $ 277.6 million for fiscal 2009. during fiscal 2012 , we expect to invest in our business at an increased rate as compared to fiscal 2011 , and more consistent with growth rates experienced in fiscal 2010 and fiscal 2009. our investment is expected to be directed primarily to our new-store development program and enhancements to existing stores and infrastructure . story_separator_special_tag the amount of our investments in our new-store program is impacted by different factors , including such factors as whether the building and land are purchased ( requiring higher investment ) or leased ( generally lower investment ) , located in the united states or mexico , or located in urban or rural areas . during fiscal 2011 , fiscal 2010 , and 23 fiscal 2009 , our capital expenditures have increased by approximately 2 % , 16 % and 12 % , respectively , as compared to the prior year . our mix of store openings has moved away from build-to-suit leases ( lower initial capital investment ) to ground leases and land purchases ( higher initial capital investment ) , resulting in increased capital expenditures per store over the previous three years , and we expect this trend to continue during the fiscal year ending august 25 , 2012. in addition to the building and land costs , our new-store development program requires working capital , predominantly for inventories . historically , we have negotiated extended payment terms from suppliers , reducing the working capital required and resulting in a high accounts payable to inventory ratio . we plan to continue leveraging our inventory purchases ; however , our ability to do so may be limited by our vendors ' capacity to factor their receivables from us . certain vendors participate in financing arrangements with financial institutions whereby they factor their receivables from us , allowing them to receive payment on our invoices at a discounted rate . depending on the timing and magnitude of our future investments ( either in the form of leased or purchased properties or acquisitions ) , we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures , working capital requirements and stock repurchases . the balance may be funded through new borrowings . we anticipate that we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past . for the fiscal year ended august 27 , 2011 , our after-tax return on invested capital ( roic ) was 31.3 % as compared to 27.6 % for the comparable prior year period . roic is calculated as after-tax operating profit ( excluding rent charges ) divided by average invested capital ( which includes a factor to capitalize operating leases ) . roic increased primarily due to increased after-tax operating profit . we use roic to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance . debt facilities in september 2011 , we amended and restated our $ 800 million revolving credit facility , which was scheduled to expire in july 2012. the capacity under the revolving credit facility was increased to $ 1.0 billion . this credit facility is available to primarily support commercial paper borrowings , letters of credit and other short-term , unsecured bank loans . the capacity of the credit facility may be increased to $ 1.250 billion prior to the maturity date at our election and subject to bank credit capacity and approval , may include up to $ 200 million in letters of credit , and may include up to $ 175 million in capital leases each fiscal year . under the revolving credit facility , we may borrow funds consisting of eurodollar loans or base rate loans . interest accrues on eurodollar loans at a defined eurodollar rate , defined as the london interbank offered rate ( libor ) plus the applicable percentage , as defined in the revolving credit facility , depending upon our senior , unsecured , ( non-credit enhanced ) long-term debt rating . interest accrues on base rate loans as defined in the revolving credit facility . we also have the option to borrow funds under the terms of a swingline loan subfacility . the revolving credit facility expires in september 2016. the revolving credit facility agreement requires that our consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.50:1. this ratio is defined as the ratio of ( i ) consolidated earnings before interest , taxes and rents to ( ii ) consolidated interest expense plus consolidated rents . our consolidated interest coverage ratio as of august 27 , 2011 was 4.44:1. as the available balance is reduced by commercial paper borrowings and certain outstanding letters of credit , we had $ 200.7 million in available capacity under our previous revolving credit facility at august 27 , 2011. assuming the amended and restated revolving credit facility had been executed as of our balance sheet date , we would have had $ 400.7 million in available capacity under the facility at august 27 , 2011. in june 2010 , we entered into a letter of credit facility that allows us to request the participating bank issue letters of credit on our behalf up to an aggregate amount of $ 100 million . the letter of credit facility is in addition to the letters of credit that may be issued under the revolving credit facility . as of august 27 , 2011 , we have $ 92.9 million in letters of credit outstanding under the letter of credit facility , which expires in june 2013 . 24 on november 15 , 2010 , we issued $ 500 million in 4.000 % senior notes due 2020 under our shelf registration statement filed with the securities and exchange commission on july 29 , 2008 ( the shelf registration ) . the shelf registration allows us to sell an indeterminate amount in debt securities to fund general corporate purposes , including repaying , redeeming or repurchasing outstanding debt and for working capital , capital expenditures , new store openings , stock repurchases and acquisitions .
| operating , selling , general and administrative expenses for fiscal 2011 increased to $ 2.625 billion , or 32.5 % of net sales , from $ 2.392 billion , or 32.5 % of net sales for fiscal 2010. the slight increase in operating expenses , as a percentage of sales , was the result of higher fuel costs ( 20 basis points ) and increased incentive compensation costs ( 17 basis points ) , partially offset by leverage due to higher sales volumes . 21 interest expense , net for fiscal 2011 was $ 170.6 million compared with $ 158.9 million during fiscal 2010. this increase was primarily due to higher average borrowing levels over the comparable prior year period ; partially offset by a decline in borrowing rates . average borrowings for fiscal 2011 were $ 3.103 billion , compared with $ 2.752 billion for fiscal 2010 and weighted average borrowing rates were 5.1 % for fiscal 2011 , compared to 5.3 % for fiscal 2010. our effective income tax rate was 35.9 % of pre-tax income for fiscal 2011 compared to 36.4 % for fiscal 2010. net income for fiscal 2011 increased by 15.0 % to $ 849.0 million , and diluted earnings per share increased 30.0 % to $ 19.47 from $ 14.97 in fiscal 2010. the impact of the fiscal 2011 stock repurchases on diluted earnings per share in fiscal 2011 was an increase of approximately $ 1.15. fiscal 2010 compared with fiscal 2009 for the fiscal year ended august 28 , 2010 , we reported net sales of $ 7.363 billion compared with $ 6.817 billion for the year ended august 29 , 2009 , an 8.0 % increase from fiscal 2009. this growth was driven primarily by an increase in domestic same store sales of 5.4 % and sales from new stores of $ 203.4 million . the improvement in same store sales was driven by an improvement in transaction count trends , while increases in average transaction value remained generally consistent with our long-term trends . higher transaction value is attributable to product inflation due to both more complex , costly products and commodity price increases . at august 28 , 2010 , we operated 4,389 domestic stores and 238 stores in mexico , compared with 4,229 domestic stores and 188 stores in mexico at august 29 , 2009. we reported a domestic retail sales increase of 6.9 % and a
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mridian also records the level of radiation dose that the treatment area has received , enabling physicians to adapt the prescription between treatments as needed . we believe this improved visualization and accurate dose recording will enable better treatment , improve patient outcomes and reduce side effects . key benefits to users and patients include improved imaging and patient alignment , on-table adaptive treatment planning , motion management and an accurate recording of the delivered radiation dose . physicians have already used mridian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer , as well as patients for whom radiation therapy was previously not an option . at december 31 , 2017 , we have delivered or installed mridian systems at 14 leading cancer centers , including six units in the united states and nine units outside the united states . we currently market mridian through a direct sales force in the united states and distributors in the rest of the world . we market mridian to a broad range of worldwide customers , including university research and teaching hospitals , community hospitals , private practices , government institutions and freestanding cancer centers . our sales and revenue cycle varies based on the customer and can be lengthy , sometimes lasting up to 18 to 24 months or more from initial customer contact to sales contract execution . following execution of a sales contract , it generally takes nine to 12 months for a customer to customize an existing facility or construct a new vault . after the customer completes their customization , it typically takes approximately ninety days to complete the installation and on-site testing of the system , including the completion of acceptance test procedures . we generated product , service , distribution rights and grant revenue of $ 34.0 , $ 22.2 million and $ 10.4 million , and had net losses of $ 72.2 , $ 50.6 million and $ 45.0 million during the years ended december 31 , 2017 , 2016 and 2015 , respectively . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses will increase substantially in connection with our ongoing activities , as we : add personnel to support our product development and commercialization efforts ; continue our research and development efforts ; seek regulatory approval for mridian in certain foreign countries ; and operate as a public company . 80 accordingly , we may seek to fund our operations through public or private equity , debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop enhancements to and integrate new technologies into mri-guided radiation therapy systems . merger on july 23 , 2015 , viewray , inc. ( f/k/a mirax corp. ) , and viewray technologies , inc. ( f/k/a viewray incorporated ) , consummated an agreement and plan of merger and reorganization , or merger agreement . pursuant to the merger agreement , the stockholders of viewray technologies , inc. contributed all of their equity interests to viewray , inc. for shares of the viewray , inc. 's common stock and merged with the company 's subsidiary , which resulted in viewray technologies , inc. becoming a wholly-owned subsidiary of viewray , inc. , or the merger . effective as of july 23 , 2015 , viewray , inc. amended and restated its certificate of incorporation to increase its authorized common stock to 300,000,000 shares and 10,000,000 shares of “ blank check ” preferred stock , par value of $ 0.01 per share . upon closing of the merger , under the terms of the split-off agreement , dated july 23 , 2015 among viewray , inc. , viewray technologies , inc. and vesuvius acquisition sub , inc. , the acquisition subsidiary of mirax , and a general release agreement dated july 23 , 2015 , or the general release agreement , viewray , inc. transferred all of its pre-merger operating assets and liabilities to a wholly-owned special-purpose subsidiary incorporated in nevada , mirax enterprise corp. , or the split-off subsidiary . thereafter , mirax transferred all of the outstanding shares of capital stock of the split-off subsidiary to certain pre-merger insiders of mirax in exchange for the surrender and cancellation of shares of mirax common stock held by such persons , or the split-off . together with the merger , on july 23 , 2015 , viewray technologies , inc. effected a 2.975-for-1 stock split of its then outstanding common stock and convertible preferred stock , collectively referred to as capital stock , and convertible preferred stock warrants , in which ( i ) each share of outstanding capital stock was increased into 2.975 shares of capital stock ; ( ii ) the number of outstanding options to purchase each capital stock was proportionately increased on a 2.975-for-1 basis ; ( iii ) number of shares reserved for future option grants under the 2008 plan were proportionately increased on a 2.975-for-1 basis ; ( iv ) the exercise price of each such outstanding option was proportionately decreased on a 2.975-for-1 basis ; and ( v ) each share of outstanding convertible preferred stock warrant was increased into 2.975 shares of convertible preferred stock warrant . all of the share and per share amounts have been adjusted , on a retroactive basis , to reflect this 2.975-for-1 stock split . private placement at the closing of the merger , viewray , inc. conducted a private placement offering , or the private placement , of its securities for $ 26.3 million through the sale of 5,884,504 shares of the common stock of the surviving corporation , at an offering price of $ 5.00 per share , net of offering cost . existing viewray technologies , inc . story_separator_special_tag investors purchased $ 17.0 million shares of common stock in the private placement . certain shareholders of mirax retained , after giving effect to the split-off , 1,000,005 shares of the common stock of the surviving corporation upon the private placement . the merger was accounted for as a reverse-merger and recapitalization . viewray technologies , inc. was the acquirer for financial reporting purposes , and viewray , inc. was the acquired company under the acquisition method of accounting in accordance with the financial accounting standards board ( fasb ) accounting standards update ( asu ) no . 2014-18 , topic 805 , business combinations . consequently , the assets , liabilities and operations that were reflected in the historical financial statements prior to the merger were those of viewray technologies , inc. and were recorded at the historical cost basis , and the consolidated financial statements after completion of the merger included the assets , liabilities and results of operations of viewray technologies , inc. up to the day prior to the closing of the merger and the assets , liabilities and results of operations of the combined company from and after the closing date of the merger . 81 2016 private placement on august 19 , 2016 , we entered into a securities purchase agreement pursuant to which we sold an aggregate of 5,983,251 shares of common stock which consists of 4,602,506 shares of common stock and warrants to purchase 1,380,745 shares of common stock , or the 2016 placement warrants , for aggregate proceeds of $ 13.2 million , net of offering cost , or the 2016 private placement . we completed the initial closing of the 2016 private placement on august 22 , 2016 with the final closing on september 9 , 2016. january 2017 private placement on january 13 , 2017 , we entered into a securities purchase agreement pursuant to which we sold an aggregate of 10,323,101 shares of common stock which consists of 8,602,589 shares of common stock and warrants to purchase 1,720,512 shares of common stock , or the january 2017 placement warrants , for aggregate gross proceeds of $ 26.1 million , or the 2017 private placement . we completed the closing of the january 2017 private placement on january 18 , 2017. october 2017 direct registered offering on october 23 , 2017 , we entered into securities purchase agreements with certain investors pursuant to which we sold an aggregate of 8,382,643 shares of common stock for aggregate gross proceeds of $ 50.0 million , or the october 2017 direct registered offering . we completed the closing of the october 2017 direct registered offering on october 25 , 2017. new orders and backlog new orders are defined as the sum of gross product orders , representing mridian contract price , recorded during the period . backlog is the accumulation of all orders for which revenue has not been recognized and we consider valid . backlog includes customer deposits or letters of credit , except when the sale is to a customer where a deposit is deemed not necessary or customary . deposits received are recorded as a liability on the balance sheet . orders may be revised or cancelled according to their terms or upon mutual agreement between the parties . therefore , it is difficult to predict with certainty the amount of backlog that will ultimately result in revenue . the determination of backlog includes objective and subjective judgment about the likelihood of an order contract becoming revenue . we perform a quarterly review of backlog to verify that outstanding orders in backlog remain valid , and based upon this review , orders that are no longer expected to result in revenue are removed from backlog . among other criteria , to consider a transaction to be in backlog we must possess an outstanding and effective written agreement for the delivery of a mridian signed by a customer and receipt of a minimum customer deposit or a letter of credit except when the sale is to a customer where a deposit is deemed not necessary or customary ( i.e . sale to a government entity , a large hospital , group of hospitals or a cancer care group that has sufficient credit , sales via tender awards , or indirect channel sales that have signed contracts with end-customers ) . for removal of an order from our backlog , the following criteria are considered : any changes in customer or distributor plans or financial conditions ; the customer 's or distributor 's continued intent and ability to fulfill the order contract ; changes to regulatory requirements ; the status of regulatory approval required in the customer 's jurisdiction , if any ; and other reasons for potential cancellation of order contracts . during the year ended december 31 , 2017 , 2016 and 2015 , our new orders were $ 113.6 million , $ 77.0 million and $ 40.1 million respectively . at december 31 , 2017 and 2016 , we had backlog with a total value of $ 203.6 million and $ 133.2 million , respectively . components of statements of operations revenue product revenue . product revenue consists of sales of mridian systems , as well as optional components , such as additional planning workstations and body coils . forfeited customer deposits from order cancellations are also included in product revenue . 82 following execution of a sales contract , it generally takes nine to 12 months for a customer to customize an existing facility or construct a new vault . upon the commencement of installation at a customer 's facility , it typically takes approximately ninety days to complete the installation and on-site testing of the system , including the completion of acceptance test procedures . on-site training takes approximately one week and can be conducted concurrently with installation and acceptance testing . sales contracts generally include customer deposits upon execution of the agreement , and in certain cases , additional amounts due at shipment or commencement of installation , and final payment due generally upon customer acceptance .
| service cost of revenue increased $ 0.3 million in fiscal 2017 compared to fiscal 2016. the increase in service cost of revenue was primarily due to service provided to more installed units in fiscal 2017. operating expenses replace_table_token_8_th research and development . research and development expenses increased $ 3.3 million , or 28.5 % in fiscal 2017 compared to fiscal 2016. this increase was primarily attributable to a $ 1.4 million increase in engineering and research expense and projects supplies , a $ 1.0 million increase in consulting and contract labor expense due to increased usage of consultants and contractors , and a $ 0.7 million increase in personnel costs due to higher average headcount in fiscal 2017. selling and marketing . selling and marketing expenses increased $ 2.8 million , or 50.2 % in fiscal 2017 compared to fiscal 2016. this increase was primarily attributable to a $ 1.4 million increase in trade show costs , a $ 1.1 million increase in personnel expense due to higher average headcount in fiscal 2017 , and a $ 0.2 million increase in travel expense . general and administrative . general and administrative expenses increased $ 7.9 million , or 33.5 % in fiscal 2017 compared to fiscal 2016. this increase was primarily attributable to a $ 4.0 million increase in personnel and related costs due to higher average headcount , a $ 2.3 million increase in consulting and contract labor expense , a $ 0.6 million increase in depreciation expense , and a $ 0.6 million increase in travel and other general expenses . 86 interest expense year ended december 31 , 2017 2016 change ( in thousands ) interest expense $ ( 7,247 ) $ ( 5,951 ) $ ( 1,296 ) interest expense increased $ 1.3 million in fiscal 2017 , due primarily to higher outstanding crg loan balances in fiscal 2017. other expense , net year ended december 31 , < p
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in order to mitigate the effect of weather variations , the company has certain approved rate mechanisms in place that help provide stability in earnings , adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment . these mechanisms include a purchased gas adjustment factor ( `` pga '' ) , weather normalization adjustment factor ( `` wna '' ) , inventory carrying cost revenue ( `` icc '' ) and a steps to advance virginia energy ( `` save '' ) adjustment rider . the company 's approved billing rates include a component designed to allow for the recovery of the cost of natural gas used by its customers . the cost of natural gas is considered a pass-through cost and is independent of the non-gas rates of the company . this rate component , referred to as the pga clause , allows the company to pass along to its customers increases and decreases in natural gas costs incurred by its regulated operations . on a quarterly basis , the company files a pga rate adjustment request with the scc to adjust the gas cost component of its rates up or down depending on projected price and activity . once administrative approval is received , the company adjusts the gas cost component of its rates to reflect the approved amount . as actual costs will differ from the projections used in establishing the pga rate , the company will either over-recover or under-recover its actual gas costs during the period . the difference between actual costs incurred and costs recovered through the application of the pga is recorded as a regulatory asset or liability . at the end of the annual deferral period , the balance is amortized over an ensuing 12-month period as amounts are reflected in customer billings . 14 the wna reduces the volatility in earnings due to the variability in temperatures during the heating season . the wna is based on the most recent 30-year temperature average and provides the company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when the weather is colder than normal . the wna allows the company to recover from its customers the lost margin ( excluding gas costs ) from the impact of weather that is warmer than normal and correspondingly requires the company to refund the excess margin earned for weather that is colder than normal . the wna year runs from april through march . any billings or refunds related to the wna are completed following the end of the wna year . for the fiscal year ended september 30 , 2017 , the company recorded $ 1,839,000 in additional revenue from the wna for weather that was approximately 18 % warmer than normal . during the fiscal year ended september 30 , 2016 , the company recorded $ 1,318,000 in additional revenue for the wna for weather that was approximately 13 % warmer than normal . during the fiscal year ended september 30 , 2015 , the company reduced revenue by $ 609,000 due to the wna for weather that was approximately 6.5 % colder than normal . as normal weather is based on the most recent 30-year temperature average , the heating degree days used to determine normal will change each year as a new year is added to the 30-year period and the oldest year is removed . as a result of two consecutive years of significantly warmer winters , the number of heating degree days that defines normal has declined from 4,000 in fiscal 2013 to 3,959 in fiscal 2017. the company 's rates are designed on 4,000 heating degree days from its last non-gas rate filing ; however , the wna model is recovering on the current normal of 3,959 heating degree days , or about 1 % less than for what the rates were designed to recover . the 30-year normal will not be reset in base rates until the next time the company files for a non-gas rate increase , so until such time as normal is reset , the wna may slightly under-recover for warmer weather . the company also has an approved rate structure in place that mitigates the impact of financing costs of its natural gas inventory . under this rate structure , roanoke gas recognizes revenue for the financing costs , or “ carrying costs ” , of its investment in natural gas inventory . the icc factor applied to average inventory is based on the company 's weighted-average cost of capital including interest rates on short-term and long-term debt and the company 's authorized return on equity . during times of rising gas costs and rising inventory levels , the company recognizes icc revenues to offset higher financing costs associated with higher inventory balances . conversely , during times of decreasing gas costs and declining inventory balances , the company recognizes less carrying cost revenue as financing costs are lower . in addition , icc revenues are impacted by changes in the weighted-average cost of capital . although , the cost balance of storage gas at september 30 , 2017 was higher than last year due to higher prices during the summer storage refill , the average balance during the year , which is the base used to calculate icc revenues , was lower by 5 % . furthermore , increased borrowing levels in fiscal 2017 reduced the overall weighted average cost of capital , or icc factor , as the debt to equity ratio increased . the combination of lower average storage balances and a reduction in the icc factor resulted in a nearly $ 63,000 decline in icc revenues . story_separator_special_tag this trend in lower average storage balances and icc factor in fiscal 2016 resulted in a $ 182,000 decline in icc revenues from fiscal 2015. based on the current storage balances and natural gas futures , the average dollar balance of gas in storage may increase next year ; however , an expected increase in debt will potentially reduce the icc factor and corresponding icc revenues . generally , as investment in natural gas inventory increases so does the level of borrowing under the company 's line-of-credit . however , as the carrying cost factor used in determining carrying cost revenues is based on the company 's weighted-average cost of capital , carrying cost revenues do not directly correspond with incremental financing costs generally provided by the line-of-credit . therefore , when inventory cost balances decline due to a reduction in commodity prices , net income will decline as carrying cost revenues decrease by a greater amount than the line-of-credit costs decrease . the inverse occurs when inventory costs increase . the company 's non-gas rates are designed to allow for the recovery of non-gas related expenses and provide a reasonable return to shareholders . these rates are determined based on the filing of a formal rate application with the scc utilizing historical information including investment in natural gas facilities . generally , investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas rates currently in place . the investment in replacing and upgrading existing infrastructure is not recoverable until a formal rate application is made to include the additional investment , and new non-gas rates are approved . the save plan and rider provides the company with the ability to recover costs related to these investments on a prospective basis rather than on a historical basis . the save plan provides a mechanism to recover the related depreciation and expenses and provide a return on rate base of the additional capital investments related to improving the company 's infrastructure until such time a formal rate application is filed to incorporate this investment in the company 's non-gas rates . as the company has not filed for an increase in non-gas rates since 2013 , save plan revenues have increased each year corresponding to the level of save qualifying capital investment . the company recognized approximately $ 3,813,000 , 15 $ 2,538,000 and $ 1,308,000 in save plan revenues for years ended september 30 , 2017 , 2016 and 2015 , respectively . save revenues will be included as part of the non-gas base rates the next time the company files for a non-gas rate increase . additional information regarding the save rider is provided under the regulatory affairs section . the economic environment has a direct correlation with business and industrial production , customer growth and natural gas utilization . the local economy appears relatively stable and should continue to improve absent a major economic setback on a local , regional or national level . story_separator_special_tag increased by $ 268,782 primarily consisting of the allowance for funds used during construction ( `` afudc '' ) related to the increasing investment in the project . the investment in mountain valley pipeline and the related afudc earnings are discussed further under the equity investment in mountain valley pipeline section below . other expense - other expense , net , decreased by $ 123,139 , or 48 % , primarily due to lower pipeline assessments and charitable commitments . 17 interest expense - total interest expense increased by $ 280,933 , or 17 % , due to a 24 % increase in the average total debt outstanding . the combination of mountain valley pipeline investments and the level of capital expenditures during fiscal 2017 generated the higher debt balances . the average interest rate declined during the current year from 3.76 % to 3.56 % . the $ 7,000,000 unsecured note issued on november 1 , 2016 had a variable rate that ranged from 1.43 % to 2.14 % during the year , which was lower than the average rate on the outstanding debt during fiscal 2016. income taxes - income tax expense increased by $ 139,206 , or 4 % , on higher pre-tax earnings . the effective tax rate was 37.9 % for fiscal 2017 compared to 38.7 % for fiscal 2016. the lower effective tax rate was attributable to the exercise of stock options during the year , which resulted in additional tax deductions above the amount recorded at grant date due to the significant appreciation in stock price over the grant price . net income and dividends - net income for fiscal 2017 was $ 6,232,865 compared to $ 5,806,866 for fiscal 2016. basic and diluted earnings per share were $ 0.86 in fiscal 2017 compared to $ 0.81 in fiscal 2016. dividends declared per share of common stock were $ 0.58 in fiscal 2017 compared to $ 0.54 in fiscal 2016. all per share amounts were restated for the three-for-two stock split effective march 1 , 2017 as described in note 2 to the consolidated financial statements . fiscal year 2016 compared with fiscal year 2015 the table below reflects operating revenues , volume activity and heating degree-days . replace_table_token_10_th replace_table_token_11_th total gas utility operating revenues for the year ended september 30 , 2016 declined by 13 % from the year ended september 30 , 2015 primarily due to a combination of lower gas costs and a reduction in natural gas deliveries more than offsetting revenues from the save plan rider and wna . the average commodity price of natural gas declined by 28 % per decatherm sold . delivered volumes declined primarily due to warmer weather , as reflected in the lower residential and commercial volumes . industrial consumption also declined , causing a reduction in transportation and interruptible volumes . the more weather sensative residential and commercial deliveries declined by 12 % on 18 % fewer heating degree days . transportation and interruptible volumes decreased by 6 % . other revenues experienced a 10 % decrease .
| as discussed in more detail above , the wna allowed the company to recognize margin related to those natural gas volumes not delivered due to the warmer weather . icc revenues declined by $ 63,000 due to lower average gas storage balance and a lower icc factor . other margins , consisting of non-utility related services , decreased by $ 17,487 despite higher revenues . higher operating costs made margin tighter in the non-utility services part of operations . the service contracts which generate the majority of the non-utility related revenues are subject to annual or semi-annual renewal provisions and the potential exists that these contracts may not be renewed or extended , which could negatively impact future revenues and margins . the changes in the components of the gas utility margin are summarized below : replace_table_token_9_th operations and maintenance expense - operations and maintenance expenses , in total , were nearly unchanged reflecting a net increase of $ 1,955 for the year . expense declines in certain areas were offset by higher expenses in other categories . the most significant offsets pertain to labor , contracted services , employee benefit costs , corporate insurance , capitalized overheads and bad debt expense . total operation and maintenance labor declined by $ 158,000 primarily as a result of the outsourcing of the company 's customer service , billing and credit and collection functions . management made a strategic decision to transfer these operations to a provider that has significant experience in serving utility clients . in july 2017 , the company transitioned to the service provider , resulting in a reduction of 18 employees . the personnel savings from this work force reduction was offset by the fees paid to the service provider . employee benefit costs increased by $ 195,000 due to higher health insurance premiums and higher actuarial determined costs on the post-retirement medical plan . the company realized a $ 251,000 reduction in corporate property and liability insurance premiums due to favorable insurance renewals . capitalized overheads , which include general and administrative , payroll
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we believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results of operations . to the extent that the estimates used differ from actual results , however , adjustments to the statement of operations and corresponding balance sheet accounts would be necessary . these adjustments would be made in future financial statements . when reading our financial statements , you should consider : ( i ) our critical accounting policies ; ( ii ) the judgment and other uncertainties affecting the application of such policies ; and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . the significant accounting policies and related judgments and estimates used to prepare our financial statements are identified in note 3 to our consolidated financial statements accompanying this report . we have not made any material changes in the methodology used in our accounting policies . 43 story_separator_special_tag font-family : times new roman ; font-size : 10pt ; font-weight : bold '' > gross profit gross profit decreased by $ 8,907,507 , or 60.9 % , in the year ended march 31 , 2014 , as compared to the previous fiscal year , as a result of a substantial decline in our wholesale business . gross margin also decreased , from 16.4 % for the year ended march 31 , 2013 to 8.7 % for the year ended march 31 , 2014 , as a result of lower retail and wholesale profit margins . the average gross margin for each of our three business segments for the years ended march 31 , 2014 and 2013 are as follows : replace_table_token_6_th 45 retail gross margin decreased primarily due to lower sale prices caused by strong market competition , the promotional campaign commemorating our ten-year anniversary , and store sales related to the closure of our shanghai drugstores . the china food and drug administration ( the “ cfda ” ) enacted a series of drug retail price controls during the year ended march 31 , 2014. although most of our drug prices are below the price limit , we adjust our prices from time to time to be competitive in the market . furthermore , local community hospitals in zhejiang province sell drugs included in china 's “ essential drug list ” at cost . in turn , local governments reimburse community hospitals with subsidies . confronted with low or no profit margin sales and government subsidies , we were faced with the choice to either abandon sales of essential drugs or maintain low or no profit margins in order to attract customers . sale of drugs listed in “ essential drug list ” amounts to approximately $ 5.7 million in fiscal 2014. to reward our members for their loyalty and to attract more customers in a competitive market , we conducted promotional events such as “ buy-one-get-one-free ” sales in the second and third quarters of the year ended march 31 , 2014. accordingly , we recorded approximately $ 487,000 in the cost of sales associated with such promotions . furthermore , since we were unable to attract local talent and create a key management team to fit into shanghai local market , our shanghai stores incurred continuous losses since their inception . due to their underperformance , we ceased operation of all five drugstores in shanghai in february 2014. as a result , we discontinued further business with the majority of shanghai stores ' local vendors , and they have not allowed us to return products to them . furthermore , based on good supplier practice ( “ gsp ” ) requirements , we are not permitted to ship drugs from one provincial drug administration control zone to another for resale . since hangzhou and shanghai are under different local drug administration control zones , we were unable to ship the unsold inventory back to our hangzhou stores for resale . thus , we sold our remaining products to local communities at lower prices . during the sale , we sold products worth approximately $ 0.99 million for approximately $ 0.08 million . excluding the effects of such customer rewards and store closure sales , gross margin is approximately 19.4 % for the year ended march 31 , 2014 , 5.0 % lower than for the year ended march 31 , 2013 , which reflects price adjustments made by us . wholesale gross margin decreased in the second half of the year ended march 31 , 2014 , primarily due to the discounted sales of certain products that our new wholesale team decided not to continue expending significant efforts to sell in the future . moreover , we have been transitioning in a new sales and management team for jiuxin medicine since the third quarter of the year ended march 31 , 2014. as the prior team gradually withdrew , certain customers and suppliers that worked with that team also chose to discontinue their business with us . in response , we settled certain prepayment accounts with the withdrawing suppliers and receivables from discontinued customers by either receiving their merchandise or a refund of cash . we received approximately $ 6.7 million in products delivered during the second half of the year . however , because some of the products were specifically tailored for customers that discontinued business with us , the new team decided not to continue expending significant efforts to sell them , and began selling them at a discount in an effort to reduce inventory from our warehouse . we believe that such sales , while affecting our short-term profitability , may minimize further loss and free up storage space that the new team may require . in addition , such sales free the new team from dealing with the old accounts of the discontinued suppliers , which in turn allows us to better track the performance of the new team . story_separator_special_tag nevertheless , the recorded cost related to such discounted sales amounted to approximately $ 2,065,000 , while the sales revenue was approximately $ 545,836. on the other hand , certain wholesale suppliers stopped doing business with us in connection with the departure of our old sales and management team for our wholesale business . as a result , we have been actively disposing of our remaining inventory of such suppliers ' products , including products that we have decided not to sell in the future . as a result , we recorded a loss of approximately $ 1 million . as a result , our gross margin became negative . during the year ended march 31 , 2014 , we planted and grew ginkgo trees based on our best estimate as to future market demands . due to the prolonged life cycle , we were unable to harvest those herbs in the year ended march 31 , 2014. we expect to continue planting ginkgo trees and other herbs in the near future based on our best estimation of the market . revenue from the herbs will be generated when they are harvested . selling and marketing expenses selling and marketing expenses increased by $ 1,471,787 , or 12.0 % , during the year ended march 31 , 2014 , as compared to the previous fiscal year . such expenses as a percentage of our revenue increased to 20.7 % from 13.7 % for the same period a year ago , primarily due to promotional activities and advertising related to jiuzhou pharmacy 's ten-year anniversary . to commemorate our pharmacy 's ten-year anniversary and to foster our members ' loyalty , we rewarded them with complimentary gifts starting in the second quarter of the year ended march 31 , 2014 , at a cost of approximately $ 4,637,276. in contrast , promotional costs for the same period in the prior year were only approximately $ 579,466. during the year ended march 31 , 2014 , we closed 5 stores in shanghai and charged the residual value of store improvements ( such as immovable store decoration ) into expense . by excluding promotional costs , which are one-time in nature , our regular selling and marketing expenses decreased . as we have closed our non-performing stores in the past years and we do n't plan to expand the retail business fast in the near further , we do n't expect that our labor and rental costs will rise significantly in the coming year . 46 general and administrative expenses general and administrative expenses decreased by $ 3,731,507 , or 24.9 % , during the year ended march 31 , 2014 , as compared to the previous fiscal year . such expenses as a percentage of our revenue increased to 17.0 % from 16.8 % for the same period a year ago . during the year ended march 31 , 2013 , we made a reserve of approximately $ 8.9 million for accounts receivable and advances to suppliers in our wholesale business . in contrast , we made an approximately $ 0.5 million additional reserve for advances to customers , an approximately $ 1.0 million reserve for accounts receivable , and an approximately $ 3.4 million bad debt expense for advances to customers during the year ended march 31 , 2014. excluding the effect of the reserve for accounts receivables and advance to suppliers , our general and administrative expenses increased by $ 0.2 million , which reflects modest inflation and stricter control over our administrative cost . since shifting our wholesale strategy in third quarter of the year ended march 31 , 2014 , we have reduced both our wholesale staff and our administrative expenses . we also closed 5 stores during the year ended march 31 , 2014 , thereby eliminating their associated management expenses . we anticipate that general and administrative expenses will increase in the future . impairment of long-lived assets we recorded an impairment of long-lived assets of $ 4,995,012 for the year ended march 31 , 2014. such impairment was made after we estimated that the implied fair value of long-lived assets was lower than the carrying value . accordingly , we fully impaired licenses and permits in the amount of $ 1,126,981 , impaired prepayment of lease use right in the amount of $ 2,481,792 , impaired land and road improvement in the amount of $ 905,468 , and impaired leasehold improvements and immovable fixed assets in the amount of $ 480,771 in the year ended march 31 , 2014. we recorded a goodwill impairment charge of $ 1,473,606 in the year ended march 31 , 2013 , which was previously recognized in connection with the acquisitions of jiuxin medicine and shanghai zhongxing . such impairment was made during the year ended march 31 , 2013 after we estimated the fair value of each of these businesses and determined that the implied fair value was lower than the carrying value . accordingly , we fully impaired goodwill by writing off goodwill of $ 1,403,933 for jiuxin medicine and $ 69,673 for shanghai zhongxing during the year ended march 31 , 2013. impairment of agricultural inventory we recorded an impairment of agricultural inventory of $ 820,637 for the year ended march 31 , 2014. such impairment was made after we estimated that the implied fair value of the ginkgo trees planted in qianhong agriculture 's farmland was lower than the carrying value . accordingly , we impaired agricultural inventory in the amount of $ 820,637 during the year ended march 31 , 2014. loss from operations loss from operations increased by $ 6,647,787 during the year ended march 31 , 2014 , as compared to the previous fiscal year , resulting in an operating loss of $ 19,230,142 for the year ended march 31 , 2014 , as compared to an operating loss of $ 12,582,355 for the fiscal year ended march 31 , 2013. operating margin for the fiscal years ended march 31 , 2014 and 2013 was ( 29.1 ) % and ( 14.1 ) % , respectively .
| although these stores were underperforming , they contributed approximately $ 1,270,000 in revenue prior to their closures during the year ended march 31 , 2014. our store count decreased to 48 as of march 31 , 2014 , from 51 as of march 31 , 2013. online sales increased by $ 4,512,890 , or 148.1 % , for the year ended march 31 , 2014 , as compared to the year ended march 31 , 2013. we have been working with business-to-consumer online vendors , including taobao , by posting our products on their online platforms , which platforms direct customers back to our website . such arrangements have exposed our online presence to a wider consumer base . in addition , since the beginning of calendar year 2013 , we have spent considerable efforts identifying popular products that can drive sales . as a result , we have seen steady growth in online sales . 44 wholesale revenue decreased by $ 27,737,415 or 60.0 % primarily as a result of changing our sales strategy to focus on profitability . since the third quarter of the year ended march 31 , 2013 , we have gradually reduced sales of low-profit margin products to certain customers who were delinquent in their payments to us . these types of sales accounted for a significant portion of our wholesale business in the first half of fiscal 2013. in the first and second quarter of fiscal 2013 , we achieved sales volume of approximately $ 37,535,949 through competitive pricing . however , we incurred losses as result of low profit margins and rising overhead costs . additionally , we had to make significant reserves against accounts receivable that were significantly past due . since the third quarter of the year ended march 31 , 2013 , we have gradually stopped carrying these types of sales and are focusing on profitability and accounts receivable collectability over sales volume . although this strategy may impact our ability to achieve first-tier distributor status , we believe that focusing on profitability and accounts collectability rather than sales volume is critical for our overall operations going forward . in order to bring in new profitable wholesale business such as supply
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on february 23 , 2017 , we entered into another equity distribution agreement , as amended and restated on may 10 , 2017 ( the `` may 2017 equity distribution agreement '' ) , with two sales agents pursuant to which we could offer and sell , from time to time , up to an aggregate amount of $ 125,000,000 of shares of our common stock in transactions that were deemed to be `` at the market '' offerings and privately negotiated transactions . the may 2017 equity distribution agreement replaced the july 2016 equity distribution agreement . we issued a total of 12,299,032 shares under the may 2017 equity distribution agreement for aggregate gross proceeds of $ 125.0 million , and net proceeds of approximately $ 122.9 million , net of commissions and fees , prior to its termination . on august 2 , 2017 , we entered into another equity distribution agreement ( the `` august 2017 equity distribution agreement '' ) with two sales agents pursuant to which we may offer and sell , from time to time , up to an aggregate amount of $ 125,000,000 of shares of our common stock in transactions that are deemed to be `` at the market '' offerings and privately negotiated transactions . the august 2017 equity distribution agreement replaced the may 2017 equity distribution agreement . through december 31 , 2017 , we issued a total of 7,746,052 shares under the august 2017 equity distribution agreement for aggregate gross proceeds of $ 76.0 million , and net proceeds of approximately $ 74.7 million , net of commissions and fees . factors that affect our results of operations and financial condition a variety of industry and economic factors may impact our results of operations and financial condition . these factors include : · interest rate trends ; · the difference between agency rmbs yields and our funding and hedging costs ; · competition for , and supply of , investments in agency rmbs ; · actions taken by the u.s. government , including the presidential administration , the federal reserve ( the `` fed '' ) , the federal open market committee ( the `` fomc '' ) and the u.s. treasury ; · prepayment rates on mortgages underlying our agency rmbs , and credit trends insofar as they affect prepayment rates ; and · other market developments . in addition , a variety of factors relating to our business may also impact our results of operations and financial condition . these factors include : · our degree of leverage ; · our access to funding and borrowing capacity ; · our borrowing costs ; · our hedging activities ; · the market value of our investments ; and · the requirements to qualify as a reit and the requirements to qualify for a registration exemption under the investment company act . 47 story_separator_special_tag bottom ; text-align : left ; background-color : # ffffff '' valign= '' bottom '' > 23,437 0.33 ( 0.18 ) 0.52 june 30 , 2017 ( 9,643 ) ( 32,597 ) 22,954 ( 0.26 ) ( 0.88 ) 0.62 march 31 , 2017 2,449 ( 20,727 ) 23,176 0.07 ( 0.63 ) 0.70 december 31 , 2016 ( 20,419 ) ( 38,003 ) 17,584 ( 0.72 ) ( 1.33 ) 0.62 september 30 , 2016 20,526 4,418 16,108 0.85 0.18 0.67 june 30 , 2016 6,463 ( 7,319 ) 13,782 0.29 ( 0.33 ) 0.63 march 31 , 2016 ( 4,591 ) ( 19,561 ) 14,970 ( 0.21 ) ( 0.90 ) 0.69 december 31 , 2015 7,809 ( 6,813 ) 14,622 0.36 ( 0.31 ) 0.67 september 30 , 2015 ( 9,416 ) ( 23,682 ) 14,266 ( 0.42 ) ( 1.05 ) 0.63 june 30 , 2015 ( 2,831 ) ( 16,017 ) 13,186 ( 0.14 ) ( 0.81 ) 0.67 march 31 , 2015 5,509 ( 6,063 ) 11,572 0.33 ( 0.36 ) 0.69 years ended december 31 , 2017 $ 2,007 $ ( 91,118 ) $ 93,125 $ ( 0.05 ) $ ( 2.22 ) $ 2.27 december 31 , 2016 1,979 ( 60,465 ) 62,444 0.08 ( 2.51 ) 2.59 december 31 , 2015 1,071 ( 52,575 ) 53,646 0.05 ( 2.59 ) 2.65 ( 1 ) includes realized and unrealized gains ( losses ) on rmbs and derivative financial instruments , including net interest expense on interest rate swaps . economic interest expense and economic net interest income we use derivative instruments , specifically eurodollar and treasury note ( `` t-note '' ) futures contracts , interest rate swaps and swaptions , to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment . 49 we have not elected to designate our derivative holdings for hedge accounting treatment under the financial accounting standards board , ( the `` fasb '' ) , accounting standards codification , ( `` asc '' ) , topic 815 , derivatives and hedging . changes in fair value of these instruments are presented in a separate line item in our consolidated statements of operations and not included in interest expense . as such , for financial reporting purposes , interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments . for the purpose of computing economic net interest income and ratios relating to cost of funds measures , gaap interest expense has been adjusted to reflect the realized gains or losses on specific derivative instruments that pertain to each period presented . we believe that adjusting our interest expense for the periods presented by the gains or losses on all derivative instruments would not accurately reflect our economic interest expense for these periods . for each period presented , we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period . interest expense , including the effect of derivative instruments for the period , is referred to as economic interest expense . story_separator_special_tag net interest income , when calculated to include the effect of derivative instruments for the period , is referred to as economic net interest income . this presentation includes gains or losses on all contracts in effect during the reporting period , covering the current period as well as periods in the future . we believe that economic interest expense and economic net interest income provide meaningful information to consider , in addition to the respective amounts prepared in accordance with gaap . the non-gaap measures help management to evaluate its financial position and performance without the effects of certain transactions and gaap adjustments that are not necessarily indicative of our current investment portfolio or operations . the unrealized gains or losses on derivative instruments presented in our consolidated statements of operations are not necessarily representative of the total interest rate expense that we will ultimately realize . this is because as interest rates move up or down in the future , the gains or losses we ultimately realize , and which will affect our total interest rate expense in future periods , may differ from the unrealized gains or losses recognized as of the reporting date . our presentation of the economic value of our hedging strategy has important limitations . first , other market participants may calculate economic interest expense and economic net interest income differently than the way we calculate them . second , while we believe that the calculation of the economic value of our hedging strategy described above helps to present our financial position and performance , it may be of limited usefulness as an analytical tool . therefore , the economic value of our investment strategy should not be viewed in isolation and is not a substitute for interest expense and net interest income computed in accordance with gaap . 50 the tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments , and the income statement line item , gains ( losses ) on derivative instruments , calculated in accordance with gaap for the years ended december 31 , 2017 , 2016 and 2015 and each quarter during 2017 , 2016 and 2015. replace_table_token_6_th 51 economic interest expense and economic net interest income ( in thousands ) interest expense on borrowings gains ( losses ) on derivative instruments net interest income gaap attributed economic gaap economic interest interest to current interest net interest net interest income expense period ( 1 ) expense ( 2 ) income income ( 3 ) three months ended december 31 , 2017 $ 40,098 $ 13,555 $ ( 3,763 ) $ 17,318 $ 26,543 $ 22,780 september 30 , 2017 38,974 12,638 ( 3,761 ) 16,399 26,336 22,575 june 30 , 2017 34,579 8,763 ( 3,654 ) 12,417 25,816 22,162 march 31 , 2017 32,311 6,715 ( 3,193 ) 9,908 25,596 22,403 december 31 , 2016 25,068 4,976 ( 2,967 ) 7,943 20,092 17,125 september 30 , 2016 22,358 3,979 ( 2,660 ) 6,639 18,379 15,719 june 30 , 2016 19,235 3,330 ( 2,210 ) 5,540 15,905 13,695 march 31 , 2016 20,466 3,319 ( 1,933 ) 5,252 17,147 15,214 december 31 , 2015 19,092 2,371 ( 1,196 ) 3,567 16,721 15,525 september 30 , 2015 18,352 2,037 ( 881 ) 2,918 16,315 15,434 june 30 , 2015 16,753 1,567 ( 595 ) 2,162 15,186 14,591 march 31 , 2015 14,614 1,296 ( 306 ) 1,602 13,318 13,012 years ended december 31 , 2017 $ 145,962 $ 41,671 $ ( 14,371 ) $ 56,042 $ 104,291 $ 89,920 december 31 , 2016 87,127 15,604 ( 9,770 ) 25,374 71,523 61,753 december 31 , 2015 68,811 7,271 ( 2,978 ) 10,249 61,540 58,562 ( 1 ) reflects the effect of derivative instrument hedges for only the period presented . ( 2 ) calculated by adding the effect of derivative instrument hedges attributed to the period presented to gaap interest expense . ( 3 ) calculated by adding the effect of derivative instrument hedges attributed to the period presented to gaap net interest income . net interest income during the year ended december 31 , 2017 , we generated $ 104.3 million of net interest income , consisting of $ 146.0 million of interest income from rmbs assets offset by $ 41.7 million of interest expense on borrowings . for the comparable period ended december 31 , 2016 , we generated $ 71.5 million of net interest income , consisting of $ 87.1 million of interest income from rmbs assets offset by $ 15.6 million of interest expense on borrowings . the $ 58.8 million increase in interest income and $ 26.1 million increase in interest expense for the year ended december 31 , 2017 primarily reflects the growth of our portfolio fueled by our net capital raising activities , combined with increased yields earned on our portfolio and increased costs and amounts of our borrowings . for the year ended december 31 , 2015 , we generated $ 61.5 million of net interest income , consisting of $ 68.8 million of interest income from rmbs assets offset by $ 7.3 million of interest expense on borrowings . the $ 18.3 million increase in interest income and $ 8.3 million increase in interest expense for the year ended december 31 , 2016 primarily reflects the growth of our portfolio due to our net capital raising activities , combined with increased yields earned on our portfolio and increased costs and amounts of our borrowings . on an economic basis , our interest expense on borrowings for the years ended december 31 , 2017 , 2016 and 2015 was $ 56.0 million , $ 25.4 million and $ 10.2 million , respectively , resulting in $ 89.9 million , $ 61.8 million and $ 58.6 million of economic net interest income , respectively .
| as such , for financial reporting purposes , interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments . 48 presenting net earnings excluding realized and unrealized gains allows management to : ( i ) isolate the net interest income and other expenses of the company over time , free of all mark-to-market adjustments and ( ii ) assess the effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance . our funding and hedging strategies , capital allocation and asset selection are integral to our risk management strategy , and therefore critical to the management of our portfolio . we believe that the presentation of our net earnings excluding realized and unrealized gains is useful to investors because it provides a means of comparing our results of operations to those of our peers who have not elected the same accounting treatment . our presentation of net earnings excluding realized and unrealized gains and losses may not be comparable to similarly-titled measures of other companies , who may use different calculations . as a result , net earnings excluding realized and unrealized gains and losses should not be considered as a substitute for our gaap net income ( loss ) as a measure of our financial performance or any measure of our liquidity under gaap . the table below presents a reconciliation of our net income ( loss ) determined in accordance with gaap and net earnings excluding realized and unrealized gains . net earnings excluding realized and unrealized gains and losses ( in thousands , except per share data ) per share net earnings net earnings excluding excluding realized and realized and realized and realized and net unrealized unrealized net unrealized unrealized income gains and gains and income gains and gains and ( gaap ) losses ( 1 ) losses ( gaap ) losses losses three months ended december 31 , 2017 $ ( 5,982 ) ( 29,540 ) $ 23,558 $ ( 0.12 ) $ ( 0.61 ) $ 0.49 september 30 , 2017 15,183 ( 8,254 ) < td style= '' width : 1 % ; vertical-align :
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provision for income taxes our 2017 effective income tax rate from continuing operations decreased to 19.7 percent , from 32.7 percent in 2016 , driven primarily by the impact of the tax act , which among other matters reduced the u.s. corporate income tax rate from 35 percent to 21 percent effective january 1 , 2018. the tax act reduced our 2017 income tax expense by $ 388 million , comprised of the following : the new lower tax rate reduced tax expense by $ 36 million . target 's u.s. federal statutory tax rate was 33.7 percent for 2017 , which reflects a blended federal statutory rate of 35 % for approximately 11 months and 21 % for approximately 1 month . we recognized a provisional net tax benefit of $ 352 million related to remeasurement of our net deferred tax liabilities , including $ 381 million of benefit from the new lower rate , partially offset by $ 29 million of deferred income tax expense from our foreign operations . in 2017 , due to changes effected by the tax act and other reasons , we have not asserted i ndefinite reinvestment in our foreign operations . certain other provisions of the tax act not expected to have a material impact on net income are as follows : through 2022 , the tax act allows companies to immediately deduct the cost of certain capital expenditures from taxable income instead of deducting the costs over time . this provision phases out over 2023-2027. the tax act implements a territorial tax system and imposes a one-time repatriation tax on deemed repatriated accumulated foreign earnings as of december 31 , 2017. the one-time repatriation tax did not materially affect our net tax expense because in the aggregate our foreign entities have an accumulated earnings deficit , driven by our discontinued operations . although the tax act generally eliminates u.s. federal income tax on dividends from foreign subsidiaries , it creates a new requirement that certain income referred to as global intangible low-taxed income earned by controlled foreign corporations must be included currently in the gross income of the entity 's u.s. shareholder . the tax act limits the deductibility of interest , executive compensation , and certain other expenses . as described in note 23 of the financial statements , certain aspects of our 2017 income tax provision related to the tax act amounts are provisional . we expect a 2018 effective tax rate of 22 percent to 25 percent . we expect a corresponding 2018 operating cash flow benefit from the lower rate and , to a lesser degree , additional operating cash flow benefits from the immediate deductibility provision described above . 21 our 2016 effective income tax rate from continuing operations increased to 32.7 percent , from 32.5 percent in 2015 , driven primarily by the 2015 rate impact of the $ 112 million tax benefit from releasing the valuation allowance on a capital loss carryforward . this comparative rate impact was partially offset by $ 27 million of excess tax benefit in 2016 related to shared-based payments after the adoption of accounting standards update ( asu ) no . 2016-09 , improvements to employee share-based payment accounting , and lower pretax earnings . note 23 of the financial statements provides additional information . discontinued operations see note 7 of the financial statements for information about our canada exit . reconciliation of non-gaap financial measures to gaap measures to provide additional transparency , we have disclosed non-gaap adjusted diluted earnings per share from continuing operations ( adjusted eps ) . this metric excludes certain items presented below . we believe this information is useful in providing period-to-period comparisons of the results of our continuing operations . this measure is not in accordance with , or an alternative to , generally accepted accounting principles in the united states ( gaap ) . the most comparable gaap measure is diluted earnings per share from continuing operations . adjusted eps should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . other companies may calculate adjusted eps differently than we do , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_15_th note : amounts may not foot due to rounding . ( a ) consisted of 53 weeks . ( b ) represents discrete items related to the tax act . refer to the provision for income taxes discussion within md & a and note 23 of the financial statements . ( c ) refer to note 6 of the financial statements . ( d ) refer to note 8 of the financial statements . ( e ) represents amounts related to the 2013 data breach . ( f ) for 2016 , represents items related to the pharmacy transaction . for 2015 , represents impairments related to our decision to wind down certain noncore operations . 22 we have presented consolidated earnings from continuing operations before interest expense and income taxes ( ebit ) and earnings before interest , taxes , depreciation and amortization ( ebitda ) , non-gaap financial measures , because we believe that these measures provide meaningful information about our operational efficiency compared to our competitors by excluding the impact of differences in tax jurisdictions and structures , debt levels , and , for ebitda , capital investment . these measures are not in accordance with , or an alternative for , gaap . the most comparable gaap measure is net earnings from continuing operations . consolidated ebit and ebitda should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . other companies may calculate consolidated ebit and ebitda differently , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_16_th ( a ) consisted of 53 weeks . ( b ) represents total depreciation and amortization , including amounts classified within depreciation and amortization and within cost of sales on our consolidated statements of operations . story_separator_special_tag 23 we have also disclosed after-tax return on invested capital for continuing operations ( roic ) , which is a ratio based on gaap information , with the exception of adjustments made to capitalize operating leases . operating leases are capitalized as part of the roic calculation to control for differences in capital structure across companies . this metric provides a measure of the effectiveness of our capital allocation over time . other companies may calculate roic differently , limiting the usefulness of the measure . replace_table_token_17_th replace_table_token_18_th after-tax return on invested capital 15.9 % ( d ) 15.0 % ( a ) consisted of 53 weeks . ( b ) represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as capital leases , using eight times our trailing twelve months rent expense and an estimated interest rate of six percent . ( c ) see the following reconciliation of capitalized operating leases table for the adjustments to our gaap total rent expense to obtain the hypothetical capitalization of operating leases and related operating lease interest . ( d ) calculated using the effective tax rates for continuing operations , which were 19.7 percent and 32.7 percent for the trailing twelve months ended february 3 , 2018 and january 28 , 2017 , respectively . for the twelve months ended february 3 , 2018 and january 28 , 2017 , includes tax effect of $ 848 million and $ 1,624 million , respectively , related to ebit and $ 16 million and $ 23 million , respectively , related to operating lease interest . the effective tax rate for the trailing twelve months ended february 3 , 2018 includes discrete tax benefits related to the tax act and the impact of the new lower u.s. corporate income tax rate . excluding the discrete impacts of the tax act , roic was 14.0 percent for the trailing twelve months ended february 3 , 2018 . ( e ) calculated as eight times our trailing twelve months rent expense . ( f ) included in other assets and liabilities on the consolidated statements of financial position . ( g ) average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period . capitalized operating lease obligations and operating lease interest are not in accordance with , or an alternative for , gaap . the most comparable gaap measure is total rent expense . capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . 24 replace_table_token_19_th our calculation of after-tax roic will change when we adopt asu no . 2016-02 , leases in the first quarter of 2018 , primarily resulting from replacing calculated operating lease obligations with gaap operating lease obligations and an interest adjustment specific to the lease portfolio . we expect these changes to result in an roic decrease of approximately 0.2-0.5 percentage points for all periods presented . refer to note 22 to the financial statements for additional information . analysis of financial condition liquidity and capital resources our period-end cash and cash equivalents balance increased to $ 2,643 million from $ 2,512 million in 2016 . as of february 3 , 2018 , $ 808 million of cash and cash equivalents were held at entities located outside the united states . there are no substantial taxes or restrictions to repatriate these holdings for domestic use . our investment policy is designed to preserve principal and liquidity of our short-term investments . this policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less . we also place dollar limits on our investments in individual funds or instruments . capital allocation we follow a disciplined and balanced approach to capital allocation based on the following priorities , ranked in order of importance : first , we fully invest in opportunities to profitably grow our business , create sustainable long-term value , and maintain our current operations and assets ; second , we maintain a competitive quarterly dividend and seek to grow it annually ; and finally , we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals . operating cash flows operating cash flow provided by continuing operations was $ 6,849 million in 2017 compared with $ 5,329 million in 2016 . the operating cash flow increase is due to increased payables leverage primarily driven by changes in vendor payment terms in 2017 , partially offset by an inventory increase in 2017 compared to a decrease during 2016. the operating cash flow increase is also partially due to the payment of approximately $ 500 million of taxes during 2016 related to the pharmacy transaction . inventory year-end inventory was $ 8,657 million , compared with $ 8,309 million in 2016 . we increased inventory in 2017 to support higher sales . 25 capital expenditures ( a ) in addition to these cash investments , we entered into leases related to new stores in 2017 , 2016 , and 2015 with total future minimum lease payments of $ 438 million , $ 550 million , and $ 338 million , respectively . capital expenditures increased in 2017 from the prior year primarily due to increased investments in existing stores as we accelerated our current store remodel program . this investment acceleration follows an increase in 2016 as compared to 2015 due to increased remodels and guest experience enhancements . in 2016 , these increases were partially offset by capital expenditure reductions driven by efficiency gains in technology . we expect capital expenditures in 2018 to increase to approximately $ 3.5 billion as we accelerate the rate of store remodels , continue our current rate of small-format store openings , and continue to make supply chain investments .
| a reconciliation of non-gaap financial measures to gaap measures is provided on page 22 . ( a ) consisted of 53 weeks . we report after-tax return on invested capital ( roic ) from continuing operations because we believe roic provides a meaningful measure of our capital-allocation effectiveness over time . for the trailing twelve months ended february 3 , 2018 , roic was 15.9 percent , compared with 15.0 percent for the trailing twelve months ended january 28 , 2017 . excluding the discrete impacts of the tax act , roic was 14.0 percent for the trailing twelve months ended february 3 , 2018 . a reconciliation of roic is provided on page 24. analysis of results of operations segment results replace_table_token_6_th note : see note 30 of our financial statements for a reconciliation of our segment results to earnings before income taxes and more information about items recorded outside of segment sg & a . ( a ) consisted of 53 weeks . ( b ) sales and cost of sales include $ 3,815 million and $ 3,076 million , respectively , related to our former pharmacy and clinic businesses for 2015. the sale of these businesses had no notable impact on ebit . ( c ) refer to note 3 of the financial statements for information about the reclassification of supply chain-related depreciation expense to cost of sales . ( d ) for 2017 , 2016 , and 2015 , sg & a expenses includes $ 694 million , $ 663 million , and $ 641 million , respectively , of net profit-sharing income under our credit card program agreement . replace_table_token_7_th note : rate analysis metrics are computed by dividing the applicable amount by sales . ( a ) consisted of 53 weeks . ( b ) reclassifying supply chain-related depreciation expense to cost of sales reduced the gross margin and depreciation and amortization rates by 0.3-0.4 percentage points for all periods presented . ( c ) excluding sales of our former pharmacy and clinic businesses , ebit
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we believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development . as discussed previously , these two items can have a significant impact on our consolidated net loss ratio in a given period . the most direct comparable gaap ratio is our net consolidated loss and lae ratio . the underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business . recent accounting standards please refer to note 2 ( o ) in our notes to consolidated financial statements for a discussion of recent accounting standards that may affect us . application of critical accounting estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( gaap ) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements . the most critical estimates include those used in determining : reserves for unpaid losses , fair value of investments , and investment portfolio impairments . in making these determinations , management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain . many of these policies , estimates and related judgments are common in the insurance industry . it is reasonably likely that changes in these estimates could occur from time to time and result in a material impact on our consolidated financial statements . 35 united insurance holdings corp. reserves for unpaid losses and loss adjustment expenses general discussion of loss reserving process reserves for unpaid losses and loss adjustment expenses represent the most significant accounting estimate inherent in the preparation of our financial statements . these reserves represent management 's best estimate of the amount we will ultimately pay for losses and we base the amount upon the application of various actuarial reserve estimation techniques as well as considering other material facts and circumstances known at the balance sheet date . we establish two categories of loss reserves as follows : case reserves – when a claim is reported , we establish an automatic minimum case reserve for that claim type that represents our initial estimate of the losses that will ultimately be paid on the reported claim . our initial estimate for each claim is based upon averages of loss payments for our prior closed claims made for that claim type . then , our claims personnel perform an evaluation of the type of claim involved , the circumstances surrounding each claim and the policy provisions relating to the loss and adjust the reserve as necessary . as claims mature , we increase or decrease the reserve estimates as deemed necessary by our claims department based upon additional information we receive regarding the loss , the results of on-site reviews and any other information we gather while reviewing the claims . reserves for losses incurred but not reported ( ibnr reserves ) – our ibnr reserves include true ibnr reserves plus `` bulk '' reserves . bulk reserves represent additional amounts that can not be allocated to particular claims , but which are necessary to estimate ultimate losses on reported and unreported claims . we estimate our ibnr reserves by projecting the ultimate losses using the methods discussed below and then deducting actual loss payments and case reserves from the projected ultimate losses . we review and adjust our ibnr reserves on a quarterly basis based on information available to us at the balance sheet date . when we establish our reserves , we analyze various factors such as our historical loss experience and that of the insurance industry , claims frequency and severity , our business mix , our claims processing procedures , legislative enactments , judicial decisions and legal developments in imposition of damages , and general economic conditions , including inflation . a change in any of these factors from the assumptions implicit in our estimates will cause our ultimate loss experience to be better or worse than indicated by our reserves , and the difference could be material . due to the interaction of the aforementioned factors , there is no precise method for evaluating the impact of any one specific factor in isolation , and an element of judgment is ultimately required . due to the uncertain nature of any projection of the future , the ultimate amount we will pay for losses will be different from the reserves we record . however , in our judgment , we employ techniques and assumptions that are appropriate , and the resulting reserve estimates are reasonable , given the information available at the balance sheet date . we determine our ultimate losses by using multiple actuarial methods to determine an actuarial estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques . our selection of the actuarial estimate is influenced by the analysis of our historical loss and claims experience since inception . for each accident year , we estimate the ultimate incurred losses for both reported and unreported claims . in establishing this estimate , we reviewed the results of various actuarial methods discussed below . 36 united insurance holdings corp. estimation of the reserves for unpaid losses and allocated loss adjustment expenses we calculate our estimate of ultimate losses by using the following actuarial methods . we separately calculate the methods using paid loss data and incurred loss data . in the versions of these methods based on incurred loss data , the incurred losses are defined as paid losses plus case reserves . for this discussion of our loss reserving process , the word `` segment '' refers to a subgrouping of our claims data , such as by geographic area and or by particular line of business ; it does not refer to operating segments . story_separator_special_tag incurred development method – the incurred development method is based upon the assumption that the relative change in a given year 's incurred loss estimates from one evaluation point to the next is similar to the relative change in prior years ' reported loss estimates at similar evaluation points . in utilizing this method , actual annual historical incurred loss data is evaluated . successive years can be arranged to form a triangle of data . loss development factors ( ldfs ) are calculated to measure the change in cumulative incurred costs from one evaluation point to the next . these historical ldfs and comparable industry benchmark factors form the basis for selecting the ldfs used in projecting the current valuation of losses to an ultimate basis . this method 's implicit assumption is that the relative adequacy of case reserves has been consistent over time , and that there have been no material changes in the rate at which claims have been reported . the paid development method is similar to the incurred development method . while the incurred development method has the disadvantage of not recognizing the information provided by current case reserves , it has the advantage of avoiding potential distortions in the data due to changes in case reserving methodology . the incurred development method 's implicit assumption is that the rate of payment of claims has been relatively consistent over time . expected loss cost method – in the expected loss cost method , ultimate loss projections are based upon some prior measure of the anticipated losses , usually relative to some measure of exposure ( i.e. , earned house years ) . an expected loss cost is applied to the measure of exposure to determine estimated ultimate losses for each year . actual losses are not considered in this calculation . this method has the advantage of stability over time , because the ultimate loss estimates do not change unless the exposures or loss costs change . however , this advantage of stability is offset by a lack of responsiveness , since this method does not consider actual loss experience as it emerges . this method is based on the assumption that the loss cost per unit of exposure is a good indication of ultimate losses . it can be entirely dependent on pricing assumptions ( i.e. , historical experience adjusted for loss trend ) . bornhuetter-ferguson method – the incurred bornhuetter-ferguson ( b-f ) method is essentially a blend of two other methods . the first method is the loss development method whereby actual incurred losses are multiplied by an expected ldf . for slow reporting coverages , the loss development method can lead to erratic and unreliable projections because a relatively small swing in early reportings can result in a large swing in ultimate projections . the second method is the expected loss method whereby the ibnr estimate equals the difference between a predetermined estimate of expected losses and actual incurred losses . the incurred b-f method combines these two methods by setting ultimate losses equal to actual incurred losses plus expected unreported losses . as an experience year matures and expected unreported losses become smaller , the initial expected loss assumption becomes gradually less important . two parameters are needed to apply the b-f method : the initial expected loss cost and the expected reporting pattern ( ldfs ) . this method is often used for long-tail lines and in situations where the incurred loss experience is relatively immature or lacks sufficient credibility for the application of other methods . the paid b-f method is analogous to the incurred b-f method using paid losses and development patterns in place of incurred losses and patterns . paid-to-paid development method - in addition to the aforementioned methods , we also rely upon the paid-to-paid development method to project ultimate allocated loss adjustment expense ( alae ) . triangles of paid alae to paid loss ratios are compiled and ldfs are selected to project an ultimate paid-to-paid ratio . the ultimate paid-to-paid ratio is multiplied by the selected ultimate losses to calculate estimated ultimate alae . this puts the alae in context , and generally results in more stability in the alae projections . 37 united insurance holdings corp. reliance and selection of methods the various methods we use have strengths and weaknesses that depend upon the circumstances of the segment and the age of the claims experience we analyze . the nature of our book of business allows us to place substantial , but not exclusive , reliance on the loss development methods . ultimately , this means the main assumptions of the loss development methods , the selected ldfs , represent the most critical aspect of our loss reserving process . we use the same set of ldfs in the methods during our loss reserving process that we also use to calculate the premium necessary to pay expected ultimate losses . reasonably-likely changes in variables as previously noted , we evaluate several factors when exercising our judgment in the selection of the loss development factors that ultimately drive the determination of our loss reserves . the process of establishing our reserves is complex and necessarily imprecise , as it involves using judgment that is affected by many variables . we believe a reasonably-likely change in almost any of these aforementioned factors could have an impact on our reported results , financial condition and liquidity . however , we do not believe any reasonably-likely changes in the frequency or severity of claims would have a material impact on us . fair value of investments fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . we are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies . we use quoted prices from active markets and we use an independent third-party valuation service to assist us in determining fair value .
| losses and loss adjustment expenses increased to $ 98,830,000 for the full year ended 2013 , from $ 58,409,000 during 2012. prior year adverse development for the year ended december 31 , 2013 , was $ 4,078,000 compared to $ 670,000 for the same period in 2012. our attritional loss experience by accident year excluding catastrophes has been stable or trending downwards for the past several years , but did increase in the 2013 accident year due to higher overall frequency and severity of water related losses and lower premiums per unit of exposure resulting from our growth outside of florida . replace_table_token_21_th policy acquisition costs increased $ 13,746,000 , or 37 % , in 2013 . these costs vary directly with the growth in gross premiums earned , which increased 40 % . general and administrative expenses increased $ 2,818,000 , or 24 % , in 2013 due to an increase in salaries and related expenses to support our growth . 47 united insurance holdings corp. liquidity and capital resources we generate cash through premium collections , reinsurance recoveries , investment income , the sale or maturity of invested assets and the issuance of additional shares of our stock . we use our cash to pay reinsurance premiums , claims and related costs , policy acquisition costs , salaries and employee benefits , other expenses and stockholder dividends , as well as to purchase investments . as a holding company , we do not conduct any business operations of our own and as a result , we rely on cash dividends or intercompany loans from our management affiliate to pay our general and administrative expenses . insurance regulatory authorities in the states in which we operate heavily regulate our insurance affiliates , including restricting any dividends paid by our insurance affiliate and requiring approval of any management fee our insurance affiliates pays to our management affiliates for services rendered ; however , nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency . our non-insurance company subsidiaries may pay us dividends from any positive net cash flows that they generate . our management affiliate subsidiaries pay us
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the decrease in gross profit was primarily due to the adverse impact of foreign exchange , increased product amortization costs , changes in the mix of products sold , and additional coaching personnel in our education practice . our gross margin , which is gross profit as a percent of sales , was 65.8 percent compared with 67.4 percent in fiscal 2014. our operating expenses increased $ 5.1 million compared with fiscal 2014 primarily due to a $ 3.0 million increase in selling , general , and administrative expenses , a $ 0.9 million increase in impaired asset charges , a $ 0.8 million increase in depreciation expense , and $ 0.6 million of restructuring costs resulting from the decision to realign our domestic sales regions and to close our northeastern sales office . the increases were partially offset by a $ 0.2 million decrease in intangible asset amortization expense . the increase in selling , general , and administrative expenses was primarily related to the addition of new sales and sales support personnel ; fiscal 2014 reductions to estimated contingent earn out payments from a business acquisition totaling $ 1.6 million that did not repeat in fiscal 2015 ; and increased foreign exchange transaction losses . our income from operations for fiscal 2015 reflected the factors noted above and was $ 19.5 million , compared with $ 24.8 million in fiscal 2014. in fiscal 2014 , we recognized $ 4.2 million of foreign tax credits , which reduced our effective income tax rate to approximately 17 percent . in fiscal 2015 we f inalized the calculations relating to the amendment of previously filed u.s. federal income tax returns to 28 realize foreign tax credits previously treated as expired under the tax positions taken in the original returns . the income tax benefit recognized from these foreign tax credits totaled $ 0.6 million in fiscal 2015 and , as expected , our effective tax rate increased to approximately 36 percent , which significantly increased our income tax provision in fiscal 2015 despite lower pre-tax earnings . accordingly , our income tax provision increased to $ 6.3 million in fiscal 2015 compared with $ 3.7 million in fiscal 2014. net income for fiscal 2015 was $ 11.1 million , or $ .66 per diluted share , compared with $ 18.1 million , or $ 1.07 per diluted share , in fiscal 2014. further details regarding these items can be found in the comparative analysis of fiscal 2015 with fiscal 2014 as discussed within this management 's discussion and analysis . our liquidity position remained strong during fiscal 2015 and we had $ 16.2 million of cash and cash equivalents at august 31 , 2015 compared with $ 10.5 million at august 31 , 2014. our net working capital ( current assets minus current liabilities ) increased to $ 55.8 million at august 31 , 2015 compared with $ 50.1 million at the end of fiscal 2014. we did not have any borrowings on our $ 30.0 million revolving line of credit facility at august 31 , 2015. our primary source of cash is our ongoing operations . cash flows from operating activities increased to $ 26.2 million in fiscal 2015 compared with $ 18.1 million in fiscal 2014. historically , we have funded our operations , capital purchases , curriculum development , share repurchases , and business acquisitions from our operating activities and from our revolving line of credit facility . our positive cash flows in fiscal 2015 enabled us to repurchase over $ 14 million of our common stock during the year . we anticipate that cash flows from our operating activities and proceeds from our line of credit facility will be sufficient to support our operations for the foreseeable future . for further information regarding our cash flows and liquidity refer to the liquidity and capital resources discussion found later in this management 's discussion and analysis . business overview we believe that the combination of : ( 1 ) creating best-in-class content and solutions in each of our practice areas , and continuing to invest in the refinement and expansion of each of our content categories ; and ( 2 ) significantly increasing the size and capabilities of our various sales and content-delivery channels are the foundation of our long-term strategic growth plan . each year we make significant investments in the development and enhancement of our existing content , and the development of new services , features , and products that help individuals and organizations achieve their own great purposes . we expect to continue the introduction of new or refreshed content and delivery methods and consider them key to our long-term success . at the same time , we continue to make substantial investments each year to expand the size and capabilities of our sales and delivery forces to take our solutions to market in a way which attracts and retains client organizations . one of our key strategic objectives is to consistently deliver quality results to our clients . this initiative is focused on ensuring that our content and offerings are best-in-class , and that they have a measurable , lasting impact on our clients ' results . we believe that measurable improvement in our clients ' organizations is key to retaining current clients and to obtaining new sales opportunities . other key factors that influence our operating results include : the size and productivity of our sales force ; the number and productivity of our international licensee operations ; the number of organizations that are active customers ; the number of people trained within those organizations ; the continuation or renewal of existing services contracts ; the availability of budgeted training spending at our clients and prospective clients , which , in certain content categories , can be significantly influenced by general economic conditions ; and our ability to manage operating costs necessary to develop and provide meaningful training and related services and products to our clients . story_separator_special_tag our fiscal year ends on august 31 , and unless otherwise indicated , fiscal 2015 , fiscal 2014 , and fiscal 2013 refer to the twelve-month periods ended august 31 , 2015 , 2014 , 2013 , and so forth . 29 results of operations the following table sets forth , for the fiscal years indicated , the percentage of total sales represented by the line items through income before income taxes in our consolidated income statements . this table should be read in conjunction with the following discussion and analysis and the consolidated financial statements , including the related notes to the consolidated financial statements . replace_table_token_4_th fiscal 2015 compared with fiscal 2014 sales we offer a variety of training courses , consulting services , and training-related products that are focused on solving organizational problems which require a change in human behavior . our training and consulting solutions are provided both domestically and internationally through our sales force , client facilitators , international licensees , and the internet on various web-based delivery platforms . the following sales analysis for the fiscal year ended august 31 , 2015 is based on activity through our primary delivery channels as shown in the preceding comparative sales table . u.s./canada direct – this channel includes our three regional sales offices that serve clients in the united states and canada , and our government services group . sales increased by $ 3.2 million compared with the prior year primarily due to a $ 3.5 million increase in government services sales . the increase in government service sales was due to 1 ) the renewal of a large government contract that was obtained during the first quarter of fiscal 2015 and the significant delivery of services on this contract during fiscal 2015 ; and 2 ) new contracts obtained with other governmental entities during the year . the decrease over the prior year at our regional sales offices was primarily due to the successful second quarter fiscal 2014 launch of the re-created 7 habits signature program , which is our best-selling offering worldwide , and $ 0.5 million of adverse impact from foreign exchange rates on sales in canada . during fiscal 2015 , we did not launch an offering with such widespread acceptance . 30 at august 31 , 2015 , our corporate pipeline of booked days and awarded revenue remains strong , and our current outlook for growth in fiscal 2016 and future periods is encouraging for this channel . however , the actual delivery of booked days and recognition of awarded revenue may differ from our current expectations and may result in variations from expected growth in future periods . during fiscal 2015 , we recognized significant amounts from revenue from a large federal government services contract . however , due to administrative changes at the federal agency , the contract has not been open for renewal bids and may not be reopened during fiscal 2016. accordingly , our government services revenues may decline during fiscal 2016 when compared with the corresponding periods of fiscal 2015. international direct – our directly owned international offices are located in australia , japan , and the united kingdom . for fiscal 2015 , reported sales from our international direct offices were significantly impacted by the u.s. dollar strengthening against the functional currencies of these offices . the fluctuation in exchange rates produced a $ 3.7 million decrease in translated sales when compared with the prior year . excluding the unfavorable impact of foreign currency translation , sales grew in two of our three international direct offices when compared with the prior year . our office in the united kingdom maintained the momentum gained in fiscal 2014 and grew sales by 39 percent ( in functional currency ) , primarily due to a $ 1.0 million contract obtained during the first quarter combined with strong growth in new clients and contracts during the year . despite a slowing economy and weak first quarter performance , our office in japan increased its sales by one percent in functional currency compared with the same period of fiscal 2014. the weakening japanese yen created a $ 2.4 million unfavorable impact on translated sales from our japan office . sales decreased by $ 0.8 million at our office in australia , of which $ 0.6 million was due to the translation of australian dollars into u.s. dollars . the remaining decrease was primarily due to reduced demand during the first half of fiscal 2015. international licensees – in countries or foreign locations where we do not have a directly owned office , our training and consulting services are delivered through independent licensees , which may translate and adapt our curriculum to local preferences and customs , if necessary . despite the unfavorable effects of a strengthening u.s. dollar during fiscal 2015 , certain of our licensees had increased sales , which provided a slight increase in our international licensee sales when compared with the prior year . foreign exchange rates had a $ 1.0 million adverse impact on our international licensee royalty revenues during the fiscal year ended august 31 , 2015. while we are confident in our international licensee partners ' ability to grow in future periods , increased international volatility and a strengthening u.s. dollar may continue to have an adverse impact on our licensee revenues when compared with prior periods . national account practices – our national account practices offer and sell content solutions that are not typically offered in our u.s/canada direct geographic sales offices . these offerings include , in the education practice , the leader in me program designed for students primarily in k-6 elementary schools ; helping clients succeed from our sales performance practice ; and winning customer loyalty from our customer loyalty practice . during fiscal 2015 , two of our three national account practices had increased sales compared with the prior year .
| the primary purposes of the fourth modification agreement are to ( i ) increase the maximum principal amount of the line of credit from $ 10.0 million to $ 30.0 million ; ( ii ) extend the maturity date of the restated credit agreement from march 31 , 2016 to march 31 , 2018 ; ( iii ) reduce the applicable interest rate from libor plus 2.50 percent to libor plus 1.85 percent per annum ; ( iv ) reduce the unused commitment fee from 0.33 percent to 0.25 percent per annum ; and ( v ) increase the cap for permitted business acquisitions from $ 5.0 million to $ 10.0 million . the proceeds from the restated credit agreement may continue to be used for general corporate purposes . at august 31 , 2015 we had no obligations payable on our revolving line of credit . we may use our line of credit facility for general corporate purposes as well as for other transactions , unless specifically prohibited by the terms of the restated credit agreement . the restated credit agreement and subsequent modifications also contain customary representations and guarantees as well as provisions for repayment and liens . in addition to customary non-financial terms and conditions , our line of credit requires us to be in compliance with specified financial covenants , including ( i ) a funded debt to ebitdar ratio requirement of less than 3.00 to 1.00 ; ( ii ) a fixed charge coverage ratio requirement in excess of 1.5 to 1.0 ; ( iii ) an $ 8.0 million limitation on capital expenditures , excluding capitalized curriculum development ; and ( iv ) a new asset coverage ratio whereby we may not permit the outstanding balance of the line of credit to exceed 150 percent of our consolidated accounts receivable . at august 31 , 2015 , we believe that we were in compliance with the terms and financial covenants applicable to the restated credit agreement and its subsequent modifications . in addition to potential obligations from our restated credit facility , we have a long-term lease on our corporate campus that expires in 2025 and is accounted for as a long-term financing obligation . 38 the
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otherwise , we exclude the value of a milestone payment from contract consideration at inception and recognize revenue for a milestone at a later date , when we judge that it is more likely than not that the milestone will be achieved . if we conclude it is probable that a significant revenue reversal would not occur , the associated milestone is included in the transaction price . we then allocate the transaction price to each performance obligation on a relative stand-alone selling price basis , for which we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of such milestones and any related constraint , and if necessary , adjust our estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect license , collaboration and other revenues and earnings in the period of adjustment . royalties : for contracts that include sales-based royalties , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied . to date , we have not recognized any royalty revenues resulting from contracts . research and development cost reimbursements : our astellas and amgen agreements include promises of research and development services . we have determined that these services collectively are distinct from the licenses provided to astellas and amgen and as such , these promises are accounted for as a separate performance obligation to be recognized over time . we recognize revenue for these services as the performance obligations are satisfied , which we estimate using internal development costs incurred . accrued research and development expenditures a substantial portion of our preclinical studies and all of our clinical trials have been performed by third-party cros and other vendors and our accruals for expenses for preclinical studies and clinical trials may be significant . for preclinical studies , the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved . for clinical trial expenses , the significant factors used in estimating accruals include the number of patients enrolled , duration of enrollment , milestones achieved and percentage of work completed to date . we monitor patient enrollment levels and related activities to the extent practicable through internal reviews , correspondence and status meetings with cros , and review of contractual terms . we depend on the timeliness and accuracy of data provided by our cros and other vendors to accrue expenses . if we receive and rely on incomplete or inaccurate data , accruals and expenses may be too high or too low at a given point in time and corresponding adjustments to accruals and expenses would be made in future periods when the actual expense becomes known . liability related to sale of future royalties to rpi we treat our liability to rpi related to sale of future royalties under the rpi royalty purchase agreement as a debt financing , to be amortized under the effective interest rate method over the life of the related royalty stream . 67 our liability to rpi related to sale of future royalties under the rpi royalty purchase agreement ( the “ rpi liability ” ) and related amortization are based on our current estimates of future royalties expected to be paid over the life of the arrangement . concurrently with our entry into the rpi royalty purchase agreement , we entered into a common stock purchase agreement with rpi . we allocated the consideration and issuance costs on a relative fair value basis to the rpi liability and the common stock . the rpi royalty purchase agreement further provides that in the event amgen elects to terminate the amgen agreement , we are obliged to enter into an agreement with rpi to preserve rpi 's rights under the rpi royalty purchase agreement , which includes the payment by cytokinetics of 4.5 % of its worldwide net sales of omecamtiv mecarbil and other compounds with the same mechanism of action as omecamtiv mecarbil that are subject to the amgen agreement ( together the “ amgen alliance compounds ” ) , subject to a potential increase of up to an additional 1 % under certain circumstances ( delay in us marketing approval ) . our obligation to enter into a new agreement with rpi does not impact our accounting treatment of the rpi liability or our estimates . the rpi liability will be recognized using significant unobservable inputs . these inputs are derived using internal management estimates developed based on third party data and reflect management 's judgements , current market conditions surrounding competing products , and forecasts . the significant unobservable inputs include the estimated patient population , estimated selling price , estimated peak sales and sales ramp , the expected term of the royalty stream , timing of the expected launch and its impact on the royalty rate . a significant change in unobservable inputs could result in a material increase or decrease to the effective interest rate of the rpi liability . we will periodically assess the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources . to the extent our future estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates , we will adjust the amortization of the rpi liability related to sale of future royalties and prospectively recognize the related non-cash interest expense . we have updated the analysis to include the data released on october 8 , 2020 relating to galactic-hf . o ur estimates regarding the amount and timing of future royalty payments have not changed as a result of amgen 's election to terminate the amgen agreement or servier 's election to terminate the servier agreement . story_separator_special_tag story_separator_special_tag additional 1 % under certain circumstances ( delay in us marketing approval ) . our obligation to enter into a new agreement with rpi does not impact our accounting treatment of the rpi liability or our estimates . interest and other income , net interest and other income , net for 2020 , 2019 and 2018 consisted primarily of interest income generated from our cash , cash equivalents and investments . 70 we divested an equity investment in fiscal 2020 ( classified as a level 1 investment in our short-term investments ) with a fair value of $ 3.0 million for the year ended december 31 , 2020 , which resulted in an increase in interest income of $ 2.6 million in 2020. in 2019 , this equity investment resulted in a $ 0.3 million increase in interest income . liquidity and capital resources our cash , cash equivalents and investments and a summary of our borrowings and working capital is summarized as follows : replace_table_token_6_th the following table shows a summary of our cash flows for the periods set forth below : replace_table_token_7_th sources and uses of cash in 2020 we have funded our operations and capital expenditures with proceeds primarily from private and public sales of our equity securities , a royalty monetization agreement , strategic alliances , long-term debt , other financings and interest on investments . we have generated significant operating losses since our inception . our expenditures are primarily related to research and development activities . net cash provided by operating activities was $ 8.9 million for 2020 which include a net loss of $ 127.3 million largely due to ongoing research and development activities , and general and administrative expenses to support those activities . net loss for 2020 included , among other items : non-cash stock-based compensation , non-cash interest expense related to sale of future royalties and non-cash interest expense related to debt . the net loss was offset by $ 87.0 million in deferred revenues with respect to an agreement to sell to rtw royalty holdings our interest in certain future royalties on net sales of products containing the compound mavacamten that is being developed by bristol-myers squibb company . these funds were collected in 2020 . net cash used in investing activities was $ 196.5 million in 2020 and was primarily due to purchases of investments offset by proceeds from maturity of investments . cash purchases of property plant and equipment was also included for $ 11.1 million which will be primarily be utilized in our new building . net cash provided by financing activities was $ 234.1 million in 2020 and was primarily due to $ 188.9 million proceeds related to issuance of common stock in an underwritten public offering , proceeds from rtw private placement , stock based activities , and claims settlement with certain institutional investors that were beneficial owners of our common stock related to the disgorgement of short swing profits pursuant to section 16 ( b ) of the exchange act . 71 public offering of common stock in july 2020 , we closed an underwritten public offering of 8.4 million shares of our common stock at a public offering price per share of $ 24.00 , which included the exercise in full by the underwriters of their option to purchase up to 1,093,750 shares of our common stock at the same price . the gross proceeds were $ 201.3 million and net proceeds were approximately $ 188.9 million , after deducting underwriting discounts , commissions and offering costs . rtw transactions o n july 14 , 2020 , we entered into the rtw transactions with rtw royalty holdings and ji xing . the rtw transactions include entering into a licensing and collaboration agreement with ji xing , the sale of cytokinetics common stock to the rtw investors ( as defined below ) , an agreement to sell to rtw royalty holdings our interest in certain future royalties on net sales of products containing the compound mavacamten that is being developed by bristol-myers squibb company ( formerly by myokardia , inc. ) and the ability for the company to obtain additional funding in the future from rtw royalty holdings , upon the achievement of certain clinical trial milestones , in exchange for future royalty payments as further discussed below . as a result , we have or expect to receive a combination of committed capital , funding and sale proceeds from the rtw investors , rtw royalty holdings and ji xing . on july 14 , 2020 , we entered into common stock purchase agreements ( each , a “ cspa ” ) with each of rtw master fund , ltd. , rtw innovation master fund , ltd. and rtw venture fund limited ( collectively , the “ rtw investors ” ) . the cspas provide for the sale and issuance of an aggregate of 2.0 million shares of common stock of cytokinetics ( the “ shares ” ) at a price per share of $ 25.00 and an aggregate purchase price of $ 50.0 million . the closing occurred on july 14 , 2020. the rtw investors have agreed to certain trading and other restrictions with respect to the shares , including a restriction on sales or other transfers of the shares , subject to certain exceptions , for a period of two years from the closing date , which period will be extended if certain conditions are met . as of december 31 , 2020 , we have received $ 25.0 million related to the licensing and collaboration agreement with ji xing , $ 50.0 million associated with the sale of cytokinetics common stock to the rtw investors and $ 85.0 million associated with the agreement to sell rtw royalty holdings our interest in certain future royalties on net sales of products containing the compound mavacamten that is being developed by bristol-myers squibb company ( formerly by myokardia inc ) . funding agreement we entered into a funding agreement ( the “ funding agreement ” ) with rtw royalty holdings .
| research and development expenses we incur research and development expenses associated with both partnered and our own research activities . research and development expenses related to any development we elect to fund consist primarily of employee compensation , supplies and materials , costs for consultants and contract research and manufacturing , facilities costs and depreciation of equipment . research and development expenses increased to $ 97.0 million in 2020 from $ 86.1 million in 2019 primarily due to higher expenses for meteoric-hf , for our cardiac myosin inhibitor program , and for reldesemtiv related to courage-als offset by decreased spending for the phase 2 clinical trial of reldesemtiv ( fortitude-als ) which was completed in 2019. research and development expenses by program for 2020 , 2019 and 2018 were : replace_table_token_3_th we may continue to develop reldesemtiv to treat als and sma . under the astellas fsra agreement , astellas has agreed to pay one-third of the out-of-pocket clinical development costs which may be incurred in connection with cytokinetics ' potential phase 3 clinical trial of reldesemtiv in als up to a maximum contribution by astellas of $ 12 million . on december 14 , 2020 , we announced the design of courage-als ( c linical o utcomes u sing r eldesemtiv on a lsfrs-r in a g lobal e valuation in als ) , the planned phase 3 clinical trial of reldesemtiv in patients with als . in addition , astellas agreed to non-cash contributions to cytokinetics , which include the transfer of its existing inventories of active pharmaceutical ingredient of reldesemtiv and ck-601 . astellas has also agreed to the continued conduct of ongoing stability studies pertaining to such existing inventories of active pharmaceutical ingredient , at its cost . under our strategic alliance with amgen , amgen is responsible for the development of omecamtiv mecarbil until the effective termination of the amgen agreement ( expected may 20 , 2021 ) . following the effective termination
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on february 3 , 2011 , we completed a refinancing transaction , which included amendments to our then effective senior secured credit agreement , governing our senior secured loan facilities and the repayment of all indebtedness outstanding under our mezzanine credit facility . in conjunction with the refinancing transaction , we repaid with $ 268.9 million of cash on hand the remaining $ 222.1 million of outstanding debt under the mezzanine credit facility and $ 21.5 million under the then effective senior secured loan facilities . as a result of the aforementioned transactions , we expect a reduction in annual interest expense of approximately $ 38.0 million after taxes in fiscal 2012 , assuming no change in the interest rates at which we pay interest on indebtedness under our senior secured loan facilities . see indebtedness. non-gaap measures we disclose certain non-gaap financial measurements , including adjusted operating income , adjusted ebitda , adjusted net income , and adjusted diluted eps because management uses these measures for business planning purposes , including to manage our business against internal projected results of operations and measure our performance . we view adjusted operating income , adjusted ebitda , adjusted net income , and adjusted diluted eps as measures of our core operating business , which exclude the impact of the items detailed below , as these items are generally not operational in nature . these non-gaap measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items . we also utilize and discuss free cash flow , because management uses this measure for business planning purposes , measuring the cash generating ability of the operating business , and measuring liquidity generally . we present these supplemental measures because we believe that these measures provide investors with important supplemental information with which to evaluate our performance , long term earnings potential , or liquidity , as applicable , and to enable them to assess our performance on the same basis as management . these supplemental performance measurements may vary from and may not be comparable to similarly titled measures by other companies in our industry . adjusted operating income , adjusted ebitda , adjusted net income , adjusted diluted eps , and free cash flow are 51 not recognized measurements under gaap and when analyzing our performance or liquidity , as applicable , investors should ( i ) evaluate each adjustment in our reconciliation of operating and net income to adjusted operating income , adjusted ebitda and adjusted net income , and cash flows to free cash flows , and the explanatory footnotes regarding those adjustments , and ( ii ) use adjusted operating income , adjusted ebitda , adjusted net income , and adjusted diluted eps in addition to , and not as an alternative to operating income , net income or diluted earnings per share , or eps , as a measure of operating results , with cash flows in addition to , and not as an alternative to , net cash generated from operating activities as a measure of liquidity , each as defined under gaap . we have defined the aforementioned non-gaap measures as follows : adjusted operating income represents operating income before ( i ) certain stock option-based and other equity-based compensation expenses , ( ii ) the impact of the application of purchase accounting , ( iii ) adjustments related to the amortization of intangible assets , and ( iv ) any extraordinary , unusual , or non-recurring items . we prepare adjusted operating income to eliminate the impact of items we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . adjusted ebitda represents net income before income taxes , net interest and other expense , and depreciation and amortization and before certain other items , including : ( i ) certain stock option-based and other equity-based compensation expenses , ( ii ) transaction costs , fees , losses , and expenses , including fees associated with debt prepayments , ( iii ) the impact of the application of purchase accounting , and ( iv ) any extraordinary , unusual , or non-recurring items . we prepare adjusted ebitda to eliminate the impact of items we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . adjusted net income represents net income before : ( i ) certain stock option-based and other equity-based compensation expenses , ( ii ) transaction costs , fees , losses , and expenses , including fees associated with debt prepayments , ( iii ) the impact of the application of purchase accounting , ( iv ) adjustments related to the amortization of intangible assets , ( v ) amortization or write-off of debt issuance costs and write-off of original issue discount , and ( vi ) any extraordinary , unusual , or non-recurring items , in each case net of the tax effect calculated using an assumed effective tax rate . we prepare adjusted net income to eliminate the impact of items , net of tax , we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . adjusted diluted eps represents diluted eps calculated using adjusted net income as opposed to net income . free cash flow represents the net cash generated from operating activities less the impact of purchases of property and equipment . 52 below is a reconciliation of adjusted operating income , adjusted ebitda , adjusted net income , adjusted diluted eps , and free cash flow to the most directly comparable financial measure calculated and presented in accordance with gaap . story_separator_special_tag replace_table_token_12_th 53 ( a ) reflects stock-based compensation expense for options for class a common stock and restricted shares , in each case , issued in connection with the acquisition under the officers ' rollover stock plan that was established in connection with the acquisition . also reflects stock-based compensation expense for equity incentive plan class a common stock options issued in connection with the acquisition under the equity incentive plan that was established in the connection with the acquisition . ( b ) reflects adjustments resulting from the application of purchase accounting in connection with the acquisition not otherwise included in depreciation and amortization . ( c ) reflects amortization of intangible assets resulting from the acquisition . ( d ) fiscal 2011 reflects debt refinancing costs incurred in connection with the refinancing transaction and certain external administrative and other expenses incurred in connection with the initial public offering . fiscal 2010 reflects costs related to the modification of our credit facilities , the establishment of the tranche c term loan facility under our senior secured credit facilities and the related payment of special dividends . pro forma 2009 reflects charges related to the acquisition , including legal , tax , and accounting expenses . ( e ) fiscal 2011 reflects debt refinancing costs and prepayment fees incurred in connection with the refinancing transaction , as well as certain external administrative and other expenses incurred in connection with the initial public offering . fiscal 2010 reflects costs related to the modification of our credit facilities , the establishment of the tranche c term loan facility under our senior secured credit facilities , and the related payment of special dividends . ( f ) reflects the release of uncertain tax reserves , net of tax . ( g ) reflects tax adjustments at an assumed marginal tax rate of 40 % . ( h ) see item 7. management 's discussion and analysis of financial condition and results of operations results of operations for additional disclosure regarding unaudited pro forma consolidated results of operations for fiscal 2009. factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under results of operations. business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : budgeting constraints increasing pressure on the u.s. government to control spending while pursuing numerous important policy initiatives , which may result in a slowdown in the growth rate of u.s. government spending in certain areas ; changes in the level and mix of u.s. government spending , such as the u.s. government 's increased spending in recent years on homeland security , cyber , advanced technology analytics , intelligence and defense-related programs and healthcare ; cost cutting and efficiency initiatives and other efforts to streamline the u.s. defense and intelligence infrastructure , including the initiatives proposed by the secretary of defense ; delays in the completion of the u.s. government 's budget process , which could delay procurement of the products , services , and solutions we provide ; conservatism in light of existing and proposed fiscal constraints by the u.s. government may cause clients to invest appropriated funds on a less consistent or rapid basis , or not at all ; increased insourcing by the u.s. government of work that was traditionally performed by outside contractors , including at the department of defense ; 54 specific efficiency initiatives by the u.s. government such as efforts to rebalance the u.s. defense forces in accordance with the 2010 quadrennial defense review , as well as general efforts to improve procurement practices and efficiencies , such as the actions recently announced by the office of management and budget regarding it procurement practices ; u.s. government agencies awarding contracts on a technically acceptable/lowest cost basis , which could have a negative impact on our ability to win certain contracts ; restrictions by the u.s. government on the ability of federal agencies to use lead system integrators , in response to cost , schedule and performance problems with large defense acquisition programs where contractors were performing the lead system integrator role ; increasingly complex requirements of the department of defense and the u.s. intelligence community , including cyber-security , and focus on reforming existing government regulation of various sectors of the economy , such as financial regulation and healthcare ; increased competition from other government contractors and market entrants seeking to take advantage of the trends identified above ; and efforts by the u.s. government to address organizational conflicts of interest and related issues and the impact of those efforts on us and our competitors . sources of revenue substantially all of our revenue is derived from services provided under contracts and task orders with the u.s. government , primarily by our consulting staff and , to a lesser extent , our subcontractors . funding for our contracts and task orders is generally linked to trends in budgets and spending across various u.s. government agencies and departments . we provide services under a large portfolio of contracts and contract vehicles to a broad client base , and we believe that our diversified contract and client base lessens potential volatility in our business . we have historically grown , and continued through fiscal 2011 to grow , our revenue organically without relying on acquisitions . contract types we generate revenue under the following three basic types of contracts : cost-reimbursable contracts . cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract , up to a ceiling based on the amount that has been funded , plus a fee . we generate revenue under two general types of cost-reimbursable contracts : cost-plus-fixed-fee and cost-plus-award-fee , both of which reimburse allowable costs and include a fixed contract fee .
| ( b ) consists of the following adjustments : increase to rent expense of $ 1.8 million due to the elimination of the july 31 , 2008 deferred rent liability in accordance with the accounting treatment of leases associated with the acquisition accounted for as a business combination ; increase to management fees paid to carlyle of $ 333,000 ( see note 18 to our consolidated financial statements for additional information regarding the management fees ) ; additional stock-based compensation expense of $ 13.4 million associated with options issued in exchange for stock rights under the stock rights plan that existed prior to the closing of the acquisition ( see note 17 to our consolidated financial statements for additional information on our stock-based compensation ) ; reversal of $ 511.7 million for a one-time acceleration of stock rights and the fair value mark-up of redeemable common shares immediately prior to the acquisition ; and reversal of certain related transaction costs of $ 12.2 million . ( c ) reflects $ 14.7 million of intangible assets amortization and depreciation of the fair value write-up on fixed assets recorded with the acquisition . ( d ) consists of the following adjustments : reversal of interest expense of $ 1.0 million recorded during the four months ended july 31 , 2008 related to the predecessor 's previous debt outstanding prior to the acquisition ; and incurrence of additional interest expense of $ 48.7 million associated with our new senior secured loan facilities and mezzanine credit facility established in conjunction with the acquisition . ( e ) reflects tax effect of the cumulative pro forma adjustments . 65 fiscal 2011 compared to fiscal 2010 revenue revenue increased to $ 5,591.3 million from $ 5,122.6 million , or a 9.1 % increase . the increase in revenue was primarily driven by the deployment during fiscal 2011 of approximately 1,500 net additional consulting staff against funded backlog . consulting staff increased during the period due to recruiting efforts , resulting in additions to consulting staff in excess of attrition . additions
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rental and reimbursement revenue increased $ 2,347,286 , or 5 % , for the year ended september 30 , 2012 as compared to the year ended september 30 , 2011. total expenses ( excluding other income and expense ) increased $ 2,055,560 , or 8 % , for the year ended september 30 , 2012 as compared to the year ended september 30 , 2011. the increases were due mainly to the revenue and expenses relating to the property acquisitions made during fiscal 2012 and an increase in general and administrative expenses of $ 764,275 , which is mainly due to an increase in compensation expense of approximately $ 533,000. during the first quarter of fiscal 2013 , the company purchased one industrial property totaling approximately 172,000 square feet for approximately $ 14,350,000 located in livonia , michigan . the company has entered into agreements to purchase eight new build-to-suit , industrial buildings that are currently being developed in kentucky , minnesota , mississippi , pennsylvania , texas , virginia and wisconsin totaling approximately 1,832,000 square feet . the purchase price for the eight properties is approximately $ 109,000,000. subject to satisfactory due diligence , the company anticipates closing these eight transactions during fiscal 2013 and fiscal 2014. the company intends to continue to increase its real estate investments in fiscal 2013 through acquisitions or expansions of properties . the growth of the real estate portfolio depends on the availability of suitable properties which meet the company 's investment criteria and appropriate financing . competition in the market areas in which the company operates is significant and affects acquisitions , occupancy levels , rental rates and operating expenses of certain properties . revenues also include interest and dividend income and net gain on securities transactions . the company holds a portfolio of securities of other reits with a fair value of $ 61,685,173 as of september 30 , 2012. the company invests in reit securities on margin from time to time when the company can achieve an adequate yield spread . the reit securities portfolio provides the company with liquidity and additional income and serves as a proxy for real estate when suitable acquisitions are not available . as of september 30 , 2012 , the company 's portfolio consisted primarily of 39 % reit preferred stocks and 61 % reit common stocks . the company 's weighted-average yield on the securities portfolio for 2012 was approximately 7.1 % . interest and dividend income increased to $ 3,358,674 for fiscal 2012 as compared to $ 3,100,327 in fiscal 2011. in fiscal 2012 , the average balance and yield increased . during fiscal 2012 , the company recognized $ 6,044,065 in gains on securities transactions . the market for reit securities has increased during fiscal 2012 and the company has unrealized gains of $ 5,383,937 in its reit securities portfolio as of september 30 , 2012. the dividends received from our securities investments continue to meet our expectations . it is our intent to hold these securities long-term . the company had $ 24,650,858 in cash and cash equivalents and $ 61,685,173 in reit securities as of september 30 , 2012. the company believes that funds generated from operations , the dividend reinvestment and stock purchase plan ( the drip ) , the issuance of cumulative redeemable preferred stock and the line of credit ( line of credit ) , together with the ability to finance and refinance its properties , will provide sufficient funds to adequately meet its obligations over the next several years . 29 on december 5 , 2011 , the company issued 2,000,000 shares of common stock in a registered direct placement at a price of $ 8.39 per share . the company received net proceeds from the common stock offering of approximately $ 16,200,000. the company used such net proceeds to purchase additional properties in the ordinary course of business and for general corporate purposes , including the repayment of indebtedness . on june 7 , 2012 and june 21 , 2012 , the company issued 2,000,000 and 300,000 shares , respectively , of 7.875 % series b cumulative redeemable preferred stock ( series b preferred stock ) at an offering price of $ 25.00 per share in an underwritten public offering . the company received net proceeds from the offering , after deducting the underwriting discount and other estimated offering expenses , of approximately $ 55,033,000 and intends to use the net proceeds from the offering to purchase properties in the ordinary course of business and for general corporate purposes , including the repayment of indebtedness . see part i , item 1 business and item 1a risk factors for a more complete discussion of the economic and industry-wide factors relevant to the company and the opportunities and challenges , and risks on which the company is focused . significant accounting policies and estimates the discussion and analysis of the company 's financial condition and results of operation are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of the company 's consolidated financial statements . actual results may differ from these estimates under different assumptions or conditions . significant accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions . management believes the following significant accounting policies are affected by our more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . for a detailed description of these and other accounting policies , see note no . story_separator_special_tag 1 in the notes to the company 's consolidated financial statements included in this form 10-k. real estate investments the company applies financial accounting standards board accounting standards codification ( asc ) 360-10 , property , plant & equipment ( asc 360-10 ) to measure impairment in real estate investments . rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows ( on an undiscounted basis without interest ) from a rental property is less than its historical net cost basis . these expected future cash flows consider factors such as future operating income , trends and prospects as well as the effects of leasing demand , competition and other factors . upon determination that a permanent impairment has occurred , rental properties are reduced to their fair value . for properties to be disposed of , an impairment loss is recognized when the fair value of the property , less the estimated cost to sell , is less than the carrying amount of the property measured at the time there is a commitment to sell the property and or it is actively being marketed for sale . a property to be disposed of is reported at the lower of its carrying amount or its estimated fair value , less its cost to sell . subsequent to the date that a property is held for disposition , depreciation expense is not recorded . upon acquisition of a property , the company allocates the purchase price of the property based upon the fair value of the assets acquired , which generally consist of land , buildings and intangible assets , including in-place leases and above and below market leases . the company allocates the purchase price to the fair value of the tangible assets of an acquired property determined by third party appraisal of the property obtained in conjunction with the purchase . acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates over the remaining lease term . 30 the purchase price is further allocated to in-place lease values based on management 's evaluation of the specific characteristics of each tenant 's lease . acquired above and below market leases are amortized over the remaining non-cancelable terms of the respective leases . the value of in-place lease intangibles is amortized to expense over the remaining lease term . if a tenant terminates its lease early , the unamortized portion of the tenant improvements , leasing commissions above and below market leases and the in-place lease value is charged to expense when there is a signed termination agreement , all of the conditions of the termination agreement are met , the tenant is no longer occupying the property and the termination consideration , if any , is probable of collection . the company conducted a comprehensive review of all real estate asset classes in accordance with asc topic 360 , which indicates that asset values should be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable . the following are examples of such events or changes in circumstances that would indicate to management tha t there may be an impairment of a property : § a non-renewal of a lease and subsequent move out by the tenant ; § a renewal of a lease at a significantly lower rent than a previous lease ; § a significant decrease in the market value of a property ; § a significant adverse change in the extent or manner in which a property is being used or in its physical condition ; § a significant adverse change in legal factors or in the business climate that could affect the value of a property , including an adverse action or assessment by a regulator ; § an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a property ; § a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a property ; or § a current expectation that , more likely than not , a property will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . the process entails the analysis of property for instances where the net book value exceeds the estimated fair value . in accordance with asc topic 360 , an impairment loss shall be recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value . the company utilizes the experience and knowledge of its internal valuation team to derive certain assumptions used to determine an operating property 's cash flow . such assumptions include re-leasing and renewal probabilities upon future lease expirations , vacancy factors , rental growth rates , and capital expenditures . as part of our review of our property portfolio , we have evaluated our properties in monaca , pa , greensboro , nc and st. joseph , mo which had occupancy rate s of 69 % , 62 % and 66 % , respectively , as of september 30 , 2012 , and noted that the sum of the discounted cash flows exceeded its historical net cost basis . we have also evaluated the two vacant properties in our portfolio and any properties which we believe may not renew their leases and noted that the sum of the discounted cash flows expected for potential leases of these properties exceeded their historical net cost basis . management considers on a quarterly basis whether the marketing rent ( advertised ) or the market rent has decreased or if any additional indicators are present which would indicate a significant decrease in net cash flows .
| to date , the company has extended the following 8 leases which were scheduled to expire in fiscal 2013 : replace_table_token_15_th the company has been informed that one lease for 59,425 square feet or 7 % of the space coming up for renewal in fiscal 2013 will not be renewed . this property is in white bear lake , mn leased to fdx . we continue to be in discussions with our tenants regarding the remaining two leases representing 283,098 square feet or 32 % of the space scheduled for renewal in fiscal 2013. acquisitions during fiscal 2012 on october 11 , 2011 , the company purchased a 368,060 square foot industrial building located in streetsboro , ohio . the building is 100 % net leased to best buy warehousing logistics , inc. through january 31 , 2022. the purchase price was $ 19,600,000. the company obtained a mortgage of $ 12,740,000 at a fixed interest rate of 5.5 % for 10 years and paid the remaining amount with a draw on its unsecured line of credit . this mortgage matures on november 1 , 2021. annual rental income over the remaining term of the lease is approximately $ 1,582,000. on october 18 , 2011 , the company purchased a 46,253 square foot industrial building located in corpus christi , texas . the building is 100 % net leased to fedex ground package system , inc. through august 31 , 2021 and is subject to a ground lease with the city of corpus christi . the purchase price was $ 4,992,000. the company obtained a mortgage of $ 3,150,000 and paid the remaining amount with a draw on its line of credit . the mortgage has a fixed interest rate of 5.85 % for the first 5 years , and on december 1 , 2016 , the interest rate will reset to the federal home loan bank of new york rate plus 275 basis points with a floor of 5.5 % . this mortgage matures on november 1 , 2021. annual rental income over the remaining term of the lease ( including the ground rent ) is approximately $ 450,000. the company recorded an intangible
| 11,891 |
the life expectancy estimate represents a range of probabilities for the insured 's mortality against a group of cohorts with the same age , sex and smoking status . these mortality probabilities represent a mathematical curve known as a mortality curve , which is then used to generate a series of expected cash flows from the life insurance policy over the expected lifespan of the insured . a discount rate is used to calculate the net present value of the expected cash flows . the discount rate represents the internal rate of return we expect to earn on investments in a policy or in the portfolio as a whole at the stated fair value . the discount rate used to calculate fair value of our portfolio incorporates the guidance provided by asc 820 , fair value measurements and disclosures . many of our current underwriting reveiw processes , including our policy of obtaining actuarial medical reviews from independent medical underwriters as described above , are undertaken in satisfaction of obligations under our revolving credit facility . as a result , we may in the future modify our underwriting review processes if permitted under our borrowing arrangements . the table below provides the discount rate used to estimate the fair value of our portfolio of life insurance policies for the period ending : december 31 , 2013 december 31 , 2012 11.69 % 12.08 % the change in the discount rate incorporates current information about discount rates applied by other reporting companies owning portfolios of life insurance policies , discount rates observed in the life insurance secondary market , market interest rates , the credit exposure to the issuing insurance companies and our estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio of life insurance policies . because we use the discount rate to arrive at the fair value of our portfolio , the rate we choose necessarily assumes an orderly and arms-length transaction ( i.e. , a non-distressed transaction in which neither seller nor buyer is compelled to engage in the transaction ) . we engaged a third party , model actuarial pricing systems ( maps ) , to prepare a third-party valuation of our life settlement portfolio . maps owns and maintains the portfolio pricing software we use . maps processed policy data , future premium data , life expectancy estimate data , and other actuarial information we supply to calculate a net present value for our portfolio using the specified discount rate of 11.69 % . maps independently calculated the net present value of our portfolio of 263 policies to be $ 234,672,794 , which is the same fair value estimate we used on the balance sheet as of december 31 , 2013 , and furnished us with a letter documenting its calculation . a copy of such letter is filed as exhibit 99.1 to this report . jobs act on april 5 , 2012 , the jumpstart our business startups act of 2012 , or jobs act , was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 for complying with new or revised accounting standards . this means that an “ emerging growth company ” can make an election to delay the adoption of certain accounting standards until those standards would apply to private companies . we have elected to delay such adoption of new or revised accounting standards and , as a result , we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not “ emerging growth companies. ” this exemption will apply for a period of five years following our first sale of common equity securities under an effective registration statement or until we no longer qualify as an “ emerging growth company ” as defined under the jobs act , whichever is earlier . page 36 deferred income taxes fasb asc 740 , income taxes , requires us to recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . a valuation allowance is established for any portion of deferred tax assets that is not considered more likely than not to be realized . we have provided a valuation allowance against the deferred tax asset related to a note receivable because we believe that , when realized for tax purposes , it will result in a capital loss that will not be utilized because we have no expectation of generating a capital gain within the applicable carryforward period . therefore , we do not believe that it is more likely than not that the deferred tax asset will be realized . we have also provided a valuation allowance against the deferred tax asset related to a tax basis capital loss generated with respect to its settlement and subsequent disposal of our investment in athena structured funds plc ( see “ notes to consolidated financial statements ” note 10 ) . as we have no expectation of generating capital gains within the applicable carry-forward period , we do not believe that it is more likely than not that the deferred asset will be realized . a valuation allowance is required to be recognized to reduce deferred tax assets to an amount that is more likely than not to be realized . realization of deferred tax assets depends upon having sufficient past or future taxable income in periods to which the deductible temporary differences are expected to be recovered or within any applicable carryback or carryforward periods . we believe that it is more likely than not that we will be able to realize all of our deferred tax assets other than that which is expected to result in a capital loss . story_separator_special_tag deferred financing and issuance costs financing costs incurred to obtain financing under the revolving credit facility have been capitalized and are amortized using the straight-line method over the term of the revolving credit facility . the series i secured note obligations are reported net of issuance costs , sales commissions and other direct expenses , which are amortized using the interest method over the term of each respective borrowing . the renewable secured debentures are reported net of issuance costs , sales commissions and other direct expenses , which are amortized using the interest method over the term of each respective borrowing . the series a preferred stock is reported net of issuance costs , sales commissions , including the fair value of warrants issued , and other direct expenses , which are amortized using the interest method as interest expense over the three-year redemption period . risk relating to forward-looking statements certain matters discussed in this section of this report , and elsewhere in this report , are forward-looking statements . we have based these forward-looking statements on our current expectations and projections about future events . nevertheless , these forward-looking statements are subject to risks , uncertainties and assumptions about our operations and the investments we make , including , among other things , factors discussed in the “ risk factors ” section of this report and the following : ● changes in the secondary market for life insurance ; ● our limited operating history ; ● the valuation of assets reflected on our financial statements ; page 37 ● the reliability of assumptions underlying our actuarial models ; ● our reliance on debt financing ; ● risks relating to the validity and enforceability of the life insurance policies we purchase ; ● our reliance on information provided and obtained by third parties ; ● federal , state and finra regulatory matters , including the effect and outcome of current regulatory investigations ; ● additional expenses , not reflected in our operating history , related to being a public reporting company ; ● competition in the secondary life insurance market ; ● the relative illiquidity of life insurance policies ; ● life insurance company credit exposure ; ● economic outlook ; ● performance of our investments in life insurance policies ; ● financing requirements ; ● litigation risks ; and ● restrictive covenants contained in borrowing agreements . forward-looking statements can generally be identified by the use of words like “ believes , ” “ could , ” “ possibly , ” “ probably , ” “ anticipates , ” “ estimates , ” “ projects , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ seek , ” “ intend , ” “ plan , ” “ expect ” or “ consider , ” or the negative of these expressions or other variations , or by discussions of strategy that involve risks and uncertainties . all forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual transactions , results , performance or achievements to be materially different from any future transactions , results , performance or achievements expressed or implied by such forward-looking statements . we caution you that the forward-looking statements in this report are only estimates and predictions , or statements of current intent . actual results or outcomes , or actions that we ultimately undertake , could differ materially from those anticipated in the forward-looking statements due to risks , uncertainties or actual events differing from the assumptions underlying these statements . principal revenue and expense items we earn revenues from three primary sources as described below . ● policy benefits realized . we recognize the difference between the death benefits and carrying values of the policy when an insured event has occurred and we determine that settlement and ultimate collection of the death benefits is realizable and reasonably assured . revenue from a transaction must meet both criteria in order to be recognized . we generally collect the face value of the life insurance policy from the insurance company within 45 days of the insured 's mortality . ● change in fair value of life insurance policies . we have elected to carry our investments in life insurance policies at fair value in accordance with asc 325-30 , investments in life insurance contracts . accordingly , we value our investments in our portfolio of life insurance policies each reporting period in accordance with the fair value principles discussed herein , which includes the expected payment of premiums for future periods . ● sale of a life insurance policy or a portfolio of life insurance policies . in an event of a sale of a policy , we recognize gain or loss as the difference between the sale price and the carrying value of the policy on the date of the receipt of payment on such sale . page 38 our main components of expense are summarized below . ● selling , general and administrative expenses . we recognize and record expenses incurred in the operations of the purchasing and servicing of life insurance policies . these expenses include professional fees , salaries , and sales and marketing expenditures . ● interest expense . we recognize and record interest expenses associated with the costs of financing our life insurance portfolio for the current period . these expenses include interest paid to our senior lender under our revolving credit facility , as well as all interest paid on our debentures and other outstanding indebtedness such as our subsidiary secured notes and dividends on convertible , redeemable preferred stock . when we issue long-term indebtedness , we amortize the issuance costs associated with such indebtedness over the outstanding term of the financing , and classify it as interest expense . results of operations — 2013 compared to 2012 the following is our analysis of the results of operations for the periods indicated below . this analysis should be read in conjunction with our consolidated financial statements and related notes .
| to our revolving credit facility with autobahn/dz bank . the renewable secured debentures and series i secured notes are pari passu with respect to shared collateral pursuant to an inter-creditor agreement . the following forward-looking table seeks to illustrate the impact of the sale of our portfolio of life insurance assets at various discount rates in order to satisfy our debt obligations as of december 31 , 2013. in all cases , the sale of the life insurance assets owned by dlp ii will be used first to satisfy all amounts owing under the revolving credit facility with autobahn/ dz bank . the net sale proceeds remaining after satisfying all obligations under the revolving credit facility would be applied to renewable secured debentures and series i secured notes on a pari passu basis . replace_table_token_18_th the table illustrates that our ability to fully satisfy amounts owing under the renewable secured debentures and series i secured notes would likely be impaired upon the sale of all our life insurance assets at a price equivalent to a discount rate of approximately 14.41 % or higher . the discount rates used to calculate the fair value of our portfolio for mark-to-market accounting were 11.69 % as of december 31 , 2013 , and 12.08 % as of december 31 , 2012. the table does not include any allowance for transactional fees and expenses associated with a portfolio sale ( which expenses and fees could be substantial ) , and is provided to demonstrate how various discount rates used to value our portfolio could affect our ability to satisfy amounts owing under our debt obligations , in light of our senior secured lender 's right to priority payments . you should read the above table in conjunction with the information contained in other sections of this report , including our discussion of discount rates included under the “ —critical accounting policies – valuation of insurance policies ” caption above .
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in evaluating these statements , you should consider various factors , including the risks , uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the sec and , including , without limitation , this annual report on form 10-k filing for the fiscal year ended july 31 , 2019 , including the consolidated financial statements and related notes contained herein . these factors , or any one of them , may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document . refer to “ forward-looking statements ” and item 1a . risk factors . introduction the following discussion summarizes the results of operations for each of our fiscal years ended july 31 , 2019 and 2018 and our financial condition as at july 31 , 2019 and 2018 , with a particular emphasis on fiscal 2019 , our most recently completed fiscal year . story_separator_special_tag style= '' margin : 0px '' > financings 1 ) on november 2 , 2018 , the company closed a non-brokered private placement of 16,000,000 units at a price of $ 0.30 ( cad $ 0.40 ) per unit for aggregate gross proceeds of $ 4,883,840 ( cad $ 6,400,000 ) . each unit consists of one common share and one share purchase warrant . each warrant entitles the holder to purchase one additional common share of the company at a price of cad $ 0.50 per warrant for a period of two years . the company paid cash of $ 152,720 and issued 322,581 common shares valued at $ 221,691 as a financial advisory fee in relation to this private placement . 2 ) on november 30 , 2018 , the company issued 3,206,160 common shares upon exercise of 3,206,160 warrants by australis at a price of cad $ 0.50 per common share for aggregate proceeds of $ 1,205,196 ( cad $ 1,603,080 ) . 3 ) on february 1 , 2019 , the company issued 1,768,545 common shares to australis for proceeds of $ 787,123 pursuant to the investment agreement . 4 ) on may 17 , 2019 , the company closed a private placement of 11,780,134 units at a price of $ 0.93 ( cad $ 1.25 ) per unit for aggregate gross proceeds of $ 10,204,574 ( cad $ 14,726,130 ) . each unit is comprised of one common share and one common share purchase warrant . each warrant entitles the holder to acquire one common share of the company at an exercise price of cad $ 1.50 for a period of 48 months following the closing date , subject to adjustment in certain events . the agents received a cash commission of $ 589,499 ( cad $ 793,938 ) . the agents also received as additional consideration 635,150 non-transferable broker warrants . each broker warrant entitles the holder to acquire one unit at an exercise price of cad $ 1.25 per unit for a period of 48 months following the closing date . a corporate finance fee of $ 63,774 ( cad $ 84,750 ) was also paid . 38 5 ) on may 28 , 2019 , the company issued 12,793,840 common shares upon exercise of 12,793,840 warrants by australis at a price of cad $ 0.50 per common share for aggregate proceeds of $ 4,746,515 ( cad $ 6,396,920 ) . the proceeds were used , in part , to fully repay the outstanding senior secured note in the amount of $ 4,495,890 owing to australis by the company . 6 ) on july 16 , 2019 , the company issued 7,333 common shares upon exercise of 7,333 warrants at a price of cad $ 0.90 per common share for aggregate proceeds of $ 5,057 ( cad $ 6,600 ) . significant expenditures anticipated during the next fiscal year : replace_table_token_11_th statement of cashflows during the year ended july 31 , 2019 , our net cash increased by $ 8,679,879 ( 2018 : decrease of $ 41,747 ) , which included net cash used in operating activities of $ 2,555,810 ( 2018 : $ 2,139,327 ) , net cash used in investing activities of $ 9,181,891 ( 2018 : $ 2,690,063 ) , net cash provided by financing activities of $ 20,122,671 ( 2018 : $ 4,806,025 ) and effect of exchange rate changes on cash and cash equivalents of $ 294,909 ( 2018 : $ 18,382 ) . cash flow used in operating activities cash flow used in operating activities totaled $ 2,555,810 and $ 2,139,327 during the year ended july 31 , 2019 and 2018 , respectively . cash used in operating activities increased in 2019 as a result of the company 's finalization of the purchase of the remaining 70 % of nmg ohio and the definitive agreement to acquire two new dispensaries in california , long beach and san diego . the company also entered into various management service contracts , including one in arkansas and one in california . significant changes in cash used in operating activities are outlined as follows : · the company incurred a net loss from operations of $ 3,752,751 during the year ended july 31 , 2019 compared to $ 1,781,060 in 2018. the net loss in 2019 included non-cash accrued interest and accretion of $ 1,242,808 ( 2018 : $ 277,219 ) , depreciation of $ 289,560 ( 2018 : $ 8,811 ) , stock-based compensation of $ 880,595 ( 2018 : $ 789,679 ) , write-off of amounts receivable of $ 38,809 ( 2018 : $ 872 ) , deferred tax recovery of $ nil ( 2018 – ( $ 1,144,080 ) ) , gain onequity investment in nmg ohio of $ 56,466 ( 2018 : $ nil ) and accrued interest income of $ 693,333 ( 2018 - $ nil ) . story_separator_special_tag the following non-cash items further adjusted the loss for the year ended july 31 , 2019 and 2018 : · increase in amounts receivable and prepaid of $ 502,070 ( 2018 : $ 388,288 ) , increase in inventory of $ 437,002 ( 2018 : $ 454,737 ) , increase in trade payables and accrued liabilities of $ 531,434 ( 2018 : decrease of $ 371,586 ) , increase in income taxes payable of $ nil ( 2018 - $ 239,358 ) and decrease in due to related parties of $ 38,129 ( 2018 : increase of $ 46,276 ) . cash flow used in investing activities during the year ended july 31 , 2019 , investing activities used cash of $ 9,181,891 compared to $ 2,690,063 during the year ended july 31 , 2018. the change in cash used in investing activities from the year ended july 31 , 2019 as compared to july 31 , 2018 relates primarily to acquisition of nmg ohio and gldh , in the amount of $ 1,854,883 ( 2018 : $ 77,600 ) and $ 6,650,641 ( 2018 : $ nil ) , respectively , loans provided to sd of $ 255,980 ( 2018 : $ nil ) and purchase of property and equipment of $ 368,162 ( 2018 : $ 564,305 ) . the company also provided a convertible loan of $ 52,225 to ccg in arkansas . 39 cash flow provided by financing activities during the year ended july 31 , 2019 , the company completed two major private placements : 1. on november 2 , 2018 , the company closed a non-brokered private placement of 16,000,000 units at a price of $ 0.30 ( cad $ 0.40 ) per unit for aggregate gross proceeds of $ 4,883,840 ( cad $ 6,400,000 ) ( note 10 , 15 and 16 ) . each unit consists of one common share and one share purchase warrant . each warrant entitles the holder to purchase one additional common share of the company at a price of cad $ 0.50 per warrant for a period of two years . the company paid cash of $ 152,720 and issued 322,581 common shares valued at $ 221,691 as finders ' fees in relation to this private placement . 2. on may 17 , 2019 , the company closed a private placement of 11,780,134 units at a price of $ 0.93 ( cad $ 1.25 ) per unit for aggregate gross proceeds of $ 10,204,574 ( cad $ 14,726,130 ) . each unit is comprised of one common share and one common share purchase warrant . each warrant entitles the holder to acquire one common share of the company at an exercise price of cad $ 1.50 for a period of 48 months following the closing date , subject to adjustment in certain events . the agents received a cash commission of $ 589,499 ( cad $ 793,938 ) . the agents also received as additional consideration 635,150 non-transferable broker warrants . each broker warrant entitles the holder to acquire one unit at an exercise price of cad $ 1.25 per unit for a period of 48 months following the closing date . a corporate finance fee of $ 63,774 ( cad $ 84,750 ) was also paid . australis also exercised the following warrants for cash : 1. on november 30 , 2018 , the company issued 3,206,160 common shares upon exercise of 3,206,160 warrants by australis at a price of cad $ 0.50 per common share for aggregate proceeds of $ 1,205,196 ( cad $ 1,603,080 ) . 2. on may 28 , 2019 , the company issued 12,793,840 common shares upon exercise of 12,793,840 warrants by australis at a price of cad $ 0.50 per common share for aggregate proceeds of $ 4,746,515 ( cad $ 6,396,920 ) . the proceeds were used , in part , to fully repay the outstanding senior secured note in the amount of $ 4,495,890 owing to australis by the company ( note 9 ) . during the year ended july 31 , 2018 , as part of the concurrent financing requirement of the share exchange agreement with nmg , the company raised $ 5,102,609 net of share issue costs by issuing 9,102,165 subscription receipts at a price of cad $ 0.66 per subscription receipt . on november 14 , 2017 , each subscription receipt converted into one common share of the company and one common share purchase warrant of the company exercisable at a price of cad $ 0.90 for a period of 24 months from the date of issuance . off-balance sheet arrangements there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . subsequent events the company issued a total of 4,337,111 common shares of the company in connection with the amended settlement agreement dated june 28 , 2019 , the asset purchase agreement dated june 19 , 2019 and the assignment and first amendment dated june 13 , 2019. the company issued 120,503 common shares of the company upon exercise of share purchase warrants at cad $ 0.66 per share and issued 22,727 common shares of the company upon exercise of share purchase warrants at cad $ 0.90 per share .
| in 2018 , the company consolidated the expenses of nmg from the date of acquisition in november 2017. for the year ended july 31 , 2019 , the company consolidated the results of nmg for the entire year resulting in an increase in licenses , utilities and office administration costs to $ 931,045 from $ 281,671 in 2018 and an increase in salaries and wages to $ 926,198 from $ 380,371 in 2018. of the $ 5,865,987 expenses for the year ended july 31 , 2019 , the company granted stock options to various officers , directors , employees and or consultants , resulting in a non-cash stock-based compensation of $ 880,595 calculated using the black scholes option pricing model . a total of $ 519,113 relates to management and consulting fees paid/accrued to the interim chief executive officer , former chief executive officer ; former chief financial officer and the president of nmg and $ 37,791 relates to accounting fees paid/accrued to the chief financial officer . income taxes a reconciliation of income taxes at statutory rates with the reported taxes for the year ended july 31 , 2019 and 2018 is as follows : replace_table_token_9_th 37 the significant components of the company 's deferred income tax assets and liabilities are as follows : replace_table_token_10_th other items during the year ended july 31 , 2019 , our other items accounted for $ 332,708 in income as compared to an expense of $ 439,217 for the year ended july 31 , 2017. during the year ended july 31 , 2019 , the company recognized equity pickup of $ 56,466 ( 2018 - $ nil ) from its 30 % equity stake in nmg ohio . nmg ohio recorded total sales of $ 1,225,238 and a net income of $ 188,244 for the year ended july 31 , 2019. other components in other items primarily relates to interest income of $ 719,865 ( 2018 - $ nil ) related to a convertible promissory note provided in connection with gldh acquisition and $ 200,000 ( 2018 - $ nil ) early payment for repaying the promissory note to australis in full before the maturity date . for 2019 , a foreign exchange loss of $ 241,862
| 11,893 |
regarding our subsidiary , oramed ltd. , the guidance prohibits the recognition of deferred tax liabilities or assets that arise from differences between the financial reporting and tax bases of assets and liabilities that are measured from the local currency into dollars using historical exchange rates , and that result from changes in exchange rates or indexing for tax purposes . consequently , the abovementioned differences were not reflected in the computation of deferred tax assets and liabilities . 30 comparison of fiscal year 2011 to fiscal year 2010 the following table summarizes certain statements of operations data for us for the twelve months periods ended august 31 , 2011 and 2010 : replace_table_token_1_th research and development expenses research and development expenses include costs directly attributable to the conduct of research and development programs , including the cost of salaries , payroll taxes , employee benefits , costs of registered patents materials , supplies , the cost of services provided by outside contractors , including services related to our clinical trials , clinical trial expenses , the full cost of manufacturing drug for use in research , preclinical development . all costs associated with research and development are expensed as incurred . clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors . we outsource a substantial portion of our clinical trial activities , utilizing external entities such as contract research organizations , independent clinical investigators , and other third-party service providers to assist us with the execution of our clinical studies . for each clinical trial that we conduct , certain clinical trial costs are expensed immediately , while others are expensed over time based on the expected total number of patients in the trial , the rate at which patients enter the trial , and the period over which clinical investigators or contract research organizations are expected to provide services . clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by contract research organizations ( `` cros '' ) . cros typically perform most of the start-up activities for our trials , including document preparation , site identification , screening and preparation , pre-study visits , training , and program management . clinical trial and pre-clinical trial expenses include regulatory and scientific consultants ' compensation and fees , research expenses , purchase of materials , cost of manufacturing of the oral insulin capsules , payments for patient recruitment and treatment , costs related to the maintenance of our registered patents , costs related to the filings of patent applications , as well as salaries and related expenses of research and development staff . in august 2009 , oramed ltd. , our wholly owned israeli subsidiary , was awarded a government grant amounting to a total net amount of new israeli shekels ( `` nis '' ) 3.1 million ( approximately $ 813,000 ) , from the office of the chief scientist of the ministry of industry , trade and labor of israel ( the `` ocs '' ) . this grant was used for research and development expenses for the period of february 2009 to june 2010. the funds were used by us to support further research and development and clinical study of our oral insulin capsule and oral glp-1-analog . in december 2010 , oramed ltd. , was awarded another grant amounting to a total net amount of nis 2.9 million ( approximately $ 807,000 ) from the ocs , which was designated for research and development expenses for the period of july 2010 to june 2011. we used the funds to support further research and development and clinical study of our oral insulin capsule and oral glp-1-analog . the two grants are subject to repayment according to the terms determined by the ocs and applicable law . see `` -- government grants '' below . 31 during the year ended august 31 , 2011 , research and development expenses totaled $ 1,159,309 , compared to $ 1,463,886 for the year ended august 31 , 2010. the decrease is mainly attributable to the fact that no major clinical trials were conducted this year . the research and development costs include stock based compensation costs , which during the year ended august 31 , 2011 totaled $ 265,327 , as compared to $ 341,203 during the year ended august 31 , 2010. government grants the government of israel encourages research and development projects through the ocs , pursuant to the law for the encouragement of industrial research and development , 1984 , as amended , commonly referred to as the “ r & d law ” . under the r & d law , a research and development plan that meets specified criteria is eligible for a grant of up to 50 % of certain approved research and development expenditures . each plan must be approved by the ocs . in the years ended august 31 , 2011 and 2010 , we recognized research and development grants in an amount of $ 354,906 and $ 350,198 , respectively . as of august 31 , 2011 , we had no contingent liabilities to the ocs . under the terms of the grants we received from the ocs , we are obligated to pay royalties of 3 % to 3.5 % on all revenues derived from the sale of the products developed pursuant to the funded plans , including revenues from licensed ancillary services . pursuant to a proposed amendment to the r & d law , our royalty rate may be 3 % to 6 % per annum . royalties are payable up to 100 % of the amount of such grants , or up to 300 % as detailed below , linked to the u.s. dollar , plus annual interest at libor . the r & d law generally requires that a product developed under a program be manufactured in israel . story_separator_special_tag however , upon notification to the ocs ( and provided that the ocs does not object within 30 days ) , up to 10 % of a company 's approved israeli manufacturing volume , measured on an aggregate basis , may be transferred outside of israel . in addition , upon the approval of the chief scientist , a greater portion of the manufacturing volume may be performed outside of israel , provided that the grant recipient pays royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . the r & d law further permits the ocs , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for an import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also allows for the approval of grants in cases in which the applicant declares that part of the manufacturing will be performed outside of israel or by non-israeli residents and the research committee is convinced that doing so is essential for the execution of the program . this declaration will be a significant factor in the determination of the ocs as to whether to approve a program and the amount and other terms of benefits to be granted . for example , an increased royalty rate and repayment amount might be required in such cases . 32 the r & d law also provides that know-how developed under an approved research and development program may not be transferred to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred to any third parties outside israel , except in certain special circumstances and subject to the ocs ' prior approval . the ocs may approve the transfer of ocs-funded know-how outside israel , generally in the following cases : ( a ) the grant recipient pays to the ocs a portion of the sale price paid in consideration for such ocs-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be ( according to certain formulas ) , or ( b ) the grant recipient receives know-how from a third party in exchange for its ocs-funded know-how , or ( c ) such transfer of ocs-funded know-how arises in connection with certain types of cooperation in research and development activities . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the law requires the grant recipient and its controlling shareholders and foreign interested parties to notify the ocs of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli becoming an interested party in the recipient , and requires the new interested party to undertake to the ocs to comply with the r & d law . in addition , the rules of the ocs may require additional information or representations in respect of certain such events . for this purpose , “ control ” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . “ means of control ” refers to voting rights or the right to appoint directors or the chief executive officer . an “ interested party ” of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties owns 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . accordingly , any non-israeli who acquires 5 % or more of our ordinary shares will be required to notify the ocs that it has become an interested party and to sign an undertaking to comply with the r & d law . general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , traveling , business development costs , insurance expenses and other general costs . for the year ended august 31 , 2011 , general and administrative expenses totaled $ 1,275,960 compared to $ 1,508,667 for the year ended august 31 , 2010. costs incurred related to general and administrative activities during the year ended august 31 , 2011 , was mainly caused by a decrease in compensation costs in respect of options granted during the year , which partially offset by increase in payroll and consulting fees . during the year ended august 31 , 2011 , as part of our general and administrative expenses , we incurred $ 263,999 related to stock options granted to employees and consultants , as compared to $ 466,623 during the year ended august 31 , 2010. financial income/expense , net during the year ended august 31 , 2011 , we generated a larger interest income on available cash and cash equivalents balance than in the previous fiscal year , this income was offset by bank charges .
| the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 29 marketable securities : consist mainly of equity securities classified as available-for-sale and are recorded at fair value . the fair value of the restricted securities is measured based on the quoted prices of the otherwise identical unrestricted securities , adjusted for the effect of the restriction by applying a proper discount . the discount was determined with reference to other similar restricted instruments . similar securities , with no restriction on tradability , are quoted on an active market . changes in fair value , net of taxes , are reflected in other comprehensive income ( loss ) . factors considered in determining whether a loss is temporary include the extent to which fair value has been less than the cost basis , the financial condition and near-term prospects of the investee based on our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value . the loss is recorded as a charge to earnings valuation of options and warrants : we granted options to purchase shares of our common stock to employees and consultants and issued warrants in connection with some of our financings . we account for
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as of december 31 , 2019 , these agreements with hfc require minimum annualized payments to us of $ 348 million . if hfc fails to meet its minimum volume commitments under the agreements in any quarter , it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter . under certain of the agreements , a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met . a significant reduction in revenues under the hfc agreements could have a material adverse effect on our results of operations . we have a pipelines and terminals agreement with delek expiring in 2020 under which delek has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that also is subject to annual tariff rate adjustments . on september 30 , 2019 , delek exercised its first renewal option ( the “ renewal ” ) under this agreement for an additional five year period beginning april 1 , 2020 , but only with respect to specific assets . for the refined product pipelines and refined product terminals that were not subject to the renewal and which currently account for approximately $ 15 million to $ 16 million of hep 's annual revenues from delek , the agreement terminates as of march 31 , 2020. in light of this development , we are exploring other potential options with respect to the pipeline and terminal assets that were not subject to the renewal . we also have a capacity lease agreement under which we lease space to delek on our orla to el paso pipeline for the shipment of refined product . the terms for a portion of the capacity under this lease agreement expired in 2018 and were not renewed , and the remaining portions of the capacity expire in 2020 and 2022. as of december 31 , 2019 , these agreements with delek require minimum annualized payments to us of $ 32 million before considering the refined product pipelines and refined product terminals that were not subject to the renewal . under certain provisions of an omnibus agreement that we have with hfc ( “ omnibus agreement ” ) , we pay hfc an annual administrative fee ( $ 2.6 million in 2019 ) , for the provision by hfc or its affiliates of various general and administrative services to us . this fee does not include the salaries of personnel employed by hfc who perform services for us on behalf of hls or the cost of their employee benefits , which are separately charged to us by hfc . we also reimburse hfc and its affiliates for direct expenses they incur on our behalf . under hls 's secondment agreement with hfc , certain employees of hfc are seconded to hls to provide operational and maintenance services for certain of our processing , refining , pipeline and tankage assets , and hls reimburses hfc for its prorated portion of the wages , benefits , and other costs of these employees for our benefit . we have a long-term strategic relationship with hfc . our current growth plan is to continue to pursue purchases of logistic and other assets at hfc 's existing refining locations in new mexico , utah , oklahoma , kansas and wyoming . we also expect to work with hfc on logistic asset acquisitions in conjunction with hfc 's refinery acquisition strategies . furthermore , we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues . results of operations income , distributable cash flow and volumes the following tables present income , distributable cash flow and volume information for the years ended december 31 , 2019 , 2018 and 2017 . these results have been adjusted to include the combined results of our predecessor . see notes 1 and 2 to the consolidated financial statements of hep for discussion of the basis of this presentation . - 48 - replace_table_token_11_th - 49 - replace_table_token_12_th - 50 - ( 1 ) net income attributable to the partners is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement . hep net income allocated to the general partner included incentive distributions that were declared subsequent to quarter end . after the amount of incentive distributions and other priority allocations are allocated to the general partner , the remaining net income attributable to the partners is allocated to the partners based on their weighted average ownership percentage during the period . as a result of the idr restructuring transaction , no idr or general partner distributions were made after october 31 , 2017. see `` business and properties - overview . '' ( 2 ) earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) is calculated as net income attributable to holly energy partners plus ( i ) interest expense , net of interest income , ( ii ) state income tax and ( iii ) depreciation and amortization . adjusted ebitda is calculated as ebitda minus ( i ) gain on sales-type leases and ( ii ) pipeline lease payments not included in operating costs and expenses plus ( iii ) pipeline tariffs not included in revenues due to impacts from lease accounting . portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases . these pipeline tariffs were previously recorded as revenues prior to the renewal of the throughput agreement , which triggered sales-type lease accounting . story_separator_special_tag similarly , certain pipeline lease payments were previously recorded as operating costs and expenses , but the underlying lease was reclassified from an operating lease to a financing lease , and these payments are now recoded as interest expense and reductions in the lease liability . ebitda and adjusted ebitda are not calculations based upon generally accepted accounting principles ( `` gaap '' ) . however , the amounts included in the ebitda and adjusted ebitda calculations are derived from amounts included in our consolidated financial statements . ebitda and adjusted ebitda should not be considered as alternatives to net income attributable to holly energy partners or operating income , as indications of our operating performance or as alternatives to operating cash flow as a measure of liquidity . ebitda and adjusted ebitda are not necessarily comparable to similarly titled measures of other companies . ebitda and adjusted ebitda are presented here because they are widely used financial indicators used by investors and analysts to measure performance . ebitda and adjusted ebitda are also used by our management for internal analysis and as a basis for compliance with financial covenants . see our calculation of ebitda under item 6 , “ selected financial data. ” ( 3 ) distributable cash flow is not a calculation based upon gaap . however , the amounts included in the calculation are derived from amounts presented in our consolidated financial statements , with the general exception of maintenance capital expenditures . distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . distributable cash flow is not necessarily comparable to similarly titled measures of other companies . distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance . it is also used by management for internal analysis and for our performance units . we believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating . see our calculation of distributable cash flow under item 6 , “ selected financial data. ” results of operations — year ended december 31 , 2019 compared with year ended december 31 , 2018 story_separator_special_tag ( exclusive of depreciation and amortiz ation ) expense for the year ended december 31 , 2019 , increased by $ 15.6 million compared to the year ended december 31 , 2018 . the increase for the year ended december 31 , 2019 was mainly due to higher maintenance costs and employee compensation expenses . depreciation and amortization depreciation and amortization for the year ended december 31 , 2019 , decreased by $ 1.8 million compared to the year ended december 31 , 2018 . the decrease was primarily due to depreciation and amortization related to our normal fluctuations in business activities . general and administrative general and administrative costs for the year ended december 31 , 2019 , decreased by $ 0.8 million compared to the year ended december 31 , 2018 , mainly due to lower employee compensation expenses . equity in earnings of equity method investments see the summary chart below for a description of our equity in earnings of equity method investments : replace_table_token_13_th interest expense interest expense for the year ended december 31 , 2019 , totaled $ 76.8 million , an increase of $ 4.9 million compared to the year ended december 31 , 2018 . these increases were mainly due to higher average balances outstanding under our senior secured revolving credit facility and higher finance lease liabilities outstanding . our aggregate weighted-average interest rates were 5.4 % and 5.1 % for the years ended december 31 , 2019 and 2018 , respectively . state income tax we recorded state income tax expense of $ 41,000 and $ 26,000 for the years ended december 31 , 2019 and 2018 , respectively . all state income tax expense is solely attributable to the texas margin tax . - 52 - results of operations— year ended december 31 , 2018 compared with year ended december 31 , 2017 summary net income attributable to the partners for the year ended december 31 , 2018 , was $ 178.8 million , a $ 16.2 million decrease compared to the year ended december 31 , 2017 . the decrease in earnings was primarily due to the recognition of a $ 36.3 million remeasurement gain related to our acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of 2017. excluding this remeasurement gain , net income attributable to the partners increased $ 20.1 million primarily due to higher pipeline throughputs and revenues as well as increased earnings related to our acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of 2017 , which were partially offset by higher interest expense . revenues revenues for the year ended december 31 , 2018 , were $ 506.2 million , a $ 51.9 million increase compared to the same period of 2017 . the increase was primarily attributable to our acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of 2017 and the turnaround at hfc 's navajo refinery in the first quarter of 2017. revenues from our refined product pipelines were $ 137.5 million , an increase of $ 5.1 million , on shipments averaging 199.6 mbpd compared to 211.8 mbpd for the year ended december 31 , 2017 .
| the revenue decrease was mainly due to a reclassification of - 51 - some pipeline tariffs from revenue to interest income under sales-type lease accounting as well as lower volumes on pipelines servicing hollyfrontier 's navajo refinery partially offset by higher volumes on pipelines servicing hfc 's woods cross refinery , which had lower throughput in 2018 due to operational issues , and contractual tariff escalators . revenues from our intermediate pipelines were $ 29.6 million , a decrease of $ 0.1 million , on shipments averaging 140.6 mbpd compared to 144.5 mbpd for the year ended december 31 , 2018 . the decrease in revenue was primarily attributable to a decrease in deferred revenue realized . revenues from our crude pipelines were $ 130.7 million , an increase of $ 14.4 million , on shipments averaging 501.2 mbpd compared to 465.6 mbpd for the year ended december 31 , 2018 . the increases were mainly attributable to increased volumes on our crude pipeline systems in new mexico and texas and on our crude pipeline systems in wyoming and utah as well as contractual tariff escalators . revenues from terminal , tankage and loading rack fees were $ 160.5 million , an increase of $ 12.9 million compared to the year ended december 31 , 2018 . refined products and crude oil terminalled in the facilities averaged 483.2 mbpd compared to 474.9 mbpd for the year ended december 31 , 2018 . the revenue and volume increases were mainly due to volumes at our new orla diesel rack , higher volumes at the spokane and catoosa terminals and contractual tariff escalators , partially offset by lower volumes at hfc 's tulsa refinery as a result of the planned turnaround in the first quarter and flooding in the second quarter . revenues from refinery processing units were $ 79.7 million , an increase of $ 4.5 million on throughputs averaging 68.8 mbpd compared to 62.8 mbpd for the year ended december 31 , 2018 . the increase in revenue was mainly due to an adjustment in revenue recognition and contractual rate increases . operations expense operations
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we realized net income attributable to common stockholders of approximately $ 3.3 million for the year ended december 31 , 2020 and net income attributable to common stockholders of approximately $ 5.1 million for the year ended december 31 , 2019. we realized net income from continuing operations of $ 4.7 million for the year ended december 31 , 2020 and net income from continuing operations of $ 5.3 million for the year ended december 31 , 2019. we may incur increasing expenses as we seek to expand our business , including expenses for research and development , sales and marketing and manufacturing capabilities . we may continue to grow our business in part through acquisitions of 32 additional companies and complementary technologies , which could cause us to incur transaction expenses , amortization or write-offs of intangible assets and goodwill and other acquisition-related expenses . as a result , we may incur net losses in future periods , and these losses could be substantial . acquisitions optasense holdings limited on december 3 , 2020 , we acquired optasense holdings limited ( `` optasense '' ) for $ 38.9 million ( £29.0 million ) in cash . optasense , formerly owned by qinetiq holdings limited , is a market leader in fiber optic distributed monitoring solutions for pipelines , oilfield services , security , highways and railways , and in power and utilities monitoring systems . the acquisition of optasense provided us with important distributed acoustic sensing ( `` das '' ) intellectual property and products . optasense 's technology and products and geographic footprint are highly complementary to our lightwave segment which we believe will accelerate our technology and overall growth roadmap . general photonics corporation on march 1 , 2019 , we acquired all of the outstanding stock of general photonics corporation ( `` gp '' ) , a leading provider of innovative components , modules and test equipment focused on the generation , measurement and control of polarized light critical in fiber optic-based applications for aggregate consideration of $ 20.0 million , inclusive of $ 19.0 million paid at closing and $ 1.0 million of contingent consideration in 2020 related to certain earn-out provisions . description of our revenues , costs and expenses impact of covid-19 pandemic the broader impact of the covid-19 pandemic on our results of operations and overall financial performance remains uncertain . the covid-19 pandemic has affected how we interact with our customers by reducing face-to-face meetings and increasing our on-line and virtual presence . while increasing our on-line and virtual presence has proven effective , we are unsure of the impact if these conditions continue for an extended period . in addition , we have experienced minor impacts on our supply chain that we have managed . for example , in cases where there were delays we relied on our inventory of components to continue production . there is no guarantee we will be able to manage through future delays in our supply chain . see “ risk factors ” for further discussion of the potential adverse impacts of the covid-19 pandemic on our business . revenues we generate revenues from product sales , commercial product development and licensing and technology development activities . our lightwave segment revenues reflect amounts that we receive from sales of our products or development of products for third parties and , to a lesser extent , fees paid to us in connection with licenses or sub-licenses of certain patents and other intellectual property . we derive luna labs segment revenues from providing research and development services to third parties , including government entities , academic institutions and corporations , and from achieving milestones established by some of these contracts . in general , we complete contracted research over periods ranging from six months to three years and recognize these revenues over the life of the contract as costs are incurred . cost of revenues cost of revenues associated with lightwave segment revenues consists of license fees for use of certain technologies , product manufacturing costs including all direct material and direct labor costs , amounts paid to our contract manufacturers , manufacturing , shipping and handling , provisions for product warranties and inventory obsolescence , as well as overhead allocated to each of these activities . cost of revenues associated with luna labs segment revenues consists of costs associated with performing the related research activities including direct labor , amounts paid to subcontractors and overhead allocated to luna labs segment activities . operating expense operating expense consists of selling , general and administrative expense , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . these expenses also include compensation for employees in executive and operational functions including certain non-cash charges related to expenses from 33 equity awards , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , marketing , and administrative activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our luna labs segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . investment income investment income consists of amounts earned on our cash equivalents . we sweep on a daily basis a portion of our cash on hand into a fund invested in u.s. government obligations . interest expense , net interest expense is composed of interest paid under our term loans as well as interest accrued on our finance lease obligations . critical accounting policies and estimates lightwave revenues to determine the proper revenue recognition method for lightwave contracts , we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation . story_separator_special_tag we recognize revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer . for tangible products that contain software that is essential to the tangible product 's functionality , we consider the product and software to be a single performance obligation and recognize revenue accordingly . for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation based on their relative stand-alone selling prices . in such circumstances , we use the observable price of goods or services which are sold separately in similar circumstances to similar customers . if these prices are not observable , then we will estimate the stand-alone selling price using information that is reasonably available . for the majority of our standard products and services , price list and discount structures related to customer type are available . for products and services that do not have price list and discount structures , we may use one or more of the following : ( i ) adjusted market assessment approach , ( ii ) expected cost plus a margin approach , and ( iii ) residual approach . the adjusted market approach requires us to evaluate the market in which we sell goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services . the expected cost-plus margin approach requires us to forecast our expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service . the residual approach decreases the total transaction price by the sum of the observable standalone selling prices if either the company sells the same good or services to different customers for a broad range of amounts or the company has not established a price for the good or service and that good or service has not been sold on a standalone basis . shipping and handling activities primarily occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations . similarly , sales and similar taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price . for standard products , we recognize revenue at a point in time when control passes to the customer . absent substantial product acceptance clauses , this is based on the shipping terms . for custom products that require engineering and development based on customer requirements , we will recognize revenue over time using the output method for any items shipped and any finished goods or work in process that is produced for balances of open sales orders . for any finished goods or work in process that has been produced for the balance of open sales orders we recognize revenue by applying the average selling price for such open order to the lesser of the on-hand balance in finished goods or open sales order quantity which we present as a contract asset on the balance sheet . cost of sales is recognized based on the standard cost of the finished goods and work in process associated with this revenue and inventory balances are reduced accordingly . for extended warranties and product rentals , revenue is recognized over time using the output method based on the time elapsed for the warranty or service period . in the case of warranties , we record a contract liability for amounts billed but that are not recognized until subsequent periods . a separate contract liability is recorded for the cost associated with warranty repairs based on our estimate of future expense . for testing services where we are performing testing on an asset the customer controls , revenue is recognized over time by the output method using the performance to date . for training , where the customer is receiving the benefit of training as it is occurring , and for repairs to a customer-controlled asset , revenue is recognized over time by the output method using the 34 performance to date . for royalty revenue , we apply the practical expedient “ royalty exception ” recognizing revenue based on the royalty agreement which specifies an amount based on sales or minimum amount , whichever is greater . in some product rental contracts , a customer may be offered a discount on the purchase of an item that would provide for a material right . when a material right has been provided to a customer , a separate performance obligation is established , and a portion of the rental revenue will be deferred until the future product is purchased or the option expires . this deferred revenue is recognized as a contract liability on the balance sheet . luna labs revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we account for a research contract when a contract has been executed , the rights of the parties are identified , payment terms are identified , the contract has commercial substance , and collectability of the contract price is considered probable . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured .
| 38 cost of revenues replace_table_token_4_th our lightwave segment costs increased $ 3.1 million to $ 23.3 million for the year ended december 31 , 2020 compared to $ 20.2 million for the year ended december 31 , 2019. this increase primarily resulted from the incremental costs associated with the inclusion of approximately one month of operations from optasense , which was acquired in december 2020 , as well as an increase in sales volume in our sensing and communications testing products . our luna labs segment costs increased $ 2.0 million , to $ 17.2 million for the year ended december 31 , 2020 compared to $ 15.2 million for the year ended december 31 , 2019. the overall increase in luna labs segment costs was driven by increases in additional headcount and the increased spending on other direct costs to support the growth in our research contracts and was consistent with the rate of revenue growth for this business segment . operating expense replace_table_token_5_th selling , general and administrative expense increased $ 4.3 million to $ 27.6 million for the year ended december 31 , 2020 compared to $ 23.3 million for the year ended december 31 , 2019. selling , general and administrative expense increased primarily due to the additional selling related expenses as a result of increased revenues , increased depreciation on acquired fixed assets and share-based compensation related to employee participation in our espp which began during the third quarter . research , development and engineering expenses decreased $ 0.8 million to $ 6.7 million for the year ended december 31 , 2020 compared to $ 7.5 million for the year ended december 31 , 2019 primarily due to additional expenses related to product improvements in our lightwave segment for the year ended december 31 , 2019 that did not reoccur during the year ended december 31 , 2020. acquisition related expense consists primarily of investment banking ,
| 11,896 |
the adjustments to the company 's loss experience are based on management 's evaluation of several environmental factors , including : changes in local , regional , national and international economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; changes in the nature and volume of the portfolio and in the terms of the loans ; changes in the experience , ability , and depth of lending management and other relevant staff ; changes in the volume and severity of past due loans , the volume of nonaccrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of the loan review system ; changes in the value of the underlying collateral for collateral-dependent loans ; the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio . 29 in evaluating the estimated loss factors to be utilized for each loan group , management also reviews actual loss history over an extended period of time as reported by the occ and fdic for institutions both in the company 's market area and nationally for periods that are believed to have experienced similar economic conditions . in underwriting a loan secured by real property , we require an appraisal of the property by an independent licensed appraiser approved by the company 's board of directors . for loans in excess of $ 2.5 million , the appraisal is subject to review by an independent third party hired by the company . management reviews and inspects properties before disbursement of funds during the term of a construction loan . generally , management obtains updated appraisals when a loan is deemed impaired and if a construction loan , within 120 days prior to the scheduled maturity date . these appraisals may be more limited than those prepared for the underwriting of a new loan . all appraisals are also reviewed by qualified parties independent from the firm preparing the appraisals . management evaluates the allowance for loan losses based on the combined total of the impaired and general components . generally , when the loan portfolio increases , absent other factors , the allowance for loan loss methodology results in a higher dollar amount of estimated probable losses . conversely , when the loan portfolio decreases , absent other factors , the allowance for loan loss methodology results in a lower dollar amount of estimated probable losses . each quarter management evaluates the allowance for loan losses and adjust the allowance as appropriate through a provision for loan losses . while the company uses the best information available to make evaluations , future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations . in addition , as an integral part of their examination process , the office of the comptroller of the currency will periodically review the allowance for loan losses . the occ may require the company to adjust the allowance based on their analysis of information available to them at the time of their examination . fair value measurements bancorp uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures . fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . fair value is best determined based upon quoted market prices . however , in certain instances , there are no quoted market prices for certain assets or liabilities . in cases where quoted market prices are not available , fair values are based on estimates using present value or other valuation techniques . those techniques are significantly affected by the assumptions used , including the discount rate and estimates of future cash flows . accordingly , the fair value estimates may not be realized in an immediate settlement of the asset or liability . fair value measurements focus on exit prices in an orderly transaction ( that is , not a forced liquidation or distressed sale ) between market participants at the measurement date under current market conditions . if there has been a significant decrease in the volume and level of activity for the asset or liability , a change in valuation technique or the use of multiple valuation techniques may be appropriate . in such instances , determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment . 30 the company 's fair value measurements are classified into a fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value . the three categories within the hierarchy are as follows : level 1 inputs unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date . level 2 inputs inputs other than quoted prices included in level 1 that are observable for the asset or liability , either directly or indirectly . these might include quoted prices for similar assets or liabilities in active markets , quoted prices for identical or similar assets or liabilities in markets that are not active , inputs other than quoted prices that are observable for the asset or liability ( such as interest rates , volatilities , prepayment speeds , credit risks , etc . ) or inputs that are derived principally from or corroborated by market data by correlation or other means . story_separator_special_tag level 3 inputs unobservable inputs for determining the fair values of assets or liabilities that reflect an entity 's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities . the asset 's or liability 's fair value measurement level within the fair value hierarchy is based on the lower level of any input that is significant to the fair value measurement . valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs . bancorp performs a quarterly analysis of those securities that are in an unrealized loss position to determine if those losses qualify as other-than-temporary impairments . this analysis considers the following criteria in its determination : the ability of the issuer to meet its obligations , the impairment due to a deterioration in credit , management 's plans and ability to maintain its investment in the security , the length of time and the amount by which the security has been in a loss position , the interest rate environment , the general economic environment and prospects or projections for improvement or deterioration . management has made the determination that none of the bank 's investment securities are other-than-temporarily impaired at december 31 , 2011 , and no impairment charges were recorded during the year ended december 31 , 2011 . 31 income taxes the company recognizes income taxes under the asset and liability method . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , and loss carry forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . the company recognizes a benefit from its tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information . the periods subject to examination for the company 's federal returns are the tax years 2006 through 2011. the periods subject to examination for the company 's significant state return , which is connecticut , are the tax years 2008 through 2011. the company believes that its income tax filing positions and deductions will be sustained upon examination and does not anticipate any adjustments that will result in a material change in its financial statements . as a result , no reserve for uncertain income tax positions has been recorded . the company 's policy for recording interest and penalties related to uncertain tax positions is to record such items as part of its provision for federal and state income taxes . recent economic developments there have been significant and historical disruptions in the financial system during the past few years and many lenders and financial institutions have reduced or ceased to provide funding to borrowers , including other lending institutions . the availability of credit , confidence in the entire financial sector , and volatility in financial markets has been adversely affected . the federal reserve bank has been providing vast amounts of liquidity into the banking system to compensate for weaknesses in short-term borrowing markets and other capital markets . the federal deposit insurance corporation ( fdic ) insures deposits at fdic-insured financial institutions up to certain limits . the fdic charges insured financial institutions premiums to maintain the deposit insurance fund . based on the bank 's current capital classification , a higher level of fdic insurance premiums is assessed . in addition , the bank paid a special assessment of $ 453,500 in the second quarter of 2009. special assessments were levied on all financial institutions . 32 patriot national bank participated in the fdic transaction account guarantee program which guaranteed full coverage on certain noninterest-bearing deposit transaction accounts , such as business accounts , until the expiration date of the program on december 31 , 2010. effective december 31 , 2010 through december 31 , 2012. the board of directors of the fdic implemented a new final rule under section 343 of the dodd-frank wall street reform and consumer protection act that provides temporary unlimited coverage in addition to , and separate from , the coverage of at least $ 250,000 available to depositors of noninterest-bearing transaction accounts , under the fdic 's general rules . the term noninterest-bearing transaction account includes a traditional checking account or demand deposit account on which the bank pays no interest . it also includes interest on lawyer trust accounts ( ioltas ) . it does not include other accounts , such as traditional checking or demand deposit accounts that may earn interest , now accounts or money market deposit accounts . the company did not participate in the debt guarantee portion of the tlgp .
| the decrease in noninterest expense is primarily a result of a $ 1.4 million decrease in costs relating to other real estate operations , and a $ 1.0 million decrease in regulatory assessments . in addition , there were decreases of $ 801,000 and $ 624,000 in salaries and benefits and occupancy and equipment expenses . these were partially offset by $ 3.0 million in restructuring charges and asset disposals related to the reduction in force and branch closings . the following are measurements relating to bancorp 's earnings : replace_table_token_14_th 45 interest income and expense bancorp 's net interest income decreased $ 2.3 million , or 10 % , to $ 19.8 million in 2011 from $ 22.1 million in 2010. bancorp 's interest income decreased by $ 7.3 million , or 20 % , from $ 35.6 million in 2010 to $ 28.3 million in 2011 due to a decrease in average earning assets of $ 130.6 million , or 17 % . average loans outstanding decreased $ 129.6 million , or 21 % . the income on investments increased $ 439,000 due to the rise in the average balance of investments outstanding , but was partially offset by lower yields during 2011. this resulted in an increase in interest income of approximately $ 503,000 due to volume , and a decrease of $ 64,000 related to the change in interest rates . the average balances of federal funds sold and short-term investments decreased $ 18.9 million to $ 62.5 million for 2011 as compared to $ 81.4 million for 2010 due to a reduction in excess liquidity on the balance sheet . total average interest bearing liabilities decreased by $ 164.5 million , or 23 % . average balances of certificates of deposit decreased $ 121.6 million , or 26 % . the decrease in certificates of deposit accounts is attributable to customers refraining from locking into long-term rates in the current lower rate environment and lower offered rates on new certificates of deposit . average money market accounts decreased $ 41.5 million , or 38 % . average balances in savings accounts decreased approximately $ 2.9 million . total interest
| 11,897 |
the foreign effective tax rate was 17.0 percent , a decrease of approximately 4.1 percentage points which primarily consisted of a 10.0 percent impact related to a decrease in tax reserves , partially offset by a 5.2 percent impact from increased valuation allowances on net operating losses primarily due to a decrease in luxembourg and france earnings available to be offset by net operating loss carry forwards and a 1.4 percent impact from tax expense related to foreign exchange . the effective tax rate was lower than the u.s. statutory rate of 35 percent primarily due to overall foreign earnings taxed at lower rates . the american taxpayer relief act of 2012 was signed into law on january 2 , 2013. some of these provisions provided retroactive changes to the 2012 tax year which were not taken into account in determining the company 's effective tax rate for 2012. the impact of these retroactive changes was approximately $ 76 million of lower tax expense and was recorded in the first quarter of 2013 . 30 net income attributable to honeywell replace_table_token_9_th earnings per share of common stockassuming dilution increased by $ 1.23 per share in 2013 compared with 2012 primarily due to lower pension expense ( mainly due to a decrease in the pension mark-to-market adjustment ) , increased segment profit in each of our business segments and higher other income as discussed above , partially offset by increased tax expense and higher repositioning and other charges . earnings per share of common stockassuming dilution increased by $ 1.08 per share in 2012 compared with 2011 primarily due to lower pension expense ( mainly due to a decrease in the pension mark-to-market adjustment ) , increased segment profit in our aerospace , automation and control solutions and performance materials and technologies segments , lower repositioning and other charges , partially offset by increased tax expense , decreased income from discontinued operations and higher other postretirement expense . for further discussion of segment results , see review of business segments. business overview this business overview provides a summary of honeywell and its four reportable operating segments ( aerospace , automation and control solutions , performance materials and technologies and transportation systems ) , including their respective areas of focus for 2014 and the relevant economic and other factors impacting their results , and a discussion of each segment 's results for the three years ended december 31 , 2013. each of these segments is comprised of various product and service classes that serve multiple end markets . see note 24 segment financial data of notes to the financial statements for further information on our reportable segments and our definition of segment profit . economic and other factors in addition to the factors listed below with respect to each of our operating segments , our consolidated operating results are principally impacted by : change in global economic growth rates and industry conditions and demand in our key end markets ; overall sales mix , in particular the mix of aerospace original equipment and aftermarket sales and the mix of automation and control solutions ( acs ) products , distribution and services sales ; the extent to which cost savings from productivity actions are able to offset or exceed the impact of material and non-material inflation ; the impact of the pension discount rate and asset returns on pension expense , including mark-to-market adjustments , and funding requirements ; and the impact of fluctuations in foreign currency exchange rates ( in particular the euro ) , relative to the u.s. dollar . 31 areas of focus for 2014 the 2014 areas of focus are supported by the enablers including the honeywell operating system , our velocity product development process , and functional transformation . these areas of focus are generally applicable to each of our operating segments and include : driving profitable growth through r & d , technological excellence and optimized manufacturing capability to deliver innovative products that customers value ; expanding margins by maintaining and improving the company 's cost structure through manufacturing and administrative process improvements , repositioning , and other actions , which will drive productivity and enhance the flexibility of the business as it works to proactively respond to changes in end market demand ; proactively managing raw material costs through formula and long-term supply agreements and hedging activities , where feasible and prudent ; driving strong cash flow conversion through effective working capital management which will enable the company to undertake strategic actions to benefit the business including capital expenditures , strategic acquisitions , and returning cash to shareholders ; increasing our sales penetration and expanding our localized footprint in high growth regions , including china , india , eastern europe , the middle east and latin america ; aligning and prioritizing investments for long-term growth , while considering short-term demand volatility ; monitoring both suppliers and customers for signs of liquidity constraints , limiting exposure to any resulting inability to meet delivery commitments or pay amounts due , and identifying alternate sources of supply as necessary ; and controlling corporate and other non-operating costs , including costs incurred for asbestos and environmental matters , pension and other post-retirement expenses and tax expense . 32 review of business segments replace_table_token_10_th a reconciliation of segment profit to consolidated income from continuing operations before taxes is as follows : replace_table_token_11_th ( 1 ) equity income ( loss ) of affiliated companies is included in segment profit . ( 2 ) amounts included in cost of products and services sold and selling , general and administrative expenses . 33 replace_table_token_12_th aerospace overview aerospace is a leading global supplier of aircraft engines , avionics , and related products and services for aircraft manufacturers , airlines , aircraft operators , military services , and defense and space contractors . story_separator_special_tag our aerospace products and services include auxiliary power units , propulsion engines , environmental control systems , electric power systems , engine controls , flight safety , communications , navigation , radar and surveillance systems , aircraft lighting , management and technical services , logistics services , advanced systems and instruments , aircraft wheels and brakes and repair and overhaul services . aerospace sells its products to original equipment ( oe ) manufacturers in the air transport , regional , business and general aviation aircraft segments , and provides spare parts and repair and maintenance services for the aftermarket ( principally to aircraft operators ) . the united states government is a major customer for our defense and space products . economic and other factors aerospace operating results are principally impacted by : new aircraft production rates and delivery schedules set by commercial air transport , regional jet , business and general aviation oe manufacturers , as well as airline profitability , platform mix and retirement of aircraft from service ; 34 global demand for commercial air travel as reflected in global flying hours and utilization rates for corporate and general aviation aircraft , as well as the demand for spare parts and maintenance and repair services for aircraft currently in use ; level and mix of u.s. and foreign government appropriations for defense and space programs and military activity ; changes in customer platform development schedules , requirements and demands for new technologies ; availability and price variability of raw materials such as nickel , titanium and other metals ; and international regulation affecting aircraft operating equipage . aerospace replace_table_token_13_th replace_table_token_14_th aerospace sales by major customer end-markets were as follows : replace_table_token_15_th 2013 compared with 2012 aerospace sales were flat in 2013 compared with 2012 primarily due to favorable pricing , increased volumes in our commercial original equipment ( oe ) business and increased licensing revenue ( primarily due to a royalty gain in the fourth quarter ) , offset by decreased volumes in our defense and space and commercial aftermarket businesses and an increase in payments due to business and general aviation and air transport and regional oe manufacturers to partially offset their pre-production costs associated with new aircraft platforms ( oem payments ) . details regarding the changes in sales by customer end-markets are as follows : 35 commercial original equipment ( oe ) sales increased by 3 percent in 2013 compared to 2012. air transport and regional oe sales increased by 7 percent in 2013 driven by higher air transport volumes , consistent with the oe manufacturers ' ( oem ) higher production rates , partially offset by lower regional jet sales . business and general aviation oe sales decreased by 3 percent in 2013 driven by an increase in oem payments to business and general aviation customers , partially offset by strong demand in the business jet mid to large cabin segment . commercial aftermarket sales increased by 2 percent in 2013 compared to 2012. air transport and regional aftermarket sales were flat for 2013 primarily due to higher repair and overhaul activities related to utilization , offset by lower spares volumes . business and general aviation aftermarket sales increased by 6 percent in 2013 primarily due to higher sales for retrofit , modifications and upgrades , partially offset by fewer repair and overhaul activities . defense and space sales decreased by 5 percent in 2013 primarily due to u.s. government program ramp downs and lower defense budget , partially offset by a royalty gain in the fourth quarter . aerospace segment profit increased by 4 percent in 2013 compared with 2012 primarily due to an increase in operational segment profit driven by commercial sales growth , as discussed above , including favorable pricing and productivity , net of inflation , partially offset by lower defense and space sales , as discussed above . the segment margin impact from other factors was flat , which reflects the net effect of a royalty gain in the fourth quarter , offset by the unfavorable impact from an increase in oem payments . cost of products and services sold totaled $ 8.8 billion in 2013 , a decrease of approximately $ 101 million from 2012 which is primarily a result of the factors discussed above ( excluding price ) . 2012 compared with 2011 aerospace sales increased by 5 percent in 2012 compared with 2011 primarily due to an increase in organic growth of 3 percent primarily due to increased commercial sales volume , a 1 percent increase from acquisitions , net of divestitures , and a 1 percent increase in revenue related to an $ 88 million reduction in payments to business and general aviation oe manufacturers to partially offset their pre-production costs associated with new aircraft platforms ( oem payments ) . details regarding the changes in sales by customer end-markets are as follows : commercial original equipment ( oe ) sales increased by 19 percent ( 12 percent organic ) in 2012 compared to 2011. air transport and regional oe sales increased by 11 percent ( 11 percent organic ) in 2012 primarily driven by higher sales to our oe customers , consistent with higher production rates , and a favorable platform mix . business and general aviation oe sales increased by 34 percent ( 15 percent organic ) in 2012 driven by strong demand in the business jet end-market , favorable platform mix , growth from acquisitions and the favorable 12 percent impact of the oem payments discussed above .
| estimated increase in direct material costs of approximately $ 620 million driven substantially by a 3 percent increase in sales as a result of the factors ( excluding price ) shown above and discussed in the review of business segments section of this md & a and an increase in other postretirement expense of approximately $ 135 million due to the absence of 2011 curtailment gains . gross margin percentage increased by 3.1 percentage points in 2012 compared with 2011 principally due to lower pension expense ( approximately 2.2 percentage point impact primarily driven by the decrease in the pension mark-to-market adjustment allocated to cost of products and services sold ) , lower repositioning actions ( approximately 0.6 percentage point impact ) and higher segment gross margin in our aerospace , automation and control solutions and performance materials and technologies segments ( approximately 0.4 percentage point impact collectively ) , partially offset by higher other postretirement expense ( approximately 0.4 percentage point impact ) . selling , general and administrative expenses replace_table_token_5_th selling , general and administrative expenses ( sg & a ) decreased as a percentage of sales by 0.6 percent in 2013 compared to 2012 primarily driven by ( i ) higher sales as a result of the factors discussed in the review of business segments section of this md & a , ( ii ) an estimated $ 270 million decrease in pension expense primarily driven by an approximately $ 250 million decrease in the pension mark-to-market charge allocated to sg & a ( approximately $ 20 million in 2013 versus approximately $ 270 million in 2012 ) partially offset by an estimated $ 215 million increase in labor costs ( primarily acquisitions , merit increases and investment for growth ) and an $ 80 million increase in repositioning charges . selling , general and administrative expenses decreased as a percentage of sales by 0.9 percent in 2012 compared to 2011 driven by the impact of higher sales
| 11,898 |
mridian is a radiation therapy solution that enables treatment and real-time imaging of a patient 's anatomy simultaneously . the high-quality images that it generates differentiate the targeted tumor , surrounding soft tissue and nearby critical organs . mridian also records the level of radiation dose that the treatment area has received , enabling physicians to adapt the prescription between treatments as needed . we believe this improved visualization and accurate dose recording will enable better treatment , improve patient outcomes and reduce side effects . key benefits to users and patients include improved imaging and patient alignment , on-table adaptive treatment planning , motion management and an accurate recording of the delivered radiation dose . physicians have already used mridian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer , as well as patients for whom radiation therapy was previously not an option . at december 31 , 2016 , we have installed mridian systems at seven cancer centers located at washington university in st. louis ; university of california , los angeles ; university of wisconsin—madison ; sylvester comprehensive cancer center at the university of miami ; seoul national university in south korea ; vu university medical center in the netherlands and policlinico “ a . gemelli ” hospital in italy . two other mridian systems have been delivered and are expected to be installed in early 2017 at edogawa hospital in japan and national cancer center in japan . we currently market mridian through a direct sales force in the united states and distributors in the rest of the world . we market mridian to a broad range of worldwide customers , including university research and teaching hospitals , community hospitals , private practices , government institutions and freestanding cancer centers . our sales and revenue cycle varies based on the customer and can be lengthy , sometimes lasting up to 18 to 24 months or more from initial customer contact to sales contract execution . following execution of a sales contract , it generally takes nine to 12 months for a customer to customize an existing facility or construct a new vault . after the customer completes their customization , it typically takes forty-five to ninety days for us to install mridian and perform on-site testing of the system , including the completion of acceptance test procedures . we generated product , service , distribution rights and grant revenue of $ 22.2 million , $ 10.4 million and $ 6.4 million , and had net losses of $ 50.6 million , $ 45.0 million and $ 33.8 million during the years ended december 31 , 2016 , 2015 and 2014 , respectively . at december 31 , 2016 , we had 23 signed orders representing backlog value of $ 133.2 million . 75 we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses will increase substantially in connection with our ongoing activities , as we : add personnel to support our product development and commercialization efforts ; continue our research and development efforts ; seek regulatory approval for mridian in certain foreign countries ; seek regulatory approval for mridian linac in the u.s. and in foreign countries ; and operate as a public company . accordingly , we may seek to fund our operations through public or private equity , debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop enhancements to and integrate new technologies into mri-guided radiation therapy systems . merger on july 23 , 2015 , viewray , inc. ( f/k/a mirax corp. ) , and viewray technologies , inc. ( f/k/a viewray incorporated ) , consummated an agreement and plan of merger and reorganization , or merger agreement . pursuant to the merger agreement , the stockholders of viewray technologies , inc. contributed all of their equity interests to viewray , inc. for shares of the viewray , inc. 's common stock and merged with the company 's subsidiary , which resulted in viewray technologies , inc. becoming a wholly-owned subsidiary of viewray , inc. , or the merger . effective as of july 23 , 2015 , viewray , inc. amended and restated its certificate of incorporation to increase its authorized common stock to 300,000,000 shares and 10,000,000 shares of “ blank check ” preferred stock , par value of $ 0.01 per share . upon closing of the merger , under the terms of the split-off agreement , dated july 23 , 2015 among viewray , inc. , viewray technologies , inc. and vesuvius acquisition sub , inc. , the acquisition subsidiary of mirax , and a general release agreement dated july 23 , 2015 , or the general release agreement , viewray , inc. transferred all of its pre-merger operating assets and liabilities to a wholly-owned special-purpose subsidiary incorporated in nevada , vesuvius acquisition sub , inc. , or the split-off subsidiary . thereafter , mirax transferred all of the outstanding shares of capital stock of the split-off subsidiary to certain pre-merger insiders of mirax in exchange for the surrender and cancellation of shares of mirax common stock held by such persons , or the split-off . story_separator_special_tag together with the merger , on july 23 , 2015 , viewray technologies , inc. effected a 2.975-for-1 stock split of its then outstanding common stock and convertible preferred stock , collectively referred to as capital stock , and convertible preferred stock warrants , in which ( i ) each share of outstanding capital stock was increased into 2.975 shares of capital stock ; ( ii ) the number of outstanding options to purchase each capital stock was proportionately increased on a 2.975-for-1 basis ; ( iii ) number of shares reserved for future option grants under the 2008 plan were proportionately increased on a 2.975-for-1 basis ; ( iv ) the exercise price of each such outstanding option was proportionately decreased on a 2.975-for-1 basis ; and ( v ) each share of outstanding convertible preferred stock warrant was increased into 2.975 shares of convertible preferred stock warrant . all of the share and per share amounts have been adjusted , on a retroactive basis , to reflect this 2.975-for-1 stock split . private placement at the closing of the merger , viewray , inc. conducted a private placement offering , or the private placement , of its securities for $ 26.3 million through the sale of 5,884,504 shares of the common stock of the surviving corporation , at an offering price of $ 5.00 per share , net of offering cost . existing viewray technologies , inc . investors purchased $ 17.0 million shares of common stock in the private placement . certain shareholders of mirax retained , after giving effect to the split-off , 1,000,005 shares of the common stock of the surviving corporation upon the private placement . 76 the merger was accounted for as a reverse-merger and recapitalization . viewray technologies , inc. was the acquirer for financial reporting purposes , and viewray , inc. was the acquired company under the acquisition method of accounting in accordance with the financial accounting standards board ( fasb ) accounting standards update ( asu ) no . 2014-18 , topic 805 , business combinations . consequently , the assets , liabilities and operations that were reflected in the historical financial statements prior to the merger were those of viewray technologies , inc. and were recorded at the historical cost basis , and the consolidated financial statements after completion of the merger included the assets , liabilities and results of operations of viewray technologies , inc. up to the day prior to the closing of the merger and the assets , liabilities and results of operations of the combined company from and after the closing date of the merger . 2016 private placement on august 19 , 2016 , we entered into a securities purchase agreement pursuant to which we sold an aggregate of 5,983,251 shares of common stock which consists of 4,602,506 shares of common stock and warrants to purchase 1,380,745 shares of common stock , or the 2016 placement warrants , for aggregate proceeds of $ 13.2 million , net of offering cost , or the 2016 private placement . we completed the initial closing of the 2016 private placement on august 22 , 2016 with the final closing on september 9 , 2016 . 2017 private placement on january 13 , 2017 , we entered into a securities purchase agreement pursuant to which we sold an aggregate of 10,323,101 shares of common stock which consists of 8,602,589 shares of common stock and warrants to purchase 1,720,512 shares of common stock , or the 2017 placement warrants , for aggregate gross proceeds of $ 26.1 million , or the 2017 private placement . we completed the closing of the 2017 private placement on january 18 , 2017. new orders and backlog new orders are defined as the sum of gross product orders , representing mridian contract price , recorded during the period . we define backlog as the accumulation of all orders for which revenue has not been recognized and we consider valid . backlog includes customer deposits or letters of credit , except when the product order is to a government entity or when the product order is from an existing customer with credit to cover the deposit . deposits received are recorded as a liability on the balance sheet . orders may be revised or cancelled according to their terms or upon mutual agreement between the parties . therefore , it is difficult to predict with certainty the amount of backlog that will ultimately result in revenue . the determination of backlog includes objective and subjective judgment about the likelihood of an order contract becoming revenue . we perform a quarterly review of backlog to verify that outstanding orders in backlog remain valid , and based upon this review , orders that are no longer expected to result in revenue are removed from backlog . among other criteria , to consider a transaction to be in backlog we must possess an outstanding and effective written agreement for the delivery of a mridian signed by a customer and receipt of a minimum customer deposit or a letter of credit except when the product order is to a government entity or when the product order is from an existing customer with credit to cover the deposit . for removal of an order from our backlog , the following criteria are considered : any changes in customer or distributor plans or financial conditions ; the customer 's or distributor 's continued intent and ability to fulfill the order contract ; changes to regulatory requirements ; the status of regulatory approval required in the customer 's jurisdiction , if any ; and other reasons for potential cancellation of order contracts . during the year ended december 31 , 2016 , 2015 and 2014 our new orders were $ 77.0 million , $ 40.1 million and $ 37.6 million respectively . at december 31 , 2016 and 2015 , we had 23 and 15 signed sales contracts for mridian systems in backlog with a total value of $ 133.2 million and $ 84.4 million , respectively . components of statements of operations revenue product revenue .
| during the year ended december 31 , 2016 , distribution rights revenue increased $ 0.2 million compared to the year ended december 31 , 2015. this increase was due to receipt of japanese regulatory approval in august 2016 , after which we started recognizing the distribution rights revenue on a straight-line basis over the remaining term of the distribution agreement with itochu . grant revenue . grant revenue during the year ended december 31 , 2016 decreased $ 0.2 million compared to the year ended december 31 , 2015. this decrease was due to our note payable to the county redevelopment fund in the state of ohio being forgiven based on meeting certain employment requirements during the year ended december 31 , 2015 , with no such revenue during the year ended december 31 , 2016. cost of revenue replace_table_token_7_th product cost of revenue . product cost of revenue during the year ended december 31 , 2016 increased $ 11.2 million , compared to the year ended december 31 , 2015 primarily due to the sale of four mridian systems in the year ended december 31 , 2016 compared to the sale of two mridian systems in year ended december 31 , 2015. service cost of revenue . service cost of revenue during the year ended december 31 , 2016 increased $ 0.1 million , compared to the year ended december 31 , 2015. the increase in service cost of revenue was due to the provision of services for the mridian system installed at vu university medical center , netherlands , beginning in april 2016. operating expenses replace_table_token_8_th research and development . research and development expenses during the year ended december 31 , 2016 increased $ 1.0 million , or 9.5 % , compared to the year ended december 31 , 2015. this increase was primarily attributable to a $ 1.2 million increase in personnel costs due to increased wages and stock-based compensation , and a $ 0.8 million increase in engineering and research expenses as a result of increased emphasis on research and
| 11,899 |
by increasing heart rate and producing irregular cycle lengths , af may contribute to the disease processes that leads to the progression of hfref and worsening clinical outcomes . af is considered an epidemic cardiovascular disease and a major public health burden . the estimated number of individuals with af globally in 2010 was 33.5 million . according to the 2017 american heart association report on cardiovascular disease , approximately 5.2 million people in the united states had atrial fibrillation in 2015. hospitalization rates for af increased by 23 % among u.s. adults from 2000 to 2010 and hospitalizations account for the majority of the economic cost burden associated with af . in a global registry of af patients , the rates of heart failure ( of all types ) ranged from 33 % in patients with paroxysmal ( episodes lasting 7 days or less ) to 56 % in patients with permanent af . we believe there is a significant need for drug therapies that are safe and effective for hfref patients with af , as the existing drug therapies for the treatment or prevention af have certain safety disadvantages in hfref patients , such as toxic or cardiovascular 39 adverse effects . most of the approved drugs for a f are contra indicated or have warnings in their prescribing information for such patients . consequently , in the treatment and prevention of af in hfref patients , we believe there is an unmet medical need for new treatments that have fewer side effects an d are more effective than currently available therapies . we believe that data from the best trial indicate that gencaro may have a genetically regulated effect in reducing or preventing af in hfref patients . a retrospective analysis of data from the best trial shows that all patients in the trial treated with gencaro had a 41 % reduction in the risk of new onset af ( time-to-event ) compared to placebo ( p = 0.0004 ) . in a substudy in the trial , which considered only patients with the genotype believed to enhance gencaro 's efficacy ( known as the beta-1 389 arginine homozygous genotype ) , patients treated with gencaro experienced a 74 % ( p = 0.0003 ) reduction in risk of af , based on the same analysis . in addition , the best study , the beta-1 389 arginine homozygous genotype gencaro demonstrated enhanced efficacy in reducing mortality , hospitalizations , and ventricular tachycardia /ventricular fibrillation , or vt/vf . furthermore , patients with a beta‑1 389 arginine homozygous genotype who entered the trial in af had statistically significant reductions in major cardiovascular or hf mortality/hospitalization composite endpoints , which we believe is the first and thus far only demonstration of effectiveness of a beta-blocker in reducing major hf events in hfref patients with permanent af . we believe that in hfref patients , the therapeutic efficacy of toprol-xl is not enhanced in patients with a beta-1 389 arginine homozygous genotype , and we believe that gencaro may be potentially unique in the beta-blocker class of drugs due to its apparent pharmacologic interaction with this beta-1 adrenergic receptor polymorphism . the beta-1 389 arginine homozygous genotype was present in about 47 % of the patients in the best pharmacogenetic substudy , and we estimate it is present in about 50 % of the u.s. general population . genetic-af is an adaptive , seamless design phase 2b/phase 3 , multi-center , randomized , double-blind , clinical superiority trial comparing the safety and efficacy of gencaro against an active comparator , the beta-blocker toprol-xl ( metoprolol succinate ) , that seeks to enroll a combined total of approximately 620 patients . eligible patients will have hfref , a history of paroxysmal af ( episodes lasting 7 days or less ) or persistent af ( episodes lasting more than 7 days and less than 1 year ) in the past 6 months , and the beta-1 389 arginine homozygous genotype that we believe responds most favorably to gencaro . a subset of patients in the trial will also undergo continuous heart rhythm monitoring to assess af burden , which is defined as the amount of time per day that a patient experiences af . these data will be collected via newly or previously implanted medtronic , inc. devices capable of assessing af burden ( for example , implantable loop recorders , pacemakers , cardioverter-defibrillators , or cardiac resynchronization therapy devices ) . the primary endpoint of the study is time to first event of symptomatic af/atrial flutter , or afl , or all-cause mortality . the combined phase 2b/phase 3 trial is designed for 90 percent power at a p-value of less than 0.01 significance level to detect a 25 percent reduction in the primary endpoint for patients in the gencaro arm compared to patients in the toprol-xl arm . we received guidance from the fda regarding the genetic-af clinical trial prior to initiation of the trial . based on this fda guidance , we believe that a successful genetic-af phase 3 clinical trial , with a p-value of less than or equal to 0.01 could be sufficient evidence of efficacy upon which to base a new drug application , or nda , when submitted with the prior phase 3 best trial data , for the approval of gencaro for an af indication in hfref patients . a second trial may be required if the genetic-af trial results produce a p-value greater than 0.01. the trial is currently enrolling patients in the united states , canada and europe . the genetic-af data and safety monitoring board , or dsmb , will perform a pre-specified interim analysis of unblinded efficacy data when at least 150 patients have evaluable data . a randomized patient has evaluable data either when they experience their first composite endpoint event , af/afl or all-cause mortality , or after completion of the 24-week primary endpoint follow-up period . story_separator_special_tag the analysis will be conducted for detection of evidence of safety and superior efficacy of gencaro versus the active comparator , toprol-xl . the prospectively defined features of this analysis include an estimate of gencaro effectiveness relative to toprol-xl and an assessment of safety as characterized by adverse events . the relative benefit estimate will utilize bayesian statistical methods to calculate the predictive probability of the phase 3 patient cohort hazard ratio based on the interim phase 2b data . prospectively defined ranges of predictive probabilities have been predetermined to define three potential outcomes based on the projection of the phase 2b interim results : 1 ) transition the trial to phase 3 based on a likelihood of achieving a statistically significant hazard ratio in favor of gencaro ( evidence of an efficacy signal consistent with pretrial assumptions ) and enroll up to a total of 620 patients ( including the phase 2b patients ) ; 2 ) completion of the phase 2b stage of the trial including 24-week follow-up of all randomized subjects ( approximately 250 patients ) , based on an intermediate result that is potentially favorable but does not support transition of the trial to phase 3 or ; 3 ) immediate termination of the trial due to futility . we , in collaboration with the genetic-af steering committee , will determine the next steps for the trial based on the dsmb recommendation from this interim analysis and on our available capital . the unblinded statistical data available to the dsmb will not be disclosed to us or the public . we randomized our 175th patient in the trial in march 2017. we project that the outcome of the 40 dsmb interim analysis and recommendation will be available in the third quarter of 2017 . in february 2016 , we amended the tr ial protocol to allow for up to 250 patients to be enrolled in the phase 2b portion of the trial , which is intended to enable the study to continue enrolling patients while the dsmb interim analysis is underway . should the dsmb recommend that the study co ntinue to phase 3 , the trial would continue enrolling to a total of approximately 620 patients ( i.e. , up to 250 patients in phase 2b and 370 patients in phase 3 ) , subject to our obtaining sufficient financing to fund the phase 3 portion of the trial . in february 2016 , the genetic-af protocol was amended to simplify certain operational aspects of the trial . we believe these modifications facilitated site recruitment and enrollment in existing trial sites and additional sites in european countries , where we are expanding the study to support both the latter portion of phase 2b , as well as the potential phase 3 portion of the trial . we believe inclusion of european investigative sites will also support potential european regulatory submissions and partnering activity . we received no objections from the fda and health canada on the protocol amendments prior to their implementation . as such , we believe that these changes do not fundamentally alter or impact previous regulatory agreements . we have been granted patents in the united states , europe , and other jurisdictions for methods of treating af and hf patients with gencaro based on genetic testing . we believe our patent portfolio and new chemical entity exclusivity may provide market exclusivity for the indications of gencaro that we may develop , into approximately 2030 or 2031 in the united states , europe and other markets . to support the continued development of gencaro , in june 2015 , we completed a private placement that raised approximately $ 34.2 million of net proceeds as additional funds for the phase 2b portion of the genetic-af trial and to support our ongoing operations . we are seeking to enroll up to 250 hfref patients in the phase 2b portion of the genetic-af trial , and we believe that our current cash , cash equivalents and marketable securities will be sufficient to fund our operations , at our projected cost structure , through the end of 2017. in january 2017 , we entered into a sales agreement with an agent to sell , from time to time , our common stock having an aggregate offering price of up to $ 7.3 million , in an “ at the market offering. ” we are not obligated to make any sales of our common stock , and , as of march 17 , 2017 , we have sold an aggregate of 43,156 shares of our common stock pursuant to the terms of such sales agreement for aggregate gross proceeds of approximately $ 112,000 , before paying commissions to our placement agent of approximately $ 3,000. however , changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate . we have based these estimates on assumptions that may prove to be wrong , and we could exhaust our available financial resources sooner than we currently anticipate . if we continue to the phase 3 portion of genetic-af , we will be required to raise additional funds . story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 42 sources and uses of capital our primary sources of liquidity to date have been capital raised from issuances of shares of our preferred and common stock . the primary uses of our capital resources to date have been to fund operating activities , including research , clinical development and drug manufacturing expenses , license payments , and spending on capital items . in january 2017 , we entered into a sales agreement with an agent to sell , from time to time , our common stock having an aggregate offering price of up to $ 7.3 million , in an “ at the market offering.
| g & a expenses were $ 4.3 million for the year ended december 31 , 2016 , compared to $ 4.4 million for 2015 , a decrease of approximately $ 127,000. the decrease in expenses during 2016 was comprised primarily of 2015 costs related to a reverse stock split in september 2015 , with no corresponding transaction in 2016 , and lower corporate franchise taxes in 2016 as compared to 2015 . 41 g & a expenses in 201 7 are expected to be consistent with those in 201 6 as we maintain administrative activities to support our genetic-af clinical trial . interest and other income interest and other income was $ 169,000 for the year ended december 31 , 2016 as compared to $ 14,000 for 2015 , resulting in an increase of $ 155,000. this increase was due to investing our cash in higher yield securities . we expect interest income to be slightly lower in 2017 , as we use our current cash balance to fund operations . interest and other expense we had no interest or other expense during the year ended december 31 , 2016. interest and other expense was $ 4,000 for the year ended december 31 , 2015. the amounts were nominal to our overall operations . based on our current capital structure , interest expense is expected to be negligible in 2017. liquidity and capital resources cash and cash equivalents replace_table_token_4_th as of december 31 , 2016 , we had total cash , cash equivalents and marketable securities of approximately $ 23.5 million , as compared to $ 38.8 million as of december 31 , 2015. the net decrease of $ 15.3 million during the year primarily reflects the approximately $ 15.0 million of cash used to fund operating activities during year ended december 31 , 2016. cash flows from operating , investing and financing activities replace_table_token_5_th net cash used in operating activities for the year ended december 31 , 2016 increased approximately $ 4.5 million compared with the 2015 period . this is primarily due to higher outflows related to a higher net loss in 2016 , as discussed in more detail above , offset by changes in operating assets and liabilities . net cash used in investing activities for the year ended december 31 , 2016 was $ 16.4 million . this is related
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the principal limitation of ffo is that it does not represent cash flow from operations as defined by gaap and is a supplemental measure of performance that does not replace net income ( loss ) as a measure of performance or net cash provided by operating activities as a measure of liquidity . in addition , ffo is not intended as a measure of a reit 's ability to meet debt principal repayments and other cash requirements , nor as a measure of working capital . ffo only provides investors with an additional performance measure that , when combined with measures computed in accordance with gaap such as net income ( loss ) , cash flow from operating activities , investing activities , and financing activities , provide investors with an indication of our ability to service debt and to fund acquisitions and other expenditures . other reits may use difference methods for calculating ffo , accordingly , our ffo may not be comparable to other reits . 40 sun communities , inc. results of operations we report operating results under two segments : real property operations and home sales and rentals . the real property operations segment owns , operates , or has an interest in a portfolio , and develops mh communities and rv communities throughout the u.s. and is in the business of acquiring , operating , and expanding mh and rv communities . the home sales and rentals segment offers mh and rv park model sales and leasing services to tenants and prospective tenants of our communities . we evaluate segment operating performance based on noi and gross profit . refer to note 11 , `` segment reporting , '' in our accompanying consolidated financial statements for additional information . summary statements of operations the following table summarizes our consolidated financial results and reconciles noi to net income for the years ended december 31 , 2016 , 2015 , and 2014 ( in thousands ) : replace_table_token_20_th ( 1 ) the renter 's monthly payment includes the site rent and an amount attributable to the leasing of the home . the site rent is reflected in the real property operations segment . for purposes of management analysis , the site rent is included in the rental program revenue to evaluate the incremental revenue gains associated with implementation of the rental program , and to assess the overall growth and performance of rental program and financial impact on our operations . 41 sun communities , inc. comparison of the years ended december 31 , 2016 and 2015 real property operations – total portfolio the following tables reflect certain financial and other information for our total portfolio as of and for the years ended december 31 , 2016 and 2015 : replace_table_token_21_th replace_table_token_22_th ( 1 ) overall occupancy ( % ) includes mh and annual rv sites , and excludes transient rv sites . ( 2 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . the 20.2 % growth in real property noi consists of $ 45.7 million from newly acquired properties and $ 22.0 million from our same community properties as detailed below . 42 sun communities , inc. real property operations – same community a key management tool used when evaluating performance and growth of our properties is a comparison of same communities . same communities consist of properties owned and operated throughout 2016 and 2015. the same community data may change from time-to-time depending on acquisitions , dispositions , management discretion , significant transactions , or unique situations . the same community data in this form 10-k includes all properties which we have owned and operated continuously since january 1 , 2015. in order to evaluate the growth of the same communities , management has classified certain items differently than our gaap statements . the reclassification difference between our gaap statements and our same community portfolio is the reclassification of water and sewer revenues from income from real property to utilities . a significant portion of our utility charges are re-billed to our residents . we reclassify these amounts to reflect the utility expenses associated with our same community portfolio net of recovery . the following tables reflect certain financial and other information for our same communities as of and for the years ended december 31 , 2016 and 2015 : replace_table_token_23_th replace_table_token_24_th ( 1 ) year ended december 31 , 2015 excludes $ 2.8 million of first year expenses for properties acquired in late 2014 and 2015 incurred to bring the properties up to sun 's operating standards . these costs did not meet our capitalization policy . ( 2 ) overall occupancy ( % ) includes mh and annual/seasonal rv sites , and excludes recently completed but vacant expansion sites and transient rv sites . ( 3 ) overall occupancy ( % ) for 2015 has been adjusted to reflect incremental growth year over year from filled expansion sites and the conversion of transient rv sites to annual / seasonal rv sites . ( 4 ) monthly base rent pertains to annual and seasonal rv sites and excludes transient rv sites . the 7.1 % growth in noi is primarily due to increased revenues of $ 26.8 million partially offset by additional expenses of $ 4.7 million . income from real property revenue consists of mh and rv site rent , and miscellaneous other property revenues . the 6.1 % growth in income from real property was due to a combination of factors . revenue from our mh and rv portfolio increased $ 24.9 million due to monthly base rent per site increases of 3.2 % , a 1.9 % increase in occupancy , and the increased number of occupied vacation rental sites . additionally , other revenues increased $ 1.8 million primarily due to increases in property tax revenues , trash income , cable television royalties , and month-to-month fees . story_separator_special_tag 43 sun communities , inc. property operating expenses increased approximately $ 4.7 million , or 3.7 % , compared to 2015. the increase is primarily due to increased real estate taxes of $ 2.7 million and increased payroll and benefits of $ 2.2 million , partially offset by reduced legal , tax , and insurance expenses . rentals and home sales the following table reflects certain financial and other information for our rental program as of and for the years ended december 31 , 2016 and 2015 ( in thousands , except for statistical information ) : replace_table_token_25_th ( 1 ) the renter 's monthly payment includes the site rent and an amount attributable to the leasing of the home . the site rent is reflected in the real property operations segment . for purposes of management analysis , the site rent is included in the rental program revenue to evaluate the incremental revenue gains associated with implementation of the rental program , and assess the overall growth and performance of rental program and financial impact to our operations . the 2.2 % growth in rental program noi is primarily due to a 2.8 % increase in weighted average monthly rental rates . additionally , operating and maintenance expenses decreased by $ 0.7 million , primarily as a result of a decline in commissions of $ 1.0 million that was partially offset by an increase in repairs and refurbishment . 44 sun communities , inc. we purchase new homes and acquire pre-owned and repossessed manufactured homes , generally located within our communities , from lenders , dealers , and former residents to lease or sell to current and prospective residents . the following table reflects certain financial and statistical information for our home sales program for the years ended december 31 , 2016 and 2015 ( in thousands , except for average selling prices and statistical information ) : replace_table_token_26_th gross profit for new home sales increased $ 0.6 million , or 16.4 % , primarily in connection with an increase in new home sales volumes of 20.5 % , that was partially offset by higher cost of sales for new homes . total gross profit for pre-owned home sales increased $ 8.7 million , primarily due to increased sales volumes of 28.6 % and a 17.1 % increase in average gross profit per home sale . 45 sun communities , inc. other income statement items the following table summarizes other income and expenses for the years ended december 31 , 2016 and 2015 ( amounts in thousands ) : replace_table_token_27_th ancillary revenues , net increased primarily due to an increase of $ 3.0 million in vacation rental income at rv resorts . interest income increased primarily due to an increase in interest income on notes and collateralized receivables totaling $ 2.1 million . brokerage commissions and other revenues , net increased primarily due to a higher number of brokered homes sold in 2016 as compared to 2015. home selling expenses increased $ 2.3 million primarily due to an increase in commissions consistent with an increase in the number of homes sold in 2016 as compared to 2015. general and administrative expenses increased $ 16.6 million primarily due to additional employee related costs as headcount increased in connection with the company 's growth through significant acquisitions and increased consulting and implementation costs for technology and efficiency related initiatives . transaction costs increased primarily due to due diligence and other transaction costs in relation to our acquisitions . refer to note 2 , `` real estate acquisitions and dispositions , '' in our accompanying consolidated financial statements for additional information . depreciation and amortization expenses increased $ 44.1 million primarily as a result of additional depreciation and amortization related to our newly acquired properties . refer to note 2 , `` real estate acquisitions and dispositions , '' in our accompanying consolidated financial statements for additional information . extinguishment of debt decreased $ 1.7 million as compared to 2015. during 2016 , we repaid collateralized term loans that were due to mature during 2017. refer to note 8 , `` debt and lines of credit , '' in our accompanying consolidated financial statements for additional information . interest expense increased $ 11.4 million primarily due to our borrowing $ 338.0 million under a senior secured credit facility and entering into three mortgage loans totaling $ 405.0 million , both in june 2016. refer to note 8 , `` debt and lines of credit , '' in our accompanying consolidated financial statements for additional information . 46 sun communities , inc. other expenses , net in 2016 includes the impact of foreign currency exchange losses of $ 5.0 million , hurricane related costs of $ 1.2 million and contingent liability revaluation expense of $ 0.2 million , partially offset by a $ 0.5 million gain related to the acquisition of adirondack gateway . gain on disposition of properties , net decreased $ 125.4 million as we recorded no gains or losses during 2016 , whereas we disposed of 20 communities in 2015. deferred tax benefit ( expense ) was favorable by $ 1.4 million in 2016 as compared to 2015. during 2016 , we recognized a deferred tax benefit in connection with the carefree acquisition . in 2015 , we increased the valuation allowance on shs loss carryforwards by $ 1.0 million . income from affiliate transactions was $ 7.5 million in 2015 due to a distribution to us from origen financial , inc . ( `` origen . '' ) in 2016 , we sold our entire interest in origen consisting of 5,000,000 shares for proceeds of $ 0.5 million . the carrying value of our investment in origen prior to the sale was zero . preferred stock redemption costs were $ 4.3 million in 2015 as a result of a repurchase agreement with certain holders of the company 's series a-4 preferred stock . there were no such redemptions in 2016 .
| acquisition activity : during the past three years , we have completed acquisitions of over 180 properties with over 55,000 sites located in high growth areas and retirement and vacation destinations such as florida , california , and eastern coastal areas such as old orchard beach , maine ; cape may , new jersey ; chesapeake bay , virginia ; and cape cod , massachusetts . we have also expanded into ontario , canada , with the carefree acquisition . the following table depicts our acquired sites during 2016 and 2015 : replace_table_token_17_th 37 sun communities , inc. during 2016 , we completed nine acquisitions , as detailed in the table below : replace_table_token_18_th ( 1 ) the carefree acquisition was comprised of 103 mh and rv communities , concentrated in california , florida and ontario , canada . we terminated the ground lease arrangement for one community included in the carefree communities during the fourth quarter of 2016 . ( 2 ) we have engaged the sellers of sunset beach to continue to operate and maintain the property . beginning january 1 , 2022 , we have the option to remove the sellers as operators via a payment based on certain operating performance metrics . accordingly , total consideration of $ 28.3 million includes a contingent consideration liability of $ 9.8 million as of the acquisition date . the contingent liability was $ 10.0 million as of december 31 , 2016 . ( 3 ) we recorded a $ 0.5 million bargain purchase gain within other expense , net in the consolidated statements of operations in the accompanying consolidated financial statements for the year ended december 31 , 2016 , in connection with the adirondack gateway acquisition . expansion activity : we have been focused on expansion opportunities adjacent to our existing communities , and we have developed nearly 1,200 sites over the past three years . we expanded 663 mh sites at eight properties in 2016 . the total cost to construct the sites was approximately $ 13.5 million . we continue to expand our properties utilizing our inventory of owned and entitled land ( approximately 10,600 to be developed sites ) and expect
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at the same time , these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns . path to full potential since the launch of the enterprise strategy , the company has made considerable progress to position itself to reach full potential . the itw business model and unique set of capabilities are a source of strong and enduring competitive advantage , but for the company to truly finish the job and reach its full potential , every one of its divisions must also be operating at its full potential . to do so , the company remains focused on its core principles to position itw to perform to its full potential : portfolio discipline 80/20 front-to-back practice excellence full-potential organic growth portfolio discipline the company only operates in industries where it can generate significant , long-term competitive advantage from the itw business model . itw businesses have the right `` raw material '' in terms of market and business attributes that best fit the itw business model and have significant potential to drive above-market organic growth over the long-term . the company focuses on high-quality businesses , ensuring it operates in markets with positive long-term macro fundamentals and with customers that have critical needs and value itw 's differentiated products , services and solutions . itw 's portfolio operates in highly diverse end markets and geographies which makes the company more resilient in the face of uncertain or volatile market environments . the company routinely evaluates its portfolio to ensure it delivers sustainable differentiation and drives consistent long-term performance . this includes both implementing portfolio refinements and assessing selective high-quality acquisitions to supplement itw 's long-term growth potential . the company previously communicated its intent to explore options , including potential divestitures , for certain businesses with revenues totaling up to $ 1 billion . the company expects any earnings per share dilution from divestitures would be 20 offset by incremental share repurchases . in the fourth quarter of 2019 , the company completed the divestitures of three businesses and continues to evaluate options for certain other businesses . however , due to the covid-19 pandemic in 2020 , the company has deferred any further significant divestiture activity until market conditions normalize . refer to note 3. divestitures in item 8. financial statements and supplementary data for more information regarding the company 's divestitures . 80/20 front-to-back practice excellence the 80/20 front-to-back process is a rigorous , iterative and highly data-driven approach to identify where the company has true differentiation and the ability to drive sustainable , high-quality organic growth . the company simplifies and eliminates complexity and redesigns every aspect of its business to ensure focused execution on key opportunities , markets , customers , and products . itw will continue to drive 80/20 front-to-back practice excellence in every division in the company , every day . driving strong operational excellence in the quality of 80/20 front-to-back practice across the company , division by division , will produce further customer-facing performance improvement in a number of the company 's divisions and additional structural margin expansion at the enterprise level . near-term priorities while it was the challenges brought about by the covid-19 pandemic that dominated the company 's attention in 2020 , it was the collection of capabilities and competitive advantages that have been built and honed over the past eight years through the execution of itw 's enterprise strategy that provided the company with the options to respond . this , coupled with the proprietary and powerful itw business model , diversified high-quality business portfolio and diligent execution put the company in a position of strength in dealing with the global pandemic . from the early days of the pandemic , the company focused its efforts on the following priorities : ( 1 ) protect the health and support the well-being of itw 's colleagues ; ( 2 ) continue to serve the company 's customers with excellence to the best of its ability ; ( 3 ) maintain financial strength , liquidity and strategic optionality ; and ( 4 ) leverage the company 's strengths to position it to fully participate in the recovery . `` win the recovery '' is an execution component of the company 's enterprise strategy , not a separate initiative , with every one of the company 's divisions identifying specific opportunities presented by the pandemic to capture sustainable share gains that are aligned with the itw long-term enterprise strategy . these efforts are just beginning to take hold and the company expects them to contribute meaningfully to accelerate its progress toward full-potential organic growth . the company continues to focus on delivering strong results in any environment while executing its long-term strategy to achieve and sustain itw 's full potential performance . full-potential organic growth reaching full potential means that every division is positioned for sustainable , high-quality organic growth . the company has clearly defined action plans aimed at leveraging the performance power of the itw business model to achieve full-potential organic growth in every division , with specific focus on : `` 80 '' focused market penetration - fully leveraging the considerable growth potential that resides in the company 's largest and most differentiated product offerings and customer relationships customer-back innovation - strengthening the company 's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers strategic sales excellence - deploying a high-performance sales function in every division as the company continues to make progress toward its full potential , the company will explore opportunities to reinforce or further expand the long-term organic growth potential of itw through the addition of selective high-quality acquisitions , such as the recently announced agreement with amphenol corporation ( `` amphenol '' ) , whereby the company will acquire the test & simulation business of mts systems corporation ( `` mts '' ) following the closing of amphenol 's acquisition of mts . story_separator_special_tag upon completion of this acquisition , this business will be reported within the company 's test & measurement and electronics segment . 21 terms used by itw management uses the following terms to describe the financial results of operations of the company : organic business - acquired businesses that have been included in the company 's results of operations for more than 12 months on a constant currency basis . operating leverage - the estimated effect of the organic revenue volume changes on organic operating income , assuming variable margins remain the same as the prior period . price/cost - represents the estimated net impact of increases or decreases in the cost of materials used in the company 's products versus changes in the selling price to the company 's customers . product line simplification ( pls ) - focuses businesses on eliminating the complexity and overhead costs associated with smaller product lines and customers , and focuses businesses on supporting and growing their largest customers and product lines ; in the short-term , pls may result in a decrease in revenue and overhead costs while improving operating margin . in the long-term , pls is expected to result in growth in revenue , profitability , and returns . unless otherwise stated , the changes in financial results in the consolidated results of operations and the results of operations by segment represent the current year period versus the comparable period in the prior year . consolidated results of operations in early 2020 , an outbreak of a novel strain of coronavirus ( covid-19 ) occurred in china and other jurisdictions . the covid-19 outbreak was subsequently declared a global pandemic by the world health organization on march 11 , 2020. in response to the outbreak , governments around the globe have taken various actions to reduce its spread , including travel restrictions , shutdowns of businesses deemed nonessential , and stay-at-home or similar orders . the covid-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy , causing significant disruptions in the company 's global operations starting primarily in the latter part of the first quarter of 2020 as covid-19 continued to spread and impact the countries in which the company operates and the markets the company serves . the company delivered solid financial results in 2020 despite the extraordinary challenges posed by the covid-19 pandemic , as the company experienced solid recovery progress in many of its end markets in the third and fourth quarters of 2020 versus the second quarter . the primary driver of the company 's financial performance is the continued successful execution of enterprise initiatives and continued focus on the highly differentiated itw business model . in 2020 , despite the decline in operating revenue of 10.9 percent , the company generated operating income of $ 2.9 billion , operating margin was 22.9 percent , free cash flow was $ 2.6 billion and after-tax return on average invested capital was 26.2 percent . additionally , all segments , other than the food equipment , automotive oem and welding segments , which had more pronounced impacts from the covid-19 pandemic , had operating margins that improved compared to the prior year . refer to the cash flow and after-tax return on average invested capital sections of liquidity and capital resources for a reconciliation of these non-gaap measures . for the duration of the covid-19 pandemic , the company is focusing on the following priorities : ( 1 ) protect the health and support the well-being of itw 's colleagues ; ( 2 ) continue to serve the company 's customers with excellence to the best of its ability ; ( 3 ) maintain financial strength , liquidity and strategic optionality ; and ( 4 ) leverage the company 's strengths to position it to fully participate in the recovery phase . to support itw 's colleagues , among its many actions and initiatives , the company redesigned production processes to ensure proper social distancing practices , adjusted shift schedules and assignments to help colleagues who have child and elder care needs , and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk . to support its customers , the company has worked diligently to keep its facilities open and operating safely . the company has adapted customer service systems and practices to seamlessly serve its customers under “ work from home ” requirements in many parts of the world . in areas around the world where governments issued stay-at-home or similar orders , the vast majority of itw 's businesses were designated as critical or essential businesses and , as such , they remained open and operational . in some cases , this is because the company 's products directly impact the covid-19 response effort . in other cases , the company 's businesses are designated as critical because they play a vital role in serving and supporting industries that are deemed essential to the physical and economic health of our communities . 22 while the vast majority of the company 's facilities remained open and operational during the pandemic in 2020 , many of these facilities were operating at a reduced capacity . the full extent of the covid-19 outbreak and its impact on the markets served by the company and on the company 's operations and financial position continues to be highly uncertain . a prolonged outbreak will continue to interrupt the operations of the company and its customers and suppliers . a description of the risks relating to the impact of the covid-19 outbreak on the company 's business , operations and financial condition is contained in part i , item 1a . risk factors . separately , the company does not believe that tariffs imposed in recent years have had a material impact on its operating results .
| operating margin of 17.8 % in 2020 decreased 370 basis points primarily due to negative operating leverage of 330 basis points , product mix and unfavorable price/cost of 20 basis points , partially offset by benefits from the company 's enterprise initiatives and lower restructuring expenses . 2019 compared to 2018 replace_table_token_9_th operating revenue declined due to lower organic revenue and the unfavorable effect of foreign currency translation . organic revenue declined 5.4 % versus worldwide auto builds which decreased 6 % . auto builds for north america , europe and china , where the company has a higher concentration of revenue as compared to other geographic regions , declined 6 % . product line simplification activities reduced organic revenue by 120 basis points . additionally , organic revenue was negatively impacted by approximately 100 basis points due to unexpected customer shutdowns in north america in the second half of 2019 . ◦ north american organic revenue decreased 7.8 % compared to north american auto builds which were down 4 % due to customer mix . auto builds for the detroit 3 , where the company has higher content , decreased 8 % . additionally , 2019 was negatively impacted by unexpected customer shutdowns . ◦ european organic revenue declined 4.5 % compared to european auto builds which declined 4 % in 2019 due to customer mix . ◦ asia pacific organic revenue declined 2.2 % in 2019. china organic revenue declined 1.0 % versus chinese auto builds which declined 8 % in 2019. operating margin was 21.5 % in 2019. the decrease of 100 basis points was primarily due to negative operating leverage of 90 basis points , unfavorable price/cost of 60 basis points , higher restructuring expenses and product mix , partially offset by benefits from the company 's enterprise initiatives . 26 food equipment this segment is a highly focused and branded industry leader in commercial food equipment differentiated by innovation and integrated service offerings . this segment primarily serves the food service , food retail and food institutional/restaurant markets . products in this segment include : warewashing equipment ; cooking equipment , including ovens , ranges and broilers ; refrigeration equipment , including refrigerators , freezers and prep
| 11,902 |
the percentage of our fortigate related billings from the high-end category increased to 36.9 % in fiscal 2011 from 34.3 % in fiscal 2010 , while the entry-level category decreased from 35.0 % to 32.1 % , and the mid-range category remained relatively flat over the same period . this shift towards the high-end category positively impacted results in fiscal 2011. we also believe continued product innovation has strengthened our technology advantage as evidenced by the earlier introduction of several noteworthy new fortigate appliance models such as the fg-60c , fg-3040b , fg-3950b and fg-5001b . during fiscal 2011 we also made a significant investment in our sales force to expand our global presence both geographically as well as by industry segment . we believe these factors have allowed us to penetrate into larger enterprise and service provider accounts as evidenced by the increase in the number of deals involving sales greater than $ 100,000. billings ( a non-gaap financial measure that we define as total revenue plus the change in deferred revenue ) were $ 475.8 million in fiscal 2011 , an increase of 26.7 % compared to fiscal 2010 . total revenue was $ 433.6 million for fiscal 2011 , an increase of 33.5 % compared to fiscal 2010 . revenue for fiscal 2011 includes approximately $ 20.0 million , or 4.6 % , positive impact related to the adoption of the new revenue recognition rules , as described in our `` summary of significant accounting policies included in - footnote 1 of our consolidated financial statements . '' the increase in revenue resulting from our adoption of the new revenue recognition rules was attributable to both using `` best estimated sale price '' in our allocation of arrangement consideration when we did not have vendor-specific objective evidence ( `` vsoe '' ) , and being able to recognize upon shipment certain product revenue , which would have been deferred under the previous revenue recognition rules . product revenue was $ 197.4 million , an increase of 46.1 % compared to fiscal 2010 , and a greater percentage of total revenue ( 45.5 % in fiscal 2011 , compared to 41.6 % in fiscal 2010 ) . introduction of new products , including some non-fortigate products , was one factor in the growth of our product revenue . services revenue in fiscal 2011 was $ 220.3 million , an increase of 28.0 % compared to fiscal 2010 . services revenue is important to our future revenue and profitability as it provides a source of recurring revenue for us , representing 50.8 % and 53.0 % of total revenue for fiscal 2011 and 2010 , respectively . ratable and other revenue in fiscal 2011 was $ 15.9 million , a decrease of 9.2 % compared to fiscal 2010 , primarily due to the decline in ratable revenue amortization due to the new revenue recognition rules . we are a global , geographically diversified business , with 60.2 % of our total revenue generated outside the united states , canada and other americas ( `` americas '' ) regions in fiscal 2011. our operating results were driven by strong performance across all geographies . for fiscal 2011 , americas generated $ 172.5 million , or 39.8 % , of our total revenue , representing an increase of 39.2 % from fiscal 2010 . europe , middle east and africa ( `` emea '' ) generated $ 152.4 million , or 35.1 % , of our total revenue during fiscal 2011 , representing an increase of 25.3 % from fiscal 2010 . asia pacific and japan ( `` apac '' ) generated $ 108.7 million , or 25.1 % , of our total revenue during fiscal 2011 , representing an increase of 37.4 % from fiscal 2010. in fiscal 2011 , our total operating expenses were $ 231.1 million , an increase of 25.5 % compared to fiscal 2010. the 33.5 % increase in revenues compared to the 25.5 % increase in operating expenses in fiscal 2011 ( as discussed under `` results of operations '' below ) demonstrates the leverage that we achieved from the efficiencies in our business operations during the past year . despite the negative impact of foreign currency fluctuations experienced during fiscal 2011 , operating expenses as a percentage of revenue decreased to 53.4 % from 56.7 % during fiscal 2010. we are also experiencing improvements in productivity and efficiencies in our overall headcount as our annualized fiscal 2011 revenue per employee , defined as annual revenue divided by average headcount , reached $ 297,000 , up from $ 254,000 for fiscal 2010 . headcount increased from 1,336 at the end of fiscal 2010 to 1,583 at the end of fiscal 2011 , as our pace of hiring increased during fiscal 2011 , particularly in sales and marketing and research and development . our business model 37 our sales strategy is based on a distribution model whereby we primarily sell our products and services directly to distributors who sell to resellers and service providers , who , in turn , sell to our end-customers . in certain cases , we sell directly to government-focused resellers , large service providers and major systems integrators , who have significant purchasing power and unique customer deployment requirements . typically , fortiguard security subscription services and forticare technical support services are purchased along with our physical and virtual appliances . we invoice at the time of our sale for the total price of the products and subscription and support services , and the invoice generally becomes payable within 30 to 90 days . we generally recognize product revenue up-front based on the allocated revenue value and defer revenue for the sale of new and renewal subscription and support services contracts . we recognize the related services revenue over the service period , which is typically one year from the date the end-customer registers for these services ( the date on which the services can first be used by the customer ) , although it can be as long as five years . story_separator_special_tag sales of new and renewal services increase our deferred revenue balance , which contributes significantly to our positive cash flow from operations . key metrics we monitor the key financial metrics set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . our total deferred revenue increased by $ 42.2 million from $ 252.6 million at december 31 , 2010 to $ 294.8 million at december 31 , 2011 . revenue recognized plus the change in deferred revenue from the beginning to the end of the period is a useful metric that management identifies as billings . billings for services drive deferred revenue , which is an important indicator of the health and visibility of our business , and has historically represented a majority of the revenue that we recognize in a typical quarter . we also ended fiscal 2011 with $ 538.7 million in cash , cash equivalents and investments and have had positive cash flow from operations every fiscal year since 2005. we discuss revenue , gross margin , and the components of operating income and margin below under “ components of operating results , ” and we discuss our cash , cash equivalents , and investments under “ liquidity and capital resources. ” deferred revenue and cash provided by operating activities are discussed immediately below the following table . fiscal year or as of fiscal year end 2011 2010 2009 ( $ amounts in 000 's ) revenue 433,576 324,696 252,115 gross margin 73.8 % 73.8 % 72.2 % operating income ( 1 ) 88,904 55,341 25,334 operating margin 20.5 % 17.0 % 10.0 % total deferred revenue 294,833 252,631 201,930 increase in total deferred revenue 42,202 50,701 30,313 cash , cash equivalents and investments 538,687 387,460 260,314 cash provided by operating activities 132,842 103,383 61,971 free cash flow ( 2 ) 135,218 99,607 57,382 _ ( 1 ) includes : stock-based compensation expense : 19,015 9,315 7,461 non-cash asset acquisition related write-offs : — — 2,387 patent settlement income 1,911 — — ( 2 ) see below for definition of free cash flow . deferred revenue . our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue . the majority of our deferred revenue balance consists of the unamortized portion of services revenue from subscription and support service contracts . we monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods . the following table reflects the calculation of billings as discussed above . 38 replace_table_token_6_th cash provided by operating activities . we monitor cash provided by operating activities as a measure of our overall business performance . our cash provided by operating activities is driven in large part by advance payments for both new and renewal contracts for subscription and support services . monitoring cash provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as depreciation , amortization and stock-based compensation expenses , thereby allowing us to better understand and manage the cash needs of our business . free cash flow , an alternative non-gaap financial measure of liquidity , is defined as net cash provided by operating activities less capital expenditures . replace_table_token_7_th other non-gaap financial measures to supplement our consolidated financial statements presented in accordance with u.s. gaap , we consider certain financial measures that are not prepared in accordance with gaap , including non-gaap gross margin , non-gaap operating income and non-gaap operating margin , non-gaap operating expenses , non-gaap net income and non-gaap free cash flow . these non-gaap financial measures are not based on any standardized methodology prescribed by gaap and are not necessarily comparable to similar measures presented by other companies . we use these non-gaap financial measures internally in analyzing our financial results and believe they are useful to investors , as a supplement to gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance , as they help illustrate underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in these non-gaap financial measures . furthermore , we use many of these measures to establish budgets and operational goals for managing our business and evaluating our performance . we also believe that the use of these non-gaap financial measures provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry , many of which present similar non-gaap financial measures to investors . these non-gaap financial measures should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with gaap . there are a number of limitations related to the use of these non-gaap financial measures versus the nearest gaap equivalent of these financial measures . first , these non-gaap financial measures exclude certain recurring charges including , but not limited to , stock-based compensation expense , asset acquisition related write-offs , and patent settlements . stock-based compensation has been , and will continue to be for the foreseeable future , a significant recurring expense in our business and is an important part of our employees ' overall compensation . second , the expenses that we exclude in our calculation of these non-gaap financial measures may differ from the expenses , if any , that our peer companies may exclude when they report their results of operations . we compensate for these limitations by providing the nearest gaap equivalents of these non-gaap financial measures and describing these gaap equivalents in our results of operations below . 39 non-gaap gross margin is gross profit as reported on our consolidated statements of operations , excluding the impact of stock-based compensation expense , which is a non-cash charge .
| ratable and other revenue was $ 4.2 million lower due to the impact of no longer deferring ratable revenue as a result of the above-mentioned adoption of new revenue recognition rules , 49 offset by a $ 2.6 million sale of previously-acquired patents . cost of revenue and gross margin replace_table_token_14_th total gross margin remained consistent in fiscal 2011 compared to fiscal 2010 . product gross margin increased 1.3 percentage points in fiscal 2011 compared to fiscal 2010 primarily due to a greater mix of our high-end products . from time to time , we have experienced sales of previously reserved inventory . during fiscal 2011 , we experienced a positive impact of 0.4 percentage points in our product gross margin due to the sale of fully reserved inventory compared to a positive impact of 0.7 percentage points in fiscal 2010. services gross margin was relatively flat as we continued to make investments in our support , professional services and fortiguard global security organizations at a rate slightly greater than the increase in revenue in order to improve service capabilities . services cost increased by $ 8.5 million primarily due to a $ 6.1 million increase in cash-based personnel costs related to headcount increases , a $ 0.9 million increase in stock-based compensation , a $ 0.8 million increase in warranty and other expenses and a $ 0.7 million increase in professional services costs . ratable and other revenue gross margin increased 5.1 percentage points as a result of a $ 2.6 million sale of previously-acquired patents during fiscal 2011 , which had a direct positive impact to gross margins . operating expenses replace_table_token_15_th research and development expense research and development expense increased $ 13.8 million , or 27.7 % , in fiscal 2011 compared to fiscal 2010 primarily due to an increase in cash-based personnel costs and stock-based compensation expense . cash-based personnel costs increased by $ 9.7 million
| 11,903 |
for fiscal 2017 , net income was $ 422.6 million , or $ 3.30 per diluted share , compared to $ 437.1 million , or $ 3.27 per diluted share , in fiscal 2016. excluding the impact of the revaluation of the company 's net deferred tax asset resulting in a one-time , non-cash charge of approximately $ 4.9 million , or $ 0.03 per diluted share , adjusted net income for fiscal 2017 was $ 427.5 million , or $ 3.33 per diluted share . we ended the year with $ 109.1 million in cash and outstanding debt of $ 426.1 million , after returning $ 503.2 million to our stockholders through stock repurchases and quarterly cash dividends . significant accounting policies and estimates management 's discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . our financial position and or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies . in the event estimates or assumptions prove to be different from actual amounts , adjustments are made in subsequent periods to reflect more current information . our significant accounting policies are disclosed in note 1 to our consolidated financial statements . the following discussion addresses our most critical accounting policies , which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates . description judgments and uncertainties effect if actual results differ from assumptions inventory valuation : inventory impairment we identify potentially excess and slow-moving inventory by evaluating turn rates , historical and expected future sales trends , age of merchandise , overall inventory levels , current cost of inventory and other benchmarks . we have established an inventory valuation reserve to recognize the estimated impairment in value ( i.e. , an inability to realize the full carrying value ) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies . we do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term . however , changes in market conditions or consumer purchasing patterns could result in the need for additional reserves . our impairment reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment . we have not made any material changes in the accounting methodology used to recognize inventory impairment reserves in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment . however , if assumptions regarding consumer demand or clearance potential for certain products are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our impairment reserve as of december 30 , 2017 , would have affected net income by approximately $ 0.5 million in fiscal 2017 . 21 index description judgments and uncertainties effect if actual results differ from assumptions shrinkage we perform physical inventories at least once a year for each store that has been open more than 12 months , and we have established a reserve for estimating inventory shrinkage between physical inventory counts . the reserve is established by assessing the chain-wide average shrinkage experience rate , applied to the related periods ' sales volumes . such assessments are updated on a regular basis for the most recent individual store experiences . the estimated store inventory shrink rate is based on historical experience . we believe historical rates are a reasonably accurate reflection of future trends . our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends , the effect of loss prevention measures and new merchandising strategies . we have not made any material changes in the accounting methodology used to recognize shrinkage in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our shrinkage reserve . however , if our estimates regarding inventory losses are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our shrinkage reserve as of december 30 , 2017 , would have affected net income by approximately $ 1.7 million in fiscal 2017. vendor funding we receive funding from substantially all of our significant merchandise vendors , in support of our business initiatives , through a variety of programs and arrangements , including vendor support funds ( “ vendor support ” ) and volume-based rebate funds ( “ volume rebates ” ) . the amounts received are subject to terms of vendor agreements , most of which are “ evergreen ” , reflecting the on-going relationship with our significant merchandise vendors . certain of our agreements , primarily volume rebates , are renegotiated annually , based on expected annual purchases of the vendor 's product . vendor funding is initially deferred as a reduction of the purchase price of inventory , and then recognized as a reduction of cost of merchandise as the related inventory is sold . during interim periods , the amount of vendor support and volume rebates is estimated based upon initial commitments and anticipated purchase levels with applicable vendors . the estimated purchase volume ( and related vendor funding ) is based on our current knowledge of inventory levels , sales trends and expected customer demand , as well as planned new store openings and relocations . story_separator_special_tag although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods , it is possible that actual year-end results could be different from previously estimated amounts . our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand , purchasing activity , target thresholds , vendor attrition and collectability . we have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented . at the end of each fiscal year , a significant portion of the actual purchase activity is known . thus , we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding . we do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2017. if a 10 % reserve had been applied against our outstanding vendor funding due as of december 30 , 2017 , net income would have been affected by approximately $ 1.4 million in fiscal 2017. although it is unlikely that there will be any significant reduction in historical levels of vendor funding , if such a reduction were to occur in future periods , the company could experience a higher inventory balance and higher cost of sales . freight we incur various types of transportation and delivery costs in connection with inventory purchases and distribution . such costs are included as a component of the overall cost of inventories ( on an aggregate basis ) and recognized as a component of cost of merchandise sold as the related inventory is sold . we allocate freight as a component of total cost of sales without regard to inventory mix or unique freight burden of certain categories . this assumption has been consistently applied for all years presented . we have not made any material changes in the accounting methodology used to establish our capitalized freight balance or freight allocation in the financial periods presented . if a 10 % increase or decrease had been applied against our current inventory capitalized freight balance as of december 30 , 2017 , net income would have been affected by approximately $ 7.8 million in fiscal 2017 . 22 index description judgments and uncertainties effect if actual results differ from assumptions self-insurance reserves : we self-insure a significant portion of our employee medical insurance , workers ' compensation insurance and general liability ( including product liability ) insurance plans . we have stop-loss insurance policies to protect from individual losses over specified dollar values . provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience , demographic factors and severity factors . the full extent of certain claims , especially workers ' compensation and general liability claims , may not become fully determined for several years . our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience , including actuarial calculations . we have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves . however , if we experience a significant increase in the number of claims or the cost associated with these claims , we may be exposed to losses that could be material . a 10 % change in our self-insurance reserves as of december 30 , 2017 , would have affected net income by approximately $ 3.6 million in fiscal 2017. sales tax audit reserve : a portion of our sales are to tax-exempt customers , predominantly agricultural-based . we obtain exemption information as a necessary part of each tax-exempt transaction . many of the states in which we conduct business will perform audits to verify our compliance with applicable sales tax laws . the business activities of our customers and the intended use of the unique products sold by us create a challenging and complex tax compliance environment . these circumstances also create some risk that we could be challenged as to the accuracy of our sales tax compliance . when establishing our sales tax audit reserve , we review our past audit experience and assessments with applicable states to continually determine if we have potential exposure for non-compliance . any estimated liability is based on an initial assessment of compliance risk as well as our historical experience with each respective state . we continually reassess the exposure based on historical audit results , changes in policies , preliminary and final assessments made by state sales tax auditors and additional documentation that may be provided to reduce the assessment . our sales tax audit reserve contains uncertainties because management is required to make assumptions and to apply judgment regarding the complexity of agricultural-based exemptions , the ambiguity in state tax regulations , the number of ongoing audits and the length of time required to settle with the state taxing authorities . we have not made any material changes to our sales tax audit assessment methodology in the financial periods presented . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate the sales tax liability reserve . however , if our estimates regarding the ultimate sales tax liability are inaccurate , we may be exposed to losses or gains that could be material . a 10 % change in our sales tax audit reserve as of december 30 , 2017 , would have affected net income by approximately $ 0.9 million in fiscal 2017 .
| if the effect of relocated stores on our comparable store metrics becomes material , we would remove relocated stores from the calculations . acquired petsense stores are considered comparable beginning in the fourth quarter of fiscal 2017. the comparable store sales increase was driven by an increase in traffic counts and the year-round strength of consumable , usable and edible ( `` c.u.e . '' ) products , primarily animal- and pet-related merchandise . warmer than normal weather patterns early in the first quarter negatively impacted the sales of winter seasonal items and winter storms in march had an unfavorable impact on the start to the spring selling season . beginning in the second quarter , we experienced broad-based improvement through the remainder of the year in all geographic regions and major product categories driven by strength in sales of everyday basic items in c.u.e . and year-round products . the third quarter experienced an additional benefit from an extended spring and summer selling season and strong sales of emergency response products related to hurricanes during the quarter while the fourth quarter experienced an additional benefit from solid sales in cold weather and other seasonal products . in addition to comparable store sales growth in fiscal 2017 , sales from stores opened less than one year , including petsense , were $ 405.0 million in fiscal 2017 , which represented 6.0 percentage points of the 7.0 % increase over fiscal 2016 net sales . sales from stores opened less than one year , including petsense , were $ 378.9 million in fiscal 2016 , which represented 6.1 percentage points of the 8.9 % increase over fiscal 2015 net sales . the following table summarizes our store growth during fiscal 2017 and 2016 : replace_table_token_12_th 28 index the following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2017 and 2016 : replace_table_token_13_th gross profit increased 7.2 % to $ 2.49 billion in fiscal 2017 compared to $ 2.33 billion in fiscal 2016 . as a
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our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends , expected claims severity , judicial theories of liability and other factors . however , during the loss adjustment period , our insurance subsidiaries may learn additional facts regarding individual claims , and , consequently , it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates of liability . we reflect any adjustments to our insurance subsidiaries ' liabilities for losses and loss expenses in our consolidated results of operations in the period in which our insurance subsidiaries make the changes in estimates . our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims . our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses , including investigation and litigation costs . our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved , knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred . our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance . our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results . our insurance subsidiaries closely monitor their liabilities and recompute them periodically using new information on reported claims and a variety of statistical techniques . our insurance subsidiaries do not discount their liabilities for losses . reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries ' external environment and , to a lesser extent , assumptions related to our insurance subsidiaries ' internal operations . for example , our insurance subsidiaries have experienced a decrease in claims frequency on workers ' compensation claims during the past several years while claims severity has gradually increased . these trend changes give rise to greater uncertainty as to the pattern of future loss settlements on workers ' compensation claims . related uncertainties regarding future trends include the cost of medical technologies and procedures and changes in the utilization of medical procedures . assumptions related to our insurance subsidiaries ' external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure , consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation . internal assumptions include consistency in the recording of premium and loss statistics , consistency in the recording of claims , payment and case reserving methodology , accurate measurement of the impact of rate changes and changes in policy provisions , consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses , among other items . to the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed , our insurance subsidiaries attempt to make appropriate adjustments for such changes in their reserves . accordingly , our insurance subsidiaries ' ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at december 31 , 2014. for every 1 % change in our insurance subsidiaries ' estimate for loss and loss expense reserves , net of reinsurance recoverable , the effect on our pre-tax results of operations would be approximately $ 2.9 million . the establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries ' ultimate liability will not exceed our insurance subsidiaries ' loss and loss expense reserves and have an adverse effect on our results of operations and financial condition . furthermore , we can not predict the timing , frequency and extent of adjustments to our insurance subsidiaries ' estimated future liabilities , since the historical conditions and events that serve as a basis for our insurance subsidiaries ' estimates of ultimate claim costs may change . as is the case for substantially all property and casualty insurance companies , our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and , in other periods , their estimates of future liabilities have exceeded their actual liabilities . changes in our insurance subsidiaries ' estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received since the prior reporting date . our insurance subsidiaries recognized an increase in their liability for losses and loss expenses of prior years of $ 14.5 million , $ 10.4 million and $ 7.6 million in 2014 , 2013 and 2012 , respectively . our insurance subsidiaries made no significant changes in their reserving philosophy , key reserving assumptions or claims management personnel , and have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in these years . the 2014 development represented 5.4 % of the december 31 , 2013 net carried reserves and resulted primarily from higher-than-expected severity in the private passenger automobile liability , commercial multiple peril and commercial automobile lines of business in accident years prior to 2014 . -40- excluding the impact of weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . however , the amount of the average claim outstanding has increased gradually over the past several years as the united states property and casualty insurance industry has experienced increased litigation trends and economic conditions that have extended the estimated length of disabilities and contributed to increased medical loss costs . story_separator_special_tag we have also experienced a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses at december 31 , 2014. atlantic states ' participation in the pool with donegal mutual exposes it to adverse loss development on the business of donegal mutual that the pool includes . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states proportionately share any adverse risk development of the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since substantially all of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies . our insurance subsidiaries ' liability for losses and loss expenses by major line of business at december 31 , 2014 and 2013 consisted of the following : replace_table_token_14_th -41- we have evaluated the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves . we established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries ' loss reserves as a whole . the selected range does not necessarily indicate what could be the potential best or worst case or the most-likely scenario . the following table sets forth the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves : replace_table_token_15_th ( 1 ) net of income tax effect . our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported ( ibnr ) claims . our insurance subsidiaries develop their reserve estimates based on an assessment of known facts and circumstances , review of historical loss settlement patterns , estimates of trends in claims severity , frequency , legal and regulatory changes and other assumptions . our insurance subsidiaries consistently apply actuarial loss reserving techniques and assumptions , which rely on historical information as adjusted to reflect current conditions , including consideration of recent case reserve activity . our insurance subsidiaries use the most-likely number their actuaries determine . for the year ended december 31 , 2014 , the actuaries developed a range from a low of $ 266.3 million to a high of $ 310.4 million and with a most-likely number of $ 292.3 million . the actuaries ' range of estimates for commercial lines in 2014 was $ 169.0 million to $ 203.5 million , and the actuaries selected the most-likely number of $ 185.4 million . the actuaries ' range of estimates for personal lines in 2014 was $ 97.3 million to $ 106.9 million , and the actuaries selected the most-likely number of $ 106.9 million . for the year ended december 31 , 2013 , the actuaries developed a range from a low of $ 238.8 million to a high of $ 295.5 million and with a most-likely number of $ 265.6 million . the actuaries ' range of estimates for commercial lines in 2013 was $ 142.5 million to $ 176.2 million , and the actuaries selected the most-likely number of $ 158.5 million . the actuaries ' range of estimates for personal lines in 2013 was $ 96.2 million to $ 119.3 million , and the actuaries selected the most-likely number of $ 107.1 million . our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite . for personal lines products , our insurance subsidiaries insure standard and preferred risks in private passenger automobile and homeowners lines . for commercial lines products , the commercial risks that our insurance subsidiaries primarily insure are business offices , wholesalers , service providers , contractors , artisans and light manufacturing operations . our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities . our insurance subsidiaries write no medical malpractice liability risks . through the consistent application of this disciplined underwriting philosophy , our insurance subsidiaries have avoided many of the long-tail issues other insurance companies have faced . we consider workers ' compensation to be a long-tail line of business , in that workers ' compensation claims tend to be settled over a longer time frame than those in the other lines of business of our insurance subsidiaries . -42- the following table presents 2014 and 2013 claim count and payment amount information for workers ' compensation . workers ' compensation losses primarily consist of indemnity and medical costs for injured workers . replace_table_token_16_th investments we make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments .
| investment income for 2014 , our net investment income was $ 18.3 million , representing a slight decrease from 2013. an increase in our average invested assets from $ 799.1 million in 2013 to $ 812.4 million in 2014 was offset by a decrease in our annualized average rate of return to 2.3 % in 2014 , compared to 2.4 % in 2013. installment payment fees our insurance subsidiaries ' installment fees decreased primarily as a result of their customers ' increased usage of payment plans that have lower installment payment fees during 2014. net realized investment gains/losses our net realized investment gains in 2014 and 2013 were $ 3.1 million and $ 2.4 million , respectively . the net realized investment gains in 2014 and 2013 resulted from normal turnover within our investment portfolio . we did not recognize any impairment losses during 2014 or 2013. equity in earnings of dfsc our equity in the earnings of dfsc in 2014 and 2013 was $ 1.2 million and $ 2.9 million , respectively . the decrease in dfsc 's earnings during 2014 compared to 2013 resulted from a lesser benefit from acquisition accounting adjustments and a charge to terminate a lease obligation related to ucb 's former main office . losses and loss expenses our insurance subsidiaries ' loss ratio , which is the ratio of incurred losses and loss expenses to premiums earned , was 69.8 % in 2014 , compared to 66.6 % in 2013. our insurance subsidiaries ' commercial lines loss ratio increased to 72.0 % in 2014 , compared to 67.1 % in 2013. this increase resulted primarily from the commercial automobile loss ratio increasing to 83.2 % in 2014 , compared to 73.0 % in 2013 , and the commercial multi-peril loss ratio increasing to 73.5 % in 2014 , compared to 61.5 % in 2013. the personal lines loss ratio increased to 68.2 % in 2014 , compared to 66.3 % in 2013 , primarily as a result of a increase in the homeowners loss ratio to 60.4 % in 2014 , compared to 57.7 % in 2013 , primarily as a result
| 11,905 |
sale of dequincy assets in march 2015 , we executed a psa for the sale of our dequincy assets , our only remaining producing properties in louisiana , for total consideration of $ 44 million ( subject to customary purchase price adjustments ) . the psa includes our ownership interest in developed and undeveloped acreage totaling approximately 12,700 net mineral acres in the dequincy area . during the fourth quarter 2014 , the properties produced approximately 1,300 boe per day . the transaction does not include our acreage and interests in the fleetwood area of louisiana . the net proceeds from the sale will be used to pay down a portion of the outstanding borrowings under our revolving credit facility and for general corporate purposes . the transaction has an effective date of march 1 , 2015 and is expected to close on or before april 30 , 2015 , subject to customary closing conditions . 61 risks , uncertainties , and going concern our liquidity outlook has changed since the third quarter of 2014 due to the substantial decrease in commodity prices . this has resulted in lower operating cash flows than expected and , if commodity prices remain low compared to recent historical prices , will result in future significantly lower levels of operating cash flows as our current hedging contracts expire during 2015. as of december 31 , 2014 , we had available cash of approximately $ 11 million and availability under our senior reserve-based revolving credit facility ( the `` credit facility '' ) of approximately $ 90 million . if we have a downward revision in estimates of our proved reserves , our borrowing base for our revolving credit facility may be reduced , and as a result , our available liquidity will be reduced . as of december 31 , 2014 , payments due on our contractual obligations during the next twelve months are greater than $ 150 million . this includes approximately $ 130 million of interest payments on our senior notes and other operating expenses such as fixed drilling commitments and operating leases . we expect we will need to complete certain transactions , including management of our debt capital structure and potential asset sales , to have sufficient liquidity to satisfy these obligations in the long-term . as a result of the events described above , we believe that our forecasted cash and available credit capacity are not expected to be sufficient to meet our commitments as they come due over the next twelve months and that we will not be able to remain in compliance with our current debt covenants unless we are able to successfully increase our liquidity . the uncertainty associated with our ability to meet our commitments as they come due or to repay our outstanding debt raises substantial doubt about our ability to continue as a going concern . the accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might result from the uncertainty associated with our ability to meet our obligations as they come due . sources of our revenue oil , natural gas and natural gas liquids . our revenues are derived from the sale of oil and natural gas production , as well as the sale of ngls that are extracted from our high btu content natural gas . our oil and gas revenues do not include the effects of derivatives , and may vary significantly from period to period as a result of changes in production volumes or commodity prices . a further or extended decline in commodity prices could materially and adversely affect our business , financial condition and results of operations . prices for oil , natural gas and ngls fluctuate widely and affect : the amount of cash flows available for capital expenditures ; our ability to borrow and raise additional capital ; the quantity of oil , natural gas and ngls we can economically produce ; and revenues and profitability . average market prices for ngls and oil decreased significantly in the last part of 2014 with continued weakness into the first quarter of 2015. if commodity prices remain at levels experienced during the fourth quarter of 2014 and the first quarter of 2015 throughout 2015 , we expect significantly lower revenues and operating cash flows compared to historical results . realized and unrealized gain ( loss ) on commodity derivative financial contracts . we utilize commodity derivatives to reduce our exposure to fluctuations in the prices of oil , ngls and natural gas . in addition , we utilize derivatives to help mitigate our exposure to fluctuations in louisiana light sweet ( `` lls '' ) oil prices , which is the index price we receive for our gulf coast oil production , as compared to west texas intermediate ( `` nymex wti '' ) benchmark oil prices , which is the index price we receive in the mississippian lime and anadarko basin areas . accordingly , our income statements 62 reflect ( i ) the recognition of unrealized gains and losses associated with our open derivative contracts as commodity prices change and commodity derivatives contracts expire or new ones are entered into , and ( ii ) our realized gains or losses on the settlement of these commodity derivative contracts . unrealized gains and losses result from changes in market valuations of derivatives as future commodity price expectations change compared to the contract prices on the derivatives . if the expected future commodity prices increase compared to the contract prices on the derivatives , unrealized losses are recognized . conversely , if the expected future commodity prices decrease compared to the contract prices on the derivatives , unrealized gains are recognized . since we have elected not to apply hedge accounting to our derivatives , we reflect the unrealized and realized gains and losses in our current income statement periods based on the mark-to-market value at the end of each month . story_separator_special_tag cash flows associated with derivative financial instruments are reflected in cash flow from operations in our consolidated statement of cash flows . commodity prices . our revenues are heavily influenced by commodity prices , which are subject to wide fluctuations in response to changes in supply and demand . for a description of factors that may impact future commodity prices , please read `` risk factorsrisks related to the oil and natural gas industry and our business . '' for the prices we received per unit of volume for our oil , ngls and natural gas , both including and excluding the effects of our commodity derivative contracts , see table included on page 66. our expenses lease operating and workover expenses . these are daily costs incurred to bring oil and gas out of the ground and to the market , together with the daily costs incurred to maintain our producing properties . such costs also include natural gas treating expenses and the handling and disposal of produced water as well as maintenance and repair expenses related to our oil and gas properties . lease operating expenses include both a portion of costs that are fixed in nature , such as infrastructure costs , as well as variable costs resulting from additional wells and production . as production increases , our average lease operating expense per barrel of oil equivalent is typically reduced because fixed costs do not increase proportionately with production . workover expense includes major remedial operations on a completed well to restore , maintain , or improve a well 's production and is closely correlated to the levels of workover activity . because workover projects are pursued on an as needed basis and are not regularly scheduled , workover expense is not necessarily comparable from period to period . gathering and transportation . these costs are incurred for the gathering and transportation of natural gas to the contractual delivery point . for 2014 , these costs primarily relate to the amended gas transportation , gathering and processing contract which commenced during the third quarter of 2013 in the mississippian lime that includes a $ 0.36 per mmbtu gathering fee based upon wellhead volumes . severance and other taxes . severance taxes are paid on produced oil and gas based on a percentage of revenues from products sold at market prices or at fixed rates established by federal , state , or local taxing authorities . we attempt to take full advantage of all credits and exemptions in our various taxing jurisdictions . in general , the severance taxes we pay correlate to the changes in oil and gas revenues . ad valorem taxes are property taxes assessed based on the value of property and are also included in this expense category . depreciation , depletion and amortization . under the full cost accounting method , we capitalize costs within a cost center and systematically expense those costs on a unit of production basis based on proved oil and natural gas reserve quantities . we calculate depletion on the following types of costs : ( i ) all capitalized costs , other than the cost of investments in unproved properties for which proved reserves have not yet been assigned , less accumulated amortization ; ( ii ) estimated future expenditures to be incurred in developing proved reserves ; and ( iii ) estimated dismantlement and abandonment costs , net of any associated salvage value . 63 impairment in carrying value of oil and gas properties/ceiling test . as a public company , we apply rule 4-10 of regulation s-x , which requires the full-cost ceiling test to be performed on a quarterly basis . the test establishes a limit ( ceiling ) on the book value of oil and gas properties . the capitalized costs of proved oil and gas properties , net of accumulated depreciation , depletion and amortization ( `` dd & a '' ) and the related deferred income taxes , may not exceed this `` ceiling . '' the ceiling limitation is equal to the sum of : ( i ) the present value of estimated future net revenues from the projected production of proved oil and gas reserves , excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet , calculated using the average oil and natural gas sales price we received as of the first trading day of each month over the preceding twelve months ( such average price is held constant throughout the life of the properties ) and a discount factor of 10 % ; ( ii ) the cost of unproved and unevaluated properties excluded from the costs being amortized ; ( iii ) the lower of cost or estimated fair value of unproved properties included in the costs being amortized ; and ( iv ) related income tax effects . if capitalized costs exceed this ceiling , the excess is charged to impairment expense in the accompanying consolidated statements of operations . general and administrative expense . general and administrative expense consists , among other items , of overhead , including payroll and benefits for our corporate staff , non-cash charges for share-based compensation , costs of maintaining our headquarters , franchise taxes , audit and other professional fees , legal compliance , exchange act reporting expenses , expenses associated with sarbanes-oxley compliance , investor relations , director and officer liability insurance costs , and director compensation . certain of our employees hold units in midstates incentive holdings llc that entitle the holders to a portion of the proceeds to be received by first reserve , our private equity sponsor , upon sales of our common stock by frmi . any payments with respect to these units will only occur if and when first reserve achieves certain minimum return hurdles ( defined as certain multiples of first reserve 's capital contributions plus investment expenses ) on its investment through the sale of its shares of our common stock .
| average oil sales prices , without realized derivatives , decreased by $ 8.47 per barrel , or 9 % , to $ 90.71 per barrel for the year ended december 31 , 2014 as compared to $ 99.18 for the year ended december 31 , 2013. of the $ 466.7 million in total oil sales revenues , $ 272.9 million was from mississippian lime operations , $ 134.0 million was from the anadarko basin and $ 59.8 million was from the gulf coast . our ngls sales revenues increased by $ 25.5 million , or 41 % , to $ 87.8 million during the year ended december 31 , 2014 as compared to $ 62.3 million for the year ended december 31 , 2013. ngls volumes sold increased 698 mbbls , or 41 % , to 2,417 mbbls for the year ended december 31 , 2014 as compared to 1,719 mbbls for the year ended december 31 , 2013. the increase in ngls volumes sold was attributable to an increase of 663 mbbls of production volumes from our mississippian lime area and 250 mbbls of additional production volumes from our anadarko basin area ( the 2013 comparative period included only seven months of results due to the timing of the anadarko basin acquisition ) , partially offset by a decrease in gulf coast production of 215 mbbls ( of which , approximately 137 mbbls related to the pine prairie area ) . average ngls prices , without realized derivatives , increased by $ 0.05 per barrel , to $ 36.31 per barrel for the year ended december 31 , 2014 as compared to $ 36.26 per barrel for the year ended december 31 , 2013. of the $ 87.8 million in total ngls revenues , $ 57.7 million was from mississippian lime operations , $ 23.8 million was from the anadarko basin and $ 6.3 million was from the gulf coast . our natural gas sales revenues increased by $ 36.0 million , or 57 % , to $ 99.2 million during the year ended december 31 , 2014 as compared to $ 63.2 million for the year
| 11,906 |
this decrease was partially offset by increases in the ancillary business largely as a result of new product launches and broader marketing of our stm , individual dental , gap plans , and fixed indemnity limited benefit plans , and by growth in pet insurance and occupational accident lines of business , which are relatively new products to ihc ; 28 o underwriting experience , as indicated by its u.s. gaap combined ratios , for the fully insured segment are as follows for the years indicated ( in thousands ) : replace_table_token_7_th o the loss ratios are largely dependent on the mix of business in each year . in 2013 and 2014 , loss ratios were generally favorable in the specialty health lines of business , which have an increasing premium base , but were unacceptably high in both years on the decreasing major medical premium base , which we are exiting . in 2013 and 2014 , the company recorded an increase in claims experience on major medical , which we attribute , in large part , to changes brought on by health care reform , and 2014 includes the new health insurance tax . the 2013 year was also adversely impacted by a reserve adjustment related to business written through an mgu that was previously terminated . as we adjust our mix of business from major medical to that of a specialty health insurance company , we anticipate loss ratios lower than 2014 ( since we will have less major medical ) and an expense ratio similar to that of 2014 . · income before taxes from the group disability , life , annuities and dbl segment in 2014 increased $ 3.6 million compared to prior year results . the increase is primarily the result of better loss ratios in the dbl and group term life lines ; · losses before taxes from the individual life , annuities and other segment decreased $ 3.8 million for the year ended december 31 , 2014. while the results for 2014 reflect lower investment income and higher general expenses due to $ 3.5 million of amortization of deferred costs in correlation with the assumptions of certain ceded life and annuity policies , the results for 2013 include a $ 9.3 million write-off of deferred acquisition costs in connection with a coinsurance agreement ; · losses before tax from the corporate segment increased $ 2.2 million for the year ended december 31 , 2014 compared to the prior year primarily due to employee compensation expenses that vary with changes in ihc 's stock price and book value ; · net realized investment gains were $ 7.7 million for the year ended december 31 , 2014 compared to $ 19.8 million in 2013. a significant portion of the net realized investment gains in 2013 resulted from sales of invested assets in connection with the transfer of assets in accordance with the terms of a coinsurance agreement ; and 29 · premiums by principal product for the years indicated are as follows ( in thousands ) : replace_table_token_8_th replace_table_token_9_th information pertaining to the company 's business segments is provided in note 16 of notes to consolidated financial statements included in item 8. critical accounting policies the accounting and reporting policies of the company conform to u.s. gaap . the preparation of the consolidated financial statements in conformity with u.s. gaap requires the company 's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . a summary of the company 's significant accounting policies and practices is provided in note 1 of the notes to the consolidated financial statements included in item 8 of this report . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in those policies , are critical to an understanding of the company 's consolidated financial statements and this management 's discussion and analysis . insurance premium revenue recognition and policy charges premiums for short-duration medical insurance contracts are intended to cover expected claim costs resulting from insured events that occur during a fixed period of short duration . the company has the ability to not renew the contract or to revise the premium rates at the end of each annual contract period to cover future insured events . insurance premiums from annual health contracts are collected monthly and are recognized as revenue evenly as insurance protection is provided . premiums related to long-term and short-term disability contracts are recognized on a pro rata basis over the applicable contract term . 30 traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits , primarily term and whole life insurance products . premiums from these products are recognized as revenue when due . annuities and interest-sensitive life contracts , such as universal life and interest-sensitive whole life , are contracts whose terms are not fixed and guaranteed . premiums from these policies are reported as funds on deposit . policy charges consist of fees assessed against the policyholder for cost of insurance ( mortality risk ) , policy administration and early surrender . these revenues are recognized when assessed against the policyholder account balance . policies that do not subject the company to significant risk arising from mortality or morbidity are considered investment contracts . deposits received from such contracts are reported as other policyholder funds . policy charges for investment contracts consist of fees assessed against the policyholder account for maintenance , administration and surrender of the policy prior to contractually specified dates , and are recognized when assessed against the policyholder account balance . insurance liabilities the company maintains loss reserves to cover its estimated liability for unpaid losses and loss adjustment expenses , where material , ( including legal , other fees , and costs not associated with specific claims but related to the claims payment function ) for reported and unreported claims incurred as of the end of each accounting period . story_separator_special_tag these loss reserves are based on actuarial assumptions and are maintained at levels that are in accordance with u.s. generally accepted accounting principles . many factors could affect these reserves , including economic and social conditions , frequency and severity of claims , medical trend resulting from the influences of underlying cost inflation , changes in utilization and demand for medical services , and changes in doctrines of legal liability and damage awards in litigation . therefore , the company 's reserves are necessarily based on estimates , assumptions and analysis of historical experience . the company 's results depend upon the variation between actual claims experience and the assumptions used in determining reserves and pricing products . reserve assumptions and estimates require significant judgment and , therefore , are inherently uncertain . the company can not determine with precision the ultimate amounts that will be paid for actual claims or the timing of those payments . the company 's estimate of loss represents management 's best estimate of the company 's liability at the balance sheet date . loss reserves differ for short-duration and long-duration insurance policies , including annuities . reserves are based on approved actuarial methods , but necessarily include assumptions about expenses , mortality , morbidity , lapse rates and future yield on related investments . policy benefits and claims all of the company 's short-duration contracts are generated from its accident , health , disability and pet insurance business , and are accounted for based on actuarial estimates of the amount of loss inherent in that period 's claims , including losses incurred for which claims have not been reported . short-duration contract loss estimates rely on actuarial observations of ultimate loss experience for similar historical events . the company believes that its liability for policy benefits and claims is reasonable and adequate to satisfy its ultimate liability . the company primarily uses its own loss development experience , but will also supplement that with data from its outside actuaries , reinsurers and industry loss experience as warranted . to illustrate the impact that loss ratios have on the company 's loss reserves and related expenses , each hypothetical 1 % change in the loss ratio for the health business ( i.e. , the ratio of insurance benefits , claims and settlement expenses to earned health premiums ) for the year ended december 31 , 2014 , would increase reserves ( in the case of a higher ratio ) or decrease reserves ( in the case of a lower ratio ) by approximately $ 4.5 million with a corresponding increase or decrease in the pre- 31 tax expense for insurance benefits , claims and reserves in the consolidated statement of income . depending on the circumstances surrounding a change in the loss ratio , other pre-tax amounts reported in the consolidated statement of income could also be affected , such as amortization of deferred acquisition costs and commission expense . the liability for policy benefits and claims by segment is as follows ( in thousands ) : replace_table_token_10_th replace_table_token_11_th medical stop-loss all of the company 's medical stop-loss policies are short-duration and are accounted for based on actuarial estimates of the amount of loss inherent in that period 's claims or open claims from prior periods , including losses incurred for claims that have not been reported ( ibnr ) . short-duration contract loss estimates rely on actuarial observations of ultimate loss experience for similar historical events . the two primary assumptions underlying the calculation of policy benefits and claims for medical stop-loss business are ( i ) projected net loss ratio , and ( ii ) claim development patterns . the projected net loss ratio is set at expected levels consistent with the underlying assumptions ( projected net loss ratio ) . claim development patterns are set quarterly as reserve estimates are developed and are based on recent claim development history ( claim development patterns ) . the company uses the projected net loss ratio to establish reserves until developing losses provide a better indication of ultimate results and it is feasible to set reserves based on claim development patterns . the company has concluded that a reasonably likely change in the projected net loss ratio assumption could have a material effect on the company 's financial condition , results of operations , or liquidity ( material effect ) but a reasonably likely change in the claim development pattern would not have a material effect . 32 projected net loss ratio generally , during the first twelve months of an underwriting year , policy benefits and claims for medical stop-loss are first set at the projected net loss ratio , which is set using assumptions developed using completed prior experience trended forward . the projected net loss ratio is the company 's best estimate of future performance until such time as developing losses provide a better indication of ultimate results . while the company establishes a best estimate of the projected net loss ratio , actual experience may deviate from this estimate . this was the case with the 2011 , 2012 and 2013 underwriting years which deviated by 4.6 , 0.3 and 1.7 net loss ratio points , respectively . after the recorded reserve estimate , it is reasonably likely that the actual experience will fall within a range up to five net loss ratio points above or below the expected projected net loss ratio for the 2014 underwriting year at december 31 , 2014. the impact of these reasonably likely changes at december 31 , 2014 , would be an increase in net reserves ( in the case of a higher ratio ) or a decrease in net reserves ( in the case of a lower ratio ) of up to approximately $ 4.4 million with a corresponding increase or decrease in the pre-tax expense for insurance benefits , claims and reserves in the consolidated statement of income .
| the overall decrease was primarily a result of a decrease in investment income on bonds , equities and short-term investments due to the transfer of $ 215.1 million of invested assets in the second quarter of 2013 related to a coinsurance treaty and lower income from partnerships . the annualized investment yields on bonds , equities and short-term investments were 3.2 % and 3.5 % in 2014 and 2013 , respectively . ihc has approximately $ 149.4 million in highly rated shorter duration securities earning on average 1.4 % . a portfolio that is shorter in duration enables us , if we deem prudent , the flexibility to reinvest in much higher yielding longer-term securities , which would significantly increase investment income . net realized investment gains the company had net realized investment gains of $ 7.7 million in 2014 compared to $ 19.8 million in 2013. these amounts include gains and losses from sales of fixed maturities and equity securities available-for-sale and other investments . decisions to sell securities are based on management 's ongoing evaluation of investment opportunities and economic and market conditions , thus creating fluctuations in gains and losses from period to period . a significant portion of the net realized investment gains in 2013 resulted from sales of invested assets in connection with the transfer of assets related to a coinsurance agreement . fee income and other income fee income decreased $ 6.3 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 primarily as a result of decreased volume in certain lines of the fully insured health segment partially offset by increased volume in the medical stop-loss segment . there was no significant change in other income . insurance benefits , claims and reserves in 2014 , insurance , benefits , claims and reserves decreased $ 28.8 million over the comparable period in 2013. the decrease is primarily attributable to : ( i ) a decrease of $ 30.9 million in the fully insured health segment , primarily due to a decrease of $ 61.5 million in benefits , claims and reserves related to the run-off of the imm
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as a percentage of our total worldwide revenue in 2017 , lodging accounted for 68 % . our room night growth has been healthy , with room nights excluding elong growing 36 % in 2015 , 32 % in 2016 , and 16 % in 2017. adrs for rooms booked on expedia and homeaway websites excluding elong declined 5 % in 2015 , increased 5 % in 2016 due to the acquisition of homeaway , and increased 3 % in 2017. hotel . we generate the majority of our revenue through the facilitation of hotel reservations ( stand-alone and package bookings ) . although our relationships with our hotel supply partners remained broadly stable in the past few years , as part of the global rollout of etp , we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs , which has negatively impacted the margin of revenue we earn per booking . in addition , as we continue to expand the breadth and depth of our global hotel offering , in some cases we have reduced our economics in various geographies based on local market conditions . these impacts are due to specific initiatives intended to drive greater global size and scale through faster overall room night growth . additionally , increased promotional activities such as growing loyalty programs contribute to declines in revenue per room night and profitability . since our hotel supplier agreements are generally negotiated on a percentage basis , any increase or decrease in adrs has an impact on the revenue we earn per room night . over the course of the last several years , occupancies and adrs in the lodging industry generally increased on a currency-neutral basis in a gradually improving overall travel environment . however , u.s. dollar-denominated hotel adrs declined in 2015 and 2016 , due to the currency translation impact , and increased in 2017. current occupancy rates for hotels in the united states remain high ; however , u.s. hotel supply growth has been accelerating , which may put additional pressure on adrs . in international markets , hotel supply is being added at a faster rate as hotel owners and operators try to take advantage of opportunities in faster growing regions such as asia and certain latin american markets . companies like airbnb , homeaway and booking.com also added incremental global supply in the alternative accommodations space . in addition , while the global lodging industry remains very fragmented , there has been consolidation in the hotel space among chains as well as ownership groups . in the meantime , certain hotel chains have been focusing on driving direct bookings on their own websites and mobile applications by advertising lower rates than those available on third-party websites as well as incentives such as loyalty points , increased or exclusive product availability and complimentary wi-fi . we have had success adding supply to our marketplace with more than 590,000 properties on our global websites as of december 31 , 2017 , including more than 150,000 homeaway vacation rental properties now available on select brand expedia , orbitz , travelocity , cheaptickets and ebookers websites . alternative accommodations . with our acquisition of homeaway and all of its brands in december 2015 , we expanded into the fast growing $ 100 billion alternative accommodations market . homeaway is a leader in this market and represents an attractive growth opportunity for expedia . homeaway has been undergoing a transition from a listings-based classified advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager partners , with a goal of increasing monetization and driving growth through investments in marketing as well as in product and technology . in addition , homeaway rolled out a traveler service fee in the united states and europe during the first half of 2016 , consistent with market practice . the fee is expected to continue to contribute to homeaway 's revenue growth and help fund marketing investment , programs to better protect travelers and future growth initiatives . furthermore , homeaway moved to a single subscription option globally in july 2016. in the first quarter of 2017 , homeaway began integrating expedia vacation rental properties onto its websites . as of december 31 , 2017 , there are nearly 1.5 million online bookable listings available on homeaway . air significant airline sector consolidation in the united states in recent years generally resulted in lower overall capacity and higher fares , which combined with the significant declines in fuel prices led to record levels of profitability for the u.s. air carriers , further strengthening their position . however , in 2015 , 2016 and 2017 , there has been evidence of discounting by the u.s. carriers while currency headwinds and weaker macroeconomic trends put pressure on international results . ticket prices on expedia websites excluding elong declined 11 % in 2015 , 6 % in 2016 , and 1 % in 2017 as short-haul traffic and low cost carriers grew alongside increasingly competitive airline pricing and more recently a volatile fuel pricing environment . we can 41 encounter pressure on air remuneration as air carriers combine and as certain supply agreements renew , and continue to add airlines to ensure local coverage in new markets . air ticket volumes excluding elong increased 35 % in 2015 and 32 % in 2016 , primarily due to the acquisition of orbitz , and 4 % in 2017. as a percentage of our total worldwide revenue in 2017 , air accounted for 8 % . advertising & media our advertising and media business is principally driven by revenue generated by trivago , a leading hotel metasearch website , in addition to expedia media solutions , which is responsible for generating advertising revenue on our global online travel brands . in 2017 , we generated a total of $ 1.1 billion of advertising and media revenue representing 11 % of our total worldwide revenue , up from $ 807 million in 2016. story_separator_special_tag growth strategy global expansion . our brand expedia , hotels.com , egencia , and ean brands operate both domestically and through international points of sale , including in europe , asia pacific , canada and latin america . in addition , ebookers offers multi-product online travel reservations in europe and wotif group has a leading portfolio of travel brands , including wotif.com , wotif.co.nz , lastminute.com.au , lastminute.com.nz and travel.com.au , focused principally on the australia and new zealand markets . egencia , our corporate travel business , operates in over 65 countries around the world and continues to expand . the homeaway portfolio has 60 vacation rental websites all around the world . we own a majority share of trivago , a leading metasearch company . officially launched in 2005 , trivago is one of the best known travel brands in europe and north america . trivago continues to operate independently and grow revenue through global expansion , including aggressive expansion in new countries . in december 2016 , trivago successfully completed its initial public offering and trades on the nasdaq global select market under the symbol `` trvg . '' in addition , we have commercial agreements in place with ctrip and elong in china , traveloka in southeast asia , as well as decolar.com , inc. in latin america , among many others . in conjunction with the commercial arrangements with traveloka and decolar , we have also made strategic investments of over $ 600 million combined in traveloka in 2017 and decolar in 2015. in 2017 , approximately 38 % of our worldwide gross bookings and 45 % of worldwide revenue were through international points of sale compared to just 21 % for both worldwide gross bookings and revenue in 2005. we have a goal of generating more than two-thirds of our revenue through businesses and points of sale outside of the united states . in expanding our global reach , we leverage significant investments in technology , operations , brand building , supplier relationships and other initiatives that we have made since the launch of expedia.com in 1996. our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers . we believe that our size and scale afford the company the ability to negotiate competitive rates with our supply partners , provide breadth of choice and travel deals to our traveling customers through an expanding supply portfolio and create opportunities for new value added offers for our customers such as our loyalty programs . the size of expedia 's worldwide traveler base makes our websites an increasingly appealing channel for travel suppliers to reach customers . in addition , the sheer size of our user base and search query volume allows us to test new technologies very quickly in order to determine which innovations are most likely to improve the travel research and booking process , and then roll those features out to our worldwide audience in order to drive improvements in conversion . product innovation . each of our leading brands was a pioneer in online travel and has been responsible for driving key innovations in the space for more than two decades . each expedia technology platform is operated by a dedicated technology team , which drives innovations that make researching and shopping for travel increasingly easier and helps customers find and book the best possible travel options . we have made key investments in technology , including significant development of our technical platforms that makes it possible for us to deliver innovations at a faster pace . improvements in our global platforms for hotels.com and brand expedia continue to enable us to significantly increase the innovation cycle , thereby improving conversion and driving faster growth rates for those brands . in 2013 , expedia signed an agreement to power the technology , supply and customer service platforms for travelocity-branded websites in the united states and canada , enabling expedia to leverage its investments in each of these key areas . during 2014 , the travelocity-branded websites were successfully migrated to the expedia technology platform . in november 2014 , expedia completed the acquisition of wotif group and subsequently converted the wotif.com website to the expedia technology platform . in january 2015 , we acquired the travelocity brand and other associated assets from sabre . the strategic marketing and other related agreements previously entered into were terminated . in september 2015 , expedia acquired orbitz worldwide , including all of its brands . the orbitz , cheaptickets and ebookers websites were migrated to the expedia technology platform in the first half of 2016 , and orbitz for business customers were migrated to the egencia technology platform by july 2016. in december 2015 , expedia acquired homeaway , inc. , including all of its brands . additionally , in june 2017 , expedia acquired a majority stake in silverrail , a leading rail technology distributor . we intend to continue leveraging these investments when launching additional points of sale in new 42 countries , introducing new website features , adding supplier products and services including new business model offerings , as well as proprietary and user-generated content for travelers . channel expansion . technological innovations and developments continue to create new opportunities for travel bookings . in the past few years , each of our brands made significant progress creating new mobile websites and mobile applications that are receiving strong reviews and solid download trends , and some of our brands now see more traffic via mobile devices than via traditional pcs . mobile bookings continue to present an opportunity for incremental growth as they are often completed within one or two days of the travel or stay , which is a much shorter booking window than we historically experienced via more traditional online booking methods . additionally , our brands implemented new technologies like voice-based search , chatbots and messaging apps as mobile-based options for travelers .
| lodging revenue increased 30 % in 2016 primarily due to a 22 % ( 32 % excluding elong ) increase in room nights stayed driven by the inorganic impact of acquisitions of homeaway and orbitz as well as organic growth in hotels.com , brand expedia and ean , and a 6 % increase ( 1 % decrease excluding elong ) in revenue per room night in 2016. acquisitions added approximately 21 % of inorganic lodging revenue growth in 2016 and 16 % of room night growth in 2016. worldwide air revenue increased 1 % in 2017 due to 4 % increase in air tickets sold , partially offset by a 3 % decrease in revenue per ticket . worldwide air revenue increased 37 % ( 39 % excluding elong ) in 2016 due to a 29 % ( 32 % excluding elong ) increase in air tickets sold and a 6 % ( 5 % excluding elong ) increase in revenue per air ticket , driven by new contractual agreements and the addition of orbitz . acquisitions added approximately 28 % of inorganic air revenue growth in 2016 and 21 % of air ticket growth in 2016. the remaining worldwide revenue , other than lodging and air discussed above , which includes advertising and media , car rental , destination services and fees related to our corporate travel business , increased by 23 % in 2017 and 35 % in 2016 49 primarily due to growth in advertising and media revenue as well as growth in our travel insurance and car rental products , including an inorganic contribution from orbitz in 2016. in addition to the above segment and product revenue discussion , our revenue by business model is as follows : replace_table_token_7_th _ ( 1 ) includes third-party revenue from trivago as well as our transaction-based websites . the increase in merchant revenue in 2017 and 2016 was primarily due to the increase in merchant hotel revenue driven by an increase in room nights stayed . the increase in agency revenue in 2017 and 2016 was primarily due to the growth in agency hotel for both periods as well as agency air in 2016. the increase in advertising and
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11 critical accounting policies and estimates measurement uncertainty the process of preparing financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . such estimates primarily relate to unsettled transactions and events as of the date of the financial statements ; accordingly , actual results may differ from estimated amounts . our estimates and assumptions are based on current facts , historical experience and various other factors we believe to be reasonable under the circumstances . the most significant estimates with regard to the financial statements included with this report relate to carrying values of oil and gas properties , determination of fair values of stock based transactions , and deferred income tax rates and timing of the reversal of income tax differences . these estimates and assumptions are reviewed periodically and , as adjustments become necessary , they are reported in earnings in the periods in which they become known . petroleum and natural gas properties we utilize the full cost method to account for our investment in oil and gas properties . accordingly , all costs associated with acquisition , exploration and development of oil and gas reserves , including such costs as leasehold acquisition costs relating to unproved properties , geological expenditures , tangible and intangible development costs including direct internal costs are capitalized to the full cost pool . when we commence production from established proven oil and gas reserves , capitalized costs , including estimated future costs to develop the reserves and estimated abandonment costs , net of salvage , will be depleted on the units-of-production method using estimates of proved reserves . costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs . if an assessment of such properties indicates that properties are impaired , the amount of impairment is added to the capitalized cost base to be amortized . the capitalized costs included in the full cost pool are subject to a `` ceiling test '' ( based on the average of the first-day-of-the-month prices during the twelve-month period prior to august 31 , 2011 pursuant to the sec 's “ modernization of oil and gas reporting ” rule ) , which limits such costs to the aggregate of the ( i ) estimated present value , using a ten percent discount rate , of the future net revenues from proved reserves , based on current economic and operating conditions , ( ii ) the lower of cost or estimated fair value of unproven properties included in the costs being amortized , ( iii ) the cost of properties not being amortized , less ( iv ) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized . if net capitalized costs exceed this limit , the excess is charged to expense in the current period . at august 31 , 2011 , all of our oil and gas interests were impaired and expensed . sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized , unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas , in which case the gain or loss is recognized in the statement of operations . asset retirement obligations we record the fair value of an asset retirement obligation as a liability in the period in which we incur an obligation associated with the retirement of tangible long-lived assets that result from the acquisition , construction , development and or normal use of the assets . the estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate . this liability is capitalized as part of the cost of the related asset and amortized over its useful life . fair value of financial instruments the estimated fair values for financial instruments are determined at discrete points in time based on relevant market information . these estimates involve uncertainties and can not be determined with precision . the estimated fair value of cash , other receivables , accounts payable , accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature . for purposes of the statements of cash flows , we consider all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents . cash and cash equivalents totaled $ 487,017 and $ 4,758 at august 31 , 2011 and 2010 , respectively . 12 stock based compensation we record compensation expense for stock based payments using the fair value method . the fair value of stock based compensation to directors and employees is determined using the black-scholes option valuation model at the time of grant . fair value for common shares issued for goods or services rendered by non-employees is measured based on the fair value of the goods and services received . share-based compensation is expensed with a corresponding increase to share capital . upon the exercise of the stock options , the consideration paid is recorded as an increase in share capital . income taxes we follow the asset and liability method of accounting for future income taxes . under this method , future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases . in addition , the future benefits of income tax assets , including unused tax losses , are recognized , subject to a valuation story_separator_special_tag 11 critical accounting policies and estimates measurement uncertainty the process of preparing financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . such estimates primarily relate to unsettled transactions and events as of the date of the financial statements ; accordingly , actual results may differ from estimated amounts . our estimates and assumptions are based on current facts , historical experience and various other factors we believe to be reasonable under the circumstances . the most significant estimates with regard to the financial statements included with this report relate to carrying values of oil and gas properties , determination of fair values of stock based transactions , and deferred income tax rates and timing of the reversal of income tax differences . these estimates and assumptions are reviewed periodically and , as adjustments become necessary , they are reported in earnings in the periods in which they become known . petroleum and natural gas properties we utilize the full cost method to account for our investment in oil and gas properties . accordingly , all costs associated with acquisition , exploration and development of oil and gas reserves , including such costs as leasehold acquisition costs relating to unproved properties , geological expenditures , tangible and intangible development costs including direct internal costs are capitalized to the full cost pool . when we commence production from established proven oil and gas reserves , capitalized costs , including estimated future costs to develop the reserves and estimated abandonment costs , net of salvage , will be depleted on the units-of-production method using estimates of proved reserves . costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs . if an assessment of such properties indicates that properties are impaired , the amount of impairment is added to the capitalized cost base to be amortized . the capitalized costs included in the full cost pool are subject to a `` ceiling test '' ( based on the average of the first-day-of-the-month prices during the twelve-month period prior to august 31 , 2011 pursuant to the sec 's “ modernization of oil and gas reporting ” rule ) , which limits such costs to the aggregate of the ( i ) estimated present value , using a ten percent discount rate , of the future net revenues from proved reserves , based on current economic and operating conditions , ( ii ) the lower of cost or estimated fair value of unproven properties included in the costs being amortized , ( iii ) the cost of properties not being amortized , less ( iv ) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized . if net capitalized costs exceed this limit , the excess is charged to expense in the current period . at august 31 , 2011 , all of our oil and gas interests were impaired and expensed . sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized , unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas , in which case the gain or loss is recognized in the statement of operations . asset retirement obligations we record the fair value of an asset retirement obligation as a liability in the period in which we incur an obligation associated with the retirement of tangible long-lived assets that result from the acquisition , construction , development and or normal use of the assets . the estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate . this liability is capitalized as part of the cost of the related asset and amortized over its useful life . fair value of financial instruments the estimated fair values for financial instruments are determined at discrete points in time based on relevant market information . these estimates involve uncertainties and can not be determined with precision . the estimated fair value of cash , other receivables , accounts payable , accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature . for purposes of the statements of cash flows , we consider all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents . cash and cash equivalents totaled $ 487,017 and $ 4,758 at august 31 , 2011 and 2010 , respectively . 12 stock based compensation we record compensation expense for stock based payments using the fair value method . the fair value of stock based compensation to directors and employees is determined using the black-scholes option valuation model at the time of grant . fair value for common shares issued for goods or services rendered by non-employees is measured based on the fair value of the goods and services received . share-based compensation is expensed with a corresponding increase to share capital . upon the exercise of the stock options , the consideration paid is recorded as an increase in share capital . income taxes we follow the asset and liability method of accounting for future income taxes . under this method , future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases . in addition , the future benefits of income tax assets , including unused tax losses , are recognized , subject to a valuation
| accordingly , during august 2011 , we recognized a loss on the impairment of oil and gas assets of $ 835,659. oil and gas properties as of august 31 , 2011 , were likewise reduced by the same amount to reflect the impairment of the lease . we can not estimate what cost , if any , will be associated with future exploration or production efforts on the san miguel lease . kotaneelee gas project beginning in early fiscal 2011 , we began pursuit of an acquisition of up to a 65 % working interest in the kgp . the kgp covers 30,188 gross acres in the yukon territory in canada . at november 20 , 2011 the kgp had ; two ( 2 ) gas wells producing approximately 4.5 mmcfd , three ( 3 ) suspended gas wells , one ( 1 ) disposal well , and a gas processing facility with capacity of 70 mmcfd . the kgp has a fully developed gas sales and delivery infrastructure , airstrip , storage tanks , barge dock and permanent camp facilities . we believe the kgp has significant conventional and shale gas potential and is supported by an environment of growing investment in gas exploration , processing and export in the pacific northwest . we estimate consulting , travel and legal expense incurred during the year ended august 31 , 2011 in connection with our pursuit of the acquisition of the kgp totaled approximately $ 355,000 . 9 other at august 31 , 2010 , we were relatively inactive . our assets and liabilities totaled $ 4,758 and $ 69,343 , respectively , and our accumulated deficit was $ 83,772. the $ 69,850 in expenses incurred during fiscal 2010 related entirely to costs required to support strategic planning and regulatory compliance . as such , a comparative analysis of current and prior year results is not meaningful . during fiscal 2011 , we raised $ 1,709,401 through debt and equity financings and invested approximately $ 1,191,000
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rather , its oil and gas revenue is derived from retained perpetual non-participating oil and gas royalty interests . thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers at competitive rates . in recent years , we have been successful at keeping over 96 % of our land subject to grazing leases . 9 story_separator_special_tag style= '' display : inline ; font-family : times new roman ; font-size : 10pt '' > land sales in 2010 were $ 2,738,070 compared to $ 523,010 in 2009 , an increase of $ 2,215,060 , or 423.5 % . a total of 2,424 acres and 223 town lots , totaling 43 acres , were sold in 2010 at an average price of $ 1,110 per acre , compared to 696 acres in 2009 at an average price per acre of $ 751. rentals , royalties and other income ( including interest on investments ) were $ 17,353,602 in 2010 compared to $ 12,615,277 in 2009 , an increase of 37.6 % . oil and gas royalty revenue in 2010 was $ 11,573,563 compared to $ 8,686,187 in 2009 , an increase of 33.2 % . oil royalty revenue was $ 8,815,689 and gas royalty revenue was $ 2,757,874 in 2010. crude oil production from trust royalty wells decreased 4.6 % in 2010 from 2009 , but this decrease in the volume of oil produced was more than offset by a 35.4 % increase in the average price per barrel of oil received by the trust in 2010 compared to 2009. total gas production increased 19.1 % , and the average price of gas increased by 24.3 % , during 2010 compared to 2009. the average prices per royalty barrel of crude oil for 2010 and 2009 were $ 74.57 and $ 55.06 , respectively . 11 grazing lease income in 2010 was $ 506,211 compared to $ 492,802 in 2009. interest revenue ( including interest on investments ) was $ 1,107,726 in 2010 compared to $ 1,269,907 in 2009 , a decrease of 12.8 % . interest on notes receivable amounted to $ 1,082,019 in 2010 compared to $ 1,216,480 in 2009. at year end 2010 , notes receivable from land sales were $ 14,342,898 compared to $ 15,728,925 at year end 2009. interest on investments amounted to $ 25,707 in 2010 and $ 53,427 in 2009 , respectively . total principal cash payments on notes receivable were $ 1,386,027 in 2010 including $ 60,417 of prepaid principal . easement and sundry income revenue in 2010 was $ 4,166,102 compared to $ 2,166,381 in 2009. the increase in easement and sundry income revenue was primarily attributable to increases in the amount of pipeline easement income and the amount of oil company damage settlements received in 2010 compared to 2009. in addition , sundry income for 2010 includes proceeds of $ 999,558 from the sale of pipe from an abandoned pipeline easement on trust acreage . easement and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes were $ 775,380 in 2010 compared to $ 611,448 in 2009. oil and gas production taxes were $ 612,362 in 2010 compared to $ 453,569 in 2009. ad valorem taxes were $ 112,531 in 2010 compared to $ 108,326 in 2009. all other expenses were $ 2,892,111 in 2010 compared to $ 2,482,076 in 2009. liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , lease rentals and receipts of interest and principal payments on the notes receivable arising from its sales of land . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . 12 tabular disclosure of contractual obligations as of december 31 , 2011 , the trust 's known contractual obligations were as follows : replace_table_token_4_th effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . story_separator_special_tag rather , its oil and gas revenue is derived from retained perpetual non-participating oil and gas royalty interests . thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers at competitive rates . in recent years , we have been successful at keeping over 96 % of our land subject to grazing leases . 9 story_separator_special_tag style= '' display : inline ; font-family : times new roman ; font-size : 10pt '' > land sales in 2010 were $ 2,738,070 compared to $ 523,010 in 2009 , an increase of $ 2,215,060 , or 423.5 % . a total of 2,424 acres and 223 town lots , totaling 43 acres , were sold in 2010 at an average price of $ 1,110 per acre , compared to 696 acres in 2009 at an average price per acre of $ 751. rentals , royalties and other income ( including interest on investments ) were $ 17,353,602 in 2010 compared to $ 12,615,277 in 2009 , an increase of 37.6 % . oil and gas royalty revenue in 2010 was $ 11,573,563 compared to $ 8,686,187 in 2009 , an increase of 33.2 % . oil royalty revenue was $ 8,815,689 and gas royalty revenue was $ 2,757,874 in 2010. crude oil production from trust royalty wells decreased 4.6 % in 2010 from 2009 , but this decrease in the volume of oil produced was more than offset by a 35.4 % increase in the average price per barrel of oil received by the trust in 2010 compared to 2009. total gas production increased 19.1 % , and the average price of gas increased by 24.3 % , during 2010 compared to 2009. the average prices per royalty barrel of crude oil for 2010 and 2009 were $ 74.57 and $ 55.06 , respectively . 11 grazing lease income in 2010 was $ 506,211 compared to $ 492,802 in 2009. interest revenue ( including interest on investments ) was $ 1,107,726 in 2010 compared to $ 1,269,907 in 2009 , a decrease of 12.8 % . interest on notes receivable amounted to $ 1,082,019 in 2010 compared to $ 1,216,480 in 2009. at year end 2010 , notes receivable from land sales were $ 14,342,898 compared to $ 15,728,925 at year end 2009. interest on investments amounted to $ 25,707 in 2010 and $ 53,427 in 2009 , respectively . total principal cash payments on notes receivable were $ 1,386,027 in 2010 including $ 60,417 of prepaid principal . easement and sundry income revenue in 2010 was $ 4,166,102 compared to $ 2,166,381 in 2009. the increase in easement and sundry income revenue was primarily attributable to increases in the amount of pipeline easement income and the amount of oil company damage settlements received in 2010 compared to 2009. in addition , sundry income for 2010 includes proceeds of $ 999,558 from the sale of pipe from an abandoned pipeline easement on trust acreage . easement and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes were $ 775,380 in 2010 compared to $ 611,448 in 2009. oil and gas production taxes were $ 612,362 in 2010 compared to $ 453,569 in 2009. ad valorem taxes were $ 112,531 in 2010 compared to $ 108,326 in 2009. all other expenses were $ 2,892,111 in 2010 compared to $ 2,482,076 in 2009. liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , lease rentals and receipts of interest and principal payments on the notes receivable arising from its sales of land . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . 12 tabular disclosure of contractual obligations as of december 31 , 2011 , the trust 's known contractual obligations were as follows : replace_table_token_4_th effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required .
| a total of 31,446 acres were sold in 2011 at an average price of $ 378 per acre , compared to 2,424 acres and 223 town lots , totaling 43 acres , in 2010 at an average price per acre of $ 1,110. rentals , royalties and other income ( including interest on investments ) were $ 22,445,924 in 2011 compared to $ 17,353,602 in 2010 , an increase of 29.3 % . oil and gas royalty revenue in 2011 was $ 14,685,502 compared to $ 11,573,563 in 2010 , an increase of 26.9 % . oil royalty revenue was $ 11,434,640 and gas royalty revenue was $ 3,250,862 in 2011. crude oil production from trust royalty wells increased 8.4 % in 2011 from 2010. the average prices per royalty barrel of crude oil for 2011 and 2010 were $ 89.21 and $ 74.57 , respectively . total gas production increased 14.6 % , and the average price of gas increased by 2.9 % , during 2011 compared to 2010 . 10 grazing lease income in 2011 was $ 499,400 compared to $ 506,211 in 2010. interest revenue ( including interest on investments ) was $ 898,277 in 2011 compared to $ 1,107,726 in 2010 , a decrease of 18.9 % . interest on notes receivable amounted to $ 879,749 in 2011 compared to $ 1,082,019 in 2010. at year end 2011 , notes receivable from land sales were $ 10,354,103 compared to $ 14,342,898 at year end 2010. interest on investments amounted to $ 18,528 in 2011 and $ 25,707 in 2010 , respectively . total principal cash payments on notes receivable were $ 4,163,545 in 2011 including $ 2,683,841 of prepaid principal . easement and sundry income revenue in 2011 was $ 6,362,745 compared to $ 4,166,102 in 2010. the increase in easement and sundry income revenue was primarily attributable to increases in the amount of pipeline easement income and the amount of sundry lease rental income received in 2011 compared to 2010. easement and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes were $ 922,951 in 2011 compared to $ 775,380 in 2010. oil and gas production taxes were $ 769,807 in 2011 compared to $ 612,362 in 2010 .
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in addition , one of the fund 's in the company 's credit opportunity fund series as well as several other funds and accounts that generally invest in illiquid opportunistic investments , which the company historically reported within its credit segment , moved to the company 's private equity segment . - 93 - holding company structure the diagram below depicts our current organizational structure : note : the organizational structure chart above depicts a simplified version of the apollo structure . it does not include all legal entities in the structure . ownership percentages are as of february 26 , 2019 . ( 1 ) based on a form 13f for the quarter ended december 31 , 2018 filed with the sec on february 8 , 2019 by the strategic investor , the strategic investor holds 8.8 % of the class a shares outstanding and 4.4 % of the economic interests in the apollo operating group . the class a shares held by investors other than the strategic investor represent 47.7 % of the total voting power of our shares entitled to vote and 45.6 % of the economic interests in the apollo operating group . class a shares held by the strategic investor do not have voting rights . however , such class a shares will become entitled to vote upon transfers by the strategic investor in accordance with the agreements entered into in connection with the investments made by the strategic investor . ( 2 ) our managing partners own brh holdings gp , ltd. , which in turn holds our only outstanding class b share . the class b share represents 52.3 % of the total voting power of our shares entitled to vote but no economic interest in apollo global management , llc . our managing partners ' economic interests are instead represented by their indirect beneficial ownership , through holdings , of 45.4 % of the limited partner interests in the apollo operating group . ( 3 ) through brh holdings , l.p. , our managing partners indirectly beneficially own through estate planning vehicles , limited partner interests in holdings . ( 4 ) holdings owns 50.0 % of the limited partner interests in each apollo operating group entity . the aog units held by holdings are exchangeable for class a shares . our managing partners , through their interests in brh and holdings , beneficially own 45.4 % of the aog units . our contributing partners , through their ownership interests in holdings , beneficially own 4.6 % of the aog units . ( 5 ) brh holdings gp , ltd. is the sole member of agm management , llc , our manager . the management of apollo global management , llc is vested in our manager as provided in our operating agreement . ( 6 ) represents 50.0 % of the limited partner interests in each apollo operating group entity , held through the intermediate holding companies . apollo global management , llc , also indirectly owns 100 % of the general partner interests in each apollo operating group entity . each of the apollo operating group entities holds interests in different businesses or entities organized in different jurisdictions . our structure is designed to accomplish a number of objectives , the most important of which are as follows : - 94 - we are a holding company that is qualified as a partnership for u.s. federal income tax purposes . our intermediate holding companies enable us to maintain our partnership status and to meet the qualifying income exception . we have historically used multiple management companies to segregate operations for business , financial and other reasons . going forward , we may increase or decrease the number of our management companies , partnerships or other entities within the apollo operating group based on our views regarding the appropriate balance between ( a ) administrative convenience and ( b ) continued business , financial , tax and other optimization . business environment as a global investment manager , we are affected by numerous factors , including the condition of financial markets and the economy . price fluctuations within equity , credit , commodity , foreign exchange markets , as well as interest rates , which may be volatile and mixed across geographies , can significantly impact the valuation of our funds ' portfolio companies and related income we may recognize . in the u.s. , the s & p 500 index decreased by 6.2 % during 2018 , following an increase of 19.4 % in 2017. outside the u.s. , global equity markets depreciated during 2018 , with the msci all country world ex usa index decreasing 14.4 % following an increase of 25.9 % in 2017. conditions in the credit markets also have a significant impact on our business , and in 2018 , indices posted mixed returns . the bofaml hy master ii index fell 2.3 % in 2018 , following an increase of 7.5 % in 2017. the s & p/lsta leveraged loan index increased 0.4 % in 2018 , following an increase of 4.1 % in 2017. benchmark interest rates finished the year higher from where they were at the end of 2017 , as the federal reserve raised the target rate four times during the year and nine times since december 2015. the u.s. 10-year treasury yield rose slightly to finish the year at 2.7 % . foreign exchange rates can materially impact the valuations of our investments and those of our funds that are denominated in currencies other than the u.s. dollar . relative to the u.s. dollar , the euro depreciated 4.5 % during the year after appreciating 14.1 % in 2017 , and the british pound depreciated 5.6 % in 2018 , after appreciating 9.5 % in 2017. commodities generally depreciated in 2018 , with gold , copper , natural gas and sugar decreasing , while wheat appreciated . story_separator_special_tag the price of crude oil decreased by 24.8 % during the year ended december 31 , 2018. in terms of economic conditions in the u.s. , the bureau of economic analysis reported real gdp increased at an annual rate of 2.6 % in 2018 , higher than the 2.3 % growth experienced in 2017. as of january 2019 , the international monetary fund estimated that the u.s. economy will expand by 2.5 % in 2019 and 1.8 % in 2020. additionally , the u.s. unemployment rate stood at 3.9 % as of december 31 , 2018. regardless of the market or economic environment at any given time , apollo relies on its contrarian , value-oriented approach to consistently invest capital on behalf of its fund investors by focusing on opportunities that management believes are often overlooked by other investors . as such , apollo 's global integrated investment platform deployed $ 16.1 billion of capital through the funds it manages during the year ended december 31 , 2018 . we believe apollo 's expertise in credit and its focus on nine core industry sectors , combined with more than 28 years of investment experience , has allowed apollo to respond quickly to changing environments . apollo 's core industry sectors include chemicals , manufacturing and industrial , natural resources , consumer and retail , consumer services , business services , financial services , leisure , and media/telecom/technology . apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . in general , institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment , and we believe the business environment remains generally accommodative to raise larger successor funds , launch new products , and pursue attractive strategic growth opportunities , such as continuing to grow the assets of our permanent capital vehicles . as such , apollo had $ 60.0 billion of capital inflows during the year ended december 31 , 2018 . while apollo continues to attract capital inflows , it also continues to generate realizations for fund investors . apollo returned $ 11.1 billion of capital and realized gains to the investors in the funds it manages during the year ended december 31 , 2018 . managing business performance we believe that the presentation of economic income , or “ ei ” , supplements a reader 's understanding of the economic operating performance of each of our segments . - 95 - economic income ( loss ) ei has certain limitations in that it does not take into account certain items included under u.s. gaap . ei represents segment income before income tax provision excluding transaction-related charges arising from the 2007 private placement , and any acquisitions . transaction-related charges includes equity-based compensation charges , the amortization of intangible assets , contingent consideration and certain other charges associated with acquisitions . in addition , ei excludes non-cash revenue and expense related to equity awards granted by unconsolidated related parties to employees of the company , compensation and administrative related expense reimbursements , as well as the assets , liabilities and operating results of the funds and variable interest entities ( “ vies ” ) that are included in the consolidated financial statements . we believe the exclusion of the non-cash charges related to the 2007 reorganization for equity-based compensation provides investors with a meaningful indication of our performance because these charges relate to the equity portion of our capital structure and not our core operating performance . ei also excludes impacts of the remeasurement of the tax receivable agreement which arises from changes in the associated deferred tax balance , including the impacts related to the tax cuts and jobs act ( the “ tcja ” ) . economic net income ( “ eni ” ) represents ei adjusted to reflect income tax provision on ei that has been calculated assuming that all income is allocated to apollo global management , llc , which would occur following an exchange of all aog units for class a shares of apollo global management , llc . eni excludes the impacts of the remeasurement of deferred tax assets and liabilities which arises from changes in estimated future tax rates , including impacts related to the tcja . the economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and certain assumptions used in calculating the income tax provision for apollo 's consolidated statements of operations under u.s. gaap . eni is net of preferred distributions , if any , to series a and series b preferred shareholders . we believe that ei is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in “ —overview of results of operations ” that have been prepared in accordance with u.s. gaap . see note 16 to the consolidated financial statements for more details regarding management 's consideration of ei . ei may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with u.s. gaap . we use ei as a measure of operating performance , not as a measure of liquidity . ei should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with u.s. gaap . the use of ei without consideration of related u.s. gaap measures is not adequate due to the adjustments described above . management compensates for these limitations by using ei as a supplemental measure to u.s. gaap results , to provide a more complete understanding of our performance as management measures it .
| the decrease in management fees earned from fund vi resulted from the termination of the fund 's management fee . advisory and transaction fees , net , decrease d by $ 5.3 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . this change was primarily attributable to a decrease in net advisory and transaction fees earned with respect to fci iii of $ 20.3 million , partially offset by an increase in net advisory and transaction fees earned with respect to a managed account of $ 16.7 million during the year ended december 31 , 2018 as compared to the same period during 2017 . performance allocations were $ ( 400.3 ) million for the year ended december 31 , 2018 as compared to performance allocations of $ 1.3 billion for the year ended december 31 , 2017 . this change was primarily attributable to decrease d performance allocations earned from our private equity funds and our credit funds of $ 1.6 billion and $ 124.6 million , respectively , during the year ended december 31 , 2018 as compared to the same period in 2017 . for additional details regarding changes in performance allocations in each segment , see “ —segment analysis ” below . principal investment income decrease d by $ 156.5 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . this change was primarily driven by a decrease in the value of investments held by certain apollo funds and other entities in which the company has a direct interest , mainly with respect to fund viii and aaa of $ 153.5 million and $ 10.0 million , respectively , which was partially offset by an increase in income from apollo 's equity ownership interest in va capital of $ 16.8 million during the year ended december 31 , 2018 , as compared to the same period in 2017 . year ended
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the remaining pharmaceutical entity will comprise a diversified portfolio of our leading durable brands across the salix , international rx , solta , neurology and medical dermatology businesses . we believe the separation will unlock value across the two post-separation entities and create two highly attractive but dissimilar businesses . as separate entities , management believes that each company will be better positioned to individually focus on its core businesses to drive additional growth , more effectively allocate capital and best manage its respective capital needs . further , the separation allows us and the market to compare the operating results of each entity with other “ pure play ” peer companies . although management believes the separation will bring out additional value , there can be no assurance that it will be successful in doing so . in connection with the separation , we expect to realign and begin managing our operations in a manner consistent with the organizational structure of the two separate entities as proposed by the separation during the first quarter of 2021. accordingly , we expect to begin reporting our segment results to reflect the proposed realignment of our operating segments on a retrospective basis beginning with our first quarter of 2021. we are in the process of addressing the organization , structure and pro forma capitalizations of the two entities post-separation . based on our assessment , we believe that , by the end of 2021 , we will be able to address the organizational matters and regulatory requirements needed to operate the businesses separately and put the bausch + lomb entity in position to become an independent publicly traded company . management is also considering the form of the separation and exploring a number of alternative capitalization structures in order to properly capitalize the entities post-separation . although a public offering of a portion of the bausch + lomb business is among the alternate capital structures being considered , this form 10-k does not constitute an offer of any securities of bausch + lomb for sale . there are considerations , approvals and conditions that will determine the ultimate timing and structure of this transaction , including regulatory approvals , final approval by our board of directors , any shareholder vote requirements that may be applicable , compliance with u.s. and canadian securities laws and stock exchange rules , receipt of any applicable opinions and or rulings with respect to the canadian and u.s. federal income tax treatment of such transaction and determination of the pro forma capitalizations of the two entities . the failure to satisfy all of the required conditions could delay the completion of this transaction for a significant period of time or prevent it from occurring at all . see item 1a . “ risk factors — risk relating to the separation ” of this form 10-k for additional risks relating to the separation . 53 impacts of covid-19 pandemic in december 2019 , a novel strain of the coronavirus disease , covid-19 , was identified in wuhan , china . since then , covid-19 has spread to other parts of the world , including the united states , canada and europe , and was declared a global pandemic by the world health organization ( the `` who '' ) on march 11 , 2020. as a global health care company , now more than ever , we remain focused on our mission of helping to improve people 's lives with our health care products . the unprecedented nature of the covid-19 pandemic has adversely impacted the global economy . the covid-19 pandemic and the rapidly evolving reactions of governments , private sector participants and the public in an effort to contain the spread of the covid-19 virus and or address its impacts have intensified and have had significant direct and indirect effects on businesses and commerce . this includes , but is not limited to , disruption to supply chains , employee base and transactional activity , facilities closures and production suspensions . the covid-19 pandemic has also significantly increased demand for certain goods and services , such as pandemic-related medical services and supplies , alongside decreased demand for others , such as retail , hospitality , elective medical procedures and travel . as the global economic landscape changes , there is a wide range of possible outcomes regarding the nature and timing of events related to the covid-19 pandemic , each of which are highly dependent on variables that are difficult to predict . developments , including the ultimate geographic spread and duration of the pandemic , the extent and duration of a resurgence , if any , new information concerning the severity of the covid-19 virus , the effectiveness and intensity of measures to contain the covid-19 virus , the availability and effectiveness of vaccines for the covid-19 virus and the economic impact of the pandemic and the reactions to it , could have a significant adverse effect on our business , development programs , financial condition , cash flows and results of operations . the extent of these developments and the related impacts are highly uncertain and many are outside the company 's control . to date , the company has been able to continue its operations with limited disruptions in supply and manufacturing . although it is difficult to predict the broad macroeconomic effects that the covid-19 pandemic will have on industries or individual companies , the company has assessed the possible effects and outcomes of the pandemic on , among other things , its supply chain , customers and distributors , discounts and rebates , employee base , product sustainability , research and development efforts , product pipeline and consumer demand . as a result of our assessment , we immediately initiated profit protection measures to manage and reduce operating expenses and preserve cash during the covid-19 pandemic . we have also taken actions to manage the level of our investment in support of certain existing products , anticipated launches and the expansion of our sales footprint in europe . story_separator_special_tag postponing these investments may impact the extent and timing in achieving our longer-term forecasts for certain business units , however , we believe these actions will not have a material impact on the underlying value of the related businesses or their associated assets . we are and will continue to closely monitor the impacts of the covid-19 pandemic and related responses from governments and private sector participants on the company , our customers , supply chain , third-party suppliers , project development timelines , costs , revenue , margins , liquidity and financial condition and our planned actions and responses to this pandemic . we believe we have responded quickly to the human and commercial challenges brought on by the covid-19 pandemic and that our early actions have , so far , enabled us to keep our employees safe and our supply lines largely intact and we believe these actions have laid the foundation for us to work our way through the uncertainties to come . importantly , we believe that the steps we took over the last several years to manage our capital structure place us in a strong position to maintain sufficient liquidity to continue operations through an extended pandemic and we believe that our businesses will not see their long-term value diminished by this unprecedented situation . our employees our employees ' health , safety , and wellness are important to us . with the covid-19 outbreak , a focus in 2020 was protecting the health and safety of our employees and their families . we broadened our existing remote work policies to enable our global employees to work from home wherever possible . in circumstances where remote work was not possible ( such as at our manufacturing and distribution facilities ) we implemented safety measures to ensure we prevented the spread of covid-19 in the workplace , such as mandatory face coverings , social distancing , hand hygiene , plexiglass barriers , limited face-to-face meetings and other procedures as prescribed by global public health organizations , such as the who and u.s. centers for disease control and prevention . we also provided resources for our employees specifically in response to covid-19 , including launching a website – collaborating in the new normal – to help our employees encourage each other , lead with empathy and adapt as we navigate these unprecedented times . 54 our supply chain and manufacturing facilities our objective is to maintain the uninterrupted availability of our products to meet the needs of patients , consumers and our customers . business continuity plans and site-level biosecurity procedures are in place to ensure the well-being of our employees while we work to maintain the integrity of our supply chain . we have been successful in keeping our manufacturing facilities operational , although , due to shelter-in-place orders , our facilities in milan and china were forced to temporarily close in march and april of 2020. these facilities were closed for only a short period of time and were immediately and continually operational once the shelter-in-place orders in the respective geographies were lifted . as of the date of this filing , we have not experienced any disruption in our supply chain that would have a material impact on our results or operations . our global supply chain team worked diligently to stay ahead of the challenges presented by the covid-19 pandemic once it appeared in asia . although we have put in place procedures to mitigate the risks associated with closures and disruptions at our manufacturing facilities , the covid-19 pandemic has had an impact on our inventory levels and the manner in which we manage our inventories . from time to time during 2020 , our inventory levels were higher than usual as a result of : ( i ) lower demand across multiple business units due to covid-19 pandemic related matters , ( ii ) securing additional quantities of active pharmaceutical ingredients ( `` api '' ) for our xifaxan ® products from our suppliers in italy in contemplation of potential supply disruptions in that region , ( iii ) securing additional quantities of api for our trulance ® products which have longer procurement times and higher costs and ( iv ) the acquisition of additional quantities of certain products that were at the lower end of their optimal levels at december 31 , 2019. during our third and fourth quarters , we continued to manage our inventory levels and effectively reduced our inventory levels to be in line with our pre-pandemic inventory levels as of december 31 , 2020. we have dual sources of api and intermediates for many of our products , the availability of which has not had , and at this time we do not expect will have , a material impact on our supply chain . with respect to our largest product , xifaxan ® , as of january 31 , 2021 , we have over four months ' supply of xifaxan ® finished goods on hand and enough api to manufacture another seven months ' supply of xifaxan ® finished goods . we also have open orders for api for xifaxan ® that we currently expect will arrive on schedule . however , if we were to experience a lack of availability of api for xifaxan ® , such disruption to our supply chain could have a significant adverse effect on our business , financial condition and results of operations . we continue to monitor the impacts of the covid-19 pandemic and take the actions appropriate to regulate our inventories at levels in line with the current supply and demand for our products .
| the decrease was partially offset by lower third-party royalty costs ; a decrease in selling , general , and administrative ( “ sg & a ” ) expenses of $ 187 million , primarily attributable to profit protection measures taken to manage and reduce operating expenses during the covid-19 pandemic ; a decrease in r & d of $ 19 million primarily attributable to social restrictions and other precautionary measures taken in response to the covid-19 pandemic , as previously discussed ; a decrease in amortization of intangible assets of $ 252 million primarily attributable to fully amortized intangible assets no longer being amortized in 2020 ; an increase in asset impairments , including loss on assets held for sale of $ 39 million . asset impairments , including loss on assets held for sale in 2020 were primarily related to : ( i ) reclassifying a business within our bausch + lomb/international segment as held for sale and ( ii ) certain product lines as a result of changes to forecasted sales . impairments during 2019 were primarily related to : ( i ) certain product lines as a result of changes to forecasted sales due to generic competition and other factors and ( ii ) impairments related to assets being classified as held for sale ; and a decrease in other expense ( income ) , net of $ 960 million , primarily attributable the decrease in net charges to litigation and other matters . the decrease in litigation and other matters was primarily related to the settlement of a legacy u.s. securities class action matter ( which is subject to an objector 's appeal of the final court approval ) in 2019 , to which the company and the other settling defendants admitted no liability as to the claims against it and denied all allegations of wrongdoing . operating income for 2020 was $ 676 million compared to operating loss for 2019 of $ 203 million and includes non-cash charges for depreciation and amortization of intangible assets of $ 1,825 million and $ 2,075 million , asset impairments , 72 including loss on assets held for sale of $ 114 million and $ 75 million and share-based
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in june 2014 , we acquired substantially all of the assets of vivopath llc ( vivopath ) , a discovery service company . the preliminary purchase price was $ 2.3 million , including contingent consideration that could become payable over the next three years based on the achievement of revenue growth targets . in october 2014 , we acquired chantest corporation ( chantest ) , a leading provider of ion channel testing services to the pharmaceutical and biotech industry . the preliminary purchase price was $ 52.1 million , net of cash acquired , and included contingent consideration . segment reporting in the second quarter of 2014 , following our acquisition of argenta and biofocus , we revised our reportable segments to ensure alignment with our view of the business . we reviewed the new and existing markets addressed by the business , the recently revised go-to-market strategy , long-term operating margins , and the discrete financial information available to our chief operating decision maker , and considered how our businesses aggregated based on these qualitative and quantitative factors . based on this review , we identified three reportable segments : research models and services ( rms ) , discovery and safety assessment ( dsa ) , and manufacturing support ( manufacturing ) . we reported segment results on this basis for the current period and retrospectively for all comparable prior periods . the revised reportable segments are as follows : research models and services discovery and safety assessment manufacturing support research models discovery services ( 2 ) endotoxin and microbial detection research model services ( 1 ) safety assessment avian vaccine services biologics testing solutions ( 1 ) research model services includes genetically engineered models and services ( gems ) , research animal diagnostic services ( rads ) , and is . ( 2 ) discovery services includes both the early discovery and in vivo discovery businesses . early discovery includes argenta , biofocus , and chantest . our rms segment includes the research models and research model services businesses . research models includes the commercial production and sale of small research models , as well as the supply of large research models . research model services includes three business units : gems , which performs contract breeding and other services associated with genetically engineered research models ; rads , which provides health monitoring and diagnostics services related to research models ; and is , which provides management of our clients ' research operations ( including recruitment , training , staffing and management services ) . our dsa segment includes services required to take a drug through the early development process including discovery services , which are non-regulated services to assist clients with the identification , screening , and selection of a lead compound for drug development , and regulated and non-regulated safety assessment services . our manufacturing segment includes endotoxin and microbial detection ( emd ) , which includes in vitro ( non-animal ) lot-release testing products and microbial detection and species identification services ; biologics testing services ( biologics ) , which performs specialized testing of biologics and devices ; and avian vaccine services ( avian ) , which supplies specific-pathogen-free fertile chicken eggs and chickens . prior to recasting the reportable segments , the businesses were reported in two segments as follows : research models and services preclinical services research models ( 3 ) discovery services research model services ( 4 ) safety assessment endotoxin and microbial detection biologics testing solutions 29 ( 3 ) research models included avian vaccine services . ( 4 ) research model services included gems , rads , is and discovery research services . as part of the segment revisions , the former discovery research services was been folded into our discovery services business , previously located under the preclinical services segment . 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 united states ( u.s. ) . the preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities , the reported amounts of revenues and expenses during the reported periods and related disclosures . these estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on our historical experience , trends in the industry , and various other factors that are believed to be reasonable under the circumstances . 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 1 , “ description of business and summary of significant accounting policies ” , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. we believe the following represent our critical accounting policies and estimates used in the preparation of our financial statements : revenue recognition we recognize revenue when all of the following conditions are satisfied : persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , our price to the customer is fixed or determinable , and collectibility is reasonably assured . service revenue is generally evidenced by client contracts , which range in duration from a few weeks to a few years and typically take the form of an agreed upon rate per unit or fixed fee arrangements . such contracts typically do not contain acceptance provisions based upon the achievement of certain study or laboratory testing results . revenue of agreed upon rate per unit contracts is recognized as services are performed , based upon rates specified in the contract . story_separator_special_tag in cases where performance spans reporting periods , revenue of fixed fee contracts is recognized as services are performed , measured on the ratio of outputs or performance obligations completed to the total contractual outputs or performance obligations to be provided . changes in estimated effort to complete the fixed fee contract are reflected in the period in which the change becomes known . changes in scope of work are common , especially under long-term contracts , and generally result in a change in contract value . once the parties have agreed to the changes in scope and renegotiated pricing terms , the contract value is amended and revenue is typically recognized as described above . most contracts are terminable by the client , either immediately or upon notice . these contracts often require payment to us of expenses to wind down the project , fees earned to date or , in some cases , a termination fee . such payments are included in revenues when earned . we recognize product revenue , net of allowances for estimated returns , rebates and discounts , when title and risk of loss pass to customers . when we sell equipment with specified acceptance criteria , we assess our ability to meet the acceptance criteria in order to determine the timing of revenue recognition . we would defer revenue until completion of customer acceptance testing if we are not able to demonstrate the ability to meet such acceptance criteria . income taxes we prepare and file income tax returns based on our interpretation of each jurisdiction 's tax laws and regulations . in preparing our consolidated financial statements , we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . significant management judgment is required in assessing the realizability of our deferred tax assets . in performing this assessment , we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . in making this determination , under the applicable financial accounting standards , we are allowed to consider the scheduled reversal of deferred tax liabilities , projected future taxable income , and the effects of tax planning strategies . our estimates of future taxable income include , 30 among other items , our estimates of future income tax deductions related to the exercise of stock options . in the event that actual results differ from our estimates , we adjust our estimates in future periods and we may need to establish a valuation allowance , which could materially impact our financial position and results of operations . we account for uncertain tax positions using a “ more-likely-than-not ” threshold for recognizing and resolving uncertain tax positions . we evaluate uncertain tax positions on a quarterly basis and consider various factors , that include , but are not limited to , changes in tax law , the measurement of tax positions taken or expected to be taken in tax returns , the effective settlement of matters subject to audit , information obtained during in process audit activities and changes in facts or circumstances related to a tax position . we adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions . our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations , the recognition of the benefits associated with the position meet the “ more-likely-than-not ” threshold or the liability becomes effectively settled through the examination process . we consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures , including all appeals and administrative reviews ; we have no plans to appeal or litigate any aspect of the tax position ; and we believe that it is highly unlikely that the taxing authority would re-examine the related tax position . we also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense . as of december 27 , 2014 , our non-u.s. subsidiaries ' undistributed foreign earnings included in consolidated retained earnings aggregated $ 271.0 million . all undistributed foreign earnings of non-u.s. subsidiaries , exclusive of earnings that would result in little or no net income tax expense or which were previously taxed under current u.s. tax law , are reinvested indefinitely in operations outside the u.s. this determination is made on a jurisdiction by jurisdiction basis and takes into account the liquidity requirements in both the u.s. and within our foreign subsidiaries . if we decide to repatriate funds in the future to execute our growth initiatives or to fund any other liquidity needs , the resulting tax consequences would negatively impact our results of operations through a higher effective tax rate and dilution of our earnings . goodwill and intangible assets we use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination . the determination of the fair value of intangible assets , which represent a significant portion of the purchase price in many of our acquisitions , requires the use of significant judgment with regard to ( i ) the fair value ; and ( ii ) whether such intangibles are amortizable or non-amortizable and , if the former , the period and the method by which the intangible asset will be amortized .
| rms costs as a percentage of revenue for the fiscal year 2014 were 62.5 % , a decrease of 2.4 % , from 64.9 % for the fiscal year 2013 , the result of global efficiency initiatives in our research models business . dsa costs increased $ 61.7 million due to a $ 49.1 million increase in discovery services costs , which includes a higher cost base due to the argenta and biofocus acquisition , and a $ 12.6 million increase in safety assessment costs , as a result of increased revenues . dsa costs as a percentage of revenue for the fiscal year 2014 were 72.0 % , a decrease of 3.3 % , from 75.3 % for the fiscal year 2013 as a result of leverage of fixed costs from higher revenues . manufacturing costs increased $ 7.3 million , primarily as a result of higher revenue for each of our manufacturing businesses . manufacturing costs as a percentage of revenue for the fiscal year 2014 were 47.8 % , a decrease of 3.2 % , from 51.0 % for the fiscal year 2013 , as a result of leverage of fixed costs from higher revenue . 34 selling , general and administrative expenses replace_table_token_6_th selling , general and administrative expenses ( sg & a ) for the fiscal year 2014 increased $ 43.3 million , or 19.2 % , compared with the fiscal year 2013. sg & a as a percentage of revenue for the fiscal year 2014 was 20.7 % , an increase of 1.3 % , from 19.4 % for the fiscal year 2013. the increase in rms sg & a of $ 6.2 million was related to an increase of $ 2.5 million in compensation , benefits and other employee related expenses ; the recording of $ 1.6 million in charges related to an arbitration award in favor of a large model supplier ; an increase of $ 0.5 million in severance due to consolidation plans in the u.s. and japan ; and an increase of $ 2.6 million in other expenses ; partially offset by a decrease of $ 1.0 million due to a gain on the sale of facility impacted by a consolidation plan . rms
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we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our audited financial statements for 2015 and 2014 appearing elsewhere in this report . 13 story_separator_special_tag ended december 31 , 2015 compared to the same period last year are approximately $ 241,000 higher facilities cost ; $ 188,000 higher professional fees ; $ 66,000 higher travel and entertainment costs ; $ 58,000 higher amortization and depreciation expense ; partially offset by $ 281,000 lower corporate expenses . we expect selling , general and administrative costs to remain relatively flat in 2016. interest expense , net interest expense , net was $ 141,311 and $ 351,225 for the years ended december 31 , 2015 and 2014 , respectively . this is interest expense on the bank credit facility where average outstanding loan balances were significantly lower in 2015 compared to 2014. income tax benefit we recognized a tax benefit of approximately $ 300,000 in 2015 compared to no tax expense or benefit in 2014. the net benefit in 2015 is due to settling a disputed income tax claim with the state of new jersey in february 2015. the claim related to the 2007-2009 tax years and was settled for $ 100,000. as a result , the remaining long-term taxes payable liability was adjusted and resulted in a one-time $ 406,000 income tax benefit . the tax benefit in 2015 is partially offset by expense of approximately $ 106,000 for state income tax . income ( loss ) from discontinued operations certain of our subsidiaries previously operated in the european union ( `` eu '' ) . though operations ceased in 2009 , statutory requirements require a continued presence in the eu for varying terms until november 2015. profits and losses generated from the remaining assets and liabilities are accounted for as discontinued operations . income ( loss ) from discontinued operations includes activity related to the remaining assets and liabilities of discontinued operations in the european union . for the twelve months ended december 31 , 2015 , we recognized income from discontinued operations of $ 33,969 due primarily to the adjustment of certain accrued liabilities originating in 2009 and earlier . for the twelve months ended december 31 , 2014 , we recognized a net loss of $ 40,670 , due primarily to an audit adjustment to accrue a 15 liability in the event that the uk inland revenue does not accept our method of transfer pricing within the affiliated companies partially offset by an adjustment of certain accrued liabilities originating in 2009 and earlier . liquidity and capital resources on september 29 , 2014 , we renewed our business financing agreement with bridge bank , n.a . ( `` bridge bank '' ) ( see note 6 , `` notes payable '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2016 and a new term loan of $ 2 million through september 2017. as of december 31 , 2015 , the revolving line of credit had no outstanding balance and had approximately $ 6.5 million in availability . as of december 31 , 2015 , the term loan had no outstanding balance . in may 2015 , we acquired websites from a publisher that had previously been a client on our validclick network . the purchase was structured as an earn-out payable in up to 500,000 shares of our common stock over a three year period dependent upon achieving certain minimum levels of volume . the fair value of the transaction was determined to be $ 715,874. the transaction was recorded as an intangible asset on our balance sheet offset by a contingent liability of the same amount . during the first quarter of 2014 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace the existing , expiring s-3 `` shelf '' registration statement , which permits us to offer and sell up to $ 15 million of our securities from time to time in one or more offerings . to date , we have not taken down any sales from this shelf registration statement . though we believe the revolving line of credit and cash generated by operations will provide sufficient cash for operations over the next twelve months , we may still elect to sell securities to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments in order to fund the development of our technologies , make acquisitions , pursue new business opportunities or grow existing businesses . cash flows - operating net cash provided by operating activities was $ 6,106,272 during 2015 . we produced net income of $ 2,339,774 , which included the non-cash expenses of depreciation and amortization of $ 1,807,350 and stock-based compensation of $ 707,544 , partially offset by a reduction of an accrued state income tax liability of $ 406,453. the change in operating assets and liabilities was a net provision of $ 1,470,560 as a result of working capital management increasing accounts payable by $ 4,545,906 partially offset by a $ 2,001,613 increase in accounts receivable and unbilled revenue . our terms are such that we generally collect receivables prior to paying trade payables . the increase in the accounts receivable balance was due to greater revenue in 2015 over 2014. the increase in the accounts payable balance in 2015 over 2014 was due to higher traffic acquisition costs in 2015. during 2014 , we generated cash from operating activities of $ 3,943,793 and a net income of $ 2,105,114 , which included the non-cash expenses of depreciation and amortization of $ 1,749,538 and stock-based compensation expenses of $ 991,948 . this provision of cash was partially offset by the change story_separator_special_tag we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our audited financial statements for 2015 and 2014 appearing elsewhere in this report . 13 story_separator_special_tag ended december 31 , 2015 compared to the same period last year are approximately $ 241,000 higher facilities cost ; $ 188,000 higher professional fees ; $ 66,000 higher travel and entertainment costs ; $ 58,000 higher amortization and depreciation expense ; partially offset by $ 281,000 lower corporate expenses . we expect selling , general and administrative costs to remain relatively flat in 2016. interest expense , net interest expense , net was $ 141,311 and $ 351,225 for the years ended december 31 , 2015 and 2014 , respectively . this is interest expense on the bank credit facility where average outstanding loan balances were significantly lower in 2015 compared to 2014. income tax benefit we recognized a tax benefit of approximately $ 300,000 in 2015 compared to no tax expense or benefit in 2014. the net benefit in 2015 is due to settling a disputed income tax claim with the state of new jersey in february 2015. the claim related to the 2007-2009 tax years and was settled for $ 100,000. as a result , the remaining long-term taxes payable liability was adjusted and resulted in a one-time $ 406,000 income tax benefit . the tax benefit in 2015 is partially offset by expense of approximately $ 106,000 for state income tax . income ( loss ) from discontinued operations certain of our subsidiaries previously operated in the european union ( `` eu '' ) . though operations ceased in 2009 , statutory requirements require a continued presence in the eu for varying terms until november 2015. profits and losses generated from the remaining assets and liabilities are accounted for as discontinued operations . income ( loss ) from discontinued operations includes activity related to the remaining assets and liabilities of discontinued operations in the european union . for the twelve months ended december 31 , 2015 , we recognized income from discontinued operations of $ 33,969 due primarily to the adjustment of certain accrued liabilities originating in 2009 and earlier . for the twelve months ended december 31 , 2014 , we recognized a net loss of $ 40,670 , due primarily to an audit adjustment to accrue a 15 liability in the event that the uk inland revenue does not accept our method of transfer pricing within the affiliated companies partially offset by an adjustment of certain accrued liabilities originating in 2009 and earlier . liquidity and capital resources on september 29 , 2014 , we renewed our business financing agreement with bridge bank , n.a . ( `` bridge bank '' ) ( see note 6 , `` notes payable '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2016 and a new term loan of $ 2 million through september 2017. as of december 31 , 2015 , the revolving line of credit had no outstanding balance and had approximately $ 6.5 million in availability . as of december 31 , 2015 , the term loan had no outstanding balance . in may 2015 , we acquired websites from a publisher that had previously been a client on our validclick network . the purchase was structured as an earn-out payable in up to 500,000 shares of our common stock over a three year period dependent upon achieving certain minimum levels of volume . the fair value of the transaction was determined to be $ 715,874. the transaction was recorded as an intangible asset on our balance sheet offset by a contingent liability of the same amount . during the first quarter of 2014 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace the existing , expiring s-3 `` shelf '' registration statement , which permits us to offer and sell up to $ 15 million of our securities from time to time in one or more offerings . to date , we have not taken down any sales from this shelf registration statement . though we believe the revolving line of credit and cash generated by operations will provide sufficient cash for operations over the next twelve months , we may still elect to sell securities to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments in order to fund the development of our technologies , make acquisitions , pursue new business opportunities or grow existing businesses . cash flows - operating net cash provided by operating activities was $ 6,106,272 during 2015 . we produced net income of $ 2,339,774 , which included the non-cash expenses of depreciation and amortization of $ 1,807,350 and stock-based compensation of $ 707,544 , partially offset by a reduction of an accrued state income tax liability of $ 406,453. the change in operating assets and liabilities was a net provision of $ 1,470,560 as a result of working capital management increasing accounts payable by $ 4,545,906 partially offset by a $ 2,001,613 increase in accounts receivable and unbilled revenue . our terms are such that we generally collect receivables prior to paying trade payables . the increase in the accounts receivable balance was due to greater revenue in 2015 over 2014. the increase in the accounts payable balance in 2015 over 2014 was due to higher traffic acquisition costs in 2015. during 2014 , we generated cash from operating activities of $ 3,943,793 and a net income of $ 2,105,114 , which included the non-cash expenses of depreciation and amortization of $ 1,749,538 and stock-based compensation expenses of $ 991,948 . this provision of cash was partially offset by the change
| the increase in advertisements served and users was due in part to ( i ) increased marketing of our owned and operated web properties , ( ii ) expanded verticals and content , and ( iii ) beginning in march 2015 , the acquisition of a former partner network site . we intend to continue to expand our owned and operated network by enhancing our current websites and mobile applications , launching additional mobile applications under the alot brand , expanding the content of the alot sites and acquiring additional websites . cost of revenue replace_table_token_3_th cost of revenue in the partner network is generated by payments to website and application publishers who host our advertisements . the increase in cost of revenue is directly associated with higher contractual payments to publishers . the decrease in cost of revenue in the owned and operated network was driven primarily by the transition away from the alot appbar product . other cost of revenue in this segment consists of charges for web searches and content acquisition . 14 operating expenses replace_table_token_4_th operating expenses increased in the twelve months ended december 31 , 2015 as compared to the same period of the prior year as a result of higher marketing costs to launch and promote the new alot web properties , compensation expense and selling , general and administrative expenses . marketing costs include those expenses required to attract traffic to our owned and operated websites . marketing costs increased in the twelve months ended december 31 , 2015 as a result of the growth within the owned and operated website and application business . we expect marketing costs to continue to increase proportionally as we expand the alot branded websites and mobile applications and acquired sites . compensation expense increased 15.9 % in the twelve months ended december 31 , 2015 to $ 5.6 million as compared to the same period of 2014 due primarily to an increase in the
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grow our user communities and partner ecosystem to increase awareness of our brand , target new use cases , drive operational leverage and deliver more targeted , higher value solutions . continue to deliver a rich developer environment to enable rapid development of enterprise applications that leverage machine data and the splunk platform . 46 we believe the factors that will influence our ability to achieve our goals include , among other things , our ability to deliver new offerings as well as additional product functionality ; acquire new customers across geographies and industries ; cultivate incremental sales from our existing customers by driving increased use of our software within organizations ; provide additional solutions that leverage our core machine data platform to help organizations understand and realize the value of their machine data in specific end markets and use cases ; add additional original equipment manufacturer ( “ oem ” ) and strategic relationships to enable new sales channels for our software as well as extend our integration with third-party products ; help software developers leverage the functionality of our machine data platform through software development kits ( “ sdks ” ) and application programming interfaces ( “ apis ” ) ; and successfully integrate acquired businesses and technologies . new accounting standard prior period information presented in the “ management 's discussion and analysis of financial condition and results of operations ” section and comparative references to prior periods have been adjusted to reflect the impact of the full retrospective adoption of asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . refer to note 1 of our accompanying notes to consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k for further information . financial summary ( dollars in millions ) _ * refer to non-gaap financial results below for further information regarding our gaap to non-gaap financial measures and related reconciliations . our customers and end-users represent the public sector and a wide variety of industries , including financial services , manufacturing , retail and technology , among others . as of january 31 , 2019 , we had over 17,500 customers , including 90 of the fortune 100 companies . 47 non-gaap financial results to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we provide investors with certain non-gaap financial measures , including non-gaap cost of revenues , non-gaap gross margin , non-gaap research and development expense , non-gaap sales and marketing expense , non-gaap general and administrative expense , non-gaap operating income ( loss ) , non-gaap operating margin , non-gaap income tax provision ( benefit ) , non-gaap net income ( loss ) and non-gaap net income ( loss ) per share ( collectively the “ non-gaap financial measures ” ) . these non-gaap financial measures exclude all or a combination of the following ( as reflected in the following reconciliation tables ) : expenses related to stock-based compensation and related employer payroll tax , amortization of acquired intangible assets , adjustments related to a financing lease obligation , adjustments related to facility exits , acquisition-related adjustments , including the partial release of the valuation allowance due to acquisitions and non-cash interest expense related to our convertible senior notes . the adjustments for the financing lease obligation are to reflect the expense we would have recorded if our build-to-suit lease arrangement had been deemed an operating lease instead of a financing lease and is calculated as the net of actual ground lease expense , depreciation and interest expense over estimated straight-line rent expense . we issued convertible senior notes in the third quarter of fiscal 2019 , and therefore exclude non-cash interest expense related to our convertible senior notes beginning with the third quarter of fiscal 2019. the non-gaap financial measures are also adjusted for our estimated tax rate on non-gaap income ( loss ) . to determine the annual non-gaap tax rate , we evaluate a financial projection based on our non-gaap results . the annual non-gaap tax rate takes into account other factors including our current operating structure , our existing tax positions in various jurisdictions and key legislation in major jurisdictions where we operate . the non-gaap tax rate applied to the fiscal year ended january 31 , 2019 was 20 % . we provide updates to this rate on an annual basis , or more frequently if material changes occur . in addition , our non-gaap financial measures include free cash flow , which represents cash from operations less purchases of property and equipment . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in our financial and operational decision making . in addition , these non-gaap financial measures facilitate comparisons to competitors ' operating results . we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies . we exclude employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on our operating results . these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise , which may vary from period to period independent of the operating performance of our business . story_separator_special_tag we also exclude amortization of acquired intangible assets , adjustments related to a financing lease obligation , adjustments related to facility exits , acquisition-related adjustments , including the partial release of the valuation allowance due to our acquisitions , and non-cash interest expense related to our convertible senior notes from our non-gaap financial measures because these are considered by management to be outside of our core operating results . accordingly , we believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of our business operations , facilitates comparison of our results with other periods and may also facilitate comparison with the results of other companies in our industry . we consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities , including investing in our business , making strategic acquisitions and strengthening our balance sheet . there are limitations in using non-gaap financial measures because the non-gaap financial measures are not prepared in accordance with gaap , may be different from non-gaap financial measures used by our competitors and exclude expenses that may have a material impact upon our reported financial results . further , stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees . the non-gaap financial measures are meant to supplement and be viewed in conjunction with gaap financial measures . 48 the following table reconciles our net cash provided by operating activities to free cash flow : replace_table_token_5_th the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2019 : ( dollars in thousands , except per share amounts ) gaap stock-based compensation and related employer payroll tax amortization of acquired intangible assets adjustments related to financing lease obligation acquisition-related adjustments non-cash interest expense related to convertible senior notes income tax effects related to non-gaap adjustments ( 4 ) non-gaap cost of revenues $ 344,676 $ ( 39,429 ) $ ( 21,444 ) $ 1,218 $ — $ — $ — $ 285,021 gross margin 80.9 % 2.2 % 1.2 % ( 0.1 ) % — % — % — % 84.2 % research and development 441,969 ( 141,315 ) ( 1,041 ) 2,029 — — — 301,642 sales and marketing 1,029,950 ( 197,384 ) ( 2,740 ) 4,573 — — — 834,399 general and administrative 237,588 ( 79,045 ) — 1,002 ( 6,034 ) — — 153,511 operating income ( loss ) ( 251,173 ) 457,173 25,225 ( 8,822 ) 6,034 — — 228,437 operating margin ( 13.9 ) % 25.4 % 1.4 % ( 0.5 ) % 0.3 % — % — % 12.7 % income tax provision 12,386 — — — 3,313 ( 3 ) — 34,826 50,525 net income ( loss ) $ ( 275,577 ) $ 457,173 $ 25,225 $ ( 636 ) ( 2 ) $ 2,721 $ 28,019 $ ( 34,826 ) $ 202,099 net income ( loss ) per share ( 1 ) $ ( 1.89 ) $ 1.33 _ ( 1 ) gaap net loss per share calculated based on 145,707 weighted-average shares of common stock . non-gaap net income per share calculated based on 152,126 diluted weighted-average shares of common stock , which includes 6,419 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . ( 2 ) includes $ 8.2 million of interest expense related to the financing lease obligation . ( 3 ) represents the partial release of the valuation allowance . ( 4 ) represents the tax effect of the non-gaap adjustments based on the estimated annual effective tax rate of 20 % . 49 the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2018 : ( dollars in thousands , except per share amounts ) gaap stock-based compensation and related employer payroll tax amortization of acquired intangible assets adjustments related to financing lease obligation adjustments related to facility exits acquisition-related adjustments income tax effects related to non-gaap adjustments ( 4 ) non-gaap cost of revenues $ 256,409 $ ( 34,814 ) $ ( 12,387 ) $ 1,259 $ — $ — $ — $ 210,467 gross margin 80.4 % 2.7 % 0.9 % ( 0.1 ) % — % — % — % 83.9 % research and development 301,114 ( 109,743 ) ( 492 ) 1,990 — — — 192,869 sales and marketing 777,876 ( 164,363 ) ( 1,909 ) 4,684 — — — 616,288 general and administrative 159,143 ( 61,192 ) — 927 5,191 ( 643 ) — 103,426 operating income ( loss ) ( 185,410 ) 370,112 14,788 ( 8,860 ) ( 5,191 ) 643 — 186,082 operating margin ( 14.2 ) % 28.4 % 1.1 % ( 0.7 ) % ( 0.4 ) % — % — % 14.2 % income tax provision 1,357 — — — — 2,540 ( 3 ) 47,681 51,578 net income ( loss ) $ ( 190,218 ) $ 370,112 $ 14,788 $ ( 463 ) ( 2 ) $ ( 5,191 ) $ ( 1,897 ) $ ( 47,681 ) $ 139,450 net income ( loss ) per share ( 1 ) $ ( 1.36 ) $ 0.96 _ ( 1 ) gaap net loss per share calculated based on 139,866 weighted-average shares of common stock . non-gaap net income per share calculated based on 144,862 diluted weighted-average shares of common stock , which includes 4,996 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . ( 2 ) includes $ 8.4
| and services revenues + increase in the total number of orders greater than $ 1.0 million from 167 to 293 + increase in the total number of customers from 13,000 to over 15,000 55 cost of revenues and gross margin ( dollars in millions ) fiscal 2019 - 2018 total cost of revenues increased $ 88.3 million or 34.4 % . license cost of revenues increased $ 9.1 million , or 68.1 % , due to an increase in amortization expense related to acquired intangible assets . maintenance and services cost of revenues increased $ 79.1 million , or 32.6 % , primarily due to the following : + increase of $ 37.0 million in salaries and benefits , which includes a $ 3.9 million increase in stock-based compensation expense due to increased headcount + increase of $ 20.8 million in third-party hosting fees to support our cloud services + increase of $ 18.6 million related to third-party consulting services maintenance and services gross margin increased primarily due to the growth and improved margins of our cloud business during fiscal 2019. license gross margin and total gross margin remained relatively flat . fiscal 2018 - 2017 total cost of revenues increased $ 65.4 million or 34.2 % . license cost of revenues increased $ 1.4 million , or 12.0 % , due to an increase in amortization expense related to acquired intangible assets . maintenance and services cost of revenues increased $ 63.9 million , or 35.7 % , primarily due to the following : + increase of $ 30.0 million in salaries and benefits , which includes a $ 2.6 million increase in stock-based compensation expense due to increased headcount + increase of $ 17.4 million in third-party hosting fees to support our cloud services + increase of $ 13.9 million related to third-party consulting services maintenance and services gross margin increased primarily due to the growth and improved margins
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as of december 31 , 2019 , we have $ 227.3 million of goodwill related to the domestic reporting unit , $ 498.9 million related to the import reporting unit , $ 714.9 million related to the premium luxury reporting unit , $ 41.7 million related to the collision center reporting unit , and $ 19.1 million related to the parts center reporting unit . other intangible assets our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers , which have indefinite lives and are tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred . our franchise rights , which related to 66 stores and totaled $ 580.1 million at april 30 , 2019 , are evaluated for impairment on a franchise-by-franchise basis annually . we performed quantitative franchise rights impairment tests as of april 30 , 2019 . as a result of the quantitative tests , we identified 6 stores with franchise rights carrying values that exceeded their fair values , and we recorded non-cash impairment charges of $ 9.6 million . we identified 10 additional stores that , while they each had franchise rights fair value in excess of carrying value , had lower relative performance compared to our total store population . we divested one of these stores subsequent to april 30 , 2019 , and we will continue to monitor the remaining 9 stores , as well as all stores , for events or changes in circumstances that may indicate potential impairment . the remainder of our stores had franchise rights with calculated fair values that substantially exceeded their carrying values . the quantitative franchise rights impairment test is dependent on many variables used to determine the fair value of each store 's franchise rights . see note 18 of the notes to consolidated financial statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing . based on a sensitivity analysis of these estimates and assumptions , which is not intended to provide a sensitivity analysis of every potential outcome , the hypothetical additional aggregate pre-tax non-cash impairment charge would have been between $ 1 million and $ 3 million . 27 reported operating data years ended december 31 , ( $ in millions , except per vehicle data ) 2019 vs. 2018 2018 vs. 2017 2019 2018 variance favorable / ( unfavorable ) % variance 2017 variance favorable / ( unfavorable ) % variance revenue : new vehicle $ 11,166.5 $ 11,751.6 $ ( 585.1 ) ( 5.0 ) $ 12,180.8 $ ( 429.2 ) ( 3.5 ) retail used vehicle 5,160.3 4,807.6 352.7 7.3 4,577.1 230.5 5.0 wholesale 306.2 315.7 ( 9.5 ) ( 3.0 ) 301.3 14.4 4.8 used vehicle 5,466.5 5,123.3 343.2 6.7 4,878.4 244.9 5.0 finance and insurance , net 1,023.3 981.4 41.9 4.3 939.2 42.2 4.5 total variable operations ( 1 ) 17,656.3 17,856.3 ( 200.0 ) ( 1.1 ) 17,998.4 ( 142.1 ) ( 0.8 ) parts and service 3,572.1 3,447.6 124.5 3.6 3,398.3 49.3 1.5 other 107.3 108.9 ( 1.6 ) 137.9 ( 29.0 ) total revenue $ 21,335.7 $ 21,412.8 $ ( 77.1 ) ( 0.4 ) $ 21,534.6 $ ( 121.8 ) ( 0.6 ) gross profit : new vehicle $ 503.9 $ 516.1 $ ( 12.2 ) ( 2.4 ) $ 588.4 $ ( 72.3 ) ( 12.3 ) retail used vehicle 346.8 327.6 19.2 5.9 308.0 19.6 6.4 wholesale 21.2 14.1 7.1 7.2 6.9 used vehicle 368.0 341.7 26.3 7.7 315.2 26.5 8.4 finance and insurance 1,023.3 981.4 41.9 4.3 939.2 42.2 4.5 total variable operations ( 1 ) 1,895.2 1,839.2 56.0 3.0 1,842.8 ( 3.6 ) ( 0.2 ) parts and service 1,622.6 1,555.3 67.3 4.3 1,490.7 64.6 4.3 other 5.2 2.8 2.4 25.5 ( 22.7 ) total gross profit 3,523.0 3,397.3 125.7 3.7 3,359.0 38.3 1.1 selling , general , and administrative expenses 2,558.6 2,509.8 ( 48.8 ) ( 1.9 ) 2,436.2 ( 73.6 ) ( 3.0 ) depreciation and amortization 180.5 166.2 ( 14.3 ) 158.6 ( 7.6 ) franchise rights impairment 9.6 8.1 ( 1.5 ) — ( 8.1 ) other income , net ( 49.3 ) ( 64.7 ) ( 15.4 ) ( 79.2 ) ( 14.5 ) operating income 823.6 777.9 45.7 5.9 843.4 ( 65.5 ) ( 7.8 ) non-operating income ( expense ) items : floorplan interest expense ( 138.4 ) ( 130.4 ) ( 8.0 ) ( 97.0 ) ( 33.4 ) other interest expense ( 106.7 ) ( 119.4 ) 12.7 ( 120.2 ) 0.8 interest income 0.5 1.1 ( 0.6 ) 1.0 0.1 other income , net 33.6 0.2 33.4 9.3 ( 9.1 ) income from continuing operations before income taxes $ 612.6 $ 529.4 $ 83.2 15.7 $ 636.5 $ ( 107.1 ) ( 16.8 ) retail vehicle unit sales : new vehicle 282,602 310,839 ( 28,237 ) ( 9.1 ) 329,116 ( 18,277 ) ( 5.6 ) used vehicle 246,113 237,722 8,391 3.5 234,148 3,574 1.5 528,715 548,561 ( 19,846 ) ( 3.6 ) 563,264 ( 14,703 ) ( 2.6 ) revenue per vehicle retailed : new vehicle $ 39,513 $ 37,806 $ 1,707 4.5 $ 37,011 $ 795 2.1 used vehicle $ 20,967 $ 20,224 $ 743 3.7 $ 19,548 $ 676 3.5 gross profit per vehicle retailed : new vehicle $ 1,783 $ 1,660 $ 123 7.4 $ 1,788 $ ( 128 ) ( 7.2 ) used vehicle $ 1,409 $ 1,378 $ 31 2.2 $ 1,315 $ 63 4.8 finance and insurance $ 1,935 $ 1,789 $ 146 8.2 $ 1,667 $ 122 7.3 total variable operations ( 2 ) $ 3,544 $ 3,327 $ 217 6.5 $ 3,259 $ 68 2.1 ( 1 ) total variable operations includes new vehicle , used vehicle ( retail and wholesale ) , and finance and insurance results . story_separator_special_tag ( 2 ) total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle , retail used vehicle , and finance and insurance gross profit by total retail vehicle unit sales . 28 replace_table_token_7_th 29 same store operating data we have presented below our operating results on a same store basis to reflect our internal performance . the “ same store ” amounts presented below include the results of our stores for the identical months in each period presented in the comparison , commencing with the first full month in which the store was owned by us . results from divested stores are excluded from both current and prior periods . therefore , the amounts presented in the year 2018 column that is being compared to the year 2019 column may differ from the amounts presented in the year 2018 column that is being compared to the year 2017 column . years ended december 31 , years ended december 31 , ( $ in millions , except per vehicle data ) 2019 2018 variance favorable / ( unfavorable ) % variance 2018 2017 variance favorable / ( unfavorable ) % variance revenue : new vehicle $ 10,908.4 $ 11,366.8 $ ( 458.4 ) ( 4.0 ) $ 11,519.8 $ 11,761.3 $ ( 241.5 ) ( 2.1 ) retail used vehicle 5,040.6 4,649.3 391.3 8.4 4,649.6 4,397.8 251.8 5.7 wholesale 299.3 306.4 ( 7.1 ) ( 2.3 ) 302.0 288.9 13.1 4.5 used vehicle 5,339.9 4,955.7 384.2 7.8 4,951.6 4,686.7 264.9 5.7 finance and insurance , net 1,004.5 953.7 50.8 5.3 964.4 911.7 52.7 5.8 total variable operations ( 1 ) 17,252.8 17,276.2 ( 23.4 ) ( 0.1 ) 17,435.8 17,359.7 76.1 0.4 parts and service 3,479.6 3,335.0 144.6 4.3 3,354.9 3,288.7 66.2 2.0 other 105.2 108.4 ( 3.2 ) 108.7 136.9 ( 28.2 ) total revenue $ 20,837.6 $ 20,719.6 $ 118.0 0.6 $ 20,899.4 $ 20,785.3 $ 114.1 0.5 gross profit : new vehicle $ 494.7 $ 506.9 $ ( 12.2 ) ( 2.4 ) $ 506.5 $ 573.4 $ ( 66.9 ) ( 11.7 ) retail used vehicle 341.8 320.2 21.6 6.7 319.5 296.7 22.8 7.7 wholesale 20.8 14.6 6.2 8.1 7.6 0.5 used vehicle 362.6 334.8 27.8 8.3 327.6 304.3 23.3 7.7 finance and insurance 1,004.5 953.7 50.8 5.3 964.4 911.7 52.7 5.8 total variable operations ( 1 ) 1,861.8 1,795.4 66.4 3.7 1,798.5 1,789.4 9.1 0.5 parts and service 1,580.2 1,503.8 76.4 5.1 1,513.3 1,441.9 71.4 5.0 other 5.3 3.0 2.3 2.8 25.3 ( 22.5 ) total gross profit $ 3,447.3 $ 3,302.2 $ 145.1 4.4 $ 3,314.6 $ 3,256.6 $ 58.0 1.8 retail vehicle unit sales : new vehicle 275,808 298,468 ( 22,660 ) ( 7.6 ) 305,615 316,914 ( 11,299 ) ( 3.6 ) used vehicle 239,996 228,093 11,903 5.2 229,379 223,559 5,820 2.6 total 515,804 526,561 ( 10,757 ) ( 2.0 ) 534,994 540,473 ( 5,479 ) ( 1.0 ) revenue per vehicle retailed : new vehicle $ 39,551 $ 38,084 $ 1,467 3.9 $ 37,694 $ 37,112 $ 582 1.6 used vehicle $ 21,003 $ 20,383 $ 620 3.0 $ 20,270 $ 19,672 $ 598 3.0 gross profit per vehicle retailed : new vehicle $ 1,794 $ 1,698 $ 96 5.7 $ 1,657 $ 1,809 $ ( 152 ) ( 8.4 ) used vehicle $ 1,424 $ 1,404 $ 20 1.4 $ 1,393 $ 1,327 $ 66 5.0 finance and insurance $ 1,947 $ 1,811 $ 136 7.5 $ 1,803 $ 1,687 $ 116 6.9 total variable operations ( 2 ) $ 3,569 $ 3,382 $ 187 5.5 $ 3,347 $ 3,297 $ 50 1.5 ( 1 ) total variable operations includes new vehicle , used vehicle ( retail and wholesale ) , and finance and insurance results . ( 2 ) total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle , retail used vehicle , and finance and insurance gross profit by total retail vehicle unit sales . 30 replace_table_token_8_th 31 new vehicle replace_table_token_9_th replace_table_token_10_th the following discussion of new vehicle results is on a same store basis . the difference between reported amounts and same store amounts in the above tables of $ 258.1 million , $ 384.8 million , and $ 419.5 million in new vehicle revenue and $ 9.2 million , $ 9.2 million , and $ 15.0 million in new vehicle gross profit for 2019 , 2018 , and 2017 , respectively , is related to acquisition and divestiture activity , as well as new add-point openings . 2019 compared to 2018 same store new vehicle revenue decreased during 2019 , as compared to 2018 , due to a decrease in same store unit volume , partially offset by an increase in revenue pvr . same store unit volume declined as we continued to focus on balancing gross profit pvrs and unit volume . in addition , same store unit volume decreased due to overall competitive market conditions in a weaker retail new vehicle sales environment and historically elevated levels in off-lease supply of late-model used vehicles . same store revenue pvr increased during 2019 , as compared to 2018 , due to an increase in revenue pvr for all three segments as a result of increases in the manufacturers ' suggested retail prices . same store revenue pvr also increased due to a shift in mix toward premium luxury vehicles and trucks and sport utility vehicles , all of which have relatively higher average selling prices . the shift in mix toward trucks and sports utility vehicles is due to a combination of improved vehicle fuel efficiency , relatively low average fuel prices , and changing consumer preference . same store gross profit pvr increased during 2019 , as compared to the same period in 2018 , as we focused on balancing gross profit pvrs and unit volume . same store gross profit pvr also benefited from a shift in mix toward premium luxury vehicles , which have relatively higher average gross profit pvrs .
| net income from continuing operations benefited from net after-tax gains related to store/property divestitures of $ 34.4 million in 2019 and $ 43.7 million in 2018 , and after-tax gains related to legal settlements of $ 5.7 million in 2019 and $ 8.7 million in 2018. chief financial officer appointment on november 18 , 2019 , our board of directors appointed joseph lower as executive vice president and chief financial officer of autonation , effective as of january 13 , 2020. please refer to “ information about our executive officers ” in part i , item 1 , for additional information regarding mr. lower . strategic initiatives we continue to build upon our comprehensive , customer-focused brand extension strategy , which includes autonation-branded parts and accessories , autonation-branded customer financial services products ( including extended service and maintenance contracts and other vehicle protection products ) , autonation-branded collision centers , autonation-branded automotive auctions , autonation usa stand-alone used vehicle sales and service centers , and our parts distribution network . we continue to evaluate potential strategic investment and partnership opportunities that will further enhance our ability to adapt to changing customer behavior and expectations , such as our minority investment in vroom inc. and our partnership with waymo . inventory management our new and used vehicle inventories are stated at the lower of cost or net realizable value in our consolidated balance sheets . we monitor our vehicle inventory levels based on current economic conditions and seasonal sales trends . we have typically not experienced significant losses on the sale of new vehicle inventory , in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices . we monitor our new vehicle inventory values as compared to net realizable values , and had no new vehicle inventory write-downs at december 31 , 2019 . our new vehicle inventory balance was net of cumulative write-downs of $ 0.5 million at december 31 , 2018 . we recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory . we monitor our used vehicle inventory values as compared to net realizable values . typically , used vehicles that are not sold on a retail basis are sold at wholesale auctions . our used vehicle inventory balance was net of cumulative write-downs of $ 3.2 million at december 31 , 2019 ,
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the annual expense on the domestic defined benefit pension plan was $ 13.3 million in 2013 , $ 9.8 million in 2012 and $ 8.0 million in 2011. the increase in the pension expense in 2013 and 2012 over the respective prior years was due to changes in the discount rate , the performance of the plan assets and other factors and affected cost of sales , selling , general and administrative expenses and , to a lesser extent , research and development expenses . see “ critical accounting policies ” below . during 2013 and 2012 , we took steps to consolidate several of our smaller operations , rationalize our product lines and reduce overhead costs . specifically : 24 we shut down our microelectronics packaging business in massachusetts and transferred the operations to singapore in order to more effectively serve our customer base in asia . the relocation and customer qualifications were completed in the third quarter 2013 ; we shut down the precision cleaning facility in the czech republic in the fourth quarter 2012. the existing customer base is now serviced from our irish operations . the czech operation had been unprofitable ; the majority of the ongoing operations at our optics facility in buellton , california were transferred to our westford , massachusetts operations in the fourth quarter 2013. buellton 's business had declined due to changes in market conditions and we had excess capacity . the buellton operations remained open on a reduced basis to service a key application with one customer . manpower reductions were also made at the westford and shanghai , china facilities in efforts to right-size the optics operations ; the albuquerque operations were consolidated from four leased facilities into two in the fourth quarter 2013 in order to improve work flow and manufacturing efficiencies . portions of the operations were also transferred to our wheatfield , new york facility ; and manpower reductions were made in the management group of the advanced material technologies segment in the fourth quarter 2013 in order to reduce costs and streamline the operations . costs associated with these actions , including severance , equipment write-offs , equipment relocations and other related items , totaled $ 6.0 million in 2013 , with $ 1.8 million recorded in cost of sales , $ 2.8 million recorded in selling , general and administrative expense and $ 1.4 million in other-net expense . related costs for these actions totaled $ 4.8 million in 2012 with $ 1.6 million recorded in cost of sales , $ 1.6 million recorded in selling , general and administrative expense and $ 1.6 million recorded in other-net expense . these actions resulted in a reduction in excess of 200 employees , or approximately 7 % of our total work force . all of the facilities affected by these actions are within our advanced material technologies segment . selling , general and administrative ( sg & a ) expenses totaled $ 133.3 million ( 11 % of sales ) in 2013 , $ 133.9 million ( 11 % of sales ) in 2012 and $ 131.4 million ( 9 % of sales ) in 2011. sg & a expenses were 22 % of value-added sales in 2013 and 2012 and 20 % of value-added sales in 2011. the incentive compensation expense on plans that pay in cash was $ 0.5 million lower in 2013 than in 2012 and $ 3.5 million lower in 2012 than in 2011. the changes in the annual expense between years were caused primarily by the performance of the individual operations relative to their plans ' objectives . stock-based compensation expense , including the expense for stock appreciation rights , restricted stock and performance restricted shares , was $ 5.7 million in 2013 , $ 5.9 million in 2012 and $ 5.0 million in 2011. the comparison of stock-based compensation expense between years may be affected by changes in plan design , the number of grants in a given year , actual performance relative to the plans ' objectives , movement in our stock price , forfeitures , vesting schedules and other factors . various corporate costs increased in 2013 over 2012 and in 2012 over 2011. a portion of the higher costs was due to various initiatives , including a new centralized procurement function , that are designed to produce long-term savings and improve profitability across the organization . other costs increased in 2013 , including administration , legal , information technology and business development , in order to support a more diverse organization . corporate costs also included legal and investigation expenses associated with the albuquerque inventory loss and the related insurance claim totaling $ 1.3 million in 2013. sg & a savings from the plant consolidations and related efforts totaled an estimated $ 2.9 million in 2013. expenses incurred by eis and amc subsequent to their acquisitions increased sg & a expenses by $ 5.1 million in 2012 over 2011. legal , administrative and marketing expenses associated with the change of our name to materion corporation in the first quarter 2011 totaled $ 3.9 million in 2011. one-time acquisition-related expenses for legal , accounting and due diligence services totaled $ 1.8 million in 2011. research and development ( r & d ) expenses were $ 13.4 million in 2013 , a 7 % increase from the expense of $ 12.5 million in 2012. r & d expenses totaled $ 11.1 million in 2011. r & d expenses were over 1 % of sales in 2013 compared to less than 1 % of sales in the prior two years . r & d expenses were approximately 2 % of value-added sales for all three years presented . the higher expense in 2013 as compared to 2012 was largely due to increased activity in our beryllium-based business segments on key projects for future sales growth . the majority of the increase in the expense in 2012 over 2011 was primarily due to the expenses incurred by eis after its acquisition . story_separator_special_tag our r & d staff works closely with production engineers , sales engineers and marketing to support the development of new products and applications as well as to make improvements in the current product portfolio . other-net expense totaled $ 14.5 million in 2013 , $ 15.6 million in 2012 and $ 15.8 million in 2011. see note n to the consolidated financial statements for the details of the major components of other-net expense for each of the three years . in 25 addition to the previously discussed charges recorded in conjunction with the plant consolidation efforts , the major differences in other-net expense between the years include the following : the metal consignment fee was $ 1.8 million lower in 2013 than in 2012 and $ 0.9 million lower in 2012 than in 2011 , mainly due to differences in the rate charged by the financial institutions and the value of the metal on hand . other-net in 2013 included one-time bank fees of $ 0.9 million associated with the renewal of the metal consignment facilities in the third quarter 2013. the net foreign currency exchange and translation gains totaled $ 1.5 million in both 2013 and 2012 compared to net losses of $ 2.8 million in 2011. these gains and losses result from movements in the value of the u.s. dollar versus other currencies , primarily the euro and yen , and the related impact on certain foreign currency denominated assets , liabilities and transactions and the maturity of foreign currency hedge contracts . other-net in 2011 included a $ 1.3 million benefit from the favorable resolution of a lawsuit that we had filed against a utility provider for raising our billing rates in violation of our contract . in the fourth quarter 2011 , the court ruled in our favor and we received $ 1.3 million in full satisfaction of our claim . other-net in 2011 also included a $ 1.1 million benefit that resulted from our determination that the remaining fair value of the earn-out liability associated with the acquisition of barr associates , inc. in 2009 was zero . operating profit was $ 26.8 million ( 2 % of sales ) in 2013 compared to $ 36.8 million ( 3 % of sales ) in 2012 and $ 57.1 million ( 4 % of sales ) in 2011. the lower profit in 2013 was largely due to the decline in gross margin as a result of manufacturing inefficiencies and other operating factors . the $ 20.3 million decline in profitability in 2012 was due to the lower gross margin as a result of the reduced volumes , the physical inventory differences and other factors , the charges recorded for the plant consolidations and higher sg & a expenses . operating profit was 4 % of value-added sales in 2013 , 6 % of value-added sales in 2012 and 9 % of value-added sales in 2011. interest expense - net was $ 3.0 million in 2013 , $ 3.1 million in 2012 and $ 2.8 million in 2011. the lower expense in 2013 resulted from lower average outstanding debt levels offset in part by a higher average borrowing rate . the increase in expense in 2012 over 2011 was due primarily to higher average debt levels and , to a lesser extent , an increase in the average borrowing rate . income before income taxes and income tax expense for each of the past three years were as follows : replace_table_token_6_th the effects of percentage depletion ( a tax benefit resulting from our mining operations ) , foreign source income and deductions , the production deduction , discrete events and other items were major causes of the differences between the effective and statutory rates in each of the three years . the research and experimentation credit provided a tax benefit in 2011 , but this credit was not extended by the federal government for 2012 until january 2013. accounting regulations require us to record tax expense based upon the laws in effect at the end of the year and , even though the research and experimentation credit was used to determine our actual liability on our 2012 tax return , the 2012 benefit of this credit was not recorded in our consolidated statement of income until 2013. the effective tax rate in 2013 also includes the benefit of this credit for 2013 activity . tax expense included net favorable discrete items totaling $ 1.4 million in 2013 , $ 0.3 million in 2012 and $ 2.0 million in 2011. discrete items included reductions to the tax reserves due to the lapse of the statute of limitations and adjustments to the respective prior year 's tax returns in each of these three years . discrete items in 2013 also included the favorable impact from filing an amended return for a prior period while the 2012 discrete items included the impact of a change in the japanese tax rates on the carrying value of certain deferred tax assets . see note q to the consolidated financial statements for a reconciliation of the statutory and effective tax rates . net income was $ 19.7 million , or $ 0.94 per share diluted in 2013 , compared to $ 24.7 million , or $ 1.19 per share diluted , in 2012 and $ 40.0 million , or $ 1.93 per share diluted , in 2011 . 26 segment disclosures results by segment are shown in note m to the consolidated financial statements . the all other column in note m includes our parent company expenses , other corporate charges and the operating results of materion services inc. , a wholly owned subsidiary , that provides administrative and financial oversight services to our other businesses on a cost-plus basis .
| value-added sales in 2012 were 1 % lower than 2011 due to lower precious metal sales for microelectronics applications offset in part by the impact of the acquisition of eis optics limited ( eis ) late in 2011. end-use applications for our materials in the consumer electronics market include cell phones , tablets , gaming systems and other hand-held devices and the market 's demand for increased power and miniaturization in these applications favors the use of our high-performance materials . as a material supplier , we sell to stamping houses and sub-assembly shops so we are several steps removed from the final consumer . our sales to this market in a given period , therefore , are affected by downstream inventory levels and production schedules and changes in market share of the intermediaries within the supply chain and not necessarily by changes in sales of the final product or in consumer demand in that period . while our marketing staffs work closely with various demand generators to develop new applications , technologies can be closely guarded for competitive reasons and we may lose applications from time to time due to rapid changes in technologies and applications that have short life spans . value-added sales to the defense and science market were approximately 6 % lower in 2013 than in 2012. the fall-off resulted from a decline in value-added sales of optics , largely due to government delays and spending cuts , offset in part by an increase in value-added sales of beryllium materials . defense and science value-added sales in 2012 were approximately 10 % lower than value-added sales in 2011 as shipments of optics and beryllium products declined driven mainly by government budget cuts and the impact of the sequestration . value-added sales to the defense and science market accounted for approximately 11 % of our total value-added sales in 2013. industrial components and commercial aerospace market value-added sales softened approximately 4 % in 2013 from 2012 after growing 8 % in 2012 over 2011. value-added sales for commercial aerospace applications improved in 2013 , but this growth
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interest expense was impacted by reduced interest expense resulting from quarterly principal payments , partially offset by increased interest rates , and increased weighted-average outstanding balance on our line of credit and the $ 5.0 million increase to our term loan , which were both used to fund faneuil 's call center buildouts and other working capital requirements . income taxes our provision for income taxes was $ 10.0 million for fiscal 2019 compared to $ 4.3 million for fiscal 2018. fiscal 2019 reflected a non-cash deferred income tax expense of $ 9.7 million , the majority of which was to reduce the net value of our nol carryforward deferred tax assets . the remaining provision for income taxes during fiscal 2019 was a result of generating state taxable income . fiscal 2018 reflected a $ 4.1 million one-time revaluation of deferred tax assets , which was the result of the tax reform law . 31 segment adjusted ebitda replace_table_token_13_th faneuil segment adjusted ebitda faneuil segment adjusted ebitda for fiscal 2019 was $ 8.8 million compared to segment adjusted ebitda of $ 13.1 million for fiscal 2018. faneuil segment adjusted ebitda for fiscal 2019 was impacted by the operational challenges in the normal course of business related to certain ongoing and new contracts , and timing delays related to the startup of recently awarded contracts . carpets segment adjusted ebitda carpets segment adjusted ebitda for fiscal 2019 was $ 1.6 million compared to segment adjusted ebitda of $ 0.5 million for fiscal 2018. fiscal 2019 was positively impacted by process improvements and cost reductions . phoenix segment adjusted ebitda phoenix segment adjusted ebitda for fiscal 2019 was $ 20.5 million compared to segment adjusted ebitda of $ 22.1 million for fiscal 2018. phoenix segment adjusted ebitda for fiscal 2019 was negatively impacted by product mix offset somewhat by decreased selling , general , and administrative expenses , which resulted from consolidating printing facilities . alj segment adjusted ebitda alj segment adjusted ebitda for fiscal 2019 was ( $ 3.2 ) million compared to segment adjusted ebitda of ( $ 2.6 ) million for fiscal 2018. alj segment adjusted ebitda for fiscal 2019 was impacted by increased headcount . segment adjusted ebitda is not considered a non-gaap measure because we include segment adjusted ebitda in our segment disclosures in accordance with the accounting standards codification topic 280 – segment reporting . see “ part iv , item 15. exhibits , financial statements schedules – note 12. reportable segments and geographic information. ” seasonality faneuil faneuil experiences seasonality within its various lines of business . for example , during the end of the calendar year through the end of the first calendar quarter , faneuil generally experiences higher revenue attributable to its healthcare customers as the customer contact centers increase operations during the open enrollment periods of the healthcare exchanges . faneuil revenue from its healthcare customers generally decreases during the remaining portion of the year after the open enrollment period . seasonality is less pronounced with faneuil customers in the transportation industry , though there is typically some volume increase during the summer months . carpets carpets generally experiences seasonality within the home building business as the number of houses sold during the winter months is typically lower than during other times of the year . conversely , the number of houses sold and delivered during the remaining portion of the year increases in comparison . phoenix there is seasonality to the phoenix business . education book component sales ( school and college ) traditionally peak in the first and second quarters of the calendar year . other book components sales traditionally peak in the third quarter of the calendar year . book sales also traditionally peak in the third quarter of the calendar year . the fourth quarter of the calendar year has traditionally been the weakest quarter . these seasonal factors are not significant . 32 liquidity and capital resources our principal sources of liquidity have been cash provided by operations and borrowings under various debt arrangements . at september 30 , 2019 , our principal sources of liquidity included cash and cash equivalents of $ 4.5 million and an available borrowing capacity of $ 12.1 million on our line of credit . our principal uses of cash have been for acquisitions and to pay down debt . we anticipate that our principal uses of cash will continue to be to acquire businesses and pay down our debt . global financial and credit markets have been volatile in recent years , and future adverse conditions of these markets could negatively affect our ability to secure funds or raise capital at a reasonable cost or at all . for additional discussion of our various debt arrangements see contractual obligations below . in summary , our cash flows for each period were as follows : replace_table_token_14_th we recognized a net loss of $ 16.0 million for fiscal 2019 , and generated cash from operating activities of $ 24.6 million , offset by cash used for investing and financing activities of $ 21.4 million and $ 0.6 million , respectively . we recognized a net loss of $ 7.3 million for fiscal 2018 , and generated cash from operating activities of $ 17.8 million , offset by cash used for investing and financing activities of $ 17.1 million and $ 4.3 million , respectively . operating activities cash provided by operations of $ 24.6 million during fiscal 2019 was the result of our $ 16.0 million net loss , $ 32.4 million addback of net non-cash expenses , and $ 8.2 million of net cash provided by changes in operating assets and liabilities . the most significant components of net non-cash expenses were depreciation and amortization of $ 20.6 million , deferred income taxes of $ 9.5 million , as a result of increasing our nol carryforwards valuation allowance , impairment of intangible assets of $ 0.7 million , amortization of deferred loan costs of $ 0.7 million , and stock-based compensation of $ 0.7 million . story_separator_special_tag the most significant components of changes in operating assets and liabilities that provided cash include accounts receivable of $ 4.6 million as a result of lower fourth quarter sales at phoenix and carpets , accounts payable of $ 2.4 million due to timing of payments in the normal course of business , accrued expenses of $ 1.3 million , and other assets of $ 1.4 million . the most significant component of changes in operating assets and liabilities that provided cash was deferred revenue and customer deposits of $ 2.2 million as a result of faneuil recognizing revenue for amounts deferred at september 30 , 2018. cash provided by operations of $ 17.8 million during fiscal 2018 was the result of our $ 7.3 million net loss , $ 27.8 million addback of net non-cash expenses , and $ 2.7 million of net cash used by changes in operating assets and liabilities . the most significant components of net non-cash expenses were depreciation and amortization of $ 19.0 million , deferred income taxes of $ 3.4 million , litigation loss of $ 2.9 million , amortization of deferred loan costs of $ 1.3 million , and stock-based compensation of $ 1.1 million . the most significant components of changes in operating assets and liabilities included inventories of $ 3.1 million and other assets of $ 2.0 million , which provided cash , and deferred revenue and customer deposits of $ 4.3 million , and accounts payable of $ 2.9 million , which used cash . investing activities during fiscal 2019 , our investing activities used $ 21.4 million of cash , of which $ 14.5 million was for the buildout of faneuil 's three new call centers , $ 2.5 million was for faneuil 's rdi acquisition , $ 1.0 million was for payment of the holdback related to phoenix 's printing components business acquisition , $ 2.9 million was used to purchase capital equipment in the normal course of operations , and $ 0.9 million was used to purchase equipment , software and leasehold improvements for faneuil 's new and existing customers , partially offset by $ 0.3 million proceeds received from the sale of equipment . during fiscal 2018 , our investing activities used $ 17.1 million of cash , of which $ 9.0 million was for our printing components business acquisition , $ 5.9 million was used to purchase equipment , software and leasehold improvements for faneuil 's new and existing customers , and $ 2.7 million was used to purchase capital equipment in the normal course of operations , partially offset by $ 0.5 million proceeds received from the sale of equipment . 33 financing activities during fiscal 2019 , our financing activities used $ 0.6 million of cash . financing activities which used cash included $ 9.9 million to pay down our term loan , $ 3.0 million of capital lease payments , and $ 0.9 million for debt and stock issuance costs . proceeds from our line of credit and our amended term loan provided $ 1.1 million and $ 5.0 million , respectively ( see further discussion at contractual obligations below ) . proceeds from the issuance of common stock provided $ 7.0 million , which was used to fund faneuil 's rdi acquisition . during fiscal 2018 , our financing activities used $ 4.3 million of cash . financing activities which used cash included $ 13.5 million to pay down our term loan , $ 2.8 million of capital lease payments , and $ 0.5 million for debt and stock issuance costs . proceeds from our line of credit and our amended term loan provided $ 3.2 million and $ 7.5 million , respectively ( see further discussion at contractual obligations below ) . proceeds from the issuance of common stock and exercise of stock options provided $ 1.5 million and $ 0.3 million , respectively . proceeds from the amended term loan and issuance of common stock were used to fund phoenix 's printing components business acquisition . contractual obligations the following table summarizes our significant contractual obligations at september 30 , 2019 , and the effect such obligations are expected to have on our liquidity and cash flows in future periods : replace_table_token_15_th ( 1 ) refer to “ part iv , item 15. exhibits , financial statement schedules – note 7. debt. ” ( 2 ) refer to “ part iv , item 15. exhibits , financial statement schedules – note 8. commitments and contingencies. ” ( 3 ) amounts represent future cash payments to satisfy our short- and long-term workers ' compensation reserve , short- and long-term acquisition-related deferred and contingent liabilities , and other long-term liabilities recorded on our consolidated balance sheets . it excludes deferred revenue and non-cash items . short- and long-term acquisition-related deferred and contingent payments are included in the table at total fair value , as defined by generally accepted accounting principles , of $ 4.9 million . the total maximum amount of acquisition-related deferred and contingent cash payments is $ 7.5 million . ( 4 ) total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities , except for the short-term portions of our term loan , short-term portion of acquisition-related deferred and contingent payments , equipment financing agreement , and workers ' compensation reserve . off-balance sheet arrangements as of september 30 , 2019 , we had two types of off-balance sheet arrangements . surety bonds . in the normal course of operations , certain faneuil customers require surety bonds guaranteeing the performance of a contract . as of september 30 , 2019 , the face value of such surety bonds , which represents the maximum cash payments that faneuil would have to make under certain circumstances of non-performance , was approximately $ 26.1 million . letters of credit . alj had letters of credit totaling $ 3.9 million outstanding as of september 30 , 2019 , in connection with workers ' compensation insurance requirements .
| phoenix net revenue phoenix net revenue for fiscal 2019 was $ 109.2 million , a decrease of $ 3.9 million , or 3.5 % , compared to $ 113.1 million during fiscal 2018. the decrease was a result of lower volumes in packaging , slightly offset by higher volumes in components . the industry in which phoenix operates is experiencing rapid change due to the impact of digital media and content on printed products . continued consumer acceptance of such digital media , as an alternative to print materials , could put downward pressure on phoenix net revenue . cost of revenue replace_table_token_10_th faneuil cost of revenue faneuil cost of revenue for fiscal 2019 was $ 157.5 million , an increase of $ 11.5 million , or 7.9 % , compared to $ 146.0 million for fiscal 2018. the absolute dollar increase in cost of revenue was a direct result of the increased net revenue . during fiscal 2019 , as compared to fiscal 2018 , faneuil cost of revenue as a percentage of segment net revenue increased to 80.0 % from 77.6 % as a result of the mix of customer contracts , incurred losses on certain contracts , and the ramp up of costs related to new contracts . carpets cost of revenue carpets cost of revenue for fiscal 2019 was $ 38.2 million , a decrease of $ 18.0 million , or 32.0 % , compared to cost of revenue of $ 56.2 million for fiscal 2018. the absolute dollar decrease in cost of revenue was a direct result of decreased net revenue . during fiscal 2019 as compared to fiscal 2018 , cost of revenue as a percentage of segment net revenue decreased to 78.0 % from 82.1 % as a result of the strategic decision to only accept jobs that yield a targeted profit margin , and process improvements and cost reductions throughout the organization . phoenix cost of revenue phoenix cost of revenue for fiscal 2019 was $ 81.8 million , a decrease of $ 1.9 million , or 2.3 % compared to cost of revenue of $ 83.7 million for fiscal 2018. the absolute dollar decrease in cost of revenue was a direct result of decreased
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the wolverine footwear group recorded revenue of $ 233.2 million in 2009 , a $ 28.7 million decrease from 2008. revenue for the wolverine ® brand declined at a high single-digit rate due primarily to negative economic conditions in the u.s. work sector . the bates ® uniform footwear business realized a decrease in revenue at a rate in the low teens , due primarily to planned reduction in purchases by the u.s. department of defense . hytest ® 's revenue declined at a rate in the low thirties due to factory closures and high unemployment rates among the brand 's target consumers . the heritage brands group recorded revenue of $ 198.3 million during 2009 , a $ 44.0 million decrease over 2008. cat ® footwear 's revenue decreased at a rate in the low twenties compared to 2008 , reflecting challenging economic conditions in many of the brand 's major markets and the impact of the stronger u.s. dollar . harley-davidson ® footwear revenue decreased at rate in the mid teens due primarily to declines in the dealer and retail market . the sebago ® brand experienced a decline in revenue at a rate in the low teens for 2009 as a result of tough economic conditions in many of the brand 's most important markets and the stronger u.s. dollar . the hush puppies group recorded revenue of $ 131.6 million in 2009 , a $ 29.3 million decrease from 2008. hush puppies ® revenue decreased at a rate in the high teens due primarily to continued retail consolidation in europe caused by weaker consumer spending and the strengthening of the u.s. dollar compared to 2008. the soft style ® brand experienced a decline in revenue at a rate in the mid thirties as a result of a weak retail environment and 29 production delays at third-party factories . revenue generated by the cushe ® brand , acquired in early fiscal 2009 , partially offset these revenue declines . within the company 's other business units , wolverine retail reported a high single-digit sales increase versus 2008 as a result of growth from the company 's e-commerce channel and low single-digit growth in comparable store sales from company-owned stores . wolverine retail operated 88 retail stores worldwide at the end of 2009 compared to 90 at the end of 2008 , as 9 new store openings were more than offset by the company 's decision to close 11 underperforming locations in order to improve financial results . the wolverine leathers business reported a revenue decline at a rate in the mid twenties for 2009 , primarily due to a decline in demand for its proprietary products and a significant decline in the market price for finished leather . gross margin gross margin in 2009 of 39.2 % was 60 basis points lower than the prior year . restructuring and other transition costs of $ 5.9 million included in cost of goods sold in 2009 accounted for 50 basis points of the decline , with the remainder of the decrease resulting from the negative impact of foreign exchange , increases in product costs and a higher mix of lower margin product sales in 2009. operating expenses operating expenses of $ 346.1 million in 2009 increased $ 0.9 million from $ 345.2 million in 2008. the increase was related to restructuring and other transition costs of $ 29.7 million , operating expenses associated with recently acquired brands of $ 6.9 million and increased pension expense of $ 8.8 million . these increases were offset by the favorable impact of foreign exchange of $ 8.6 million , lower general and administrative costs as a result of the company 's restructuring and cost-savings initiatives and decreases in certain operating expenses that vary with revenue , such as selling commissions and distribution costs . interest , other and taxes the decrease in net interest expense reflected lower outstanding debt as a result of the repayment in full of the company 's senior notes during the fourth quarter of 2008 and lower average balances outstanding on the company 's revolving line of credit during 2009. the decrease in other income is related primarily to the change in realized gains or losses on foreign denominated assets and liabilities . the company 's full year effective tax rate for fiscal year 2009 was 27.8 % , compared to 31.8 % for fiscal year 2008. the lower effective tax rate reflects benefits from the company 's strategic restructuring plan , the cumulative full year benefits from various tax planning strategies related primarily to the company 's international operations and a higher percentage of the company 's earnings being attributable to foreign jurisdictions where tax rates are lower than in the u.s. or nontaxable based on specific tax rulings and legislation . net earnings and earnings per share as a result of the revenue , gross margin and expense changes discussed above , the company had net earnings of $ 61.9 million in 2009 compared to $ 95.8 million in 2008 , a decrease of $ 33.9 million . diluted net earnings per share decreased 34.7 % in 2009 to $ 1.24 from $ 1.90 in 2008. the decrease was primarily attributable to the global recession , restructuring and other transition costs , increased pension expense and the negative effect of foreign exchange rates . inflation did not have a significant impact on revenue or net earnings . 30 liquidity and capital resources replace_table_token_7_th cash and cash equivalents was $ 150.4 million as of january 1 , 2011 a decrease of $ 10.0 million versus the balance at january 2 , 2010 , due primarily to incremental investments in working capital and other operating assets to support future growth , partially offset by improved revenue and profit . accounts receivable increased 20.0 % compared to the end of fiscal year 2009 on a 23.2 % increase in fourth quarter revenue . story_separator_special_tag no single customer accounted for more than 10 % of the outstanding accounts receivable balance at january 1 , 2011. as expected , inventory levels at year end increased substantially from 2009 , up 32.0 % . the increase is primarily due to the strong outlook for the first half of 2011 and strategic purchases ahead of announced cost increases on core product . the increase in accounts payable as of january 1 , 2011 compared to january 2 , 2010 was primarily attributable to the increase in inventory levels and the timing of cash payments to vendors . the decrease in current accrued liabilities was due primarily to decreased restructuring accruals and changes in timing of payments , which resulted in a decrease in taxes payable and liabilities related to foreign exchange contracts . these decreases were partially offset by increases in incentive compensation and advertising accruals . the company 's credit agreement with a bank syndicate provides the company with access to capital under a revolving credit facility , including a swing-line facility and letter of credit facility , in an initial aggregate amount of up to $ 150.0 million . this amount is subject to increase up to a maximum aggregate amount of $ 225.0 million under certain circumstances . the revolving credit facility is used to support working capital requirements and other business needs . there were no amounts outstanding at january 1 , 2011 under the current revolving credit facility or at january 2 , 2010 under the company 's previous revolving credit facility . the company considers balances drawn on the revolving credit facility , if any , to be short-term in nature . the company was in compliance with all debt covenant requirements at january 1 , 2011 under the current revolving credit facility and at january 2 , 2010 under the company 's previous revolving credit facility . proceeds from the revolving credit facility , along with cash flows from operations , are expected to be sufficient to meet working capital needs for the foreseeable future . any excess cash flows from operating activities are expected to be used to purchase property , plant and equipment , pay down debt , fund internal and external growth initiatives , pay dividends or repurchase the company 's common stock . net cash provided by operating activities in fiscal 2010 was $ 67.9 million versus $ 168.6 million in fiscal 2009 , a decrease of $ 100.7 million . stronger earnings performance and lower cash payments for restructuring were more than offset by additional investments in working capital and the timing of tax and operating expense payments . the majority of capital expenditures for the year were for information system enhancements , manufacturing equipment and building improvements . the company leases machinery , equipment and certain warehouse , office and retail store space under operating lease agreements that expire at various dates through 2023. the company 's board of directors approved a common stock repurchase program on april 19 , 2007. the program authorized the repurchase of up to 7.0 million shares of common stock over a 36-month period beginning on the 31 effective date of the program . the company repurchased 199,996 shares at an average price of $ 26.52 per share during the first quarter of 2010 , which exhausted the number of shares authorized for repurchase under the program . the company 's board of directors approved a new common stock repurchase program on february 11 , 2010. this program authorizes the repurchase of up to $ 200.0 million in common stock over a four-year period . the company repurchased 683,808 shares at an average price of $ 28.18 in the first quarter of 2010 , 752,643 shares at an average price of $ 29.99 per share during the second quarter of 2010 , 158,700 shares at an average price of $ 25.51 per share during the third quarter and repurchased no shares during the fourth quarter of 2010 under this new program . the primary purpose of the stock repurchase programs is to increase stockholder value . the company intends to continue to repurchase shares of its common stock under the new program from time to time in open market or privately negotiated transactions , depending upon market conditions and other factors . replace_table_token_8_th the company declared total dividends of $ 0.44 per share for fiscal years 2010 and 2009. on february 11 , 2011 , the company declared a quarterly cash dividend of $ 0.12 per share of common stock , to be paid on may 2 , 2011 to shareholders of record on april 1 , 2011. new accounting standards in january 2010 , the financial accounting standards board ( fasb ) issued accounting standard update ( asu ) no . 2010-06 , fair value measurements and disclosures ( topic 820 ) : improving disclosures about fair value measurements ( asu no . 2010-06 ) . asu no . 2010-06 amends existing disclosure requirements under asc 820 by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy ; adding separate disclosures about purchases , sales , issuances and settlements relative to level 3 measurements ; and clarifying the existing fair value disclosures about the level of disaggregation . asu no . 2010-06 was effective for financial statements issued for interim and annual periods beginning after december 15 , 2009 ( first quarter 2010 for the company ) , except for the requirement to provide level 3 activity , which is effective for fiscal years beginning after december 15 , 2010 ( first quarter 2011 for the company ) . the company adopted the applicable disclosure requirements of this asu in the first quarter of 2010 , and the adoption did not affect the company 's consolidated financial position , results of operations or cash flows . in february 2010 , the fasb issued asu no . 2010-09 , subsequent events ( topic 855 ) : amendments to certain recognition and disclosure requirements .
| on october 7 , 2009 , the company announced that two initiatives in its restructuring plan had been expanded to enable the consolidation of two domestic manufacturing facilities into one and to finalize realignment of certain product creation organizations . the strategic restructuring plan and all actions under the plan , except for certain cash payments , were completed as of june 19 , 2010 . 24 outlook for 2011 fiscal year 2011 revenue is expected to increase based on continued positive momentum across all brands . based on the favorable outlook for the business , the company anticipates revenue growth in the high single digits to low teens . the company expects the fiscal 2011 gross margin to be similar to the fiscal 2010 gross margin of 39.5 % , as higher product costs are expected to be offset by strategic price increases and anticipated favorable product mix . the company anticipates modest operating expense leverage , a full year effective tax rate of 29.0 % and fully diluted earnings per share growth in the high single digits to mid teens . the following is a discussion of the company 's results of operations and liquidity and capital resources . this section should be read in conjunction with the company 's consolidated financial statements and related notes included elsewhere in this annual report . results of operations fiscal 2010 compared to fiscal 2009 financial summary 2010 versus 2009 replace_table_token_3_th 25 the company has one reportable segment that is engaged in designing , manufacturing , sourcing , marketing , licensing and distributing branded footwear , apparel and accessories . in fiscal 2010 and fiscal 2009 , this reportable segment was organized into four primary wholesale operating segments : outdoor group , consisting of merrell ® , chaco ® and patagonia ® footwear , and merrell ® brand apparel ; wolverine footwear group , consisting of bates ® , hytest ® , and wolverine ® boots and shoes and wolverine ® brand apparel ; heritage brands group , consisting of cat ® footwear , harley-davidson ® footwear and sebago ® footwear and
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we intend to start construction at sorrento pointe during the first half of 2015. this new development will consist of approximately 88,000 square feet of office space , with an anticipated stabilization date in 2017 and estimated stabilized yield in the range of approximately 8.25 % to 9.25 % . projected costs of the new development are approximately $ 46 million of which approximately $ 7 million has been incurred to date . we intend to opportunistically pursue other projects in our development pipeline including future phases of lloyd district portfolio , solana beach - highway 101 , as well as other redevelopments at solana beach corporate centre and lomas santa fe plaza . the commencement of these developments is based on , among other things , market conditions and our evaluation of whether such opportunities would generate appropriate risk adjusted financial returns . our redevelopment and development opportunities are subject to various factors , including market conditions and may not ultimately come to fruition . we continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities . some of our acquisitions do not initially contribute significantly to earnings growth ; however , we believe they provide long-term re-leasing growth , redevelopment opportunities and other strategic opportunities . any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles . changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property , as well as our ability to economically finance a property acquisition . generally , our acquisitions are initially financed by available cash , mortgage loans and or borrowings under our amended and restated credit facility , which may be repaid later with funds raised through the issuance of new equity or new long-term debt . same-store we have provided certain information on a total portfolio , same-store and redevelopment same-store basis . information provided on a same-store basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared , properties under development , properties classified as held for development and properties classified as discontinued operations . information provided on a redevelopment same-store basis includes the results of properties undergoing significant redevelopment for the entirety or portion of both periods being compared . same-store and redevelopment same-store is considered by management to be an important measure because it assists in eliminating disparities due to the development , acquisition or disposition of properties during the particular period presented , and thus provides a more consistent performance measure for the comparison of the company 's stabilized and redevelopment properties , as applicable . additionally , redevelopment same-store is considered by management to be an important measure because it assists in evaluating the timing of the start and stabilization of our redevelopment opportunities and the impact that these redevelopments have in enhancing our operating performance . while there is judgment surrounding changes in designations , we typically reclassify significant development , redevelopment or expansion properties to same-store properties once they are stabilized . properties are deemed stabilized typically at the earlier of ( 1 ) reaching 90 % occupancy or ( 2 ) four quarters following a property 's inclusion in operating real estate . we typically remove properties from same-store properties when the development , redevelopment or expansion has or is expected to have a significant impact on the property 's annualized base rent , occupancy and operating income within the calendar year . acquired properties are classified to same-store properties once we have owned such properties for the entirety of comparable period ( s ) and the properties are not under significant development or expansion . in our determination of same-store and redevelopment same-store properties , lloyd district portfolio and torrey reserve campus have been identified as same-store redevelopment properties due to the significant construction activity noted above . 39 office same-store net operating income increased approximately 5.1 % and 0.6 % for the three months and year ended december 31 , 2014 , respectively , compared to the same periods in 2013 . office redevelopment same-store net operating income increased approximately 3.9 % and 2.6 % for the three months and year ended december 31 , 2014 , respectively , compared to the same periods in 2013 . below is a summary of our same-store composition for the years ended december 31 , 2014 , 2013 and 2012 . for the year ended december 31 , 2014 , three acquired properties were classified into same-store properties when compared to the designations for the year ended december 31 , 2013 . for the year ended december 31 , 2013 , four acquired properties were classified into same-store properties and one property with significant redevelopment activity was removed from same-store properties when compared to the designations for the year ended december 31 , 2012 . replace_table_token_12_th revenue base rental income consists of scheduled rent charges , straight-line rent adjustments and the amortization of above market and below market rents acquired . we also derive revenue from tenant recoveries and other property revenues , including parking income , lease termination fees , late fees , storage rents and other miscellaneous property revenues . retail leases . our retail portfolio included eleven properties with a total of approximately 3.1 million rentable square feet available for lease as of december 31 , 2014 . as of december 31 , 2014 , these properties were 98.6 % leased . for the year ended december 31 , 2014 , the retail segment contributed 37.0 % , of our total revenue . historically , we have leased retail properties to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . story_separator_special_tag in a triple-net lease , the tenant is responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expense , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . the full amount of the expenses for this lease type , to the extent they are paid by the landlord , is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . during the year ended december 31 , 2014 , we signed 66 retail leases for 303,243 square feet with an average rent of $ 29.41 per square foot during the initial year of the lease term . of the leases , 55 represent comparable leases where there was a prior tenant , with an increase of 11.1 % in cash basis rent and an increase of 19.0 % in straight-line rent compared to the prior leases . office leases . our office portfolio included seven properties with a total of approximately 2.7 million rentable square feet available for lease as of december 31 , 2014 . as of december 31 , 2014 , these properties were 91.4 % leased . for the year ended december 31 , 2014 , the office segment contributed 35.6 % of our total revenue . historically , we have leased office properties to tenants primarily on a full service gross or a modified gross basis and to a limited extent on a triple-net lease basis . we expect to continue to do so in the future . a full-service gross or modified gross lease has a base year expense stop , whereby the tenant pays a stated amount of certain expenses as part of the rent payment , while future increases in property operating expenses ( above the base year stop ) are billed to the tenant based on such tenant 's proportionate square footage of the property . the increased property operating expenses billed are reflected as operating expenses and amounts recovered from tenants are reflected as rental income in the statements of operations . during the year ended december 31 , 2014 , we signed 50 office leases for 391,485 square feet with an average rent of $ 32.71 per square foot during the initial year of the lease term . of the leases , 27 represent comparable leases where there was a prior tenant , with an increase of 11.1 % in cash basis rent and an increase of 19.4 % in straight-line rent compared to the prior leases . 40 multifamily leases . our multifamily portfolio included three apartment properties , as well as an rv resort , with a total of 922 units ( including 122 rv spaces ) available for lease as of december 31 , 2014 . as of december 31 , 2014 , these properties were 97.1 % leased . for the year ended december 31 , 2014 , the multifamily segment contributed 6.5 % of our total revenue . our multifamily leases , other than at our rv resort , generally have lease terms ranging from 7 to 15 months , with a majority having 12-month lease terms . tenants normally pay a base rental amount , usually quoted in terms of a monthly rate for the respective unit . spaces at the rv resort can be rented at a daily , weekly , or monthly rate . the average monthly base rent per leased unit as of december 31 , 2014 was $ 1,503 compared to $ 1,422 at december 31 , 2013 . mixed-use property revenue . our mixed-use property consists of approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel . revenue from the mixed-use property consists of revenue earned from retail leases , and revenue earned from the hotel , which consists of room revenue , food and beverage services , parking and other guest services . as of december 31 , 2014 , the retail portion of the property was 99.6 % leased , and for the year ended december 31 , 2014 , the hotel had an average occupancy of 79.8 % . for the year ended december 31 , 2014 , the mixed-use segment contributed 20.9 % , of our total revenue . we have leased the retail portion of such property to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . as such , the base rent payment under such leases does not include any operating expenses , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . rooms at the hotel portion of our mixed-use property are rented on a nightly basis . leasing our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy . over the long-term , we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage , allowing us to maintain relatively high occupancy and increase rental rates . we have continued to see signs of improvement for many of our tenants as well as increased interest from prospective tenants for our spaces . while there can be no assurance that these positive signs will continue , we remain cautiously optimistic regarding the improved trends we have seen over the past few years . we believe the locations of our properties and diverse tenant base mitigate the potentially negative impact of a poor economic environment . however , any reduction in our tenants ' abilities to pay base rent , percentage rent or other charges , may adversely affect our financial condition and results of operations .
| 48 rental revenues . rental revenue includes minimum base rent , cost reimbursements , percentage rents and other rents . rental revenue increased $ 3.3 million , or 1 % , to $ 246.1 million for the year ended december 31 , 2014 compared to $ 242.8 million for the year ended december 31 , 2013 . rental revenue by segment was as follows ( dollars in thousands ) : replace_table_token_16_th ( 1 ) for this table and tables following , the same-store portfolio excludes : torrey reserve campus and lloyd district portfolio due to significant redevelopment activity during the period and land held for development . retail rental revenue increased $ 2.8 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 primarily due to an increase in percentage leased during the year ended december 31 , 2014 from 97.0 % to 98.6 % for all retail properties . the increase can be partially attributed to the commencement of the saks off 5th lease signed during the second quarter of 2014. the increase in rental revenue was also the result of an increase in cost reimbursements at alamo quarry market related to real estate tax refunds received during 2013. these increases were offset by a decrease in rental revenue at waikele center due to the expiration of the foodland super market lease during the first quarter of 2014. office rental revenue increased $ 0.3 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 due to an increase in percentage leased and annual base rent per square feet for the year ended december 31 , 2014 , primarily at city center bellevue where percentage leased and annual base rent increased from 93.6 % to 97.9 % and from $ 32.31 to $ 34.65 , respectively . these increases were offset by a decrease in rental revenue at first & main due to the expiration of the treasury tax administration lease
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without additional funds from debt or equity financing , sales of assets , sales or out-licenses of intellectual property or technologies , or from a business combination or a similar transaction , we will soon exhaust our resources and will be unable to continue operations . our management intends to attempt to secure additional required funding through equity or debt financing , sales or out-licensing of product candidates or intellectual property assets , seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts , or similar transactions , and through revenues from sales of compounded sterile formulations . however , there can be no assurance that we will be able to obtain any sources of funding . if we are unsuccessful in securing funding from any of these sources , we will defer , reduce or eliminate certain planned expenditures and delay development or commercialization of some or all of our products . if we do not have sufficient funds to continue operations , we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us . funding that we may receive during fiscal 2017 is expected to be used to satisfy existing obligations and liabilities and working capital needs , to begin building working capital reserves and to fund a number of projects , which may include , without limitation , some or all of the following : ● continue development and commercialization of our epinephrine pfs product ; ● continue development of our allergy and respiratory product candidates ; ● continue development of the dpi product candidates ; ● pursue the development of other product candidates that we may develop or acquire ; ● fund clinical trials and seek regulatory approvals ; ● expand research and development activities ; ● access manufacturing , commercialization and sales capabilities ; ● implement additional internal systems and infrastructure ; ● maintain , defend and expand the scope of our intellectual property portfolio ; ● acquire products , technologies , intellectual property or companies and support continued development and funding thereof ; ● hire additional management , sales , research , development and clinical personnel ; and ● help fund the operations and capital expenditures of usc . story_separator_special_tag text-align : justify ; text-indent : 24.5pt ; font : 10pt times new roman , times , serif ; '' > we have incurred net losses of approximately $ 19.4 million and $ 13.6 million for years ended december 31 , 2016 and 2015 , respectively . since our inception , june 6 , 2006 , and through december 31 , 2016 , we have an accumulated deficit of approximately $ 88.5 million . since inception and through december 31 , 2016 , we have financed our operations principally through debt financing and through private issuances of common stock and preferred stock . since inception , we have raised a total of approximately $ 100.8 million in debt and equity financing transactions , consisting of approximately $ 23.5 million in debt financing and approximately $ 77.3 million in equity financing transactions . we expect to finance future cash needs primarily through proceeds from equity or debt financings , loans , sales of assets , out-licensing transactions , and or collaborative agreements with corporate partners , and from revenues from out sale of compounded pharmacy formulations . we have used the net proceeds from debt and equity financings for general corporate purposes , which have included funding for research and development , selling , general and administrative expenses , working capital , reducing indebtedness , pursuing and completing acquisitions or investments in other businesses , products or technologies , and for capital expenditures . as part of our acquisition of usc in april of 2016 , the company assumed debt of approximately $ 5.7 million and entered into a secured $ 2 million line of credit agreement , both of which were included in the debt financing of $ 23.5 million referenced above . net cash used in operating activities from continuing operations for the years ended december 31 , 2016 and 2015 were approximately $ 21.2 million and $ 10.3 million , respectively . net cash used in operating activities increased due to the acquisition of usc and additional research and development costs , and increases in selling , general & administrative expenses . we expect net cash used in operating activities to increase in the future as we continue with product development and increase the growth of usc operations and other business activities , assuming that we are able to obtain sufficient funding . net cash provided by investing activities was approximately $ 261,000 and $ 0 for years ended december 31 , 2016 and 2015 , respectively . the net cash provided by investing activities increased due to the cash received from the acquisition of usc , offset by usc 's purchase of additional equipment . net cash provided by financing activities was approximately $ 21.9 million and $ 10.6 million for the years ended december 31 , 2016 and 2015 , respectively . net cash provided by financing activities increased primarily due to the issuance of common stock , preferred stock and proceeds of a bank loan in 2016 that generated net proceeds of approximately $ 21.9 million . story_separator_special_tag 47 loan agreements as we have previously disclosed in our sec filings , in connection with our acquisition of usc and the transactions contemplated by the merger agreement relating to the usc acquisition , we assumed approximately $ 5,722,000 principal amount of debt obligations under two loan agreements and related loan documents relating to the building , real property and equipment that certain third parties agreed to transfer to the company or usc in connection with the merger , as well as the two loan agreements to which usc is a party , a working capital loan and an equipment loan , and related loan documents evidencing loans previously made to usc , and we agreed to become an additional co-borrower under the loan documents . the lender in all of the usc loan documents was first federal bank and or its successor bear state bank , referred to as lender or the bank . in november 2016 , we entered into amendments of our loan agreements with the bank . under the loan agreements , we are required to make current periodic interest and principal payments under the amended loan documents , in an amount of approximately $ 55,000 per month ; the amount of required interest payments is subject to change depending on future changes in interest rates . the balances of the usc working capital line , building loan and equipment loan are due and payable on september 30 , 2017 , august 8 , 2019 and october 1 , 2019 , respectively . though the maturity dates of the usc loans may be extended at later dates . we also entered into a loan and security agreement with the lender , referred to as the adamis working capital line , pursuant to which we may borrow up to an aggregate of $ 2,000,000 to provide working capital to usc , subject to the terms and conditions of the loan agreement . interest on amounts borrowed under the adamis working capital line accrues at a rate equal to the prime interest rate , as defined in the agreement . interest payments are required to be made quarterly . as amended effective march 31 , 2017 , the entire outstanding principal balance , and all accrued and unpaid interest and all other sums payable pursuant to our loan agreement with the bank , are due and payable on march 1 , 2018 , or sooner upon the occurrence of certain events as provided in the loan agreement and related documents . our obligations under the adamis working capital line are secured by certain collateral , including without limitation our interest in amounts that we have loaned to usc ; a warrant that we issued to the lender to purchase up to 1,000,000 shares of our common stock at an exercise price equal to par value per share , only exercisable by lender if we are in default under the loan documents and if the lender delivers a notice to us and we do not cure the default within the applicable cure period ; and our certificate of deposit ( `` cd '' ) with the lender of approximately $ 1,000,000. further , if at any time before the repayment of the loan , the value of the sum of ( i ) the amount of the funds in the cd , plus ( ii ) the product of : ( a ) the number of unexercised shares under the warrant multiplied by ( b ) the value of our common stock , falls below the product of ( y ) 1.5 multiplied by ( z ) the outstanding principal balance of the note evidencing the adamis working capital line , then following delivery of a notice from the bank to the company , the company will either : ( 1 ) amend the warrant or provide an additional warrant to provide lender with rights to purchase additional shares of common stock ; or ( 2 ) reduce the principal balance of the note to bring us in compliance with the requirements set forth above , and failure to comply with this requirement after notice from lender is an event of default under the loan documents . the amended loan documents with the bank include a variety of representations , warranties and covenants that we are required to comply with . if we do not comply with the provisions of such agreements and documents and the bank declares an event of default , the bank would be entitled to accelerate the maturity date of the loans , the principal and accrued interest would become due and payable , and the bank could elect to exercise its remedies as a secured creditor under the loan documents and applicable law . our ability to make scheduled payments on our indebtedness depends on our future performance and ability to raise additional capital if required , which is subject to economic , financial , competitive and other factors , some of which are beyond our control . if we are unable to generate sufficient cash to service our debt , we may be required to adopt one or more alternatives , such as selling assets , attempting to restructure our debt or obtaining additional capital through sales of equity or incurrence of additional debt on terms that may be onerous or highly dilutive to our stockholders . our ability to engage in any of these activities would depend on the capital markets and our financial condition at such time , and we may not be able to do so when needed , on desirable terms or at all , which could result in a default on our debt obligations .
| we did not incur any cost of sales for the year ended december 31 , 2015 , as we did not have any revenues for the year ended december 31 , 2015 , as our acquisition of usc was completed in april 2016. the cost of sales for the year ended december 31 , 2016 , was affected by an obsolescence expense of approximately $ 331,000 as a result of a surplus in production of sterile products in mid-march to april 2016 , when usc resumed the production of sterile products , in anticipation of a larger number of customer orders following the resumption of sterile production than actually occurred before the products became obsolete . moreover , some chemicals in inventory intended for sterile products had expired before the chemicals could be used . our cost of sales includes direct and indirect costs to manufacture formulations and sell products , including active pharmaceutical ingredients , personnel costs , packaging , storage , shipping and handling costs , the write-off of obsolete inventory and other related expenses . selling , general and administrative expenses . selling , general and administrative expenses consist primarily of depreciation and amortization , legal fees , accounting and audit fees , professional/consulting fees and employee compensation . selling , general and administrative expenses for the years ended december 31 , 2016 and 2015 were approximately $ 17,128,000 and $ 9,007,000 , respectively . the increase was primarily due to expenses of approximately $ 7,777,000 relating to our usc subsidiary which we acquired in april 2016 and approximately $ 288,000 of usc acquisition related expenses . expenses related to the commercialization activities of our epinephrine pfs product candidate decreased by approximately $ 757,000 for 2016 compared to 2015. compensation expense for general and administrative employees increased by approximately $ 658,000 for 2016 compared to 2015 , primarily due to salary increases , stock options granted and monthly accrual of bonus . other increases in expenditures for the 2016 compared to 2015 included increases of approximately $ 155,000 for insurance , board of directors ' fees and an increase in legal , accounting recruitment , sec reporting fees and other expenses . research and development expenses . our research and development costs are expensed as incurred . non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed . research and development costs were approximately $ 9,697,000 and $ 4,843,000 for the years ended december 31 , 2016 and
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the water & flowback services division reported a slight increase in pretax loss compared to the prior year , primarily due to the gross loss described above , offset by the goodwill impairment recognized in 2019. general and administrative expenses decreased primarily due to decreased wage and benefit expenses of $ 7.3 million , decreased general expenses of $ 1.4 million , and decreased bad debt expense of $ 0.7 million . corporate overhead replace_table_token_4_th corporate overhead pretax loss decreased during 2020 compared to the prior year primarily due to decreased general and administrative expense and decreased interest expense . corporate general and administrative expense decreased primarily due to decreased salary related expense of $ 13.1 million , $ 1.2 million of decreased general expenses and $ 1.0 million of decreased professional fees . interest expense decreased due to lower borrowings under the abl credit agreement . the fair value of the outstanding warrants liability resulted in a $ 0.3 million credit to earnings in the current year compared to a $ 1.6 million credit to earnings during 2019. how we evaluate operations we use u.s. gaap financial measures such as revenues , gross profit , income ( loss ) before taxes , and net cash provided by operating activities , as well as certain non-gaap financial measures , including adjusted ebitda , as performance measures for our business . adjusted ebitda . we view adjusted ebitda as one of our primary management tools , and we track it on a monthly basis , both in dollars and as a percentage of revenues ( typically compared to the prior month , prior year period , and to budget ) . we define adjusted ebitda as earnings before interest , taxes , depreciation , amortization , impairments and certain non-cash charges and non-recurring adjustments . adjusted ebitda is used as a supplemental financial measure by our management to : evaluate the financial performance of our assets without regard to financing methods , capital structure , or historical cost basis ; and determine our ability to incur and service debt and fund capital expenditures . 27 the following table reconciles net income ( loss ) to adjusted ebitda for the periods indicated : year ended december 31 , 2020 net income ( loss ) , as reported tax provision income ( loss ) before tax , as reported impairments & special charges adjusted income ( loss ) before tax interest expense , net depreciation & amortization equity comp . expense adjusted ebitda ( in thousands ) completion fluids & products division $ 55,334 $ 6,370 $ 61,704 $ ( 853 ) $ 7,389 $ — $ 68,240 water & flowback services division ( 21,850 ) 3,960 ( 17,890 ) ( 1,594 ) 30,384 — 10,900 eliminations and other 12 — 12 — ( 12 ) — — subtotal 33,496 10,330 43,826 ( 2,447 ) 37,761 — 79,140 corporate g & a ( 36,201 ) 2,185 ( 34,016 ) — 4,721 ( 29,295 ) other ( 22,381 ) 226 ( 22,155 ) 20,727 720 — ( 708 ) tetra excluding discontinued operations $ ( 26,844 ) $ 1,758 $ ( 25,086 ) $ 12,741 $ ( 12,345 ) $ 18,280 $ 38,481 $ 4,721 $ 49,137 year ended december 31 , 2019 net income ( loss ) , as reported tax provision income ( loss ) before tax , as reported impairments & special charges adjusted income ( loss ) before tax interest expense , net depreciation & amortization equity comp . expense adjusted ebitda ( in thousands ) completion fluids & products division $ ( 33,969 ) $ 91,140 $ 57,171 $ ( 720 ) $ 13,518 $ — $ 69,969 water & flowback services division ( 21,173 ) 25,619 4,446 ( 1 ) 33,424 — 37,869 eliminations and other 14 — 14 — ( 14 ) — — subtotal ( 55,128 ) 116,759 61,631 ( 721 ) 46,928 — 107,838 corporate g & a ( 51,466 ) 2,085 ( 49,381 ) 7,064 ( 42,317 ) other ( 21,515 ) ( 1,471 ) ( 22,986 ) 21,473 635 — ( 878 ) tetra excluding discontinued operations $ ( 130,920 ) $ 2,811 $ ( 128,109 ) $ 117,373 $ ( 10,736 ) $ 20,752 $ 47,563 $ 7,064 $ 64,643 adjusted ebitda is a financial measure that is not in accordance with u.s. gaap and should not be considered an alternative to net income , operating income , cash flows from operating activities , or any other measure of financial performance presented in accordance with u.s. gaap . this measure may not be comparable to similarly titled financial metrics of other entities , as other entities may not calculate adjusted ebitda in the same manner as we do . management compensates for the limitations of adjusted ebitda as analytical tools by reviewing the comparable u.s. gaap measures , understanding the differences between the measures , and incorporating this knowledge into management 's decision-making processes . liquidity and capital resources we believe that our capital structure allows us to meet our financial obligations despite current uncertain operating conditions and financial markets . our liquidity at the end of fourth quarter was $ 91.9 million . liquidity is defined as unrestricted cash plus availability under the revolving credit facility . 28 our consolidated sources and uses of cash , including cash activity from our former compression division , during the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_5_th consolidated cash flows provided by operating activities totaled $ 76.9 million during 2020 compared to $ 90.2 million during the prior year , a decrease of $ 13.3 million . cclp generated $ 20.8 million of our consolidated cash flows provided by operating activities during the year ended december 31 , 2020 compared to $ 67.7 million during the prior year . operating cash flows decreased primarily due to a decrease in revenues , which were partly offset by monetization of working capital . during 2020 , tetra increased cash generation , which offset cclp 's decreased cash generation . story_separator_special_tag our cash flows from operating , investing and financing activities will no longer include cash activities of our former compression division , including cclp , following the gp sale on january 29 , 2021. we continue to monitor customer credit risk in the current environment and focus on serving larger capitalized oil and gas operators and national oil companies . investing activities during 2020 , cclp launched an initiative to rationalize its fleet by selling smaller and mid-sized equipment to focus on the larger-horsepower fleet as well as to sell equipment outside its core area of focus . one of cclp 's larger customers purchased a small number of large units recently deployed . additionally during 2020 , the partnership sold its midland fabrication facility and real estate for $ 17.0 million . investing cash flows for 2020 also include $ 14.2 million from tetra 's sale of 15 high horse power compressor units to spartan during the fourth quarter . as a result of cclp 's and tetra 's equipment sales , 2020 cash proceeds from the sale of used equipment exceed the cash outflows to purchase new equipment . total cash capital expenditures , including capital expenditures associated with discontinued operations , during 2020 were $ 29.4 million , net of $ 12.7 million cost of compressors sold , as we adjusted to current market conditions . our completion fluids & products division spent $ 4.0 million on capital expenditures during 2020 , the majority of which related to plant and facility additions . our water & flowback services division spent $ 9.7 million on capital expenditures , primarily to maintain , automate and upgrade its water management and flowback equipment fleet . our former compression division spent $ 14.7 million , primarily to maintain its compression fleet . 2019 investing cash flows include proceeds of $ 12.9 million from the sale of property , plant and equipment primarily the result of a sale-leaseback transaction during the fourth quarter of 2019 , where cclp sold ten compression units and immediately leased them back at a monthly rate . these compression units are included in operating lease right-of-use assets on our consolidated balance sheets . historically , a significant majority of our planned capital expenditures have been related to identified opportunities to grow and expand our existing businesses . however , such expenditures have recently been , and may continue to be , postponed or canceled as we are reviewing all capital expenditure plans carefully in an effort to conserve cash . we currently have no long-term capital expenditure commitments . the deferral of capital projects could affect our ability to compete in the future . if the forecasted demand for our products and services increases or decreases , the amount of planned expenditures on growth and expansion may be adjusted . through our common unit ownership interest in cclp , which was approximately 35 % as of december 31 , 2020 and approximately 11 % as of march 4 , 2021 , we receive quarterly cash distributions , if any , from cclp . on january 19 , 2021 , cclp announced a cash distribution of $ 0.01 per common unit for the quarter ended december 31 , 2020 , which was paid on february 12 , 2021 based on our retained interest . 29 financing activities during the year ended december 31 , 2020 , the total amount of consolidated net cash used in financing activities was $ 17.6 million , primarily related to pay down of our term credit agreement , cash fees related to the exchange of cclp debt and repayments under our abl credit agreement . during the year ended december 31 , 2019 , the total amount of consolidated net cash provided by financing activities was $ 5.9 million , primarily due to borrowings under our abl credit agreement and our term credit agreement , net of cash redemptions of the cclp preferred units . we may supplement our existing cash balances and cash flow from operating activities with short-term borrowings , long-term borrowings , issuances of equity and debt securities , and other sources of capital . we are aggressively managing our working capital and capital expenditure needs in order to maximize our liquidity in the current environment . asset-based credit agreement . the abl credit agreement provides for a senior secured revolving credit facility of up to $ 100 million , subject to a borrowing base to be determined by reference to the value of inventory and accounts receivable , and includes a sublimit of $ 20.0 million for letters of credit and a swingline loan sublimit of $ 10.0 million . the abl credit agreement may be used for working capital needs , capital expenditures and other general corporate purposes . the amounts we may borrow under the abl credit agreement are based on a percentage of our accounts receivable and certain inventory . changes in demand for our products and services have an impact on our eligible accounts receivable , which could result in significant changes to our borrowing base and therefore our availability under our abl credit agreement . with the current depressed oil and gas market conditions , we believe our availability under our abl credit facility will be adversely impacted by the expected decline in our customers ' activity levels . the abl credit agreement is scheduled to mature on september 10 , 2023. as of december 31 , 2020 , we had no outstanding balance under the abl credit agreement and , subject to compliance with the covenants , borrowing base , and other provisions of the agreement that may limit borrowings , we had an availability of $ 24.6 million under the abl credit agreement . as of march 3 , 2021 , we have no outstanding borrowings under our abl credit agreement and $ 8.3 million letters of credit , resulting in $ 30.1 million of availability . term credit agreement .
| most of the decrease in general and administrative expenses resulted from restructuring and headcount reductions in response to the decline in activity levels , particularly in our u.s. onshore operations . despite the significant cost reduction , general and administrative expense as a percentage of revenues increased compared to the prior year due to lower revenues . interest expense , net consolidated interest expense , net , decreased in 2020 compared to the prior year primarily due to a decrease in corporate interest expense . corporate interest expense decreased due to lower borrowings under the abl credit agreement . interest expense during 2020 and 2019 includes $ 1.6 million and $ 1.4 million , respectively , of finance cost amortization . gain on sale of assets consolidated gain on sale of assets increased during 2020 compared to the prior year primarily due to increased sales of assets during the year . warrants 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 . loss from discontinued operations the loss from discontinued operations increased during 2020 compared to 2019 primarily due to lower revenues from our former compression division as well as increased impairments recognized during 2020 as a result of the recent market conditions , partially offset by lower operating costs from our former compression division . the loss from discontinued operations also decreased $ 9.0 million from loss reserves recorded during 2019 related to the exit from the offshore division . provision for income tax our consolidated provision for income taxes during 2020 was primarily attributable to taxes in certain foreign jurisdictions and texas gross margin
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c. corporate hospitality to the public officials i. acts of hospitality toward public officials should never be on such a scale or of such a nature as might tend to compromise or give the impression of compromising the integrity or the reputation of either the public official or the company . ii . in no event shall title start online , inc. 's name be used to enhance an associate 's own political opportunities . d. dealing with prospective suppliers i. associates must award orders , contracts and commitment to suppliers of goods or services without favoritism . company business of this nature must be conducted strictly on the basis of merit . e. fair competition i. under no circumstances should associates enter into arrangements with the company 's competitors affecting pricing or marketing arrangements . such arrangements are illegal under federal and story_separator_special_tag the discussion and analysis of our financial condition and results of operations are based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . as used in this `` management 's discussion and analysis of financial condition and results of operation , '' except where the context otherwise requires , the term `` we , '' `` us , '' `` our , '' or `` the company , '' refers to the business of id global solutions corporation . story_separator_special_tag text-indent : 0.5in '' > in preparing these consolidated financial statements in conformity with us gaap , management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods . actual results could differ from those estimates . significant estimates and assumptions included in our consolidated financial statements relate to the valuation of long-lived assets , accruals for potential liabilities , and valuation assumptions related to equity instruments and share based payments . property and equipment , net property and equipment consisted of furniture and fixtures and computer equipment , and are stated at cost . property and equipment are depreciated using the straight-line method over the estimated service lives of three to five years . maintenance and repairs are expensed as incurred and improvements are capitalized . gains or losses on the disposition of property equipment are recorded upon disposal other assets other assets consist primarily of costs associated with the construction of an hdr ( handheld document reader ) mobile biometric devices . as of december 31 , 2015 , the devices are still under construction and have not been placed in service . upon completion , the amounts will be recorded as property and equipment and depreciated over their estimated useful lives . intangible assets excluding goodwill , acquired intangible assets and internally developed software are amortized over their useful lives unless the lives are determined to be indefinite . acquired amortizing intangible assets are carried at cost , less accumulated amortization . internally developed software costs are capitalized upon reaching technological feasibility . amortization of acquired finite-lived intangible assets is computed over the useful lives of the respective assets . the company amortizes intangible assets over a ten year period . amortization of internally developed software is amortized over a three-year period . 19 impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its undiscounted estimated future cash flows , an impairment review is performed . an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and are no longer depreciated . the assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet . research and development costs research and development costs consist of expenditures for the research and development of new products and technology . these costs are primarily expenses to vendors contracted to perform research projects and develop technology for the company 's products . research and development costs are expensed as incurred . story_separator_special_tag recent accounting pronouncements in may 2014 , the fasb issued accounting standards update ( “ asu ” ) 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) , which supersedes nearly all existing revenue recognition guidance under us gaap . the core principle of asu 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services . asu 2014-09 defines a five step process to achieve this core principle and , in doing so , more judgment and estimates may be required within the revenue recognition process than are required under existing us gaap . the standard is effective for annual periods beginning after december 15 , 2017 , and interim periods therein , using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu 2014-09 recognized at the date of adoption ( which includes additional footnote disclosures ) . management of the company is currently evaluating the impact of its pending adoption of asu 2014-09 on its consolidated financial statements and have not yet determined the method by which it will adopt the standard in 2018. in august 2014 , the fasb issued asu 2014-15 , “ presentation of financial statements—going concern , disclosure of uncertainties about an entity 's ability to continue as a going concern. ” this asu amends asc205-40 . asc 205-40 provided guidance about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability to continue as a going concern and to provide related note disclosures . with the amendments made by asu 2014-15 , financial statement disclosures will be required when there is substantial doubt about an entity 's ability to continue as a going concern or when substantial doubt is alleviated as a result of considerations of management 's plans . the new standard provides management with principles for evaluating whether there is substantial doubt by : providing a definition of substantial doubt , requiring an evaluation every reporting period ( including interim periods ) , providing principles for considering the mitigating effect of management 's plans , requiring certain disclosures when substantial doubt is alleviated as a result of consideration of management 's plans , requiring an express statement and other disclosures when substantial doubt is not alleviated , and requiring an assessment for a period of one year after the date that the financial statements are issued ( or available to be issued ) . the amendments are effective for the annual period ending after december 15 , 2016 , and for annual periods and interim periods thereafter . early adoption is permitted . the adoption of this guidance is not expected to have a material impact on our consolidated financial statements . in july 2015 , the fasb issued asu 2015-11 , “ simplifying the measurement of inventory ” ( “ asu 2015-11 ” ) , modifying the accounting for inventory . under asu 2015-11 , the measurement principle for inventory will change from lower of cost or market value to lower of cost and net realizable value . asu 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . asu 2015-11 is applicable to inventory that is accounted for under the first-in , first-out method and is effective for reporting periods after december 15 , 2016 , with early adoption permitted . the company has not yet determined the impact of adoption on its consolidated financial statements . in november 2015 , the fasb issued asu 2015-17 , `` income taxes ( topic 740 ) '' ( `` asu 2015-17 '' ) . currently us gaap requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position . the amendments under asu 2015-17 will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . the amendments in this update will be effective for fiscal years beginning after december 15 , 2017 and interim periods thereafter . the adoption of asu 2015-17 is not expected to have a material impact on the company 's consolidated financial statements . in february 2016 , the fasb issued asu 2016-02 , `` leases ( topic 842 ) '' ( `` asu 2016-02 '' ) that will supersede current guidance related to accounting for leases . the guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements . the standard will be effective for fiscal years beginning after december 15 , 2018 and interim periods thereafter , with early adoption permitted . the standard is required to be adopted using the modified retrospective approach . the company is currently evaluating the potential impact this guidance will have on its consolidated financial statements . 20 in march 2016 , the fasb issued asu 2016-09 , compensation – stock compensation ( topic 718 ) – improvements to employee share-based payment accounting . asu 2016-09 includes provisions to simplify certain aspects related to the accounting for share-based awards and the related financial statement presentation .
| the company has invested in developing , patenting and acquiring both hardware and software platforms , which are intended to address these specific market requirements . id global solutions corporation ( formerly iim global corporation ) ( formerly silverwood acquisition corporation ) was incorporated on september 21 , 2011 under the laws of the state of delaware to engage in any lawful corporate undertaking , including , but not limited to , selected mergers and acquisitions . id global has been in the developmental stage since inception . the company 's headquarters are located in longwood , florida . the location consists of over 3,500 square feet . the facility is furnished with computers , phone systems , internet access and break rooms to accommodate up to 25 employees . key trends we believe that our financial results will be impacted by several market trends in the identity management and payment processing industries , including growing concerns over identity theft and fraud and the increase in electronic payments , in particular solutions provided by non-bank entities . the key drivers for these alternative payment methods are consumer demands for convenient and faster payment transactions , the gaps in the existing value propositions offered by the banks mainly because of legacy systems and regulatory constraints , which can stifle innovation and the inability of many consumers to access the banks traditional payment services . our results are also impacted by the changes in levels of spending on identity management and security methods , and as a result , negative trends in the global economy and other factors which negatively impact such spending may negatively impact the growth our revenue from those products . the global economy has been undergoing a period of economic uncertainty and stock markets are experiencing high levels of volatility , and it is difficult to predict how long this uncertainty and volatility will continue . 18 we plan to grow our business by increasing the use of our services by our existing customers , by adding new customers by expanding into new markets and by innovation . if we are successful in these efforts ,
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the increase in gold and silver sales at the el gallo project was accomplished through the drawdown of the bullion inventory held at december 31 , 2017. production costs applicable to sales consolidated production costs applicable to sales increased to $ 93.3 million in 2018 , from $ 45.2 million in 2017 , due to $ 46.0 million additional production costs reported by the black fox mine as a result of the higher number of ounces sold in 2018 , as explained above , coupled with a $ 2.1 million increase in production costs reported by the el gallo project . the increase in production costs applicable to sales at the el gallo project was consistent with the higher sales volume . operating income ( expenses ) mine development costs , which relate to engineering and development expenditures incurred at our advanced-stage properties , changed slightly to $ 3.7 million in 2018 from $ 3.8 million in 2017. mine development costs in 2018 were entirely comprised of $ 3.7 million incurred at the fenix project in mexico , whereas in 2017 mine development costs were comprised of $ 3.1 million at the gold bar project in nevada , and $ 0.7 million at the fenix project in mexico . exploration costs in 2018 increased to $ 34.8 million from $ 17.7 million in 2017. the increase is mainly due to a $ 19.8 million and $ 3.0 million increase in exploration expenditures incurred in canada and the u.s. , respectively ; partly offset by a $ 3.4 million and $ 1.9 million decrease in exploration costs at mexico and argentina , respectively . general and administrative expenses increased to $ 23.2 million in 2018 , from $ 18.9 million in 2017 , primarily due to higher overhead from the development of the gold bar project , partly offset by a reduction of costs associated with corporate initiatives . in 2018 , we recognized a net loss of $ 11.9 million from our investment in msc , compared to a net loss of $ 0.1 million in 2017. the higher net loss recorded during 2018 was driven primarily by a $ 21.7 million decrease in sales , due to 4 % and 5 % decreases in the number of ounces of gold and silver sold respectively , coupled with a 10 % decrease in the average realized price of silver . other significant items contributing to the increased net loss from msc are the effect of argentine export tax implemented in the third quarter of 2018 , and the write-off of the receivables owed by republic metals , the u.s. gold refiner which filed for chapter 11 bankruptcy in november 2018. please refer to the section results of operations – msc segment below , for further details . the revision of estimates and accretion of asset retirement obligations increased to $ 3.5 million in the 2018 period , from $ 2.1 million in 2017 , primarily due to a full year accretion expense from black fox , and an increase in the obligations for our other exploration properties in canada and the u.s. other income ( expense ) other expense was $ 1.1 million in 2018 , compared to other income of $ 0.1 in 2017. the increase in other expense was mainly due to $ 1.6 million in interest expense and a $ 3.3 million loss on investments , partly offset by a $ 3.9 million gain in foreign exchange reported in 2018. recovery of income taxes recovery of income and mining taxes decreased from $ 15.4 million in 2017 to $ 2.8 million in 2018 as a result of one-time benefits recognized in 2017 resulting from the tax reforms put in place by the u.s. and argentine governments . 39 year ended december 31 , 2017 compared to 2016 revenue consolidated gold and silver sales increased by $ 7.1 million , or 12 % , to $ 67.5 million for the year ended december 31 , 2017 , from $ 60.4 million in 2016 , mainly due to $ 11.6 million gold sales contributed by the black fox mine , which was acquired in october 2017 , partially offset by a $ 4.5 million decrease in gold and silver sales reported by the el gallo 1 mine , when compared to 2016 , as a result of fewer ounces sold . production costs applicable to sales consolidated production costs applicable to sales increased to $ 45.2 million in 2017 from $ 28.1 million in 2016 , due to $ 9.9 million production costs attributable to the black fox mine , which as noted above was acquired in october 2017 , and $ 7.2 million higher production costs reported by the el gallo 1 mine . the increase in production costs applicable to sales at the el gallo 1 mine was due to the increase in the number of tonnes processed , coupled with higher number of waste tonnes removed in the year , as well as costs incurred due to the mechanical failure of the crushing circuit that occurred during the third quarter of 2017 . operating income ( expenses ) mine development costs changed slightly to $ 3.8 million in 2017 from $ 3.9 million in 2016. exploration costs in 2017 increased to $ 17.7 million from $ 8.0 million in 2016 , mainly due to the $ 6.3 million higher exploration expenditures incurred at the los azules project . these incremental costs for los azules were necessary to complete the pea . in 2017 , we also spent $ 5.6 million on exploration at our mexican properties , $ 2.1 million in nevada , $ 1.6 million in timmins , and $ 0.5 million in corporate exploration charges . property holding costs increased to $ 3.9 million from $ 3.5 million year-over-year mainly as a result of higher costs for the mexican properties , reflecting the mexican peso appreciation against the u.s. dollar , partly offset by a decrease in property costs incurred in argentina , compared to 2016 . story_separator_special_tag general and administrative expenses increased to $ 18.9 million in 2017 , from $ 12.7 million in 2016 , mainly as a result of acquisition and financing costs associated with our two acquisitions completed in the year , and higher personnel costs when compared to the 2016 period . income from our investment in msc decreased significantly from $ 13.0 million in 2016 to a $ 0.1 million loss in 2017 , primarily due to the loss of government tax incentives in late 2016. msc 's decrease in gold and silver sales , coupled with higher production costs applicable to sales , and the increase in exploration costs and capital expenditures , also contributed to the overall decrease in income . please refer to the section results of operations – msc segment below , for further details . an impairment charge of $ 0.7 million was recorded in 2017 , to write-down property and equipment in mexico . the revision of estimate and accretion of asset retirement obligation increased to $ 2.1 million in 2017 , from $ 0.6 million in 2016 primarily from an increase in the revision of the timmins obligation . other income ( expenses ) other income decreased to $ 0.1 million in 2017 from $ 2.0 million in 2016 , primarily due to higher interest expense recorded in 2017 , coupled with the increase in unrealized loss on derivatives . these factors were partly offset by a $ 0.8 million increase in gain on sale of marketable securities reported during the year . recovery of income taxes recovery of income taxes increased from $ 3.7 million in 2016 to $ 15.4 million in 2017 , as a result of the u.s. and argentine government tax reforms , which will significantly reduce future taxes so long as they remain in effect , along with fluctuations in tax benefits related to exploration spending at los azules , and the devaluation of the argentina peso during the year . also contributing to the deferred tax recovery was the recognition of a deferred tax asset , to the extent of 40 the deferred tax liability recognized on the acquired mineral property interests of the gold bar project , in the amount of $ 6.4 million . liquidity and capital resources we had working capital of $ 23.4 million at december 31 , 2018 , which consisted of $ 59.4 million of current assets and $ 36.0 million of current liabilities , compared to $ 49.2 million working capital reported at year-end 2017. within current assets we have $ 14.7 million of restricted cash , which represents funds committed to the exploration program in ontario , as a result of completing our flow-through financing . the $ 25.8 million decrease in working capital was the net result of increased cash used in operating activities , coupled with construction costs at gold bar , which were partly offset by proceeds from higher number of ounces of gold and silver sold , proceeds from the $ 50.0 million loan facility , and proceeds from the issuance of flow-through common shares . overall , our cash balance ( including restricted cash ) decreased to $ 30.5 million at december 31 , 2018 , from $ 37.2 million at december 31 , 2017. we believe that our working capital at december 31 , 2018 , combined with forecasted working capital to be generated over the next 12 months , will be sufficient to satisfy our obligations due in the next 12 months , and to fund ongoing operations and corporate activities . we continue to evaluate capital and development expenditure requirements to advance los azules , black fox , our other timmins projects , and the fenix project in mexico . if our working capital is not sufficient to advance these projects , we will defer one or more of these initiatives . furthermore , if we make a positive decision to develop one or more of these initiatives , the expenditures incurred may significantly exceed our working capital . in such case , we would consider several financing methods , which may include incurring additional debt , issuing additional equity , equipment leasing , and other forms of financing . net cash provided by operations was $ 0.5 million for 2018 , compared to net cash used in operations of $ 27.6 million for 2017 , while net cash provided by operations was $ 7.4 million for 2016. the significant changes from one year to the next are summarized as follows : · $ 128.8 million cash received from revenues in 2018 , compared to $ 67.7 million in 2017 , and $ 59.5 million in 2016 , as a result of increased sales from a full year of operations of the black fox mine , and higher number of ounces of gold sold at higher average realized price by the el gallo project in 2018 ; · $ 8.3 million vat collected in mexico in 2018 , compared to $ 5.9 million collected in 2017 , and $ 9.5 million collected in 2016 ; · $ 126.8 million cash paid to suppliers and employees in 2018 , compared to $ 95.9 million in 2017 and $ 52.3 million in 2016 , due to significantly higher production costs after the acquisition of black fox , construction at gold bar , and exploration expenses ; and · $ 1.9 million cash paid in interests in 2018 , compared to $ nil in 2017 and 2016. cash used in investing activities was $ 69.3 million in 2018 , compared to $ 22.3 million in 2017 , while cash provided by investing activities was $ 7.6 million in 2016 , primarily due to the following factors : · $ 19.0 million expenditures on mineral property interests in 2018 primarily related to underground development at the black fox complex , compared to $ 3.5 million in 2017 and $ 6.0 million in 2016 ; · $ 62.3 million expenditures on property and equipment , mostly at the gold bar project , compared to $ 5.1 million and
| · we realized average prices of $ 1,275 per ounce of gold sold by the black fox mine ( excluding our stream obligations ) , and $ 1,279 per ounce of gold sold by the el gallo project . · the black fox mine realized total cash costs of $ 845 and all-in sustaining costs of $ 1,137 per gold equivalent ounce . · the el gallo project realized total cash costs of $ 733 and all-in sustaining costs of $ 771 per gold equivalent ounce . 37 · the san josé mine realized total cash costs of $ 851 and all-in sustaining costs of $ 1,061 per gold equivalent ounce . · our investment in msc yielded a net loss of $ 11.9 million but paid us $ 10.4 million in dividends . · we reported gross profit of $ 35.5 million , and a net loss of $ 44.9 million , or $ 0.13 per share for 2018 . ( 1 ) for a reconciliation of precious metals valued at the london p.m. fix spot price and cost , please see the discussion under “ non-gaap financial performance measures ” below , on page 55. selected consolidated production and operating results replace_table_token_11_th ( 1 ) includes attributable production from our 49 % owned san josé mine . ( 2 ) silver production is presented as a gold equivalent . gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year . consolidated financial performance despite the 57 % increase in operating profit obtained from black fox and residual leaching at the el gallo project , we reported a net loss of $ 44.9 million , or $ 0.13 per share in 2018 , compared to a net loss of $ 10.6 million , or $ 0.03 per share , in 2017. the $ 44.9 million net loss was primarily the result of the following factors : < p style= '' text-align : justify ; text-justify : inter-ideograph ; border-bottom:1pt none # d9d9d9 ; font-family : times
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as of december 31 , 2013 , we had cash and cash equivalents of $ 3.9 million . we expect to continue to incur net operating losses for at least the next several years as we advance rt001 and rt002 through clinical development , seek regulatory approval , prepare for and , if approved , proceed to commercialization . we have the ability to manufacture our own botulinum toxin type a product to support our clinical trials and eventually a substantial portion of our commercial production . additionally , we currently utilize third-party clinical research organizations , or cros , to carry out our clinical development and we do not yet have a sales organization . we will need substantial additional funding to support our operating activities , especially as we approach anticipated regulatory approval in the united states and other territories and begin to establish our sales capabilities . adequate funding may not be available to us on acceptable terms , or at all . our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business , results of operations , and financial condition . medicis settlement in october 2012 , we entered into a settlement and termination agreement with medicis pharmaceutical corporation , or medicis , through which we reacquired from medicis rights in all territories for rt001 and rt002 . the agreement terminated our license agreement with medicis and requires that we make payments to them of up to $ 25.0 million , comprised of ( i ) an upfront payment of $ 7.0 million , which we made in november 2012 , ( ii ) payments of $ 14.0 million from a portion of specified types of cash proceeds received by us , an aggregate of $ 6.9 million of which we paid in april and may 2013 and $ 7.1 million in february 2014 , and ( iii ) a payment of $ 4.0 million upon the achievement of specified regulatory milestones . the medicis settlement also impacted our deferred revenue , research and development expenses , our stockholders ' deficit and liabilities due to derivatives derived from the settlement payments , which are discussed below and in note 4 of our consolidated financial statements included elsewhere in this form 10-k. results of operations revenue during the years ended december 31 , 2013 , 2012 and 2011 , we recognized revenue primarily from license and royalty agreements and from the sale of products . we did not have any product revenue during the year ended december 31 , 2013 and 2012 and we recognized only a limited amount of product revenue during the year ended december 31 , 2011 of which all was derived from the promotion and sale of relastin , an over-the-counter skincare product that does not incorporate any of our technology related to rt001 or rt002 . we recognized royalty revenue during the years ended december 31 , 2013 and 2012 related to the relastin asset purchase and royalty agreement and we did not recognize any royalty revenue during the year ended december 31 , 2011. the relastin royalty agreement provides for minimum royalty payment of $ 0.3 million per year , to be paid quarterly for up to 15 years from the execution date . the royalty agreement also provided for one-time payments upon achievement of certain milestones . in the year ended december 31 , 2013 , we received a one-time milestone payment of $ 150,000. the acquirer may terminate the royalty agreement with 90 days ' notice as of december 31 , 2013 with the rights to the relastin product line reverting back to us . we do not currently have any plans for the future of relastin as our focus has been primarily on the development of rt001 and rt002 . our license revenue has historically been derived through nonrefundable technology license fees for our rt001 and rt002 product candidates . during the years ended december 31 , 2012 and 2011 , our license revenue was derived from an arrangement with medicis whereby , prior to our settlement with them , we had granted them specified rights to rt002 in return for an upfront payment . the upfront payment was deferred and recognized over the estimated performance period ; however , we did not recognize any license revenue from the agreement with medicis during the year ended december 31 , 2013 as the prior license agreement was discontinued as part 62 of the medicis legal settlement in october 2012. in the year ended december 31 , 2013 , we recognized license revenue of $ 0.2 million pursuant to an exclusive technology evaluation agreement in june 2013 whereby we received an upfront payment in the amount of $ 0.3 million , which was initially recorded as deferred revenue and is being recognized over the estimated performance period . costs and operating expenses our cost and operating expenses consist of cost of revenue , research and development expenses and sales , general and administrative expenses . our cost of revenue has not been significant to date . as for our operating expenses , the largest component is our personnel costs which consist primarily of wages , benefits and bonuses as well as the related stock-based compensation . we expect costs to continue to increase in absolute dollars as we hire new employees to continue to grow our business and we expect clinical trial and other expenses paid to third parties to increase as we complete development of rt001 , rt002 or any other product candidates . research and development expenses we recognize research and development expenses as they are incurred . since our inception , we have focused on our clinical development programs and the related research and development . story_separator_special_tag our research and development expenses consist primarily of : salaries and related expenses for personnel in research and development functions , including expenses related to stock-based compensation granted to such personnel ; expenses related to the completion of phase 3 clinical trials for rt001 and phase 1 and 2 trials for rt002 , including expenses related to production of clinical supplies ; fees paid to clinical consultants , clinical trial sites and vendors , including cros in conjunction with implementing and monitoring our preclinical and clinical trials and acquiring and evaluating preclinical and clinical trial data , including all related fees , such as for investigator grants , patient screening fees , laboratory work and statistical compilation and analysis ; the fair value of technology rights reacquired as part of our settlement with medicis ; other consulting fees paid to third parties ; expenses related to production of clinical supplies , including fees paid to contract manufacturers ; expenses related to establishment of our own manufacturing facilities ; expenses related to license fees and milestone payments under in-licensing agreements ; expenses related to compliance with drug development regulatory requirements in the united states , the european union and other foreign jurisdictions ; and depreciation and other allocated expenses . we expense both internal and external research and development expenses as they are incurred . we have been developing rt001 and rt002 since 2002 and we typically use our employees , consultants and infrastructure resources across both programs . for the years ended december 31 , 2013 , 2012 and 2011 , costs associated with our manufacturing , quality and regulatory efforts for both rt001 and rt002 development have been our largest research and development related expenses , totaling $ 20.3 million , or 73.0 % , $ 30.3 million , or 92.6 % and $ 21.9 million , or 96.33 % , of research and development expenses in 2013 , 2012 and 2011 , respectively . these costs do not include clinical costs associated with the development of rt001 and rt002 . we believe that the strict allocation of costs by product candidate would not be meaningful . as such , we generally do not track these costs by product candidate . 63 clinical costs associated with the development of rt001 and rt002 , including clinical trials of rt001 for the treatment of crow 's feet lines and clinical trials of rt002 for the improvement of glabellar lines , totaled $ 7.5 million , or 27.0 % , $ 2.4 million , or 7.33 % and $ 0.9 million , or 4.0 % of research and development expenses in 2013 , 2012 and 2011 , respectively . clinical costs associated with the development of rt002 have been insignificant to date . our research and development expenditures are subject to numerous uncertainties primarily related to the timing and cost needed to complete our respective projects . further , the development timelines , the probability of success and development expenses can differ materially from expectations and the completion of clinical trials may take several years or more depending on the type , complexity , novelty and intended use of a product candidate . accordingly , the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development . we expect our research and development expenses to increase as we continue our phase 3 clinical development of rt001 for the treatment of crow 's feet lines or if the fda requires us to do additional clinical trials for its approval and as we enter into clinical trials for rt001 for hyperhidrosis and other indications and for rt002 . sales , general and administrative expenses sales , general and administrative expenses consist primarily of personnel costs , including stock-based compensation , for employees in our commercial , administration , finance and business development functions . other significant expenses include professional fees for accounting and legal services , including legal services associated with obtaining and maintaining patents . we expect that our sales , general and administrative expenses will increase with the continued development of , and if approved , the commercialization of rt001 and as we operate as a public company . other income ( expense ) other income ( expense ) is comprised of interest income , interest expense , changes in fair value of derivative liabilities associated with convertible notes , changes in fair value of derivative liabilities associated with the medicis settlement , changes in fair value of convertible preferred stock warrant liability and other income ( expense ) , net . interest income interest income consists primarily of interest income earned on our cash and cash equivalents and marketable securities balances . we expect interest income to vary each reporting period depending on our average cash and cash equivalents and marketable securities balances during the period and market interest rates . to date , our interest income has not been significant in any individual period . interest expense interest expense primarily consists of the interest charges associated with our convertible notes , notes payable and capital lease obligations . notes payable under our term loan agreement with hercules bears interest at a rate which is the greater of ( i ) 9.85 % per annum or ( ii ) 9.85 % per annum plus the difference of the prime rate less 3.25 % . the interest charge on our convertible notes and capital lease obligations is fixed at the inception of the related transaction based on the incremental borrowing rate in effect on such date .
| with the divestment of relastin , our primary focus has been on the development of rt001 and rt002 . our license revenue decreased to $ 0.2 million for the year ended december 31 , 2013 from $ 0.4 million for the year ended december 31 , 2012. the decrease was due to the termination of a license agreement for rt002 as a result of the medicis settlement in october 2012. this decrease was partially offset by $ 0.2 million of revenue recognized pursuant to an exclusive technology evaluation agreement whereby we received an upfront payment in the amount of $ 0.3 million which was initially recorded as deferred revenue and is being recognized over the estimated performance period . prior to the termination of the medicis license agreement , we were recognizing license revenue of $ 0.5 million per year through the amortization of an upfront payment made by medicis during the year ended december 31 , 2009 , which was initially recorded as deferred revenue . as a result of the termination of the medicis license agreement , we will no longer recognize any license revenue from the 2009 medicis license agreement for rt002 . 67 operating expenses replace_table_token_7_th research and development expenses research and development expenses decreased by $ 4.9 million , or 15 % , to $ 27.8 million during the year ended december 31 , 2013 from $ 32.7 million during the year ended december 31 , 2012. our research and development expenses fluctuate as projects transition from one development phase to the next . depending on the stage of completion and level of effort related to each development phase undertaken , we may reflect variations in our research and development expense . our overall research and development expenses decreased by $ 4.9 million primarily due to one-time costs incurred in connection with the reacquisition of the rt001 and rt002 technology rights from medicis in october 2012 , offset by increased clinical research organization ( cro )
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the estimates most commonly involve property , plant and equipment and intangible assets , including those with indefinite lives . the estimates also include the fair value of contracts including commodity purchase and sale agreements , storage contracts , and transportation contracts . the excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill , which is not amortized but instead is evaluated for impairment at least annually . pursuant to gaap , an entity is allowed a reasonable period of time ( not to exceed one year ) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination . 30 income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in determining our provision for income taxes and income tax assets and liabilities , including evaluating uncertainties in the application of accounting principles and complex tax laws . we record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method . under this method , we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as for operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled . we calculate tax expense consistent with intraperiod tax allocation methodology resulting in an allocation of current year tax expense/benefit between continuing operations and discontinued operations . we record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized . we recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position . although we believe that we have adequately reserved for our uncertain tax positions , we can provide no assurance that the final tax outcome of these matters will not be materially different . we adjust these reserves when facts and circumstances change , 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 than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . the provision for income taxes includes the effects of any reserves that we believe are appropriate , as well as the related net interest and penalties . for more details see note 5. income taxes in part ii , item 8 `` financial statements and supplementary data . '' inventory we value our inventory at the lower of cost ( first-in , first-out method ) or net realizable value . we regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value , if less than cost , based primarily on our estimated forecast of product demand . our industry is subject to technological change , new product developments , and changes in end-user demand for our products which can fluctuate significantly . any significant changes in end-user demand , technology or new product developments could have a significant impact on the value of our inventory and our reported operating results . warranty costs we offer warranty coverage for a majority of our products for periods typically ranging from 12 to 24 months after shipment . we provided warranties on our inverter products for five to ten years and also provided the option to purchase additional warranty coverage up to 20 years . our standard inverter product warranty expense is reported within discontinued operations . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs . the assumptions we use to estimate warranty accruals are reevaluated periodically , considering actual experience , and when appropriate , the accruals are adjusted . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . see note 4. disposed and discontinued operations in part ii , item 8 `` financial statements and supplementary data '' for more information on our discontinued operations and note 15. warranties in part ii , item 8 `` financial statements and supplementary data '' for more information . goodwill , intangible and other long-lived assets we evaluate the carrying value of our goodwill for impairment at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place . our annual impairment test was performed as of december 31 st with no indication of impairment . we evaluate our other definite-lived intangible assets for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable . significant judgments and assumptions are required in such impairment evaluations . 31 the annual impairment test of goodwill may be performed using an assessment of qualitative factors if it is considered more likely than not that goodwill is not impaired . if this qualitative assessment indicates that it is more likely than not that goodwill is impaired , then the next step of impairment testing compares the fair value of a reporting unit to its carrying value . if fair value exceeds carrying value , then we conclude no goodwill impairment has occurred . conversely , if carrying value exceeds fair value , we recognize an impairment loss . story_separator_special_tag we evaluate definite-lived intangible assets and other long-lived assets whenever 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 . 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 . changes in these estimates could result in significant revisions to the carrying value of these assets and may result in material charges to our results of operations . defined benefit pension plans accounting for pension plans requires that we make assumptions that involve considerable judgment which are significant inputs in the actuarial models that measure our net pension obligations and ultimately impact our earnings . these include the discount rate , long-term expected rate of return on assets , compensation trends , inflation considerations , health care cost trends and other assumptions , as well as determining the fair value of assets in our funded plans . specifically , the discount rates , as well as the expected rates of return on assets and plan asset fair value determination , are important assumptions used in determining the plans ' funded status and annual net periodic pension and benefit costs . we evaluate these critical assumptions at least annually on a plan and country-specific basis . we also , with the help of actuaries , periodically evaluate other assumptions involving demographic factors , such as retirement age , mortality and turnover , and update them to reflect our experience and expectations for the future . the company believes the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets , actuarial valuations , market conditions and contracted benefit changes . while we believe that our assumptions are appropriate , significant differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expense . human capital resources our corporate citizenship , social responsibility and commitment to our employees extends beyond the products we make . we recognize that our employees are our most important asset , and with approximately 10,000 employees located across the globe , we know that each person 's diverse background and unique skill set are fundamental to our success . we regularly conduct anonymous surveys to seek feedback from our employees on important topics related to confidence in company leadership , career growth opportunities , and improvements on how we can make our company a great place to work . in addition , the results of the survey are shared with our board . to further increase our commitment to diversity and equity , in 2020 , we announced the launch of our inaugural advanced energy stem diversity scholarship , which is aimed at developing emerging talent and promoting greater ethnic , racial and gender diversity in stem . the annual program will begin in the 2021 academic year and will accept applications from undergraduate and post-graduate students attending five leading institutions in the field of power technologies . total rewards as part of our total rewards philosophy , we believe in offering and maintaining competitive compensation and benefits programs for our employees in order to attract and retain a talented , highly engaged workforce . our compensation programs are focused on equitable , fair pay practices including market-based base pay , an annual pay-for-performance incentive plan , and discounted employee stock purchase plan . in addition to our competitive compensation practices , we offer a strong benefits package in each of the countries in which we operate . in the majority of our non-u.s. operations , we offer additional benefits that supplement governmental statutory benefits . in the u.s. , we offer a competitive benefits package that includes four different health care plan options with employee premiums lower than the market average , 32 dental , vision , disability and life insurance , health savings and flexible spending accounts , paid-time off , 8-weeks of paid parental leave for both parents , company matched 401 ( k ) , flexible work schedules , expanded mental health coverage and employee assistance programs . with the challenging times created by covid-19 , we made the commitment to ensure our employees maintained financial security and provided employees the ability to work from home and paid leave time for our hourly employees who may have been impacted by temporary site closures . learning and development to support our employees in reaching their full potential and to build internal capabilities , we offer a wide range of internal and external learning and development opportunities . we have a program for education assistance reimbursement that provides financial support to employees who seek to expand their skills and abilities . we support a women 's leadership forum conducted by our employees that discusses , among other things , career development , leadership topics , and the opportunities for mentorship . we also have an internship program designed to help support a pipeline of talent for the company . we have a robust succession planning process to develop internal leadership capabilities and technical bench strength , ensuring we have a strong workforce for the future . health and safety we are committed to providing a safe work environment for our employees . we provide regular health and safety training both on-site as needed and through our virtual training tool that assigns training requirements based on job profiles and site-specific requirements . our environmental , health and safety organization is a global team responsible for health and safety related to on-site operations including hazard and risk identification .
| in 2020 , sales to the semiconductor equipment market increased $ 208.8 million , or 51.8 % to $ 611.9 million from $ 403.0 million in 2019. the increase in sales during 2020 is primarily due to an overall increase in demand for semiconductor equipment used in deposition and etch applications , increasing power content in semiconductor manufacturing tools , and market share gains in rf match and remote plasma sources . sales to the industrial and medical market increased $ 67.7 million , or 27.5 % to $ 313.6 million in 2020 from $ 246.0 million in 2019. our customers in this market are primarily global and regional original equipment and device manufacturers . inorganic growth contributed $ 97.9 million in 2020 , while organic sales in the industrial and medical market decreased $ 30.3 million , or 17.9 % . the increase in inorganic sales is primarily due to inclusion of full year results for artesyn in 2020 compared to a partial year during 2019. the decrease in organic sales was primarily due to slowing macroeconomic conditions , the impact of covid-19 on global manufacturing , and lower demand in the consumer hard coating and flat panel display markets impacting our thin film deposition markets , partially offset by growth in medical and other embedded power products . sales in the data center computing market were $ 322.5 million in 2020 and $ 91.4 million in 2019. the increase in data center computing market sales is primarily due to inclusion of full year results for artesyn in 2020 compared to a partial year during 2019 and revenue increases driven by growth in hyperscale customers and market share gains . sales in the telecom and networking market were $ 167.8 million in 2020 and $ 48.5 million in 2019. the increase in telecom and networking sales is due to the addition of new product verticals through inorganic growth . since early 2019 , demand for telecom and networking equipment has been impacted by reduced investment in current generation networks given geopolitical issues , consolidation of network providers , and slowing global growth . demand in the telecom and networking market started to recover in the second half of 2020 , and over time 5g infrastructure
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jdl runs sbbc 's network operation center that monitors all network elements ( servers , switches , routers ) and over 60,000 computers in 265 buildings for the nation 's 6th largest school district . suttle founded in 1910 , suttle is one of the world 's largest suppliers of high-volume copper and fiber connectivity products used by north america 's largest telcos . suttle also designs , manufactures and markets a full line of structured wiring components for small office , home office ( soho ) for voice , video and high-speed data communications convergent solutions . suttle 's products are used throughout the telco , multi-service cable operators ( msos ) , and installer/contractor markets . 19 transition networks transition networks offers a full suite of networking connectivity solutions including media converters , network interface cards , switches , and coarse-wave division multiplexing ( cwdm ) . utilizing engineering resources in the u.s. and its product design and development facility in shanghai , china , transition networks designs and markets products for a broad spectrum of protocols including ethernet , fast ethernet , gigabit ethernet , t1/e1 , ds3 , and serial . transition networks distributes these hardware-based connectivity solutions through a network of resellers in 90 countries and is the preferred choice among industry it professionals for high-end media conversion devices , network interface devices , and ethernet switches . in 2011 , the company acquired patapsco design limited as part of transition networks ' expansion outside the north american market . austin taylor located in bethesda , wales , united kingdom , austin taylor manufactures cabling installation and connection products for copper and fiber optic media . austin taylor serves the government and commercial markets throughout europe and the middle east with british standard products . austin taylor 's broad catalog of products ranges from telephony linejacks to structured cabling and from plastic connection boxes to metal cabinets . at the end of 2011 , we discontinued the metal cabinet manufacturing portion of the business due to limited profitability opportunities for that business . forward looking statements in this report and from time to time , in reports filed with the securities and exchange commission , in press releases , and in other communications to shareholders or the investing public , we may make forward looking statements within the meaning of the private securities litigation reform act of 1995. we may make these forward looking statements concerning possible or anticipated future financial performance , business activities , plans , pending claims , investigations or litigation , which are typically preceded by the words believes , expects , anticipates , intends or similar expressions . for these forward-looking statements , the company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws . shareholders and the investing public should understand that these forward looking statements are subject to risks and uncertainties that could cause actual performance , activities , anticipated results , outcomes or plans to differ significantly from those indicated in the forward-looking statements . for a detailed discussion of a number of such risk factors , please see item 1a above . critical accounting policies inventory valuation : we value inventories at the lower of cost or market . reserves for overstock and obsolescence are estimated and recorded to reduce the carrying value to estimated net realizable value . the amount of the reserve is determined based on projected sales information , plans for discontinued products and other factors . though management considers these reserves adequate and proper , changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve . income taxes : in the preparation of the company 's consolidated financial statements , management calculates income taxes . this includes estimating the company 's current tax liability as well as assessing temporary differences resulting from different treatment of items for tax and book accounting purposes . these differences result in deferred tax assets and liabilities , which are recorded on the balance sheet . these assets and liabilities are analyzed regularly and management assesses the likelihood it will realize these deferred assets from future taxable income . we determine the valuation allowance for deferred income tax benefits based upon the expectation of whether the benefits are more likely than not to be realized . the company records interest and penalties related to income taxes as income tax expense in the consolidated statements of income . goodwill impairment : we are required to evaluate goodwill for impairment on an annual basis and between annual tests upon the occurrence of certain events or circumstances . we perform a two-step process to analyze whether or not goodwill has been impaired . step one is to test for potential impairment , and requires that the fair value of the reporting unit be compared to its book value including goodwill . if the fair value is higher than the book value , no impairment is recognized . the company estimates the fair value of each reporting unit based on a discounted cash flow analysis . if the fair value is lower than the book value , a second step must be performed . the second step is to measure the amount of impairment loss , if any , and requires that a hypothetical purchase price allocation be done to determine the implied fair value of goodwill . this fair value is then compared to the carrying value of goodwill . if the implied fair value is lower than the carrying value , an impairment adjustment must be recorded . story_separator_special_tag 20 the company believes that accounting estimates related to goodwill impairment are critical because the underlying assumptions used for the discounted cash flow can change from period to period and could potentially cause a material impact to the income statement . management 's assumptions about inflation rates and other internal and external economic conditions , such as earnings growth rate , require significant judgment based on fluctuating rates and expected revenues . revenue recognition : the company recognizes revenue when the earnings process is complete , evidenced by persuasive evidence of an agreement , delivery has occurred or services have been rendered , the price is fixed or determinable , and collectability is reasonably assured . in the suttle , transition networks and austin taylor segments , the earning process completion is evidenced through the shipment of goods , based on the sales terms of these segments , the risk of loss is transferred upon shipment or delivery to customers and there are no significant obligations subsequent to that point . there are not significant estimates related to revenue recognition for these segments . jdl technologies records revenue on hardware , software and related equipment sales and installation contracts when the revenue recognition criteria are met and the products are installed and accepted by the customer . jdl records revenue on service contracts on a straight-line basis over the contract period , unless evidence suggests that the revenue is earned in a different pattern . each contract is individually reviewed to determine when the earnings process is complete . story_separator_special_tag telephone customers , volatility in the large dsl contracts , and the continued severe downturn in the domestic housing market . sales to the telephone companies decreased 15 % to $ 25,726,000 in 2010 compared to $ 30,309,000 in 2009 due to decreased dsl deployment and continued contraction of the domestic housing market . sales to these customers accounted for 70 % of suttle 's sales in 2010 compared to 71 % of sales in 2009. sales to distributors , oems , and electrical contractors decreased 24 % and accounted for 14 % of sales in 2010 compared to 16 % in 2009. the decline in this segment is a direct result of reduced opportunities in the domestic market for new sfu construction and mdu construction . international sales accounted for 15 % of suttle 's 2010 sales but declined 1 % compared to 2009. international telephone customers also faced land-line loss causing decreased sales of voice products . dsl product sales into this segment did increase as customers increased investments in broadband . suttle 's gross margin decreased 1 % to $ 9,681,000 in 2010 compared to $ 9,771,000 in 2009. the gross margin percentage was 26 % in 2010 compared to 23 % in 2009. this increase in gross margin as a percentage of sales was due to favorable product mix changes . suttle realizes its highest selling margins on modular connecting products . dsl products are the least profitable . selling , general and administrative expenses increased 10 % to $ 6,638,000 in 2010 compared to $ 6,054,000 in 2009 due to increases in spending on technology development . suttle 's operating income declined 18 % to $ 3,043,000 in 2010 from $ 3,717,000 in 2009 due to the decreased revenues noted above . 24 transition networks transition networks sales increased 23 % to $ 67,782,000 in 2010 compared to $ 55,098,000 in 2009. transition networks organizes its sales force and segments its customers geographically . sales by customer groups in 2010 and 2009 were : replace_table_token_12_th the following table summarizes transition networks ' 2010 and 2009 sales by product group : replace_table_token_13_th sales in north america increased 25 % compared to 2009. the increase in sales largely came from an increase in two of transition networks ' focus vertical markets : federal government and telco . the increase in the federal government sales were due in part to some voice over ip ( voip ) projects while the increase in telco came from wireless backhaul projects and last mile data delivery services for businesses . international sales increased $ 1,473,000 , or 15 % , due to a strong rebound in the asia and latin america markets . the increase was due to an increase in activity in projects for telco customers in deploying data services . sales in emea lagged due to a sluggish world economy , increased price competition , and currency fluctuations . gross margin increased 23 % to $ 35,956,000 in 2010 compared to $ 29,329,000 in 2009 due to an increase in revenues . gross margin as a percentage of sales remained stable at 53 % in 2010 compared to 53 % in 2009. selling , general and administrative expenses increased 11 % to $ 21,459,000 in 2010 from $ 19,371,000 in 2009 due primarily to an increase in selling expense and adding engineering staff to the china facility . operating income increased 46 % to $ 14,497,000 in 2010 compared to $ 9,958,000 in 2009 due to an increase in gross margin dollars of 23 % and a smaller increase of sg & a of only 11 % . jdl technologies , inc. sales by jdl technologies , inc. ( the company 's it services business unit ) increased 45 % to $ 12,712,000 in 2010 compared to $ 8,765,000 in 2009. the following table summarizes jdl 's revenues by customer group in 2010 and 2009 : replace_table_token_14_th revenues earned in broward county fl increased $ 3,797,000 or 44 % in 2010. the increase was the result of increased it infrastructure contract funding from the federal government .
| suttle 's gross margin decreased 4 % to $ 9,271,000 in 2011 compared to $ 9,681,000 in 2010. the gross margin percentage was 25 % in 2011 compared to 26 % in 2010. this decrease is a result of shifting product mix , as sales from modular connecting blocks decreased . suttle realizes its highest selling margins on modular connecting products . selling , general and administrative expenses increased 4 % to $ 6,898,000 in 2011 compared to $ 6,638,000 in 2010 due to increases in spending on technology development . suttle 's operating income declined 64 % to $ 1,102,000 in 2011 from $ 3,043,000 in 2010 due in part to the margin erosion mentioned above and a goodwill impairment charge of $ 1,272,000 in the second quarter of 2011. transition networks transition networks is a provider of active networking hardware devices . characteristics of the business include a rapid pace of change in technologies and alternative solutions to our products . transition networks derives the majority of its business from one-time network upgrade projects . the core markets for these products are enterprise , service providers , and industrial users . roughly 85 % of transition networks revenue comes from north america , but we continue to see opportunity for long-term growth outside of north america and we will invest resources in sales , marketing , and infrastructure to grow that business . transition networks sales increased 35 % to $ 91,450,000 in 2011 compared to $ 67,782,000 in 2010. transition networks organizes its sales force and segments its customers geographically . sales by customer groups in 2011 and 2010 were : replace_table_token_7_th the following table summarizes transition networks ' 2011 and 2010 sales by product group : replace_table_token_8_th sales in north america increased 37 % or $ 21,024,000 compared to 2010 due to $ 32,836,000 in revenue from a one-time large network upgrade project with a fortune 500 company . sales to this customer also resulted in the increase in media converter revenue . the increase in revenue from this customer was partially offset by a decrease in sales to some of transition networks ' traditional customers . other vertical markets , especially the federal government market in the united states , recorded
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while the current covid-19 pandemic continues to impact our business operations and practices , and we expect that it may continue to impact our business , we experienced limited financial disruption during 2020. although many of our offices remained open to enable critical on-site business functions in accordance with local government guidelines , most of our employees worked from home during 2020. during the second half of 2020 , the majority of our employees in china returned to work and we maintained normal business operations subject to local government health measures . we continue to monitor and take measures to protect the health and safety of our employees , and support those employees who work from home so that they can be productive . we monitor demand signals as we adjust our supply chain requirements based on changing customer needs and demands . we also assess our product schedules and roadmaps to make any adjustments that may be necessary to support remote working requirements and address the geographic and market demand shifts caused by covid-19 . as part of our strategy to establish amd as the industry 's high performance computing leader , we announced in october 2020 that we entered into a definitive agreement to acquire xilinx , inc. in an all-stock transaction . the transaction is currently expected to close by the end of calendar year 2021. we intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our financial statements , the changes in certain key items in those financial statements from period to period , the primary factors that resulted in those changes , and how certain accounting principles , policies and estimates affect our financial statements . critical accounting estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( u.s. gaap ) . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements . we evaluate our estimates on an on-going basis , including those related to our revenue , inventories , goodwill and income taxes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . although actual results have historically been reasonably consistent with management 's expectations , the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions . management believes the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult , subjective and complex judgments . revenue allowances . revenue contracts with our customers include variable amounts which we evaluate under asc 606-10-32-8 through 14 in order to determine the net amount of consideration to which we are entitled and which we recognize as revenue . we determine the net amount of consideration to which we are entitled by estimating the most likely amount of consideration we expect to receive from the customer after adjustments to the contract price for rights of return and rebates to our oem customers and rights of return , rebates and price protection on unsold merchandise to our distributor customers . we base our determination of necessary adjustments to the contract price by reference to actual historical activity and experience , including actual historical returns , rebates and credits issued to oem and distributor customers adjusted , as applicable , to include adjustments , if any , for known events or current economic conditions , or both . our estimates of necessary adjustments for distributor price incentives and price protection on unsold products held by distributors are based on actual historical incentives provided to distributor customers and known future price movements based on our internal and external market data analysis . our estimates of necessary adjustments for oem price incentives utilize , in addition to known pricing agreements , actual historical rebate attainment rates and estimates of future oem rebate program attainment based on internal and external market data analysis . 40 we offer incentive programs through cooperative advertising and marketing promotions . where funds provided for such programs can be estimated , we recognize a reduction to revenue at the time the related revenue is recognized ; otherwise , we recognize such reduction to revenue at the later of when : i ) the related revenue transaction occurs ; or ii ) the program is offered . for transactions where we reimburse a customer for a portion of the customer 's cost to perform specific product advertising or marketing and promotional activities , such amounts are recognized as a reduction to revenue unless they qualify for expense recognition . we also provide limited product return rights to certain oems and to most distribution customers . these return rights are generally limited to a contractual percentage of the customer 's prior quarter shipments , although , from time to time we may approve additional product returns beyond the contractual arrangements based on the applicable facts and circumstances . in order to estimate adjustments to revenue to account for these returns , including product restocking rights provided to distributor and oem customers , we utilize relevant , trended actual historical product return rate information gathered , adjusted for actual known information or events , as applicable . overall , our estimates of adjustments to contract price due to variable consideration under our contracts with oem and distributor customers , based on our assumptions and include adjustments , if any , for known events , have been materially consistent with actual results ; however , these estimates are subject to management 's judgment and actual provisions could be different from our estimates and current provisions , resulting in future adjustments to our revenue and operating results . inventory valuation . story_separator_special_tag we value inventory at standard cost , adjusted to approximate the lower of actual cost or estimated net realizable value using assumptions about future demand and market conditions . material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances . in determining excess or obsolescence reserves for products , we consider assumptions such as changes in business and economic conditions , other-than-temporary decreases in demand for our products , and changes in technology or customer requirements . in determining the lower of cost or net realizable value reserves , we consider assumptions such as recent historical sales activity and selling prices , as well as estimates of future selling prices . if in any period we anticipate a change in assumptions such as future demand or market conditions to be less favorable than our previous estimates , additional inventory write-downs may be required and would be reflected in cost of sales , resulting in a negative impact to our gross margin in that period . if in any period we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period , related revenue would be recorded with a lower or no offsetting charge to cost of sales resulting in a net benefit to our gross margin in that period . overall , our estimates of inventory carrying value adjustments have been materially consistent with actual results . goodwill . we perform our goodwill impairment analysis as of the first day of the fourth quarter of each year and , if certain events or circumstances indicate that an impairment loss may have been incurred , on a more frequent basis . the analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment . we first analyze qualitative factors to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying amount . qualitative factors include industry and market considerations , overall financial performance , share price trends and market capitalization and company-specific events . if we conclude it is more likely than not that the fair value of a reporting unit exceeds its carrying amount , we do not proceed to perform a quantitative impairment test . if we conclude it is more likely than not that the fair value of the reporting unit is less than its carrying value , a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value . a quantitative impairment analysis , if necessary , considers the income approach , which requires estimates of the present value of expected future cash flows to determine a reporting unit 's fair value . significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows , discount rates , and future economic and market conditions . a goodwill impairment charge is recognized for the amount by which a reporting unit 's fair value is less than its carrying value , not to exceed the total amount of goodwill allocated to that reporting unit . income taxes . in determining taxable income for financial statement reporting purposes , we must make certain estimates and judgments . these estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes . 41 we regularly assess the likelihood that we will be able to recover our deferred tax assets . unless recovery is considered more-likely-than-not ( a probability level of more than 50 % ) , we will record a charge to income tax expense in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable or maintain the valuation allowance recorded in prior periods . when considering all available evidence , if we determine it is more-likely-than-not we will realize our deferred tax assets , we will reverse some or all of the existing valuation allowance , which would result in a credit to income tax expense and the establishment of an asset in the period of reversal . in determining the need to establish or maintain a valuation allowance , we consider the four sources of jurisdictional taxable income : ( i ) carryback of net operating losses to prior years ; ( ii ) future reversals of existing taxable temporary differences ; ( iii ) viable and prudent tax planning strategies ; and ( iv ) future taxable income exclusive of reversing temporary differences and carryforwards . through the end of 2020 , we demonstrated consistent , continued and increasing profitability over the preceding three-year period . our ability to sustain and grow our profitability is supported by the continued positive momentum of our consumer and commercial products , including our newly released desktop , mobile and graphics processors , greater market acceptance for our server products , the successful adoption of our new game console processor products , and our leadership in the continued development of hpc products . in assessing the realizability of the deferred tax assets , we considered the highly dynamic and competitive landscape of our industry , the continued performance and market acceptance of our new products , and the impact of such market acceptance on our estimates of future profitability . as a result , in the fourth quarter of 2020 , we concluded that our history of profitable operating results , including the current period results , along with increasingly favorable forecasts of continued future profitability , provided sufficient positive evidence supporting the realizability of a certain amount of our u.s. deferred tax assets , accordingly , the release of the related valuation allowance previously recorded against these deferred tax assets , resulting in a tax benefit of $ 1.3 billion in the fourth quarter of 2020.
| enterprise , embedded and semi-custom enterprise , embedded and semi-custom net revenue of $ 3.3 billion in 2020 increased by 65 % compared to net revenue of $ 2.0 billion in 2019 , primarily driven by higher sales of our epyc server processors and higher semi-custom revenue . enterprise , embedded and semi-custom operating income was $ 391 million in 2020 compared to $ 263 million in 2019. the increase in operating income was primarily due to the margin contribution from the increase in revenue which more than offset higher operating expenses in 2020 and a $ 60 million licensing gain recorded in 2019. operating expenses increased for the reasons outlined under “ expenses ” below . all other all other operating loss of $ 288 million in 2020 included stock-based compensation expense of $ 274 million and acquisition-related costs of $ 14 million . all other operating loss of $ 209 million in 2019 included $ 197 million of stock-based compensation expense and a $ 12 million contingent loss accrual on a legal matter . 43 comparison of gross margin , expenses , licensing gain , interest expense , other expense and income taxes the following is a summary of certain consolidated statement of operations data for 2020 , 2019 and 2018 : replace_table_token_4_th gross margin gross margin as a percentage of net revenue was 45 % in 2020 compared to 43 % in 2019. the increase in gross margin was primarily driven by sales of ryzen and epyc processors in 2020 , which have a higher gross margin than the corporate average , partially offset by sales of semi-custom products and radeon products , which have a lower gross margin than the corporate average . expenses research and development expenses research and development expenses of $ 2.0 billion in 2020 increased by $ 436 million , or 28 % , compared to $ 1.5 billion in 2019. the increase was primarily driven by an increase in product development costs in both the computing and graphics and enterprise and embedded and semi-custom segments , due to an increase in headcount and higher annual employee incentives
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other electronic content offered by this segment includes digital content such as music , games and software , as well as , other products including prepaid long distance calling card plans , prepaid internet plans , prepaid debit cards , gift cards , vouchers , transport payments , lottery payments , bill payment , and money transfer . money transfer segment — revenues in the money transfer segment , which represented approximately 40 % of total consolidated revenues for the year ended december 31 , 2019 , are primarily derived from transaction fees , as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates . we have a sending agent network in place comprised of agents , customer service representatives , company-owned stores , primarily in north america , europe and malaysia , and ria , and xe branded websites , along with a worldwide network of correspondent agents , consisting primarily of financial institutions in the transfer destination countries . sending and correspondent agents each earn fees for cash collection and distribution services , which are recognized as direct operating costs at the time of sale . the company offers a money transfer product called walmart-2-walmart money transfer service which allows customers to transfer money to and from walmart stores in the u.s. our ria business executes the transfers with walmart serving as both the sending agent and payout correspondent . ria earns a lower margin from these transactions than its traditional money transfers ; however , the arrangement has added a significant number of transactions to ria 's business . the agreement with walmart establishes ria as the only party through which walmart will sell u.s. domestic money transfers branded with walmart marks . the agreement is effective until april 2020. thereafter , it will automatically renew for subsequent one year terms unless either party provides notice to the contrary . the agreement imposes certain obligations on each party , the most significant being service level requirements by ria and money transfer compliance requirements by walmart . any violation of these requirements by ria could result in an obligation to indemnify walmart or termination of the contract by walmart . however , the agreement allows the parties to resolve disputes by mutual agreement without termination of the agreement . corporate services , eliminations and other — in addition to operating in our principal operating segments described above , our “ corporate services , eliminations and other ” category includes non-operating activity , certain inter-segment eliminations and the cost of providing corporate and other administrative services to the operating segments , including most share-based compensation expense . these services are not directly identifiable with our reportable operating segments . opportunities and challenges our expansion plans and opportunities are focused on eight primary areas : increasing the number of atms and cash deposit terminals in our independent atm networks ; increasing transactions processed on our network of owned and operated atms and pos devices ; signing new outsourced atm and pos terminal management contracts ; expanding value added services and other products offered by our eft processing segment , including the sale of dcc , acquiring and other prepaid card services to banks and retailers ; expanding our epay processing network and portfolio of digital content ; expanding our money transfer services , cross-currency payments products and bill payment network ; expanding our cash management solutions and foreign currency risk management services ; and developing our credit and debit card outsourcing business . eft processing segment — the continued expansion and development of our eft processing segment business will depend on various factors including , but not necessarily limited to , the following : the impact of competition by banks and other atm operators and service providers in our current target markets ; the demand for our atm outsourcing services in our current target markets ; 41 our ability to develop products or services , including value added services , to drive increases in transactions and revenues ; the expansion of our various business lines in markets where we operate and in new markets ; our entry into additional card acceptance and atm management agreements with banks ; our ability to obtain required licenses in markets we intend to enter or expand services ; our ability to enter into sponsorship agreements where our licenses are not applicable ; our ability to enter into and renew atm network cash supply agreements with financial institutions ; the availability of financing for expansion ; our ability to efficiently install atms contracted under newly awarded outsourcing agreements ; our ability to renew existing contracts at profitable rates ; our ability to maintain pricing at current levels or mitigate price reductions in certain markets ; the impact of changes in rules imposed by international card organizations such as visa and mastercard on card transactions on atms , including reductions in atm interchange fees , restrictions on the ability to apply direct access fees , the ability to offer dcc transactions on atms , and increases in fees charged on dcc transactions ; the impact of changes in laws and regulations affecting the profitability of our services , including regulation of dcc transactions by the e.u . ; the impact of overall market trends on atm transactions in our current target markets : our ability to expand and sign additional customers for the cross-border merchant processing and acquiring business ; and the continued development and implementation of our software products and their ability to interact with other leading products . we consistently evaluate and add prospects to our list of potential atm outsource customers . however , we can not predict the increase or decrease in the number of atms we manage under outsourcing agreements because this depends largely on the willingness of banks to enter into outsourcing contracts with us . story_separator_special_tag due to the thorough internal reviews and extensive negotiations conducted by existing and prospective banking customers in choosing outsource vendors , the process of entering into or renewing outsourcing agreements can take several months . the process is further complicated by the legal and regulatory considerations of local countries . these agreements tend to cover large numbers of atms , so significant increases and decreases in our pool of managed atms could result from the acquisition or termination of one or more of these management contracts . therefore , the timing of both current and new contract revenues is uncertain and unpredictable . software products are an integral part of our product lines , and our investment in research , development , delivery and customer support reflects our ongoing commitment to an expanded customer base . epay segment — the continued expansion and development of the epay segment business will depend on various factors , including , but not necessarily limited to , the following : our ability to maintain and renew existing agreements , and to negotiate new agreements in additional markets with mobile operators , digital content providers , agent financial institutions and retailers ; our ability to use existing expertise and relationships with mobile operators , digital content providers and retailers to our advantage ; the continued use of third-party providers such as ourselves to supply electronic processing solutions for existing and additional digital content ; the development of mobile phone networks in the markets in which we do business and the increase in the number of mobile phone users ; the overall pace of growth in the prepaid mobile phone and digital content market , including consumer shifts between prepaid and postpaid services ; our market share of the retail distribution capacity ; the development of new technologies that may compete with pos distribution of prepaid mobile airtime and other products ; 42 the level of commission that is paid to the various intermediaries in the electronic payment distribution chain ; our ability to fully recover monies collected by retailers ; our ability to add new and differentiated products in addition to those offered by mobile operators ; our ability to develop and effectively market additional value added services ; our ability to take advantage of cross-selling opportunities with our eft processing and money transfer segments , including providing money transfer services through our distribution network ; and the availability of financing for further expansion . in all of the markets in which we operate , we are experiencing significant competition which will impact the rate at which we may be able to grow organically . competition among prepaid mobile airtime and electronic content distributors results in the increase of commissions paid to retailers and increases in retailer attrition rates . to grow , we must capture market share from other prepaid mobile airtime and electronic content distributors , offer a superior product offering and demonstrate the value of a global network . in certain markets in which we operate , many of the factors that may contribute to rapid growth ( growth in electronic content , expansion of our network of retailers and access to products of mobile operators and other content providers ) remain present . money transfer segment — the continued expansion and development of our money transfer segment business will depend on various factors , including , but not necessarily limited to , the following : the continued growth in worker migration and employment opportunities ; the mitigation of economic and political factors that have had an adverse impact on money transfer volumes , such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the countries in which we operate ; the continuation of the trend of increased use of electronic money transfer and bill payment services among high-income individuals , immigrant workers and the unbanked population in our markets ; our ability to maintain our agent and correspondent networks ; our ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions ; the development of new technologies that may compete with our money transfer network , and our ability to acquire , develop and implement new technologies ; the expansion of our services in markets where we operate and in new markets ; our ability to strengthen our brands ; our ability to fund working capital requirements ; our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents ; our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate ; our ability to take advantage of cross-selling opportunities with our epay segment , including providing prepaid services through our stores and agents worldwide ; our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to europe , asia and africa , including high growth corridors to central and eastern european countries ; the availability of financing for further expansion ; the ability to maintain banking relationships necessary for us to service our customers ; our ability to successfully expand our agent network in europe using our payment institution licenses under the second payment services directive ( `` psd2 '' ) and using our various licenses in the united states ; and our ability to provide additional value-added products under the xe brand . the accounting policies of each segment are the same as those referenced in the summary of significant accounting policies ( see note 3 , summary of significant accounting policies and practices , to the consolidated financial statements ) . 43 for all segments , our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services . our ability to effectively manage our growth has required us to expand our operating systems and employee base , particularly at the management level , which has added incremental operating costs .
| 44 to provide further perspective on the impact of foreign currency exchange rates , the following table shows the changes in values relative to the u.s. dollar during 2019 and 2018 , of the currencies of the countries in which we have our most significant operations : replace_table_token_8_th 45 comparison of operating results for the years ended december 31 , 2019 and 2018 - by operating segment eft processing segment the following table summarizes the results of operations for our eft processing segment for the years ended december 31 , 2019 and 2018 : replace_table_token_9_th revenues eft processing segment total revenues for 2019 were $ 888.7 million , an increase of $ 135.1 million or 18 % as compared to 2018 . the increase in total revenues is primarily due to an increase in the number of atms under management and additional dcc and surcharge revenues . foreign currency movements decreased total revenues for 2019 by approximately 45.4 million as compared to 2018. average monthly revenues per atm were $ 1,655 for 2019 compared to $ 1,566 for 2018 . revenues per transaction were $ 0.29 for 2019 and $ 0.28 for 2018 . the increases in average monthly revenues per atm and revenues per transaction were attributable to the revenue growth from dcc , which earns higher revenues per transaction than other atm or card based services , surcharges partially offset by the u.s. dollar strengthening against key foreign currencies . direct operating costs eft processing segment direct operating costs were $ 397.1 million for 2019 , an increase of $ 30.2 million or 8 % as compared to 2018 . direct operating costs in the eft processing segment consist primarily of site rental fees , cash delivery costs , cash supply costs , maintenance , insurance , telecommunications , data center operations-related personnel , as well as the processing centers ' facility-related costs and other processing center-related expenses and commissions paid to retail merchants , banks and card processors involved with pos dcc transactions . the increase
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management 's discussion and analysis of financial condition and results of operations results of operations – 2015 net income available to stockholders was $ 65.4 million , or $ 1.72 per fully diluted common share , an increase of $ 5.2 million , compared to $ 60.2 million , or $ 1.65 per fully diluted common share in 2014. included in the 2015 results were $ 9.8 million , or $ 0.17 per share , of non-recurring acquisition , merger and system conversion expenses related to our 2014 and 2015 acquisitions and our on-line banking system conversion . details of the december 31 , 2015 ameriana acquisition , the april 17 , 2015 c financial acquisition and the november 7 , 2014 community acquisition are included in note 2. acquisitions and divestitures , included within the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. as of december 31 , 2015 , total assets equaled $ 6.8 billion , an increase of $ 936.9 million from december 31 , 2014. loans and investments , the corporation 's primary earning assets , totaled $ 6.0 billion , an increase of $ 868.0 million from the prior year 's total of $ 5.1 billion . investments increased $ 96.4 million and loans increased $ 769.0 million . of the increase in loans , organic growth accounted for $ 338.7 million , or 8.6 percent . the corporation acquired $ 110.6 million in loans as a result of the c financial acquisition and $ 319.7 million in loans as a result of the ameriana acquisition . additional details of these changes are included within the `` earning assets '' section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation 's allowance for loan losses totaled $ 62.5 million as of december 31 , 2015. the allowance provides 199.0 percent coverage of all non-accrual loans and 1.33 percent of total loans . details of the allowance for loan losses and non-performing loans are discussed within the “ loan quality ” and “ provision and allowance for loan losses ” sections of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation recognized increases in premises and equipment and cash surrender value of life insurance of $ 20.0 million and $ 31.1 million , respectively , primarily as a result of the c financial and ameriana acquisitions . in addition , the excess of purchase price over net tangible assets acquired was allocated to core deposit intangibles of $ 4.2 million and goodwill of $ 48.9 million . these increases were offset by a decrease in core deposit intangibles and goodwill of $ 742,000 and $ 8.5 million , respectively , triggered by the corporation 's sale of fmig . at december 31 , 2015 , other real estate owned totaled $ 17.3 million , a decrease of $ 2.0 million , or 10.6 percent , from the december 31 , 2014 balance of $ 19.3 million . included in the december 31 , 2015 balance was $ 5.7 million acquired in the ameriana acquisition on december 31 , 2015. taxes , both current and deferred , increased in 2015 by $ 5.0 million . details related to the change in taxes are discussed within the “ income taxes ” section of the management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k and in note 21. income tax of the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. deposits increased $ 649.0 million from december 31 , 2014 , and borrowings increased $ 156.6 million during the same period . deposits increased from the c financial and ameriana acquisitions by $ 105.3 million and $ 382.5 million , respectively . as part of the ameriana acquisition , the corporation assumed approximately $ 24.9 million of federal home loan bank advances . the c financial acquisition resulted in an additional $ 19.0 million of federal home loan bank advances at acquisition , of which , approximately $ 7.4 million matured during 2015 and $ 11.6 million remained at december 31 , 2015. additional details related to the change are discussed within the “ deposits and borrowings ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. the corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “ well-capitalized ” as discussed in the “ capital ” section of management 's discussion and analysis of financial condition and results of operations included as item 7 of this annual report on form 10-k. 32 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations net interest income net interest income is the most significant component of the corporation 's earnings , comprising 78 percent of revenues for the year ended december 31 , 2016 . net interest income and margin are influenced by many factors , primarily the volume and mix of earnings assets , funding sources , and interest rate fluctuations . other factors include the level of accretion income on purchased loans , prepayment risk on mortgage and investment-related assets , and the composition and maturity of earning assets and interest-bearing liabilities . loans typically generate more interest income than investment securities with similar maturities . funding from client deposits generally costs less than wholesale funding sources . factors such as general economic activity , federal reserve board monetary policy , and price volatility of competing alternative investments , can also exert significant influence on our ability to optimize the mix of assets and funding and the net interest income and margin . story_separator_special_tag net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities . for analytical purposes , net interest income is also presented on an fte basis in the table that follows to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset . the federal statutory rate in effect of 35 percent was used for all periods , adjusted for the tefra interest disallowance applicable to certain tax-exempt obligations . this analysis portrays the income tax benefits associated in tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets . management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis . therefore , management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons . for the periods presented , the increases in net interest income were primarily driven by core organic loan growth and an increase in earning assets attributable to acquisitions of c financial in april 2015 and ameriana in december 2015. in addition , in november 2014 , the corporation acquired community and average earning assets only included approximately six weeks of averages related to the acquisition , but an entire year in 2015. net interest margin for 2016 increased to 3.89 percent compared to 2015 of 3.80 percent . asset yields increased 7 basis points fte and interest costs decreased 2 basis points , resulting in a 9 basis point fte increase in net interest margin as compared to 2015. primarily as a result of organic loan growth , earning assets increased $ 715,221,000 in 2016 compared to 2015. the corporation recognized fair value accretion income on purchased loans , which is included in interest income , of $ 12,397,000 and $ 8,217,000 , respectively , for the twelve months ended december 31 , 2016 and 2015. net interest margin for 2015 decreased to 3.80 percent compared to 2014 of 3.91 percent . asset yields decreased 10 basis points fte and interest costs increased 1 basis point , resulting in an 11 basis point fte decrease in net interest margin as compared to 2014. primarily as a result of the acquisitions , earning assets increased $ 479,491,000 in 2015 compared to 2014. the corporation recognized fair value accretion income on purchased loans , which is included in interest income , of $ 8,217,000 and $ 8,883,000 , respectively , for the twelve months ended december 31 , 2015 and 2014. additional details of the corporation 's acquisitions , remaining loan fair value discount , accretable and nonaccretable yield can be found in note 2. acquisitions and divestitures and note 6. accounting for certain loans acquired in a purchase , included within the notes to consolidated financial statements of this annual report on form 10-k. 33 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations net interest margin is a function of net interest income and the level of average earning assets . the following table presents the corporation 's interest income , interest expense , and net interest income as a percent of average earning assets for the three-year period ending in 2016 . replace_table_token_26_th ( 1 ) average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment . ( 2 ) tax-exempt securities and loans are presented on a fully taxable equivalent basis , using a marginal tax rate of 35 percent for 2016 , 2015 and 2014. these totals equal $ 13,541 , $ 10,975 and $ 7,921 , respectively . ( 3 ) non-accruing loans have been included in the average balances . non-interest income non-interest income decreased $ 4.7 million , or 6.7 percent , in 2016 compared to 2015. the sale of fmig in june 2015 resulted in a gain of $ 8.3 million , and also accounted for a $ 4.1 million decline in insurance commission income compared to 2015. meanwhile , the larger customer base resulting from the c financial and ameriana acquisitions as well as organic growth contributed to increases in other customer fees , service charges and derivative hedge income of $ 2.4 million , $ 1.6 million and $ 1.2 million , respectively . additional details of the divestiture and acquisitions can be found in note 2. acquisitions and divestitures , in the notes to consolidated financial statements included as item 8 of this annual report on form 10-k. additionally , 2016 contained an increase of $ 1.4 million in earnings on cash surrender value of life insurance when compared to 2015. the increase was primarily due to death benefits from bank owned life insurance of $ 643,000 as well as earnings on a larger portfolio resulting from the ameriana acquisition , which included a $ 28.2 million bank owned life insurance portfolio . 34 part ii : item 7. and item 7a . management 's discussion and analysis of financial condition and results of operations finally , offsetting the increases noted above , 2015 included a gain from the corporation 's cancellation of $ 5.0 million of subordinated debentures , which resulted in a decline in non-interest income of $ 1.3 million . in 2015 , non-interest income increased $ 8.1 million , or 13.0 percent , in comparison to 2014. the june 12 , 2015 sale of fmig resulted in an $ 8.3 million pre-tax gain , but also a $ 3.3 million decrease in insurance commissions when compared to 2014. additionally , the acquisitions of community on november 7 , 2014 and c financial on april 17 , 2015 resulted in a larger customer base that contributed to increases in gains on sale of mortgage loans and electronic card interchange fees of $ 1.6 million and $ 1.3 million , respectively .
| management 's discussion and analysis of financial condition and results of operations there are five capital categories defined in the regulations , ranging from well capitalized to critically undercapitalized . classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank 's operations . quantitative measures established by regulation to ensure capital adequacy require the bank to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets , and of tier 1 capital to average assets , or leverage ratio , all of which are calculated as defined in the regulations . banks with lower capital levels are deemed to be undercapitalized , significantly undercapitalized or critically undercapitalized , depending on their actual levels . the appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice . banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category . basel iii was effective for the corporation on january 1 , 2015. basel iii requires the corporation and the bank to maintain minimum amounts and ratio of cet1 capital to risk weighted assets , as defined in the regulation . under the new basel iii rules , in order to avoid limitations on capital distributions , including dividends , the corporation must hold a capital conservation buffer above the adequately capitalized cet1 capital to risk-weighted assets ratio . the capital conservation buffer is being phased in from zero percent to 2.50 percent by 2019. as of january 1 , 2016 , the corporation is required to hold a capital conservation buffer of 0.625 percent , increasing by that amount each successive year until 2019. under basel iii , the corporation and bank elected to opt-out of including accumulated
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ebitda is also used by our management for internal analysis and as a basis for financial covenants . ebitda presented above is reconciled 34 table of content to net income under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. our operations are organized into two reportable segments , refining and hep . see note 19 “ segment information ” in the notes to consolidated financial statements for additional information on our reportable segments . refining operating data our refinery operations include the el dorado , tulsa , navajo , cheyenne and woods cross refineries . the following tables set forth information , including non-gaap performance measures about our consolidated refinery operations . the cost of products and refinery gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization . reconciliations to amounts reported under gaap are provided under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. replace_table_token_15_th ( 1 ) crude charge represents the barrels per day of crude oil processed at our refineries . ( 2 ) refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries . ( 3 ) refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries . ( 4 ) includes refined products purchased for resale . ( 5 ) represents crude charge divided by total crude capacity ( bpsd ) . our consolidated crude capacity is 443,000 bpsd . ( 6 ) represents average per barrel amount for produced refined products sold , which is a non-gaap measure . reconciliations to amounts reported under gaap are provided under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. ( 7 ) transportation , terminal and refinery storage costs billed from hep are included in cost of products . ( 8 ) excludes lower of cost or market inventory valuation adjustment of $ 397.5 million for the year ended december 31 , 2014 . ( 9 ) represents operating expenses of our refineries , exclusive of depreciation and amortization and pension settlement costs . ( 10 ) represents refinery operating expenses , exclusive of depreciation and amortization and pension settlement costs , divided by refinery throughput . results of operations – year ended december 31 , 2014 compared to year ended december 31 , 2013 summary net income attributable to hollyfrontier stockholders for the year ended december 31 , 2014 was $ 281.3 million ( $ 1.42 per basic and diluted share ) , a $ 454.6 million decrease compared to $ 735.8 million ( $ 3.66 per basic and $ 3.64 per diluted share ) for the year ended december 31 , 2013 . net income decreased due principally to a non-cash lower of cost or market inventory valuation charge of $ 244.0 million , net of tax , and a year-over-year decrease in refining margins . refinery gross margins for the year ended december 31 , 2014 decreased to $ 13.98 per produced barrel from $ 15.99 for the year ended december 31 , 2013 . 35 table of content sales and other revenues sales and other revenues decreased 2 % from $ 20,160.6 million for the year ended december 31 , 2013 to $ 19,764.3 million for the year ended december 31 , 2014 due to a decrease in year-over-year sales prices , partially offset by higher refined product sales volumes . the average sales price we received per produced barrel sold decreased 5 % from $ 115.60 for the year ended december 31 , 2013 to $ 110.19 for the year ended december 31 , 2014 . sales and other revenues for the years ended december 31 , 2014 and 2013 include $ 57.3 million and $ 53.4 million , respectively , in hep revenues attributable to pipeline and transportation services provided to unaffiliated parties . cost of products sold cost of products sold decreased 1 % from $ 17,392.2 million for the year ended december 31 , 2013 to $ 17,228.4 million for the year ended december 31 , 2014 , due principally to a decrease in year-over-year crude costs , partially offset by higher refined product sales volumes . the average price we paid per barrel for crude oil and feedstocks and the transportation costs of moving the finished products to the market place decreased 3 % from $ 99.61 for the year ended december 31 , 2013 to $ 96.21 for the year ended december 31 , 2014 . lower of cost or market inventory valuation adjustment for the year ended december 31 , 2014 , we recorded a $ 397.5 million non-cash charge against income from operations to adjust the value of our inventory to the lower of cost or market at december 31 , 2014. this is attributable to a significant decrease in market prices for crude oil and refined products at december 31 , 2014. there was no comparable inventory valuation adjustment for the year ended december 31 , 2013. gross refinery margins gross refinery margin per produced barrel decreased 13 % from $ 15.99 for the year ended december 31 , 2013 to $ 13.98 for the year ended december 31 , 2014 . this was due to a decrease in average per barrel sales prices for refined products sold , partially offset by decreased crude oil and feedstock prices for the current year . gross refinery margin per produced barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization . story_separator_special_tag see “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k for a reconciliation to the income statement of prices of refined products sold and cost of products purchased . operating expenses operating expenses , exclusive of depreciation and amortization , increased 5 % from $ 1,090.9 million for the year ended december 31 , 2013 to $ 1,144.9 million for the year ended december 31 , 2014 due principally to higher year-over-year repair and maintenance and fuel costs and increased environmental accruals , partially offset by $ 31.7 million in pension settlement costs incurred during 2013. for the years ended december 31 , 2014 and 2013 , operating expenses include $ 103.4 million and $ 95.7 million , respectively , in costs attributable to hep operations . general and administrative expenses general and administrative expenses decreased 10 % from $ 128.0 million for the year ended december 31 , 2013 to $ 114.6 million for the year ended december 31 , 2014 due principally to lower incentive compensation expense during the current year , and the effects of $ 4.5 million in pension settlement costs incurred in 2013. for the years ended december 31 , 2014 and 2013 , general and administrative expenses include $ 8.5 million and $ 9.4 million , respectively , in costs attributable to hep operations . depreciation and amortization expenses depreciation and amortization increased 20 % from $ 303.4 million for the year ended december 31 , 2013 to $ 363.4 million for the year ended december 31 , 2014 . the increase was due principally to depreciation and amortization attributable to capitalized improvement projects , capitalized refinery turnaround costs and accelerated depreciation of assets no longer in operation . for the years ended december 31 , 2014 and 2013 , depreciation and amortization expenses include $ 60.5 million and $ 64.7 million , respectively , in costs attributable to hep operations . interest income interest income for the year ended december 31 , 2014 was $ 4.4 million compared to $ 5.6 million for the year ended december 31 , 2013 . this decrease was due to lower investment levels in marketable debt securities during the current year period . interest expense interest expense was $ 43.6 million for the year ended december 31 , 2014 compared to $ 68.1 million for the year ended december 31 , 2013 . this decrease was due to lower year-over-year debt levels . for the years ended december 31 , 2014 and 2013 , interest expense included $ 36.1 million and $ 46.8 million , respectively , in interest costs attributable to hep operations . 36 table of content loss on early extinguishment of debt in march 2014 , hep redeemed its $ 150.0 million aggregate principal amount of 8.25 % senior notes maturing march 2018 at a redemption cost of $ 156.2 million , at which time it recognized a $ 7.7 million early extinguishment loss consisting of a $ 6.2 million debt redemption premium and unamortized discount and financing costs of $ 1.5 million . in june 2013 , we redeemed our $ 286.8 million aggregate principal amount of 9.875 % senior notes maturing june 2017 at a redemption cost of $ 301.0 million , at which time we recognized a $ 22.1 million early extinguishment loss consisting of a $ 14.2 million debt redemption premium and an unamortized discount of $ 7.9 million . income taxes for the year ended december 31 , 2014 , we recorded income tax expense of $ 141.2 million compared to $ 391.6 million for the year ended december 31 , 2013 . this decrease was due principally to lower pre-tax earnings during the year ended december 31 , 2014 compared to 2013 . our effective tax rates , before consideration of earnings attributable to the noncontrolling interest , were 30.2 % and 33.8 % for the years ended december 31 , 2014 and 2013 , respectively . results of operations – year ended december 31 , 2013 compared to year ended december 31 , 2012 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > for the year ended december 31 , 2013 , we recorded income tax expense of $ 391.6 million compared to $ 1,028.0 million for the year ended december 31 , 2012. this decrease was due principally to lower pre-tax earnings during the year ended december 31 , 2013 compared to 2012. our effective tax rates , before consideration of earnings attributable to the noncontrolling interest , were 33.8 % and 36.9 % for the years ended december 31 , 2013 and 2012 , respectively . liquidity and capital resources hollyfrontier credit agreement on july 1 , 2014 , we entered into a new $ 1 billion senior unsecured revolving credit facility maturing in july 2019 ( the “ hollyfrontier credit agreement ” ) and contemporaneously terminated our previous $ 1 billion senior secured revolving credit agreement . the hollyfrontier credit agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes . indebtedness under the hollyfrontier credit agreement is recourse to hollyfrontier and guaranteed by certain of our wholly-owned subsidiaries . at december 31 , 2014 , we were in compliance with all covenants , had no outstanding borrowings and had outstanding letters of credit totaling $ 4.7 million under the hollyfrontier credit agreement . hep credit agreement hep has a $ 650 million senior secured revolving credit facility that matures in november 2018 ( the “ hep credit agreement ” ) and is available to fund capital expenditures , investments , acquisitions , distribution payments and working capital and for general partnership purposes . it is also available to fund letters of credit up to a $ 50 million sub-limit . at december 31 , 2014 , hep was in compliance with all of its covenants , had outstanding borrowings of $ 571.0 million and no outstanding letters of credit under the hep credit agreement .
| cost of products sold cost of products sold increased 10 % from $ 15,840.6 million for the year ended december 31 , 2012 to $ 17,392.2 million for the year ended december 31 , 2013 , due principally to higher refined product sales volumes and crude costs for 2013. the sales volume increase is attributable to higher sales volumes of purchased products caused in part , by planned turnaround projects and unplanned refinery outages during the year ended december 31 , 2013. the average price we paid per barrel for crude oil and feedstocks and the transportation costs of moving the finished products to the market place increased 5 % from $ 94.59 for the year ended december 31 , 2012 to $ 99.61 for the year ended december 31 , 2013. gross refinery margins gross refinery margin per produced barrel decreased 36 % from $ 24.89 for the year ended december 31 , 2012 to $ 15.99 for the year ended december 31 , 2013. this was due to a decrease in average per barrel sales prices for refined products sold combined with increased crude oil and feedstock prices for 2013. gross refinery margin per produced barrel does not include the effects of depreciation and amortization . operating expenses operating expenses , exclusive of depreciation and amortization , increased 10 % from $ 995.0 million for the year ended december 31 , 2012 to $ 1,090.9 million for the year ended december 31 , 2013 due principally to higher repair and maintenance and fuel costs during 2013 and $ 31.7 million in pension settlement costs , partially offset by a decrease in environmental remediation costs . for the years ended december 31 , 2013 and 2012 , operating expenses include $ 95.7 million and $ 88.9 million , respectively , in costs attributable to hep operations . 37 table of content general and administrative expenses general and administrative expenses were $ 128.0 million and $ 128.1 million for the years ended december 31 , 2013 and 2012 , respectively . for the years ended december 31 , 2013
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38 customer count and property manager units under management is summarized in the table below : replace_table_token_3_th we have invested in growth in a disciplined manner across our organization , and intend to continue to do so . these investments to grow our business will continue to increase our costs and operating expenses on an absolute basis . many of these investments will occur in advance of our realization of revenue or any other benefit and will make it difficult to determine if we are allocating our resources efficiently . we expect cost of revenue , research and product development expense , sales and marketing expense , and general and administrative expense to decrease as a percentage of revenue over the long term as revenue increases and we gain additional operating leverage in our business . as a result of this increased operating leverage , we expect our operating margins will improve over the long term . to date , we have experienced rapid revenue growth due to our investments in research and product development , sales and marketing , customer service and support , and infrastructure . during the fiscal year ended december 31 , 2016 , we have derived more than 90 % of our revenue from our property management solution , as it has been available for a longer period of time , is more established within its vertical with a larger customer base , and currently offers a greater number of value+ services . we have managed , and plan to continue to manage , our business towards the achievement of long-term growth that we believe will positively impact long-term stockholder value , and not towards the realization of short-term financial or business metrics , or short-term stockholder value . key components of results of operations revenue we charge our customers on a subscription basis for our core solutions and many of our value+ services . our subscription fees are designed to scale to the size of our customers ' businesses . we recognize subscription revenue ratably over the terms of the subscription agreements , which typically range from one month to one year . we generally invoice our customers for subscription services in monthly , quarterly or annual installments , typically in advance of the subscription period . revenue from subscription services is impacted by the change in the number and type of our customers , the size and needs of our customers ' businesses , our customer renewal rates , and the level of adoption of our value+ subscription services by new and existing customers . we also charge our customers usage-based fees for using certain value+ services , although fees for electronic payment processing are generally paid by the clients of our customers . usage-based fees are charged on a flat fee per transaction basis with no minimum usage commitments . we recognize revenue for usage-based services in the period the service is rendered . we generally invoice our customers for usage-based services on a monthly basis for services rendered in the preceding month . revenue from usage-based services is impacted by the change in the number and type of our customers , the size and needs of our customers ' businesses , and the level of adoption and utilization of our value+ usage-based services by new and existing customers and clients of our customers . we also offer our customers assistance with on-boarding our core solutions , as well as website design services . these services are generally purchased as part of a subscription agreement , and are typically performed within the first several months of the arrangement . we generally invoice our customers for other services in advance of the services being completed . we recognize revenue for these other services upon completion of the related service . we also generate revenue from legacy rentlinx customers by providing services that allow these customers to advertise rental houses and apartments online . revenue derived from customers using the rentlinx services outside of our property manager core solution platform is being recorded under other services . 39 costs and operating expenses cost of revenue . cost of revenue consists of personnel-related costs ( including salaries , incentive-based compensation , benefits , and stock-based compensation ) for our employees focused on customer service and the support of our operations , platform infrastructure costs ( such as data center operations and hosting-related costs ) , fees paid to third-party service providers , payment processing fees , and allocated shared costs . we typically allocate shared costs across our organization based on headcount within the applicable part of our organization . cost of revenue excludes amortization of capitalized software development costs and acquired technology . we intend to continue to invest in customer service and support , and the expansion of our technology infrastructure as we grow the number of our customers and roll out additional value+ services . we also intend to expand our value + offerings over time which will impact cost of revenue both in absolute dollars and overall percentage of revenue . sales and marketing . sales and marketing expense consists of personnel-related costs ( including salaries , sales commissions , incentive-based compensation , benefits , and stock-based compensation ) for our employees focused on sales and marketing , costs associated with sales and marketing activities , and allocated shared costs . marketing activities include advertising , online lead generation , lead nurturing , customer and industry events , industry-related content creation and collateral creation . sales commissions and other incremental costs to acquire customers and grow adoption and utilization of our value+ services by new and existing customers are expensed as incurred . we focus our sales and marketing efforts on generating awareness of our software solutions , creating sales leads , establishing and promoting our brands , and cultivating an educated community of successful and vocal customers . story_separator_special_tag we intend to continue to invest in sales and marketing to increase the size of our customer base and increase the adoption and utilization of value+ services by our new and existing customers . research and product development . research and product development expense consists of personnel-related costs ( including salaries , incentive-based compensation , benefits , and stock-based compensation ) for our employees focused on research and product development , fees for third-party development resources , and allocated shared costs . our research and product development efforts are focused on enhancing the ease of use and functionality of our existing software solutions by adding new core functionality , value+ services and other improvements , as well as developing new products . we capitalize the portion of our software development costs that meets the criteria for capitalization . amortization of capitalized software development costs is included in depreciation and amortization expense . we intend to continue to invest in research and product development as we continue to introduce new core functionality , roll out new value+ services , develop new products , and expand into adjacent markets and new verticals . general and administrative . general and administrative expense consists of personnel-related costs ( including salaries , incentive-based compensation , benefits , and stock-based compensation ) for employees in our executive , finance , information technology , or it , human resources , corporate development , legal and administrative organizations . in addition , general and administrative expense includes fees for third-party professional services ( including consulting , legal and audit services ) , other corporate expenses , and allocated shared costs . we intend to incur incremental costs associated with supporting the growth of our business , both in terms of increased headcount and to meet the increased reporting requirements and compliance obligations associated with our operation as a public company . depreciation and amortization . depreciation and amortization expense includes depreciation of property and equipment , amortization of capitalized software development costs and amortization of intangible assets . we depreciate or amortize property and equipment , software development costs and intangible assets over their expected useful lives on a straight-line basis , which approximates the pattern in which the economic benefits of the assets are consumed . accounting guidance for internal-use software costs requires that we capitalize and then amortize qualifying internal-use software costs , rather than expense costs as incurred , which has the impact of shifting these expenses to a future period and reducing the impact of these costs on our financial results in the current period . as we continue to invest in our research and product development organization and the development or acquisition of new technology , we expect to have increased capitalized software development costs and incremental amortization . interest income ( expense ) . interest expense includes interest paid on outstanding borrowings under our credit agreement . interest income includes interest earned on investment securities , amortization and accretion of the premium and discounts paid from the purchase of investment securities , interest earned on notes receivable and on cash deposited within our bank accounts . 40 story_separator_special_tag growth . general and administrative replace_table_token_10_th fiscal 2016 compared to fiscal 2015 general and administrative expense increased $ 3.6 million , or 25 % , in 2016 compared to 2015. the increase was primarily due to increased personnel-related costs of $ 4.4 million due to headcount growth and incentive-based compensation programs partially off-set by decreased allocated and other costs of $ 0.7 million related to certain costs incurred in 2015 for our initial public offering , or ipo , and incremental compensation paid to certain rentlinx personnel related to the acquisition that did not reoccur in 2016. fiscal 2015 compared to fiscal 2014 general and administrative expense increased $ 7.9 million , or 121 % , in 2015 compared to 2014. the increase was primarily due to increased allocated and other costs of $ 4.6 million and increased personnel-related costs of $ 3.2 million due to our headcount growth . the increase in allocated and other costs included increased professional fees of $ 3.1 million in connection with our ipo , a $ 0.6 million payment to a third-party service provider to expedite our transition to a new partner , $ 0.3 million of legal fees associated with the acquisition of rentlinx , and increased allocated and other costs driven by expanded facilities , information technology and other shared expenses supporting our growth . 44 depreciation and amortization replace_table_token_11_th fiscal 2016 compared to fiscal 2015 depreciation and amortization expense increased $ 3.8 million , or 63 % , in 2016 compared to 2015. the increase was primarily due to increased amortization expense of $ 2.8 million related to increased capitalized software development balances and increased depreciation expense of $ 0.9 million from capital purchases and building improvements made during 2016. fiscal 2015 compared to fiscal 2014 depreciation and amortization expense increased $ 2.3 million , or 60 % , in 2015 compared to 2014. the increase was primarily due to increased amortization expense of $ 1.5 million related to increased capitalized software development balances , increased depreciation expense of $ 0.4 million from capital purchases made during 2015 , and increased amortization of intangible assets of $ 0.4 million from the acquisition of rentlinx . interest income ( expense ) , net replace_table_token_12_th fiscal 2016 compared to fiscal 2015 interest income , net increased by $ 0.8 million in 2016 compared to 2015. the increase is primarily due to holding investment securities for a full year in 2016 versus a few months in 2015 resulting in increased interest income of $ 0.2 million . in addition , interest expense decreased $ 0.6 million related to our term loan repaid in 2015 and the associated write-off of deferred financing costs .
| fiscal 2015 compared to fiscal 2014 revenue increased $ 27.3 million , or 57 % , in 2015 compared to 2014 , mainly reflecting increased revenue from a 40 % year over year increase in the number of our property manager customers . the overall increase was mostly attributable to revenue from value+ services which increased by $ 15.5 million , or 69 % , when compared to last year . the increase in value+ services revenue was mainly driven by increased usage of our electronic payments platform , screening services and tenant liability insurance programs resulting from a larger property manager customer base and an increase in property manager units under management of 28 % year over year . the overall increase in revenue was also the result of an increase in revenue from our core solutions of $ 9.7 million , or 43 % , driven by growth in the number of our customers , units under management and strong customer renewal rates . the increase in other revenue of $ 2.1 million , or 77 % was primarily the result of an increase in fees for website design fees and incremental revenue gained from the acquisition of rentlinx . 42 cost of revenue ( exclusive of depreciation and amortization ) replace_table_token_7_th fiscal 2016 compared to fiscal 2015 cost of revenue ( exclusive of depreciation and amortization ) increased $ 10.7 million , or 32 % , in 2016 compared to 2015. the increase was primarily due to increased third-party costs of $ 5.0 million driven by increased value+ services , increased personnel-related costs of $ 3.9 million due to our headcount growth , as well as increased allocated and other costs of $ 1.8 million driven by expanded facilities , information technology and other shared expenses supporting our growth . as a percentage of revenue , cost of revenue ( exclusive of depreciation and amortization ) improved 2.9 percentage points in 2016 compared to 2015. the improvement was primarily driven by a decrease in personnel-related costs due to our ability to increase revenue with a more moderate increase in headcount , and a decrease in third-party costs due to improved pricing with our third-party service providers
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we expect our full year 2013 adjusted effective tax rate to be approximately 35 % primarily due to the effect of the tax valuation allowances and expected regional mix of income . we believe our long-term effective income tax rate will be approximately 30 % to 35 % . recent developments for a discussion of recent developments , see `` part i. item 1. businessrecent developments '' above . 59 story_separator_special_tag style= '' padding:0pt ; position : relative ; width:70 % ; margin-left:15 % ; '' > replace_table_token_15_th 63 huntsman international replace_table_token_16_th ( 2 ) adjusted net income is computed by eliminating the after-tax amounts related to the following from net income applicable to huntsman corporation or huntsman international , as appropriate : ( a ) loss on early extinguishment of debt ; ( b ) certain legal settlements and related expenses ; ( c ) discount amortization on settlement financing ; ( d ) loss ( income ) from discontinued operations ; ( e ) acquisition expenses ; ( f ) expenses associated with the terminated merger and related litigation ( huntsman corporation only ) ; ( g ) gain on disposition of businesses/assets ; ( h ) extraordinary ( gain ) loss on the acquisition of a business ; ( i ) loss ( gain ) on initial consolidation of subsidiaries ; and ( j ) restructuring , impairment and plant closing and transition costs . the income tax impacts of each adjusting item is calculated using the statutory rates in the applicable taxing jurisdiction and considering valuation allowances on deferred tax assets in each jurisdiction . we do not adjust for changes in tax valuation allowances because we do not believe it provides more meaningful information than is provided under gaap . basic adjusted income per share excludes dilution and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period . diluted net income per share reflects all potential dilutive common shares outstanding during the period and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities . adjusted net income and adjusted income per share amounts are presented solely as supplemental disclosures to net income applicable to huntsman corporation or huntsman international , as appropriate , and income per share because we believe that these measures are indicative of our operating performance . adjusted net income and adjusted income per share exclude items that may be recurring in nature and should not be disregarded in the evaluation of performance . however , we believe it is useful to exclude such items to provide a supplemental analysis of current results and trends compared to other periods for the following reasons : certain excluded items can vary significantly depending on specific underlying transactions or events , and the variability of such items may not relate specifically to current operating results or trends ; and certain excluded items , while potentially recurring in future periods , may not be indicative of future results . 64 for each of our company and huntsman international , the following tables set forth certain items of ( income ) expense included in adjusted net income ( in millions ) . huntsman corporation replace_table_token_17_th huntsman international replace_table_token_18_th ( 3 ) capital expenditures , net of reimbursements , represent cash paid for capital expenditures less reimbursements of capital expenditures from insurance settlements , other legal settlements and contributions from noncontrolling shareholders in consolidated entities . during 2012 , 2011 and 2010 , capital expenditures of $ 412 million , $ 330 million and $ 236 million , respectively , were reimbursed in part by nil , $ 3 million and $ 34 million , respectively , from insurance settlement proceeds or other legal settlements . 65 year ended december 31 , 2012 compared with year ended december 31 , 2011 for the year ended december 31 , 2012 , net income attributable to huntsman corporation was $ 363 million on revenues of $ 11,187 million , compared with net income attributable to huntsman corporation of $ 247 million on revenues of $ 11,221 million for 2011. for the year ended december 31 , 2012 , net income attributable to huntsman international was $ 365 million on revenues of $ 11,187 million , compared with net income attributable to huntsman international of $ 253 million on revenues of $ 11,221 million for 2011. the increase of $ 116 million in net income attributable to huntsman corporation and the increase of $ 112 million in net income attributable to huntsman international was the result of the following items : revenues for 2012 decreased by $ 34 million , or less than one percent , as compared with 2011. the decrease was due principally to lower average selling prices in our performance products and advanced materials segments and lower sales volumes in our performance products and pigments segments , offset by higher average selling prices in our polyurethanes and pigments segments and higher sales volumes in our polyurethanes , advanced materials and textile effects segments . see `` segment analysis '' below . our gross profit and the gross profit of huntsman international for 2012 increased by $ 194 million and $ 183 million , or 11 % and 10 % , respectively , as compared with 2011. the increase resulted from higher gross margins in our polyurethanes and textile effects segments , offset in part by lower margins in our other segments . see `` segment analysis '' below . story_separator_special_tag our operating expenses and the operating expenses of huntsman international for 2012 increased by $ 30 million and $ 18 million , or 3 % and 2 % , respectively , as compared with 2011. increases in operating expenses in 2012 were primarily due to a $ 4 million loss recognized in 2012 in connection with the russian systems house acquisition , a $ 34 million gain recognized in 2011 on the sale of our stereolithography resin and digitalis® machine manufacturing businesses and a $ 12 million gain on the consolidation of our sasol-huntsman joint venture recognized in 2011 , offset in part by decreases in operating expenses primarily due to the impact of translating foreign currency amounts to the u.s. dollar and a $ 35 million decrease in costs related to legal claims in 2012. restructuring , impairment and plant closing costs for 2012 decreased to $ 92 million from $ 167 million in 2011. for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . our net interest expense and the net interest expense of huntsman international for 2012 decreased by $ 23 million and $ 24 million , respectively , or 9 % each , as compared with 2011. the decrease is due principally to lower average debt balances . our loss on early extinguishment of debt for 2012 increased to $ 80 million from $ 7 million in 2011 as a result of higher net repayments of indebtedness in 2012 as compared to 2011. in 2012 , we recorded a loss on early extinguishment of debt of $ 78 million primarily from the repurchase of a portion of our 5.50 % senior notes due 2016 ( `` 2016 senior notes '' ) . for more information , see `` note 14. debtdirect and subsidiary debtredemption of notes and loss on early extinguishment of debt '' to our consolidated financial statements . our income tax expense increased by $ 60 million to an expense of $ 169 million for 2012 as compared with an expense of $ 109 million for 2011. huntsman international 's income tax expense increased by $ 66 million to an expense of $ 179 million for 2012 as compared with an expense of $ 113 million for 2011. our and huntsman international 's tax obligations are affected by the mix of income and losses in the tax jurisdictions in which we operate . our and huntsman international 's increase in tax expense was due primarily to higher pre-tax earnings . for more information concerning income taxes , see `` note 18. income taxes '' to our consolidated financial statements . our loss from discontinued operations for 2012 increased to $ 7 million from $ 1 million in 2011. for more information , see `` note 25. discontinued operations '' to our consolidated financial statements . 66 segment analysis year ended december 31 , 2012 compared to year ended december 31 , 2011 replace_table_token_19_th 67 replace_table_token_20_th replace_table_token_21_th ( 1 ) excludes revenues and sales volumes primarily from tolling arrangements and the sale of byproducts and raw materials . nmnot meaningful polyurethanes the increase in revenues in our polyurethanes segment for 2012 compared to 2011 was due to higher sales volumes and higher average selling prices , partially offset by the strength of the u.s. dollar against the euro . mdi sales volumes increased as a result of improved demand in all regions and across most major markets . po/mtbe sales volumes increased due to strong demand . mdi average selling prices increased in all regions , partially offset by the strength of the u.s. dollar against the euro . po/mtbe average selling prices increased primarily due to favorable market conditions . the increase in segment ebitda was primarily due to higher margins and higher sales volumes , partially offset by higher restructuring , impairment and plant closing costs . during 2012 and 2011 , our polyurethanes segment recorded restructuring , impairment and plant closing costs of $ 38 million and nil , respectively . for more information concerning restructuring activities , see `` note 11. restructuring , impairment and plant closing costs '' to our consolidated financial statements . performance products the decrease in revenues in our performance products segment for 2012 compared to 2011 was primarily due to lower average selling prices and lower sales volumes . average selling prices decreased across almost all businesses primarily in response to lower raw material costs and the strength of the u.s. dollar against major international currencies . sales volumes decreased primarily due to a shift to 68 tolling arrangements . the decrease in segment ebitda was primarily due to lower sales volumes and higher operating expenses . in addition , in 2011 we recorded a gain of $ 12 million in connection with the consolidation of our sasol-huntsman joint venture . advanced materials the decrease in revenues in our advanced materials segment for 2012 compared to 2011 was primarily due to lower average selling prices , partially offset by higher sales volumes . average selling prices decreased in all regions and across most markets in response to competitive market pressure , lower raw material costs in most regions and the strength of the u.s. dollar against major international currencies . sales volumes increased across most regions , primarily due to stronger global demand in our base resins business , while sales volumes in the asia-pacific region decreased due to lower demand in the wind energy , electrical engineering and electronics markets . the decrease in segment ebitda was primarily due to higher restructuring and impairment costs and lower margins due in part to the change in sales mix from increased base resin sales volumes , partially offset by lower selling , general and administrative costs as a result of recent restructuring efforts . during 2012 and 2011 , our advanced materials segment recorded restructuring , impairment and plant closing costs of $ 38 million and $ 20 million , respectively .
| in addition , the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate . as a result , effective tax rates and tax expense can vary considerably among companies . finally , companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets . this can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies . nevertheless , our management recognizes that there are material limitations associated with the use of ebitda in the evaluation of our company as compared to net income attributable to huntsman corporation or huntsman international , as appropriate , which reflects overall financial performance , including the effects of interest , income taxes , depreciation and amortization . ebitda excludes interest expense . because we have borrowed money in order to finance our operations , interest expense is a necessary element of our costs and ability to generate revenue . therefore , any measure that excludes interest expense has material limitations . ebitda also excludes taxes . because the payment of taxes is a necessary element of our operations , any measure that excludes tax expense has material limitations . finally , ebitda excludes depreciation and amortization expense . because we use capital assets , depreciation and amortization expense is a necessary element of our costs and ability to generate revenue . therefore , any measure that excludes depreciation and amortization expense has material limitations . our management compensates for the limitations of using ebitda by using it to supplement gaap results to provide a more complete understanding of the factors and trends affecting the business rather than gaap results alone . our management also uses other metrics to evaluate capital structure , tax planning and capital investment decisions . for example , our management uses credit ratings and net debt ratios to evaluate capital structure , effective tax rate
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in order to meet the demand of customers who have not migrated to third party suppliers , psnh procures power through power supply contracts and spot purchases in the competitive new england wholesale power market and or produces power through its own generation . the increase/ ( decrease ) in purchased power costs in 2017 , as compared to 2016 , was due primarily to the following : the decrease at cl & p was due primarily to a decrease in the price of standard offer supply associated with the gsc . the decrease at nstar electric was due primarily to lower prices associated with the procurement of energy supply , lower sales volumes and the expiration of certain purchase power agreements . the increase at psnh was due primarily to higher purchased power energy expenses that are recovered as a component of the energy service rate , and regional greenhouse gas initiative related expenses recovered in the scrc . transmission costs : included in transmission costs are charges that recover the cost of transporting electricity over high-voltage lines from generating plants to substations , including costs allocated by iso-ne to maintain the wholesale electric market . the increase/ ( decrease ) in transmission costs in 2017 , as compared to 2016 , was due primarily to the following : the increase at cl & p was primarily the result of an increase in costs billed by iso-ne that support regional grid investment , local network service charges , which reflect the cost of transmission service , and the retail transmission cost deferral , which reflects the actual costs of transmission service compared to estimated amounts billed to customers . the decrease at nstar electric was primarily the result of a decrease in the retail transmission cost deferral . this was partially offset by an increase in costs billed by iso-ne . the increase at psnh was primarily the result of increases in costs billed by iso-ne , local network service charges , and the retail transmission cost deferral . 59 operations and maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings ( non-tracked costs ) . operations and maintenance expense increased/ ( decreased ) in 2017 , as compared to 2016 , due primarily to the following : replace_table_token_31_th depreciation increased at cl & p , nstar electric and psnh in 2017 , as compared to 2016 , due primarily to higher utility plant in service balances . amortization of regulatory assets/ ( liabilities ) , net expense includes the deferral of energy supply and energy-related costs and the amortization of storm and other costs . amortization of regulatory assets/ ( liabilities ) , net increased at cl & p and decreased for both nstar electric and psnh in 2017 , as compared to 2016 , due primarily to the deferral adjustment of energy supply and energy-related costs , which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs . the deferral adjusts expense to match the corresponding revenues . energy supply and energy-related costs , which are the primary drivers of amortization , are recovered from customers in rates and have no impact on earnings . energy efficiency programs expense includes costs for various state policy initiatives and are recovered from customers in rates and have no impact on earnings . energy efficiency programs expense decreased in 2017 , as compared to 2016 , due primarily to the following : the decrease at cl & p is due primarily to a state of connecticut policy change requiring the remittance of $ 25.4 million of 2017 energy efficiency funds to the state . these amounts collected from customers were reclassified to taxes other than income taxes . the decrease at nstar electric is due to the deferral adjustment , which reflects the actual cost of energy efficiency programs compared to the estimated amounts billed to customers and the timing of the recovery of energy efficiency costs . the deferral adjusts costs to match energy efficiency revenue billed to customers . taxes other than income taxes increased in 2017 , as compared to 2016 , due primarily to the following : the increase at cl & p is due primarily to a state of connecticut policy change requiring the remittance of $ 25.4 million of 2017 energy efficiency funds to the state and higher utility plant balances , partially offset by a decrease in gross earnings taxes . gross earnings taxes are recovered from customers in rates and have no impact on earnings . the increase at nstar electric is due primarily to higher property taxes resulting from disallowed costs in the november 30 , 2017 nstar electric dpu distribution rate case decision and higher employee-related payroll taxes , partially offset by a decrease in property tax rates in boston . the increase at psnh is due to an increase in property taxes as a result of higher utility plant balances . interest expense at nstar electric decreased in 2017 , as compared to 2016 , due primarily to lower deferred regulatory interest expense ( $ 14.0 million ) , primarily as a result of the november 30 , 2017 nstar electric dpu distribution rate case decision , which allowed for a higher interest rate on carrying charges for past storm costs , partially offset by an increase in interest on long-term debt ( $ 9.6 million ) . other income , net increased in 2017 , as compared to 2016 , due primarily to the following : the increase at cl & p is due to higher afudc related to equity funds ( $ 5.9 million ) and market value changes related to the deferred compensation plans ( $ 6.3 million ) , partially offset by lower interest income ( $ 4.4 million ) . the increase at nstar electric is due to an increase related to pension story_separator_special_tag in order to meet the demand of customers who have not migrated to third party suppliers , psnh procures power through power supply contracts and spot purchases in the competitive new england wholesale power market and or produces power through its own generation . the increase/ ( decrease ) in purchased power costs in 2017 , as compared to 2016 , was due primarily to the following : the decrease at cl & p was due primarily to a decrease in the price of standard offer supply associated with the gsc . the decrease at nstar electric was due primarily to lower prices associated with the procurement of energy supply , lower sales volumes and the expiration of certain purchase power agreements . the increase at psnh was due primarily to higher purchased power energy expenses that are recovered as a component of the energy service rate , and regional greenhouse gas initiative related expenses recovered in the scrc . transmission costs : included in transmission costs are charges that recover the cost of transporting electricity over high-voltage lines from generating plants to substations , including costs allocated by iso-ne to maintain the wholesale electric market . the increase/ ( decrease ) in transmission costs in 2017 , as compared to 2016 , was due primarily to the following : the increase at cl & p was primarily the result of an increase in costs billed by iso-ne that support regional grid investment , local network service charges , which reflect the cost of transmission service , and the retail transmission cost deferral , which reflects the actual costs of transmission service compared to estimated amounts billed to customers . the decrease at nstar electric was primarily the result of a decrease in the retail transmission cost deferral . this was partially offset by an increase in costs billed by iso-ne . the increase at psnh was primarily the result of increases in costs billed by iso-ne , local network service charges , and the retail transmission cost deferral . 59 operations and maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings ( non-tracked costs ) . operations and maintenance expense increased/ ( decreased ) in 2017 , as compared to 2016 , due primarily to the following : replace_table_token_31_th depreciation increased at cl & p , nstar electric and psnh in 2017 , as compared to 2016 , due primarily to higher utility plant in service balances . amortization of regulatory assets/ ( liabilities ) , net expense includes the deferral of energy supply and energy-related costs and the amortization of storm and other costs . amortization of regulatory assets/ ( liabilities ) , net increased at cl & p and decreased for both nstar electric and psnh in 2017 , as compared to 2016 , due primarily to the deferral adjustment of energy supply and energy-related costs , which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs . the deferral adjusts expense to match the corresponding revenues . energy supply and energy-related costs , which are the primary drivers of amortization , are recovered from customers in rates and have no impact on earnings . energy efficiency programs expense includes costs for various state policy initiatives and are recovered from customers in rates and have no impact on earnings . energy efficiency programs expense decreased in 2017 , as compared to 2016 , due primarily to the following : the decrease at cl & p is due primarily to a state of connecticut policy change requiring the remittance of $ 25.4 million of 2017 energy efficiency funds to the state . these amounts collected from customers were reclassified to taxes other than income taxes . the decrease at nstar electric is due to the deferral adjustment , which reflects the actual cost of energy efficiency programs compared to the estimated amounts billed to customers and the timing of the recovery of energy efficiency costs . the deferral adjusts costs to match energy efficiency revenue billed to customers . taxes other than income taxes increased in 2017 , as compared to 2016 , due primarily to the following : the increase at cl & p is due primarily to a state of connecticut policy change requiring the remittance of $ 25.4 million of 2017 energy efficiency funds to the state and higher utility plant balances , partially offset by a decrease in gross earnings taxes . gross earnings taxes are recovered from customers in rates and have no impact on earnings . the increase at nstar electric is due primarily to higher property taxes resulting from disallowed costs in the november 30 , 2017 nstar electric dpu distribution rate case decision and higher employee-related payroll taxes , partially offset by a decrease in property tax rates in boston . the increase at psnh is due to an increase in property taxes as a result of higher utility plant balances . interest expense at nstar electric decreased in 2017 , as compared to 2016 , due primarily to lower deferred regulatory interest expense ( $ 14.0 million ) , primarily as a result of the november 30 , 2017 nstar electric dpu distribution rate case decision , which allowed for a higher interest rate on carrying charges for past storm costs , partially offset by an increase in interest on long-term debt ( $ 9.6 million ) . other income , net increased in 2017 , as compared to 2016 , due primarily to the following : the increase at cl & p is due to higher afudc related to equity funds ( $ 5.9 million ) and market value changes related to the deferred compensation plans ( $ 6.3 million ) , partially offset by lower interest income ( $ 4.4 million ) . the increase at nstar electric is due to an increase related to pension
| liquidity cash flows : cl & p had cash flows provided by operating activities of $ 806.3 million in 2017 , compared with $ 812.2 million in 2016. the decrease in operating cash flows was due primarily to income tax payments of $ 68.8 million made in 2017 , compared to the income tax refunds of $ 73.9 million received in 2016. partially offsetting this decrease was the timing of regulatory recoveries , an increase in distribution rates due to higher rate base , and the timing of collections and payments related to our working capital items . nstar electric had cash flows provided by operating activities of $ 639.3 million in 2017 , as compared to $ 812.1 million in 2016. the decrease in operating cash flows was due primarily to a decrease in regulatory recoveries , which were significantly impacted by the timing of collections of purchased power and transmission costs , an increase of $ 53.4 million in pension and pbop plan cash contributions and an increase of $ 29.5 million in income tax payments made in 2017 , compared to 2016. also contributing to the decrease was the timing of working capital items , including accounts payable and inventory . psnh had cash flows provided by operating activities of $ 300.9 million in 2017 , as compared to $ 360.7 million in 2016. the decrease in operating cash flows was due primarily to the income tax payments of $ 26.1 million made in 2017 , compared to the income tax refunds of $ 36.0 million received in 2016 and the unfavorable impacts related to the timing of regulatory recoveries . partially offsetting these decreases were the timing of collections and payments of our working capital items , including accounts payable and inventory , and a $ 16.3 million decrease in pension plan cash contributions .
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this change decreased depreciation expense related to our network equipment during 2014 and 2013 , as compared to 2012. conversely , we expect to continue to enhance and add functionality to our service offerings , which increases our internal-use software development costs attributable to employees working on such projects . we have been able to reduce our tax rate in recent years as a result of available tax credits and other one-time items . however , we do not expect these one-time items to be consistently available to us in the future . in february 2014 , we completed the acquisition of prolexic . prolexic was slightly dilutive to our earnings per share for the year ended december 31 , 2014. revenue and expenses from the acquired operations have been included in our earnings since the acquisition date of february 18 , 2014. also in february 2014 , we completed an offering of $ 690.0 million in par value of convertible senior notes . the notes do not bear regular interest , but have an effective interest rate of 3.2 % attributable to the conversion feature . during 2013 we completed two acquisitions , and in 2012 we completed four acquisitions . although our financial statements include revenue and expenses of the acquired companies following their acquisitions , the impact was not material , individually or in the aggregate , to our consolidated financial results . in the first quarter of 2013 , we also divested our ads business . 23 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:24px ; '' > depreciation expense of network equipment in place as of january 1 , 2013 of approximately $ 39.0 million , reflecting the increase in the expected average useful lives of our network assets , primarily servers , from three to four years to reflect software and hardware related initiatives to manage our global network more efficiently ; and cost of revenue of our ads business , included in supporting services , which we divested in january 2013 ; these expenses were $ 1.6 million and $ 24.2 million for the years ended december 31 , 2013 and 2012 , respectively . the net decrease for 2013 as compared to 2012 was partially offset by increases in payroll and related costs of service personnel due to headcount growth , amounts paid to network providers for bandwidth fees to support the increase in traffic served on our network and amortization of internal-use software as we continued to invest in our infrastructure . we have long-term purchase commitments for bandwidth usage and co-location services with various network and internet service providers . our minimum commitments related to bandwidth usage and co-location services may vary from period to period depending on the timing and length of contract renewals with our service providers . see note 10 to our consolidated financial statements included elsewhere in this annual report on form 10-k for details regarding our bandwidth usage and co-location services purchase commitments . we believe that cost of revenue will increase during 2015 as compared to 2014 . we expect to deploy more servers and deliver more traffic on our network , which will result in higher expenses associated with the increased traffic and additional co-location fees ; however , such costs are likely to be partially offset by lower bandwidth costs per unit and continued efficiency in network deployment . additionally , during 2015 , we anticipate amortization of internal-use software development costs as compared to 2014 to increase , along with increased payroll and related costs associated with our network and professional services personnel and related expenses . we plan to continue to make investments in our network in the expectation that our customer base will continue to expand . 26 research and development expenses research and development expenses consisted of the following for the periods presented ( in thousands ) : replace_table_token_8_th the increases in research and development expenses for 2014 as compared to 2013 , and 2013 as compared to 2012 , were due to increases in payroll and related costs as a result of continued growth in headcount to support investments in new product development , partially offset by increases in capitalized salaries and related costs . research and development costs are expensed as incurred , other than certain internal-use software development costs eligible for capitalization . these development costs consist of payroll and related costs for personnel and external consulting expenses involved in the development of internal-use software used to deliver our services and operate our network . for the years ended december 31 , 2014 , 2013 and 2012 , we capitalized $ 13.7 million , $ 11.5 million and $ 8.9 million , respectively , of stock-based compensation . these capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives , which is generally two years . we believe that research and development expenses will increase in absolute dollars during 2015 as compared to 2014 as we expect to continue to hire additional development personnel in order to make improvements to our core technology and support the development of new services and engineering innovation . sales and marketing expenses sales and marketing expenses consisted of the following for the periods presented ( in thousands ) : replace_table_token_9_th the increases in sales and marketing expenses for 2014 as compared to 2013 , and 2013 as compared to 2012 , were primarily due to higher payroll and related costs , as we invested in our sales and marketing organization , and to an increase in marketing programs and related costs in support of our go-to-market capacity and ongoing geographic expansion . other expenses , which consisted primarily of sales and marketing events and related travel expenses , increased as we grew our sales and marketing organization . story_separator_special_tag we believe that sales and marketing expenses will increase in absolute dollars during 2015 as compared to 2014 , due to an expected increase in payroll and related costs as a result of anticipated continued headcount growth primarily with respect to our direct sales team and corporate marketing function . 27 general and administrative expenses general and administrative expenses consisted of the following for the periods presented ( in thousands ) : replace_table_token_10_th general and administrative expenses include costs of our finance , human resources , information technology , legal and administrative network infrastructure functions , in addition to our facility-related costs and depreciation of facility-related capital assets . the increases in general and administrative expenses for 2014 as compared to 2013 , and 2013 as compared to 2012 , were primarily due to the expansion of company infrastructure to support investments in engineering , go-to-market capacity and enterprise expansion initiatives . in particular , we increased general and administrative headcount and expanded our facility footprint , which collectively increased payroll and related costs , facilities-related costs and depreciation and amortization . in addition , acquisition-related costs increased for 2014 as compared to 2013 due to the acquisition of prolexic . conversely , acquisition-related costs for 2013 as compared to 2012 decreased due to the acquisitions of cotendo , inc. , blaze software , inc. , fastsoft , inc. , or fastsoft , and verivue , inc. , or verivue , in 2012 , with no corresponding acquisitions of the same magnitude in 2013. during 2015 , we expect general and administrative expenses to increase in absolute dollars as compared to 2014 due to anticipated higher payroll and related costs and facilities-related costs attributable to increased hiring , investment in information technology and planned facility expansion . amortization of acquired intangible assets replace_table_token_11_th the increase in amortization of acquired intangible assets during 2014 as compared to 2013 was due to the acquisition of prolexic . the increase in amortization of acquired intangible assets during 2013 as compared to 2012 was due to the amortization of assets related to the acquisition of strategic network assets from at & t services , inc. and also a full year of amortization from the acquisitions occurring in 2012 , which was partially offset by the write-off of intangible assets recorded as part of the divestiture of ads in 2013 and the completion of amortization of intangible assets acquired in previous years . based on acquired intangible assets at december 31 , 2014 , future amortization is expected to be approximately $ 26.8 million , $ 25.2 million , $ 23.1 million , $ 16.2 million and $ 12.6 million for the years ending december 31 , 2015 , 2016 , 2017 , 2018 and 2019 , respectively . the decrease in expected amortization is due to the finalization of amortization of acquired intangible assets acquired in earlier years , in addition to the deceleration in recognition due to the pattern in which we amortize intangible assets . 28 restructuring charges replace_table_token_12_th the 2014 restructuring charges consisted of severance and related expenses as a result of the acquisition of prolexic , in addition to a fee for a facility contract termination . during 2013 , we recorded a restructuring charge for leasehold improvements that were no longer in use as a result of an early lease termination . in addition , we incurred severance and relocation expenses for employees impacted by the closing of the facility . in 2012 , we recorded restructuring charges related to work force reductions in connection with the 2012 acquisitions of fastsoft and verivue . we do not expect to incur additional restructuring charges as a result of any of these actions . interest income replace_table_token_13_th interest income consists of interest earned on invested cash balances and marketable securities . interest expense replace_table_token_14_th interest expense consists of the amortization of the debt discount and debt issuance costs related to our convertible senior notes issued in february 2014. other ( expense ) income , net replace_table_token_15_th other ( expense ) income , net primarily represents net foreign exchange gains and losses incurred . the fluctuation in other ( expense ) income , net for 2014 as compared to 2013 , and 2013 as compared to 2012 , was primarily due to foreign currency exchange rate fluctuations on inter-company and other non-functional currency transactions . 29 provision for income taxes replace_table_token_16_th for the year ended december 31 , 2014 , our effective income tax rate was lower than the federal statutory tax rate mainly due to the federal research and development credit , a state tax benefit from software development activities , the domestic production activities deduction and the composition of income in foreign jurisdictions with lower tax rates ; partially offset by state income taxes and the effects of accounting for stock-based compensation in accordance with the authoritative guidance for share-based payments . for the year ended december 31 , 2013 , our effective income tax rate was lower than the federal statutory rate mainly due to the retroactive adoption of the domestic production activities deduction , the reinstatement of the federal research and development credit , which included a one-time retroactive impact for fiscal 2012 , and the composition of income in foreign jurisdictions with lower tax rates ; partially offset by state income taxes . for the year ended december 31 , 2012 , our effective income tax rate was higher than the federal statutory tax rate mainly due to state income tax expense and the effects of accounting for stock-based compensation in accordance with the authoritative guidance for share-based payments ; partially offset by the composition of income in foreign jurisdictions with lower tax rates .
| for the years ended december 31 , 2014 , 2013 and 2012 , approximately 27 % of our revenue was derived from our operations located outside of the u.s. no single country outside of the u.s. accounted for 10 % or more of revenue during any of these periods . during 2014 , we experienced strong revenue growth from our operations in the asia pacific region and continued improvement in revenue growth from our operations in europe , the middle east and africa , primarily driven by growth across all of our major solutions . 24 changes in foreign currency exchange rates negatively impacted our revenue by $ 7.8 million during 2014 as compared to 2013 . changes in foreign currency exchange rates negatively impacted our revenue by $ 15.0 million during 2013 as compared to 2012 . during the first quarter of 2015 , we elected to revise the presentation of our revenue solution categories , primarily related to how we present product-specific services revenue . historically , product-specific services were classified as service and support solutions revenue . beginning in the first quarter of 2015 , product-specific services will be classified in their respective product solution categories . the following table quantifies the contribution to revenue from our solution categories during the periods presented under our revised presentation ( in thousands ) : replace_table_token_5_th the following table quantifies the contribution to revenue from our solution categories during the periods presented under our previous presentation ( in thousands ) : replace_table_token_6_th the increases in media delivery solutions revenue for 2014 as compared to 2013 , and 2013 as compared to 2012 , were due to strong demand across most of our customer base , including from our largest , most strategic customers . during 2014 , we experienced particularly strong growth from our social media , gaming , video and software download customers . the increases in performance and security solutions revenue for 2014 as compared to 2013 , and 2013 as compared to 2012 , were due to increases in demand from both new and existing customers , particularly for our web performance and
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the corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets , such as loans , investments and properties . offsetting these revenue sources are provisions for credit losses on loans , non-interest expenses and income taxes . the following table presents a summary of the corporation 's earnings and selected performance ratios : replace_table_token_9_th ( 1 ) ratio represents a financial measure derived by methods other than generally accepted accounting principles ( `` gaap '' ) . see reconciliation of this non-gaap financial measure to the most directly comparable gaap measure under the heading , `` supplemental reporting of non-gaap based financial measures , '' in item 6. selected financial data . ( 2 ) presented on an fte basis , using a 35 % federal tax rate and statutory interest expense disallowances . see also the `` net interest income '' section of management 's discussion . following is a summary of the financial highlights for the year ended december 31 , 2016 . net income per share growth - diluted net income per share increased $ 0.08 , or 9.4 % , to $ 0.93 per diluted share , compared to $ 0.85 in 2015 . this increase was due to an increase in net income of $ 12.1 million , or 8.1 % , and a 2.4 million , or 1.3 % , decrease in weighted average diluted shares outstanding in comparison to 2015 . the increase in net income was driven by a $ 20.8 million , or 4.2 % , increase in net interest income and a $ 14.9 million , or 8.6 % , increase in non-interest income , excluding investment securities gains , partially offset by a $ 10.9 million increase in the provision for credit losses , a $ 9.4 million , or 1.9 % , increase in non-interest expense and a $ 6.5 million , or 71.9 % , decrease in investment securities gains . net interest income growth - the $ 20.8 million increase in net interest income resulted from the impact of growth in interest-earning assets , partially offset by the impact of a lower net interest margin . 36 ◦ net interest margin - for the year ended december 31 , 2016 , the net interest margin decreased 3 basis points , or 0.9 % , in comparison to 2015 , driven by a 7 basis point decrease in yields on interest-earning assets , partially offset by a 4 basis point decrease in the cost of interest-bearing liabilities . ◦ loan growth - average loans increased $ 797.1 million , or 6.0 % , in comparison to 2015 , with notable increases in commercial mortgages , commercial - industrial , financial and agricultural , and construction loans . the corporation 's loan growth occurred throughout most of its markets . ◦ deposit growth - average deposits increased $ 838.4 million , or 6.1 % , in comparison to 2015 . the increase was the result of growth in demand and savings accounts , partially offset by a decrease in time deposits . average deposit growth outpaced loan growth , which enhanced the corporation 's funding position . at december 31 , 2016 , the loan-to-deposit ratio was 97.9 % , which was relatively flat compared to december 31 , 2015 . asset quality - overall asset quality continued to improve in 2016 , with decreases in net charge-offs , non-performing loans and overall delinquency levels . the $ 10.9 million increase in the provision for credit losses to $ 13.2 million for the year ended december 31 , 2016 was primarily driven by growth in the loan portfolio . non-interest income - non-interest income , excluding securities gains , increased $ 14.9 million , or 8.6 % , in comparison to 2015 , primarily driven by a $ 7.5 million , or 17.0 % , increase in other service charges and fees . non-interest expense - non-interest expense increased $ 9.4 million , or 1.9 % , in comparison to 2015 , driven largely by a $ 22.5 million , or 8.6 % , increase in salaries and employee benefits and a $ 2.3 million , or 6.6 % increase in software and data processing expense . these increases were partially offset by decreases in other expense categories , as discussed in the `` non-interest expense '' section . income taxes - income tax expense for 2016 reflected an effective tax rate ( `` etr '' ) of 22.4 % , as compared to 25.0 % for 2015. the decrease in the etr resulted from increases in tax credit investments and related net tax credits earned and tax-exempt income . critical accounting policies the following is a summary of those accounting policies that the corporation considers to be most important to the presentation of its financial condition and results of operations , as they require management 's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain . see additional information regarding these critical accounting policies in `` note 1 - summary of significant accounting policies , '' in the notes to the consolidated financial statements in item 8 . `` financial statements and supplementary data . '' allowance for credit losses - the allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments . the allowance for loan losses represents management 's estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans . the reserve for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet . story_separator_special_tag the corporation 's allowance for loan losses includes : 1 ) specific allowances allocated to loans evaluated for impairment under the financial accounting standards board 's accounting standards codification ( `` fasb asc '' ) section 310-10-35 ; and 2 ) allowances calculated for pools of loans evaluated for impairment under fasb asc subtopic 450-20. management 's estimate of incurred losses in the loan portfolio is based on a methodology that includes the following critical judgments : identification of potential problem loans in a timely manner . for commercial loans , commercial mortgages and construction loans to commercial borrowers , an internal risk rating process is used . the corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans . the migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology for these loans , which bases the probability of default on this migration . assigning risk ratings involves judgment . the corporation 's loan review officers provide an independent assessment of risk rating accuracy . ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff , or if specific loan review assessments identify a deterioration or an improvement in the loan . 37 the corporation does not assign internal risk ratings for residential mortgages , home equity loans , consumer loans , lease receivables , and construction loans to individuals secured by residential real estate , as these portfolios consist of a larger number of loans with smaller balances . instead , these portfolios are evaluated for risk through the monitoring of delinquency status . proper collateral valuation of impaired loans evaluated for impairment under fasb asc section 310-10-35. substantially all of the corporation 's impaired loans to borrowers with total outstanding loan balances greater than or equal to $ 1.0 million are measured based on the estimated fair value of each loan 's collateral . collateral could be in the form of real estate , in the case of impaired commercial mortgages and construction loans , or business assets , such as accounts receivable or inventory , in the case of commercial loans . commercial loans may also be secured by real property . for loans secured by real estate , estimated fair values are determined primarily through appraisals performed by state certified third-party appraisers , discounted to arrive at expected net sale proceeds . for collateral-dependent loans , estimated real estate fair values are also net of estimated selling costs . when a real estate secured loan becomes impaired , a decision is made regarding whether an updated appraisal of the real estate is necessary . this decision is based on various considerations , including : the age of the most recent appraisal ; the loan-to-value ratio based on the original appraisal ; the condition of the property ; the corporation 's experience and knowledge of the real estate market ; the purpose of the loan ; market factors ; payment status ; the strength of any guarantors ; and the existence and age of other indications of value such as broker price opinions , among others . the corporation generally obtains updated state certified third-party appraisals for impaired loans secured predominately by real estate every 12 months . when updated certified appraisals are not obtained for loans evaluated for impairment under fasb asc section 310-10-35 that are secured by real estate , fair values are estimated based on the original appraisal values , as long as the original appraisal indicated a strong loan-to-value position and , in the opinion of the corporation 's internal credit administration staff , there has not been a significant deterioration in the collateral value since the original appraisal was performed . original appraisals are typically used only when the estimated collateral value , as adjusted appropriately for the age of the appraisal , results in a current loan-to-value ratio that is lower than the corporation 's loan-to-value requirements for new loans , generally less than 70 % . proper measurement of allowance needs for pools of loans measured for impairment under fasb asc subtopic 450-20. for loan loss allocation purposes , loans are segmented into pools with similar characteristics . these pools are established by general loan type , or `` portfolio segments , '' as presented in the table under the heading , `` loans , net of unearned income , '' within `` note 4 -loans and allowance for credit losses , '' in the notes to consolidated financial statements . certain portfolio segments are further disaggregated and evaluated collectively for impairment based on `` class segments , '' which are largely based on the type of collateral underlying each loan . for commercial loans , class segments include loans secured by collateral and unsecured loans . construction loan class segments include loans secured by commercial real estate , loans to commercial borrowers secured by residential real estate and loans to individuals secured by residential real estate . consumer loan class segments are based on collateral types and include direct consumer installment loans and indirect automobile loans . commercial loans , commercial mortgages and construction loans to commercial borrowers are further segmented into separate pools based on internally assigned risk ratings . residential mortgages , home equity loans , consumer loans , and lease receivables are further segmented into separate pools based on delinquency status . a loss rate is calculated for each pool through a migration analysis based on historical losses as loans migrate through the various risk rating or delinquency categories . estimated loss rates are based on a probability of default and a loss given default . the loss rate is adjusted to consider qualitative factors , such as economic conditions and trends . overall assessment of the risk profile of the loan portfolio . the allocation of the allowance for credit losses is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio .
| average loans and average fte yields , by type , are summarized in the following table : replace_table_token_12_th average loans increased $ 797.1 million , or 6.0 % , which contributed $ 31.7 million to the increase in fte interest income . this increase was partially offset by an $ 11.2 million decrease in fte interest income as a result of a 9 basis point , or 2.2 % , decline in the average yield on the loan portfolio . the increase in average loans was driven largely by growth in the commercial mortgage , commercial loan , construction , residential mortgage and leasing portfolios . the commercial mortgage growth was realized in all 42 geographic markets , but largely in pennsylvania . the decrease in average yields on loans was attributable to repayments of higher-yielding loans , refinancing activity at lower rates , and new loan production at rates lower than the overall portfolio yield . average investment securities increased $ 121.8 million , or 5.2 % , in comparison to 2015 . the average yield on investment securities decreased 5 basis points , or 2.0 % , to 2.45 % in 2016 from 2.50 % in 2015 . other interest earning assets decreased $ 39.9 million , or 8.9 % . interest expense decreased $ 1.5 million , or 1.8 % , to $ 82.3 million in 2016 from $ 83.8 million in 2015 , despite an increase in total average interest-bearing liabilities of $ 519.8 million , or 4.6 % , compared to 2015. the impact of the increase in average balances of interest-bearing liabilities was more than offset by a 4 basis point decrease in the average cost of these interest-bearing liabilities . this decrease resulted from a shift in funding mix that was more concentrated in lower-cost deposits and short-term borrowings , as well as the impact of long-term debt refinancing activities . average deposits and interest rates , by type , are summarized in the following table : replace_table_token_13_th the $ 1.0 billion , or 9.3 % , increase in
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“ directors , executive officers and corporate governance – the advisor ” . tci has no employees . employees of pillar render services to tci in accordance with the terms of the advisory agreement . prime served as the company 's contractual advisor and cash manager from july 1 , 2009 through april 30 , 2011 . 11 effective since january 1 , 2011 , regis manages our commercial properties and provides brokerage services . regis is entitled to receive a fee for its property management and brokerage services . see part iii , item 10 . “ directors , executive officers and corporate governance – property management ” and “ directors , executive officers and corporate governance – real estate brokerage we have historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition and dispositions . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . in june 2009 , the financial accounting standards board ( “ fasb ” ) completed its accounting guidance codification project . the fasb accounting standards codification ( “ asc ” ) became effective for the company 's financial statements issued subsequent to june 30 , 2009 and is the single source of authoritative accounting principles recognized by the fasb to be applied by nongovernmental entities in the preparation of financial statements in conformity with gaap . as of the effective date , we no longer refer to the authoritative guidance dictating its accounting methodologies under the previous accounting standards hierarchy . instead , we refer to the asc codification as the sole source of authoritative literature . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . arrangements that are not controlled through voting or similar rights are accounted for as a variable interest entity ( vie ) , in accordance with the provisions and guidance of asc topic 810 “ consolidation ” , whereby we have determined that we are a primary beneficiary of the vie and meet certain criteria of a sole general partner or managing member as identified in accordance with emerging issues task force ( “ eitf ” ) issue 04-5 , investor 's accounting for an investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability , the obligation to absorb expected losses or residual returns of the entity , or have voting rights that are not proportional to their economic interests . the primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks , authorizes certain capital transactions , or makes operating decisions that materially affect the entity 's financial results . all significant intercompany balances and transactions have been eliminated in consolidation . in determining whether we are the primary beneficiary of a vie , we consider qualitative and quantitative factors , including , but not limited to : the amount and characteristics of our investment ; the obligation or likelihood for us or other investors to provide financial support ; our and the other investors ' ability to control or significantly influence key decisions for the vie ; and the similarity with and significance to the business activities of us and the other investors . significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these vies and general market conditions . as of december 31 , 2013 , iot is not the primary beneficiary of a vie . for entities in which we have less than a controlling financial interest or entities where it is not deemed to be the primary beneficiary , the entities are accounted for using the equity method of accounting . accordingly , the company 's share of the net earnings or losses of these entities is included in consolidated net income . iot 's investment in eton square is accounted for under the equity method . real estate upon acquisitions of real estate , we assess the fair value of acquired tangible and intangible assets , including land , buildings , tenant improvements , “ above-market ” and “ below-market ” leases , origination costs , acquired in-place leases , other identified intangible assets and assumed liabilities in accordance with asc topic 805 “ business combinations ” , and allocate the purchase price to the acquired assets and assumed liabilities , including land at appraised value and buildings at replacement cost . we assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates , as well as available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known and anticipated trends , and market and economic conditions . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . story_separator_special_tag we also consider an allocation of purchase price of other acquired intangibles , including acquired in-place leases that may have a customer relationship intangible value , including ( but not limited to ) the nature and extent of the existing relationship with the tenants , the tenants ' credit quality and expectations of lease renewals . based on our acquisitions to date , our allocation to customer relationship intangible assets has been immaterial . 12 we record acquired “ above-market ” and “ below-market ” leases at their fair values ( using a discount rate which reflects the risks associated with the leases acquired ) equal to the difference between ( 1 ) the contractual amounts to be paid pursuant to each in-place lease and ( 2 ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases . other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . sales to our parent , tci , have previously been reflected at the fair value sales price . upon discussion with the sec and in review of the guidance pursuant to asc 250-10-45-22 to 24 , we have adjusted those asset sales , in the prior year , to reflect a sales price equal to the cost basis in the asset at the time of the sale . the related party payables from tci were reduced for the lower asset price . depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other project costs incurred during the period of development . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . asc topic 360 “ property , plant and equipment ” requires that qualifying assets and liabilities and the results of operations that have been sold , or otherwise qualify as “ held for sale , ” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the company will not have significant continuing involvement following the sale . the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by our board of directors , or a committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . included in discontinued operations , in accordance with asc 805 “ business combinations ” , we recognize rental revenue of acquired in-place “ above- ” and “ below-market ” leases at their fair values over the terms of the respective leases , as applicable .
| there was no income generated from this segment for the twelve months ended december 31 , 2013 and december 31 , 2012. expenses general and administrative expenses were $ 734,000 for the twelve months ended december 31 , 2013. this represents an increase of $ 400,000 , as compared to the prior period operating expenses of $ 334,000. this increase relates to the other segment and was primarily due to increased professional fees . in addition , there was an increase in cost reimbursements paid to our advisor . net income fee was $ 695,000 for the twelve months ended december 31 , 2013. this represents an increase of $ 515,000 , as compared to the prior period net income fee of $ 180,000. the net income fee paid to pillar is calculated at the rate of 7.5 % of net income . the net income increased from last year due to the $ 5.8 million discount recognized for the company 's portion of the mercer/travelers land mortgage note buyout . other income ( expense ) interest income was $ 7.1 million for the twelve months ended december 31 , 2013. this represents an increase of $ 1.9 million in the current year , as compared to interest income of $ 5.2 million in the prior period . this increase was due to an agreement made on january 1 , 2013 , whereby the company extended the maturity on the surplus cash flow notes receivable from uhf for an additional term of five years in exchange for an early termination of the preferred interest rate . the original note gave a five-year period of preferred interest rate at 5.25 % , before returning to the original note rate of 12 % . 15 other income was $ 5.8 million for the twelve months ended december 31 , 2013. there was no other income recorded in 2012. on december 30 , 2013 the mercer/travelers land mortgage note buyout was paid off at a discounted rate . the company recognized its prorated share of that discount , shared with its parent , tci . loan charges were $ 0.8 million for the twelve months ended december 31 ,
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revenue by territory our customers are from the following prc territories : replace_table_token_5_th discontinued operations in december 2013 , we have completed the sale of the china dredging group ( “ cdgc ” ) business , which has been reported as discontinued operations for 2013 , to hong long , a related party owned by the wife of our chairman and ceo , mr. xinrong zhuo . in july 2013 , we received an offer from mr. zhuo to acquire the business and operating assets of our wholly-owned dredging subsidiary , cdgc and its prc operating subsidiaries in exchange for ( i ) offset of our current $ 155.2 million 4 % promissory note due to hong long matures on june 19 , 2015 ; ( ii ) the assignment of the 25-year exclusive operating license rights for 20 new fishing vessels to us , with a fair market value of $ 216.1 million ( iii ) offset of pme 's current accounts due to cdgc with amount $ 172.5 million . the value of the operating license rights of $ 216.1 million will be amortized over the license term of 25 years . these 20 fishing vessels received subsidies from china 's central government budget in 2012 , and a recent notification from the government prohibits the sale or transfer of ownership for a period of 10 years for fishing vessels that have received such subsidies . the board , excluding mr. zhuo and our senior officer , mr. bin lin , retained our independent financial advisor to provide a fairness opinion on the transaction proposed by mr. zhuo . subsequent to the receipt of the fairness opinion from our independent financial advisor on october 28 , 2013 , the board would evaluate potential alternative proposals received during a 30 day period . after receiving no alternative proposals , on december 3 , 2013 , the board , excluding mr. zhuo and mr. lin approved moving forward with the transaction and executed and closed the share purchase agreement . the total consideration of the transaction is approximately $ 543.8 million with a gain on sale of $ 134.7 million which was recorded as an adjustment to our equity as it was sold to a related party under common control . significant factors affecting our results of operations ¨ governmental policies : fishing is a highly regulated industry and our operations require licenses and permits . our ability to obtain , sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies and is at the discretion of the applicable governments . our inability to obtain , or loss or denial of extensions , to any of its applicable licenses or permits could hamper our ability to generate revenues from its operations . 32 ¨ resource & environmental factors : our fishing expeditions are based in india and indonesia . any earthquake , tsunami , adverse weather or oceanic conditions or other calamities in such areas may result in disruption to our operations and could adversely affect our sales . adverse weather conditions such as storms , cyclones and typhoons or cataclysmic events may also decrease the volume of fish catches or may even hamper our operations . our fishing volumes may also be adversely affected by major climatic disruptions such as el nino , which in the past has caused significant decreases in seafood catch worldwide . besides weather patterns , other unpredictable factors , such as fish migration , may also have impact our harvest volume . ¨ fluctuation on fuel prices : our operations may be adversely affected by fluctuations in fuel prices . changes in fuel prices may ultimately result in increases in the selling prices of our products , and may , in turn , adversely affect our sales volume , revenue and operating profit . ¨ competition : we engage in fishing business in the arafura sea in indonesia and the bay of bengal in india . competition within our dedicated fishing areas is not significant as the region is not overfished and regulated by the government , which limits the number of vessels that are allowed to fish in the territories . competition in the market in china is high , as fish compete with other sources of protein . we compete with other fishing companies which offer similar and varied products . there is significant demand for fish in the chinese market . our catch appeals to a wide segment of consumers because of the low price points of our products . we have been able to sell our catch at market prices and such market prices were quite stable during 2010 and 2011 , but increased significantly during 2012 and 2013 . ¨ fishing licenses : each of our fishing vessels requires an approval from the ministry of agriculture of the people 's republic of china to carry out ocean fishing projects in foreign territories . these approvals are valid for a period of three to twelve months , and are awarded to us at no cost . we apply for the renewal of the approval prior to expiration to avoid interruptions of our fishing vessels ' operations . each of our fishing vessels operating in indonesian waters requires a fishing license granted by the authority in indonesia . indonesian fishing licenses remain effective for a period of twelve months and we apply for renewal upon expiration . we record cost of indonesian fishing licenses in prepaid expenses and amortize the cost over the effective period of the licenses . principal income statement components revenue we recognize revenue from sales of frozen fish and other marine catches when persuasive evidence of an arrangement exists , delivery has occurred , the price to the customer is fixed or determinable , and collection of the resulting receivable is reasonably assured . story_separator_special_tag with respect to the sales to third party customers the majority of whom are sole proprietor regional wholesalers in china , we recognize revenue when customers receive purchased goods at our cold storage warehouse , after payment is received or credit sale is approved for recurring customers with excellent payment histories . we do not offer promotional payments , customer coupons , rebates or other cash redemption offers to customers . we do not accept returns from customers . deposits or advance payments from customers prior to delivery of goods are recorded as receipt in advance . cost of sales our cost of sales primarily consists of fuel costs , freight , direct labor costs , depreciation and amortization , maintenance fees and other overhead costs . fuel costs generally accounted for the majority of our cost of sales . gross profit our gross profit is affected primarily by changes in production cost . fuel , freight and labor costs together account for about 82 % of cost of sales for the year ended december 31 , 2013. the fluctuation of fuel price , freight price and exchange rates may significantly affect the company 's cost level and gross profit . selling , general and administrative expenses our selling , general and administrative expenses include salaries and staff welfare , professional service fees , traveling expenses for our sales personnel , insurance and other miscellaneous expenses related to our administrative corporate activities . 33 our sales activities are conducted through direct selling by our internal sales staff . because of the strong demand for our products and services , we do not have to aggressively market and distribute our products , thus our selling expenses have been relatively small as a percentage of our revenue . we anticipate that our selling , general and administrative expenses will increase with the anticipated growth of our business and continued upgrades to our information technology infrastructure . we expect that our selling , general and administrative expenses will also increase as a result of compliance , investor-relations and other expenses associated with being a publicly listed company . other income and expenses other income and expenses mainly include interest income from bank deposits , interest expenses of short term and long term borrowings , foreign exchange differences and subsidy income . income tax under the current laws of the cayman islands and british virgin islands , we are not subject to any income or capital gains tax , and dividend payments we make are not subject to any withholding tax in the cayman islands or british virgin islands . under the current laws of hong kong , we are not subject to any income or capital gains tax and dividend payments and are not subject to any withholding tax in hong kong . the company 's vie , pingtan fishing , is a qualified ocean fishing enterprise certified by the ministry of agriculture of the prc . the qualification is renewed on april 1 each year . pingtan fishing is exempt from income tax derived from its ocean fishing operations in the periods it processes a valid ocean fishing enterprise qualification certificate issued by the ministry of agriculture of the prc . in addition , pingtan fishing is not subject to foreign income taxes for its operations in india and indonesia exclusive economic zones . other comprehensive income our comprehensive income consists of net income and foreign currency translation adjustments . we translate our assets and liabilities of foreign operations at the rate of exchange in effect on the balance sheet date . we translate income and expenses at the average rate of exchange prevailing during the period . the year-end rate as of december 31 , 2013 for rmb into one u.s. dollar was 6.0537. average rates for the years ended december 31 , 2013 , 2012 and 2011 were 6.1412 , 6.3116 and 6.4640 , respectively . the related translation adjustments are reflected in “ accumulated other comprehensive income ” in the equity section of our consolidated balance sheets . foreign currency gains and losses resulting from transactions are included in earnings . as of december 31 , 2013 and 2012 , the accumulated foreign currency translation gain was approximately $ 30.4 million and $ 22.2 million , respectively . earnings per ordinary share earnings per ordinary share ( basic and diluted ) is based on the net income divided by the weighted average number of ordinary shares outstanding during each period . ordinary share equivalents are not included in the calculation of diluted earnings per ordinary share if their effect would be anti-dilutive . story_separator_special_tag text-indent : 0in ; width : 100 % ; clear : both '' > replace_table_token_11_th cost of sales and gross margin the following tables set forth our cost of sales and gross profit , both in amounts and as a percentage of revenue for the years ended december 31 , 201 2 and 201 1 : ( amounts in thousands , except for percentage ) replace_table_token_12_th replace_table_token_13_th 37 cost of sales for the year ended december 31 , 2012 was $ 41.9 million , representing an increase of 186.8 % as compared to $ 14.6 million in the same period of 2011. the increase was principally due to increase in fuel cost for our fishing vessels as a result of the fleet expansion . freight , labor cost and maintenance fee also increased which was in line with the increase in revenue . gross profit for the year ended dec ember 3 1 , 201 2 was $ 25 . 6 million , representing an increase of 132 . 6 % as compared to $ 11 . 0 million in the same period of 201 1 as a result of business expansion .
| gross profit for the year ended december 31 , 2013 was $ 46.9 million , representing an increase of 83.3 % as compared to $ 25.6 million in the same period of 2012 as a result of business expansion . 35 selling , general and administrative expenses the following table sets forth selling , general and administrative ( sg & a ) expenses , and income from operations both in amounts and as a percentage of revenue for the years ended december 31 , 2013 and 2012 : ( amounts in thousands , except for percentage ) replace_table_token_9_th total sg & a expenses increased by 37 . 9 % to $ 4 . 8 million in the year ended dece mber 3 1 , 2013 from $ 3 . 5 million in the same period of 2012. the increase in sg & a expenses was primarily attributable to higher selling expenses including storage and transportation fees , and salaries and staff welfare as a result of our expanded scale of operations , as well as higher administrative costs associated with the company being a publicly listed company . as a percentage of revenue , sg & a expenses were 3 . 9 % in the year ended decem ber 3 1 , 2013 , compared to 5 . 2 % in the same period of 2012. other income and expenses net other income in the year ended december 31 , 2013 w as $ 3.4 million , as compared to net other expense s of $ 0.8 million in the same period of 2012. included in other income and expenses , there was government subsidy of $ 7.3 million and $ 2.4 million in the years ended december 31 , 2013 and 2012 , respectively . excluding the impact of subsidy income , net other expenses increased by $ 0.8 million , mainly due to increase in interest expenses of $ 1.0 million . income tax we are exempted from income tax derived from our ocean fishing operations . net income from continuing operations net income from continuing operations for the year
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we have incurred significant losses in the past and expect to incur significant and increasing losses in the foreseeable future as we advance our product candidates into later stages of development and , if approved , commercialization . our net losses were $ 223.9 million , $ 87.2 million and $ 53.6 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 410.0 million . in march 2015 , our registration statement on form s-1 ( file no . 333-202936 ) relating to the follow-on offering of our common stock was declared effective by the sec . the price of the shares sold in the follow-on offering was $ 29.00 per share . the follow-on offering closed on april 7 , 2015 , pursuant to which we sold 4,137,931 shares of common stock . we received total gross proceeds from 71 the offering of $ 120.0 million . after deducting underwriting discounts and commissions of $ 7.2 million and offering expenses of $ 0.6 million , the net proceeds were $ 112.2 million . in april 2015 , we entered into a second amendment to the license agreement with baxalta . under the terms of the second amendment , a revised milestone payment structure totaling $ 130.0 million replaced certain existing milestone and funding obligations under the license agreement as originally executed . therefore , we are eligible to receive up to $ 335.3 million in contingent payments comprised of $ 215.3 million in clinical development payments , and $ 120.0 million in regulatory milestone payments . pursuant to the second amendment , we received a total of $ 100.0 million in milestone payments in 2015 which are subject to the 50 % claw-back feature . we lease office spaces for our corporate headquarters in redwood city , california and for laboratory facilities in camarillo , california under operating lease agreements . in july 2015 , we entered into a new office lease with hudson 333 twin dolphin plaza , llc to lease approximately 27,532 square feet of office space located in redwood city , california for our new corporate headquarters . the new lease commenced and we moved into the new facility in december 2015. in september 2015 , we completed a private placement with baxalta , in which we sold an aggregate of 390,167 shares of common stock for aggregate gross proceeds of approximately $ 10.0 million . in december 2015 , we filed our registration statement on form s-3 ( file no . 333-208625 ) relating to the private placement of our common stock and was declared effective by the sec on january 21 , 2016. in february 2016 , we issued and sold $ 100.0 million aggregate principal amount of our 8.2 % senior convertible notes due 2022 ( “ the notes ” ) . these notes require quarterly interest distributions at a fixed coupon rate of 8.2 % until maturity , redemption or conversion , which will be no later than march 31 , 2022. the notes are convertible into shares of common stock at an initial conversion rate of 44.7387 shares of common stock per $ 1,000 principal amount of the notes ( equivalent to a conversion price of approximately $ 22.35 per share of common stock , representing a 60 % premium over the average last reported sale price of our common stock over the 15 trading days preceding the date the notes were issued ) , subject to adjustment in certain events . after march 31 , 2020 , the full amount of the notes not previously converted are redeemable for cash at our option if the last reported sale price per share of our common stock exceeds 160 % of the conversion price on 20 or more trading days during the 30 consecutive trading days preceding the date on which we send notice of such redemption to the holders of the notes . upon conversion of the notes by a holder , the holder will receive shares of our common stock , together , if applicable , with cash in lieu of any fractional share . at maturity or redemption , if not earlier converted , we will pay 109 % of the par value of the notes , together with accrued and unpaid interest , in cash . the holders of the notes are healthcare royalty partners iii , l.p. , which holds $ 75.0 million in aggregate principal amount , and three related party investors , kkr biosimilar l.p. , which holds $ 20.0 million , mx ii associates llc , which holds $ 4.0 million , and kmg capital partners , llc , which holds $ 1.0 million . financial operations overview revenue we have not generated any revenue from commercial product sales to date . our revenue has been generated from license and collaboration agreements , which is composed of license payments and milestone and other contingent payments under our license agreements . research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our product candidates . we recognize all research and development costs as they are incurred . we currently track only the external research and development costs incurred for each of our product candidates . our external research and development expenses consist primarily of : · expenses incurred under agreements with consultants , third-party contract research organizations , or cros , and investigative sites where a substantial portion of our preclinical studies and all of our clinical trials are conducted ; · costs of acquiring originator comparator materials and manufacturing preclinical study and clinical trial supplies and other materials from contract manufacturing organizations , or cmos , and related costs associated with release and stability testing ; and · costs associated with manufacturing process development activities . 72 internal costs are associated with activities performed by our research and development organization and generally benefit multiple programs . story_separator_special_tag these costs are not separately allocated by product candidate . unallocated , internal research and development costs consist primarily of : · personnel-related expenses , which include salaries , benefits and stock-based compensation ; and · facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization of leasehold improvements and equipment and laboratory and other supplies . the largest component of our total operating expenses has historically been our investment in research and development activities , including the clinical development of our product candidates . we expect these expenses to increase in absolute dollars in the future as we continue to invest in research and development activities related to our product candidates . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming . furthermore , in the past we have entered into collaborations with third parties to participate in the development and commercialization of our product candidates , and we may enter into additional collaborations in the future . in situations in which third parties have substantial influence over the development activities for product candidates , the estimated completion dates are not fully under our control . for example , pursuant to our collaboration agreements with respect to chs-0214 , our partners in licensed territories may exert considerable influence on the regulatory filing process globally . therefore , we can not forecast with any degree of certainty the duration and completion costs of these or other current or future clinical trials of our product candidates . we may never succeed in achieving regulatory approval for any of our product candidates . in addition , we may enter into other collaboration arrangements for our other product candidates , which could affect our development plans or capital requirements . the following table summarizes our research and development expenses incurred during the respective periods : replace_table_token_4_th ( 1 ) chs-0214 entered into phase 3 clinical trials in june and july 2014 . ( 2 ) chs-1420 initiated a phase 3 study in psoriasis in august 2015 to support the planned filing of a marketing application in the u.s. in 2016 and in the e.u . in 2017. we initiated a bridging pk study comparing the phase 3 chs-1420 material to u.s. manufactured adalimumab ( humira ) during the first quarter of 2016 and we plan to initiate a bridging pk study comparing the phase 3 chs-1420 material to e.u . manufactured adalimumab ( humira ) in mid-2016 . ( 3 ) we met with the fda on october 9 , 2014 and informed the agency of our decision to transition from a 351 ( a ) ( novel biologic ) approval pathway to a 351 ( k ) ( biosimilar ) approval pathway . in march 2015 , we received written feedback from the fda on our development plan for chs-1701 and we initiated a pivotal pharmacokinetic and pharmacodynamic study for chs-1701inhealthy volunteers , and an additional immunogenicity study in healthy volunteers in may 2015 , both pursuant to this bla . we continue to believe it may be possible to advance chs-1701 to a 351 ( k ) ( biosimilar ) approval application without a collaboration or licensing partner . ( 4 ) chs-131 ( previously designated as int-131 , a small molecule ppargamma partial agonist ) currently in a phase 2 trial in multiple sclerosis in russia . ( 5 ) amount consists of costs for other pipeline candidates . ( 6 ) our research and development expenses have been reduced by reimbursements of certain research and development expenses pursuant to the cost-sharing provision of our licensing agreement with daiichi sankyo . reimbursement of research and development expenses under the baxalta licensing agreement was recognized as revenue pursuant to the revenue recognition accounting policy applicable to that agreement . general and administrative expenses general and administrative expenses consist primarily of personnel costs , allocated facilities costs and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs consist of salaries , 73 benefits and stock-based compensation . we incurred increased expenses in 2015 and expect future expenses to increase as a result of operating as a public company , including expenses related to compliance with the rules and regulations of the securities and exchange commission , or sec , or the nasdaq global market , or nasdaq , additional insurance expenses , investor relations activities and other administration and professional services . interest expense interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount associated with our various debt agreements outstanding during the years ended december 31 , 2014 and 2013. the convertible notes issued in 2013 were converted into shares of our series c convertible preferred stock in may 2014. other expense , net other income ( expense ) , net for the year ended december 31 , 2015 consists primarily of losses resulting from the remeasurement of our contingent consideration and foreign exchange gains and losses resulting from currency fluctuations . additionally , for the year ended december 31 , 2014 , other income ( expense ) , net includes gains and losses resulting from the remeasurement of the fair value of our convertible preferred stock warrant liability , derivative liability associated with our convertible notes , and the gain on the extinguishment of our convertible notes issued in 2013. in november 2014 , in connection with the closing of our ipo all of our outstanding warrants for convertible preferred stock were exercised , for cash or on a net basis , and the convertible preferred stock warrant liability was reclassified to equity . as such , we no longer record adjustments to reflect the remeasurement of the fair values . in march 2015 , the contingent consideration related to the earn-out payment was settled for shares and cash , and the contingent liability related to the earn-out payment was reclassified to equity .
| cash used in operating activities was $ 23.9 million for the year ended december 31 , 2014 reflecting a net loss of $ 87.2 million , an increase in prepaid assets of $ 14.7 million as a result of the increase in clinical activities and expenses associated with becoming a public company , an increase in receivable from collaboration and license agreement of $ 2.1 million with daiichi sankyo , an increase in notes receivable of $ 1.8 million , and an increase in other assets of $ 2.1 million . the cash used in operating activities was partly offset by non-cash charges of $ 15.9 million for the remeasurement of our convertible preferred stock warrant liability and embedded derivative liabilities , $ 5.2 million for remeasurement of our contingent consideration obligations , $ 3.9 million of non-cash interest expense and amortization of debt discount , $ 11.1 million for stock-based compensation and $ 0.7 million for depreciation and amortization , partially offset by the gain on the extinguishment of our convertible notes issued in 2013 of $ 2.0 million . cash used in operating activities was also offset by an increase in deferred revenue of $ 19.8 million and an increase in contingent liability to collaborator of $ 20.2 million both related to the additional payments received from baxalta under our license agreement . in addition , 82 accounts payable and accounts payable-related parties increased by $ 5.3 million , and accrued liabilities increased by $ 3.9 million as a result of the increase in clinical activities and timing of vendor payments . cash provided by operating activities was $ 15.4 million for the year ended december 31 , 2013 reflecting non-cash charges of $ 7.6 million in preferred stock issued in exchange for services received , $ 7.8 million for the fair value of warrants and embedded derivatives issued in excess of debt proceeds , $ 5.3 million of non-cash interest expense , $ 2.0 million for stock-based compensation , $ 0.4 million for depreciation and amortization and a non-cash gain of $ 4.6 million for the remeasurement of our convertible preferred stock warrant liability and embedded derivatives . cash provided by operating activities also reflected an increase in deferred revenue of $ 34.7 million , an increase in contingent liability to collaborator of $ 7.5 million both related to the payments received from baxalta and
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29 recent key announcements include : hiv and liver diseases programs fda and european commission granted marketing authorization for biktarvy for the treatment of hiv-1 infection . fda approved truvada - in combination with safer sex practices - to reduce the risk of sexually acquired hiv-1 in at-risk adolescents . china national drug administration ( cda , succeeded by china national medical products administration ( nmpa ) ) approved genvoya in china for the treatment of hiv-1 infection . nmpa approved descovy in china for the treatment of hiv-1 infection in adults and adolescents . we entered into an agreement with japan tobacco inc. ( japan tobacco ) to expand our rights to develop and commercialize elvitegravir to include japan and to acquire from japan tobacco the rights to market and distribute certain products in our hiv portfolio in japan effective january 1 , 2019. we entered into a research collaboration and license agreement with hookipa biotech ag ( hookipa ) that grants us exclusive rights to hookipa 's therat® and vaxwave® arenavirus vector-based immunization technologies for chronic hbv infection and hiv infection . we announced plans to launch authorized generic versions of epclusa and harvoni in the united states through our separate subsidiary , asegua . nmpa approved harvoni in china for the treatment of chronic hcv infection with genotype 1-6 in adults and adolescents aged 12 to 18 years . cda approved epclusa in china for the treatment of adults with genotype 1-6 chronic hcv infection . the cda also approved epclusa in combination with ribavirin for adults with chronic hcv infection and decompensated cirrhosis . nmpa approved vemlidy in china for the treatment of chronic hbv infection in adults and adolescents . we entered into a strategic collaboration with precision biosciences ( precision ) to develop therapies targeting the in vivo elimination of chronic hbv infection with precision 's proprietary genome editing platform , arcus . we announced that stellar-4 , a phase 3 , randomized , double-blind , placebo-controlled study evaluating the safety and efficacy of selonsertib , an investigational , once-daily , oral inhibitor of apoptosis signal-regulating kinase 1 ( ask1 ) , in patients with compensated cirrhosis ( f4 ) due to nash , did not meet the pre-specified week 48 primary endpoint of a ≥ 1-stage histologic improvement in fibrosis without worsening of nash . oncology and cell therapy programs we entered into an immuno-oncology partnership with agenus focused on the development and commercialization of up to five novel immuno-oncology therapies . we entered into a global strategic collaboration with tango to discover , develop and commercialize a pipeline of targeted immuno-oncology treatments for patients with cancer . european commission granted marketing authorization for yescarta as a treatment for adult patients with relapsed or refractory dlbcl and pmbcl after two or more lines of systemic therapy . we announced new worldwide facilities to advance manufacturing of cell therapies for people with cancer . we entered into a research collaboration with gadeta to advance gamma delta t cell receptor technology for solid tumors . this collaboration adds an additional new platform to our current capabilities in research and cell manufacturing . we entered into a research collaboration and license agreement with hifibio to develop technology supporting the discovery of neoantigen-reactive t cell receptors for the potential treatment of various cancers , including solid tumors . we entered into a license agreement with trianni , inc. ( trianni ) that grants us the use of the trianni transgenic human monoclonal antibody discovery platform to support our drug discovery efforts . we announced a new cooperative research and development agreement with the national cancer institute to develop adoptive cell therapies targeting patient-specific tumor neoantigens . we entered into a worldwide collaboration with sangamo using sangamo 's zinc finger nuclease technology platform for the development of next-generation ex vivo cell therapies in oncology . we entered into a clinical trial collaboration with pfizer to evaluate the safety and efficacy of the investigational combination of yescarta and pfizer 's utomilumab , a fully humanized 4-1bb agonist monoclonal antibody , in patients with refractory large b-cell lymphoma . inflammation programs we entered into a strategic collaboration with scholar rock holding corporation to discover and develop highly specific inhibitors of transforming growth factor beta activation for the treatment of fibrotic diseases . 30 we entered into a scientific collaboration with verily , using verily 's immunoscape platform to identify and better understand the immunological basis of three common and serious inflammatory diseases : rheumatoid arthritis , inflammatory bowel disease and lupus-related diseases . transition following 28 years of service , john f. milligan , ph.d. , stepped down from his role as president and chief executive officer ( ceo ) effective december 31 , 2018. our board announced the selection of daniel o'day to be our new chairman and ceo effective march 1 , 2019. mr. o'day brings more than 30 years of executive management , creative leadership and operational excellence . most recently , mr. o'day served as the ceo of roche pharmaceuticals , the pharma division of roche group . we had other leadership transitions throughout the year resulting from planned successions and normal industry turnover . 2018 financial highlights total revenues decreased to $ 22.1 billion and total product sales decreased to $ 21.7 billion in 2018 , compared to $ 26.1 billion and $ 25.7 billion in 2017 , respectively , primarily due to lower sales of our hcv products , partially offset by higher sales of our hiv products . in the united states , product sales were $ 16.2 billion in 2018 , compared to $ 18.1 billion in 2017 . in europe , product sales were $ 3.7 billion in 2018 , compared to $ 5.0 billion in 2017 . product sales in other international locations were $ 1.8 billion in 2018 , compared to $ 2.6 billion in 2017 . story_separator_special_tag cost of goods sold increased to $ 4.9 billion in 2018 , compared to $ 4.4 billion in 2017 , primarily due to reserves for excess raw material inventory , and higher amortization related to intangible assets acquired in connection with our acquisition of kite pharma , inc. ( kite ) . in 2018 , inventory reserves of $ 440 million were recorded for excess raw materials primarily due to a sustained decrease in demand for harvoni as a result of a shift in the market from harvoni to epclusa . research and development ( r & d ) expenses increased to $ 5.0 billion in 2018 , compared to $ 3.7 billion in 2017 , primarily due to an $ 820 million impairment charge related to in-process r & d ( ipr & d ) for the kite-585 program ( an anti-bcma being evaluated for the treatment of multiple myeloma ) , an increase in up-front collaboration expenses to further enhance our pipeline , a full year of investments to support the growth of our business following the acquisition of kite and higher stock-based compensation expenses associated with the acquisition of kite . selling , general and administrative ( sg & a ) expenses increased to $ 4.1 billion for 2018 , compared to $ 3.9 billion in 2017 , primarily due to a full year of investments to support the growth of our business following the acquisition of kite , partially offset by lower acquisition-related costs associated with the acquisition of kite and lower branded prescription drug ( bpd ) fees . net income attributable to gilead was $ 5.5 billion or $ 4.17 per diluted share in 2018 , compared to $ 4.6 billion or $ 3.51 per diluted share in 2017 . the increase was primarily due to a $ 5.5 billion charge to income tax expense related to the enactment of the tax cuts and jobs act ( tax reform ) recorded in 2017 and higher hiv product sales in 2018 , partially offset by lower hcv product sales and higher operating expenses associated with advancement of our pipeline and investments to support the growth of our business following the acquisition of kite in 2018. as of december 31 , 2018 , we had $ 31.5 billion of cash , cash equivalents and marketable debt securities compared to $ 36.7 billion as of december 31 , 2017 . during 2018 , we generated $ 8.4 billion in operating cash flow , repaid $ 6.3 billion of principal amount of debt , paid cash dividends of $ 3.0 billion and repurchased a total of 40 million shares for $ 2.9 billion through open market transactions . outlook 2019 in 2019 , we expect to continue to maintain our strong focus on operational excellence and financial discipline . from an r & d perspective , we expect to continue to invest in new and ongoing clinical studies that support both our existing products and product candidates . we expect data read-outs in 2019 including selonsertib or stellar-3 for the treatment of nash , filgotinib for the treatment of rheumatoid arthritis , and descovy for prep indication . in order to further augment our product pipeline , we continue to pursue opportunities for collaborations , partnerships and strategic investments that fit into our long term strategic plan . from a commercial perspective , we expect to continue to promote biktarvy and other hiv regimens containing taf . in addition , we believe truvada for prep will continue to be an integral part of our growth in hiv in the united states as communities continue to embrace the public health benefits of prevention . in hcv , we expect a decline in product sales as a result of lower patient starts across all markets and competitive factors , although at a lower rate than in 2018. we believe the launch of authorized generic versions of epclusa and harvoni in the united states through our separate subsidiary , asegua , will increase access to the medications for patients at lower prices . in cell therapy , we expect to continue to promote yescarta in the united states and support its launch in europe . we will continue to help promote patient access to our products around the world , including through our gilead access program , under which more than 11 million people receive our hiv medicines in low- and middle-income countries . 31 our progress on all of these initiatives is subject to a number of uncertainties , including , but not limited to , the possibility of unfavorable results from new and ongoing clinical trials ( for example , we recently announced that stellar-4 , a phase 3 study evaluating the safety and efficacy of selonsertib in patients with compensated cirrhosis due to nash , did not meet the pre-specified week 48 primary endpoint ) ; the continuation of an uncertain global macroeconomic environment ; additional pricing pressures from payers and competitors ; slower than anticipated growth in our hiv products ; an increase in discounts , chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers ; market share and price erosion caused by the introduction of generic versions of products containing tenofovir disoproxil fumarate ( tdf ) outside the united states and viread , letairis and ranexa in the united states ; inaccuracies in our hcv patient start estimates ; potential amendments to the affordable care act or other government action that could have the effect of lowering prices ; a larger-than-anticipated shift in payer mix to more highly discounted payer segment ; and volatility in foreign currency exchange rates . 2018 story_separator_special_tag style= '' line-height:120 % ; padding-top:6px ; text-align : justify ; text-indent:30px ; font-size:10pt ; '' > other product sales , which include products from our hbv , cardiovascular , oncology and other categories inclusive of vemlidy , viread , letairis , ranexa , zydelig and ambisome , increased by 2 % to $ 3.5 billion in 2017 , compared to $ 3.4 billion in 2016 .
| yescarta generated $ 264 million in sales in 2018 , compared to $ 7 million in sales in 2017 . other product sales , which include products from our hbv , cardiovascular , oncology and other categories inclusive of vemlidy , viread , letairis , ranexa , zydelig and ambisome , decreased by 12 % to $ 3.1 billion in 2018 , compared to $ 3.5 billion in 2017 . sales of viread , which is primarily used for the treatment of chronic hbv infection , decreased due to the availability of generic versions of the product . letairis is expected to face generic competition in the united states because the u.s. patent for ambrisentan , the active pharmaceutical ingredient in letairis , expired in july 2018. ranexa is also expected to face generic competition in the united states . we expect a decline in our letairis and ranexa sales in the united states after the generic entries . of our total product sales , 25 % were generated outside the united states in 2018 . we faced exposure to movements in foreign currency exchange rates , primarily in the euro . we used foreign currency exchange contracts to hedge a percentage of our foreign currency exposure . foreign currency exchange , net of hedges , had a favorable impact on our product sales of $ 94 million in 2018 , compared to 2017 . we record product sales net of estimated mandatory and supplemental discounts to government payers , in addition to discounts to private payers , including rebates , chargebacks , cash discounts for prompt payment , distributor fees and other related costs . these deductions are generally referred to as gross-to-net deductions , which totaled $ 16.5 billion , or 43 % of gross product sales in 2018 , compared to $ 17.2 billion , or 40 % of gross products sales in 2017 . of the $ 16.5 billion in 2018 , $ 14.8 billion or 39 % of 32 gross product sales was related to government and other rebates and
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trends in our mobile-consumer segment include device manufacturers requiring custom applications to deliver unique and differentiated products , broadening keyboard technologies to take advantage of touch screens , increasing hands-free capabilities on cell phones and automobiles to address the growing concern of distracted driving , and the adoption of our technology on a broadening scope of devices , such as televisions , set-top boxes , e-book readers and tablet computers . we are also seeing increased demand for transactions which involve the sale and delivery of both software and non-software related services or products , which may benefit from the application of asc 605. we are investing to increase our capabilities and capacity to help device manufacturers build custom applications , to increase the capacity of our data centers , to increase the number , kinds and capacity of network services , to enable developers to access our technology , and to expand both awareness and channels for our direct-to-consumer products . enterprise . we deliver a portfolio of customer service business intelligence and authentication solutions that are designed to help companies better support , understand and communicate with their customers . our solutions include the use of technologies such as speech recognition , natural language understanding , text-to-speech , biometric voice recognition and analytics to automate caller identification and authorization , call steering , completion of tasks such as updates , purchases and information retrieval , and automated outbound notifications . our solutions improve the customer experience , increase the use of self-service and enable new revenue opportunities . in addition , we offer solutions that can meet customer care needs through direct interaction with thin-client applications on cell phones , enabling customers to very quickly retrieve relevant information . trends in our enterprise business include increasing interest in the use of mobile applications to access customer care systems and records , increasing interest in coordinating actions and data across customer care channels , and the ability of a broader set of hardware providers and systems integrators to serve the market . we are investing to expand our product set to address these opportunities , to increase efficiency of our hosted applications , expand our capabilities and capacity to help customers build custom applications , and broaden our relationships with new hardware and systems integrator partners serving the market . imaging . our imaging solutions offer optical character recognition technology to deliver highly accurate document scanning and storage . we provide networked print management and comprehensive pdf applications designed specifically for business users . in addition , we offer applications that combine network scanning , network print management and pdf creation to quickly enable distribution of documents to users ' desktops or to enterprise applications . our host of services includes software development toolkits for independent software vendors . the imaging market is evolving to include more networked solutions , mobile access to networked solutions , and multi-function devices . we are investing to improve mobile access to our networked products , expand our distribution channels and embedding relationships , and expand our language coverage . we leverage our global professional services organization and our extensive network of partners to design and deploy innovative solutions for businesses and organizations around the globe . we market and sell our products directly through a dedicated sales force and through our e-commerce website and also through a global network of resellers , including system integrators , independent software vendors , value-added resellers , hardware vendors , telecommunications carriers and distributors . we have built a world-class portfolio of intellectual property , technologies , applications and solutions through both internal development and acquisitions . we expect to continue to pursue opportunities to broaden these assets and expand our customer base through acquisitions . confronted by dramatic increases in electronic information , consumers , business personnel and healthcare professionals must use a variety of resources to retrieve information , transcribe patient records , conduct transactions and perform other job-related functions . we believe that the power of our solutions can transform the way people use the internet , telecommunications systems , electronic medical records , wireless and mobile networks and related corporate infrastructure to conduct business . 22 strategy in fiscal 2012 , we will continue to focus on growth by providing market-leading , value-added solutions for our customers and partners through a broad set of technologies , service offerings and channel capabilities . we will also continue to focus on operating efficiencies , expense discipline and acquisition synergies to improve gross margins and operating margins . we intend to pursue growth through the following key elements of our strategy : extend technology leadership . our solutions are recognized as among the best in their respective categories . we intend to leverage our global research and development organization and broad portfolio of technologies , applications and intellectual property to foster technological innovation and maintain customer preference for our solutions . we also intend to invest in our engineering resources and seek new technological advancements that further expand the addressable markets for our solutions . broaden expertise in vertical markets . businesses are increasingly turning to nuance for comprehensive solutions rather than for a single technology product . we intend to broaden our expertise and capabilities to deliver targeted solutions for a range of industries including mobile device manufacturers , healthcare , telecommunications , financial services and government administration . we also intend to expand our global sales and professional services capabilities to help our customers and partners design , integrate and deploy innovative solutions . increase subscription and transaction based recurring revenue . we intend to increase our subscription and transaction based offerings in our segments . the expansion of our subscription or transaction based solutions will enable us to deliver applications that our customers use on a repeat basis , and pay for on a per use basis , providing us with the opportunity to enjoy the benefits of recurring revenue streams . expand global presence . story_separator_special_tag we intend to further expand our international resources to better serve our global customers and partners and to leverage opportunities in emerging markets such as asia and latin america . we continue to add regional executives and sales employees in different geographic regions to better address demand for voice and language based solutions and services . pursue strategic acquisitions and partnerships . we have selectively pursued strategic acquisitions to expand our technology , solutions and resources to complement our organic growth . we have also formed key partnerships with other important companies in our markets of interest , and intend to continue to do so in the future where it will enhance the value of our business . we have proven experience in integrating businesses and technologies and in delivering enhanced value to our customers , partners , employees and shareholders . we intend to continue to pursue acquisitions that enhance our solutions , serve specific vertical markets and strengthen our technology portfolio . key metrics in evaluating the financial condition and operating performance of our business , management focuses on revenue , net income , gross margins , operating margins and cash flow from operations . a summary of these key financial metrics for the fiscal year ended september 30 , 2011 , as compared to the fiscal year ended september 30 , 2010 , is as follows : total revenue increased by $ 199.8 million to $ 1,318.7 million ; net income improved by $ 57.3 million to $ 38.2 million ; gross margins decreased by 1.3 percentage points to 62.1 % ; operating margins increased by 1.1 percentage point to 4.0 % ; and cash provided by operating activities for the fiscal year ended september 30 , 2011 was $ 357.4 million , an increase of $ 61.1 million from the prior fiscal year . 23 in addition to the above key financial metrics , we also focus on certain non-financial performance indicators . a summary of these key non-financial performance indicators as of and for the period ended september 30 , 2011 , as compared to september 30 , 2010 , is as follows : annualized line run-rate in our on-demand healthcare solutions increased 19 % to approximately 4.0 billion lines per year . the annualized line run-rate is determined using billed equivalent line counts in a given quarter , multiplied by four ; estimated 3-year value of on-demand contracts increased 17 % to approximately $ 1.3 billion . we determine this value by using our best estimate of all anticipated future revenue streams under signed on-demand contracts currently in place , whether or not they are guaranteed through a minimum commitment clause . our best estimate is based on assumptions about launch dates , volumes and renewal rates within the three year period . most of these contracts are priced by volume of usage and typically have no or low minimum commitments . actual revenue could vary from our estimates due to factors such as cancellations , non-renewals or volume fluctuations . story_separator_special_tag pagebreak begin -- > 25 enterprise revenue decreased by $ 24.4 million , primarily due to the decline of one on-demand customer 's volume . as a percentage of total revenue , professional services and hosting revenue decreased 2.8 percentage points as compared to the corresponding period in the prior year , primarily due to the strong growth in the product and licensing revenue relative to professional services and hosting revenue . fiscal 2010 compared to fiscal 2009 the increase in professional services and hosting revenue for fiscal 2010 , as compared to fiscal 2009 , consisted of a $ 31.8 million increase in healthcare revenue resulting largely from transactional volume growth in our on-demand solutions . mobile and consumer revenue increased $ 28.5 million primarily due to contributions from our connected mobile services driven by the acquisition of spinvox in december 2009. enterprise revenue decreased by $ 9.4 million . as a percentage of total revenue , professional services and hosting revenue decreased 1.9 percentage points as compared to the corresponding period in the prior year , primarily due to the strong growth in the product and licensing revenue relative to professional services and hosting revenue . maintenance and support revenue maintenance and support revenue primarily consists of technical support and maintenance services . the following table shows maintenance and support revenue , in dollars and as a percentage of total revenue ( dollars in millions ) : replace_table_token_6_th fiscal 2011 compared to fiscal 2010 the increase in maintenance and support revenue for fiscal 2011 , as compared to fiscal 2010 , was driven by growth in our product and licensing sales . the increase included a $ 7.5 million increase in healthcare driven by dragon medical solutions , a $ 5.5 million increase in enterprise , and a $ 5.3 million increase in imaging with contributions from our acquisition of equitrac . fiscal 2010 compared to fiscal 2009 the increase in maintenance and support revenue for fiscal 2010 , as compared to fiscal 2009 , consisted primarily of a $ 6.4 million increase in enterprise revenue , driven by continued organic growth , a $ 5.6 million increase in healthcare revenue as a result of the expansion of our current installed base and a $ 2.4 million increase in imaging revenue primarily due to contributions from growth in sales of our core imaging products and our acquisition of x-solutions . 26 costs and expenses cost of product and licensing revenue cost of product and licensing revenue primarily consists of material and fulfillment costs , manufacturing and operations costs and third-party royalty expenses . the following table shows cost of product and licensing revenue , in dollars and as a percentage of product and licensing revenue ( dollars in millions ) : replace_table_token_7_th fiscal 2011 compared to fiscal 2010 the increase in cost of product and licensing revenue for fiscal 2011 , as compared to fiscal 2010 , was primarily due to an increase in hardware costs associated with increased revenues from our mfp products in the imaging segment .
| healthcare revenue increased by $ 23.0 million resulting in part from continued strength in dragon medical solutions , which represented $ 12.8 million of the increase during the year . enterprise on-premise license sales increased by $ 16.9 million resulting from the continued increase in global demand for our core speech solutions . the growth in our product and licensing revenue streams outpaced the relative growth of our other revenue types , resulting in the 3.8 percentage point increase as a percent of total revenue . fiscal 2010 compared to fiscal 2009 the increase in product and licensing revenue for fiscal 2010 , as compared to fiscal 2009 , consisted of a $ 57.8 million increase in mobile and consumer revenue primarily driven by $ 43.5 million of growth in sales of our embedded solutions , and a $ 14.4 million growth in sales of our dragon product resulting from our fourth quarter launch of dragon naturally speaking 11. healthcare revenue increased by $ 37.7 million . imaging revenue increased $ 9.8 million primarily as a result of our acquisitions of ecopy and x-solutions in fiscal 2009. enterprise revenue decreased $ 5.3 million primarily due to the continued migration of customers to our on-demand solutions . the growth in our product and licensing revenue streams outpaced the relative growth of our other revenue types , resulting in the 3.0 percentage point increase as a percent of total revenue . professional services and hosting revenue professional services revenue primarily consists of consulting , implementation and training services for customers . hosting revenue primarily relates to delivering hosted services , such as medical transcription , automated customer care applications , voice message transcription , and mobile search and transcription , over a specified term . the following table shows professional services and hosting revenue , in dollars and as a percentage of total revenue ( dollars in millions ) : replace_table_token_5_th fiscal 2011 compared to fiscal 2010 the increase in professional services and hosting revenue for fiscal 2011 ,
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xvii ) increase in exposure to international business risks ( including as a result of the impact of brexit and any policy changes resulting from the transition from the north american free trade agreement to the united states-mexico-canada agreement ) as we continue to increase our international operations ; ( xviii ) inability to raise capital at all or on not unfavorable terms in the future ; ( xix ) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities ( including in connection with future acquisitions ) ; and ( xx ) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities . other factors that may affect forward-looking statements include , but are not limited to : ( i ) the future performance , financial and otherwise , of the company ; ( ii ) the ability of the company to bring new products and services to market and to increase sales ; ( iii ) the strength of the company 's product development pipeline ; ( iv ) failure to secure and protect patents , trademarks and other proprietary rights ; ( v ) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services ; ( vi ) failure to comply with privacy laws and regulations that are extensive , open to various interpretations and complex to implement including general data protection regulation ( gdpr ) and country by country reporting ; ( vii ) the company 's growth and other profitability prospects ; ( viii ) the estimated size and growth prospects of the information management market ; ( ix ) the company 's competitive position in the information management market and its ability to take advantage of future opportunities in this market ; ( x ) the benefits of the company 's products and services to 37 be realized by customers ; ( xi ) the demand for the company 's products and services and the extent of deployment of the company 's products and services in the information management marketplace ; ( xii ) the company 's financial condition and capital requirements ; ( xiii ) system or network failures or information security breaches in connection with the company 's offerings and information technology systems generally ; and ( xiv ) failure to attract and retain key personnel to develop and effectively manage the company 's business . readers should carefully review part i , item 1a `` risk factors '' and other documents we file from time to time with the securities and exchange commission ( sec ) and other securities regulators . a number of factors may materially affect our business , financial condition , operating results and prospects . these factors include but are not limited to those set forth in part i , item 1a `` risk factors '' and elsewhere in this annual report on form 10-k. any one of these factors , and other factors that we are unaware of , or currently deem immaterial , may cause our actual results to differ materially from recent results or from our anticipated future results . readers are cautioned not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . unless otherwise required by applicable securities laws , the company disclaims any intention or obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . the following md & a is intended to help readers understand our results of operations and financial condition , and is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to our consolidated financial statements under part ii , item 8 of this annual report on form 10-k. all dollar and percentage comparisons made herein refer to the year ended june 30 , 2020 ( fiscal 2020 ) compared with the year ended june 30 , 2019 ( fiscal 2019 ) , unless otherwise noted . please refer to part ii , item 7 of our annual report on form 10-k for fiscal 2019 for a comparative discussion of our fiscal 2019 financial results as compared to fiscal 2018. where we say “ we ” , “ us ” , “ our ” , “ opentext ” or “ the company ” , we mean open text corporation or open text corporation and its subsidiaries , as applicable . executive overview opentext is an information management company that provides software and services to maximize the strategic benefits of data and content for increased productivity , growth and competitive advantage . with a focus on information management technologies and services , we continue to innovate and provide customers with the capabilities they need to build resilient businesses and become tomorrow 's disruptors . we provide our customers with choice and flexibility in their path to digital transformation with solutions that can be run on-premise , cloud , hybrid , or as a managed service . we also accelerate and simplify our customers ' path to information modernization with intelligent tools and services for moving off paper , automating classification , and building clean data lakes for artificial intelligence ( ai ) , analytics and automation . we are fundamentally integrated into the parts of our customers ' businesses that matter so they can securely manage the complexity of information flow end to end . furthermore , with automation and ai , we connect , synthesize and deliver information where it is needed to drive new efficiencies , experiences and insights . we make information more valuable by connecting it to digital business processes , enriching it with capture and analytics , protecting and securing it throughout its entire lifecycle , and leveraging it to captivate customers . our solutions also connect large digital supply chains in manufacturing , retail and financial services . story_separator_special_tag our solutions enable organizations and consumers to secure their information so that they can collaborate with confidence , stay ahead of the regulatory technology curve , identify threats on any endpoint or across their networks , leverage ediscovery and digital forensics to defensibly investigate and collect evidence , and ensure business continuity in the event of a security incident . our initial public offering was on the nasdaq in 1996 and we were subsequently listed on the toronto stock exchange ( tsx ) in 1998. we are a multinational company and as of june 30 , 2020 , employed approximately 14,400 people worldwide . our ticker symbol on both the nasdaq and the tsx is `` otex '' . fiscal 2020 summary : during fiscal 2020 we saw the following activity : total revenue was $ 3,109.7 million , up 8.4 % compared to the prior fiscal year ; up 9.7 % after factoring in the impact of $ 37.1 million of foreign exchange rate changes . 38 total annual recurring revenue , which we define as the sum of cloud services and subscriptions revenue and customer support revenue , was $ 2,433.3 million , up 12.9 % compared to the prior fiscal year ; up 14.1 % after factoring in the impact of $ 26.3 million of foreign exchange rate changes . cloud services and subscriptions revenue was $ 1,157.7 million , up 27.5 % compared to the prior fiscal year ; up 28.4 % after factoring in the impact of $ 8.1 million of foreign exchange rate changes . license revenue was $ 402.9 million , down 5.9 % compared to the prior fiscal year ; down 4.5 % after factoring in the impact of $ 5.9 million of foreign exchange rate changes . gaap-based eps , diluted , was $ 0.86 compared to $ 1.06 in the prior fiscal year . non-gaap-based eps , diluted , was $ 2.89 compared to $ 2.76 in the prior fiscal year . gaap-based gross margin was 67.7 % compared to 67.6 % in the prior fiscal year . non-gaap-based gross margin was 74.5 % compared to 74.1 % in the prior fiscal year . gaap-based net income attributable to opentext was $ 234.2 million compared to $ 285.5 million in the prior fiscal year . non-gaap-based net income attributable to opentext was $ 784.5 million compared to $ 744.7 million in the prior fiscal year . adjusted ebitda was $ 1,148.1 million compared to $ 1,100.3 million in the prior fiscal year . operating cash flow was $ 954.5 million for the year ended june 30 , 2020 , up 8.9 % from the prior fiscal year . cash and cash equivalents were $ 1,692.9 million as of june 30 , 2020 , compared to $ 941.0 million as of june 30 , 2019 . as of june 30 , 2020 , our cash and cash equivalents and the current portion of our long-term debt include a $ 600 million draw down on the revolver , defined below , in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the covid-19 pandemic . issued $ 900 million in aggregate principal amount of 3.875 % senior notes due 2028 and $ 900 million in aggregate principal amount of 4.125 % senior notes due 2030. see `` use of non-gaap financial measures '' below for definitions and reconciliations of gaap-based measures to non-gaap-based measures . acquisitions our competitive position in the marketplace requires us to maintain an evolving array of technologies , products , services and capabilities . as a result of the continually evolving marketplace in which we operate , we regularly evaluate acquisition opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities . acquisition of xmedius on march 9 , 2020 , we acquired all the equity interest in xmedius for $ 73.3 million in an all cash transaction . xmedius is a provider of secure information exchange and unified communication solutions . we believe the acquisition complements our customer experience management ( cem ) and business network ( bn ) platforms . the results of operations of xmedius have been consolidated with those of opentext beginning march 9 , 2020 . acquisition of carbonite on december 24 , 2019 , we acquired all the equity interest in carbonite , a leading provider of cloud-based subscription backup , disaster recovery and endpoint security to smbs , consumers , and a wide variety of partners . total consideration for carbonite was $ 1.4 billion , paid in cash ( inclusive of cash acquired ) . we believe the acquisition increases our position in the data protection and endpoint security space , further strengthens our cloud capabilities and opens a new route to connect with customers through carbonite 's marquee smb and consumer channels and products . the results of operations of carbonite have been consolidated with those of opentext beginning december 24 , 2019 . acquisition of dynamic solutions group inc. ( the fax guys ) on december 2 , 2019 , we acquired certain assets and certain liabilities of the fax guys , for $ 5.1 million , of which $ 1.0 million is currently held back and unpaid in accordance with the terms of the purchase agreement . the results of operations of the fax guys have been consolidated with those of opentext beginning december 2 , 2019 . we believe our acquisitions support our long-term strategic direction , strengthen our competitive position , expand our customer base , provide greater scale to accelerate innovation , grow our earnings and provide superior shareholder value . we expect to continue to strategically acquire companies , products , services and technologies to augment our existing business . our acquisitions , particularly significant ones , can affect the period-to-period comparability of our results . see note 19 `` acquisitions '' to our consolidated financial statements for more details .
| cost of license revenues decreased by $ 3.0 million during the year ended june 30 , 2020 as compared to the prior fiscal year , primarily as a result of lower third party technology costs . overall , the gross margin percentage on license revenues remained stable at approximately 97 % . 48 2 ) cloud services and subscriptions : cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of software , the end user does not take possession of the software , as well as from end-to-end fully outsourced b2b integration solutions to our customers ( collectively referred to as cloud arrangements ) . the software application resides on our hardware or that of a third party , and the customer accesses and uses the software on an as-needed basis via an identified line . our cloud arrangements can be broadly categorized as paas , saas , cloud subscriptions and managed services . cost of cloud services and subscriptions revenues is comprised primarily of third party network usage fees , maintenance of in-house data hardware centers , technical support personnel-related costs , and some third party royalty costs . replace_table_token_7_th cloud services and subscriptions revenues increased by $ 249.9 million or 27.5 % during the year ended june 30 , 2020 as compared to the prior fiscal year ; up 28.4 % after factoring in the impact of $ 8.1 million of foreign exchange rate changes . geographically , the overall change was attributable to an increase in americas of $ 222.7 million , an increase in emea of $ 26.6 million and an increase in asia pacific of $ 0.6 million . there were 44 cloud services deals greater than $ 1.0 million that closed during fiscal 2020 , compared to 46 deals during fiscal 2019. cost of cloud services and subscriptions revenues increased by $ 65.9 million during the year ended june 30 , 2020 as compared to the prior fiscal year . this was due to an increase in labour-related costs of $ 54.2 million ,
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we have the ability to increase our operating capacity significantly without further investment in facilities or equipment if demand levels increase . we leased 92 of the more than 300 processing and distribution facilities that we maintained as of december 31 , 2019. in addition , we have ground leases and other leased spaces , such as depots , sales offices and storage , for a total of 6.1 million square feet . total square footage on all company-owned properties is approximately 28.3 million and represents approximately 82 % of the total square footage of our operating facilities . in addition , we lease our corporate headquarters in los angeles , california . our leases of facilities and other spaces expire at various times through 2031 and our ground leases expire at various times through 2068. the aggregate monthly rent amount for these properties is approximately $ 2.6 million . item 3. legal proceeding s from time to time , we are named as a defendant in legal actions . generally , these actions arise in the ordinary course of business . we are not currently a party to any pending legal proceedings other than routine litigation incidental to the business . we expect that these matters will be resolved without having a material adverse effect on our results of operations , financial condition or cash flows . we maintain general liability insurance against risks arising in the ordinary course of business . item 4. mine safety disclosure s not applicable . part i i item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities our common stock is owned by 182 stockholders of record as of february 21 , 2020. our common stock has traded for the past 26 years on the new york stock exchange ( “ nyse ” ) under the symbol “ rs ” and was first traded september 24 16 , 1994. our stockholders of record exclude those stockholders whose shares were held for them in street name through banks , brokers or other nominee accounts . we have paid quarterly cash dividends on our common stock for 60 consecutive years and have never reduced or suspended our dividend . in february 2020 , our board of directors increased the regular quarterly dividend amount 13.6 % to $ 0.625 per share . this recent increase is the 27 th increase in our dividend since our ipo in 1994. further increases in the quarterly dividend rate will be evaluated by the board based on conditions then existing , including our earnings , cash flows , financial condition and capital requirements , or other factors the board may deem relevant . we expect to continue to declare and pay dividends in the future , if earnings are available to pay dividends , but we also intend to continue to retain a portion of earnings for reinvestment in our operations and expansion of our businesses . we can not assure you that any dividends will be paid in the future or that , if paid , the dividends will be at the same amount or frequency as paid in the past . our payment of dividends in the future will depend on business conditions , our financial condition , earnings , liquidity and capital requirements and other factors . on october 23 , 2018 , our board of directors amended our share repurchase plan increasing by 5,000,000 shares the total number of shares authorized to be repurchased and extending the duration of the program through december 31 , 2021. our share repurchase plan does not obligate us to acquire any specific number of shares . under the share repurchase plan , shares may be repurchased in the open market under plans complying with rule 10b-18 under the securities exchange act of 1934 , as amended , or privately negotiated transactions . during the year ended december 31 , 2019 , we repurchased 592,934 shares at an average cost of $ 84.33 per share , or $ 50.0 million in total . as of december 31 , 2019 , we had remaining authorization to purchase an additional 6,433,821 shares . we did not repurchase any shares of our common stock in the three months ended december 31 , 2019 . additional information regarding securities authorized for issuance under all stock-based compensation plans will be included under the caption “ executive compensation — equity compensation plan information ” in our definitive proxy statement for the 2020 annual meeting of stockholders to be held on may 20 , 2020 . stock performance graph this graph is not deemed to be “ filed ” with the u.s. securities and exchange commission ( sec ) or subject to the liabilities of section 18 of the securities exchange act of 1934 ( the exchange act ) , and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the securities act of 1933 or the exchange act . the following graph compares the performance of our common stock with that of the s & p 500 , the russell 2000 and an industry peer group consisting of publicly-traded metals service center companies ( the “ industry peer group ” ) for the five-year period from december 31 , 2014 through december 31 , 2019. the graph assumes , in each case , that an initial investment of $ 100 is made at the beginning of the five-year period . the cumulative total return reflects market prices at the end of each year and the reinvestment of dividends . since there is no nationally-recognized industry index consisting of metals service center companies to be used as a peer group index , reliance constructed the industry peer group . story_separator_special_tag as of december 31 , 2019 , the industry peer group consisted of olympic steel inc. , which has securities listed for trading on nasdaq ; ryerson holding corporation and worthington industries , inc. , each of which has securities listed for trading on the nyse ; and russel metals inc. , which has securities listed for trading on the toronto stock exchange . the returns of each member of the industry peer group are weighted according to that member 's stock market capitalization . 25 the stock price performance shown on the graph below is not necessarily indicative of future price performance . comparison of 5 year cumulative total return among reliance steel & aluminum co. , the s & p 500 index , the russell 2000 index and an industry peer group copyright© 2020 standard & poor 's , a division of s & p global . all rights reserved . copyright© 2020 russell investment group . all rights reserved . replace_table_token_6_th 26 item 6. selected financial dat a we have derived the following selected consolidated financial data for each of the five years ended december 31 , 2019 from our audited consolidated financial statements . the information below should be read in conjunction with part ii , item 7 “ management 's discussion and analysis of financial condition and results of operations ” and the consolidated financial statements and related notes thereto included in part ii , item 8 “ financial statements and supplementary data. ” selected consolidated financial data replace_table_token_7_th ( 1 ) gross profit , calculated as net sales less cost of sales , is a non-gaap financial measure as it excludes depreciation and amortization expense associated with the corresponding sales . about half of our orders are basic distribution with no processing services performed . for the remainder of our sales orders , we perform “ first-stage ” processing , which is generally not labor intensive as we are simply cutting the metal to size . because of this , the amount of related labor and overhead , including depreciation and amortization , is not significant and is excluded from cost of sales . therefore , our cost of sales is substantially comprised of the cost of the material we sell . we use gross profit as shown above as a measure of operating performance . gross profit is an important operating and financial measure , as fluctuations in our gross profit can have a significant impact on our earnings . gross profit , as presented , is not necessarily comparable with similarly titled measures for other companies . ( 2 ) income tax provision ( benefit ) includes a provisional $ 207.3 million net tax benefit in 2017 relating to the tax cuts and jobs act of 2017. see note 11 — “ income taxes ” of part ii , item 8 “ financial statements and supplementary data ” for further information on the impact of the tax legislation . ( 3 ) includes finance lease obligations . 27 item 7. management 's discussion and analysis story_separator_special_tag operations , finance strategic initiatives , pay dividends , and execute purchases under our share repurchase program . 28 effect of demand and pricing changes on our operating results customer demand can have a significant impact on our results of operations . when volume increases , our revenue dollars generally increase , which contributes to increased gross profit dollars . variable costs also increase with volume , primarily our warehouse , delivery , selling , general and administrative expenses . conversely , when volume declines , we typically produce fewer revenue dollars , which can reduce our gross profit dollars . we can reduce certain variable expenses when volumes decline , but we can not easily reduce our fixed costs . pricing for our products generally has a much more significant impact on our results of operations than customer demand levels . our revenue dollars rise in conjunction with pricing increases . our pricing usually increases when the cost of our materials increase . we are typically able to pass higher prices on to our customers . if prices increase and we maintain the same gross profit percentage , we generate higher levels of gross profit and pretax income dollars for the same operational efforts . conversely , if pricing declines , we will typically generate lower levels of gross profit and pretax income dollars . because changes in pricing do not require us to adjust our expense structure other than for profit-based compensation , the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes . in addition , when volume or pricing increases , our working capital ( primarily accounts receivable and inventories ) requirements typically increase , resulting in lower levels of cash flow from operations , which may also require us to increase our outstanding debt and incur higher interest expense . conversely , when customer demand falls , our operations typically generate increased cash flow as our working capital needs decrease . acquisitions 2019 acquisition on december 31 , 2019 , we acquired fry steel company ( “ fry steel ” ) . fry steel is a general line and long bar distributor located in santa fe springs , california . fry steel specializes in the cutting of various bar products including stainless , alloy , aluminum , carbon , brass and bronze . no sales of fry steel were included in our net sales for 2019 . we funded our 2019 acquisition of fry steel with borrowings on our revolving credit facility and cash on hand . 2018 acquisitions on november 1 , 2018 , we acquired all metals holding , llc , including its operating subsidiaries all metals processing & logistics , inc. and all metals transportation and logistics , inc. ( collectively , “ all metals ” ) .
| the decline in our average selling price per ton sold was mainly due to carbon steel pricing trending lower throughout most of 2019. our ability to generate a record gross profit margin of 30.3 % in 2019 despite softening demand and weakened metals pricing was due in part to our continued investments in processing equipment that supported an increase to 51 % in the percentage of our orders we shipped that included value-added processing in 2019 from 49 % in 2018. in addition , our significant capital expenditures that totaled over $ 970 million over the past five years , with approximately 50 % spent on processing equipment , drove a 600 basis point increase in the percentage of our orders that include value-added processing from 45 % in 2014 to 51 % in 2019 , resulting in an increase in our gross profit margin from 25.1 % in 2014 to our record gross profit margin of 30.3 % in 2019 . strong operating income and effective working capital management generated record cash flow provided by operations of $ 1.30 billion in 2019 , nearly double our cash flow provided by operations of $ 664.6 million in 2018. as of december 31 , 2019 , our net debt-to-total capital ratio was 21.4 % , down significantly from 30.8 % as of december 31 , 2018 due to the repayment of approximately $ 620 million of indebtedness . as a result of our lower debt levels , the applicable margins over lending reference rates were reduced during the 2019 third quarter . we believe that our broad end market exposure , diverse product offerings , focus on small order sizes , when-needed delivery and significant value-added processing capabilities along with our wide geographic footprint will continue to mitigate earnings volatility compared to many of our competitors . we believe that these business model characteristics combined with pricing discipline and our strategy of concentrating on higher margin business differentiate us from our peers and have allowed us to achieve industry-leading
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we measure recoverability of assets to be held and used by a comparison of the carrying amount of an asset to estimated future undiscounted net cash flows we expect to be generated by the eventual use of the asset . if such assets are considered to be impaired and therefore the costs of the assets deemed to be unrecoverable , the impairment to be recognized would be the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . our water assets will be utilized in the provision of water services which inevitably will encompass many housing and economic cycles . our service capacities are quantitatively estimated based on an average single family home utilizing .4 acre feet of water per year . our water supplies are legally decreed to us through the water court . the water court decree allocates a specific amount of water ( subject to continued beneficial use ) which historically has not changed . thus , individual housing and economic cycles typically do not have an impact on the number of connections we can serve with our supplies or the amount of water legally decreed to us relating to these supplies . we report assets to be disposed of at the lower of the carrying amount or fair value less costs to sell . our front range and arkansas river water rights we determine the undiscounted cash flows for our denver based assets and the arkansas river valley assets by estimating tap sales to potential new developments in our service area and along the front range , using estimated future tap fees less estimated costs to provide water services , over an estimated development period . actual new home development in our service area and the front range , actual future tap fees , and actual future operating costs , inevitably will vary significantly from our estimates , which could have a material impact on our financial statements as well as our results of operations . we performed an impairment analysis as of august 31 , 2011 , and determined that our denver based assets and our arkansas river valley assets are not impaired and their costs are deemed recoverable . our impairment analysis is based on development occurring within areas in which we have service agreements ( e.g . sky ranch and the lowry range ) as well as in surrounding areas , including the front range and the i-70 corridor . we estimate that we have the ability to provide water service to 180,000 sfe 's using our combined rangeview water supply , sky ranch water and arkansas river water assets which have a carrying value of $ 100.9 million as of august 31 , 2011. based on the carrying value of our water rights , the long term and uncertain nature of any development plans , current tap fees of $ 22,500 and estimated gross margins , we estimate that we would need to add 8,300 new water connections ( requiring 4.9 % of our portfolio ) to generate net revenues sufficient to recover the costs of our rangeview water supply and arkansas river water assets . if tap fees increase 5 % , we would need to add 7,900 new water taps ( requiring 4.7 % of our portfolio ) to recover the costs of our rangeview water supply and arkansas river water assets . if tap fees decrease 5 % , we would need to add 8,700 new water taps ( requiring 5.2 % of our portfolio ) to recover the costs of our rangeview water supply and arkansas river water assets . - 26 - although changes in the housing market throughout the front range have delayed our estimated tap sale projections , these changes do not alter our water ownership , nor our service obligations to existing properties or the number of sfe 's we can service . our paradise water rights every six years the paradise water supply is subject to a finding of reasonable diligence review by the water court and the state engineer . for a favorable finding we must demonstrate that we are diligently pursuing the development of the water rights . if we do not receive a favorable finding of reasonable diligence , our right to the paradise water supply would be lost and we would be required to impair the paradise water supply asset . the most recent diligence review was started in our fiscal 2005 and was completed in 2008 , but not without objectors and not without us having to agree to certain stipulations to remove the objections . in order to continue to maintain the paradise water right , by 2014 we must ( i ) select an alternative reservoir site ; ( ii ) file an application in water court to change the place of storage ; ( iii ) identify specific end users and place ( s ) of use of the water ; and ( iv ) identify specific source ( s ) of the water rights for use . we fully intend to meet the stipulations by the date of the next diligence review . for our paradise water supply , we determined the undiscounted cash flows by estimating the proceeds we could derive from the leasing of the water rights to commercial , industrial , and agricultural users along the western slope of colorado , and based on the impairment analysis we completed at august 31 , 2011 , we believe the paradise water supply is not impaired and the costs are deemed recoverable . tap participation fee as partial consideration for our arkansas river water , we agreed to pay hp a & m 10 % of the tap fees we receive from the next 40,000 water taps we sell from and after the date of the arkansas river agreement . as of august 31 , 2011 , 38,937 water taps remain subject to the tap participation fee . story_separator_special_tag the tap participation fee is payable when we sell water taps and receive funds from such water tap sales or other dispositions of property purchased from hp a & m . the tap participation fee liability is valued by estimating new home development in our service area over an estimated development period . this was done by utilizing third party historical and projected housing and population growth data for the denver metropolitan area applied to an estimated development pattern supported by historical development patterns of certain master planned communities in the denver metropolitan area . this development pattern was then applied to projected future water tap fees determined by using historical water tap fee trends . actual new home development in our service area and actual future tap fees inevitably will vary significantly from our estimates , which could have a material impact on our financial statements as well as our results of operations . the difference between the net present value and the estimated realizable value will be imputed as interest expense using the effective interest method over the estimated development period utilized in the valuation of the tap participation fee . an important component in our estimate of the value of the tap participation fee is that water tap fees will continue to increase in the coming years . tap fees are market based and increases in tap fees reflect , among other things , the increasing costs to acquire and develop new water supplies . tap fees thus are partially indicative of the increasing value of our water assets . we continue to assess the value of the tap participation fee liability and update our valuation analysis whenever events or circumstances indicate the assumptions used to estimate the value of the liability have changed materially . based on updated new home activity in the denver metropolitan area , we updated the estimated discounted cash flow analysis as of february 28 , 2009. we completed an update to our analysis of the fair value of the tap participation fee as of august 31 , 2011. we determined that changes in the projected estimated discounted cash flows did not materially impact our february 28 , 2009 fair value analysis . however , see note 14 to the accompanying financial statements regarding a revaluation of the tap participation fee subsequent to august 31 , 2011. as a result of events that occurred effective september 1 , 2011 , which are described in note 14 to the accompanying financial statements , we will revalue the tap participation fee during the three months ending november 30 , 2011. because these events did not occur until after august 31 , 2011 , none of the events noted above were deemed to have an impact on the august 31 , 2011 , tap participation fee balance or the amount of interest expense imputed during the fiscal year ended august 31 , 2011. the revaluation of the tap participation fee does not impact the liability 's balance or imputed interest as reported in the accompanying financial statements as of august 31 , 2011. instead , changes to the valuation of the tap participation fee impact the net realizable value and future imputed interest expense . see note 14 to the accompanying financial statements for disclosures regarding the impact of the revaluation to the tap participation fee effective september 1 , 2011 . - 27 - obligations payable by hp a & m 60 of the 80 properties we acquired pursuant to the arkansas river agreement are subject to outstanding promissory notes with principal and accrued interest totaling $ 10.0 million at august 31 , 2011 , and balloon payments totaling $ 5.5 million due within twelve months of august 31 , 2011. these notes are secured by deeds of trust on the properties . we did not assume any of these promissory notes and are not responsible for making any of the required payments under these notes . this responsibility remains solely with hp a & m . however , in the event of default by hp a & m , we may make payments on any or all of the notes and cure any or all defaults . if we do not cure the defaults , we will lose the properties securing the defaulted notes and the water rights associated with said properties . if hp a & m defaults on any of the promissory notes , we can foreclose on a defined amount of pure cycle stock issued to hp a & m being held in escrow and reduce the tap participation fee by two times the amount of notes defaulted on by hp a & m . although the likelihood of hp a & m defaulting on the notes is deemed remote , which is the primary reason these notes are not reflected on our balance sheet , we continue to monitor the status of the notes for any indications of default . we are not aware of any defaults by hp a & m as of august 31 , 2011. share-based compensation we estimate the fair value of share-based payment awards made to key employees and directors on the date of grant using the black-scholes option-pricing model . we then expense the fair value over the vesting period of the grant using a straight-line expense model . the fair value of share-based payments requires management to estimate/calculate various inputs such as the volatility of the underlying stock , the expected dividend rate , the estimated forfeiture rate and an estimated life of each option . we do not expect any forfeiture of option grants ; therefore the compensation expense has not been reduced for estimated forfeitures . these assumptions are based on historical trends and estimated future actions of option holders and may not be indicative of actual events which may have a material impact on our financial statements . see note 8 to the accompanying financial statements for further details on share-based compensation expense .
| water delivery gross margin ( not including depletion charges ) increased from 60 % in fiscal 2009 to 63 % in fiscal 2010 , mainly due to our efforts to manage costs . in addition , due to reductions in water usage , we were able to positively manage the energy usage at our facilities . finally , the district increased water usage fees effective july 1 , 2010. wastewater fees increased 1 % in fiscal 2010 , which is a result of increased monthly fees effective july 1 , 2010. wastewater gross margins decreased from 70 % in fiscal 2009 to 69 % in fiscal 2010 , which was not a material change . general and administrative expenses table g details significant items , and changes , included in our general and administrative expenses ( g & a expenses ) as well as the impact that share-based compensation has on our g & a expenses for the fiscal years ended august 31 , 2011 , 2010 and 2009 , respectively . replace_table_token_7_th fiscal 2011 compared to fiscal 2010 salary and related expenses increased mainly as a result of bonuses paid to management following the successful completion of the financing and acquisition of the sky ranch property . as noted on the bottom line of table g , salary and related expenses excluding share-based compensation expenses increased 37 % during fiscal 2011 compared to fiscal 2010 , mainly as a result of the employee bonuses noted above . stock based compensation expenses increased 8 % during fiscal 2011 compared to fiscal 2010 due to higher stock prices ( which result in higher fair values of options per the black-scholes option valuation model ) and additional options granted to a new board member in fiscal 2011. flcc water assessment fees are the fees we pay for our share of the maintenance of the fort lyon canal in the arkansas river valley . the fees are approved by the shareholders of the flcc . the flcc fees increased 30 % during fiscal 2011 compared to fiscal 2010 as a result of the purchase of project water by the flcc during our fiscal 2011 , which was
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( 3 ) the charges include unvested stock option payouts and investment banker and other transaction fees , along with integration-related costs incurred in connection with the covidien acquisition and changes in the fair value of contingent consideration . ( 4 ) effective in fiscal year 2019 , we exclude unrealized and realized gains and losses on our minority investments as we do not believe that these components of income or expense have a direct correlation to our ongoing or future business operations . ( 5 ) the net charge , which includes $ 485 million recognized in interest expense and ( $ 28 million ) recognized in other operating expense , net , primarily relates to the early redemption of approximately $ 6.4 billion of medtronic inc. and cifsa senior notes . ( 6 ) the charges represent acquired ipr & d in connection with asset acquisitions and charges recognized in connection with the impairment of ipr & d assets . ( 7 ) the net charge relates to business exits and is primarily comprised of intangible asset impairments . ( 8 ) the net benefit relates to the impacts of u.s. tax reform , along with intercompany legal entity restructuring , and the finalization of certain income tax aspects of the divestiture . ( 9 ) the charges primarily include integration-related costs incurred in connection with the covidien acquisition and changes in the fair value of contingent consideration . ( 10 ) the charge , included within interest expense in our consolidated statements of income , was recognized in connection with the early redemption of approximately $ 1.2 billion of medtronic inc. senior notes . ( 11 ) the transaction expenses incurred in connection with the divestiture . ( 12 ) the charge was recognized in connection with the impairment of certain cost and equity method investments . ( 13 ) the charge was recognized in connection with the impairment of ipr & d assets . ( 14 ) the gain on the divestiture of the patient care , deep vein thrombosis , and nutritional insufficiency businesses . ( 15 ) the charges represent idle facility costs , asset write-downs , and humanitarian efforts related to hurricane maria . ( 16 ) the net charge primarily relates to the impact of u.s. tax reform , inclusive of the transition tax , remeasurement of deferred tax assets and liabilities , and the decrease in the u.s. statutory tax rate . additionally , the net charge includes the impacts from the divestiture , and the net tax cost associated with an internal reorganization , which were partially offset by the tax effects from the intercompany sale of intellectual property . ( 17 ) the charge represents the amortization of step-up in fair value of inventory acquired in connection with the covidien acquisition . ( 18 ) the net charge primarily relates to the tax effect from the recognition of the outside basis of certain subsidiaries which were included in the divestiture , along with certain tax charges recorded in connection with the redemption of an intercompany minority interest , and the resolution of various tax matters from prior periods . 31 net sales segment and division the table below illustrates net sales by segment and division for fiscal years 2019 , 2018 , and 2017 : replace_table_token_9_th net sales growth for fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to strong growth in our restorative therapies group and diabetes group , partially offset by the impact of the divestiture within the minimally invasive therapies group . our performance displays our continued execution against our three growth strategies : therapy innovation , globalization , and economic value . we continue to allocate our capital to higher growth markets and new opportunities that create competitive advantages and capitalize on the long-term trends in healthcare : namely , the desire to improve clinical outcomes ; the growing demand for expanded access to care ; and the optimization of cost and efficiency within healthcare systems . we continue to see an acceleration in our innovation cycle within our therapy innovation growth strategy . our segments invest in a pipeline of groundbreaking medical technology , with several recent product launches and adoption of new therapies contributing to net sales growth . we remain focused on our globalization strategy , as net sales in emerging markets grew 6 percent during fiscal year 2019 as compared to fiscal year 2018 . our emerging market performance continues to benefit from geographic diversification , with strong , balanced results around the world . finally , in our third growth strategy , economic value , we continue to execute our value-based healthcare signature programs and aggressively develop unique , value-based healthcare solutions that directly link our therapies to improving outcomes while delivering improved economic value to the payers and providers . we remain focused on leading the shift to healthcare payment systems that reward value and improved patient outcomes over volume . 32 segment and market geography the tables below include net sales by market geography for each of our segments for fiscal years 2019 , 2018 , and 2017 : replace_table_token_10_th replace_table_token_11_th ( 1 ) u.s. includes the united states and u.s. territories . ( 2 ) non-u.s. developed markets include japan , australia , new zealand , korea , canada , and the countries within western europe . ( 3 ) emerging markets include the countries of the middle east , africa , latin america , eastern europe , and the countries of asia that are not included in the non-u.s. developed markets , as defined above . net sales increases in the u.s. for fiscal year 2019 as compared to fiscal year 2018 were primarily attributable to strong growth in our restorative therapies group and diabetes group , partially offset by the impact of the divestiture within the minimally invasive therapies group . net sales remained flat in non-u.s. developed markets for fiscal year 2019 , reflecting consistent growth across our segments in japan and korea , partially offset by declines in australia . story_separator_special_tag net sales growth in emerging markets continues to reflect our broad diversification and was driven by strong performance in china , the middle east & africa , eastern europe , and both south and southeast asia . currency had an unfavorable impact on net sales in non-u.s. developed markets and emerging markets of $ 205 million and $ 250 million , respectively , for fiscal year 2019 . net sales declines in the u.s. for fiscal year 2018 as compared to fiscal year 2017 were primarily attributable to the divestiture within the minimally invasive therapies group , partially offset by growth in our other segments . net sales growth in non-u.s. 33 developed markets was led by strong performance in western europe . net sales growth in emerging markets continues to reflect our broad diversification and was driven by strong performance in all of our segments , with strong performance in china , latin america , eastern europe , and the middle east & africa . looking ahead , our segments are likely to face competitive product launches and pricing pressure , geographic macro-economic risks , reimbursement challenges , impacts from changes in the mix of our product offerings , the timing of product registration approvals , replacement cycle challenges , and fluctuations in currency exchange rates . additionally , changes in procedural volumes could affect our cardiac and vascular , minimally invasive therapies , and restorative therapies groups . cardiac and vascular group the cardiac and vascular group 's products include pacemakers , insertable and external cardiac monitors , cardiac resynchronization therapy devices ( crt-d ) , implantable cardioverter defibrillators ( icd ) , leads and delivery systems , ventricular assist systems , ablation products , electrophysiology catheters , products for the treatment of atrial fibrillation , information systems for the management of patients with cardiac rhythm & heart failure devices , products designed to reduce surgical site infections , coronary and peripheral stents and related delivery systems , balloons and related delivery systems , endovascular stent graft systems , heart valve replacement technologies , cardiac tissue ablation systems , and open heart and coronary bypass grafting surgical products . the cardiac and vascular group also includes care management services and cath lab managed services ( clms ) within the cardiac rhythm & heart failure division . the cardiac and vascular group 's net sales for fiscal year 2019 were $ 11.5 billion , an increase of 1 percent as compared to fiscal year 2018 . currency had an unfavorable impact on net sales for fiscal year 2019 of $ 182 million . the cardiac and vascular group 's net sales for fiscal year 2019 , as compared to fiscal year 2018 , benefited from net sales growth in coronary & structural heart and aortic , peripheral & venous ( formerly known as aortic & peripheral vascular ) divisions , offset by declines in cardiac rhythm & heart failure . cardiac rhythm & heart failure net sales for fiscal year 2019 were $ 5.8 billion , a decrease of 2 percent as compared to fiscal year 2018 . cardiac rhythm & heart failure net sales decrease for fiscal year 2019 was driven by declines in heart failure , care management services , and clms , offset by growth in arrhythmia management . the decline in heart failure was driven by crt-d replacements and lvad headwinds due to a competitor product launch in the u.s. and changes in the u.s. heart transplant guidelines . the growth in arrhythmia management was driven by af solutions due to the continued strength of the arctic front cardiac cryoablation catheter system and diagnostics due to growth from our reveal linq insertable cardiac monitor . arrhythmia management net sales growth also benefited from strong adoption of the tyrx absorbable antibacterial envelope through further expansion of value-based health-care arrangements . coronary & structural heart net sales for fiscal year 2019 were $ 3.7 billion , an increase of 5 percent as compared to fiscal year 2018 . coronary & structural heart net sales growth for fiscal year 2019 was driven by the global strength of the corevalve evolut pro transcatheter aortic valve system ( evolut pro ) and continued penetration into intermediate risk in the u.s. , as well as growth in cannulae , including the bio-medicus next gen cannulae , guide catheters , and coronary balloons . aortic , peripheral & venous net sales for fiscal year 2019 were $ 1.9 billion , an increase of 4 percent as compared to fiscal year 2018 . aortic , peripheral & venous net sales growth for fiscal year 2019 was driven by strong performance of the venaseal vein closure system , for which final approval for reimbursement payment in the u.s. from the centers for medicare & medicaid services ( cms ) was received in january 2018 , growth in percutaneous transluminal angioplasty ( pta ) balloons , as well as the launch of the valiant navion thoracic stent graft system which received u.s. fda and ce mark approval in october and november 2018 , respectively . cardiac rhythm & heart failure net sales for fiscal year 2018 were $ 5.9 billion , an increase of 5 percent as compared to fiscal year 2017 . cardiac rhythm & heart failure net sales growth for fiscal year 2018 was driven by strong growth in arrhythmia management and heart failure . the strong growth in arrhythmia management was largely due to growth in af solutions , driven by the continued global acceptance of our arctic front cardiac cryoablation catheter system , growth in diagnostics , driven by the continued adoption of the reveal linq insertable cardiac monitor , as well as strong adoption of the micra transcatheter pacing system and tyrx absorbable antibacterial envelope .
| the $ 2.2 billion decrease in net cash provided in fiscal year 2018 as compared to fiscal year 2017 was primarily driven by an increase in cash paid for taxes of $ 1.5 billion , an increase in net cash outflows for collateral related to our derivative instruments of $ 145 million , cash paid for divestiture-related expenses of approximately $ 100 million , and a decrease in cash collected from customers . the increase in cash paid for income taxes was primarily a result of the aforementioned $ 1.1 billion puerto rico pre-payment , tax payments related to the intercompany sale of intellectual property and the divestiture , as well as settlement payments for u.s. federal income taxes for fiscal years 2012 to 2014 and audit settlements outside of the u.s. investing activities the $ 6.6 billion increase in net cash used in fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to the divestiture in fiscal year 2018 , which resulted in net proceeds of $ 6.1 billion , and an increase in cash paid for acquisitions of $ 1.7 billion , primarily due to the acquisition of mazor and epix during fiscal year 2019 , partially offset by an increase in net proceeds from purchases and sales and maturities of investments . the $ 7.4 billion increase in net cash provided in fiscal year 2018 as compared to fiscal year 2017 was primarily attributable to the divestiture in fiscal year 2018 , a decrease in cash paid for acquisitions of $ 1.2 billion , primarily due to the acquisition of heartware during fiscal year 2017 , and a decrease in additions to property , plant , and equipment . financing activities the $ 6.5 billion decrease in net cash used in fiscal year 2019 as compared to fiscal year 2018 was primarily attributable to the issuance of $ 7.8 billion of euro-denominated senior notes in fiscal year 2019 , partially offset by an increase in share repurchases of $ 706 million and an increase in repayments of commercial paper . in fiscal year 2019 , we repaid $ 7.9 billion of long-term debt primarily through the use of the net proceeds from the euro-debt issuance . in fiscal year 2018 , we repaid $
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we currently intend to fund any acquisitions through loans or additional issuances of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising the capital necessary to consummate any acquisitions , whether on favorable terms or at all . we operate in two reportable segments : our entertainment publicity and marketing segment and our content production segment . the entertainment publicity and marketing segment comprises 42west , the door and viewpoint and provides clients with diversified services , including public relations , entertainment content marketing , strategic marketing consulting , creative branding and in-house production of content for marketing . the content production segment comprises dolphin films and dolphin digital studios and specializes in the production and distribution of digital content and feature films . 21 going concern in the audit opinion for our financial statements as of and for the year ended december 31 , 2018 , our independent auditors included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern based upon our accumulated deficit as of december 31 , 2018 and our level of working capital . the financial statements do not include any adjustments that might result from the outcome of these uncertainties . management is planning to raise any necessary additional funds through loans and additional sales of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising any necessary additional capital or securing loans . such issuances of additional securities would further dilute the equity interests of our existing shareholders , perhaps substantially . with the acquisitions of 42west , the door and viewpoint , we are currently exploring opportunities to expand the services currently being offered by them to the entertainment and hospitality community . in addition , we are exploring ways to reduce expenses by identifying certain costs that can be combined , for example , consolidating certain back office functions such as human resources . there can be no assurance that we will be successful in selling these services to clients or reducing expenses . revenues for the years ended december 31 , 2018 and 2017 , we derived the majority of our revenues from our entertainment publicity and marketing segment . the entertainment publicity and marketing segment derives its revenues from providing public relations services for celebrities , entertainment and targeted content marketing for film and television series , strategic communications services for corporations and public relations , marketing services and brand strategies for hotels and restaurants . we additionally derived revenues from the content production segment primarily from the domestic and international distribution of our feature film , max steel . for the year ended december 31 , 2018 , we also derived revenues from the domestic distribution of believe . the table below sets forth the percentage of total revenue derived from our two segments for the years ended december 31 , 2018 and 2017 : replace_table_token_3_th entertainment publicity and marketing our revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients . we believe that we currently have a stable client base , and we have continued to grow organically through referrals and actively soliciting new business as well as through acquisition of new businesses within the same industry . we earn revenues primarily from the following sources : ( i ) celebrity talent services ; ( ii ) content marketing services under multiyear master service agreements in exchange for fixed project-based fees ; ( iii ) numerous individual engagements for entertainment content marketing services for durations of generally between three and six months ; ( iv ) strategic communications services ; ( v ) engagements for marketing of special events such as food and wine festivals and ( vi ) content productions of marketing materials on a project contract basis . for these revenue streams , we collect fees through either fixed fee monthly retainer agreements or project-based fees . as previously reported , in june 2018 , three of 42west 's senior publicists and their related staff left the firm to form their own company . their departures resulted in a decrease in revenues of approximately $ 3.0 million for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017. we took immediate action to address the departures and have hired , and are continuing to hire , additional senior publicists with existing books of business and talent rosters that we believe will be accretive to our revenues and profits . we earn entertainment publicity and marketing revenues primarily through the following : · talent – we earn fees from creating and implementing strategic communication campaigns for performers and entertainers , including oscar and emmy winning film and television stars , directors , producers , celebrity chefs and grammy nominated recording artists . our services in this area include ongoing strategic counsel , media relations , studio and or network liaison work , and event and tour support . 22 · entertainment marketing and brand strategy – we earn fees from providing marketing direction , public relations counsel and media strategy for entertainment content ( including theatrical films , television programs , dvd and vod releases , and online series ) from all the major studios , as well as content producers ranging from individual filmmakers and creative artists to production companies , film financiers , dvd distributors , and other entities . in addition , we provide entertainment marketing services in connection with film festivals , food and wine festivals , awards campaigns , event publicity and red-carpet management . as part of our services we offer marketing and publicity services tailored to reach diverse audiences . story_separator_special_tag we also provide marketing direction targeted to the ideal consumer through a creative public relations and creative brand strategy for hotel and restaurant groups . our clients for this type of service include major studios , independent producers for whom we create targeted multicultural marketing campaigns and leading hotel and restaurant groups . we expect that increased digital streaming marketing budgets at several large key clients will drive growth of revenue and profit in 42west ' s entertainment marketing division over the next several years . · strategic communications – we earn fees by advising companies looking to create , raise or reposition their public profiles , primarily in the entertainment industry . we believe that growth in 42west 's strategic communications division will be driven by increasing demand for these services by traditional and non-traditional media clients who are expanding their activities in the content production , branding , and consumer products pr sectors . we expect that this growth trend will continue for the next three to five years . we also help studios and filmmakers deal with controversial movies , as well as high-profile individuals address sensitive situations . · creative branding and production – we offer clients creative branding and production services from concept creation to final delivery . our services include brand strategy , concept and creative development , design and art direction , script and copyrighting , live action production and photography , digital development , video editing and composite , animation , audio mixing and engineering , project management and technical support . we expect that our ability to offer these services to our existing clients in the entertainment and hospitality industries will be accretive to our revenue . content production dolphin films for the years ended december 31 , 2018 and 2017 , we derived revenues from dolphin films primarily through the domestic and international distribution of our motion picture , max steel . for the year ended december 31 , 2018 , we also derived revenues from the domestic distribution of believe . the production of the motion picture , max steel , was completed during 2015 and released in the united states on october 14 , 2016. the motion picture did not perform as well as expected domestically , but we secured approximately $ 8.2 million in international distribution agreements prior to its release . as part of our domestic distribution arrangement , we still have the ability to derive revenues from the ancillary markets described below , although the amount of revenue derived from such channels is typically commensurate with the performance of the film in the domestic box office . we earn motion picture revenues through the following : · theatrical – we earn theatrical revenues from the domestic theatrical release of motion pictures licensed to a u.s. theatrical distributor that has agreements with theatrical exhibitors . the financial terms negotiated with the max steel and believe u.s. theatrical distributor provided that we receive a percentage of the box office results , after related distribution fees . · international – we earn international revenues through license agreements with international distributors to distribute our motion pictures in an agreed upon territory for an agreed upon time . several of the international distribution agreements related to max steel were contingent on a domestic wide release that occurred on october 14 , 2016 . 23 · other – we earn additional revenues through dolphin films ' u.s. theatrical distributor which has existing output arrangements for the distribution of productions to home entertainment , video-on-demand , or vod , pay-per-view , or ppv , electronic-sell-through , or est , svod and free and pay television markets . the revenues expected to be derived from these channels are based on the performance of the motion picture in the domestic box office . for the years ended december 31 , 2018 and 2017 , the majority of revenues from max steel were derived from these channels . our ability to receive additional revenues from max steel depends on our ability to repay our loans under our production service agreement and prints and advertising loan agreement from the profits of max steel . max steel did not generate sufficient funds to repay either of these loans prior to the applicable maturity dates . as a result , if the lenders foreclose on the collateral securing the loans , our subsidiary and the max steel vie will lose the copyright for max steel and , consequently , will no longer receive any revenues from max steel . in addition , we would impair the entire capitalized production costs of max steel included as an asset on our balance sheet , which as of december 31 , 2018 , was $ 0.6 million . we are not parties to either of these loan agreements and have not guaranteed to the lenders any of the amounts outstanding under these loans , but we have provided a $ 620,000 backstop to the guarantor of the prints and advertising loan . for a discussion of the terms of such agreements and the $ 620,000 backstop , see liquidity and capital resources below . project development and related services we have a team that dedicates a portion of its time to sourcing scripts for future development . the scripts can be for either digital or motion picture productions . we have acquired the rights to certain scripts that we intend to produce and release in the future , subject to obtaining financing . we have not yet determined if these projects would be produced for digital or theatrical distribution . our pipeline of feature films includes : · youngblood , an updated version of the 1986 hockey classic ; · out of their league , a romantic comedy pitting husband versus wife in the cut-throat world of fantasy football ; and · ask me , a teen comedy in which a high-school student starts a business to help her classmates create elaborate promposals .
| the assets of open road were sold on december 21 , 2018 to raven capital , with the final deal closing in february 2019. we expect that our domestic distribution agreements for max steel and believe , which were purchased in the sale of the assets of open road , will continue on the same terms as agreed upon with open road . 25 expenses for the years ended december 31 , 2018 and 2017 , our operating expenses were as follows : replace_table_token_5_th overall expenses increased by approximately $ 3.3 million for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017. the increase is primarily due to ( i ) six months of expenses for the door , which we acquired on july 5 , 2018 and ( ii ) two months of expenses for viewpoint , which we acquired on october 31 , 2018 and ( iii ) a full year of expenses for 42west . for the year ended december 31 , 2017 , we included expenses for 42west from the date of acquisition , which was march 30 , 2017. direct costs decreased by approximately $ 2.5 million for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017. direct costs related to the entertainment publicity and marketing segment were approximately $ 1.6 million in 2018 , as compared to $ 0.9 million in 2017. the increase was primarily due to the direct costs associated with the operations of the door and viewpoint from the dates of acquisition and a full year of direct costs for 42west . entertainment publicity and marketing direct costs for 2017 were composed only of nine months of expenses for 42west . direct costs related to the content production segment were approximately $ 0.6 million for 2018 , as compared to $ 3.8 million for 2017. direct costs for the content production segment consisted primarily of ( i ) amortization of capitalized production
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these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . goodwill is tested for impairment on an annual basis as of october 1 and between annual tests if a triggering event occurs . the impairment procedures are performed at the reporting unit level . in testing goodwill , we have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step test . if an entity believes , as a result of its qualitative assessment , that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount including goodwill , the quantitative impairment test is required . otherwise , no further testing is required . the decision to perform a qualitative assessment or perform a complete step 1 analysis is an annual decision made by management based on several factors including budget to actual performance , economic , market and industry considerations such as automotive production rates in the geographic markets we serve and cash flow from operations . generally accepted accounting principles in the u.s. ( gaap ) prescribes a quantitative two-step process of testing for goodwill impairments . the first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit . we considered three main approaches to value ( cost , market and income ) the fair value of the reporting unit and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies . we believe this methodology of valuation is consistent with how market participants would value reporting units . the discount rate and market based multiples used are specifically developed for the units tested regarding the level of risk and end markets served . even though we do use other observable inputs ( level 2 inputs under the gaap hierarchy ) the calculation of fair value for goodwill would be most consistent with level 3 under the gaap hierarchy . we conducted tests for goodwill impairment for years end 2015 and 2014 and concluded no impairment of goodwill had occurred . the pep acquisition was not part of 2015 testing of goodwill . if the carrying value of the reporting unit , including goodwill , is less than fair value of the reporting unit , the goodwill is not considered impaired . if the carrying value is greater than fair value then the potential for impairment of goodwill exists . the potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination . the fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value . our indefinite lived intangible asset is accounted for similarly to goodwill . this asset is tested for impairment at least annually by comparing the fair value to the carrying value , using the relief from royalty rate method , and if the fair value is less than the carrying value , an impairment charge is recognized for the difference . the indefinite lived intangible asset was impaired during the year ended december 31 , 2014 , as management is in the process of phasing out the use of the trade name as a result of the autocam acquisition . income taxes . income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . the calculation of tax assets , liabilities , and expenses under gaap is largely dependent on management judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely than not threshold . specifically , the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon management weighting the current positive and negative evidence for recording tax benefits and expenses . additionally , many of our positions are based on future estimates of taxable income and deductibility of tax positions . particularly , our assertion of permanent reinvestment of foreign undistributed earnings is largely based on management 's future estimates of domestic and foreign cash flows and current strategic foreign investment plans . in the event that the actual outcome from future tax consequences differs from management estimates and assumptions or management plans and positions are amended , the resulting change to the provision for income taxes could have a material impact on the consolidated results of operations and statement of financial position . ( see notes 1 and 13 of the notes to consolidated financial statements ) . 26 we did not record a u.s. deferred tax liability for the excess of the book basis over the tax basis of our investments in foreign subsidiaries to the extent the foreign earnings meet the indefinite reversal criteria . as of the year ended december 31 , 2015 , we consider the unremitted foreign earnings of our foreign subsidiaries to be reinvested indefinitely . we base this assertion on two factors . story_separator_special_tag first , our intention to invest in foreign countries that are strategically important to our precision bearing components group and our autocam precision components group and our customers . with the acquisitions completed in 2015 , we have expanded our domestic and international base of operations adding subsidiaries in mexico and china , which will require more foreign investment . second , we have sufficient access to funds in the u.s. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic operational and investment needs . as such , we do not expect unrepatriated foreign earnings to become subject to u.s. taxation . impairment of long-lived assets . our long-lived assets include property , plant and equipment . the recoverability of the long-term assets is dependent on the performance of the companies which we have acquired or built , as well as the performance of the markets in which these companies operate . in assessing potential impairment for these assets , we will consider these factors as well as forecasted financial performance based , in large part , on management business plans and projected financial information which are subject to a high degree of management judgment and complexity . future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized . results of operations during the year ended december 31 , 2014 , we completed the acquisition of four companies : v-s , rfk , chelsea and autocam . the acquisitions of v-s , rfk , chelsea and autocam occurred on january 20 , 2014 , june 20 , 2014 , july 15 , 2014 and august 29 , 2014 , respectively . as such only eleven , six , five , and four months of operations were included in the year ended december 31 , 2014 with respect to v-s , rfk , chelsea and autocam , respectively . during the year ended december 31 , 2015 , we completed the acquisition of two companies : caprock and pep . we acquired caprock on may 29 , 2015 and pep on october 19 , 2015. as such seven and two months of operations were included in the year ended december 31 , 2015 with respect to caprock and pep . in an effort to enhance the comparability of the current and prior year periods , we have aggregated into acquisitions within each financial line item comparison for the years ended december 31 , 2015 and 2014 that were not included in the comparative prior year period . the remaining changes related to our legacy business . devaluation of the euro against the u.s. dollar the euro devalued against the u.s. dollar beginning in the latter part of the third quarter of 2014 and accelerated during the fourth quarter of 2014 and into the first quarter of 2015. during these periods , the euro to u.s. dollar dropped from approximately $ 1.36 in june 2014 to $ 1.08 in march 2015 , representing an approximate 20 % decline in value . the exchange rate ranged between $ 1.08 and $ 1.12 for the remainder of the year . the devaluation of the euro significantly impacted the translation of our euro denominated sales and costs when comparing year over year activity . the euro translation impact , and the translation impact of other currencies , is highlighted below in the overall results as foreign exchange effects . in addition to translation effects , the devaluation of the euro impacted the value of certain intercompany loan receivables denominated in euros that resulted in an unfavourable transactional impact . 27 the following table shows fluctuations in exchange rates in 2014 and 2015. the following table sets forth for the periods indicated selected financial data and the percentage of our net sales represented by each income statement line item presented . as a percentage of net sales for the year ended december 31 , replace_table_token_6_th sales concentration sales to various u.s. and foreign divisions of skf , one of the largest bearing manufacturers in the world , accounted for approximately 16 % of consolidated net sales in 2015. during 2015 , sales to various u.s. and foreign divisions of our ten largest customers accounted for approximately 53 % of our consolidated net sales . none of our other customers individually accounted for more than 10 % of our consolidated net sales for 2015. the loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our operating profit margin due to the operational leverage these customers provide . this could lead to sales volumes not being high enough to cover our current cost structure or to provide adequate operating cash flows or cause us to incur additional restructuring and or impairment costs . due to a limit on the amount of excess bearing component production capacity in the markets we serve , we believe it would be difficult for any of our top ten customers to take a significant portion of our business away in the short term . 28 year ended december 31 , 2015 compared to the year ended december 31 , 2014. the year ended december 31 , 2015 , was significantly impacted by certain costs related to the pep acquisition and to a lesser extent one other acquisition completed in 2015. the net after tax impact of these costs was $ 43.2 million .
| 33 autocam precision components group replace_table_token_14_th the increased sales during 2014 compared to 2013 were due to sales added with the acquisitions of autocam ( four months of sales ) and v-s ( eleven months of sales ) . additionally , sales increased due to greater demand with certain customers in the north american automotive market generally in line with the overall growth in automotive production and greater demand with our hvac customer . the main driver of the increased segment income from operations was income from operations of the two acquired companies which added $ 3.6 million . the segment income from operations was further impacted by $ 2.5 million in incremental income from increased sales volumes and $ 2.3 million in income from continuous improvement projects and operational improvement . partially offsetting these increases were the unfavorable impacts of price/mix of $ 1.6 million . changes in financial condition from december 31 , 2014 to december 31 , 2015. from december 31 , 2014 to december 31 , 2015 , our total assets increased by $ 680.8 million and our current assets increased by $ 37.4 million . the majority of these increases were due to total assets and current assets acquired of $ 741.6 million and $ 71.2 million , respectively , and the related preliminary fair value step-ups for the two acquisitions completed in 2015. foreign exchange translation impacted the balance sheet in comparing changes in account balances from december 31 , 2014 to december 31 , 2015 by decreasing total assets $ 35.7 million and current assets $ 12.5 million . beyond acquisition and foreign exchange effects , the accounts receivable balance at december 31 , 2015 , was higher due to increased sales volume experienced in 2015 compared with sales levels in 2014. our inventory balance increased $ 28.4 million due primarily to the pep acquisition . additionally , other non-current assets increased by $ 5.4 million due to debt issuance cost incurred related to our new credit facilities entered into concurrent with the pep acquisition , net of amortization . from december 31 , 2014 to december 31 ,
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gross margin increased $ 579 million , or 17 % , to $ 3.9 billion in 2010 compared with $ 3.4 billion in 2009. key drivers of the increase included : the favorable impact of foreign currency of $ 212 million ; an increase in demand at our generation and utilities businesses in latin america ; higher generation rates and volume at masinloc in the philippines ; and the impact of the consolidation of cartagena , in spain , in accordance with the new consolidation accounting guidance which became effective january 1 , 2010. these increases were partially offset by an increase in fixed costs in latin america , largely driven by bad debt recoveries and a reduction in bad debt expense in brazil in 2009 that did not recur . net income attributable to the aes corporation decreased $ 649 million to $ 9 million in 2010 , compared to $ 658 million in 2009. key drivers of the decrease included : impairment losses in new york related to our eastern energy facilities ( whose results of operations are included in discontinued operations ) , in california related to our southland ( huntington beach ) generation facility , in hungary related to our tisza ii generation facility and in texas related to our deepwater facility ; a decrease in gain on sale of investments due to the sale of our businesses in northern kazakhstan which occurred in 2009 ; and a decrease in other income due to the reduction in interest and penalties in 2009 associated with federal tax debts at eletropaulo and sul as a result of the programa de recuperacao fiscal ( refis ) program and a favorable court decision in 2009 enabling eletropaulo to receive reimbursement of excess non-income taxes paid from 1989 to 1992 in the form of tax credits to be applied against future tax liabilities . these decreases were partially offset by : the gain on sale of discontinued operations related to the sale of barka which occurred in august 2010 ; an increase in net equity in earnings of affiliates partially offset by income tax expense related to the sale of the company 's indirect investment in cemig ; goodwill impairment of our business in kilroot that occurred in 2009 ; lower income tax expense due to 2010 asset impairments primarily recorded at certain u.s subsidiaries as referenced above ; and 128 an increase in gross margin as described above . net cash provided by operating activities increased $ 1.3 billion , or 57 % , to $ 3.5 billion in 2010 compared with $ 2.2 billion in 2009. this net increase was primarily due to the following : an increase of $ 837 million at our latin american utilities due to a one-time increase in tax payments in 2009 associated with a tax amnesty program of $ 326 million , higher working capital requirements during 2009 related to payments on the settlement of swap agreements of $ 65 million and in 2010 , net cash provided by operating activities benefited from the one-time cash savings related to the utilization of tax credits received as a result of the refis program , as well as a $ 50 million decrease in employer contributions to pension plans and lower payments for contingencies ; an increase of $ 215 million at our latin american generation businesses due to the higher gross margin in 2010 combined with improved working capital mainly as a result of higher collections of value added taxes and accounts receivable ; an increase of $ 99 million at masinloc in the philippines due to higher gross margin ; and an increase of $ 22 million as a result of the acquisition of ballylumford in northern ireland . these increases were partially offset by a decrease of $ 191 million in operating cash flows from discontinued operations compared to 2009. in 2010 , net cash provided by operating activities of discontinued and held for sale businesses was $ 82 million , including $ 33 million from businesses sold in 2010. non-gaap measure we define adjusted earnings per share ( adjusted eps ) as diluted earnings per share from continuing operations excluding gains or losses of the consolidated entity due to ( a ) mark-to-market amounts related to derivative transactions , ( b ) unrealized foreign currency gains or losses , ( c ) significant gains or losses due to dispositions and acquisitions of business interests , ( d ) significant losses due to impairments , and ( e ) costs due to the early retirement of debt . the gaap measure most comparable to adjusted eps is diluted earnings per share from continuing operations . aes believes that adjusted eps better reflects the underlying business performance of the company and is considered in the company 's internal evaluation of financial performance . factors in this determination include the variability due to mark-to-market gains or losses related to derivative transactions , currency gains or losses , losses due to impairments and strategic decisions to dispose or acquire business interests or retire debt , which affect results in a given period or periods . adjusted eps should not be construed as an alternative to diluted earnings per share from continuing operations , which is determined in accordance with gaap . replace_table_token_17_th ( 1 ) derivative mark-to-market ( gains ) losses were net of income tax per share of $ 0.01 , $ 0.00 and $ 0.00 in 2011 , 2010 and 2009 , respectively . ( 2 ) unrealized foreign currency transaction ( gains ) losses were net of income tax per share of $ 0.00 , ( $ 0.01 ) and $ 0.01 in 2011 , 2010 and 2009 , respectively . story_separator_special_tag 129 ( 3 ) the company did not adjust for the gain or the related tax effect from the sale of its indirect investment in cemig , disclosed in note 7 investments in and advances to affiliates included in item 8 of this form 10-k , in its determination of adjusted eps because the gain was recognized by an equity method investee . the company does not adjust for transactions of its equity method investees in its determination of adjusted eps . ( 4 ) amount includes : kazakhstan gain of $ 98 million , or $ 0.15 per share , related to the termination of a management agreement as well as a gain of $ 13 million , or $ 0.02 per share , related to the reversal of a withholding tax contingency . in addition , there was a gain on sale associated with the shutdown of the hefei plant in china of $ 14 million , or $ 0.02 per share . there were no taxes associated with any of these transactions . ( 5 ) amount includes asset impairments , equity method investment impairments and a goodwill impairment . asset impairments primarily includes impairments of wind turbines and deposits of $ 116 million ( $ 75 million , or $ 0.10 per share , net of income taxes ) , tisza ii of $ 52 million ( $ 50 million , or $ 0.06 per share , net of income taxes ) , kelanitissa of $ 42 million ( $ 38 million , or $ 0.05 per share , net of non-controlling interest ) , and bohemia of $ 9 million , or $ 0.01 per share . equity method investment impairments primarily included the impairments at chigen , including yangcheng , of $ 79 million , or $ 0.10 per share . goodwill impairment at chigen of $ 17 million , or $ 0.02 per share . ( 6 ) amount primarily includes asset impairments at southland ( huntington beach ) of $ 200 million , tisza ii of $ 85 million , and deepwater of $ 79 million ( $ 130 million , or $ 0.17 per share , $ 69 million , or $ 0.09 per share , and $ 51 million , or $ 0.07 per share , net of income tax , respectively ) and goodwill impairment at deepwater of $ 18 million ( or $ 0.02 per share , with no income tax impact ) . ( 7 ) amount includes : goodwill impairments at kilroot of $ 118 million , or $ 0.18 per share , and in the ukraine of $ 4 million , or $ 0.01 per share ; write-off of development project costs in latin america and asia of $ 19 million ( $ 11 million net of noncontrolling interests , or $ 0.01 per share ) and an impairment of $ 10 million , or $ 0.01 per share , of the company 's investment in a company developing blue gas ( coal to gas ) technology . there was no income tax impact associated with any of these transactions . ( 8 ) amount includes loss on retirement of debt at gener of $ 38 million ( $ 22 million , or $ 0.03 per share , net of income taxes and noncontrolling interests ) and at ipl of $ 15 million ( $ 10 million , or $ 0.01 per share , net of income taxes ) . ( 9 ) amount includes loss on retirement of debt at the parent company of $ 15 million , at andres of $ 10 million , and at itabo of $ 8 million ( $ 10 million , or $ 0.01 per share , net of income tax at the parent company , $ 10 million , or $ 0.01 per share at andres net of income tax , and $ 4 million , or $ 0.01 per share , net of noncontrolling interest at itabo ) . 130 story_separator_special_tag higher volume of $ 139 million at gener in chile due to higher demand ; higher volume and ancillary services of $ 115 million , higher contract prices from ppas indexed to gas and higher spot prices of $ 27 million in the dominican republic ; higher contract prices of $ 58 million in colombia and tietê in brazil ; the positive impact of $ 28 million resulting from the final settlement of the power sales agreement between sul and uruguaiana , our businesses in brazil ; and higher volume of $ 21 million in panama due to higher water inflows into the system . these increases were partially offset by : lower volume sold at uruguaiana of $ 53 million as a result of renegotiation of its power sales agreements ; lower volume due to unfavorable hydrology in colombia and argentina of $ 41 million ; lower contract prices at gener of $ 32 million ; and lower contract prices on ppas indexed to international coal prices in the dominican republic of $ 22 million . excluding the favorable impact of foreign currency translation and remeasurement of $ 106 million , generation gross margin for 2010 increased $ 34 million , or 3 % , from 2009 primarily due to : higher spot prices in argentina of $ 69 million ; higher volume and ancillary services in the dominican republic of $ 55 million ; higher contract prices of $ 33 million in colombia ; the positive impact of $ 28 million resulting from the final settlement of the power sales agreement between sul and uruguaiana , as mentioned above ; and 133 higher volume of $ 23 million in panama .
| . these increases were partially offset by : lower spot prices of $ 128 million in colombia due to higher water inflows in the system during 2011 ; a decrease of $ 32 million related to the final settlement of the power sales agreement between uruguaiana and sul in the second quarter of 2010 ; and a net decrease of $ 19 million related to the forced outage in panama . excluding the favorable impact of foreign currency translation and remeasurement of $ 34 million , primarily in brazil , generation gross margin for 2011 increased $ 309 million , or 21 % , from 2010 primarily due to : higher volume of $ 158 million at generelectrica santiago due to improved fuel availability ; higher volume of $ 110 million in colombia as a result of higher water inflows in the system during 2011 ; higher contract prices and volume of $ 84 million at tietê , as discussed above ; new business of $ 51 million at angamos ; higher ancillary services and gas sales of $ 36 million and higher energy prices of $ 27 million in the dominican republic ; and 132 higher volume and price of $ 26 million at our coal generation businesses in argentina as a result of low hydrology . these increases were partially offset by : lower spot prices of $ 92 million in colombia due to higher water inflows in the system during 2011 ; higher fixed and operating costs of $ 71 million across the region , primarily attributable to higher employee costs , maintenance costs , an increase in non-income taxes in argentina and colombia , and higher depreciation at tietê due to the change in useful lives and salvage values of property , plant and equipment , as a result of new regulatory information received ; a decrease of $ 39 million related to higher spot purchases and the forced outage in panama ; and
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given our diversified investment platform and our ability to provide investment solutions for a global mix of clients , we believe we are positioned to benefit from growth that may occur in the asset management industry . we are continually developing and seeding new investment strategies that extend our existing platforms and assessing potential product acquisitions or other inorganic growth opportunities . recent examples of growth initiatives include the following investment strategies : various quantitative equity strategies , various multi-asset strategies , an international value strategy , a global equity franchise strategy , and a market neutral quantitative equity strategy . we operate in a very competitive and rapidly changing environment . new risks and uncertainties emerge continuously , and it is not possible for our management to predict all risks and uncertainties , nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . see item 1a , “ risk factors ” in this form 10-k. furthermore , net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . overall , we continue to focus on the development of our business , including the generation of stable revenue growth , earnings growth and shareholder returns , the evaluation of potential growth opportunities , the investment in new technology to support the development of existing and new business opportunities , the prudent management of our costs and expenses , the efficient use of our assets and the return of capital to our shareholders . 37 certain data with respect to our financial advisory and asset management businesses is included below . financial advisory as reflected in the following table , which sets forth global m & a industry statistics , the value of all completed transactions , including the subset of completed transactions involving values greater than $ 500 million , increased in 2018 as compared to 2017 , whereas the number of completed transactions decreased in 2018 as compared to 2017. with respect to announced m & a transactions , the value of all transactions , including the subset of announced transactions involving values greater than $ 500 million , increased in 2018 as compared to 2017. additionally , with respect to announced m & a transactions , the number of all announced transactions decreased in 2018 as compared to 2017 , while the number of announced transactions involving values greater than $ 500 million increased in 2018 as compared to 2017. replace_table_token_5_th source : dealogic as of january 4 , 2019. global restructuring activity during 2018 , as measured by the number of corporate defaults , decreased as compared to 2017. the number of defaulting issuers decreased to 77 in 2018 , according to moody 's investors service , inc. , as compared to 104 in 2017. net revenue trends in financial advisory are generally correlated to the level of completed industry-wide m & a transactions and restructuring transactions occurring subsequent to corporate debt defaults , respectively . however , deviations from this relationship can occur in any given year for a number of reasons . for instance , our results can diverge from industry-wide activity where there are material variances from the level of industry-wide m & a activity in a particular market where lazard has significant market share , or regarding the relative number of our advisory engagements with respect to larger-sized transactions , and where we are involved in non-public or sovereign advisory assignments . beginning in the first quarter of 2018 , we ceased separately reporting restructuring revenue within our financial advisory segment , because our financial advisory practices have become highly integrated , and our assignments with clients often incorporate several disciplines . we believe that presenting unified financial advisory revenue is a more accurate representation of our financial advisory business . asset management equity market indices for major markets at december 31 , 2018 generally decreased as compared to such indices at december 31 , 2017. equity market indices for major markets at december 31 , 2017 generally increased as compared to such indices at december 31 , 2016 . 38 the percentage change in major equity market indices ( i ) at december 31 , 201 8 , as compared to such indices at december 31 , 201 7 , and ( ii ) at december 31 , 201 7 , as compared to such indices at december 31 , 2016 , is shown in the table below . replace_table_token_6_th the fees that we receive for providing investment management and advisory services are primarily driven by the level of aum and the nature of the aum product mix . accordingly , market movements , foreign currency exchange rate volatility and changes in our aum product mix will impact the level of revenues we receive from our asset management business when comparing periodic results . a substantial portion of our aum is invested in equities . movements in aum during the period generally reflect the changes in equity market indices . our aum at december 31 , 2018 decreased 14 % versus aum at december 31 , 2017 , primarily due to market and foreign exchange depreciation and net outflows . average aum for 2018 increased 6 % as compared to average aum in 2017. financial statement overview net revenue the majority of lazard 's financial advisory net revenue historically has been earned from the successful completion of m & a transactions , capital advisory services , capital raising , restructuring , shareholder advisory , sovereign advisory and other strategic advisory matters . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . story_separator_special_tag in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lam , lfg and edgewater . asset management net revenue is derived from fees for investment management and advisory services provided to clients . as noted above , the main driver of asset management net revenue is the level and product mix of aum , which is generally influenced by the performance of the global equity markets and , to a lesser extent , fixed income markets as well as lazard 's investment performance , which impacts its ability to successfully attract and retain assets . as a result , fluctuations ( including timing thereof ) in financial markets and client asset inflows and outflows have a direct effect on asset management net revenue and operating income . asset management fees are generally based on the level of aum measured daily , monthly or quarterly , and an increase or reduction in aum , due to market price fluctuations , currency fluctuations , changes in product mix , or net client asset flows will result in a corresponding increase or decrease in management fees . the majority of our investment advisory contracts are generally terminable at any time or on notice of 30 days or less . institutional and individual clients , and firms with which we have strategic alliances , can terminate their relationship with us , reduce the aggregate amount of aum or shift their funds to other types of accounts with different rate structures for a number of reasons , including investment performance , changes in prevailing interest rates and financial market performance . in addition , as lazard 's aum includes significant amounts of assets that are denominated in currencies other than u.s. dollars , changes in the value of the u.s. dollar relative to foreign currencies will impact the value of lazard 's aum and the overall amount of management fees generated by the aum . fees vary with the type of assets managed and the vehicle in which they are managed , with 39 higher fees earned on equity assets and alternative investment funds , such as hedge funds and private equity funds , and lower fees earned on fixed income and cash management products . the company earns performance-based incentive fees on various investment products , including traditional products and alternative investment funds , such as hedge funds and private equity funds . for hedge funds , incentive fees are calculated based on a specified percentage of a fund 's net appreciation , in some cases in excess of established benchmarks or thresholds . the company records incentive fees on traditional products and hedge funds at the end of the relevant performance measurement period , when potential uncertainties regarding the ultimate realizable amounts have been determined . the incentive fee measurement period is generally an annual period ( unless an account terminates or redemption occurs during the year ) . the incentive fees received at the end of the measurement period are not subject to reversal or payback . incentive fees on hedge funds are often subject to loss carryforward provisions in which losses incurred by the hedge funds in any year are applied against certain gains realized by the hedge funds in future periods before any incentive fees can be earned . for private equity funds , incentive fees may be earned in the form of a “ carried interest ” if profits arising from realized investments exceed a specified threshold . typically , such carried interest is ultimately calculated on a whole-fund basis and , therefore , clawback of carried interest during the life of the fund can occur . as a result , incentive fees earned on our private equity funds are not recognized until potential uncertainties regarding the ultimate realizable amounts have been determined , including any potential for clawback . corporate segment net revenue consists primarily of investment gains and losses on the company 's “ seed investments ” related to our asset management business and principal investments in private equity funds , net of hedging activities , as well as gains and losses on investments held in connection with lazard fund interests ( “ lfi ” ) and interest income and interest expense . corporate net revenue also can fluctuate due to changes in the fair value of equity securities and investments classified as “ trading ” , as well as due to changes in interest and currency exchange rates and in the levels of cash , investments and indebtedness . although corporate segment net revenue during 2018 is not significant compared to lazard 's net revenue , total assets in the corporate segment represented 68 % of lazard 's consolidated total assets as of december 31 , 2018 , which are attributable to cash and cash equivalents , investments in debt and equity securities , interests in alternative investment , debt , equity and private equity funds , deferred tax assets and certain assets associated with lfb . 40 operating expenses the majority of lazard 's operating expenses relate to compensation and benefits for managing directors and employees .
| financial advisory operating income was $ 244 million , a decrease of $ 40 million , or 14 % , as compared to operating income of $ 284 million in 2016 and , as a percentage of net revenue , was 17.6 % , as compared to 21.8 % in 2016. asset management the following table shows the composition of aum for the asset management segment ( see item 1 , “ business—principal business lines—asset management—investment strategies ” ) : replace_table_token_16_th total aum at december 31 , 2018 was $ 215 billion , a decrease of $ 34 billion , or 14 % , as compared to total aum of $ 249 billion at december 31 , 2017 , due to market depreciation , foreign exchange depreciation and net outflows . average aum for the year ended december 31 , 2018 increased $ 15 billion , or 6 % , as compared to 2017 . 50 as of both december 31 , 201 8 and 2017 , approximately 88 % of our aum was managed on behalf of institutional clients , including corporations , labor unions , public pension funds , insurance companies and banks , and through sub-advisory relationships , mutual fund sponsors , broker-dealers and registered advisors . as of both december 31 , 2018 and 2017 , approximately 12 % of our aum was managed on behalf of individual client relationships , which are principally with family offices and individuals . as of december 31 , 2018 , aum with foreign currency exposure represented approximately 70 % of our total aum , as compared to 74 % at december 31 , 2017. aum with foreign currency exposure generally declines in value with the strengthening of the u.s. dollar and increases in value as the u.s. dollar weakens , with all other factors held constant . the following is a summary of changes in aum by asset class for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_17_th inflows in the equity asset class were primarily attributable to the global , multi-regional and emerging markets platforms , and inflows in the fixed income asset class were primarily attributable to the emerging markets , global and local platforms . outflows in the equity asset class were primarily attributable to the multi-regional , emerging markets and global equity platforms , and outflows in the fixed income asset class were primarily attributable to the emerging markets and global platforms . replace_table_token_18_th replace_table_token_19_th 51 as of february 19 , 2019 ,
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these restrictions include : price changes based upon fluctuation in a specific index as defined in the contract ; fixed price increases based on stated contract terms ; or price changes based on a cost plus a specific profit margin or other measurement . of these restricted pricing arrangements , approximately 65 % are based on a consumer price index , 20 % are fixed arrangements and the remainder are based upon a cost plus or other specific arrangement . the consumer price index varies from a single historical stated period of time or an average of trailing historical rates over a stated period of time . in addition , many pricing resets lag between the measurement period and the date the revised pricing goes into effect . as a result , current changes in a specific index , such as the consumer price index , may not manifest themselves in our reported pricing for several quarters into the future . adjusted diluted earnings per share the following is a summary of anticipated adjusted diluted earnings per share for the year ended december 31 , 2012 , which are not measures determined in accordance with gaap , excluding loss on extinguishment of debt : ( anticipated ) year ended december 31 , 2012 diluted earnings per share $ 1.80 - 1.84 loss on extinguishment of debt 0.18 adjusted diluted earnings per share $ 1.98 - 2.02 34 we believe that the presentation of adjusted diluted earnings per share , which excludes loss on extinguishment of debt , provides an understanding of operational activities before the financial impact of certain items . we use this measure , and believe investors will find it helpful , in understanding the ongoing performance of our operations separate from items that have a disproportionate impact on our results for a particular period . comparable charges and costs have been incurred in prior periods , and similar types of adjustments can reasonably be expected to be recorded in future periods . our definition of adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies . during 2012 , we expect to call and refinance $ 750.0 million of our june 2017 6.875 % senior notes . as of december 31 , 2011 the unamortized discount associated with these notes was $ 75.8 million . early extinguishment of the notes will result in an impairment charge in the amount of the unamortized note discount as well as any premiums paid to effectuate the repurchase . property and equipment in 2012 , we anticipate receiving approximately $ 860 million of property and equipment as follows : replace_table_token_7_th purchases of property and equipment as reflected on our consolidated statement of cash flows for 2012 are expected to be approximately $ 920 million . the difference between property and equipment received and purchases of property and equipment is approximately $ 60 million of property and equipment received during 2011 but paid for in 2012. story_separator_special_tag size= '' 1 '' > changes in fuel recovery fees increased revenue by 0.5 % in 2010 compared to a decrease of 2.5 % in 2009. revenue benefited from fuel recovery fees resulting from higher fuel costs that were passed along to our customers in 2010. the increase in fuel recovery fees in 2010 compared to 2009 is directly attributable to an increase in fuel costs . changes in recycling commodity prices increased revenue by 1.4 % in 2010 compared to a decrease of 1.7 % in 2009. revenue benefited from higher commodity prices for recovered materials in 2010 compared to 2009. changes in core volume decreased revenue by 3.5 % in 2010 compared to 9.5 % in 2009. during 2010 , we continued to experience negative core growth in all lines of business , especially in temporary roll-off within our industrial collection business in the first half of 2010. core volume continued to decline throughout 2010 , but at a lower rate than earlier in the year or in 2009. the doj required us to divest of certain assets and related liabilities in connection with the allied acquisition . the resulting divestitures , as well as other divestitures in the normal course of business , decreased revenue by 1.1 % in 2010 and 1.4 % in 2009. cost of operations cost of operations includes labor and related benefits , which consists of salaries and wages , health and welfare benefits , incentive compensation and payroll taxes . it also includes transfer and disposal costs representing tipping fees paid to third party disposal facilities and transfer stations ; maintenance and repairs relating to our vehicles , equipment and containers , including related labor and benefit costs ; transportation and subcontractor 37 costs , which include costs for independent haulers who transport our waste to disposal facilities and costs for local operators who provide waste handling services associated with our national accounts in markets outside our standard operating areas ; fuel , which includes the direct cost of fuel used by our vehicles , net of fuel credits ; disposal franchise fees and taxes consisting of landfill taxes , municipal franchise fees , host community fees and royalties ; landfill operating costs , which includes financial assurance , leachate disposal and other landfill maintenance costs ; risk management , which includes casualty insurance premiums and claims ; cost of goods sold , which includes material costs paid to suppliers associated with recycling commodities ; and other , which includes expenses such as facility operating costs , equipment rent and gains or losses on sale of assets used in our operations . the following table summarizes the major components of our cost of operations for the years ended december 31 , 2011 , 2010 and 2009 ( in millions of dollars and as a percentage of our revenue ) : replace_table_token_10_th the cost categories shown above may change from time to time and may not be comparable to similarly titled categories used by other companies . story_separator_special_tag thus , you should take care when comparing our cost of operations by cost component to that of other companies . cost of operations 2011 versus 2010 our cost of operations , as a percentage of revenue , increased 0.6 % in 2011 compared to 2010 , primarily as a result of the following : an increase in fuel expenses of $ 108.9 million , or 26.7 % year over year . the average fuel price per gallon for 2011 was $ 3.85 , an increase of $ 0.86 or approximately 28.8 % from an average price of $ 2.99 for 2010. at our current consumption levels , a one-cent per gallon change in the price of diesel fuel changes our fuel costs by approximately $ 1.4 million on an annual basis , which would be partially offset by a smaller change in the fuel recovery fees charged to our customers . accordingly , a substantial rise or drop in fuel costs could result in a material impact to our revenue and cost of operations . an increase in cost of goods sold primarily due to changes in the market price of recycling commodities and an increase in volumes processed year over year . the average price for old corrugated cardboard ( occ ) for 2011 was $ 159 per ton versus $ 142 per ton for the comparable 2010 period . the average price of old newspaper ( onp ) for 2011 was $ 142 per ton versus $ 111 per ton for the comparable 2010 period . at current volumes and mix of materials , we believe a ten dollar per ton change in the price of recyclable materials will change revenue and operating income by approximately $ 27 million and $ 18 million , respectively , on an annual basis . 38 these increases were partially offset by : a decrease in labor and related benefits expenses due to volume-related workforce reductions , including the expiration of the san mateo contract , as well as increased productivity gains primarily due to the automation of our residential fleet and lower benefit plan costs . partially offsetting these declines were increases in overall wages and increases in workforce due to acquisitions . a decrease in transfer and disposal costs due to the divestiture of transfer stations in 2010 as well as overall lower collection volumes . during 2011 , 2010 and 2009 , approximately 66 % , 67 % and 68 % , respectively , of the total waste volume that we collected was disposed at landfill sites that we own or operate ( internalization ) . a decrease in transportation and subcontract costs primarily due to the expiration of our san mateo county contract and our transportation and disposal contract with the city of toronto and a decline in our overall collection volumes . partially offsetting these decreases were increases due to fuel recovery fees related to project work with certain of our national accounts customers . cost of operations 2010 versus 2009 our cost of operations , as a percentage of revenue , decreased 0.3 % for 2010 compared to 2009 , primarily as a result of the following : transfer and disposal , maintenance and repair , and transportation and subcontract costs decreased versus the comparable 2009 period due to lower waste volumes and cost control measures . risk management costs decreased during 2010 as we continued to experience favorable actuarial developments primarily attributable to our continued focus on safety . these decreases were partially offset by : fuel expenses increased by $ 57.8 million , or 16.5 % , year over year . the average fuel price per gallon for 2010 was $ 2.99 , an increase of $ 0.52 or approximately 21 % from an average price of $ 2.47 for 2009. landfill operating costs increased by $ 18.4 million , or 15.6 % , year over year . during the year ended december 31 , 2009 , we recovered $ 12.0 million of insurance proceeds related to remediation costs at the countywide facility , which reduced our landfill operating costs during that period . there were no such recoveries during 2010. the remainder of the increase in landfill operating costs is due to adjustments recorded to remediation reserves . depreciation , amortization and depletion of property and equipment the following table summarizes depreciation , amortization and depletion of property and equipment for the years ended december 31 , 2011 , 2010 and 2009 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_11_th 39 landfill depletion and amortization increased in aggregate dollars slightly during 2011 due to increased volumes year over year . the decrease in landfill depletion and amortization in aggregate dollars and as a percentage of revenue for 2010 versus 2009 is due to a reduction of amortization expense associated with lower landfill volumes and assets divested as required by the doj . depreciation and amortization of property and equipment , as a percentage of revenue , has remained consistent for 2011 , 2010 and 2009. amortization of other intangible and other assets expenses for amortization of intangible and other assets were $ 76.7 million , $ 71.5 million and $ 70.6 million , or , as a percentage of revenue , 0.9 % for 2011 , 2010 and 2009 , respectively . our other intangible and other assets primarily relate to customer lists , franchise agreements , municipal contracts , trade names , favorable lease assets and to a lesser extent non-compete agreements . amortization of intangible assets in aggregate dollars increased slightly during 2011 as compared to 2010 due to increased acquisition activity . accretion expense accretion expense was $ 78.0 million , $ 80.5 million and $ 88.8 million , or , as a percentage of revenue , 1.0 % for 2011 and 2010 and 1.1 % for 2009. the amounts have remained relatively unchanged as our asset retirement obligations remained relatively consistent period over period .
| 35 the following table reflects our revenue by line of business for the years ended december 31 2011 , 2010 and 2009 ( in millions of dollars and as a percentage of our revenue ) : replace_table_token_8_th the following table reflects changes in our adjusted revenue for the years ended december 31 , 2011 , 2010 and 2009. we have presented the components of our revenue changes for the year ended december 31 , 2009 assuming the allied acquisition occurred on january 1 , 2008 : replace_table_token_9_th the intercompany eliminations relates to prior year transactions between republic and allied that would have been eliminated if the companies had merged on january 1 , 2008. certain prior year amounts have been reclassified to conform to the current year 's presentation . revenue 2011 versus 2010 the increase in revenue in 2011 compared to 2010 is due to the following : changes in core price increased revenue by 0.8 % in 2011 compared to 1.6 % in 2010. the lower core price increase in 2011 compared to 2010 is due primarily to the competitive municipal and franchise contract pricing environment in our residential collection line of business and the continued low 36 inflationary environment , which limits our price increases on index based contracts , partially offset by our continued broad-based pricing initiatives particularly in our landfill line of business . changes in fuel recovery fees increased revenue by 1.0 % in 2011 compared to 0.5 % in 2010. revenue benefited from increased fuel recovery fees due to higher fuel prices during 2011 that were passed along to our customers . changes in recycling commodity prices increased revenue by 1.0 % in 2011 compared to 1.4 % in 2010. revenue benefited from higher commodity prices for recovered materials until the fourth quarter of 2011 , when changes in recycling commodity prices decreased revenue by 0.1 % year over year . changes in core volume decreased revenue by 0.4 % in 2011 compared to 3.5 % in 2010. core volume continued to decline throughout 2011 , but at a lower rate of decline than earlier in the year or during 2010. core volume in our industrial collection and landfill lines of business was positive in 2011 primarily driven by special event work , offset by declines in our commercial and residential collection and transfer station lines of business . our san mateo county contract and our transportation and disposal contract with the city of toronto ended effective december 31 , 2010 , which reduced our revenue growth by 1.4 % . revenue 2010 versus 2009 the decrease in revenue in 2010 compared to 2009 is due to the following : changes in core
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under the march 2014 total letter agreement , we agreed to , among other things , amend the conversion price of the then-remaining $ 21.7 million of convertible notes from $ 7.0682 per share to $ 4.11 per share ( which was funded in two equal installments in july 2014 and january 2015 ) . in may 2014 , we obtained stockholder approval with respect to the repricing of such convertible notes and the other amendments contemplated by the march 2014 letter agreement . sales and revenues to commercialize our initial biofene-derived product , squalane , in the cosmetics sector for use as an emollient , we have entered into certain marketing and distribution agreements in europe , asia , and north america . as an initial step towards commercialization of biofene-based diesel , we have entered into agreements with municipal fleet operators in brazil . our diesel fuel is supplied to the largest company in brazil 's fuel distribution segment which blends our product with petroleum diesel and sells to a number of bus fleet operators . pursuant to our agreements with total , future commercialization of our diesel and jet fuel products outside of brazil would generally occur exclusively through certain agreements entered into by and among amyris , total and total amyris biosolutions b.v. ( or jvco ) . for the industrial lubricants market , we established a joint venture with cosan for the worldwide development , production and commercialization of renewable base oils in the lubricant sector . in the third quarter and fourth quarter we sold to one of our collaboration partners , a product for the flavors and fragrances market that we began manufacturing at our brotas facility in brazil . this product constituted approximately 35 % of our total product revenues for the year . financing in 2014 , we completed multiple financings involving loans , convertible debt and equity offerings . in january 2014 , we sold and issued , for face value , approximately $ 34.0 million of convertible promissory notes in tranche ii notes as described in more detail in note 5 , `` debt '' in march 2014 , we entered into a securities purchase agreement with kuraray under which we agreed to sell shares of our common stock at a price equal to the greater of $ 2.88 per share or the average daily closing prices per share on the nasdaq stock market for the three month period ending march 27 , 2014 , for an aggregate purchase price of $ 4.0 million . in april 2014 , we completed the sale of common stock to kuraray and issued 943,396 shares of our common stock at a price per share of $ 4.24 for aggregate proceeds of approximately $ 4.0 million . in march 2014 , the company entered into an export financing agreement with banco abc brasil s.a. ( or abc ) for approximately $ 2.2 million to fund exports through march 2015. this loan is collateralized by future exports from the company 's subsidiary in brazil . in march 2014 we entered into a loan and security agreement ( or , as amended , the hercules loan facility ) with hercules technology growth capital , inc. ( or hercules ) under which we issued to hercules , secured debt in the aggregate amount of $ 25.0 million . in june 2014 , we entered into a first amendment of the loan and security agreement and agreed to , among other things , issue an additional $ 5.0 million of secured debt to hercules . the hercules loan facility is described in more detail below under `` liquidity and capital resources . '' in may 2014 , we sold and issued $ 75.0 million aggregate principal amount of 6.50 % convertible senior notes due 2019 to morgan stanley & co. llc as the initial purchaser in a private placement , and for initial resale by the initial purchaser to qualified institutional buyers in the 144a offering ( as described in more detail below under `` liquidity and capital resources '' ) . these notes were issued at a discount of $ 3.0 million . 50 in july 2014 , we closed on the initial installment of the $ 21.7 million in convertible notes from total under the july 2012 agreements as described in more detail in note 5 , `` debt '' , in the amount of $ 10.85 million and in january 2015 , we closed on the second installment in the amount of $ 10.85 million . liquidity we have incurred significant losses since our inception and we believe that we will continue to incur losses and may have negative cash flow from operations into at least 2016. as of december 31 , 2014 , we had an accumulated deficit of $ 819.2 million and had cash , cash equivalents and short term investments of $ 43.4 million . we have significant outstanding debt and contractual obligations related to capital and operating leases , as well as purchase commitments . refer to `` liquidity and capital resources '' for further details . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . 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 . our actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag we believe the following critical accounting policies involve significant areas of management 's judgments and estimates in the preparation of our financial statements . revenue recognition we recognize revenue from the sale of renewable products , from the delivery of collaborative research and development services , and from governmental grants . revenue is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the fee is fixed or determinable and collectability is reasonably assured . if sales arrangements contain multiple elements , we evaluate whether the components of each arrangement represent separate units of accounting . application of revenue recognition standards requires subjective determination and requires management to make judgments about the fair values of each individual element and whether it is separable from other aspects of the contractual relationship . for each source of revenues , we apply the above revenue recognition criteria in the following manner : product sales starting in the second quarter of 2011 , we commenced sales of farnesene-derived products , and in the latter part of 2013 we initiated sales of flavors and fragrances related products . revenues are recognized , net of discounts and allowances , once passage of title and risk of loss have occurred , provided all other revenue recognition criteria have also been met . shipping and handling costs charged to customers are recorded as revenues . shipping costs are included in cost of products sold . such charges were not significant in any of the periods presented . grants and collaborative research services revenues from collaborative research services are recognized as the services are performed consistent with the performance requirements of the contract . in cases where the planned levels of research services fluctuate over the research term , we recognize revenues using the proportionate performance method based upon actual efforts to date relative to the amount of expected effort to be incurred by us . when up-front payments are received and the planned levels of research services do not fluctuate over the research term , revenues are recorded on a ratable basis over the arrangement term , up to the amount of cash received . when up-front payments are received and the planned levels of research services fluctuate over the research term , revenues are recorded using the proportionate performance method , up to the amount of cash received . where arrangements include milestones that are 51 determined to be substantive and at risk at the inception of the arrangement , revenues are recognized upon achievement of the milestone and is limited to those amounts whereby collectability is reasonably assured . government grants are made pursuant to agreements that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period . revenues from government grants are recognized in the period during which the related costs are incurred , provided that the conditions under which the government grants were provided have been met and only perfunctory obligations are outstanding . variable interest entities we have interests in certain joint venture entities that are variable interest entities or vies . determining whether to consolidate a variable interest entity may require judgment in assessing ( i ) whether an entity is a variable interest entity and ( ii ) if we are the entity 's primary beneficiary and thus required to consolidate the entity . to determine if we are the primary beneficiary of a vie , we evaluate whether we have ( i ) the power to direct the activities that most significantly impact the vie 's economic performance and ( ii ) the obligation to absorb losses or the right to receive benefits of the vie that could potentially be significant to the vie . our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology , product supply , operations services , equity funding and financing and other applicable agreements and circumstances . our assessment of whether we are the primary beneficiary of our vies requires significant assumptions and judgment . impairment of long-lived assets we assess impairment of long-lived assets , which include property , plant and equipment , and test long-lived assets for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to , significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . recoverability is assessed based on the fair value of the asset , which is calculated as the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset . an impairment loss is recognized in the consolidated statements of operations when the carrying amount is determined not to be recoverable and exceeds fair value , which is determined on a discounted cash flow basis . we make estimates and judgments about future undiscounted cash flows and fair values . although our cash flow forecasts are based on assumptions that are consistent with our plans , there is significant exercise of judgment involved in determining the cash flows attributable to a long-lived asset over its estimated remaining useful life . although we believe that the assumptions and estimates that we have are reasonable and appropriate , different assumptions and estimates could materially impact our reported financial results .
| collaborations revenue from non-related parties included increases of $ 5.5 million , including $ 2.0 million from achievement of the first performance milestone related to a flavors and fragrances product , a $ 1.1 million increase in collaborations revenue from existing collaborations and a $ 2.4 million increase in collaborations revenue from new collaborations . these increases were offset by a decrease of $ 3.5 million related to the completion of the first phase of a collaboration in 2013 ( the collaboration funding was recognized from the achievement of technical milestones ) , net of lower collaborations revenue earned from the second phase of the collaboration in 2014 ( a cost sharing development agreement recognized on a straight line basis ) . in addition , related party collaborations revenue decreased by $ 2.6 million as a result of research and development activities performed on behalf of novvi in 2013 that did not continue in 2014. cost and operating expenses replace_table_token_6_th nm= not meaningful cost of products sold our cost of products sold includes cost of raw materials , labor and overhead , amounts paid to contract manufacturers , period costs related to inventory write-downs resulting from applying lower of cost or market inventory valuations , and costs related to scale-up in production of such products . our cost of products sold decreased by $ 5.1 million to $ 33.2 million in 2014 as compared to the prior year . the decrease was mainly due to lower cost of production and a decline in lower of cost or market adjustments as a result of higher production volumes and overall manufacturing cost reduction efforts . our farnesene cash production costs per liter , have steadily declined since the commencement of production at our manufacturing facility in brotas , brazil , consistent with increases in volume and production efficiency , resulting in a decline of approximately one half , as of our latest production runs in november 2014 compared to those produced in december 2013. we expect the downward trend in cash production costs per liter to continue as we continually improve strains , operational efficiency and or increase volumes . cash production costs per
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during fiscal years 2019 , 2018 and 2017 , we recorded $ 16.5 million , $ 9.3 million and $ 4.6 million in net loss attributable to noncontrolling interest , respectively , representing 49.1 % of the net loss incurred in the jv company . in the long-term , we expect the jv company to deliver significant cost savings , and enhance our market positions in china , and drive meaningful improvements in working capital and capital expenditures . on september 5 , 2017 , we entered into a license agreement with stmicroelectronics international n.v. ( “ stmicro ” ) , pursuant to which stmicro granted us a world-wide , royalty-free and fully-paid license to use its technologies to develop , market and distribute certain digital multi-phase controller products , which have been previously offered by stmicro . under the license agreement , we agreed to pay a total price in cash of $ 17.0 million based on the payment schedule as set forth in the agreement of approximately $ 10.1 million , $ 6.7 million and $ 0.2 million in calendar year 2017 , 2018 and 2019 , respectively . 40 as of june 30 , 2019 , we recorded $ 16.2 million as intangible assets . we will begin to amortize this intangible asset when the technology has met our qualification and is ready for its intended use in production . during the fiscal year ended june 30 , 2019 , we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market , or sam and offer higher performance products . our metal-oxide-semiconductor field-effect transistors , or mosfet , portfolio expanded significantly across a full range of voltage applications . for example , during the fourth quarter of fiscal year of 2019 , we released the new αmos5 family , which is our latest generation of high voltage mosfet , designed to meet the high efficiency and high-density needs for quick charger , adapter , pc power , server , industrial power , telecom , and hyperscale datacenter applications . in addition , we released super low capacitance tvs for high-speed line protection using the latest super low cap tvs platform . this new device is ideal for usb type-c applications such as notebooks and mobile devices . during the third quarter of fiscal year of 2019 , we introduced a new family of ezbuck regulators . the new devices provide a compact , efficient power converter solution for next-generation chipsets used in high-end tvs , servers , data storage systems , networking and other compact pc systems . we also introduced a high soa mosfet for hot swap applications . this new device delivers low rdson with a high safe operating area ( soa ) capabilities ideally suited for demanding applications such as hot swap and efuse . high soa is essential in server hot swap applications where the mosfet needs to be robust to manage the high in-rush current effectively . moreover , we launched a new 650v ágan product family . these high voltage mosfets ideally suited for high efficiency and high-density power supplies in the telecom , server , and consumer adapter markets . high-efficiency server power supplies are needed to reduce cooling requirements , maximize rack area , and minimize the associated energy cost . in addition , we announced latest xspairfet buck-boost mosfet for type-c applications such as notebook , usb hubs , and power banks . during the first quarter of fiscal year of 2019 , we announced a new type-c power delivery compliant input protection switch with up to 28v over-voltage protection . this new device offers low rds ( on ) ( 20mohm ) in a thermally enhanced 3x3mm dfn package , made possible by our advanced co-packaging technology , combining a high performance ic with protection features and our latest high soa mosfet . we also announced new to-leadless ( toll ) packaging technology for high current 400a applications . the toll packaging technology offers very low package resistance and inductance due to the clip technology in comparison to other to-leadless packages using standard wire-bonding technology which enables improved emi performance . factors affecting our performance our performance is affected by several key factors , including the following : costs of jv company and digital power business : we are incurring an increase in operating expenses due to the additional costs associated with ramping up pre-production activities of the jv company , as well as the initial startup work to develop and establish our new digital power business , both of which will have the significant impact on our financial performance . the jv company started its assembly and testing production in the september quarter of 2018 and continued its ramp up during fiscal year 2019. we also completed installation of equipment and trial production at the 12-inch wafer fabrication facility in fiscal year 2019. in july 2019 , we commenced limited mass production at the 12-inch wafer fabrication facility . the pre-production costs include costs relating to the installation of equipment ; performance of the qualification process ; increased demand for electrical power and other utilities ; increased headcount as a result of hiring of additional personnel , staff and operators ; and establishment of administrative and management functions and systems . certain of such pre-production costs can be capitalized under u.s. gaap accounting . however , the majority of such pre-production costs and all of the production ramp-up costs can not be capitalized , therefore such costs impact our profitability . in addition , we are developing our digital power business based on the stmicro license agreement , which will allow us to design and distribute a full suite of advanced low-voltage power ic products . we have incurred and expect to continue to incur additional costs , including costs relating to compensation of qualified engineers and technical staff and other research and development and management activities , as we continue to build this new business . story_separator_special_tag in the short term , we will not be able to generate sufficient amount of revenue from either of these two business initiatives to offset the increase costs , which will likely negatively impact our results of operations . manufacturing costs : our gross margin is affected by a number of factors including our manufacturing costs , utilization of our manufacturing facilities , the production mixtures of our sales , pricing of wafers from third party foundries and pricing of semiconductor raw materials . capacity utilization affects our gross margin because we have certain fixed costs associated with our packaging and testing facilities at our oregon fab and our chongqing fabrication facility operated by the jv company . we expect that in the long term our jv company will reduce our cost of manufacturing . if we are unable to utilize our manufacturing facilities at a desired level , our gross margin may be adversely affected . in addition , from time to time , we may experience wafer capacity constraints , particularly at third party foundries , that may prevent us from fully meeting the demand of our customers . while we can mitigate such constraints by increasing and re-allocating capacity at our own fab , we may not be able to do so quickly or at sufficient level , which could adversely affect our financial conditions and results of operations . 41 erosion and fluctuation of average selling price : erosion of average selling prices of established products is typical in our industry . consistent with this historical trend , we expect our average selling prices of existing products to decline in the future . however , in the normal course of business , we seek to offset the effect of declining average selling price by introducing new and higher value products , expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products . these strategies may cause the average selling price of our products to fluctuate significantly from time to time , thereby affecting our financial performance and profitability . the global , regional economic and pc market conditions : because our products primarily serve consumer electronic applications , a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations . for example , because a significant amount of our revenue is derived from sales of products in the personal computing ( `` pc '' ) markets , such as notebooks , motherboards and notebook battery packs , a significant decline or downturn in the pc market can have a material adverse effect on our revenue and results of operations . our revenue from the pc markets accounted for approximately 45.9 % , 41.6 % and 39.1 % of our total revenue for the years ended june 30 , 2019 , 2018 and 2017 , respectively . in the past , we have experienced a significant global decline in the pc markets due to continued growth of demand in tablets and smart phones , worldwide economic conditions and the industry inventory correction which had and may continue to have a material negative impact on the demand for our products , revenue , factory utilization , gross margin , our ability to resell excess inventory , and other performance measures . we have executed and continue to execute strategies to diversify our product portfolio , penetrate other market segments , including the consumer , communications and industrial markets , and improve gross margins and profit by implementing cost control measures . while making efforts in reducing our reliance on the computing market , we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive pc product strategy . product introductions and customers ' product requirements : our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers ' specifications and performance requirements . both factors , timeliness of product introductions and conformance to customers ' requirements , are equally important in securing design wins with our customers . as we accelerate the development of new technology platforms , we expect to increase the pace at which we introduce new products and seek and acquire design wins . our failure to introduce new products on a timely basis that meet customers ' specifications and performance requirements , particularly those products with major oem customers , and our inability to continue to expand our serviceable markets , could adversely affect our financial performance , including loss of market share . we believe that the jv transaction will increase and diversify our customer base , particularly in china , in the long term . the jv company started its assembly and testing production in the september quarter of 2018 and continued its ramp up during the fiscal year 2019. the jv company also completed installation of equipment and trial production at the 12-inch wafer fabrication facility in fiscal year 2019. in july 2019 , we commenced limited mass production at the 12-inch wafer fabrication facility . even if we are able to ramp up the operation of the jv company timely , we may not be successful in acquiring a sufficient number of new customers to offset the additional costs due to various factors , including but are not limited to , competition from other semiconductor companies in the region , our lack of history and prior relationships with customers as a new entrant , difficulties in executing our joint venture strategies , lack of control over our operations and the general economic conditions in chongqing and china . distributor ordering patterns , customer demand and seasonality : our distributors place purchase orders with us based on their forecasts of end customer demand , and this demand may vary significantly depending on the sales outlook and market and economic conditions of end customers .
| fiscal 2018 vs 2017 total revenue was $ 421.6 million for fiscal year 2018 , an increase of $ 38.2 million , or 10.0 % , as compared to $ 383.3 million for fiscal year 2017. the increase was primarily due to an increase of $ 53.4 million in sales of power discrete products , partially offset by a decrease of $ 15.3 million in sales of power ic products . the net increase in product sales was primarily due to a 2.1 % increase in unit shipments , as well as an 8.1 % increase in average selling price as compared to last fiscal year due to a shift in product mix . the increase in revenue of packaging and testing services for fiscal year 2018 as compared to last fiscal year was primarily due to increased demand . cost of goods sold and gross profit replace_table_token_6_th fiscal 2019 vs 2018 cost of goods sold was $ 335.5 million for fiscal year 2019 , an increase of $ 25.9 million , or 8.4 % , as compared to $ 309.6 million for fiscal year 2018 . the increase was primarily due to the 7.0 % increase of revenue and the production ramp up costs related to our chongqing joint venture . gross margin decreased by 1.0 percentage points to 25.6 % for fiscal year 2019 , as compared to 26.6 % for fiscal year 2018 . the decrease in gross margin was primarily due to production ramp up costs related to our chongqing joint venture . we expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix , ramp up costs related to our chongqing joint venture , factory utilization , semiconductor wafer and raw material pricing , manufacturing labor cost and general economic and pc market conditions . fiscal 2018 vs 2017 cost of goods sold was $ 309.6 million for fiscal year 2018 , an increase of $ 18.1 million , or 6.2 % , as compared to $ 291.5 million for fiscal year 2017. the increase was primarily due to increased unit shipments . gross margin increased by 2.6 percentage points to
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additionally , the impact of foreign currency fluctuations in venezuela and the price increases we implement as a result of the highly inflationary economy in that market can each , when considered in isolation , have a disproportionately large impact to our consolidated results despite the offsetting nature of these drivers and that net sales in venezuela , which represent less than 1 % of our consolidated net sales , are not material to our consolidated results . therefore , in certain instances , we believe it is helpful to provide additional information with respect to these factors as reported and excluding the impact of venezuela to illustrate the disproportionate nature of venezuela 's individual pricing and foreign exchange impact to our consolidated results . however , excluding the impact of venezuela from these measures is not in accordance with u.s. gaap and should not be considered in isolation or as an alternative to the presentation and discussion thereof calculated in accordance with u.s. gaap . our “ gross profit ” consists of net sales less “ cost of sales , ” which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties , tariffs , and similar expenses . while certain members may profit from their activities by reselling our products for amounts greater than the prices they pay us , members that develop , retain , and manage other members may earn additional compensation for those activities , which we refer to as “ royalty overrides . ” royalty overrides are our most significant operating expense and consist of : royalty overrides and production bonuses ; the mark hughes bonus payable to some of our most senior members ; and other discretionary incentive cash bonuses to qualifying members . royalty overrides are compensation to members for the development , retention and improved productivity of their sales organizations and are paid to several levels of members on each sale . royalty overrides are compensation for services rendered to us and , as such , are recorded as an operating expense . in china , our independent service providers are compensated for marketing , sales support , and other services instead of the distributor allowances and royalty overrides utilized in our global marketing plan . service fees to china independent service providers are included in selling , general , and administrative expenses . because of local country regulatory constraints , we may be required to modify our member incentive plans as described above . we also pay reduced royalty overrides with respect to certain products worldwide . consequently , the total royalty override percentage may vary over time . our “ contribution margins ” consist of net sales less cost of sales and royalty overrides . “ selling , general , and administrative expenses ” represent our operating expenses , which include labor and benefits , service fees to china independent service providers , sales events , professional fees , travel and entertainment , member promotions , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses , and other miscellaneous operating expenses . 55 our “ other operating income ” consists of government grant income related to china and the finalization of insurance recoveries in connection with the flooding at one of our warehouses in mexico during september 2017. our “ other expense ( income ) , net ” consists of non-operating income and expenses such as gains or losses on extinguishment of debt and gains or losses due to subsequent changes in the fair value of the non-transferable contractual contingent value right , or cvr , provided for each share tendered in the october 2017 modified dutch auction tender offer . see note 8 , shareholders ' deficit , to the consolidated financial statements included in part iv , item 15 , exhibits , financial statement schedules , of this annual report on form 10-k for further information on the cvr . most of our sales to members outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average exchange rates . additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate foreign currency losses on intercompany transactions . foreign currency exchange rates can fluctuate significantly . from time to time , we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in part ii , item 7a , quantitative and qualitative disclosures about market risk , of this annual report on form 10-k. results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to sponsor members and retain sales leaders , further penetrate existing markets , introduce new products and programs that will help our members increase their retail efforts and develop niche market segments . the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_7_th ( 1 ) service fees to our independent service providers in china are included in selling , general , and administrative expenses while member compensation for all other countries is included in royalty overrides . 56 changes in net sales are directly associated with the retailing of our products , recruitment of new members , and retention of sales leaders . our strategies involve providing quality products , improved dmos , including daily consumption approaches such as nutrition clubs , easier access to product , systemized training and education of members on story_separator_special_tag additionally , the impact of foreign currency fluctuations in venezuela and the price increases we implement as a result of the highly inflationary economy in that market can each , when considered in isolation , have a disproportionately large impact to our consolidated results despite the offsetting nature of these drivers and that net sales in venezuela , which represent less than 1 % of our consolidated net sales , are not material to our consolidated results . therefore , in certain instances , we believe it is helpful to provide additional information with respect to these factors as reported and excluding the impact of venezuela to illustrate the disproportionate nature of venezuela 's individual pricing and foreign exchange impact to our consolidated results . however , excluding the impact of venezuela from these measures is not in accordance with u.s. gaap and should not be considered in isolation or as an alternative to the presentation and discussion thereof calculated in accordance with u.s. gaap . our “ gross profit ” consists of net sales less “ cost of sales , ” which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties , tariffs , and similar expenses . while certain members may profit from their activities by reselling our products for amounts greater than the prices they pay us , members that develop , retain , and manage other members may earn additional compensation for those activities , which we refer to as “ royalty overrides . ” royalty overrides are our most significant operating expense and consist of : royalty overrides and production bonuses ; the mark hughes bonus payable to some of our most senior members ; and other discretionary incentive cash bonuses to qualifying members . royalty overrides are compensation to members for the development , retention and improved productivity of their sales organizations and are paid to several levels of members on each sale . royalty overrides are compensation for services rendered to us and , as such , are recorded as an operating expense . in china , our independent service providers are compensated for marketing , sales support , and other services instead of the distributor allowances and royalty overrides utilized in our global marketing plan . service fees to china independent service providers are included in selling , general , and administrative expenses . because of local country regulatory constraints , we may be required to modify our member incentive plans as described above . we also pay reduced royalty overrides with respect to certain products worldwide . consequently , the total royalty override percentage may vary over time . our “ contribution margins ” consist of net sales less cost of sales and royalty overrides . “ selling , general , and administrative expenses ” represent our operating expenses , which include labor and benefits , service fees to china independent service providers , sales events , professional fees , travel and entertainment , member promotions , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses , and other miscellaneous operating expenses . 55 our “ other operating income ” consists of government grant income related to china and the finalization of insurance recoveries in connection with the flooding at one of our warehouses in mexico during september 2017. our “ other expense ( income ) , net ” consists of non-operating income and expenses such as gains or losses on extinguishment of debt and gains or losses due to subsequent changes in the fair value of the non-transferable contractual contingent value right , or cvr , provided for each share tendered in the october 2017 modified dutch auction tender offer . see note 8 , shareholders ' deficit , to the consolidated financial statements included in part iv , item 15 , exhibits , financial statement schedules , of this annual report on form 10-k for further information on the cvr . most of our sales to members outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average exchange rates . additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate foreign currency losses on intercompany transactions . foreign currency exchange rates can fluctuate significantly . from time to time , we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in part ii , item 7a , quantitative and qualitative disclosures about market risk , of this annual report on form 10-k. results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to sponsor members and retain sales leaders , further penetrate existing markets , introduce new products and programs that will help our members increase their retail efforts and develop niche market segments . the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_7_th ( 1 ) service fees to our independent service providers in china are included in selling , general , and administrative expenses while member compensation for all other countries is included in royalty overrides . 56 changes in net sales are directly associated with the retailing of our products , recruitment of new members , and retention of sales leaders . our strategies involve providing quality products , improved dmos , including daily consumption approaches such as nutrition clubs , easier access to product , systemized training and education of members on
| the primary reporting segment reported contribution margin of $ 1,983.6 million , or 41.9 % of net sales , for the year ended december 31 , 2020 , representing an increase of $ 190.0 million , or 10.6 % ( $ 189.3 million , or 10.5 % excluding venezuela ) , as compared to the same period in 2019. the 10.6 % increase in contribution margin for the year ended december 31 , 2020 was primarily the result of a 14.9 % favorable impact of volume increases and a 6.5 % favorable impact of price increases ( 4.9 % favorable impact excluding venezuela ) ; partially offset by a 5.9 % unfavorable impact of fluctuations in foreign currency exchange rates ( 4.2 % unfavorable impact excluding venezuela ) and a 3.2 % unfavorable impact of other cost changes related to self-manufacturing and sourcing and increased freight costs from orders shifting toward home delivery versus member pick-up . 59 china reported contribution margin of $ 717.5 million for the year ended december 31 , 2020 , representing an increase of $ 40.2 million , or 5.9 % , as compared to the same period in 2019. the 5.9 % increase in contribution margin for the year ended december 31 , 2020 was primarily the result of a 5.3 % favorable impact of volume increases . sales by geographic region net sales by geographic region were as follows : replace_table_token_8_th north america the north america region reported net sales of $ 1,372.9 million for the year ended december 31 , 2020. net sales increased $ 347.4 million , or 33.9 % , for the year ended december 31 , 2020 as compared to the same period in 2019. in local currency , net sales increased 33.9 % for the year ended december 31 , 2020 as compared to the same period in 2019. the 33.9 % increase in net sales for the year ended december 31 , 2020 was primarily due to an increase in sales volume , as indicated by a 31.7 % increase in volume points , and a 2.9 % favorable impact of price
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the level of our investment activity depends on many factors , including the amount of debt and equity capital available to prospective portfolio companies , the level of merger , acquisition and refinancing activity for such companies , the availability of credit to finance transactions , the general economic environment and the competitive environment for the types of investments we make . revenues we generate revenues primarily through the receipt of interest income from the investments we hold . in addition , we generate income from various loan origination and other fees and from dividends on direct equity investments . in addition , we may generate revenue in the form of commitment , origination , administration , amendment , and loan servicing fees . loan origination fees , original issue discount and market discount or premium are capitalized as part of the underlying cost of the investments and accreted or amortized over the life of the investment as interest income . we record contractual prepayment premiums on loans and debt securities as interest income . our debt investment portfolio consists of primarily floating rate loans . as of december 31 , 2019 , 100 % of our debt investments , based on fair value , bore interest at floating rates , which may be subject to interest rate floors . variable-rate investments subject to a floor generally reset periodically to the applicable floor , only if the floor exceeds the index . trends in base interest rates , such as libor , may affect our net investment income over the long term . in addition , our results may vary from period to period depending on the interest rates of new investments made during the period compared to investments that were sold or repaid during the period ; these results reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macroeconomic trends . dividend income that we receive from our ownership of private securities is recorded pursuant to the terms of the respective investments . expenses our primary operating expenses will include the payment of fees to the advisor under the investment management agreement , our allocable portion of overhead expenses under the administration agreement and other operating costs described below . we are responsible for all costs and expenses incurred in connection with the operations of the company and locating , structuring , evaluating , consummating , maintaining and disposing of investments and potential investments ( whether or not the acquisition is consummated ) , including but not limited to legal , regulatory , accounting and other professional or third-party costs or disbursements including travel , rent or lodging , out-of-pocket expenses of the advisor , the fees and expenses of any independent counsel engaged by the advisor and out-of-pocket expenses related to third-party service providers ( including loan servicer fees ) , placement agent fees and expenses , advertising expenses , litigation expenses , brokerage commissions , clearing and settlement charges and other transaction costs , custody fees , interest expenses , financing charges , initial and 72 variation margin , broken deal expenses , compensation ( which may include fees or performance-based compensation ) of advisors , consultants and finders , joint venture partners , or other professionals relating to the company 's operations and investments or potential investments ( whether or not completed ) , which may include costs incurred to attend or sponsor networking and other similar events hosted by both for-profit and not-for-profit organizations ( which may include organizations affiliated with current or prospective investors ) , specific expenses incurred in obtaining , developing or maintaining market data technology systems , research and other information and information service subscriptions utilized with respect to the company 's investment program including fees to third party providers of research , portfolio risk management services ( including the costs of risk management software or database packages ) , fees of pricing and valuation services , appraisal costs and brokerage expenses . we will also bear all commitment fees and any transfer or recording taxes , registration fees and other expenses in connection with acquisitions and dispositions of investments , and all expenses relating to the ownership and operation of investments , including taxes , interest , insurance , and other fees and expenses . travel expenses may include first-class airfare and limited use of private or charter aircraft , as well as premium accommodations , in accordance with our advisor 's policies related thereto . in addition , we will bear all costs of the administration of the company , including but not limited to accounting expenses ( including accounting systems ) and expenses relating to audit , legal and regulatory expenses ( including filings with u.s. and non-u.s. regulators and compliance obligations ) , costs associated with our reporting and compliance obligations under the 1940 act and other applicable u.s. federal and state securities laws , fees and expenses of any administrators in connection with the administration of the company , expenses relating to the maintenance of registered offices of the company to the extent provided by unaffiliated service providers , temporary office space of non-employee consultants or auditors , blue sky and corporate filing fees and expenses , corporate licensing expenses , indemnification expenses , costs of holding any meetings or conferences of investors or their delegates or advisors ( including meetings of the advisor and related activities ) , independent directors ' fees and expenses , costs of any litigation or threatened litigation or costs of any investigation or legal inquiries involving company activities ( including regulatory sweeps ) , the cost of any liability insurance or fidelity coverage for the company , including any directors ' and officers ' liability insurance and key-person life insurance policies , maintained with respect to liabilities arising in connection with the activities of our directors and officers conducted on behalf of the company , costs associated with reporting and providing information to existing and prospective investors , including printing and mailing costs , wind-up and liquidation expenses , and any extraordinary expenses story_separator_special_tag arising in connection with the operations of the company . we have agreed to repay the advisor for initial organization and offering costs up to a maximum of $ 1.25 million , of which the advisor has incurred approximately $ 1.1 million as of december 31 , 2019. from time to time , the administrator or its affiliates may pay third-party providers of goods or services . we will reimburse the administrator or such affiliates thereof for any such amounts paid on our behalf . leverage we have obtained a subscription facility to meet our capital needs . we may borrow money from time to time within the levels permitted by the 1940 act . portfolio and investment activity as of december 31 , 2019 , based on fair value , our portfolio consisted of 95.9 % first lien senior secured debt investments and a 4.1 % investment in an affiliated fund . as of december 31 , 2019 , we had investments in twenty-one portfolio companies with an aggregate fair value of $ 39.8 million . 73 our investment activity for the period from may 6 , 2019 ( inception ) to december 31 , 2019 is presented below ( information presented herein is at par value unless otherwise indicated ) . period from may 6 , 2019 ( inception ) to december 31 , 2019 ( amounts in thousands ) principal amount of investments funded : first lien senior secured debt investments $ 43,200 investment in affiliated fund 1,641 total principal amount of investments funded $ 44,841 principal amount of investments sold or repaid : first lien senior secured debt investments $ ( 5,202 ) investment in affiliated fund - total principal amount of investments sold or repaid $ ( 5,202 ) new investment commitments $ 54,851 number of new investment commitments in new portfolio companies ( 1 ) 21 average new investment commitment amount $ 2,612 weighted average term for new investment commitments ( in years ) 4.8 percentage of new debt investment commitments at floating rates 100.0 % percentage of new debt investment commitments at fixed rates 0.0 % ( 1 ) number of new investment commitments represent commitments to a particular portfolio company . as of december 31 , 2019 , our investments consisted of the following : december 31 , 2019 ( amounts in thousands ) amortized cost fair value first lien senior secured debt $ 38,096 $ 38,156 investment in affiliated fund 1,641 1,641 total investments $ 39,737 $ 39,797 74 the table below describes investments by industry composition based on fair value as of december 31 , 2019 : replace_table_token_1_th investments held as of december 31 , 2019 were based solely in the united states . the weighted average yields and interest rates of our funded debt investments as of december 31 , 2019 were as follows : replace_table_token_2_th ( 1 ) calculated using actual interest rates in effect as of december 31 , 2019 based on borrower elections . the weighted average yield of our funded debt investments is not the same as a return on investment for our shareholders but , rather , relates to a portion of our investment portfolio and is calculated before the payment of all of our and our subsidiaries ' fees and expenses . the weighted average yield was computed using the effective interest rates of each investment as of each respective date , including accretion of original issue discount , but excluding investments on non-accrual status , if any . there can be no assurance that the weighted average yield will remain at its current level . our advisor monitors our portfolio companies on an ongoing basis . it monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action with respect to each portfolio company . our advisor has several methods of evaluating and monitoring the performance and fair value of our investments , which may include the following : 75 assessment of success of the portfolio company in adhering to its business plan and compliance with covenants ; periodic and regular contact with portfolio company management and , if appropriate , the financial or strategic sponsor , to discuss financial position , requirements and accomplishments ; comparisons to other companies in the portfolio company 's industry ; and review of monthly or quarterly financial statements and financial projections for portfolio companies . as part of the monitoring process , our advisor employs an investment rating system to categorize our investments . in addition to various risk management and monitoring tools , our advisor rates the credit risk of all debt investments on a scale of a to f. this system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment ( i.e. , at the time of origination or acquisition ) , although it may also take into account the performance of the portfolio company 's business , the collateral coverage of the investment and other relevant factors . the rating system is as follows : investment ratings description a a loan supported by exceptional financial strength , stability and liquidity ; b as a general rule , a new transaction will be risk rated a “ b ” loan . overtime , a “ b ” loan is supported by good financial strength , stability and liquidity ; c a loan that is exhibiting deteriorating trends , which if not corrected could jeopardize repayment of the debt . in general , a default by the borrower of one of its financial performance covenants ( leverage or coverage ratios ) would warrant downgrade of a loan to a risk rating of “ c ” ; d a loan that has a well-defined weakness that jeopardizes the repayment of the debt or the ongoing enterprise value of the borrower ; e a loan that has an uncured payment default ; and f an asset that is considered uncollectible or of such little value that its continuance as a booked asset is unwarranted .
| income taxes , including excise taxes we intend to elect to be treated as a ric under subchapter m of the code , and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to rics . to qualify for tax treatment as a ric , we must , among other things , distribute to our shareholders in each taxable year generally at least 90 % of our investment company taxable income , as defined by the code , and net tax-exempt income for that taxable year . to maintain our tax treatment as a ric , we , among other things , intend to make the requisite distributions to our shareholders , which generally relieves us from corporate-level u.s. federal income taxes . depending on the level of taxable income earned in a tax year , we can be expected to carry forward taxable income ( including net capital gains , if any ) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4 % u.s. federal excise tax on such taxable income , as required . to the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income , we will accrue excise tax on estimated excess taxable income . for the period from may 6 , 2019 ( inception ) to december 31 , 2019 , we accrued u.s. federal excise tax of approximately $ 3,000. we conduct certain activities through our wholly-owned subsidiary , twin brook xviii corp. , a delaware c corporation . twin brook equity xviii corp. is treated as a corporation for united states federal income 78 tax purposes and is subject to u.s. federal , state or local income tax . for the period from may 6 , 2019 ( inception ) to december 31 , 2019 , we accrued approximately $ 31,000 of u.s. federal tax expense related to fee income received . net change in unrealized gains ( losses ) on investments we fair value our portfolio investments quarterly and any changes in fair value are
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we expect to require additional financing to fund our current operations for the remainder of fiscal 2019. there is no assurance that we will be able to obtain additional financing on acceptable terms or at all . if we are unable to raise the funds required to fund our operations , we will seek alternative financing through other means , such as borrowings from institutions or private individuals . there can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities . we have not located any sources for these funds and may not be able to do so in the future . we expect that we will seek additional financing in the future . however , we may not be able to obtain additional capital or generate sufficient revenues to fund our operations . if we are unsuccessful at raising sufficient funds , for whatever reason , to fund our operations , we may be forced to cease operations . if we fail to raise funds , we expect that we will be required to seek protection from creditors under applicable bankruptcy laws . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements . use of estimates in preparing the consolidated financial statements , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet , and revenues and expenses for the period then ended . actual results may differ significantly from those estimates . significant estimates made by management include , but are not limited to , stock-based compensation , valuation of derivative liabilities , and fair value of common stock issued . 28 fair value of financial instruments the company adopted asc 820 , “ fair value measurements and disclosures ” ( “ asc 820 ” ) , for assets and liabilities measured at fair value on a recurring basis . asc 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements , establishes a framework for measuring fair value and expands disclosure about such fair value measurements . the adoption of asc 820 did not have an impact on the company 's financial position or operating results but did expand certain disclosures . asc 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . additionally , asc 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs . these inputs are prioritized below : level 1 : observable inputs such as quoted market prices in active markets for identical assets or liabilities level 2 : observable market-based inputs or unobservable inputs that are corroborated by market data level 3 : unobservable inputs for which there is little or no market data , which require the use of the reporting entity 's own assumptions . the company analyzes all financial instruments with features of both liabilities and equity under the fasb 's accounting standard for such instruments . under this standard , financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement . depending on the product and the terms of the transaction , the fair value of notes payable and derivative liabilities was modeled using a series of techniques , including closed-form analytic formula , such as the simple binomial lattice model . stock-based compensation stock-based compensation is accounted for based on the requirements of asc 718 , share-based payment , which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award ( presumptively , the vesting period ) . the financial accounting standards board ( “ fasb ” ) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award . pursuant to asc topic 505-50 , for share-based payments non-employees , compensation expense is determined at the measurement date defined as the earlier of ; a ) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or ; b ) the date at which the counterparty 's performance is complete . the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . the company records compensation expense based on the fair value of the award at the reporting date . story_separator_special_tag the awards to consultants and other third-parties are then revalued , or the total compensation is recalculated , based on the then current fair value , at each subsequent reporting date . film costs the company capitalizes costs which were used in the production of films according to asc 926 , entertainment – films . for films produced by the company , capitalized costs include all direct production and financing costs , capitalized interest and production overhead . production overhead includes the costs of individuals or departments with exclusive or significant responsibility for the production of films . production overhead does not include general and administrative expenses and marketing , selling and distribution costs . capitalization of interest costs should generally commence when a film is set for production and end when a film is substantially complete and ready for distribution . generally , the interest eligible for capitalization includes stated interest , imputed interest , and interest related to debt instruments as well as amortization of discounts and other debt issue costs . 29 pursuant to asc 926-20-35 , the company will begin to amortize capitalized film cost when a film is released , and it begins to recognize revenue from the film . these costs for an individual film are amortized and participation costs are accrued to direct operating expenses in the proportion that current year 's revenues bear to management 's estimates of the ultimate revenue at the beginning of the current year expected to be recognized from the exploitation , exhibition or sale of such film . ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture . parties involved in the production of a film may be compensated in part by contingent payments based on the financial results of a film pursuant to contractual formulas ( participations ) and by contingent amounts due under provisions of collective bargaining agreements ( residuals ) . such parties are collectively referred to as participants , and such costs are collectively referred to as participation costs . participations may be given to creative talent , such as actors or writers , or to entities from whom distribution rights are licensed . participation costs are typically recognized evenly as the ultimate revenues are earned . unamortized film costs are tested for impairment when there is an indication that the fair value of the film may be less than unamortized costs . consistent with the rules for recognizing impairment of long-lived assets in asc 926 , the standard sets forth examples of events or changes in circumstances that indicate that the entity must assess whether the fair value of the film ( whether it has been completed or is still in production ) is less than the carrying amount of its unamortized film costs . 1. an adverse change in the expected performance of the film prior to its release 2. actual costs substantially in excess of budgeted costs 3. substantial delays in completion or release schedules 4. changes in release plans , such as a reduction in the initial release pattern 5. insufficient funding or resources to complete the film and to market it effectively 6. actual performance subsequent to release fails to meet prerelease expectations . ( asc 926-20-35-12 ) recent accounting pronouncements in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . this guidance revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases . the new lease guidance also simplifies the accounting for sale and leaseback transactions . this asu is effective for annual reporting periods beginning after december 15 , 2018 and early adoption is permitted . the company does not believe the guidance will have a material impact on its consolidated financial statements . in november 2016 , the fasb issued new guidance on restricted cash on the statement of cash flows . the new guidance requires the classification and presentation of changes in restricted cash and cash equivalents in the statement of cash flows . therefore , amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the statement of cash flows . the new standard is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2017 , with early adoption permitted . the company early adopted asu 2016-18 , and its adoption did not have a material impact on the company 's consolidated financial statements . 30 in july 2017 , the fasb issued asu no . 2017-11 , “ earnings per share ( topic 260 ) ; distinguishing liabilities from equity ( topic 480 ) ; derivatives and hedging ( topic 815 ) : ( part i ) accounting for certain financial instruments with down round features , ( part ii ) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests with a scope exception. ” the asu was issued to address the complexity associated with applying generally accepted accounting principles ( gaap ) for certain financial instruments with characteristics of liabilities and equity . the asu , among other things , eliminates the need to consider the effects of down round features when analyzing convertible debt , warrants and other financing instruments . as a result , a freestanding equity-linked financial instrument ( or embedded conversion option ) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature . the amendments are effective for fiscal years beginning after december 15 , 2018 and should be applied retrospectively . early adoption is permitted , including adoption in an interim period . the company believes the guidance did not have a
| the increase in other expense is the primary result of the increase in recognition of derivative expense of approximately $ 2,878,000 , an increase in interest expense of $ 1,418,000 in connection with the issuance of convertible notes , increase in offering cost of $ 40,000 , offset by the increase in gain from the change in fair value of derivative liabilities of approximately $ 1,754,000 , increase profit interest recovery of $ 1,225,000 and increase in gain from extinguishment of debt of $ 2,437,000. net loss we reported a net loss attributable to all for one media corp. of approximately $ ( 7,113,000 ) or $ ( 0.10 ) per common share - basic and diluted for the year ended september 30 , 2019 , as compared to $ ( 1,141,000 ) or $ ( 0.03 ) per common share - basic and diluted , respectively , for the year ended september 30 , 2018 as a result of the discussion above . 26 working capital replace_table_token_0_th we anticipate generating losses and , therefore , may be unable to continue operations in the future . if we require additional capital , we would have to issue debt or equity or enter into a strategic arrangement with a third party . going concern consideration as reflected in the accompanying unaudited consolidated financial statements , the company has no significant revenue generating operations and has an accumulated deficit of approximately $ 15.7 million . in addition , there is a working capital deficiency of approximately $ 9,750,190 and a stockholder 's deficiency of approximately $ 9,625,000 as of september 30 , 2019. this raises substantial doubt about its ability to continue as a going concern . the ability of the company to continue as a going concern is dependent on the company 's ability to raise additional capital and implement its business plan . the financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the company to continue as a going concern . liquidity and capital resources replace_table_token_1_th net cash used in operating activities was approximately $ 1,825,000 for the year ended september 30 , 2019 as compared to approximately $ 1,008,000 for the year
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39 comparison of the year ended december 31 , 2010 ( “ 2010 ” ) to the year ended december 31 , 2009 ( “ 2009 ” ) replace_table_token_23_th note : ( 1 ) includes fees earned by us as general partner/managing member of the opportunity funds that are eliminated in consolidation and adjusts the loss ( income ) attributable to noncontrolling interests . the balance reflected in the table represents third party fees that are not eliminated in consolidation . reference is made to note 3 of the notes to consolidated financial statements which begin on page f-1 of this form 10-k for an overview of our five reportable segments . the decrease in rental income in the core portfolio was primarily attributable to tenant vacancies at chestnut hill and third avenue . rental income in the opportunity funds increased as a result of additional rents following the acquisition of cortlandt towne center in january , 2009 ( “ 2009 fund acquisition ” ) of $ 1.0 million and additional rents at fordham place , pelham manor and canarsie for leases that commenced in 2009 and 2010 ( “ 2009/2010 fund redevelopment properties ” ) . the increase in rental income in the storage portfolio related to the full amortization of acquired lease intangible costs during 2009 , increased occupancy in the self-storage investments in 2010 as well as our discontinued practice of reporting the storage portfolio one month in arrears which was based on the historical unavailability of timely financial information . based on improvements in the storage portfolio accounting systems , we report this activity on a current basis . accordingly , the year ended december 31 , 2010 reflects thirteen months of storage activity while the year ended december 31 , 2009 reflects twelve months of storage activity ( “ storage portfolio activity ” ) . expense reimbursements in the opportunity funds increased for both real estate taxes and common area maintenance primarily as a result of the 2009 fund acquisition and 2009/2010 fund redevelopment properties . lease termination income in the core portfolio for 2009 related to termination fee income received from a former tenant at absecon marketplace . other in the core portfolio in 2009 included $ 1.7 million resulting from a forfeited sales contract deposit . other in the opportunity funds during 2009 included $ 0.9 million received by fund ii in settlement of litigation in connection with a property acquisition . replace_table_token_24_th property operating expenses in the core portfolio decreased as a result of a decrease in bad debt expense in 2010. the increase in property operating expenses in the opportunity funds was primarily attributable to the 2009 fund acquisition and 2009/2010 40 fund redevelopment properties . the increase in property operating expenses in the self-storage investments primarily related to higher operating costs in 2010 following increased occupancy as well as the storage portfolio activity . the increase in real estate taxes in the opportunity funds was primarily attributable to the 2009 fund acquisition as well as 2009/2010 fund redevelopment properties . the decrease in general and administrative expense in the core portfolio was primarily attributable to reduced compensation expense following staff reductions in 2009. depreciation and amortization expense in the core portfolio decreased as a result of the write-off of lease intangible costs in connection with a terminated lease in 2009. the increase in depreciation and amortization in the self-storage investments was the result of two self storage properties placed in service during the second quarter 2009. the $ 2.5 million abandonment of project costs in the opportunity funds in 2009 was attributable to our determination that we most likely would not participate in a specific future development project . the reserve for notes receivable of $ 1.7 million in 2009 related to the loss of an anchor tenant at the underlying collateral property . replace_table_token_25_th equity in earnings ( losses ) of unconsolidated affiliates in the opportunity funds increased primarily as a result of an increase in distributions in excess of basis from our albertson 's investment of $ 9.5 million in 2010 and an increase in our pro-rata share of income from mervyns in 2010. equity in earnings ( losses ) in the self storage investments represents our pro-rata share of losses from our unconsolidated investment in the newly-formed self storage management company . the $ 3.8 million impairment of investment in unconsolidated affiliate during 2009 was the result of the reduction in value of the underlying property due to the recession and the related reduction in fund i 's carrying value of this investment including a partial guarantee of the mortgage debt . the $ 33.8 million gain from bargain purchase was attributable to fund ii 's purchase of an unaffiliated membership interest in citypoint as previously discussed . the gain on debt extinguishment of $ 7.1 million was attributable to the purchase of our convertible debt at a discount in 2009. total interest expense in the core portfolio decreased $ 1.5 million in 2010. this was the result of a $ 2.4 million decrease attributable to lower average outstanding borrowings in 2010 offset by a $ 0.9 million increase attributable to higher average interest rates in 2010. interest expense in the opportunity funds increased $ 7.6 million in 2010. this was the result of an increase of $ 2.9 million due to higher average interest rates in 2010 , an increase of $ 1.8 million due to higher average outstanding borrowings in 2010 , an increase in amortization expense of $ 2.6 million due to the write-off of deferred financing costs related to refinanced debt in 2010 and $ 0.3 million of lower capitalized interest in 2010. interest expense in the self-storage investments decreased $ 1.0 million in 2010. this was primarily attributable to a $ 1.4 million decrease due to lower average interest rates in 2010. this decrease was 41 offset by $ 0.3 million of lower capitalized interest in 2010 and an increase of $ 0.2 million due to higher average outstanding borrowings in 2010. the variance in the income tax expense in the core portfolio story_separator_special_tag primarily related to income taxes at the trs level for our pro-rata share of income from our albertson 's investment in 2010. income from discontinued operations represents activity related to a property held for sale in 2010 and property sales in 2009 . ( loss ) income attributable to noncontrolling interests – continuing operations and discontinued operations primarily represents the noncontrolling interests ' share of all the opportunity funds variances discussed above . reconciliation of net income to funds from operations and adjusted funds from operations replace_table_token_26_th notes : ( 1 ) represents income attributable to common op units and does not include distributions paid to series a and b preferred op unitholders . ( 2 ) we consider funds from operations ( “ ffo ” ) as defined by the national association of real estate investment trusts ( “ nareit ” ) to be an appropriate supplemental disclosure of operating performance for an equity reit due to its widespread acceptance and use within the reit and analyst communities . ffo is presented to assist investors in analyzing our performance . it is helpful as it excludes various items included in net income that are not indicative of the operating performance , such as gains ( losses ) from sales of depreciated property and depreciation and amortization . however , our method of calculating ffo may be different from methods used by other reits and , accordingly , may not be comparable to such other reits . ffo does not represent cash generated from operations as defined by generally accepted accounting principles ( “ gaap ” ) and is not indicative of cash available to fund all cash needs , including distributions . it should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity . consistent with the nareit definition , we define ffo as net income ( computed in accordance with gaap ) , excluding gains ( losses ) from sales of depreciated property , plus depreciation and amortization , and after adjustments for unconsolidated partnerships and joint ventures . ( 3 ) this item represents our share of an extraordinary gain from our investment in albertson 's , which recorded an extraordinary gain in connection with the allocation of purchase price to assets acquired . we consider this to be a private-equity style investment in an operating businesses as opposed to real estate . accordingly , all gains and losses from this investment are included in ffo , which we believe provides a more accurate reflection of our operating performance . 42 liquidity and capital resources uses of liquidity our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the opportunity funds and property acquisitions and redevelopment/re-tenanting activities within our core portfolio , and ( iii ) debt service and loan repayments , including the repurchase of our convertible notes . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . for the year ended december 31 , 2011 , we paid dividends and distributions on our common shares and common op units totaling $ 29.9 million . investments fund i and mervyns i fund i and mervyns i have returned all invested capital and accumulated preferred return thus triggering our promote in all future fund i and mervyns i earnings and distributions . as of december 31 , 2011 , $ 86.6 million has been invested in fund i and mervyns i , of which the operating partnership contributed $ 19.2 million . as of december 31 , 2011 , fund i currently owned , or had ownership interests in four remaining assets comprising approximately 0.1 million square feet as further discussed in “ —property acquisitions ” in item 1. of this form 10-k. in addition , we , along with our fund i investors have invested in mervyns as discussed in item 1. of this form 10-k. fund ii and mervyns ii to date , fund ii 's primary investment focus has been in the new york urban/infill redevelopment initiative and the retailer controlled property venture . as of december 31 , 2011 , $ 282.2 million has been invested in fund ii , of which the operating partnership contributed $ 56.4 million . the remaining capital balance of $ 17.8 million is expected to be utilized to complete development activities for existing fund ii investments . fund ii has invested in the new york urban/infill redevelopment and the rcp venture initiatives and other investments . see “ —property acquisitions ” in item 1. of this form 10-k for a table summarizing the new york urban/infill redevelopment investments from inception through december 31 , 2011 . rcp venture see “ —property acquisitions ” in item 1. of this form 10-k for a table summarizing the rcp venture investments from inception through december 31 , 2011 . fund iii during 2007 , we formed fund iii with 14 institutional investors , including all of the investors from fund i and a majority of the investors from fund ii with $ 502.5 million of committed discretionary capital . as of december 31 , 2011 , $ 226.8 million has been invested in fund iii , of which the operating partnership contributed $ 45.1 million . fund iii has invested in new york urban/infill redevelopment initiatives and other investments as further discussed in “ —property acquisitions ” in item 1. of this form 10-k. the projects are as follows : replace_table_token_27_th notes : tbd – to be determined 43 ( 1 ) anticipated additional costs for completed property represents costs for tenant improvements .
| interest income decreased as a result of the full repayment of two notes during 2010 and 2011. expense reimbursements in the opportunity funds increased for both real estate taxes and common area maintenance primarily as a result of the fund redevelopment properties and the 2011 fund acquisition . replace_table_token_21_th the increase in property operating expenses in the self-storage investments primarily related to higher operating costs in 2011 following increased occupancy throughout the storage portfolio . real estate taxes in the opportunity funds increased due to the fund redevelopment properties and the 2011 fund acquisition . general and administrative expense in the core portfolio increased as a result of higher stock compensation expense and employee severance costs during 2011. the increase in general and administrative expense in the opportunity funds related to an increase in promote expense within fund i resulting from the sale of 15 kroger/safeway properties . the variance in the other category was related to the elimination of fund i promote expense for consolidated financial statement presentation purposes . depreciation and amortization expense in the opportunity funds increased due to the fund redevelopment properties and the 2011 fund acquisition . 38 replace_table_token_22_th equity in earnings ( losses ) of unconsolidated affiliates in the opportunity funds decreased primarily as a result of a decrease in distributions in excess of basis from our albertson 's investment of $ 6.3 million in 2011 and a decrease in our pro-rata share of income from mervyns in 2011. the self storage investments equity in earnings ( losses ) represents our pro-rata share of losses from our unconsolidated investment in a self storage management company which manages 21 locations , including our 14 self storage properties . the self storage management company currently operates at a deficit , however it plans to increase third-party assets under management to ultimately achieve profitability . the $ 33.8 million gain from bargain purchase was attributable to fund ii 's purchase of an unaffiliated membership interest in citypoint in 2010. reference is made to note 4 of the notes to consolidated financial statements which begin on page
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as such , changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated financial statements . although we believe that we have adequately provided for all uncertain tax positions , tax authorities could assess tax liabilities greater or less than our accrued positions for open tax periods . results of operations the following table sets forth our results of operations expressed as a percentage of net sales for the following fiscal years : replace_table_token_9_th in the regular course of business , we offer our customers sales incentives including coupons , discounts , and free merchandise . sales are recorded net of such incentives and returns and allowances . if an incentive involves free merchandise , that merchandise is recorded as a zero sale and the cost is included in cost of sales . comparable store sales for the periods indicated below include stores that have been open for 13 full months prior to the beginning of the period , including those stores that have been relocated or remodeled . therefore , stores opened or closed during the periods indicated are not included in comparable store sales nor are our e-commerce sales . our e-commerce sales will be included in comparable sales starting with the fourth quarter of fiscal 2012 . 2011 compared to 2010 net sales net sales increased $ 23.3 million to $ 762.5 million in fiscal 2011 , a 3.2 % increase over the prior year 's net sales of $ 739.2 million . of this increase , $ 22.5 million was attributable to the sales generated by the 17 new stores we opened during fiscal 2011 , our e-commerce business which was launched in the third quarter of fiscal 2011 along with the full year effect of sales generated by the ten stores we opened in fiscal 2010. our comparable stores sales increased 0.7 % for fiscal 2011. these increases in sales were partially offset by a decline in sales of $ 4.7 million from the 11 stores closed during fiscal 2011 and fiscal 2010. during fiscal 2011 , comparable store sales were negatively impacted by a decline in consumer demand within two key product areas , toning footwear and boots . we were able to mitigate our year over year comparable store sales loss in toning footwear as sales within the balance of the athletic category , particularly performance running , remained strong . however , the unseasonably warm weather that was experienced late in the third quarter and throughout the fourth quarter of fiscal 2011 significantly impacted consumer demand for fall footwear , particularly boots . consequently , heavy promotional activity , including markdowns , was required during the fourth quarter of fiscal 2011 to effectively sell through this inventory . 21 gross profit gross profit increased $ 3.4 million to $ 224.9 million in fiscal 2011 , a 1.5 % increase from gross profit of $ 221.5 million in fiscal 2010. the gross profit margin for fiscal 2011 decreased to 29.5 % from 30.0 % in fiscal 2010. our merchandise margin decreased 0.5 % while buying , distribution and occupancy costs , as a percentage of sales , remained unchanged . the decrease in our merchandise margin was primarily the result of the heavy promotional activity that was required during the fourth quarter of fiscal 2011 to effectively sell through our fall footwear , particularly boots . selling , general and administrative expenses selling , general and administrative expenses increased $ 3.5 million in fiscal 2011 to $ 182.7 million from $ 179.2 million in fiscal 2010 ; however , our sales gain enabled us to leverage these costs by 0.3 % as a percentage of sales . significant changes in expense between the comparative periods included the following : ● we incurred an additional $ 7.8 million of incremental expense during fiscal 2011 , as compared to the prior year , to support our sales growth , expanded store base and e-commerce initiative . the increase in selling expenses was primarily due to increases in wages and advertising . ● during fiscal 2010 , we experienced a significant decrease in the average cost of health claims per participant as compared to recent historical periods . our average claims per participant returned to a more normalized level in fiscal 2011 and , together with a small increase in covered employees , we experienced a year over year increase in self-insured health care costs of $ 1.7 million . costs related to our self-insured health care programs are subject to a significant degree of volatility and will continue to carry the risk of material variances between reporting periods . ● the increases in selling , general and administration expenses were partially offset by a $ 6.6 million reduction in incentive compensation for fiscal 2011 as compared to the prior year when record-breaking financial performance drove material increases in performance-based compensation . pre-opening costs included in selling , general and administrative expenses were $ 1.2 million , or 0.2 % as a percentage of sales , in fiscal 2011 , as compared to $ 642,000 , or 0.1 % as a percentage of sales , in fiscal 2010. we opened 17 stores during fiscal 2011 and ten stores in fiscal 2010. pre-opening costs , such as advertising , payroll and supplies , incurred prior to the opening of a new store are charged in the period they are incurred . the total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved . the portion of store closing costs and non-cash asset impairment charges included in selling , general and administrative expenses for fiscal 2011 was $ 554,000 , or 0.1 % as a percentage of sales . these costs related to the closing of four stores , non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . story_separator_special_tag in fiscal 2010 , we incurred store closing costs and non-cash asset impairment charges of $ 2.0 million , or 0.3 % as a percentage of sales . these costs related to the closing of seven stores , non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . the timing and actual amount of expense recorded in closing a store can vary significantly depending , in part , on the period in which management commits to a closing plan , the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout . income taxes the effective income tax rate was 37.1 % for fiscal 2011 and 36.6 % for fiscal 2010. included in income tax expense for both fiscal years were benefits related to the favorable resolution of certain tax positions , which lowered our effective income tax rate as compared to other historical periods . 22 2010 compared to 2009 net sales net sales increased $ 56.8 million to $ 739.2 million in fiscal 2010 , an 8.3 % increase from net sales of $ 682.4 million in fiscal 2009. comparable store sales increased 8.2 % , or approximately $ 53.1 million , compared to the prior fiscal year . the ten stores opened in fiscal 2010 , along with the effect of a full year 's worth of sales from the 16 stores opened in fiscal 2009 , contributed an additional $ 17.9 million in sales . these sales increases were partially offset by a decline in sales of $ 14.2 million from the 16 stores that were closed during fiscal 2009 and fiscal 2010. gross profit gross profit increased $ 27.9 million to $ 221.5 million in fiscal 2010 , a 14.4 % increase from gross profit of $ 193.6 million in fiscal 2009. the gross profit margin for fiscal 2010 increased to 30.0 % from 28.4 % in fiscal 2009. as a percentage of sales , the merchandise margin increased 1.0 % , primarily as a result of the strong sales of seasonal footwear . buying , distribution and occupancy costs decreased 0.6 % , as a percentage of sales , due to the leverage associated with comparable store sales increases . selling , general and administrative expenses selling , general and administrative expenses increased $ 10.7 million to $ 179.2 million in fiscal 2010 from $ 168.5 million in fiscal 2009 ; however , our sales gain enabled us to leverage these costs by 0.4 % , as a percentage of sales . while we were able to significantly leverage our store operating expenses as a percentage of sales , we did incur an additional $ 4.7 million in store selling expenses as compared to the prior year . the increase in store selling expenses was primarily due to increases in wages , advertising and credit and debit card processing fees , partially offset by a decrease in depreciation . incentive compensation , inclusive of stock-based compensation , increased $ 5.8 million when compared to the prior year due to our improved financial performance . also during fiscal 2010 , we recorded an additional $ 1.3 million in store closing costs and non-cash asset impairment charges related to certain underperforming stores . the increases in selling , general and administrative expenses were partially offset by a $ 2.2 million decrease in our self-insured health care costs as compared to the prior year when we experienced unusually high claim activity . the costs related to our self-insured health care programs are subject to a certain degree of volatility and can vary materially between reporting periods . pre-opening costs included in selling , general and administrative expenses were $ 642,000 , or 0.1 % of sales , compared to $ 850,000 , or 0.1 % of sales , in fiscal 2009. we opened ten stores in fiscal 2010 as compared to 16 stores in fiscal 2009. pre-opening costs , such as advertising , payroll and supplies , incurred prior to the opening of a new store are charged to expense in the period they are incurred . the total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved . our average pre-opening costs per store increased by $ 11,000 to $ 64,000 in fiscal 2010 , primarily as a result of additional expenditures on marketing and supplies . the portion of store closing costs and non-cash asset impairment charges included in selling , general and administrative expenses for fiscal 2010 was $ 2.0 million , or 0.3 % as a percentage of sales . these costs related to the closing of seven stores , the impairment of assets and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . in fiscal 2009 , we incurred $ 750,000 , or 0.1 % as a percentage of sales . these costs related to the closing of nine stores , the impairment of assets and acceleration of expenses associated with management 's determination to close certain underperforming stores in future periods . income taxes the effective income tax rate was 36.6 % for fiscal 2010 and 39.3 % for fiscal 2009. included in income tax expense for fiscal 2010 was a $ 937,000 income tax benefit related to the favorable resolution of certain tax positions . this cumulative benefit significantly lowered our effective income tax rate for fiscal 2010 as compared to the same period last year . 23 liquidity and capital resources our sources and uses of cash are summarized as follows : replace_table_token_10_th our primary sources of funds are cash flows from operations and borrowings under our revolving credit facility . for fiscal 2011 , net cash provided by operating activities was $ 30.9 million compared to net cash provided by operating activities of $ 29.4 million for fiscal 2010. these amounts reflect the income from operations adjusted for non-cash items and working capital changes .
| ● our gross profit margin decreased to 29.5 % from 30.0 % in fiscal 2010. our merchandise margin decreased 0.5 % while buying , distribution and occupancy costs , as a percentage of sales , remained unchanged . the decrease in our merchandise margin was primarily the result of the heavy promotional activity during the fourth quarter to effectively sell through our fall footwear , particularly boots . ● we generated cash from operations net of purchases of property and equipment of $ 9.6 million and ended fiscal 2011 with $ 70.6 million in cash and cash equivalents and no interest bearing debt . ● inventories at january 28 , 2012 increased $ 24.7 million compared to the end of the prior year . approximately one-third of this increase was attributable to our net store growth and the addition of our e-commerce business . the remaining increase was due in large part to a planned increase in the pairs of footwear within current key categories as well as the early arrival of certain athletic product for the spring selling season . ● we opened 17 new stores during fiscal 2011 and launched our e-commerce site during the third quarter . nine stores were relocated to new locations and approximately 8 % of our stores were also remodeled during the year . fiscal 2012 we are focused on growing our business as we move into fiscal 2012. we expect to open approximately 30 new stores with over one-third of these stores located in two new major markets – dallas , texas and puerto rico . these new major markets , coupled with our e-commerce site which launched in the third quarter of fiscal 2011 , offer us the opportunity to acquire significant additional exposure for our brand . also for fiscal 2012 : ● comparable store sales are expected to increase in the low single digits . ● selling , general and administrative expenses are expected to increase , primarily due to the cost to operate the additional stores and an increase in pre-opening costs . with the increase in pre-opening costs , we anticipate selling , general and administrative expenses will increase slightly as a percentage
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we are unable to predict the extent of any future losses or when we will become profitable , if at all . these matters raise substantial doubt about the company 's ability to continue as a going concern . the accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty . in march 2010 , we completed our ipo , whereby we sold 1,925,000 units , each unit consisting of two shares of our common stock and a warrant to purchase one share of common stock , at $ 6.50 per unit resulting in gross proceeds of $ 12,512,500 and net proceeds to us of $ 10,457,270 after deducting underwriting discounts and commissions and offering expenses payable by us . all of our convertible notes and accrued interest thereon and all of our outstanding shares of non-voting subordinated class a common stock automatically converted into units or common stock upon the completion of the ipo . we believe that the net proceeds from the ipo and existing cash will be sufficient to fund our projected operating requirements into the fourth quarter of 2012. we also effected a 1 for 7.836 reverse stock split of our common stock on february 24 , 2010 in connection with the ipo . all shares and per share amounts , except as noted , have been retroactively adjusted to give effect to the reverse stock split . 31 financial operations overview revenue we have not generated any revenue since our inception . as of december 31 , 2011 , we have funded our operations primarily through debt financings and the ipo , and our receipt of a total of approximately $ 490,000 from federal grants under the qualifying therapeutic discovery project program , a total of approximately $ 775,000 from the sale of our unused net operating losses through the state of new jersey 's economic development authority technology business tax certificate transfer program and approximately $ 35,000 from the state of new york 's research and development tax credit program . if our product development efforts result in clinical success , regulatory approval and successful commercialization of any of our products , we could generate revenue from sales or licenses of any such products . research and development expense research and development , or r & d expense consists of : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; ( iii ) technology and intellectual property license costs ; ( iv ) manufacturing development costs ; ( v ) personnel related expenses , including salaries , stock-based compensation , benefits , travel and related costs for the personnel involved in drug development ; ( vi ) activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and ( vii ) facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . all r & d is expensed as incurred . conducting a significant amount of development is central to our business model . through december 31 , 2011 , we incurred $ 22,155,674 in r & d expenses since our inception in july 2006. product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . we plan to increase our r & d expenses for the foreseeable future in order to complete development of crmd003 and our earlier-stage r & d projects . the following table summarizes the percentages of our r & d payments related to our two most advanced product candidates and other projects . the percentages summarized in the following table reflect payments directly attributable to each development candidate , which are tracked on a project basis . a portion of our internal costs , including indirect costs relating to our product candidates , are not tracked on a project basis and are allocated based on management 's estimate . replace_table_token_2_th the process of conducting pre-clinical studies and clinical trials necessary to obtain fda approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future 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 . 32 development timelines , probability of success and development costs vary widely . we have decided to focus the majority of our resources and research and development efforts on seeking ce marking approval and commercialization of neutrolin ® in europe through a ce mark application . during the first half of 2011 we submitted our design dossier with tüv süd the european notified body managing our ce mark application . in the fourth quarter 2011 we successfully completed our stage 1 audit with tüv . upon the successful completion of the stage 2 audit and the implementation and approval of our quality management system and approval our design dossier , we would anticipate being in a position to obtain a ce mark approval in the first half of 2012 . story_separator_special_tag if we obtain ce mark approval in europe , we intend to be in a position to launch neutrolin ® for the prevention of catheter related bloodstream infections , or crbi and maintenance of catheter patency in hemodialysis patients in europe during 2012. we can not be assured of ce mark approval of neutrolin ® on that timeline or at all . we are currently exploring the various methods of launching neutrolin ® in europe , whether through a distributorship or partnership arrangement or otherwise . general and administrative expense general and administrative , or g & a expense consists primarily of salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , finance and accounting functions . other g & a expense includes facility-related costs not otherwise included in r & d expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services and accounting services . we expect that our g & a expenses will increase if we add personnel and as a result of the reporting obligations applicable to public companies . from our inception on july 28 , 2006 through december 31 , 2011 , we incurred $ 10,918,954 of g & a expense . other income other income consists mainly of federal research grants awarded and research and development tax refunds , net of application fees . from our inception on july 28 , 2006 through december 31 , 2011 , we received $ 420,987 of other income , net of application fees and related filing costs . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents . interest expense consists of interest incurred on our convertible notes up to their automatic conversion into units or common stock upon the completion of the ipo on march 30 , 2010 , as well as the amortization and write-off of deferred financing costs and debt discounts and a charge for the beneficial conversion relating to certain of our convertible notes . from our inception on july 28 , 2006 through december 31 , 2011 , we received $ 124,342 of interest income through interest bearing savings accounts and incurred $ 11,193,028 of interest expense , which consists of interest incurred in debt issued to noteholders , amortization and write-off of deferred financing costs and debt discounts and a beneficial conversion feature charge related to the conversion of certain of our convertible notes . story_separator_special_tag margin : 0pt 0 '' > net cash used in investing activities net cash used in investing activities was $ 1,625 for the year ended december 31 , 2011. net cash used in investing activities consisted of a purchase of computer equipment during 2011. net cash used in investing activities was $ 10,361 for the year ended december 31 , 2010. net cash used in investing activities consisted of leasehold improvements made to our corporate headquarters located in bridgewater , new jersey , in addition to purchases of computer equipment and accounting software , which are being amortized over the term of the lease and depreciated over the expected life of the equipment and software . net cash provided by financing activities net cash provided by financing activities was $ 0 for the year ended december 31 , 2011 compared to $ 10,457,270 for the year ended december 31 , 2010. net cash provided by financing activities consisted of the sale of equity securities issued in our ipo , through which we received gross proceeds of $ 12,512,500. the gross proceeds of $ 12,512,500 were offset by underwriting discounts and commissions of $ 1,063,563 , corporate finance fees of $ 225,250 , and reimbursable legal fees for counsel to the underwriters of $ 90,000 , in addition to other offering costs and expenses of $ 676,417 , consisting primarily of legal , accounting , printing and filing fees . funding requirements our total cash on hand as of december 31 , 2011 was $ 1,985,334 , compared to $ 8,283,684 at december 31 , 2010. because our business does not generate positive operating cash flow , we will need to raise additional capital before we exhaust our current cash resources in order to continue to fund our research and development , including our long-term plans for clinical trials and new product development , as well as to fund operations generally . our continued operations will depend on whether we are able to raise additional funds through various potential sources , such as equity , debt financing , strategic relationships , out-licensing or distribution arrangements of our products . through december 31 , 2011 , all of our financing has been through our 2010 ipo , previous debt financings and our receipt of a total of approximately $ 490,000 from federal grants under the qualifying therapeutic discovery project program , a total of approximately $ 775,000 from the sale of our unused net operating losses through the state of new jersey 's economic development authority technology business tax certificate transfer program and approximately $ 30,000 from the state of new york 's research and development tax credit program , net of application fees . we expect to continue to fund operations from cash on hand and through either capital raising sources as previously described , which may be dilutive to existing stockholders , or through generating revenues from the licensing of our products or strategic alliances . we plan to seek additional debt and or equity financing , but can provide no assurances that such financing will be available on acceptable terms , or at all . moreover , the incurrence of indebtedness in connection with a debt financing would result in increased fixed obligations and could also result in covenants that would restrict our operations .
| other income was $ 29,819 for the year ended december 31 , 2011 , a decrease of $ 361,349 from $ 391,168 for the year ended december 31 , 2010. other income during 2011 represented a research and development funding reimbursement from the state of new york research and development tax refund program and in 2010 represented federal grants , net of filing and application fees we received under the qualifying therapeutic discovery project program . interest income and interest expense . interest income was $ 12,037 for the year ended december 31 , 2011 , a decrease of $ 11,405 , from $ 23,442 for the year ended december 31 , 2010. the decrease was attributable to having lower interest-bearing cash balances during the year ended december 31 , 2011 compared to the year ended december 31 , 2010. interest expense was $ 0 for the year ended december 31 , 2011 compared to $ 3,093,763 for the year ended december 31 , 2010. interest expense charges related to the conversion of all our convertible notes , of which the aggregate amount of principal and accrued interest as of march 30 , 2010 was $ 18,897,167 , in connection with the ipo . the interest expense charges consisted primarily of a beneficial conversion feature charge of $ 1,137,762 related to the 30 % discount at which the 8 % senior convertible notes we issued in october and november 2009 in the aggregate principal amount of $ 2,619,973 ( the “ third bridge notes ” ) , converted into common stock , a write-off of debt discount of $ 1,135,076 in 2010 and a write-off of the remaining amortization of deferred financing fees of $ 358,495 in 2010. liquidity and capital resources sources of liquidity as a result of our significant research and development expenditures and the lack of any approved products to generate product sales revenue , we have not been profitable and have generated operating losses since we were incorporated in july 2006. prior to the ipo , we had funded our operations principally with $ 14,364,973 in convertible notes sold in private placements and $ 625,464 in related party notes , which were also convertible . we received net proceeds of $ 10,457,270 from the ipo , after deducting
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in such an event , fair value is determined using discounted cash flows and if lower than the carrying value , impairment is recognized through a charge to operations . equity compensation plans asc 718 compensation stock compensation addresses the accounting for share-based employee compensation . further information on the company 's equity compensation plans , including inputs used to determine fair value of options is disclosed in note 5 to the consolidated financial statements . asc 718 requires that share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans be recognized as compensation expense based on their fair value at grant date . the fair market value of options granted under the company 's stock option plans was estimated on the date of grant using the black-scholes option-pricing model using assumptions for inputs such as interest rates , expected dividends , volatility measures and specific employee exercise behavior patterns based on statistical data . some of the inputs used are not market-observable and have to be estimated or derived from available data . use of different estimates would produce different option values , which in turn would result in higher or lower compensation expense recognized . to value options , several recognized valuation models exist . none of these models can be singled out as being the best or most correct one . the model applied by the company is able to handle some of the specific features included in the options granted , which is the reason for its use . if a different model were used , the option values would differ despite using the same inputs . accordingly , using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options . fair value could be either higher or lower than the ones produced by the model applied and the inputs used . 20 story_separator_special_tag acquired in the macleod pharmaceuticals purchase , and a 113 % increase in the small animal supplements line due to new business captured on canine thyroid replacement products . partially offsetting these gains were a 27 % decrease in vitamin supplements , due to unusually high prior year sales caused by products coming off backorder and a decline in the number of cattle , and a 13 % decrease in hoof and leg care products , due to lower animal counts and difficult financial conditions in the dairy industry . dna testing revenues increased 9 % in 2013 compared to the prior year . the company gained new business resulting from the igenity and scidera genomics acquisitions and had strong market acceptance of new products for cattle parentage testing in the latter half of the year . year ended may 31 , 2012 compared to year ended may 31 , 2011 the company 's food safety segment revenues grew by 7 % overall in 2012 , with increases in each major product category compared to 2011. organic revenue growth was 6 % in the segment , compared to the prior year . the increase in natural toxins , allergens and drug residues of 6 % in 2012 included strong contributions in drug residues revenues , primarily tests to determine the presence of antibiotics in dairy animals , which increased 11 % compared to 2011. natural toxins test kits revenue increased 1 % in 2012 compared to 2011 , as increased aflatoxin test kit revenues , caused by abnormally warm and dry weather conditions in the 2011 growing season , offset year-over-year declines in don revenues resulting from an outbreak in the 2010 growing season which did not recur in fiscal year 2011. allergen product revenues increased by 6 % compared to 2011 , as increased worldwide concern over the presence of allergens in finished food products positively affected sales . bacterial and general sanitation revenues increased in 2012 by 11 % compared with 2011 , marking continued double digit increases . while sales of diagnostic test kits to detect pathogens such as e. coli , listeria and salmonella remained relatively flat with a 1 % increase in product revenues , soleris microbial detection instruments and vials , designed to detect the presence of yeasts , molds and other contaminants in foods , increased by 20 % compared to 2011. accupoint readers and device sales , used to detect the cleanliness of contact surfaces in food preparation environments , achieved an 8 % increase in product revenues over 2011. continued market acceptance of these products was strong . 22 dehydrated culture media and other revenues increased by 3 % in 2012 , as declines in domestic traditional dehydrated culture media were offset with increased international revenues , certain genomics service revenues to a number of european customers and higher shipping revenues . animal safety revenues increased by 7 % overall and included minimal revenues from the igenity acquisition , which closed in may 2012. life sciences and other revenues increased 4 % in 2012 with broad-based increases from existing customers and new key accounts with increases in oem reagent products leading the increases . vaccine revenues increased by 16 % compared with 2011 , as effective marketing programs to animal practitioners resulted in continued utilization of the company 's equine vaccine products . rodenticide and disinfectant revenues decreased by 6 % in comparison with 2011 following a year in which revenue increased by 17 % due to a change in the law regarding product packaging for rodenticides , which went into effect on june 4 , 2011. this law resulted in strong sales of rodenticides in the second half of 2011 , which the company believes , pulled sales which might otherwise have occurred in 2012 , into 2011. the company 's line of cleaners and disinfectants continued to be well accepted in the market , and increased 10 % in 2012 compared to 2011. the product line continues to be a strong synergistic fit as it is marketed with the company 's full line of biosecurity solutions . story_separator_special_tag veterinary instruments and other products increased 21 % for the year due to increased market penetration by several large distributors , both domestic and international , in 2012. animal care products led the revenue increases at 27 % , disposable gloves and apparel increased by 25 % , and ideal instruments product offerings , such as needles and syringe products , increased by 10 % for the year , with broad based increases in several other product groups . dna testing revenues , resulting from the purchase of geneseek inc. in april 2010 , increased 3 % in 2012 , compared to 2011. the acquisition of the igenity product line in may of 2012 did not contribute significantly in the year . cost of revenues replace_table_token_6_th cost of revenues increased 7 % in 2013 and 8 % in 2012 in comparison with the prior years . this compares with revenue increases of 13 % and 7 % in 2013 and in 2012 , respectively . expressed as a percentage of revenues , cost of revenues was 47 % , 50 % and 49 % in 2013 , 2012 , and 2011 , respectively . the decrease in cost of revenues , expressed as a percentage of sales , in 2013 compared to 2012 was due to product mix changes in the animal safety segment and higher sales in the food safety segment , as a percentage of the total . margins improved in the animal safety segments as the result of higher sales of a canine thyroid replacement product , recovering rodenticide sales from a weak 2012 , and new product revenues from acquisitions , all of which are higher than average gross margin products within the segment . the increase in cost of goods sold , expressed as a percentage of sales , in 2012 compared to 2011 was also due to product mix within the animal safety segment . food safety gross margins were 64 % , 65 % and 64 % in 2013 , 2012 and 2011 , respectively . the minor changes in margins between periods relate primarily to changes in product mix . food safety segment sales were 51.2 % of overall sales in 2013 compared to 49.5 % in both 2012 and 2011. the sales shift towards diagnostic products , which have higher margins , contributed to the company 's overall gross margin improvement in 2013. animal safety gross margins were 41 % , 36 % and 37 % in 2013 , 2012 and 2011 , respectively . the improvement in the margins from 2012 to 2013 was due to a shift in product mix resulting from higher sales of small animal supplements , rodenticides and the new uniprim product line acquired from macleod pharmaceuticals . additionally , geneseek benefitted from higher margins due to new service offerings acquired in the igenity and scidera genomics purchases . the change in the margins from 2011 to 2012 was primarily due to product mix , as a decline in rodenticide revenues , which generally have a higher gross margin , were offset by increases in cleaners and disinfectants , which are a lower margin product . 23 operating expenses replace_table_token_7_th sales and marketing expenses increased by 16 % in 2013 and by 17 % in 2012 , each compared with the prior year . as a percentage of sales , sales and marketing expense increased to 20 % in 2013 from 19 % in 2012 and from 17 % in 2011. the 2012 and 2013 increases were primarily the result of the significant investment in sales and marketing personnel which the company announced and undertook beginning in late 2011. since 2011 , 48 positions have been added , an increase of 26 % , consisting of additional field sales , marketing , and technical service personnel . this investment was designed to improve the company 's sales and marketing capabilities , increase market penetration and facilitate the company 's domestic and international expansion opportunities . other significant expense increases were for royalties , based on increased sales of products which require royalty payments , shipping expenses , corresponding to the increase in revenues , higher advertising costs and marketing promotions . general and administrative expenses increased 19 % in 2013 compared to 2012 and by 13 % in 2012 compared to 2011. the increase in 2013 resulted primarily from increased salaries due to increases in personnel , investments in information technology infrastructure necessary to support the growth of the company , increased amortization relating to businesses acquired and legal expenses related to the protection of the company 's intellectual property . research and development expenses increased 17 % in 2013 compared to 2012 and decreased by 3 % in 2012 in comparison with 2011. as a percentage of revenue these expenses were 4 % in 2013 , 2012 and 2011. although some fluctuation in research and development expenses will occur across periods , management expects research and development expenses to approximate 3 % to 5 % of revenues . certain company products , particularly on the animal safety side of the business , require relatively less investment in research and development expenses . for those products requiring support by research and development , the company estimates that it spends 8 % to 10 % of revenues in its research and development efforts . the increase in 2013 is the result of the significant costs resulting from the testing and commercialization of the new products introduced during the year . operating income replace_table_token_8_th during fiscal year 2013 , the company 's operating income increased by 21 % compared to 2012 and decreased in 2012 by 6 % when compared to 2011. as a percentage of revenues it was 20 % , 18 % and 21 % in 2013 , 2012 and 2011 respectively . the increase in operating income in 2013 was driven by the 13 % increase in revenues which , when combined with the improved gross margins , more than offset the increased operating expenses .
| geneseek added to its offerings and capabilities with the igenity acquisition in late fiscal year 2012 and the scidera acquisition in january 2013. neogen europe recorded a revenue increase of more than 20 % in 2013. sales were particularly strong in germany , where unusually wet , cool weather during the fall growing season resulted in a mycotoxin outbreak in the small grain crops ; growth in the united kingdom was due to increased meat speciation testing in the second half of the year , the result of mislabeled meat products . neogen europe also achieved significant increases in sales of services to genomics customers in the eu . neogen latinoamerica and neogen do brasil continued to build out their sales and operations infrastructures , resulting in improved market presence , and recorded revenue gains of more than 10 % and 40 % , respectively , in 2013 over 2012 , albeit from relatively small bases . service revenue of $ 23,394,000 was an increase of 22 % over the prior year , primarily the result of the increases in genomic services at neogen europe , which reports within the food safety segment ; additionally , dna testing benefitted from the igenity and scidera acquisitions during the year and also from strong market acceptance of new products for the cattle industry . revenues replace_table_token_5_th year ended may 31 , 2013 compared to year ended may 31 , 2012 the company 's food safety segment revenues were $ 106.2 million in 2013 , 17 % higher than 2012 , with increases in each major product category . sales of natural toxins , allergens & drug residues products increased 20 % in 2013 compared to the prior year . the increase was led by sales of aflatoxin test kits , readers , and accessories , resulting from an outbreak in the united states caused by unusually hot and dry conditions . additionally , cool wet growing conditions in germany in fall 2012 contributed to an outbreak of deoxynivalenol , or don , in the small grains crop , and resulted in increased sales of the company 's test
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we exclude the effects of these agreements for the presentation of the excess and surplus lines and specialty admitted insurance segments included herein consistent with the manner in which we manage the business . at december 31 , 2017 , 69.5 % of our cash and invested assets were held in bermuda , which benefits from a favorable operating environment , including an absence of corporate income or investment taxes . we pay a 1 % u.s. excise tax on premiums ceded to jrg re by our u.s.-based insurance subsidiaries . we plan to make changes to the company 's structure in 2018 to minimize the impact of beat that include the formation of carolina re , a bermuda-domiciled , wholly owned subsidiary of james river group , inc. we expect carolina re to be a class 3a reinsurer and make an irrevocable election to be taxed as a u.s. domestic corporation under section 953 ( d ) of the code . effective january 1 , 2018 , we will discontinue ceding 70 % of our u.s.-written premiums to jrg re and will instead cede 70 % of our u.s.-written premiums to carolina re . we also expect carolina re will enter into a stop loss reinsurance agreement with jrg re . while carolina re will be subject to u.s. corporate income tax , we do not expect that it will be subject to beat in fiscal year 2018 as the company is expected to have sufficient regular u.s. income tax liability compared to the beat liability . the corporate and other segment consists of the management and treasury activities of our holding companies and interest expense associated with our debt . the a.m. best financial strength rating for our group 's regulated insurance subsidiaries is “ a ” ( excellent ) . this rating reflects a.m. best 's opinion of our insurance subsidiaries ' financial strength , operating performance and ability to meet obligations to policyholders and is not an evaluation directed towards the protection of investors . critical accounting policies and estimates we identified the accounting estimates below as critical to the understanding of our financial position and results of operations . critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us to exercise significant judgment . we use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements . these judgments and estimates affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of material contingent assets and liabilities . actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements . we evaluate our estimates regularly using information that we believe to be relevant . for a detailed discussion of our accounting policies , see the notes to consolidated financial statements included in this form 10-k. reserve for losses and loss adjustment expenses the reserve for losses and loss adjustment expenses represents our estimated ultimate cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at the balance sheet date . we do not discount this reserve . we estimate the reserve using individual case-basis valuations of reported claims and statistical analysis . we believe that the use of judgment is necessary to arrive at a best estimate for the reserve for losses and loss adjustment expenses given the long-tailed nature of the business we write and the limited operating experience of the casualty reinsurance segment and of the fronting and program business in the specialty admitted insurance segment and the commercial auto business in our excess and surplus lines segment . in applying this judgment , we frequently establish reserves that differ from our internal actuaries ' estimate . we seek to establish reserves that will ultimately prove to be adequate . if we have indications that claims frequency or severity exceeds our initial expectations , we generally increase our reserves for losses and loss adjustment expenses . conversely , when claims frequency and severity trends are more favorable than initially anticipated , we generally reduce our reserves for losses and loss adjustment expenses once we have sufficient data to confirm the validity of the favorable trends . our excess and surplus lines and specialty admitted insurance segments generally are notified of losses by our insureds or their brokers . based on the information provided , we establish case reserves by estimating the ultimate losses from the claim , including administrative costs associated with the ultimate settlement of the claim . our claims department personnel use their knowledge of the specific claim along with internal and external experts , including underwriters and legal counsel , to estimate the expected ultimate losses . our casualty reinsurance segment generally establishes case reserves based on reports received from ceding companies or their brokers . for excess of loss contracts , we are typically notified of insurance losses on specific contracts , and we record 68 case reserves based on the estimated ultimate losses on each claim . for proportional contracts , we typically receive aggregated claims information and record case reserves based on that information . we also use statistical analysis to estimate the cost of losses and loss adjustment expenses that have been incurred but not reported to us ( “ ibnr ” ) . those estimates are based on our historical information , industry information and estimates of future trends that may affect the frequency of claims and changes in the average cost of claims ( severity ) that may arise in the future . the company 's gross reserve for losses and loss adjustment expenses at december 31 , 2017 was $ 1.3 billion . of this amount , 64.6 % relates to ibnr . story_separator_special_tag the company 's gross reserve for losses and loss adjustment expenses by segment are summarized as follows : replace_table_token_19_th the company 's net reserve for losses and loss adjustment expenses at december 31 , 2017 was $ 989.8 million . of this amount , 65.0 % relates to ibnr . the company 's net reserve for losses and loss adjustment expenses by segment are summarized as follows : replace_table_token_20_th our reserve committee consists of our chief actuary , chief executive officer ( formerly chief operating officer ) , chief financial officer , and chief accounting officer . additionally , the presidents and chief actuaries of each of our three operating segments assist in the evaluations of their respective segments . the reserve committee meets quarterly to review the actuarial recommendations made by each chief actuary and uses its best judgment to determine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our balance sheet . the reserve committee believes that using judgment to supplement the actuarial recommendations is necessary to arrive at a best estimate given the nature of the business that we write and the limited operating experience of the casualty reinsurance segment , the fronting and program business in the specialty admitted insurance segment and the commercial auto underwriting division in the excess and surplus lines segment . the process of estimating the reserve for losses and loss adjustment expenses requires a high degree of judgment and is subject to a number of variables . in establishing the quarterly actuarial recommendation for the reserve for losses and loss adjustment expenses , our internal actuaries estimate an initial expected ultimate loss ratio for each of our product lines by accident year ( or for our casualty reinsurance segment , on a contract by contract basis ) . input from our underwriting and claims departments , including premium pricing assumptions and historical experience , are considered by our internal actuaries in estimating the initial expected loss ratios . our actuaries generally utilize five actuarial methods in their estimation process for the reserve for losses and loss adjustment expenses . these five methods utilize , to varying degrees , the initial expected loss ratio , detailed statistical analysis of past claims reporting and payment patterns , claims frequency and severity , paid loss experience , industry loss experience , and changes in market conditions , policy forms , exclusions , and exposures . the five actuarial methods that we use in our reserve estimation process are : expected loss method the expected loss method multiplies earned premiums by an initial expected loss ratio . 69 incurred loss development method the incurred loss development method uses historical loss reporting patterns to estimate future loss reporting patterns . in this method , our actuaries apply historical loss reporting patterns to develop incurred loss development factors that are applied to current reported losses to calculate expected ultimate losses . paid loss development method the paid loss development method is similar to the incurred loss development method , but it uses historical loss payment patterns to estimate future loss payment patterns . in this method , our actuaries apply historical loss payment patterns to develop paid loss development factors that are applied to current paid losses to calculate expected ultimate losses . bornhuetter-ferguson incurred loss development method the bornhuetter-ferguson incurred loss development method divides the projection of ultimate losses into the portion that has already been reported and the portion that has yet to be reported . the portion that has yet to be reported is estimated as the product of premiums earned for the accident year , the initial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unreported at the valuation date . bornhuetter-ferguson paid loss development method the bornhuetter-ferguson paid loss development method is similar to the bornhuetter-ferguson incurred loss development method , except this method divides the projection of ultimate losses into the portion that has already been paid and the portion that has yet to be paid . the portion that has yet to be paid is estimated as the product of premiums earned for the accident year , the initial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unpaid at the valuation date . different reserving methods are appropriate in different situations , and our actuaries use their judgment and experience to determine the weighting of the methods detailed above to use for each accident year and each line of business and , for our casualty reinsurance segment , on a contract by contract basis . for example , the current accident year has very little incurred and paid loss development data on which to base reserve projections . as a result , we rely heavily on the expected loss method in estimating reserves for the current accident year . we generally set our initial expected loss ratio for the current accident year consistent with our pricing assumptions . we believe that this is a reasonable and appropriate reserving assumption for the current accident year since our pricing assumptions are actuarially driven and since we expect to make an acceptable return on the new business that we write . if actual loss emergence is better than our initial expected loss ratio assumptions , we will experience favorable development , and if it is worse than our initial expected loss ratio assumptions , we will experience adverse development . conversely , sufficient incurred and paid loss development is available for our oldest accident years , so more weight is given to the incurred loss development method and the paid loss development method than the expected loss method . the bornhuetter-ferguson incurred loss development and paid loss development methods blend features of the expected loss method and the incurred and paid loss development methods . the bornhuetter-ferguson methods are typically used for the more recent prior accident years .
| the expense ratio decreased from 21.7 % in 2016 to 13.4 % in 2017. the decrease in the expense ratio is attributable to the 53.8 % increase in net earned premiums as well as a decrease in the total amount of operating expenses . additionally , fee income increased as a percentage of net earned premiums and contributed to a reduction in the expense ratio of 3.7 and 3.3 percentage points for the years ended december 31 , 2017 and 2016 , respectively . the reduced expense ratio and higher loss ratio in this segment reflects an increase in the commercial auto premium as a percentage of the segment 's total premium . our commercial auto business has a lower expense ratio and higher loss ratio than 82 our other business in the segment . commercial auto made up 46.8 % of the segment 's gross written premium for 2017 compared to 29.7 % for 2016. underwriting profit . as a result of the items discussed above , underwriting profit of the excess and surplus lines segment decreased by 37.1 % , from $ 47.2 million for the year ended december 31 , 2016 to $ 29.7 million for the year ended december 31 , 2017. specialty admitted insurance segment results for the specialty admitted insurance segment are as follows : replace_table_token_29_th ( 1 ) underwriting profit is a non-gaap measure . see “ reconciliation of non-gaap measures ” for a reconciliation to income before tax and for additional information . ( 2 ) underwriting profit includes fee income of $ 11.3 million and $ 4.2 million for the years ended december 31 , 2017 and 2016 , respectively . combined ratio . the combined ratio of the specialty admitted insurance segment for the year ended december 31 , 2017 was 95.4 % , comprised of a loss ratio of 65.9 % and an expense ratio of 29.5 % . this compares to the combined ratio in the prior year of 94.5 % , comprised of a loss ratio of 59.1 % and an expense ratio of 35.4 % . loss ratio . the loss ratio for the year ended december 31 , 2017 of 65.9 %
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external factors impacting our business performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity . overall market conditions are a product of many factors , which are beyond our control and mostly unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors , including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions , the volatility of the equity and fixed income markets , the level and shape of various yield curves , the volume and value of trading in securities , and the value of our customers ' assets under management . the municipal underwriting market is challenging as state and local governments reduce their debt levels . investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . at december 31 , 2018 , the key indicators of the markets ' performance , the nasdaq , the s & p 500 , and dow jones industrial average closed 3.9 % , 6.2 % , and 5.6 % lower than their december 31 , 2017 , closing prices , respectively . as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . 31 story_separator_special_tag $ 678.9 million from $ 730.0 million in 2016. the decrease is primarily attributable to lower volumes caused by the shift to fee-based accounts as a result of the department of labor 's fiduciary rule , lower volumes , and lower volatility experienced by our institutional group . principal transactions – for the year ended december 31 , 2017 , principal transactions revenues decreased 16.5 % to $ 396.8 million from $ 475.4 million in 2016. the decrease is primarily attributable to a decline in trading volumes , low interest rates , a flattening yield curve , and low volatility . investment banking – for the year ended december 31 , 2017 , investment banking revenues increased 41.7 % , to $ 726.8 million from $ 513.0 million in 2016. the increase is primarily attributable to an increase in capital raising revenues and advisory fees . capital-raising revenues increased 42.8 % to $ 366.1 million for the year ended december 31 , 2017 , from $ 256.4 million in 2016. for the year ended december 31 , 2017 , equity capital-raising revenues increased 41.2 % to $ 203.4 million from $ 144.1 million in 2016. for the year ended december 31 , 2017 , fixed income capital-raising revenues increased 44.9 % to $ 162.7 million from $ 112.3 million in 2016 . 33 advisory fees increased 40.5 % to $ 360.6 million for the year ended december 31 , 2017 , from $ 256.6 million in 2016. the increase is primarily attributable to an increase in the number of completed advisory transactions during 2017 , as well as contributions made from eaton fund placement franchise . asset management and service fees – for the year ended december 31 , 2017 , asset management and service fee revenues increased 20.5 % to $ 702.1 million from $ 582.8 million in 2016. the increase is primarily a result of an increase in the number and value of fee-based accounts . see “ asset management and service fees ” in the global wealth management segment discussion for information on the changes in asset management and service fees revenues . other income – for the year ended december 31 , 2017 , other income decreased 19.8 % to $ 37.5 million from $ 46.8 million in 2016. the decrease is primarily a result of a decrease in loan origination fees , and lower investment gains . 34 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_8_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in “ results of operations – global wealth management ” for additional information on stifel bancorp 's average balances and interest income and expense . year ended december 31 , 2018 , compared with year ended december 31 , 2017 net interest income – net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2018 , net interest income increased 23.9 % to a record $ 476.4 million from $ 384.4 million in 2017. for the year ended december 31 , 2018 , interest revenue increased 42.3 % to $ 646.4 million from $ 454.4 million in 2017 , principally as a result of a $ 160.0 million increase in interest revenue generated from the growth in interest-earning assets of stifel bancorp and higher margin interest income . the average interest-earning assets of stifel bancorp increased to $ 15.8 billion during the year ended december 31 , 2018 , compared to $ 13.6 billion during 2017 at average interest rates of 3.52 % and 2.93 % , respectively . for the year ended december 31 , 2018 , interest expense increased 142.9 story_separator_special_tag % to $ 170.1 million from $ 70.0 million in 2017. the increase is primarily attributable to an increase in interest-bearing liabilities at stifel bancorp ( deposits and fhlb advances ) and the issuance of 5.20 % senior notes in october 2017. year ended december 31 , 2017 , compared with year ended december 31 , 2016 net interest income – for the year ended december 31 , 2017 , net interest income increased 69.0 % to $ 384.4 million from $ 227.5 million in 2016 . 35 for the year ended december 31 , 2017 , interest revenue increased 54.4 % to $ 454.4 million from $ 294.3 million in 2016 , principally as a result of a $ 157.8 million increase in interest revenue generated from the growth in interest-earning assets of stifel bancorp . the average interest-earning assets of stifel bancorp increased to $ 13.6 billion during the year ended december 31 , 2017 , compared to $ 9.6 billion in 2016 at average interest rates of 2.93 % and 2.50 % , respectively . for the year ended december 31 , 2017 , interest expense increased 4.7 % to $ 70.0 million from $ 66.9 million in 2016. the increase in interest expense is primarily attributable to an increase in interest expense paid on the interest-bearing liabilities of stifel bancorp . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_9_th year ended december 31 , 2018 , compared with year ended december 31 , 2017 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions , and increased administrative overhead to support the growth in our segments . compensation and benefits – compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes , and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits . other compensation costs , including base salaries , stock-based compensation amortization , and benefits , are more fixed in nature . for the year ended december 31 , 2018 , compensation and benefits expense decreased 9.6 % to $ 1.8 billion from $ 2.0 billion in 2017. compensation and benefits expense as a percentage of net revenues was 58.5 % for the year ended december 31 , 2018 , compared to 66.9 % for the year ended december 31 , 2017. the decrease is primarily attributable to growth of our higher margin businesses and a decrease in deferred compensation expense from prior year . in the fourth quarter of 2017 , in response to us tax reform , we accelerated the vesting of certain outstanding debenture awards and modified certain outstanding restricted stock units . occupancy and equipment rental – for the year ended december 31 , 2018 , occupancy and equipment rental expense decreased 0.1 % to $ 222.4 million from $ 222.7 million in 2017. communications and office supplies – communications expense includes costs for telecommunication and data transmission , primarily for obtaining third-party market data information . for the year ended december 31 , 2018 , communications and office supplies expense increased 5.1 % to $ 140.3 million from $ 133.5 million in 2017. the increase is primarily attributable to an increase in communication and quote and office supplies . commissions and floor brokerage – for the year ended december 31 , 2018 , commissions and floor brokerage expense decreased 4.9 % to $ 42.0 million from $ 44.1 million in 2017. the decrease is primarily attributable to a decrease in trading volumes . other operating expenses – other operating expenses primarily include license and registration fees , litigation-related expenses , which consist of amounts we reserve and or payout for legal and regulatory matters , travel and entertainment , promotional , and professional service expenses . for the year ended december 31 , 2018 , other operating expenses increased 5.9 % to $ 315.2 million from $ 297.6 million in 2017. the increase is primarily attributable to the adoption of the new revenue recognition standard that requires gross presentation of certain costs that were previously offset against revenue that added $ 33.8 million to other operating expenses ; and an increase in professional fees , travel costs , subscriptions , and advertising expense , partially offset by a decrease in legal expense , fdic insurance , and provision for loan losses provision for income taxes – for the year ended december 31 , 2018 , our provision for income taxes was $ 140.4 million , representing an effective tax rate of 26.3 % , compared to $ 86.7 million in 2017 , representing an effective tax rate of 32.2 % . 36 the provision for income taxes for the year ended december 31 , 2018 was primarily impacted by the tax reform enacted in the fourth quarter of 2017 that , among other things , lowered the federal corporate income tax rate from 35 % to 21 % . year ended december 31 , 2017 , compared with year ended december 31 , 2016 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions , and increased administrative overhead to support the growth in our segments .
| investment banking – investment banking revenues include : ( i ) capital-raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) advisory fees related to corporate debt and equity offerings , municipal debt offerings , merger and acquisitions , private placements , and other investment banking advisory fees . for the year ended december 31 , 2018 , investment banking revenues decreased 2.6 % , to $ 707.7 million from $ 726.8 million in 2017. the decrease is primarily attributable to a decrease in fixed income capital raising revenues , partially offset by an increase in equity capital raising revenues and advisory fees . investment banking revenues were positively impacted by the adoption of the new revenue recognition standard in 2018 that requires gross presentation of certain costs that were previously offset against investment banking revenues . capital-raising revenues decreased 8.2 % to $ 336.2 million for the year ended december 31 , 2018 , from $ 366.1 million in 2017. for the year ended december 31 , 2018 , equity capital-raising revenues increased 11.4 % to $ 226.5 million from $ 203.4 million in 2017. for the year ended december 31 , 2018 , fixed income capital-raising revenues decreased 32.6 % to $ 109.7 million from $ 162.7 million in 2017. advisory fees increased 3.0 % to $ 371.5 million for the year ended december 31 , 2018 , from $ 360.6 million in 2017. the increase is primarily attributable to an increase in the number of completed advisory transactions during 2018 , including growth in our fund placement business . asset management and service fees – asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients . investment advisory fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2018 , asset management and service fee revenues increased 14.8 % to a record $ 806.2 million from $ 702.1 million in 2017. the increase is
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advertising and marketing costs increased $ 383,000 , or 16.4 % , in 2017 compared to 2016. the changes are primarily attributable to the increased expenditures that are funded by payments received under the cma for joint marketing . these expenditures related primarily to riversouth , an area wide marketing initiative that is designed to increase visitors to shakopee 's entertainment , hospitality and retail businesses . professional and contracted services expense increased $ 248,000 , or 6.0 % , in 2017 compared to 2016. the increase is primarily due to increased live racing contracted services as a result of additional live racing weeks . additional costs also relate to a short term customer rental agreement in the fourth quarter of 2017. as part of the rental agreement , these costs were reimbursed and included in other revenue . during 2014 , the company incurred damage to buildings from multiple severe storms at the racetrack . during the year ended december 31 , 2015 , the company recognized as a reduction in operating expenses a $ 495,000 insurance recoveries gain in the consolidated statements of operations as “ gain on insurance recoveries. ” for the year ended december 31 , 2016 , the company received additional insurance proceeds of $ 592,000 and recognized as a reduction in operating expenses as insurance recoveries gain in the consolidated statements of operations as “ gain on insurance recoveries. ” the company had also concluded an additional $ 873,000 of insurance reimbursement would be received in 2017 when roof repair work was completed . however , the company was notified in 2017 that the costs of the repairs have exceeded the original contract price . therefore , the company recognized an additional $ 141,000 “ gain on insurance recoveries ” as a reduction in operating expenses in the consolidated statements of operations . because the claim has been settled and confirmed by the insurance company , that amount has been recognized as a gain on insurance recovery receivable in accordance with u.s. gaap . the storms did not cause any interruptions to the business or otherwise affect the company 's consolidated financial results of operations . on october 6 , 2015 , the company sold six acres of land adjacent to the racetrack for $ 1,459,000 and recorded a gain of $ 660,000 , reported on the consolidated statements of operations – gain on sale of land . this transaction was structured as a “ deferred exchange using a qualified intermediary ” pursuant to internal revenue code ( irc ) section 1031 exchange ( “ 1031 exchange ” ) for income tax purposes . under the agreement , the company has the option to repurchase up to one acre within three years from closing date at the sale price of approximately $ 240,000 per acre . according to asc 360-20-40-38 - derecognition , the company recorded the repurchase option acre as a deferred gain liability in the amount of $ 240,000 on the consolidated balance sheets . since the risks and rewards were not completely transferred to the buyer based on the repurchase option the company maintains the asset on our financials in the amount of $ 110,000. the company believes any additional expenses associated with the option under the profit-sharing method will be immaterial because land is a non-depreciable asset . 23 in 2016 , the company recorded a gain on sale of land of $ 3,846,000 due to the sale of approximately 24 acres of land adjacent to the racetrack for a total consideration of $ 4.3 million . other operating expenses increased $ 133,000 , or 2.5 % , in 2017 compared to 2016. the changes are primarily attributable to an increase in insurance and personnel expenses in 2017 due to the company experiencing higher premiums and increased recruiting costs . income tax expense for 2017 and 2016 was $ 480,000 and $ 2,924,000 , respectively . as a result of the u.s tax cuts and jobs act ( “ tcja ” ) signed on december 22 , 2017 , we recorded a tax benefit of $ 1,345,000 in the fourth quarter of 2017 as a result of a revaluation of the net deferred tax liabilities due to the corporate tax rate change from 34 % to 21 % starting in 2018. net income for the years 2017 and 2016 was $ 4,091,000 and $ 4,196,000 , respectively . critical accounting policies and estimates our financial statements have been prepared in conformity with u.s. gaap and are based upon certain critical accounting policies . these policies may require management to make estimates , judgments and assumptions that we believe are reasonable based on our historical experience , contract terms , observance of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period . actual results may differ from those initial estimates . our critical accounting policies are : revenue recognition ; property and equipment ; and income tax expense . our significant accounting policies and recently adopted accounting policies are more fully described in note 1 to the notes to consolidated financial statements included in item 8. financial statements and supplementary data of this annual report on form 10-k. revenue recognition - racing revenue is generated by pari-mutuel wagering on live and simulcast racing content . additionally , we also generate revenue through sponsorships , admissions , concessions , and publications . our racing revenue and income are influenced by our racing calendar . therefore , revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year . story_separator_special_tag we recognize pari-mutuel revenue upon occurrence of the live race that is presented for wagering after that live race is made official by the respective state 's racing regulatory body . we recognize other operating revenue such as sponsorships , admissions , concessions , and publication revenue once delivery of the product or service has occurred . card casino revenue is a percentage of the wagers received from the players as compensation for providing the card casino facility and services , referred to as “ collection revenue. ” property and equipment - we have significant capital invested in our property and equipment , which represents approximately 68 % of our total assets at december 31 , 2017. we use our judgment in various ways including : determining whether an expenditure is considered a maintenance expense or a capital asset ; determining the estimated useful lives of assets ; and determining if or when an asset has been impaired or has been disposed . management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows . if the sum of the related expected future net cash flows is less than the carrying value , we will determine whether an impairment loss should be recognized . an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset . as of december 31 , 2017 , we have determined that no impairment of these assets exists . income taxes - we use estimates and judgments for financial reporting to determine our current tax liability and deferred taxes . in accordance with the liability method of accounting for income taxes , we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . adjustments to deferred taxes are determined based upon changes in differences between the book basis and tax basis of our assets and liabilities and measured by enacted tax rates we estimate will be applicable when these differences are expected to reverse . changes in current tax laws , enacted tax rates or the estimated level of taxable income or non-deductible expense could change the valuation of deferred tax assets and liabilities and affect the overall effective tax rate and tax provision . see footnote 3 of the consolidated financial statements for more information on the u.s tax cuts and jobs act ( “ tcja ” ) signed on december 22 , 2017 . 24 minimum wage legislation minnesota legislation that was enacted in 2014 increased the minimum wage that must be paid to most company employees from $ 7.25 to $ 8.00 on august 1 , 2014 , from $ 8.00 to $ 9.00 per hour on august 1 , 2015 , and from $ 9.00 to $ 9.50 per hour went into effect on august 1 , 2016. in addition , starting january 1 , 2018 , the minimum wage will increase at the beginning of each year by the rate of inflation with a maximum increase up to 2.5 % per year . the minimum wage for 2018 will be $ 9.65 per hour . prior to august 1 , 2014 , the company employed a large number of individuals who received an hourly wage equal to or slightly above $ 7.25 per hour . as a result , this legislation had an adverse financial effect on us in 2014 , 2015 , 2016 , and 2017 and will continue to have an adverse impact . we have implemented measures to partially mitigate the effect of this increase by raising our prices and reducing our employee count . however , these measures could themselves have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the racetrack . cooperative marketing agreement on june 4 , 2012 , the company entered into the cma with the smsc . the primary purpose of the cma is to increase purses paid during live horse racing at canterbury park 's racetrack in order to strengthen minnesota 's thoroughbred and quarter horse industry . under the cma , this is achieved through “ purse enhancement payments to horsemen ” paid directly to the mhbpa . these payments have no direct impact on the company 's consolidated financial statements or operations . under the terms of the cma , the smsc paid the horsemen $ 7.2 million and $ 6.7 million for purse enhancements for the years ended december 31 , 2017 and 2016 , respectively . under the cma , smsc also agreed to make “ marketing payments ” to the company relating to joint marketing efforts for the mutual benefit of the company and smsc , including signage , joint promotions , player benefits and events . under the cma , the smsc paid the company $ 1,581,000 and $ 1,198,000 for marketing purposes for 2017 and 2016 , respectively . the cma was amended three times effective january 2015 , 2016 and 2017 to adjust the payment amounts between the “ purse enhancement payments to horsemen ” and “ marketing payments to canterbury park. ” under the cma as most recently amended , smsc has agreed to make the following purse enhancement and marketing payments for 2018 through 2022 : replace_table_token_9_th 1 - includes $ 100,000 each year payable to various horsemen associations the amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the company 's consolidated statements of operations . for 2017 , the company recorded $ 1,399,000 in other revenue and incurred $ 1,173,000 in advertising and marketing expense and $ 226,000 in depreciation related to the smsc marketing payment .
| 20 the following table sets forth a reconciliation of net income , a gaap financial measure , to ebitda and adjusted ebitda ( defined above ) , which is also a non-gaap measure , for the years ended : replace_table_token_5_th adjusted ebitda increased $ 2,557,000 , or 58.7 % , and increased as a percentage of net revenues to 12.1 % from 8.3 % for 2017 compared to 2016. revenues total net revenues for 2017 were $ 56,953,000 , an increase of $ 4,493,000 , or 8.6 % , compared to total net revenues of $ 52,460,000 for 2016. total pari-mutuel revenue increased 10.9 % , card casino revenue increased 9.3 % , and food and beverage revenue increased 1.1 % in 2017 compared to 2016. see below for a further discussion of our sources of revenues . replace_table_token_6_th simulcast and live racing pari-mutuel revenues include commission and breakage revenues from on-track live and simulcast wagering . we receive guest fees from out-of-state racetracks and adw companies for out-of-state wagering on our live races . other revenues include source market fees paid by adw companies for wagers made by minnesota residents on out-of-state races and proceeds from unredeemed pari-mutuel tickets . total 2017 pari-mutuel revenue increased $ 1,037,000 , or 10.9 % , compared to 2016. other pari-mutuel revenue increased $ 737,000 primarily due to receiving a full year of source market fees under the adw legislation that became effective november 1 , 2016. we expect that the source market fees for 2018 will be similar to the $ 881,000 recorded in 2017. live racing pari-mutuel revenue increased $ 249,000 , or 11.9 % , primarily due to an increase in take-out levels as compared to 2016 when the company reduced the take-out on its live races to promote increased wagering , but did not experience the gain in net revenues that we anticipated . 21 replace_table_token_7_th the primary source of card casino revenue is a percentage of the wagers received from the players as compensation for providing the card casino facility and services , referred to as “ collection revenue ” . other revenue presented above includes fees collected for the administration of tournaments and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds . card casino revenue represented 56.2 % and 55.8 % of the company 's net revenues for the years ended december 31 , 2017 and 2016 , respectively . total card casino revenue increased $ 2,727,000 , or 9.3 % , in 2017 compared to 2016. poker revenue decreased $ 372,000 , or 4.0 % , in 2017 compared to 2016. the decrease in poker revenue reflects a continuing industry decline in the popularity of poker . table games collection revenue increased $ 2,949,000 , or 17.1 % , in 2017
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use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of consumer electronics and connected devices globally . our lasers customers include amada , asml holding , beckman coulter , becton , dickinson and company , disco , electro scientific industries , eo technics , han 's laser technology , and kla-tencor . acquisition of oclaro on march 11 , 2018 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) with oclaro , inc. ( “ oclaro ” ) , prota merger sub , inc. , and prota merger , llc , pursuant to which we will acquire oclaro and oclaro will become a wholly-owned subsidiary of lumentum . in accordance with the terms of the merger agreement , each issued and outstanding share of oclaro common stock will be exchanged for $ 5.60 in cash and 0.0636 of a share of lumentum common stock , subject to the conditions and restrictions set forth in the merger agreement . the total transaction consideration was approximately $ 1.8 billion as of the date of the merger agreement . oclaro stockholders will own approximately 16 % of the combined company following the closing . oclaro 's stockholders approved the merger agreement on july 10 , 2018 and we have received approval for the transaction under the hart-scott rodino act in the united states . we are in the process of obtaining antitrust approval in china . the merger agreement contains certain termination rights for both lumentum and oclaro . the merger agreement further provides that upon termination of the merger agreement under specified circumstances relating to failure to obtain regulatory approvals , lumentum may be required to pay oclaro a termination fee of $ 80 million . as of august 23 , 2018 , the total transaction consideration was expected to be approximately $ 1.7 billion , which would be funded by a combination of $ 700 million in lumentum common stock , $ 500 million in new debt , and the remaining amount from the cash balances of the combined company . separation from jdsu lumentum holdings inc. was incorporated in delaware as a wholly owned subsidiary of jds uniphase corporation ( “ jdsu ” ) on february 10 , 2015 and is comprised of the former communications and commercial optical products ( “ ccop ” ) segment and the waveready product lines of jdsu . on august 1 , 2015 , we became an independent publicly-traded company through the distribution by jdsu to its stockholders of 80.1 % of our outstanding common stock ( the “ separation ” ) . each jdsu stockholder of record as of the close of business on july 27 , 2015 received one share of lumentum common stock for every five shares of jdsu common stock held on the record date . jdsu was renamed viavi in connection with the separation and retained ownership of 19.9 % of lumentum 's outstanding shares . since the separation , viavi has sold a significant portion of its shares and is no longer a significant shareholder of lumentum . on july 31 , 2015 , prior to the separation , viavi transferred substantially all of the assets and liabilities and operations of the ccop segment and waveready product lines to lumentum . our financial statements for periods prior to the separation were prepared on a stand-alone basis and were derived from viavi 's consolidated financial statements and accounting records . for the period from june 28 , 2015 to august 1 , 2015 , expenses were allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us . the consolidated financial statements include certain assets and liabilities that were historically held at the viavi level but which were transferred to us in the separation . viavi 's debt and related interest expense were not attributed or allocated to us for 37 the periods presented since we are not the legal obligor of the debt and viavi 's borrowings were not directly attributable to us . certain intercompany transactions between us and viavi were considered to be effectively settled in the consolidated financial statements at the time the transactions were recorded . the total net effect of the settlement of these intercompany transactions is reflected in our consolidated statements of cash flows as a financing activity and on the consolidated balance sheets as viavi net investment . the consolidated statements of operations include our direct expenses for cost of sales , r & d , sales and marketing , and administration as well as allocations of expenses arising from shared services and infrastructure provided by viavi to us through the separation . these allocated expenses include costs of information technology , human resources , accounting , legal , real estate and facilities , corporate marketing , insurance , treasury and other corporate and infrastructure services . in addition , other costs allocated to us include restructuring and stock-based compensation related to viavi 's corporate and shared services employees as well as other public company costs . these expenses were allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by our business . the allocation methods include revenue , headcount , square footage , actual consumption and usage of services and others . there were no allocations of expenses from viavi for the fiscal years ended june 30 , 2018 or july 1 , 2017. refer to “ note 3. related party transactions ” in the notes to consolidated financial statements for allocations during the fiscal year ended july 2 , 2016. critical accounting policies and estimates the preparation of the consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . story_separator_special_tag management bases its estimates on historical experience and various other assumptions believed to be reasonable . although these estimates are based on management 's best knowledge of current events and actions that may impact us in the future , actual results may be different from the estimates . our critical accounting policies are those that affect our financial statements materially and involve difficult , subjective or complex judgments by management . those policies are short-term investments , impairment of marketable and non-marketable securities , inventory valuation , goodwill and intangibles , long-lived asset valuation , pension benefits , revenue recognition , stock-based compensation , income taxes , restructuring , derivative liabilities , business combinations , and warranty . our consolidated financial statements are prepared in accordance with gaap as set forth in the financial accounting standards board 's accounting standards codification ( “ asc ” ) , and we consider the various staff accounting bulletins and other applicable guidance issued by the united states securities and exchange commission ( “ sec ” ) . gaap , as set forth within the asc , requires 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 differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the accounting policies that reflect our more significant estimates , judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : inventory valuation revenue recognition income taxes long-lived asset valuation warranty derivative liability business combinations goodwill on march 11 , 2018 , we entered into an agreement and plan of merger with oclaro , prota merger sub , inc. , and prota merger , llc , which was unanimously approved by the boards of directors of both lumentum and oclaro . the transaction is subject to customary closing conditions and is expected to close in the second half of calendar 2018. we added business combinations and goodwill to our critical accounting policies and estimates in the third quarter of fiscal 2018. inventory valuation inventory is valued at standard cost , which approximates actual cost computed on a first-in , first-out basis , not in excess of net realizable value . we assess the value of our inventory on a quarterly basis and write down those inventories which are obsolete or in excess of our forecasted usage to the lower of their cost or estimated net realizable value . our estimates of realizable value 38 are based upon our analysis and assumptions including , but not limited to , forecasted sales levels and historical usage by product , expected product lifecycle , product development plans and future demand requirements . our product line management personnel play a key role in our excess review process by providing updated sales forecasts , managing product transitions and working with manufacturing to minimize excess inventory . if actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates , we may be required to record additional inventory write-downs . if actual market conditions are more favorable than anticipated , inventory previously written down may be sold , resulting in lower cost of sales and higher income from operations than expected in that period . revenue recognition during the periods presented , we recognized revenue when all four revenue recognition criteria have been met : ( i ) persuasive evidence of an arrangement exists , ( ii ) the product has been delivered or the service has been rendered , ( iii ) the price is fixed or determinable and ( iv ) collection is reasonably assured . revenue from product sales is recorded when all of the foregoing conditions are met and risk of loss and title passes to the customer . our products typically include a warranty and the estimated cost of product warranty claims , based on historical experience , is recorded at the time the sale is recognized . sales to customers are generally not subject to price protection or return rights . the majority of our sales are made to oems , distributors , resellers and end-users . we record as a reduction to revenues reserves for sales returns based upon historical experience rates and for any specific known customer amounts . we also provide certain distributors and oems with volume-pricing discounts , such as rebates and incentives , which are recorded as a reduction to revenues at the time of sale . historically these volume discounts have not been significant . for revenue recognition changes related to implementation of asu 2014-09 , refer to “ note 2. recent accounting pronouncements ” . income taxes in accordance with the authoritative guidance on accounting for income taxes , we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law , and the effects of future changes in tax laws or rates are not anticipated . the authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence .
| lasers net revenue increased $ 2.1 million , or 1.5 % , in fiscal 2017 compared to fiscal 2016. during our fiscal 2018 , 2017 , and 2016 , net revenue generated from a single end customer that represented 10 % or greater of total net revenue is summarized as follows : replace_table_token_7_th 43 revenue by region we operate in three geographic regions : americas , asia-pacific and emea . net revenue is assigned to the geographic region and country where our product is initially shipped . for example , certain customers may request shipment of our product to a contract manufacturer in one country , however , the location of the end customers may differ . the following table presents net revenue by the three geographic regions we operate in and net revenue from countries that represented 10 % or more of our total net revenue ( in millions , except for percentages ) : replace_table_token_8_th during fiscal 2018 , 2017 and 2016 , net revenue from customers outside the united states , based on customer shipping location , represented 90.8 % , 85.2 % and 82.0 % of net revenue , respectively . our net revenue is primarily denominated in u.s. dollars , including our net revenue from customers outside the united states as presented above . we expect revenue from customers outside of the united states to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities . however , regulatory and enforcement actions by u.s. and other governmental agencies , as well as changes in tax and trade policies and tariffs , may impact net revenue from customers outside the united states in future periods . gross margin and segment gross margin the following table summarizes segment gross margin for fiscal 2018 , 2017 and 2016 ( in millions , except for percentages ) : replace_table_token_9_th 44 ( 1 ) the unallocated corporate items for the years presented include the effects of amortization of acquired developed technologies , share-based compensation and certain other charges . we do not allocate these items to the gross margin for each segment because management does not include such information in measuring the performance
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our tenant mix at our shopping centers ; maintain strong working relationships with our tenants , particularly our anchor tenants ; maintain a conservative capital structure with low debt levels ; and control property operating and administrative costs . highlights of fiscal 2018 ; recent developments set forth below are highlights of our recent property acquisitions , other investments , property dispositions and financings : in october 2017 , we purchased a promissory note secured by a mortgage on 470 main street in ridgefield , ct ( “ 470 main ” ) , which comprises part of the yankee ridge retail and office mixed-use property . the note was purchased from the existing lender . in january 2018 , we completed foreclosure of the mortgage and became the owner of 470 main . total consideration paid for the note , including costs , totaled $ 3.1 million . 470 main is a 24,200 square foot building with ground and first floor retail and second floor office space . we funded the note purchase with available cash . in march 2018 , we purchased for $ 13.1 million a 27,000 square foot shopping center located in yonkers , ny . we funded the acquisition with available cash , the issuance of unsecured notes payable to the seller ( see note 4 of our consolidated financial statements included in item 8 of this annual report on form 10-k ) , and borrowings on our unsecured revolving credit facility ( “ facility ” ) . in june 2018 , the company purchased a 75.3 % equity interest in a joint venture , ub new city i , llc , in which the company is the managing member . the company 's initial investment was $ 2.4 million . new city owns a single tenant retail real estate property located in new city , ny , which is leased to a savings bank . in addition , new city rents certain parking spaces on the property to the owner of an adjacent grocery-anchored shopping center . the property was contributed to the new entity by the former owners who received units of ownership of new city equal to the value of contributed property . the new city operating agreement provides for the non-managing member to receive an annual cash distribution , currently equal to 5.00 % of his invested capital . in august and october 2018 , three of the non-managing members in our consolidated joint venture , ub high ridge , llc ( “ high ridge ” ) put , in the aggregate , 17,695 series a units and 34,219 series b units of high ridge to us pursuant to the terms of the high ridge operating agreement . the total cash redemption amount equaled $ 1.2 million . as a result , our ownership percentage of high ridge increased from 8.8 % at inception to 10.9 % after the redemptions . the redemptions were funded with available cash . in october 2018 , we entered into a purchase and sale agreement to purchase a 177,000 square foot grocery-anchored shopping center for $ 12 million located in putnam county , ny , for which we deposited $ 1 million with the seller . in addition , we anticipate having to invest an additional $ 6 million to $ 8 million for capital improvements and for re-tenanting at the property . at october 31 , 2018 , the property was approximately 73 % leased . we closed on the purchase in december 2018 , funding the purchase with available cash and borrowings on our facility . we intend to fund the additional investment of $ 6 million to $ 8 million with a combination of available cash , borrowings on our facility and by potentially placing a mortgage on the property . in october 2018 , we entered into a commitment to refinance our existing $ 15 million mortgage secured by our darien , ct shopping center on march 18 , 2019 , the first day the darien mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 25 million , have a term of ten years and will require payments of principal and interest at the rate of libor plus 1.65 % . concurrent with the commitment , we also entered into an interest rate swap with the new lender , which will convert the variable interest rate ( based on libor ) to a fixed rate of 4.815 % per annum . the fixed interest rate on the existing mortgage is currently 6.55 % . in october 2018 , we entered into a commitment to refinance our existing $ 9.2 million mortgage secured by our newark , nj shopping center . we anticipate the refinancing will take place in march 2019 , the first month the current mortgage can be repaid without penalty . the new mortgage will be in the amount of $ 10 million and has a term of ten years and requires payments of principal and interest at the fixed rate of 4.63 % , which is a reduction from the existing fixed interest rate of 6.15 % . known trends ; outlook we believe that shopping center reits face opportunities and challenges that are both common to and unique from other reits and real estate companies . as a shopping center reit , we are focused on certain challenges that are unique to the retail industry . in particular , we recognize the challenges presented by e-commerce to brick-and-mortar retail establishments , including our tenants . however , we believe that because consumers prefer to purchase food and other staple goods and services available at supermarkets in person , the nature of our properties makes them less vulnerable to the encroachment of e-commerce than other properties whose tenants may more directly compete with the internet . moreover , we believe the nature of our properties makes them less susceptible to economic downturns than other retail properties whose anchor tenants are not supermarkets or other staple goods providers . story_separator_special_tag we note , however , that many prospective in-line tenants are seeking smaller spaces than in the past , as a result , in part , of internet encroachment on their brick-and-mortar business . when feasible , we actively work to place tenants that are less susceptible to internet encroachment , such as restaurants , fitness centers , healthcare and personal services . we continue to be sensitive to these considerations when we establish the tenant mix at our shopping centers , and believe that our strategy of focusing on supermarket anchors is a strong one . in the metropolitan tri-state area outside of new york city , demographics ( income , density , etc . ) remain strong and opportunities for new development , as well as acquisitions , are competitive , with high barriers to entry . we believe that this will remain the case for the foreseeable future , and have focused our growth strategy accordingly . as a reit , we are susceptible to changes in interest rates , the lending environment , the availability of capital markets and the general economy . for example , we believe that we are entering an increased interest rate environment , which could negatively impact the attractiveness of reit stock to investors and our borrowing activities . it is also possible , however , that higher interest rates could signal a stronger economy , resulting in greater spending by consumers . the impact of such changes are difficult to predict . in december 2017 , the u.s. congress passed sweeping tax reform legislation that made significant changes to corporate and individual tax rates and the calculation of taxes , as well as international tax rules for u.s. domestic corporations . as a reit , we are generally not required to pay federal taxes otherwise applicable to regular corporations if we comply with the various tax regulations governing reits . stockholders , however , are generally required to pay taxes on reit dividends . tax reform legislation would affect the way in which dividends paid on our stock are taxed by the holder of that stock and could impact our stock price or how stockholders and potential investors view an investment in reits . in addition , while certain elements of tax reform legislation would not impact us directly as a reit , they could impact the geographic markets in which we operate , the tenants that populate our shopping centers and the customers who frequent our properties in ways , both positive and negative , that are difficult to anticipate . 13 leasing rollovers for the fiscal year 2018 , we signed leases for a total of 707,000 square feet of predominantly retail space in our consolidated portfolio . new leases for vacant spaces were signed for 210,000 square feet at an average rental decrease of 11.7 % on a cash basis , excluding 16,400 square feet of new leases for which there was no prior rent history available . the rental decrease for new lease space in fiscal 2018 was predominantly related to a 63,000 square foot supermarket lease in our newark , nj property , which was leased at a rental rate 30 % below the prior occupied lease rate ( see significant events with impacts on leasing section below ) . renewals for 480,000 square feet of space previously occupied were signed at an average rental increase of 6.5 % on a cash basis . tenant improvements and leasing commissions averaged $ 60.85 per square foot for new leases and $ 16.57 per square foot for renewals for the fiscal year ended 2018. the average term for new leases was 5.7 years and the average term for renewal leases was 4 years . the rental increases/decreases associated with new and renewal leases generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants . the comparison between average rent for expiring leases and new leases is determined by including minimum rent paid on the expiring lease and minimum rent to be paid on the new lease in the first year . in some instances , management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation . the change in rental income on comparable space leases is impacted by numerous factors including current market rates , location , individual tenant creditworthiness , use of space , market conditions when the expiring lease was signed , the age of the expiring lease , capital investment made in the space and the specific lease structure . tenant improvements include the total dollars committed for the improvement ( fit-out ) of a space as it relates to a specific lease but may also include base building costs ( i.e . expansion , escalators or new entrances ) that are required to make the space leasable . incentives ( if applicable ) include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements . the leases signed in 2018 generally become effective over the following one to two years . there is risk , however , that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating , financial or other reasons . in 2019 , we believe our leasing volume will be in-line with our historical averages with overall positive increases in rental income for renewal leases and flat to slightly positive increases for new leases . however , changes in rental income associated with individual signed leases on comparable spaces may be positive or negative , and we can provide no assurance that the rents on new leases will continue to increase at the above described levels , if at all .
| this tenant failed to perform under its lease , and the lease was terminated in the third quarter of fiscal 2017. see “ significant events with impact on leasing ” in this item 7. in fiscal 2018 , the company leased or renewed approximately 707,000 square feet ( or approximately 16 % of total consolidated property leasable area ) . at october 31 , 2018 , the company 's consolidated properties were approximately 93.2 % leased ( 92.7 % leased at october 31 , 2017 ) . tenant recoveries for the year ended october 31 , 2018 , recoveries from tenants for properties owned in both periods , which represents reimbursements from tenants for operating expenses and property taxes , increased by $ 1.0 million . this increase was the result of increases in both property operating expenses and property tax expense in the consolidated portfolio for properties owned in fiscal 2018 when compared with the corresponding prior period . the increases in property operating expenses were related to increased costs for snow removal , roof repairs and parking lot repairs at our properties , and the increases in property tax expenses were related to increases in property tax assessments . lease termination income in april 2018 , we reached agreement with the grocery tenant at our newark , nj property to terminate its 63,000 square foot lease in exchange for a one-time $ 3.7 million lease termination payment , which we received and recorded as revenue in the fiscal year ended october 31 , 2018. also , in march 2018 , we leased that same space to a new grocery store operator who took possession in may 2018. while the rental rate on the new lease is 30 % less than the rental rate on the terminated lease , we hope that part of this decreased rental rate will be recaptured with the receipt of percentage rent in subsequent years as the store matures and its sales increase . the new lease required no tenant improvement allowances or landlord work . expenses property operating expenses for properties
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net income was $ 34.2 million , or $ 1.09 per diluted share , in 2016 , compared to $ 26.6 million , or $ 0.84 per diluted share , in 2015 . business acquisition on december 31 , 2015 , we acquired all of the outstanding capital stock of of holdings , inc. , sole parent of octane , for an aggregate base purchase price of $ 115.0 million , plus adjustments for working capital and cash on the closing date . we funded the acquisition through an $ 80.0 million term loan and cash on hand . based in brooklyn park , minnesota , octane is a leader in zero-impact training with a line of fitness equipment focused on retail specialty and commercial channels . the acquisition of octane strengthened and diversified our brand portfolio , broadened our distribution and deepened our talent pool . octane 's business is highly complementary to our existing business from both product and channel perspectives and is expected to create numerous revenue synergies for us . discontinued operations results from discontinued operations relate to the disposal of our former commercial business , which was completed in april 2011. we reached substantial completion of asset liquidation at december 31 , 2012. although there was no revenue related to the commercial business in 2016 , 2015 or 2014 , we continue to incur legal and accounting expenses as we work with authorities on final deregistration of each international entity , as well as product liability and other legal expenses associated with product previously sold into the commercial channel . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities in the consolidated financial statements . an accounting estimate is considered to be critical if it meets both of the following criteria : ( i ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( ii ) different estimates reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition , changes in financial condition or results of operations . our critical accounting policies and estimates are discussed below . we have not made any material changes in the methodologies we use in our critical accounting estimates during the past three fiscal years . if our assumptions or estimates change in future periods , the impact on our financial position and operating results could be material . business combinations the company accounts for its business combinations under the provisions of accounting standards codification ( `` asc '' ) topic 805-10 , business combinations ( `` asc 805-10 '' ) , which requires that the purchase method of accounting be used for all business combinations . assets acquired and liabilities assumed , including non-controlling interests , are recorded at the date of acquisition at their respective fair values . asc 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill . goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination . acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred . the estimated fair value of net assets acquired , including the allocation of the fair value to identifiable assets and liabilities , was determined using third-party valuations . the estimated fair value of the net assets acquired was determined using the income approach to valuation based on the discounted cash flow method . under this method , expected future cash flows of the business on a stand-alone basis are discounted back to a present value . the estimated fair value of identifiable intangible assets , consisting of trade names , patents and customer relationships were determined using the relief-from-royalty method for trade names and patents , and the multi-period excess earnings method for the customer relationships . 18 the most significant assumptions under the relief of royalty method used to value trade names and patents include : projected revenue attributable to the products or services using the asset , estimated economic life of the asset , royalty rate and discount rate . significant assumptions under the multi-period excess earnings method include : forecasted revenue and earnings generated by the asset , expected economic life of the asset , contributory asset charges , and discount rate . management has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the company . these assumptions may vary based on future events , perceptions of different market participants and other factors outside the control of management , and such variations may be significant to estimated values . revenue recognition direct and retail product sales and shipping revenues are recorded when products are shipped and title passes to customers . in most instances , retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss to the customer upon our delivery to the carrier . for direct sales , revenue is generally recognized when product is shipped . revenue is recognized net of applicable sales incentives , such as promotional discounts , rebates and return allowances . we estimate the revenue impact of incentive programs based on the planned duration of the program and historical experience . sales discounts and allowances product sales and shipping revenues are reported net of promotional discounts and return allowances . we estimate the revenue impact of retail sales incentive programs based on the planned duration of the program and historical experience . story_separator_special_tag if the amount of sales incentives is reasonably estimable , the impact of such incentives is recorded at the later of the time the customer is notified of the sales incentive or the time of the sale . we estimate our liability for product returns based on historical experience and record the expected obligation as a reduction of revenue . if actual return costs differ from previous estimates , the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur . our calculations of amounts owed for sales discounts and allowances contain uncertainties because they require management to make assumptions in interim periods and to apply judgment regarding a number of factors , including estimated future customer purchases and returns . goodwill and other long-term assets valuation we evaluate our indefinite-lived intangible assets and goodwill for potential impairment annually or when events or circumstances indicate their carrying value may be impaired . definite-lived intangible assets , including acquired trade names , customer relationships , patents and patent rights , and other long-lived assets , primarily property , plant and equipment , are evaluated for impairment when events or circumstances indicate the carrying value may be impaired . no goodwill or other long-term asset impairment charges were recognized in 2016 , 2015 or 2014 . our impairment evaluations contain uncertainties because they require management to make assumptions and to apply judgment in order to estimate future cash flows and asset fair values . our judgments regarding potential impairment are based on a number of factors including : the timing and amount of anticipated cash flows ; market conditions ; relative levels of risk ; the cost of capital ; terminal values ; royalty rates ; and the allocation of revenues , expenses and assets and liabilities to reporting units . each of these factors can significantly affect the value of our goodwill or other long-term assets and , thereby , could have a material adverse effect on our financial position and results of operations . product warranty obligations our products carry defined warranties for defects in materials or workmanship . our product warranties generally obligate us to pay for the cost of replacement parts , cost of shipping the parts to our customers and , in certain instances , service labor costs . at the time of sale , we record a liability for the estimated costs of fulfilling future warranty claims . the estimated warranty costs are recorded as a component of cost of sales , based on historical warranty claim experience and available product quality data . if necessary , we adjust our liability for specific warranty matters when they become known and are reasonably estimable . our estimates of warranty expenses are based on significant judgment , and the frequency and cost of warranty claims are subject to variation . warranty expenses are affected by the performance of new products , significant manufacturing or design defects not discovered until after the product is delivered to the customer , product failure rates and variances in expected repair costs . 19 litigation and loss contingencies from time to time , we may be involved in claims , lawsuits and other proceedings . such matters involve uncertainty as to the eventual outcomes and any losses or gains we may ultimately realize when one or more future events occur or fail to occur . we record expenses for litigation and loss contingencies 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 internal and external counsel , outcomes from similar litigation , status of the lawsuits ( including settlement initiatives ) , legislative developments and other factors . due to the numerous variables associated with these judgments and assumptions , both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties . we regularly monitor our estimated exposure to these contingencies and , as additional information becomes known , we may change our estimates accordingly . deferred tax assets - valuation allowance we account for income taxes based on the asset and liability method , whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities . deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the temporary differences are expected to be included , as income or expense , in the applicable tax return . the effect of a change in tax rates on our deferred tax assets and liabilities is recognized in the period of the enactment . we have recorded a valuation allowance to reduce our deferred income tax assets to the amount we believe is more likely than not to be realized . each quarter , we assess the total weight of positive and negative evidence including cumulative income or loss for the past three years and forecasted taxable income and re-evaluate whether any adjustments or release of all or any portion of valuation allowance is appropriate . as a result of this evaluation , in 2014 , we determined that a portion of the existing valuation allowance against state net operating loss deferred tax assets was no longer necessary . accordingly , an income tax benefit of $ 1.2 million was recorded in the fourth quarter of 2014 related to the reduction of our existing valuation allowance . further , in the fourth quarter of 2015 , after re-evaluating the potential realization of the remainder of our deferred income tax assets , we concluded that , as of december 31 , 2015 , the existing valuation allowance against the foreign tax credit deferred tax assets , as well as substantially all of the remaining state net operating loss deferred tax assets , were no longer necessary .
| results of operations the discussion that follows should be read in conjunction with our consolidated financial statements and the related notes in this report . all comparisons to prior year results are in reference to continuing operations only in each period , unless otherwise indicated . results of operations information was as follows ( in thousands ) : replace_table_token_3_th replace_table_token_4_th 21 results of operations information by segment was as follows ( in thousands ) : replace_table_token_5_th replace_table_token_6_th 22 the following tables compare the net sales of our major product lines within each business segment ( in thousands ) : replace_table_token_7_th year ended december 31 , 2015 2014 change % change direct net sales : cardio products ( 1 ) $ 210,578 $ 160,249 $ 50,329 31.4 % strength products ( 2 ) 15,017 15,344 ( 327 ) ( 2.1 ) % 225,595 175,593 50,002 28.5 % retail net sales : cardio products ( 1 ) 63,762 56,262 7,500 13.3 % strength products ( 2 ) 42,433 36,961 5,472 14.8 % 106,195 93,223 12,972 13.9 %
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we also incurred one-time legal fees in 2007 to structure the program and operating agreements that will allow us to jointly acquire , develop and operate hotel assets and , perhaps , hotel portfolios with carlyle . interest expense . interest expense for the year ended december 31 , 2008 increased approximately $ 2.6 million or 61.7 % to approximately $ 6.8 million ( net of capitalized interest of approximately $ 1.6 million ) compared to approximately $ 4.2 million of interest expense ( net of capitalized interest of approximately $ 1.0 million ) for the year ended december 31 , 2007. higher interest expense relates to borrowings on the credit facility used to fund the renovations at the hilton wilmington riverside ; interest expense on the borrowings on the credit facility associated with the sheraton louisville riverside subsequent to its re-opening and completion of its renovations ; borrowings on the mortgage on the hilton savannah desoto for completion of the renovations at that property , as well as borrowings associated with the purchase of the property in hampton , virginia . interest expense will also increase once the crowne plaza tampa westshore opens in march 2009 and interest on the borrowings related to that property are no longer capitalized . higher interest rates on our revolving credit facility related to the execution of the third amendment will result in higher interest costs . impairment of note receivable . impairment of note receivable represents a $ 0.3 million valuation allowance against the $ 0.4 million promissory note we received upon sale of the holiday inn downtown williamsburg in august 2006. after entering into default earlier in early 2008 , the property was sold at auction in august 2008 for less than the total mortgage indebtedness on the property . we are pursuing the collection of the note , which was guaranteed by individuals affiliated with the debtor . a charge for impairment is being taken in anticipation that a negotiated settlement for less than the full value of the note is more likely to occur than collection of the full face value of the note . equity loss in joint venture . equity income in the joint venture was approximately $ 50,000 for the year ended december 31 , 2008 compared to an equity loss in the joint venture of approximately $ 1.0 million for the year ended december 31 , 2007 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . during the year ended december 31 , 2008 , the joint venture was able to restructure the mortgage on the property by purchasing a $ 22.0 million principal balance junior participation in the outstanding loan on the property at a price of $ 19.0 million resulting in a $ 3.0 million gain on extinguishments of debt of the joint venture . for the year ended december 31 , 2008 , the crowne plaza hollywood beach resort reported occupancy of 59.0 % , adr of $ 151.64 and revpar of $ 89.49. this compares with results reported by the hotel for the first few months of operation ending december 31 , 2007 , of occupancy of 32.1 % , adr of $ 144.94 and revpar of $ 46.58. income taxes . the income tax benefit for the year ended december 31 , 2008 increased more than six-fold to approximately $ 1.5 million compared to an income tax benefit for the year ended december 31 , 2007 of approximately $ 0.2 million . the income tax benefit is primarily derived from the operations of our trs lessee . the net operating loss of our trs lessee for the year ended december 31 , 2008 was significantly larger than the net operating loss for the year ended december 31 , 2007 . 42 net income . net income for the year ended december 31 , 2008 swung to a loss of approximately $ 0.6 million compared to net income of approximately $ 2.5 million for the year ended december 31 , 2007 as a result of the operating results discussed above . comparison of year ended december 31 , 2007 to year ended december 31 , 2006 the following table illustrates the key operating metrics for the years ended december 31 , 2007 and 2006 for the six operational properties that are in our current portfolio that were under our control in both 2007 and 2006. accordingly , it does not reflect the performance of the holiday inn downtown williamsburg , the property previously operated as the louisville ramada riverfront inn , the property previously operated as the hampton marina hotel or the property previously operated as the tampa clarion hotel . replace_table_token_9_th ( 1 ) the statistics presented for the current portfolio reflect the full-year metrics for all of the six operational hotels in our portfolio at the end of 2007. revenue . total revenue for the year ended december 31 , 2007 was approximately $ 69.8 million , an increase of approximately $ 2.6 million or 3.8 % from total revenue for the year ended december 31 , 2006 of approximately $ 67.2 million . strong growth in room revenues of approximately 6.0 % was offset by the loss of non-recurring consulting fees of approximately $ 0.7 million from the developer of the crowne plaza hollywood beach resort in hollywood , florida . room revenues at our properties for the year ended december 31 , 2007 increased approximately $ 2.6 million or 6.0 % to approximately $ 46.5 million compared to room revenues for the year ended december 31 , 2006 of approximately $ 43.9 million . a 6.0 % increase in revpar was achieved through a combined increase in occupancy of 0.1 % and average adr growth of 5.9 % . we experienced increases in adr at our philadelphia property due to a better mix of business and a strong market . our property in laurel , maryland also contributed to the increase in adr as we experienced improved results from our efforts to reposition the property . story_separator_special_tag occupancy increases at our properties in savannah , georgia and jacksonville , florida were offset by occupancy decreases at our property in wilmington , north carolina that had been undergoing significant renovations from april 2007 through april 2008. food and beverage revenues at our properties for the year ended december 31 , 2007 increased approximately $ 0.4 million or 2.1 % to approximately $ 19.5 million compared to food and beverage revenues for the year ended december 31 , 2006 of approximately $ 19.1 million . with the exception of our savannah , georgia and philadelphia properties where we saw a significant increase in demand for banqueting services , the remainder of our properties experienced weaker demand for such services . overall , while room sales from group business remained strong , the demand for banqueting services from those groups had not been as strong . other operating revenues for the year ended december 31 , 2007 decreased approximately $ 0.5 million or 11.4 % to approximately $ 3.7 million compared to other operating revenues for the year ended december 31 , 2006 of approximately $ 4.2 million . in the last half of 2006 , we realized approximately $ 0.7 million in non-recurring consulting fees from the developer of the hollywood , florida property . hotel operating expenses . hotel operating expenses , which consist of room expenses , food and beverage expenses , other direct expenses , indirect expenses , and management fees , increased approximately $ 1.7 million or 3.3 % for the year ended december 31 , 2007 to approximately $ 51.9 million compared to hotel operating expenses for the year ended december 31 , 2006 of approximately $ 50.2 million . 43 rooms expense at our properties for the year ended december 31 , 2007 increased approximately $ 0.2 million or 1.3 % to approximately $ 12.3 million compared to rooms expense of approximately $ 12.1 million for the year ended december 31 , 2006. as a percent of room revenues , rooms expense fell from 27.6 % to 26.4 % . the decrease was due to one-time costs realized in the year ended december 31 , 2006 to replace room amenities at our hilton brand properties . food and beverage expenses at our properties for the year ended december 31 , 2007 increased approximately $ 0.7 million or 5.0 % to approximately $ 13.7 million compared to food and beverage expense of approximately $ 13.0 million for the year ended december 31 , 2006. higher food costs and increased costs related to the renovation of the kitchen at the wilmington , north carolina property contributed to the increase in food and beverage expense . indirect expenses at our properties for the year ended december 31 , 2007 increased approximately $ 0.9 million or 3.5 % to approximately $ 25.1 million compared to indirect expenses of approximately $ 24.2 million for the year ended december 31 , 2006. depreciation and amortization . depreciation and amortization for the year ended december 31 , 2007 increased approximately $ 0.1 million or 2.7 % to approximately $ 5.0 million compared to depreciation and amortization expense of approximately $ 4.9 million for the year ended december 31 , 2006. corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2007 increased approximately $ 0.5 million or 21.1 % to approximately $ 3.1 million compared to corporate general and administrative expenses of approximately $ 2.6 million for the year ended december 31 , 2006. a substantial portion of the increase is attributable to the bonuses granted pursuant to the cash bonus plan for principal executive officers established in the first quarter 2007 by the nominating , corporate governance and compensation committee of the board of directors . we also incurred additional legal fees in structuring the program and operating agreements that will allow us to jointly acquire , develop and operate hotel assets and , perhaps , hotel portfolios with carlyle . net operating income . operating income for the year ended december 31 , 2007 increased approximately $ 0.2 million or 2.4 % to approximately $ 9.7 million compared to approximately $ 9.5 million of operating income for the year ended december 31 , 2006 as a result of the operating results discussed above . interest expense . interest expense for the year ended december 31 , 2007 decreased approximately $ 0.05 million or 1.2 % to approximately $ 4.2 million ( net of capitalized interest of approximately $ 1.0 million ) compared to approximately $ 4.3 million of interest expense ( net of capitalized interest of approximately $ 0.2 million ) for the year ended december 31 , 2006. lower interest expense related to borrowings on the credit facility for working capital purposes was partially offset by higher interest expense on the mortgage on the wilmington hilton riverside . equity loss in joint venture . equity loss in the joint venture for the year ended december 31 , 2007 represents our share of the start-up costs for the crowne plaza hollywood beach resort as well as the initial operating losses incurred during the first three months of operation . during the first few months of operation ending december 31 , 2007 , the hotel reported occupancy of 32.1 % , adr of $ 144.94 and revpar of $ 46.58. income taxes . we experienced an income tax benefit for the year ended december 31 , 2007 of approximately $ 0.2 million compared to an income tax provision of approximately $ 0.3 million for the year ended december 31 , 2006. the income tax benefit in the current year was largely due to our share of start-up expenses and initial operating losses from our joint venture with carlyle related to the opening of the crowne plaza hollywood beach resort . net income .
| despite the decline in occupancy and revenue at our savannah property , our same-store set of hotels produced revpar of $ 79.88 , a decrease of only 3.7 % over revpar of $ 82.97 for the year ended december 31 , 2007. with the progressive 40 slowing of the economy through the last half of the year and the precipitous decline in business travel and consumer spending , we experienced weakened demand in each of the markets in which we operate . we expect lower demand to continue as the general economic slowdown persists , but total room revenue to increase with the opening of the crowne plaza tampa westshore and a full year of operations at the sheraton louisville riverside and the crowne plaza hampton marina . food and beverage revenues at our properties for the year ended december 31 , 2008 decreased approximately $ 1.1 million or 5.8 % to approximately $ 18.4 million compared to food and beverage revenues for the year ended december 31 , 2007 of approximately $ 19.5 million . food and beverage revenue from the newly opened sheraton louisville riverside and our recently acquired crowne plaza hampton marina accounted for incremental food and beverage revenue of approximately $ 1.1 million . the incremental revenue from these two properties offset a decline in food and beverage revenue from the hilton savannah desoto during its renovation , as well as the hilton wilmington riverside . the hilton wilmington riverside closed its restaurant in mid-2007 and entered into a lease with a franchisee of ruth 's chris steakhouse restaurant . revenues from the new lease are reflected in other operating revenues . with the exception of the holiday inn brownstone in raleigh , north carolina , we experienced lessened demand for banqueting services in all of our markets due to the weakening economy . other operating revenues for the year ended december 31 , 2008 increased approximately $ 0.5 million or 14.4 % to approximately $ 4.2 million
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summary of consolidated financial results replace_table_token_5_th 2016 compared to 2015 net sales increased primarily due to higher net sales volume at construction materials , reflecting favorable commercial roofing market conditions , full year sales from the acquired finishing brands business and higher sales from interconnect technologies , reflecting higher sales volume and contribution from acquisitions . these increases were partially offset by lower net sales at brake & friction . brake & friction 's results are consistent with reported significant sales declines in the construction , mining and aircraft off-highway equipment sectors . the decrease in ebit and ebit margin primarily reflected the impairment of goodwill and other intangible assets at our brake & friction segment of $ 141.5 million . refer to “ critical accounting estimates ” in this management discussion and analysis for further discussion . this reduction was partially offset by $ 79.4 million ebit growth from the construction materials segment due to favorable raw material and pricing dynamics and higher sales volume , and the contribution of a full year of the acquired finishing brands business within the fluid technologies segment . matters impacting future results for 2017 , we expect total net sales growth to be in the high-single digit percent range , led by the performance of our ccm , cit and cft segments . net sales growth is expected to be primarily driven by growth related to strength in the domestic commercial roofing market at the construction materials segment , higher demand for aerospace and medical connector applications at the interconnect technologies segment , and new products and sales penetration initiatives at the fluid technologies segment . 2015 compared to 2014 net sales increased primarily due to a full year of sales from the acquired finishing brands and lhi businesses . from the period beginning april 1 , 2015 through december 31 , 2015 , fluid technologies contributed net sales of $ 203.2 million and ebit of $ 20.8 million to the company 's 2015 results . our organic net sales growth ( defined as net sales excluding both sales from acquired businesses within the last twelve months , and the impact of changes in foreign exchange rates ) primarily reflected increased sales volumes at construction materials and interconnect technologies , partially offset by lower sales volume at brake & friction and lower selling price . foreign currency fluctuations had a negative impact to net sales of 1.8 % . 17 ebit increased primarily due to lower raw material costs , particularly at construction materials related to materials that are tied to crude oil as well as related lower energy costs , lower labor and material usage costs from cos , lower per unit costs resulting from higher capacity utilization driven by higher net sales volume , and the aforementioned acquisitions . these positive impacts were partially offset by lower selling price . our overall ebit margin increased primarily reflecting lower raw material costs and lower labor and material usage costs from cos. included in ebit in 2015 was $ 10.7 million in costs related to the acquisition of finishing brands . by comparison , included in ebit in 2014 was $ 9.0 million in plant startup costs at construction materials and $ 3.5 million in costs related to the acquisition of lhi . results of operations for a more in-depth discussion of the results discussed in “ executive overview ” and “ summary of consolidated financial results , ” please refer to “ financial reporting segments ” presented later in “ management 's discussion and analysis of financial condition and results of operations. ” 2016 compared to 2015 net sales replace_table_token_6_th the increase in net sales primarily resulted from higher sales volume at construction materials and interconnect technologies , partially offset by lower sales volume at brake & friction . the negative impact of price to net sales primarily resulted from lower selling price at construction materials and interconnect technologies . the increase in net sales from acquired businesses primarily resulted from contribution of $ 66.6 million from the 2015 acquisition of finishing brands and the 2016 acquisition of ms powder in the fluid technologies segment . 2015 compared to 2014 replace_table_token_7_th the increase in net sales primarily reflected growth due to acquisitions and increased sales volume at construction materials and interconnect technologies . the acquisition of the finishing brands business , reported in the fluid technologies segment , contributed $ 203.2 million , and the acquisition of lhi , reported in the interconnect technologies segment , contributed $ 79.0 million . organic net sales growth in 2015 reflected higher net sales volume , primarily at construction materials , partially offset by lower selling price also from construction materials and within interconnect technologies . the negative impact from fluctuations in foreign exchange was primarily attributable to the weaker euro and canadian dollar versus the u.s. dollar , impacting the construction materials segment , and the weaker euro and british pound versus the u.s. dollar , impacting the brake & friction segment . 18 net sales by geographic area replace_table_token_8_th 2016 compared to 2015 total net sales to customers located outside the united states ( “ u.s. ” ) decreased primarily due to reduction of international sales by construction materials , largely reflecting declining canadian sales as a result of reduced construction activity as compared to prior year . partially offsetting this decline in international sales is the contribution of international sales from the acquisition of the finishing brands business reported in the fluid technologies segment . the increase of net sales into asia in 2016 was primarily attributable to fluid technologies . approximately 33 % of fluid technologies ' net sales were to customers in asia in 2016 . 2015 compared to 2014 total net sales to customers located outside the united states increased primarily due to contribution from the acquisition of the finishing brands business reported in the fluid technologies segment of $ 118.7 million . the increase in net sales to customers outside the united states also reflected higher sales volumes at interconnect technologies and contribution from the lhi acquisition . story_separator_special_tag these increases were partially offset by the negative impact of foreign exchange fluctuations primarily at construction materials and brake & friction and lower net sales volume at brake & friction and foodservice products . the 66 % increase in net sales into asia in 2015 was primarily attributable to the aforementioned acquisitions . approximately 30 % of fluid technologies ' net sales were to customers in asia in 2015. gross margin replace_table_token_9_th 2016 compared to 2015 in 2016 , the increase in gross margin ( gross profit expressed as a percentage of net sales ) was primarily driven by lower raw material costs at construction materials , savings from cos , and lower per unit costs related to higher capacity utilization driven by higher sales volume . these positive impacts were partially offset by lower selling prices at construction materials and interconnect technologies . included in gross profit and gross margin in 2016 was $ 2.0 million in additional cost of goods sold associated with the fair valuation of acquired inventory in the interconnect technologies segment . 19 2015 compared to 2014 in 2015 , the increase in gross margin was primarily driven by lower raw material costs at construction materials , lower labor and material usage costs from cos and lower per unit costs related to higher capacity utilization driven by higher sales volume . these positive impacts were partially offset by lower selling prices . included in gross profit and gross margin in 2015 was $ 8.6 million in additional cost of goods sold associated with the fair valuation of acquired inventory in the fluid technologies segment . included in gross profit and gross margin in 2014 was $ 1.6 million in cost of goods sold related to the fair valuation of acquired inventory for the lhi acquisition in the interconnect technologies segment , $ 9.0 million in plant startup and product line closing costs at construction materials related to startup of its pvc manufacturing operations and new tpo manufacturing facility , and $ 0.9 million in expense to discontinue production of construction materials ' insulfoam product line at its smithfield , pennsylvania facility . selling and administrative expenses replace_table_token_10_th 2016 compared to 2015 selling and administrative expense increased primarily due to a full year of expenses from the acquired finishing brands business , higher selling costs primarily at construction materials on higher net sales volume , higher staffing and performance-based incentive compensation costs at construction materials and interconnect technologies , and expenses related to our exit and disposal plans during 2016 ( refer to note 4 in item 8 for further discussion ) . during 2016 , interconnect technologies incurred employee termination costs of $ 7.6 million related to planned growth opportunities and enhancements in its long-term cost competitiveness within certain international operations . expenses to close certain facilities and relocate administrative functions at fluid technologies and corporate were $ 4.1 million and $ 3.8 million , respectively . these increases were partially offset by reduced expenses at the brake & friction segment . selling and administrative expense , as a percentage of sales , increased primarily due to incremental administrative expenses from acquired businesses , principally the finishing brands business , as well as exit and disposal costs at interconnect technologies , fluid technologies , and corporate . 2015 compared to 2014 selling and administrative expenses increased primarily due to $ 67.0 million of expense from the acquired finishing brands and lhi businesses , higher selling costs primarily at construction materials on higher net sales volume , higher expense from increased staffing and performance‑based incentive compensation costs at construction materials , and increased corporate expenses . these increased expenses were partially offset by lower selling and administrative expense costs at brake & friction due to lower net sales volume and cost reduction efforts . during 2015 , the company incurred $ 2.1 million in transaction costs related to the finishing brands acquisition , of which $ 0.7 million was allocated to the fluid technologies segment and the remaining $ 1.4 million allocated to corporate . by comparison , in 2014 , the company incurred $ 1.9 million in transaction expenses for the acquisition of lhi in the interconnect technologies segment . selling and administrative expense as a percentage of net sales increased as a result of the fluid technologies segment having a higher ratio of selling and administrative expense to net sales versus the other segments , in part due to the amortized cost of acquired intangible assets . 20 research and development expenses replace_table_token_11_th 2016 compared to 2015 the increase in research and development expenses reflected increased activities related to new product development , primarily at the interconnect technologies segment . the increase also reflected contribution from the acquired finishing brands as well as increased new product development activities at the fluid technologies segment . these increases were partially offset by reduced expenses at the brake & friction segment . 2015 compared to 2014 the increase in research and development expenses reflected $ 4.3 million of expense from acquired operations , as well as , increased activities related to new product development , primarily in the interconnect technologies and construction materials segments . impairment of goodwill and intangible assets ( in millions ) 2016 2015 change 2015 2014 change impairment of assets $ 141.5 $ - n/a $ - $ - n/a as a percentage of net sales 3.8 % - % - % - % our brake & friction segment 's net sales continued to decline due to continued weakness in off-highway equipment markets tied to lower demand for commodities . recent indicators point to a longer period before brake & friction 's markets are expected to recover . therefore , we recognized impairment charges of $ 141.5 million in the third quarter of 2016. refer to “ critical accounting estimates ” in this management discussion and analysis for further discussion .
| cbf 's ebit and ebit margin decline was impacted by goodwill and intangible asset impairment charges , as discussed above , and higher per unit costs resulting from lower capacity utilization due to lower net sales volume , partially offset by cost reduction actions . 27 matters impacting future results in 2017 , we do not anticipate a significant recovery in key end markets , and expect a slight sales decline for the year . throughout this downturn , cbf has aggressively addressed its challenging markets by realigning its cost structure . cbf has reduced headcount and reduced its non-production related operating expenses . cbf faces competitive pricing pressure in the current demand environment and from competitors that manufacture and sell products in euros . cbf continues to remain focused on new sources of revenue , cost reduction , operational efficiency and positive cash flow generation . as part of its efforts to continue to re-align cbf 's cost structure and to position it for expected end market recovery , our board of directors approved and subsequently , on february 9 , 2017 , the company announced that it will exit its manufacturing operations in tulsa , oklahoma and relocate the majority of those operations to its existing manufacturing facility in medina , ohio . this action is expected to take approximately 18 months to complete . total associated exit and disposal costs are expected to be between $ 16.5 million and $ 18.5 million , with non-cash costs associated with accelerated depreciation of approximately $ 6 million , and cash costs to be incurred of between $ 10.5 million to $ 12.5 million between the first quarter of 2017 and the second half of 2018. as part of the relocation effort , the company will also invest additional capital in its medina , ohio facility . the capital investment is anticipated to be comprised of approximately $ 13.0 million to expand the facility and between $ 15 million to $ 16 million to purchase new , more efficient equipment to replace equipment not being relocated . see note 20 in item 8 and item 9b for further detail as to the type and timing of associated costs
| 11,967 |
these increases were partially offset by lower product costs due to cost reduction efforts as well as decreased integration costs from acquisitions of $ 9.5 million . our cost of service revenues consist primarily of labor , overhead , repair and freight costs and the cost of service parts used in providing support under customer maintenance contracts . 41 service gross profit increased to $ 190.5 million for the year ended june 30 , 2020 , from $ 149.9 million in the corresponding period of fiscal 2019 , primarily due to a higher level of service revenues related to the acquisition of the aerohive , partially offset by higher service material costs and personnel costs due to increased headcount to support acquired contracts as well as higher amortization of intangible assets of $ 3 . 0 million for the fiscal year ended june 30 , 2020 . service gross profit increased to $ 149.9 million for the year ended june 30 , 2019 , from $ 127.1 million in the corresponding period of fiscal 2018 , primarily due to the acquisition of the data center business as a result of a higher number of maintenance contracts . operating expenses the following table presents operating expenses and operating income ( dollars in thousands ) : replace_table_token_9_th the following table highlights our operating expenses and operating loss as a percentage of net revenues : replace_table_token_10_th research and development expenses research and development expenses consist primarily of personnel costs ( which consists of compensation , benefits and stock-based compensation ) , consultant fees and prototype expenses related to the design , development , and testing of our products . research and development expenses remained relatively flat for year ended june 30 , 2020 as compared to fiscal 2019. there was a $ 2.2 million decrease in personnel and related compensation costs , $ 1.0 million decrease in equipment related costs , and $ 1.0 million decrease in travel , supplies and facility and information technology costs , offset by a $ 4.0 million increase in engineering projects costs . research and development expenses increased by $ 26.3 million or 14.3 % for fiscal 2019 as compared to fiscal 2018. the increase in research and development expenses during fiscal 2019 was due to $ 13.4 million related to third-party design and engineering collaboration charges , a $ 10.8 million increase in personnel costs , $ 5.5 million in increased facility and information technology costs and $ 0.9 million in increased supplies and equipment costs offset by a $ 3.3 million decrease in contract labor and a $ 1.0 million decrease in travel , recruiting and other costs . sales and marketing expenses sales and marketing expenses consist of personnel costs ( which consists of compensation , benefits and stock-based compensation ) and related expenses for personnel engaged in marketing and sales functions , as well as trade shows and promotional expenses . sales and marketing expenses decreased by $ 1.7 million or 0.6 % for the year ended june 30 , 2020 , as compared to the corresponding period of fiscal 2019. the decrease was primarily due to a $ 8.6 million decrease in travel , marketing , meeting and conference costs partially offset by a $ 3.0 million increase in personnel and related costs , a $ 2.1 increase in software , supplies and equipment costs , and a $ 1.8 million increase in facility and information technology costs . 42 sales and marketing expenses increased b y $ 18.2 million or 6.8 % for the year ended june 30 , 2019 , as compared to the corresponding period of fiscal 2018. the increase in sales and marketing expenses during fiscal 2019 consisted of higher personnel costs of $ 15.2 million , $ 2.5 million in increased software , supplies and equipment costs , $ 1.1 million in increased travel , marketing , meeting and conference costs offset by a $ 0.6 million decrease in facility and information technology costs . general and administrative expenses general and administrative expense consists primarily of personnel costs ( which consists of compensation , benefits and stock-based compensation ) , legal and professional service costs , travel and facilities and information technology costs . general and administrative expenses increased by $ 5.4 million or 9.7 % for the year ended june 30 , 2020 , as compared to the corresponding period of fiscal 2019. the increase in general and administrative expenses during fiscal 2020 was primarily due to a $ 5.4 million increase in personnel and related costs . general and administrative expenses increased by $ 4.6 million or 9.1 % for the year ended june 30 , 2019 , as compared to the corresponding period of fiscal 2018. the increase in general and administrative expenses during fiscal 2019 was primarily due to $ 2.4 million in higher personnel costs , $ 1.3 million in higher facility and information technology costs , a $ 1.3 million increase in lease termination costs and a $ 0.6 million increase in supplier contract termination costs partially offset by a $ 1.0 million reduction in travel , professional fees and other costs . acquisition and integration costs , net of bargain purchase gain as a result of our acquisitions of aerohive in fiscal 2020 and the campus fabric , data center , and capital financing businesses in fiscal 2018 , we incurred $ 32.1 million , $ 3.4 million and $ 53.9 million of acquisition and integration costs , net of bargain purchase gain in fiscal years ended 2020 , 2019 and 2018 , respectively . for fiscal 2020 , we incurred $ 32.1 million of operating integration costs related to the aerohive acquisition which consisted primarily of professional fees for financial and legal advisory services and severance charges for aerohive employees . the acquisition and integration costs also included a $ 6.8 million compensation charge for certain aerohive executives ' stock awards that were accelerated due to change-in-control and termination provisions included in the executives ' employment contracts . story_separator_special_tag for fiscal 2019 , we incurred $ 3.4 million of operating integration costs related to the acquisitions of the campus fabric and data center businesses along with initial acquisition costs related to the aerohive acquisition . for fiscal 2018 , we incurred $ 12.4 million of acquisition and $ 6.3 million of integration costs related to the acquisition of the campus fabric business and $ 36.0 million of acquisition and $ 4.2 million of integration costs related to the acquisition of the data center business . the data center business acquisition costs includes a $ 25.0 million consent fee paid to broadcom , to terminate a previous asset purchase agreement entered into by the company to purchase the data center business from broadcom , in anticipation of broadcom 's acquisition of brocade . the fee was paid to broadcom to allow the company to buy the data center business directly from brocade . we also recorded a gain on bargain purchase of $ 5.0 million related to the acquisition of the capital financing business . restructuring , impairment , and related charges , net of reversals during fiscal years ended 2020 , 2019 and 2018 , we recorded restructuring , impairment , and related charges , net of reversals , of $ 22.0 million , $ 5.1 million and $ 8.1 million , respectively . fiscal year ended 2020 during fiscal 2020 , we reduced our current and future operating expenses by exiting a floor of a building in our san jose , california headquarters facility and consolidating our workforce . also , we exited additional space in our salem , new hampshire facility , which includes general office and lab space . we continued our initiative to realign our operations resulting from the acquisition of aerohive by consolidating our workforce and exiting the facility acquired from aerohive in milpitas , california which includes general office and lab space . with the global disruptions and slow-down in the demand of our products caused by the global pandemic outbreak , covid-19 , and the uncertainty around the timing of the recovery of the market , we initiated a reduction-in-force plan ( the 2020 plan ) to reduce our operating costs and enhance financial flexibility . the plan affected approximately 320 employees primarily from the research and development and sales organizations who were located mainly in the united states and india . we recorded restructuring charges of $ 8.1 million during the fiscal year ended june 30 , 2020 related to the 2020 plan . the costs associated with this restructuring plan primarily included employee severance and benefit expenses . we recorded additional severance and benefits charges of $ 5.4 million for the fiscal year ended june 30 , 2020 related to the prior period restructuring plans . in total we incurred $ 13.5 million in restructuring charges for the year ended june 30 , 2020 which were all severance and benefit related . in addition , we recorded facility impairment related charges of $ 8.5 million for the fiscal year ended june 30 , 2020 which included $ 6.7 million for the impairment of rou assets as discussed in the preceding paragraph , $ 0.9 million for impairment of long-lived assets , and $ 0.9 million of other charges related to previously impaired facilities . we expect to incur additional charges related to this 2020 plan through the first 43 quarter of fiscal 2021 . the amount and timing of the actual charges are uncertain due to required consultation activities with certain employees as well as compliance with statutory severance requirements in local jurisdictions . fiscal year ended 2019 on june 25 , 2019 , we began executing a reduction-in-force plan ( the 2019 plan ) to better align our work force and operating expenses . we recorded $ 3.7 million related to employee severance and benefits expenses during the year ended june 30 , 2019 under the 2019 plan . we also incurred $ 1.1 million in additional charges related to continuation of earlier actions associated with a reduction-in-force in the fourth quarter of fiscal 2018. we also incurred charges of $ 0.3 million for changes to estimates for accrued lease costs pertaining to the estimated future obligations for non-cancelable lease payments of excess facilities . costs associated with the 2019 plan are primarily comprised of employee severance and benefits expenses , relocation of personnel and equipment and exit of excess facilities . fiscal year ended 2018 during fiscal 2018 , we announced and began executing a reduction-in-force in our third and fourth fiscal quarters as a result of the acquisitions of the campus fabric and the data center businesses . w e recorded restructuring charges of $ 7.9 million related to employee severance and benefits expenses during fiscal 2018. we also incurred charges of $ 0.2 million for changes to our estimates for accrued lease costs pertaining to the estimated future obligations for non-cancelable lease payments of our excess facilities . amortization of intangibles during fiscal years ended 2020 , 2019 and 2018 , we recorded $ 8.4 million , $ 6.3 million and $ 8.7 million , respectively , of amortization expenses in operating expenses primarily for certain intangibles related to the acquisitions of the aerohive , campus fabric , data center and wlan businesses and enterasys . the increase in amortization expense in fiscal 2020 from fiscal 2019 was primarily due to amortization of acquired intangibles from the aerohive acquisition , partially offset by lower amortization related to certain acquired intangibles from previous acquisitions becoming fully amortized . the decrease in amortization expense in fiscal 2019 from fiscal 2018 was mainly due to the acquired intangibles from the enterasys acquisition becoming fully amortized .
| for example , we recently realigned our operations and recorded severance and benefits charges under our 2020 restructuring plan of $ 8.1 million for the year ended june 30 , 2020. although we expect to reduce research and development and sales and marketing costs during our fiscal year 2021 , given the uncertainty around the extent and timing of the potential future spread or mitigation of the coronavirus and around the imposition or relaxation of protective measures , we can not further reasonably estimate the impact of the covid-19 pandemic on our future results of operations or financial position . see also part i , item 1a – risk factors . net revenues the following table presents net product and service revenues for the fiscal year ended june 30 , 2020 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_6_th product revenues decreased $ 93.9 million or 12.6 % for the year ended june 30 , 2020 , compared to the corresponding period of fiscal 2019. product revenues were impacted in the second half of fiscal 2020 by a material slow-down in global demand as most of extreme 's largest end markets enacted quarantine and social distancing protocols . supply constraints , along with additional logistics related challenges in certain countries due to border closures , also contributed to the shortfall . the decline in such revenues was partially offset by growth relating to the acquisition of aerohive . product revenues decreased $ 16.9 million or 2.2 % for the year ended june 30 , 2019 , compared to the corresponding period of fiscal 2018. the decrease in product revenues were driven primarily by a lower overall volume of sales in the americas attributed to our data center business , but with strengthening sales in our federal and oem data center sectors . to a lesser extent , there was a modest decrease in product revenues in apac , and revenues remained consistent in the emea region . service revenues increased $ 46.2 million or 18.6 % for the year ended june 30 , 2020 , compared to the corresponding period of fiscal 2019. the increase in service revenues was primarily attributable to growth related to the acquisition of aerohive .
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jdl reported 2013 operating income of $ 4.0 million compared to a 2012 operating loss of $ 655,000. federal and local funding for investments in it infrastructure and services for k-12 schools varies substantially from year to year . there have been large swings in jdl 's annual revenues over the past several years . this volatility in jdl 's annual revenues is expected to continue in 2014 and future years , and accordingly , in order to reduce its dependence on government funding , jdl continues to aggressively pursue revenue opportunities in the small to medium size it services business market . its revenue from these commercial businesses increased to $ 2.2 million in 2013 from $ 1.3 million in 2012 . 20 forward looking statements in this report and from time to time , in reports filed with the securities and exchange commission , in press releases , and in other communications to shareholders or the investing public , we may make forward looking statements within the meaning of the private securities litigation reform act of 1995. we may make these forward looking statements concerning possible or anticipated future financial performance , business activities , plans , pending claims , investigations or litigation , which are typically preceded by the words believes , expects , anticipates , intends or similar expressions . for these forward-looking statements , the company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws . shareholders and the investing public should understand that these forward looking statements are subject to risks and uncertainties that could cause actual performance , activities , anticipated results , outcomes or plans to differ significantly from those indicated in the forward-looking statements . for a detailed discussion of a number of such risk factors , please see item 1a above . critical accounting policies inventory valuation : we value inventories at the lower of cost or market . we estimate and record reserves for inventory overstock and obsolescence to reduce the carrying value to estimated net realizable value . we determine the reserve amount based on on projected sales information , plans for discontinued products and other factors . though we consider these reserves adequate and proper , changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve . income taxes : in the preparation of the company 's consolidated financial statements , management calculates income taxes . this includes estimating the company 's current tax liability as well as assessing temporary differences resulting from different treatment of items for tax and book accounting purposes . these differences result in deferred tax assets and liabilities , which are recorded on the balance sheet . these assets and liabilities are analyzed regularly and management assesses the likelihood it will realize these deferred assets from future taxable income . we determine the valuation allowance for deferred income tax benefits based upon the expectation of whether the benefits are more likely than not to be realized . the company records interest and penalties related to income taxes as income tax expense in the consolidated statements of income . goodwill impairment : we are required to evaluate goodwill for impairment on an annual basis and between annual tests upon the occurrence of certain events or circumstances . we perform a two-step process to analyze whether or not goodwill has been impaired . step one is to test for potential impairment , and requires that we compare the fair value of the reporting unit to its book value including goodwill . if the fair value is higher than the book value , no impairment is recognized . the company estimates the fair value of each reporting unit based on a discounted cash flow analysis . if the fair value is lower than the book value , a second step must be performed . the second step is to measure the amount of impairment loss , if any , and requires that a hypothetical purchase price allocation be done to determine the implied fair value of goodwill . this fair value is then compared to the carrying value of goodwill . if the implied fair value is lower than the carrying value , an impairment adjustment must be recorded . in developing our discounted cash flow analysis , assumptions about future revenues and expenses , capital expenditures and changes in working capital are based on our annual operating plan and long-term business plan for each of our reporting units . these plans consider many factors including historical experience , anticipated future economic conditions and growth expectations for the industries and end markets in which we participate . these assumptions are determined over a five-year , long-term planning period . revenues and operating profit beyond the five-year period are projected to grow at a nominal perpetual growth rate for all reporting units . the discount rate calculations are determined by assuming a company beta , market premium risk , size premium , the cost of debt and debt-to-capital ratio of a market participant . the company believes that accounting estimates related to goodwill impairment are critical because the underlying assumptions used for the discounted cash flow analysis can change from period to period and could potentially cause a material impact to the income statement . management 's assumptions about inflation rates and other internal and external economic conditions , such as earnings growth rate , require significant judgment based on fluctuating rates and expected revenues . based on the step one and step two analysis , considering transition networks ' reduced earnings and cash flow forecasts , the company determined that transition networks ' goodwill was fully impaired and recorded a goodwill impairment for this segment of $ 5,850,000 in the third quarter of 2013 . story_separator_special_tag 21 revenue recognition : the company recognizes revenue when the earnings process is complete , evidenced by persuasive evidence of an agreement , delivery has occurred or services have been rendered , the price is fixed or determinable , and collectability is reasonably assured . in the suttle and transition networks segments , the earning process completion is evidenced through the shipment of goods , based on the sales terms of these segments , the risk of loss is transferred upon shipment or delivery to customers and there are no significant obligations subsequent to that point . there are not significant estimates related to revenue recognition for these segments . jdl technologies records revenue on hardware , software and related equipment sales and installation contracts when the revenue recognition criteria are met and the products are installed and accepted by the customer . jdl records revenue on service contracts on a straight-line basis over the contract period , unless evidence suggests that the revenue is earned in a different pattern . each contract is individually reviewed to determine when the earnings process is complete . story_separator_special_tag sales of $ 143,775,000 in 2011. operating income decreased 81 % to $ 3,396,000 in 2012 as compared to $ 17,515,000 in 2011. income before income taxes decreased 81 % to $ 3,398,000 from $ 17,620,000 in 2011. net income decreased 77 % to $ 2,238,000 in 2012 compared to $ 9,798,000 in 2011. suttle suttle sales increased 13 % to $ 45,030,000 in 2012 compared to $ 39,924,000 in 2011. sales by product groups in 2012 and 2011 were : replace_table_token_10_th suttle 's sales by customer groups in 2012 and 2011 were : replace_table_token_11_th the increase in sales is due primarily to increased sales to suttle 's domestic telecommunication customers . sales to the telephone companies increased 24 % to $ 33,645,000 in 2012 compared to $ 27,124,000 in 2011 due to fulfillment of new product contracts and increased sales tied to enhanced network deployments . sales to these customers accounted for 75 % of suttle 's sales in 2012 compared to 68 % of sales in 2011. sales to distributors decreased 24 % and accounted for 12 % of sales in 2012 compared to 11 % in 2011. the increase in this customer group is a result of increased opportunities in the domestic market for new single family unit ( sfu ) and multi-dwelling unit ( mdu ) construction . international sales accounted for 12 % of suttle 's 2012 sales but declined 31 % compared to 2011. the decrease in sales in this customer group is due to a delay in dsl sales to a large customer , discontinuation of austin taylor 's metal business , and reduction in revenue from austin taylor 's legacy products . modular connecting products sales increased 6 % due to an increase in new mdu construction in the u.s. housing market and an increase in sales tied to enhanced network deployments . sales of structured cabling products increased 47 % due to increased construction activity in the mdu space in specific regions in the u.s and an increase in sales tied to enhanced network deployments . sales of dsl products decreased 19 % due to the maturation of the u.s. dsl market and order cycles of major customers . suttle 's gross margin increased 31 % to $ 11,974,000 in 2012 compared to $ 9,132,000 in 2011. the gross margin percentage was 27 % in 2012 compared to 23 % in 2011 due to product mix changes and increased production levels . 25 selling , general and administrative expenses increased $ 1,153,000 , or 14 % to $ 9,371,000 in 2012 compared to $ 8,218,000 in 2011 due to an increase in spending in the technology development and market expansion initiatives . suttle 's operating income increased to $ 2,603,000 in 2012 from an operating loss of $ 358,000 in 2011 due to a goodwill impairment charge of $ 1,272,000 in the second quarter of 2011 and an overall reduction of losses from austin taylor 's operations in 2012. transition networks transition networks sales decreased 41 % to $ 53,843,000 in 2012 compared to $ 91,450,000 in 2011 due primarily to $ 32,751,000 in 2011 revenue from a one-time large network upgrade project with a fortune 500 company . revenues excluding this major project decreased 12 % or $ 5,311,000 as compared to the prior year due to a continued slowdown in federal government spending . transition networks organizes its sales force by vertical markets and segments its customers geographically . sales by customer groups in 2012 and 2011 were : replace_table_token_12_th the following table summarizes transition networks ' 2012 and 2011 sales by product group : replace_table_token_13_th sales in north america decreased 49 % or $ 38,062,000 compared to 2011 due to revenue from a one-time large network upgrade project with a fortune 500 company that was completed during the third quarter of 2011. this also resulted in the decrease in media converter revenue . other vertical markets , especially the federal government market in the united states , recorded lower revenue due to the slow down in government purchases resulting in project delays . international sales increased $ 455,000 , or 3 % , due to a strong rebound in the orders from asian telco customers in deploying data services as well as circuit emulation services . gross margin decreased 37 % to $ 27,995,000 in 2012 compared to $ 44,625,000 in 2011. gross margin as a percentage of sales increased to 52 % in 2012 compared to 49 % in 2011 due to volume discounts given for the large network upgrade project with the fortune 500 company described above .
| modular connecting products sales increased 5 % due to an increase in new mdu construction in the u.s. housing market and an increase in sales tied to enhanced network deployments . sales of structured cabling products increased 49 % due to increased mdu construction activity in the u.s housing market and an increase in sales tied to enhanced network deployments . sales of dsl products decreased 2 % due to the maturation of the market and increased pricing pressures . suttle 's gross margin increased 32 % to $ 15,812,000 in 2013 compared to $ 11,974,000 in 2012. the gross margin percentage increased to 29 % in 2013 compared to 27 % in 2012 due to product mix changes and increased production levels . selling , general and administrative expenses increased $ 983,000 , or 10 % to $ 10,354,000 in 2013 compared to $ 9,371,000 in 2012 due to continued investment into new product development and market expansion initiatives . suttle 's operating income increased 110 % to $ 5,457,000 in 2013 from $ 2,603,000 in 2012. transition networks transition networks designs and markets media conversion products , ethernet switches , and other connectivity and data transmission products . characteristics of the business include a rapid pace of change in technologies and alternative solutions to our products . transition networks derives the majority of its revenues from one-time network upgrade projects . the core markets for these products are enterprise , service providers , and industrial users . roughly 70 % of transition networks revenue comes from north america , but we continue to see opportunity for long-term growth outside of north america and we will invest resources in sales , marketing , and infrastructure to grow that business . transition networks sales decreased 19 % to $ 43,857,000 in 2013 compared to $ 53,843,000 in 2012. transition networks organizes its sales force by vertical markets and segments its customers geographically . sales by customer groups in 2013 and 2012 were : replace_table_token_7_th the following table summarizes transition networks ' 2013 and 2012 sales by product group : replace_table_token_8_th 23 sales in north america decreased 22 % in 2013 , or $
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as of february 28 , 2020 , the company had assets under contract to sell for total anticipated proceeds of $ 125 million , subject to certain closing conditions ; sales of interests in jv properties . as of december 31 , 2019 , we had sold our interests in 13 jv properties and generated approximately $ 258 million of gross proceeds since july 2017. certain of our joint venture agreements also include rights that allow us to sell our interests in select jv properties to our partners at fair market value ; new joint ventures . as of december 31 , 2019 , we had closed new joint ventures for 10 properties that generated approximately $ 185 million of gross proceeds since july 2017. in addition to generating liquidity upon closing , new joint ventures also reduce our development expenditures by the amount of our partners ' interests in the ventures ; joint venture debt . we may incur property-level debt in new or existing joint ventures , including construction financing for properties under development and longer-term mortgage debt for stabilized properties ; and other credit and capital markets transactions . we may raise additional capital through the public or private issuance of debt securities , common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . in addition , our term loan facility includes a $ 400 incremental funding facility , access to which is subject to rental income from non-sears holdings tenants of at least $ 200 million , on an annualized basis and after giving effect to sno leases expected to commence rent payment within 12 months , which we have not yet achieved . the availability of liquidity from the above sources or initiatives is subject to a range of risks and uncertainties , including those discussed under “ risk factors—real estate investments are relatively illiquid ” and “ risk factors—we have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms. ” - 45 - term loan facility on july 31 , 2018 , the operating partnership , as borrower , and the company , as guarantor , entered into a senior secured term loan agreement ( the “ term loan agreement ” ) providing for a $ 2.0 billion term loan facility ( the “ term loan facility ” ) with berkshire hathaway life insurance company of nebraska ( “ berkshire hathaway ” ) as lender and berkshire hathaway as administrative agent . the term loan facility provided for an initial funding of $ 1.6 billion at closing ( the “ initial funding ” ) and includes a $ 400 million incremental funding facility ( the “ incremental funding facility ” ) . the term loan facility matures on july 31 , 2023. the company used a portion of the proceeds from the initial funding to ( i ) repay existing indebtedness and ( ii ) pay transaction and related costs . the remaining proceeds from the initial funding , as well as borrowings under the incremental funding facility , will be used to fund the company 's redevelopment pipeline and to pay operating expenses of the company and its subsidiaries . funded amounts under the term loan facility bear interest at an annual rate of 7.0 % and unfunded amounts under the incremental funding facility are subject to an annual fee of 1.0 % until drawn . the company prepays the annual fee and amortizes the expense to interest expense on the consolidated statements of operations . as of december 31 , 2019 , the aggregate principal amount outstanding under the term loan facility was $ 1.6 billion . the company 's ability to access the incremental funding facility is subject to ( i ) the company achieving rental income from non-sears holdings tenants , on an annualized basis ( after giving effect to sno leases expected to commence rent payment within 12 months ) for the fiscal quarter ending prior to the date of incurrence of the incremental funding facility , of not less than $ 200 million and ( ii ) the company 's good faith projection that rental income from non-sears holdings tenants ( after giving effect to sno leases expected to commence rent payment within 12 months ) for the succeeding four consecutive fiscal quarters ( beginning with the fiscal quarter during which the incremental facility is accessed ) will be not less than $ 200 million . the term loan facility is guaranteed by the company and , subject to certain exceptions , is required to be guaranteed by all existing and future subsidiaries of the borrower . the term loan facility is secured on a first lien basis by a pledge of the capital stock of the direct subsidiaries of the borrower and the guarantors , including its joint venture interests , except as prohibited by the organizational documents of such entities or any joint venture agreements applicable to such entities , and contains a requirement to provide mortgages and other customary collateral upon the breach of certain financial metrics described below , the occurrence and continuation of an event of default and certain other conditions set forth in the term loan agreement . the term loan facility includes certain financial metrics to govern springing collateral and certain covenant exceptions set forth in the term loan agreement , including : ( i ) a total fixed charge coverage ratio of not less than 1.00 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending september 30 , 2018 through the fiscal quarter ending june 30 , 2021 , and not less than 1.20 to 1.00 for each fiscal quarter thereafter ; ( ii ) an unencumbered fixed charge coverage ratio of not less than 1.05 to 1.00 for each fiscal quarter beginning with the fiscal quarter ending september 30 , 2018 through the fiscal quarter ending june 30 , 2021 , and not less than 1.30 to 1.00 for each fiscal quarter thereafter ; ( iii ) a total leverage ratio of not more than story_separator_special_tag 65 % ; ( iv ) an unencumbered ratio of not more than 60 % ; and ( v ) a minimum net worth of at least $ 1.2 billion . any failure to satisfy any of these financial metrics limits the company 's ability to dispose of assets via sale or joint venture and triggers the springing mortgage and collateral requirements but will not result in an event of default . the term loan facility also includes certain limitations relating to , among other activities , the company 's ability to : sell assets or merge , consolidate or transfer all or substantially all of its assets ; incur additional debt ; incur certain liens ; enter into , terminate or modify certain material leases and or the material agreements for the company 's properties ; make certain investments ( including limitations on joint ventures ) and other restricted payments ; pay distributions on or repurchase the company 's capital stock ; and enter into certain transactions with affiliates . the term loan facility contains customary events of default , including ( subject to certain materiality thresholds and grace periods ) payment default , material inaccuracy of representations or warranties , and bankruptcy or insolvency proceedings . if there is an event of default , the lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable , exercise any rights they might have under any of the term loan facility documents , and require the company to pay a default interest rate on overdue amounts equal to 2.0 % in excess of the then applicable interest rate . as of december 31 , 2019 , the company was not in compliance with certain of the financial metrics described above . as a result , the company must receive the consent of berkshire hathaway to dispose of assets via sale or joint venture and , as of december 31 , 2019 , berkshire hathaway had provided such consent for all such transactions submitted for approval . there can be no assurance that the lender will consent to future dispositions of assets . ad ditionally , berkshire hathaway has the right to request mortgages against the company 's assets pursuant to the mortgage and collateral requirement . during the year ended december 31 , 2019 , berkshire hathaway requested mortgages on a majority of the company 's portfolio which were recorded in accordance with the requirement ( the “ lender request ” ) . there are no changes to the terms and conditions of the term loan facility , or the company 's ability to operate thereunder , as a result of providing mortgages against any of the company 's assets pursuant to the mortgage and collateral - 46 - requirement . the company accounted for the l ender r equest transaction as a modification of debt as of december 31 , 2019. r elated to the modification , the company incurred $ 5.0 million in mortgage recording costs which are classified as interest expenses on the consolidated statement s of operations . the company believes it is in compliance with all other terms and conditions of the term loan agreement . the company incurred $ 2.1 million of debt issuance costs related to the term loan facility which are recorded as a direct deduction from the carrying amount of the term loan facility and amortized over the term of the term loan agreement . as of december 31 , 2019 , the unamortized balance of the company 's debt issuance costs was $ 1.5 million . preferred shares as of december 31 , 2019 , we had 2,800,000 7.00 % series a cumulative redeemable preferred shares ( the “ series a preferred shares ” ) outstanding . we may not redeem the series a preferred shares before december 14 , 2022 , except to preserve our status as a reit or upon the occurrence of a change of control , as defined in the trust agreement addendums designating the series a preferred shares . on and after december 14 , 2022 , we may redeem any or all of the series a preferred shares at $ 25.00 per share plus any accrued and unpaid dividends . in addition , upon the occurrence of a change of control , we may redeem any or all of the series a preferred shares for cash within 120 days after the first date on which such change of control occurred at $ 25.00 per share plus any accrued and unpaid dividends . hedging instruments the company 's use of derivative instruments is limited to the management of interest rate exposure and not for speculative purposes . in connection with the issuance of the company 's original debt facility that funded part of the transaction in july 2015 , the company purchased for $ 5.0 million an interest rate cap with a term of four years , a notional amount of $ 1,261 million and a strike rate of 3.5 % . the interest rate cap was measured at fair value and included as a component of prepaid expenses , deferred expenses and other assets on the consolidated balance sheets . the company had elected not to utilize hedge accounting and therefore the change in fair value was included within change in fair value of interest rate cap on the consolidated statements of operations . during the year ended december 31 , 2018 , the company terminated the interest rate cap concurrent with the repayment of the original debt facility . for the year ended december 31 , 2018 and december 31 , 2017 , the company recorded a change in the fair value of the interest rate cap of ( $ 23 ) thousand , and ( $ 0.7 ) million , respectively .
| rental income the following table presents the results for rental income for the year ended december 31 , 2019 , as compared to the corresponding period in 2018 ( in thousands ) : replace_table_token_16_th - 43 - the decrease of $ 100.5 million in sears or kmart rental income during 2019 is primarily due to a reduction in the number of properties leased to sears or kmart under the original master lease , as applicable , as a result of recapture and termination activity . the increase of $ 36.0 million in diversified tenants rental income during 2019 is primarily due to newly commenced leases at locations formerly occupied by sears or kmart . the increase of $ 18.4 million in straight-line rental income during 2019 is due to an increase in straight-line rent receivables related to diversified tenants under newly commenced leases during 2019. property operating expenses and real estate taxes the company incurs certain property operating and real estate tax expenses . the following table presents the comparative results for property operating expenses and real estate taxes for the year ended december 31 , 2019 , as compared to the corresponding period in 2018 ( in thousands ) : replace_table_token_17_th the increase of $ 13.4 million in property operating expense in 2019 is primarily due to the company directly incurring utility and certain common area maintenance expenses at properties for which sears or kmart paid such expenses directly during 2018 , partially offset by a decrease in property operating expenses as a result of asset sales and an increase in amounts capitalized due to development activity . the decrease of $ 3.8 million in real estate taxes in 2019 is primarily due to asset sales and an increase in amounts capitalized due to development activity . depreciation and amortization expenses the decrease of $ 122.0 million in depreciation and amortization expenses in 2019 was due primarily to ( i ) a reduction of $ 117.1 million in accelerated amortization attributable to certain lease intangible assets , ( ii ) approximately $ 10.0 million of lower net scheduled depreciation and amortization and ( iii ) $ 5.2 million increase of accelerated depreciation attributable to certain buildings that were demolished for redevelopment in 2019. accelerated amortization results from the recapture of space from , or the termination of space by , sears holdings or holdco . such recaptures and
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the available facility amount is subject to borrowing base constraints and is also constrained by the amortization schedule ( once repayments under the facility begin ) . beginning on may 15 , 2014 , outstanding borrowings will be subject to an amortization schedule . the first required payment could be as early as june 15 , 2014 , subject to the level of outstanding borrowings . the facility has a final maturity date of march 29 , 2018. kosmos has the right to cancel all the undrawn commitments under the facility . the amount of funds available to be borrowed under the facility , also known as the borrowing base amount , is determined each year on june 15 and december 15 as part of a forecast that is prepared by and agreed to by kosmos and the technical and modeling banks . the formula to calculate the borrowing base amount is based , in part , on the sum of the net present values of net cash flows and relevant capital expenditures reduced by certain percentages . if an event of default exists under the facility , the lenders can accelerate the maturity and exercise other rights and remedies , including the enforcement of security granted pursuant to the facility over certain assets held by us . we were in compliance with the financial covenants contained in the facility as of the december 15 , 2011 , forecast , which requires the maintenance of : the field life cover ratio , not less than 1.30x ; and the loan life cover ratio , not less than 1.10x , in each case , as calculated on the basis of all available information . the `` field life cover ratio '' is broadly defined , for each applicable forecast period , as the ratio of ( x ) net present value of net cash flow through the depletion of the jubilee field plus the net present value of capital expenditures incurred in relation to the jubilee field and certain other fields in ghana , to ( y ) the aggregate loan amounts outstanding under the facility . the `` loan life cover ratio '' is broadly defined , for each applicable forecast period , as the ratio of ( x ) net present value of net cash flow through the final maturity date of the facility plus the net present value of capital expenditures incurred in relation to the jubilee field and certain other fields in ghana , to ( y ) the aggregate loan amounts outstanding under the facility . the u.s. and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions . although some of these economies have shown signs of improvement , macroeconomic recovery remains uneven . uncertainty in the macroeconomic environment and associated global economic conditions have resulted in extreme volatility in credit , equity , and foreign currency markets , including the european sovereign debt markets and volatility in various markets . if any of the financial institutions within our facility are unable to perform on their commitments , our liquidity could be impacted . see `` item 1a . risk factorsour operations may be adversely affected by the european debt crisis . '' we actively monitor all of the financial institutions participating in our facility . none of the financial institutions have indicated to us that they may be unable to perform on their commitments . in addition , we periodically review our banking and financing relationships , considering the stability of the institutions and other aspects of the relationships . based on our monitoring activities , we believe our banks will be able to perform on their commitments . 87 capital expenditures and investments we expect to incur substantial costs as we continue to develop our oil and natural gas prospects and as we : complete our 2012 exploration and appraisal drilling program in our license areas ; develop our discoveries that we determine to be commercially viable ; purchase and analyze seismic and other geological and geophysical data to identify future prospects ; and invest in additional oil and natural gas leases and licenses . we generated revenues of $ 666.9 million in 2011 from our oil sales from the jubilee field . we have relied on a number of assumptions in budgeting for our future activities . these include the number of wells we plan to drill , our working interests in our prospects , the costs involved in developing or participating in the development of a prospect , the timing of third-party projects , and the availability of suitable equipment and qualified personnel . these assumptions are inherently subject to significant business , political , economic , regulatory , environmental and competitive uncertainties , contingencies and risks , all of which are difficult to predict and many of which are beyond our control . we may need to raise additional funds more quickly if one or more of our assumptions proves to be incorrect or if we choose to expand our hydrocarbon asset acquisition , exploration , appraisal or development efforts more rapidly than we presently anticipate . we may decide to raise additional funds before we need them if the conditions for raising capital are favorable . we may seek to sell equity or debt securities or obtain additional bank credit facilities . the sale of equity securities could result in dilution to our shareholders . the incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations . 2012 capital program we estimate we will incur approximately $ 600 million of capital expenditures for the year ending december 31 , 2012. the estimated capital expenditures of $ 600 million exclude the estimated costs associated with the potential purchase of sabre 's 4.05 % participating interest in the dt block of approximately $ 365.0 million , with up to $ 45.0 million in contingent payments upon achieving certain performance milestones story_separator_special_tag the available facility amount is subject to borrowing base constraints and is also constrained by the amortization schedule ( once repayments under the facility begin ) . beginning on may 15 , 2014 , outstanding borrowings will be subject to an amortization schedule . the first required payment could be as early as june 15 , 2014 , subject to the level of outstanding borrowings . the facility has a final maturity date of march 29 , 2018. kosmos has the right to cancel all the undrawn commitments under the facility . the amount of funds available to be borrowed under the facility , also known as the borrowing base amount , is determined each year on june 15 and december 15 as part of a forecast that is prepared by and agreed to by kosmos and the technical and modeling banks . the formula to calculate the borrowing base amount is based , in part , on the sum of the net present values of net cash flows and relevant capital expenditures reduced by certain percentages . if an event of default exists under the facility , the lenders can accelerate the maturity and exercise other rights and remedies , including the enforcement of security granted pursuant to the facility over certain assets held by us . we were in compliance with the financial covenants contained in the facility as of the december 15 , 2011 , forecast , which requires the maintenance of : the field life cover ratio , not less than 1.30x ; and the loan life cover ratio , not less than 1.10x , in each case , as calculated on the basis of all available information . the `` field life cover ratio '' is broadly defined , for each applicable forecast period , as the ratio of ( x ) net present value of net cash flow through the depletion of the jubilee field plus the net present value of capital expenditures incurred in relation to the jubilee field and certain other fields in ghana , to ( y ) the aggregate loan amounts outstanding under the facility . the `` loan life cover ratio '' is broadly defined , for each applicable forecast period , as the ratio of ( x ) net present value of net cash flow through the final maturity date of the facility plus the net present value of capital expenditures incurred in relation to the jubilee field and certain other fields in ghana , to ( y ) the aggregate loan amounts outstanding under the facility . the u.s. and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions . although some of these economies have shown signs of improvement , macroeconomic recovery remains uneven . uncertainty in the macroeconomic environment and associated global economic conditions have resulted in extreme volatility in credit , equity , and foreign currency markets , including the european sovereign debt markets and volatility in various markets . if any of the financial institutions within our facility are unable to perform on their commitments , our liquidity could be impacted . see `` item 1a . risk factorsour operations may be adversely affected by the european debt crisis . '' we actively monitor all of the financial institutions participating in our facility . none of the financial institutions have indicated to us that they may be unable to perform on their commitments . in addition , we periodically review our banking and financing relationships , considering the stability of the institutions and other aspects of the relationships . based on our monitoring activities , we believe our banks will be able to perform on their commitments . 87 capital expenditures and investments we expect to incur substantial costs as we continue to develop our oil and natural gas prospects and as we : complete our 2012 exploration and appraisal drilling program in our license areas ; develop our discoveries that we determine to be commercially viable ; purchase and analyze seismic and other geological and geophysical data to identify future prospects ; and invest in additional oil and natural gas leases and licenses . we generated revenues of $ 666.9 million in 2011 from our oil sales from the jubilee field . we have relied on a number of assumptions in budgeting for our future activities . these include the number of wells we plan to drill , our working interests in our prospects , the costs involved in developing or participating in the development of a prospect , the timing of third-party projects , and the availability of suitable equipment and qualified personnel . these assumptions are inherently subject to significant business , political , economic , regulatory , environmental and competitive uncertainties , contingencies and risks , all of which are difficult to predict and many of which are beyond our control . we may need to raise additional funds more quickly if one or more of our assumptions proves to be incorrect or if we choose to expand our hydrocarbon asset acquisition , exploration , appraisal or development efforts more rapidly than we presently anticipate . we may decide to raise additional funds before we need them if the conditions for raising capital are favorable . we may seek to sell equity or debt securities or obtain additional bank credit facilities . the sale of equity securities could result in dilution to our shareholders . the incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations . 2012 capital program we estimate we will incur approximately $ 600 million of capital expenditures for the year ending december 31 , 2012. the estimated capital expenditures of $ 600 million exclude the estimated costs associated with the potential purchase of sabre 's 4.05 % participating interest in the dt block of approximately $ 365.0 million , with up to $ 45.0 million in contingent payments upon achieving certain performance milestones
| exploration expenses increased by $ 53.3 million during the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010. during the year ended december 31 , 2011 , we incurred $ 32.8 million for seismic costs and $ 91.3 million of unsuccessful well costs , primarily related to the cameroon n'gata-1 , ghana makore-1 , ghana banda-1 and ghana odum exploration wells . during the year ended december 31 , 2010 , the company incurred $ 59.4 million of unsuccessful well costs primarily related to the ghana dahoma-1 and cameroon mombe-1 wells and $ 13.0 million for seismic costs . general and administrative . general and administrative costs increased by $ 14.6 million during the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010 , primarily due to an increase in staffing and increases in non-cash expenses of $ 37.2 million for equity-based compensation , partially offset by decreases in cash expenses for professional fees . total non-cash general and administrative costs were $ 51.0 million and $ 13.8 million for the years ended december 31 , 2011 and 2010 , respectively . depletion and depreciation . depletion and depreciation increased $ 138.0 million during the year ended december 31 , 2011 , as compared with the year ended december 31 , 2010 , due to production from the jubilee field . in 2010 , there were no oil sales and , therefore , no associated depletion . amortizationdeferred financing costs and loss on extinguishment of debt . during the year ended december 31 , 2011 , we incurred approximately $ 52.3 million of deferred financing costs as part of our debt refinance , in addition to our existing unamortized deferred financing costs of $ 68.6 million . as a result of the debt refinance , we recorded a $ 59.6 million loss on the extinguishment of debt . the remaining costs were capitalized and are being amortized over the term of the facility .
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our priority is to deliver our strategic objectives , focusing on maximizing sales and profit growth through innovation , product line extensions and share gains , and we continue to target improved working capital management as a key business objective . 27 significant events project fuel in february 2018 , we launched project fuel , an enterprise-wide transformational initiative designed to address all aspects of our business and cost structure . the project will incorporate our existing zero based spending ( `` zbs '' ) and global productivity initiatives and will include a new global restructuring initiative . while we incurred costs for project fuel in fiscal 2018 , the majority of costs and savings under project fuel are expected to take place during fiscal 2019 through fiscal 2021. in addition to the expected cost savings and improved profitability , project fuel is designed to strengthen our challenger culture and reinforce our consumer-centric organizational focus . it is also designed to simplify the organization and streamline ways of working in order to increase competitiveness , speed and agility , and ensure we have the skills , capabilities and investments needed to compete in a rapidly changing world . for further information on our restructuring projects , see note 5 of notes to condensed consolidated financial statements . goodwill and intangible asset impairment during the third quarter of fiscal 2018 , we determined a triggering event had occurred as a result of a sustained decline in our market capitalization . we performed an interim impairment analysis using financial information through june 30 , 2018 and forecasts for cash flows developed using our strategic plan . the interim impairment review was performed across all reporting units and indefinite lived intangible assets and we found the carrying value of the goodwill of our infant care reporting unit to be above its fair value , resulting in a non-cash goodwill impairment charge of $ 24.4 . the impairment of the infant care reporting unit was caused by declining revenue and earnings forecasts and higher discount rates . higher discount rates were the result of certain market-based assumptions and company specific risks . refer to note 8 of our notes to condensed consolidated financial statements for further discussion on the interim impairment test . we performed an assessment in the fourth quarter to determine if any significant events or changes in circumstances had occurred that would be considered a potential triggering event . we did not identify any indication of a triggering event that would indicate the existence of impairment of the reporting units . during the fourth quarter of fiscal 2017 , we completed our annual impairment testing and found the carrying values of our playtex and edge brand names to be above the fair value , resulting in a non-cash asset impairment charge of $ 312.0 and $ 7.0 , respectively . the impairment of the playtex brand was caused by market share declines due to increased competition affecting feminine care , skin care and infant care products . the edge impairment was related to erosion of market share to competing products . based on the impairment taken on the playtex brand in fiscal 2015 and continued competitive pressure on both brands , these intangible assets were converted to definite-lived assets with a useful life of 20 years . we recorded amortization expense of $ 7.2 and $ 1.8 during fiscal 2018 and 2017 , respectively , related to the amortization of the playtex and edge brand names . during the fourth quarter of fiscal 2016 , we completed our annual impairment testing and found the carrying value of our skintimate brand name to be above the fair value , resulting in an additional non-cash asset impairment charge of $ 6.5 . the fiscal 2016 impairment charge was caused by further market share erosion above previous estimates . based on the impairments taken in fiscal 2015 and 2016 and continued competitive pressure on this brand , the skintimate brand name was converted to a definite-lived asset and assigned a useful life of 20 years . as a result of the conversion , we recorded amortization expense of $ 1.5 in fiscal 2018 and 2017 related to the skintimate brand name . sun care reformulation costs the fourth quarter results of fiscal 2018 include a $ 25.3 one-time charge to cost of products sold primarily due to costs associated with the write-off of select sun care product inventories . as a result of discussions with one of our suppliers during the quarter , we made certain supply chain and procurement decisions , including implementing a raw material substitution due to anticipated regulatory changes related to registration , evaluation , authorization , and restriction of chemicals ( `` reach '' ) , the european chemical control law , that affect the supply chain of select sun care products . to align with our raw material selection process , we chose to make these changes now , well in advance of next year 's sun care season to minimize potential impact to our distribution channels during the peak sales period . as a result , we recorded charges primarily for the write-off of finished goods inventory for those select products . 28 acquisitions on march 1 , 2018 , we completed the acquisition of jack black , a leading u.s. based luxury men 's skincare products company based in the united states , for approximately $ 90.2 , net of cash acquired . the acquisition will create opportunities to expand our personal care portfolio in growing categories in the u.s. and globally , while nurturing the brand equity of jack black . the results of jack black for the post-acquisition period are included within our results since the acquisition date . refer to note 4 of our notes to condensed consolidated financial statements for further discussion related to the acquisition of jack black . on october 31 , 2016 , we completed the acquisition of bulldog , a men 's grooming and skincare products company based in the u.k. for $ 34.0 , net of cash acquired . story_separator_special_tag the acquisition created opportunities to expand our personal care portfolio into a growing global category where we can leverage our international geographic footprint . the acquisition was financed through available foreign cash . the results of bulldog for the post-acquisition period are included within our results for fiscal 2018 and 2017. dispositions we completed the sale of the playtex gloves business to a household products company for $ 19.0 on october 26 , 2017. the sale allows us to better focus and utilize resources on other product lines . total assets sold were approximately $ 3.7 resulting in a pre-tax gain on sale of $ 15.3. discontinued operations on july 1 , 2015 , we completed the separation of our household products business into a separate publicly-traded company ( the `` spin '' or the `` separation '' ) . the historical results of the households products business ( `` new energizer '' ) are presented as discontinued operations . we have focused our discussion in this management 's discussion and analysis of financial condition and results of operations on our continuing operation , edgewell . historical results on a continuing operations basis include certain costs associated with supporting the household products business that were not reported in discontinued operations in fiscal 2015. these costs affected selling , general and administrative expense ( `` sg & a '' ) , interest expense , spin costs , restructuring charges and income taxes . prior to the separation , we managed our business in two reportable segments : personal care and household products . beginning july 1 , 2015 , we manage our business in four reportable segments : wet shave , sun and skin care , feminine care and all other . prior periods have been recast to reflect our current segment reporting . our financial statements include incremental costs incurred to evaluate , plan and execute the separation . fiscal 2016 included costs related to the separation of $ 11.8 recorded in sg & a and $ 0.2 recorded in cost of products sold , respectively . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 392.2 in fiscal 2018 , or 17.6 % of net sales , as compared to $ 390.0 in the prior year period , or 17.0 % of net sales . excluding $ 8.8 of sg & a costs associated with the acquisition of jack black , $ 1.4 of information technology enablement charges for project fuel and $ 4.9 in unfavorable currency translation , sg & a was $ 377.1 , or 16.9 % in fiscal 2018. the decrease in sg & a was primarily driven by lower incentive compensation as well as savings realized from our zero based spending program . sg & a was $ 390.0 in fiscal 2017 , or 17.0 % of net sales , as compared to $ 412.7 in the prior year period , or 17.5 % of net sales . included in sg & a in fiscal 2016 were approximately $ 11.8 of spin costs . excluding these costs , sg & a was $ 400.9 , or 17.0 % of net sales for the prior year period . the decrease in sg & a was primarily driven by lower incentive compensation as well as savings realized from our zero based spending program , which more than offset increased amortization expense . advertising and sales promotion expense for fiscal 2018 , a & p was $ 293.3 , down $ 25.0 as compared to fiscal 2017 . a & p spending as a percent of net sales was 13.1 % for fiscal 2018 , compared with 13.8 % in fiscal 2017 . the decrease was driven by lower wet shave spend in the current year in men 's systems and disposables support in north america . additionally , feminine care a & p spend in north america declined in fiscal 2018. for fiscal 2017 , a & p was $ 318.3 , or 13.8 % of net sales , a decrease from $ 336.7 , or 14.3 % of net sales , in fiscal 2016. the decrease was driven by higher wet shave spend in the prior year in support of new product innovation in disposables for xtreme 3 as well as lower spending in feminine care in fiscal 2017. research and development expense research and development expense ( `` r & d '' ) was down over the three-year period with spending at $ 61.1 in fiscal 2018 , compared to $ 67.6 in fiscal 2017 and $ 71.9 in fiscal 2016 . as a percent of sales , r & d was approximately 2.7 % in fiscal 2018 , 2.9 % in fiscal 2017 and 3.0 % in fiscal 2016. interest expense associated with debt interest expense associated with debt for fiscal 2018 was $ 68.0 , a decrease of $ 1.2 as compared to fiscal 2017 . interest expense associated with debt for fiscal 2017 decreased $ 2.6 as compared to fiscal 2016 . the decreases were due to lower average debt outstanding . other expense ( income ) , net other expense ( income ) , net was expense of $ 5.4 in fiscal 2018 , income of $ 10.2 in fiscal 2017 and expense of $ 3.2 in fiscal 2016. all periods primarily reflect the net impact of foreign currency exchange contract gains and losses and revaluation of nonfunctional currency balance sheet exposures . additionally , other expense ( income ) , net was impacted by an additional $ 2.5 net loss on sale of trade accounts receivable associated with the uncommitted master accounts receivable purchase agreement entered into with the bank of tokyo-mitsubishi ufj , ltd. , new york branch , as the purchaser on september 15 , 2017. income tax provision ( benefit ) income taxes , which include federal , state and foreign taxes , were 36.9 % , 110.8 % and 18.7 % of earnings ( loss ) from continuing operations before income taxes in fiscal 2018 , 2017 and 2016 , respectively .
| on an adjusted basis , as illustrated in the table below , net earnings per diluted share from continuing operations during fiscal 2018 were $ 3.52 compared to $ 3.97 in the prior year . replace_table_token_5_th ( 1 ) includes pre-tax selling , general and administrative expense ( `` sg & a '' ) of $ 1.4 for fiscal 2018 with certain information technology enablement expenses for project fuel . includes cost of products sold of $ 0.7 and $ 1.8 for fiscal 2017 and 2016 , respectively . ( 2 ) includes cost of products sold of $ 25.3 for fiscal 2018 due to costs associated with the write-off of select sun care product inventories due to a change of formulas in advance of next year 's sun care season . ( 3 ) pension settlement expense was the result of increased lump sum benefit payments in fiscal 2018 from higher employee turnover associated with project fuel . the lump sum benefit payments are not expected to be recurring in nature . ( 4 ) includes sg & a and cost of products sold of $ 11.8 and $ 0.2 for fiscal 2016 , respectively . ( 5 ) includes the impact of the tax act totaling $ 21.3 in income tax expense for fiscal 2018 in addition to the tax impact of the other adjustments to net earnings and diluted eps - gaap 30 operating results the following table presents changes in net sales for fiscal 2018 and 2017 , as compared to the corresponding prior year period , and provides a reconciliation of organic net sales to reported amounts . net sales replace_table_token_6_th for fiscal 2018 , net sales decreased 2.8 % on a reported basis . excluding the impact of the jack black and bulldog acquisitions , the playtex gloves sale and currency movements , organic net sales decreased 4.5 % versus the prior year period . north america organic net sales decreased $ 91.6 or 6.3 % , and international organic net sales declined $ 12.1 , or 1.3 % . the decline in organic net sales was primarily due to declines in
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in addition , difficulties encountered related to the implementation and utilization of our enterprise-wide technology system , which was initiated in the last quarter of 2000 , were also a factor in the unusually high expense recognized in 2001. real estate taxes for the year ended december 31 , 2001 increased by $ 2.2 million or 17 % from the year ended december 31 , 2000. the increase is due primarily to acquisitions , expansion of communities , and increases in property tax rates . on a per site basis , monthly weighted average real estate taxes were $ 24 in 2001 compared to $ 23 in 2000. real estate taxes may increase or decrease due to inflation , expansion and improvement of communities , as well as changes in taxation in the tax jurisdictions in which we operate . administrative expense in 2001 was 4.2 % of total revenues as compared to 4.9 % in 2000. interest and related amortization costs increased for the year ended december 31 , 2001 by $ 11.4 million , as compared with the year ended december 31 , 2000. the increase is attributed primarily to the indebtedness incurred to finance the cws portfolio acquisition , other acquisitions and lending activities . interest expense as a percentage of average debt outstanding decreased to approximately 6.7 % in 2001 from 7.3 % in 2000 , due to lower interest rates , and greater amounts of variable rate debt . depreciation expense for the year ended december 31 , 2001 increased $ 13.8 million from the same period a year ago . the increase is directly attributed to the cws acquisition , other acquisitions , expansions , and additions of rental property . depreciation expense as a percentage of average depreciable rental property in 2001 remained relatively unchanged from 2000. discontinued operations during 2002 , we sold 11 communities whose results are included in discontinued operations . consistent with sfas no . 144 accounting for the impairment or disposal of long-lived assets , income from discontinued operations , for all periods presented , includes the results of operations through the property sale date ( if the property was sold prior to december 31 , 2002 ) and the results of operations for the properties held for sale through december 31 , 2002. in addition to the 11 sold communities , we have two communities that are classified as held for sale and are included in discontinued operations ( see further discussion under 2002 portfolio changes below ) . properties are identified as assets held for sale when certain criteria are met , and are adjusted to the lower of book value or fair value less costs to sell the assets at the time of reclassification . cumulative effect of a change in accounting principle csi adopted the provisions of sfas no . 142 , goodwill and other intangible assets , as of january 1 , 2002 , resulting in an impairment charge in the first quarter of approximately $ 1 million . this resulted from an impairment in the goodwill related to its investment in the only company owned home sales dealership . this charge is reflected as a cumulative effect of a change in accounting principle and is not included in csi 's operating loss . 19 liquidity and capital resources net cash provided by operating activities was $ 92.3 million for the year ended december 31 , 2002 , compared to $ 91.3 million for the same period in 2001. net cash provided by investing activities for the year ended december 31 , 2002 was $ 12.8 million . this amount is comprised of proceeds from the disposition of rental properties , offset by investments in development , acquisitions and recurring and nonrecurring capital expenditures , as well as additional investments in and advances to affiliates . during 2002 , we advanced an additional $ 6 million to csi to primarily fund inventory , and an additional $ 4.3 million to n'tandem to primarily fund payments of debt . net cash used in financing activities for the year ended december 31 , 2002 was $ 103.1 million . this consisted primarily of net payments on our credit facilities ( discussed below ) and distributions to our op unitholders of $ 58 million . our 2002 fourth quarter distribution was paid in january 2003. we anticipate that cash generated from operating activities and borrowing on our credit facilities will continue to provide the necessary funding for our short-term liquidity needs such as operating expenses , interest expense on outstanding indebtedness , recurring capital expenditures and distributions to our op unitholders . our long-term liquidity is affected by a number of factors , including the acquisition and disposition of properties , the amount of nonrecurring capital expenditures , the pace and cost of new and existing community development and expansion activities , our credit ratings with the national rating agencies and the timing of principal payments due on our indebtedness . we have a line of credit available with bank one , n.a. , acting as lead agent . in may 2002 , we increased the borrowing capacity under this facility to $ 175 million . the term of the facility was extended to february 2005 with the facility currently bearing interest at libor plus 115 basis points . in addition , we have a $ 7.5 million revolving line of credit ( together with our bankone credit facility , credit facilities ) . as of december 31 , 2002 we had approximately $ 129 million outstanding under our credit facilities and had $ 53.5 million available in additional borrowing capacity . story_separator_special_tag as of december 31 , 2002 , we had outstanding , in addition to the credit facilities , $ 470 million of senior unsecured debt with a weighted average interest rate and remaining maturity of 7.5 % and 5.8 years , respectively , $ 280 million of secured mortgage debt with a weighted average interest rate and remaining maturity of 7.7 % and 6.6 years , respectively , $ 9.7 million unsecured installment notes with an interest rate of 7.5 % and a $ 125 million unsecured term loan with an interest rate of 3.0 % . as of december 31 , 2002 , we had approximately $ 1.0 billion of total debt outstanding , representing approximately 53.6 % of our total market capitalization . we consider market capitalization to be the sum of outstanding debt , preferred op units and the market value of our outstanding common op units , all at the end of the period . all of the debt is fixed rate debt , other than our credit facilities and term loan . the fixed rate debt carries a weighted average interest rate of 7.6 % . in may 2002 , we completed the issuance of a $ 125 million term loan with bankone acting as lead agent . the loan currently bears interest at libor plus 140 basis points and matures in may 2004 ( the term loan ) . the proceeds were used to pay off our acquisition facility from the cws acquisition that was due to mature in august 2002. on october 15 , 2002 , standard & poor 's ratings services ( s & p ) changed our debt rating to bbb- . this downgrade , although still investment grade , resulted in an increase in the interest rate on $ 250 million of variable rate debt by a range of 15 to 20 basis points . in january 2003 , s & p affirmed our credit ratings , but revised its outlook of our company from stable to negative . 20 in december 2002 , moody 's investors service ( moody's ) affirmed our debt ratings at baa3 , at which time the outlook of our company was changed from stable to negative . in march 2003 , moody 's revised our debt rating to ba1 , outlook uncertain . among other things , the downgrade was attributed to uncertainty regarding plans to address 2004 and 2005 debt maturities . as we have done historically , we expect to finance future debt maturities and meet our long-term liquidity needs through proceeds from property dispositions , additional borrowings under our existing or new credit facilities , issuances of new secured or unsecured debt financings or where appropriate , additional issuances of equity . this change in investment grade rating will increase our interest costs on our variable rate debt by approximately 35 basis points and our rates on the $ 20 million and $ 50 million senior unsecured debt will increase to 9.52 % and 10.3 % , respectively . in addition , with the change in ratings , we may be required to repurchase $ 20 million of privately issued unsecured debt , at the lender 's option , including related interest and other charges . this debt is currently scheduled to mature november 2003. this downgrade may result in increased borrowing costs on current or future debt and may restrict our access to unsecured debt capital markets . the following is a summary of our aggregate commitments , in millions , as of december 31 , 2002 : replace_table_token_10_th replace_table_token_11_th ( a ) these guarantees expire at various times . we have approximately $ 70 million of senior unsecured notes maturing in 2003 , $ 50 million in august and $ 20 million in november . we expect to repay the balance with the proceeds from property dispositions , borrowings on our credit facilities or the issuance of additional secured or unsecured debt . the unsecured financing arrangements contain customary covenants , including a debt service coverage ratio , a distribution payout ratio , a minimum value of unencumbered assets , and a restriction on the incurrence of additional indebtedness without a corresponding increase in rental property . our bankone credit facility and term loan were amended effective december 31 , 2002. these amendments modified three covenants through june 30 , 2004. these amendments resulted in additional restrictions on the repurchase of our common op units and our borrowing capacity , as well as , adjusted interest rates based on our leverage and corporate investment ratings . our borrowing capacity on the bank one credit facility is reduced by $ 10 million each month , beginning in april 2003 , to ensure availability of $ 50 million under the credit facility in august 2003 , at which time $ 50 million of senior unsecured notes will mature . subsequent to the repayment , our borrowing capacity will be restored to $ 175 million . our capacity will then be restricted by $ 20 million through november 2003 to ensure adequate borrowing capacity upon maturity of $ 20 million of senior unsecured debt . subsequent to that repayment , our borrowing capacity will be restored to $ 175 million . after the repayment of our 2003 maturities , we will be required to utilize the next $ 35 million of proceeds from property dispositions to pay down the term loan . in addition , we had several covenants regarding leverage ratios with $ 70 million of senior unsecured debt with one lender . in november 2003 , $ 20 million of this debt is scheduled to mature , while the balance is scheduled to mature in october 2021. effective december 31 , 2002 , we received waivers for these covenants and amended the covenants going forward .
| comparison of the year ended december 31 , 2002 to the year ended december 31 , 2001 the following table summarizes certain information relative to our properties , as of and for the years ended december 31 , 2002 and 2001. we consider all communities owned by us at both january 1 , 2001 and december 31 , 2002 , as the same store portfolio . replace_table_token_8_th for the year ended december 31 , 2002 , income from continuing operations was $ 11.0 million , a decrease of $ 16.9 million from the year ended december 31 , 2001. the decrease was due primarily to increased depreciation and interest due to the cws acquisition , the disposition of 15 properties and the related loss of net operating income from those properties and one-time severance and related costs , offset somewhat by increased operating income from the cws properties and the same store portfolio . included in the results for 2002 are one time severance and related closing costs of $ 2.4 million . 16 rental revenue for the year ended december 31 , 2002 was $ 258 million , an increase of $ 39.7 million from 2001. approximately 88 % of the increase was due to acquisitions , net of dispositions , and the remainder was due to rental increases in our same store portfolio , notwithstanding modest declines in occupancy rates . on a per-site basis , weighted monthly rental revenue for the same store portfolio for the year ended december 31 , 2002 was $ 349 compared with $ 335 for the same period in 2001 , an increase of 4.2 % . our rental increases in 2002 averaged 4.3 % . as of december 31 , 2002 , the occupancy rate was 90.0 % in our stable portfolio , 77.7 % in our active expansion portfolio , 79.7 % in our stable portfolio with development still available , 62.0 % in our redevelopment portfolio and 36.8 % in our greenfield development portfolio .
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as of january 1 , 2012 , our modeled peak zone earthquake exposure ( los angeles area earthquake ) represented less than 50 % of our peak zone catastrophe exposure , and our modeled peak zone international exposure ( united kingdom windstorm ) is substantially less than both our peak zone windstorm and earthquake exposures . net probable maximum pre-tax loss estimates are net of expected reinsurance recoveries , before income tax and before excess reinsurance reinstatement premiums . loss estimates are reflective of the zone indicated and not the entire portfolio . since hurricanes and windstorms can affect more than one zone and make multiple landfalls , our loss estimates include clash estimates from other zones . the loss estimates shown above do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates . there can be no assurances that we will not suffer a net loss greater than 25 % of our total shareholders ' equity from one or more catastrophic events due to several factors , including the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers , the modeling techniques and the application of such techniques or as a result of a decision to change the percentage of shareholders ' equity exposed to a single catastrophic event . in addition , actual losses may increase if our reinsurers fail to meet their obligations to us or the reinsurance protections purchased by us are exhausted or are otherwise unavailable . see `` risk factorsrisk relating to our industry '' and `` management 's discussion and analysis of financial condition and results of operationsnatural and man-made catastrophic events . '' financial measures management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for acgl 's common shareholders : book value per common share book value per common share represents total common shareholders ' equity divided by the number of common shares outstanding . management uses growth in book value per common share as a 79 key measure of the value generated for our common shareholders each period and believes that book value per common share is the key driver of acgl 's common share price over time . book value per common share is impacted by , among other factors , our underwriting results , investment returns and share repurchase activity , which has an accretive or dilutive impact on book value per common share depending on the purchase price . book value per common share was $ 32.03 at december 31 , 2011 , a 6.8 % increase from $ 29.99 at december 31 , 2010. the growth in 2011 was generated through underwriting results and investment returns and also reflects the accretive impact of share repurchase activity . after-tax operating return on average common equity after-tax operating return on average common equity ( `` operating roae '' ) represents after-tax operating income available to common shareholders divided by the average of beginning and ending common shareholders ' equity during the period . after-tax operating income available to common shareholders , a `` non-gaap measure '' as defined in the sec rules , represents net income available to common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses , net of income taxes . management uses operating roae as a key measure of the return generated to common shareholders and has set an objective to achieve an average operating roae of 15 % or greater over the insurance cycle , which it believes to be an attractive return to common shareholders given the risks we assume . see `` comment on non-gaap financial measures . '' our operating roae was 7.2 % for 2011 , compared to 12.0 % for 2010 and 18.3 % for 2009. the lower level of operating roae for 2011 than in 2010 was primarily due to a higher amount of losses from catastrophic events and also reflected the impact of current insurance and reinsurance market conditions and the impact of lower interest yields on the investment portfolio . the lower level of operating roae for 2010 compared to 2009 was also due to the impact of higher losses from catastrophic events , market conditions and lower interest yields . total return on investments total return on investments includes net investment income , equity in net income or loss of investment funds accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by our investment portfolio . total return is calculated on a pre-tax basis and before investment expenses and includes the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against a benchmark return index . the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change , generally we do not adjust the composition of the benchmark return index . the benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight . the index is intended solely to provide , unlike many master indices that change based on the size of their constituent indices , a relatively stable basket of investable indices . story_separator_special_tag 80 at december 31 , 2011 , the benchmark return index had an average moody 's credit quality of `` aa1 '' , an estimated duration of 3.21 years and included weightings to the following indices : replace_table_token_13_th the following table summarizes the pre-tax total return ( before investment expenses ) of our investment portfolio compared to the benchmark return against which we measured our portfolio during the periods : replace_table_token_14_th ( 1 ) our investment expenses were approximately 0.22 % , 0.19 % and 0.20 % , respectively , of average invested assets in 2011 , 2010 and 2009. total return for our investment portfolio underperformed that of the benchmark return index in 2011. the lower return was due , in part , to the impact of global economic and investment market conditions on our alternative assets and high yield corporate bonds , with risk aversion in the second half of 2011 impacting returns across our portfolio . excluding foreign exchange , total return was 4.10 % for 2011 , compared to 7.26 % for 2010 and 10.56 % for 2009. comment on non-gaap financial measures throughout this filing , we present our operations in the way we believe will be the most meaningful and useful to investors , analysts , rating agencies and others who use our financial information in evaluating the performance of our company . this presentation includes the use of after-tax operating income available to common shareholders , which is defined as net income available to common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses , net of income taxes . the presentation of after-tax operating income available to common shareholders is a `` non-gaap financial measure '' as defined in regulation g. the reconciliation of such measure to net income available to common shareholders ( the most directly comparable gaap financial measure ) in accordance with regulation g is included under `` results of operations '' below . 81 we believe that net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses in any particular period are not indicative of the performance of , or trends in , our business . although net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations , the decision to realize investment gains or losses , the recognition of net impairment losses , the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result , in large part , from general economic and financial market conditions . furthermore , certain users of our financial information believe that , for many companies , the timing of the realization of investment gains or losses is largely opportunistic . in addition , net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization . the use of the equity method on certain of our investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds ( either limited partnerships or limited liability companies ) . in applying the equity method , these investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of the net income or loss of the funds ( which include changes in the fair value of the underlying securities in the funds ) . this method of accounting is different from the way we account for our other fixed maturity securities and the timing of the recognition of equity in net income or loss of investment funds accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments . due to these reasons , we exclude net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses from the calculation of after-tax operating income available to common shareholders . we believe that showing net income available to common shareholders exclusive of the items referred to above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our underwriting to produce a profit . in addition to presenting net income available to common shareholders , we believe that this presentation enables investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance . we also believe that this measure follows industry practice and , therefore , allows the users of financial information to compare our performance with our industry peer group . we believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons . story_separator_special_tag in 2011 . 2010 versus 2009 : the insurance segment 's underwriting expense ratio was 34.6 % in 2010 , compared to 30.6 % in 2009. the acquisition expense ratio was 15.7 % for 2010 , compared to 13.9 % for 2009. the 2010 acquisition expense ratio included 0.4 points related to prior year reserve development , compared to a 0.2 points in 2009 , included a higher level of premium assessments and other charges and reflected changes in the form of reinsurance ceded and mix of business .
| the increase in property premiums primarily resulted from new business and a higher retention rate on existing accounts in the insurance segment 's u.s. operations and growth in the insurance segment 's european operations in both global property and energy lines . the increase in national accounts resulted from new business while the increase in program business resulted from growth on existing programs . the reduction in commercial aviation business primarily resulted from a strategic decision to exit the business in early 2010 while the lower level of professional liability business was primarily due to market conditions . 2010 versus 2009 : decreases in commercial aviation , construction , national accounts and surety lines of business were partially offset by increases in lenders products . the reduction in commercial aviation business primarily resulted from a strategic decision to exit the business , while the lower level of construction and surety lines was due to market conditions . the higher level of lenders products business was generated through new business opportunities . 84 net premiums earned . the following table sets forth our insurance segment 's net premiums earned by major line of business : replace_table_token_19_th ( 1 ) includes excess workers ' compensation , employer 's liability , alternative markets and accident and health business . net premiums earned by the insurance segment were 1.7 % higher in 2011 than in 2010 , reflecting changes in net premiums written over the previous five quarters . net premiums earned by the insurance segment were 2.2 % lower in 2010 than in 2009. losses and loss adjustment expenses . the table below shows the components of the insurance segment 's loss ratio : replace_table_token_20_th current year loss ratio . 2011 versus 2010 : the insurance segment 's current year loss ratio was 4.0 points higher in 2011 than in 2010. the 2011 loss ratio included 6.5 points of current year catastrophic event activity , compared to 1.9 points in the 2010. specific 2011 catastrophic events included the severe flooding in thailand , the japanese earthquake and tsunami and various u.s. wind/rain events . 2010 versus 2009 : the insurance segment 's current year loss ratio was 1.4 points lower in
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although the final composition of our portfolio can not be determined at this stage , we expect to invest in equipment and other assets that are considered essential use or core to a business or operation in the agricultural , energy , environmental , medical , manufacturing , technology , and transportation industries . our investment manager may identify other assets or industries that meet our investment objectives . we expect to invest in equipment , other assets and project financings located primarily within the united states of america and the european union but may also make investments in other parts of the world . 15 we are currently in the operating period . the offering period concluded on march 31 , 2019. during the operating period , we will invest most of the net proceeds from our offering in business-essential , revenue-producing ( or cost-saving ) equipment , other physical assets with substantial economic lives and , in many cases , associated revenue streams and project financings . the operating period began on the date we admitted our first limited partners , at the initial closing , which occurred on october 3 , 2016 and will last for four years from that date unless extended at the sole discretion of the general partner . the general partner extended the operating period for an additional year . at our initial closing , we reimbursed our investment manager for a portion of the fees and expenses associated with our organization and offering which they previously paid on our behalf and we funded a small capital reserve . the liquidation period , which follows the conclusion of the operating period , is the period in which we will sell assets in the ordinary course of business and will last two years , unless it is extended , at the sole discretion of the general partner . our general partner , our investment manager and their affiliates , including american elm in its capacity as our selling agent and certain non-affiliates ( namely , selling dealers ) receive fees and compensation from the offering of our units , including the following , with any and all compensation paid to our general partner solely in cash . we pay an underwriting fee of 2 % of the gross proceeds of the offering ( excluding proceeds , if any , we receive from the sale of our units to our general partner or its affiliates ) to our selling agent or selling agents . while american elm initially acts as our exclusive selling agent , we may engage additional selling agents in the future . from these underwriting fees , a selling agent may pay selling dealers , a non-accountable marketing fee based upon such factors as the volume of sales of such selling dealers , the level of marketing support provided by such participating dealers and the assistance of such selling dealers in marketing the offering , or to reimburse representatives of such selling dealers for the costs and expenses of attending our educational conferences and seminars . this fee will vary , depending upon separately negotiated agreements with each selling dealer . in addition , we pay a sales commission to selling dealers up to 5 % of the gross proceeds of the offering ( excluding proceeds , if any , we receive from the sale of our units to our general partner or its affiliates ) . our general partner receives an organizational and offering expense allowance of up to 1.5 % of our offering proceeds to reimburse it for expenses incurred in preparing us for registration or qualification under federal and state securities laws and subsequently offering and selling our units . the organizational and offering expense allowance will be paid out of the proceeds of the offering . the organizational and offering expense allowance will not exceed the actual fees and expenses incurred by our general partner and its affiliates . because organizational and offering expenses will be paid as and to the extent they are incurred , organizational and offering expenses may be drawn disproportionately to the gross proceeds of each closing . during our operating period , our investment manager will receive a structuring fee in an amount equal to 1.5 % of each cash investment made , including reinvestments , payable on the date each such investment is made . during our operating period and our liquidation period , our investment manager receives a management fee in an amount equal to the greater of ( i ) 2.5 % per annum of the aggregate offering proceeds , payable monthly in advance or ( ii ) $ 62,500 per month . our general partner will initially receive 1 % of all distributed distributable cash . our general partner has a promotional interest in us equal to 20 % of all distributed distributable cash after we have provided a return to our limited partners of their respective capital contributions plus an 8 % per annum , compounded annually , cumulative return on their capital contributions . current business environment and outlook in december 2019 , a novel strain of coronavirus ( also known as covid-19 ) was reported to have surfaced in wuhan , china . in january 2020 , this coronavirus spread to other countries , including the united states and europe . the outbreak has continued to spread and is currently classified as a pandemic . efforts to contain the spread of this coronavirus has intensified . to date , covid-19 has had a negative impact on our business and an impairment loss of $ 1,592,055 was recorded as a result of that impact . although the partnership currently expects that the disruptive impact of coronavirus on its business will be temporary , this situation continues to evolve and improve and therefore the partnership does n't think that the coronavirus will directly or indirectly have a continued negative effect on its business and operating results . 16 we believe that 2021 will present attractive opportunities for equipment lease and asset finance investments . story_separator_special_tag the effects of the pandemic will continue with business restrictions and suppressed spending during the winter months . gdp growth will be weighted toward the second half of 2021 , and the upside potential for economic growth later in the year is substantial with 4.7 % gdp growth forecast for 2021. we expect that capital spending will show positive growth . the way that millions of americans live , work and socialize was impacted by the pandemic and required many businesses to reconfigure business operations . we believe this is likely to continue in 2021 , providing a sustained boost to equipment investment in the first half of the year , resulting in positive 7.8 % growth for the year . we believe that a vast majority of u.s. businesses will acquire equipment through financing . the propensity to finance equipment is higher than it has been over the last two to three years as long-term interest rates have fallen sharply . we believe the fed is committed to keeping interest rates at or near zero for several years , which bodes well for businesses seeking financing . the fed 's infusions of liquidity into the money supply also make cash more available and stabilizing for the economy . we believe customer demands and products will evolve beyond pandemic needs . demand for equipment needed to connect employees working from home will change as organizations adopt hybrid workplace models and make other adjustments for conducting business . the growth of bundled , managed services agreements and efficient customer service solutions will continue as businesses seek greater support and flexibility in acquiring and managing equipment . we believe reduced travel , less need for commercial space and technology upgrades will be among wide-ranging impacts in the wake of the pandemic . many key equipment types will show growth as a result of the pandemic . we believe broad-based investment growth is expected across a range of equipment types after plunging to historic lows in q2 2020. we believe medical equipment should benefit from vaccine distribution and resumption of elective medical procedures . we believe construction equipment investment should improve with increased demand for single-family homes , while trucks will get a boost from demand for over-the-road transportation as consumer spending strengthens throughout the year . we believe travel , airlines and hospitality will continue to be negatively impacted until full deployment of vaccines . we believe digitalization will be pervasive in the post-covid equipment finance environment . we believe innovation from the digital adoption of modern smart technology and business models built around that technology will leap forward in equipment finance in 2021. e-signatures and e-leasing , deployed rapidly during the pandemic out of necessity for contactless transactions , will continue to be widely adopted . we believe e-commerce solutions will continue to skyrocket to meet customer demands . we also expect equipment finance companies to continue to create remote and contactless back office operations , and speed of processes , with compliance a priority . federal and state government action could have wide-ranging policy implications . overall we think that businesses have a positive outlook for growth in the latter half of 2021 and we anticipate capital asset and equipment acquisition will be an essential part of that growth . current industry trends according to the equipment leasing and finance foundation 's “ 2021 equipment leasing and financing u.s. economic outlook ” the u.s. economy 's growth in 2021 is poised to experience growth of 4.7 % while equipment and software investment should expand by about 7.8 % . equipment investment growth fared better than overall gdp growth in 2020 as businesses invested to adapt to the covid-19 pandemic , and growth should remain well into positive territory in the beginning of 2021. the manufacturing sector recovery continued in late 2020. shipments and new orders of core capital goods rose to record levels as firms in several industries responded to elevated demand . though output is relatively close to pre-pandemic levels , manufacturing employment remains significantly depressed . the federal reserve remains committed to keeping interest rates at or near zero for several years . the fed also intends to continue its liquidity-boosting measures , though fed officials have stated that monetary policy alone is likely insufficient to prop up the u.s. economy . the pandemic 's economic effects have been uneven : lower-income households and certain industries have borne the brunt of the pain . despite the ongoing recovery , millions of households are struggling to meet basic needs and many small businesses are in survival mode . while financial stress will likely rise in 2021 , a targeted stimulus bill in the coming weeks could provide a bridge for consumers and businesses until a vaccine is widely available in the spring or summer of 2021 – paving the way for an economic surge in the second half of the year . 17 recent significant transactions operating lease on january 18 , 2018 , the partnership entered into a lease facility for $ 2,188,377 of fabrication equipment with a company based in texas . the lease requires 42 monthly payments of $ 57,199 with the first and last payments due in advance . during 2018 , the partnership received payments totaling $ 403,363 from this lessee . on february 28 , 2019 , the lease was amended and restated to a 60 month lease commencing on march 1 , 2019. the lease requires 24 monthly payments of $ 31,000 and 36 monthly payments of $ 40,000. in 2019 , the partnership reclassified this lease from a finance lease to an operating lease . the lease is secured by a first priority lien against the fabrication equipment . on december 9 , 2020 , the partnership terminated the operating lease and assumed all rights , title and interest in the fabrication equipment . on december 15 , 2020 , the partnership sold a majority of the equipment for total cash proceeds of $ 475,830. the equipment had a net book value of $ 1,261,830 resulting in a loss on sale of $ 786,000.
| the general partner extended the operating period for an additional year . at our initial closing , we reimbursed our investment manager for a portion of the fees and expenses associated with our organization and offering which they previously paid on our behalf and we funded a small capital reserve . the liquidation period , which follows the conclusion of the operating period , is the period in which we will sell assets in the ordinary course of business and will last two years , unless it is extended , at the sole discretion of the general partner . through december 31 , 2020 , the partnership admitted 617 limited partners with total capital contributions of $ 25,371,709 resulting in the sale of 2,537,170.91 units . the partnership received cash contributions of $ 24,718,035 and applied $ 653,674 which would have otherwise been paid as sales commission to the purchase of 65,367.46 additional units . the operating period is defined as the period in which we invest the net proceeds from the offering period into business-essential , revenue-producing ( or cost-saving ) equipment and other physical assets with substantial economic lives and , in many cases , associated revenue streams . during this period we anticipate substantial cash outflows from investing activities as we acquire leased and financed equipment . we also expect our operating activities to generate cash inflows during this time as we collect rental payments from the leased and financed assets we acquire . our revenue for the years ended december 31 , 2020 and 2019 are summarized as follows : replace_table_token_1_th for the year ended december 31 , 2020 , we earned $ 296,368 in rental income from one fabrication equipment operating lease . we received monthly lease payments of approximately $ 10,010,000 and recognized $ 2,418,960 in finance income from 44 finance leases during the same period . we also recognized $ 520,775 in interest income from collateralized loans receivable during the same period . we
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we expect to continue pre-commercialization research and product development initiatives during the latter half of fiscal 2013. furthermore , we do not expect that the joint venture will derive any meaningful revenues , if any , until its commercialization efforts are completed which is not expected to occur until at the earliest the latter half of fiscal 2014 when we traditionally seek to launch new products . expression of interest in a letter dated may 29 , 2012 , we received an expression of interest and a non-binding proposal to be acquired by matrixx initiatives , inc. ( `` matrixx '' ) . matrixx is the owner of the zicam ® brand of cold and allergy products and is a direct competitor to our cold-eeze ® cold remedy product line . at a meeting of the board of directors held on june 28 , 2012 , our board of directors , after careful consideration and consultation with its advisors , unanimously voted to reject the matrixx proposal . on september 4 , 2012 , matrixx purchased for $ 200,000 a three year option to acquire 1,453,427 shares of our common stock for $ 1.40 per share from guy j. quigley , our former chairman and chief executive officer . matrixx also acquired from mr. quigley a voting proxy to vote the shares subject to the option . in a letter to us dated september 6 , 2012 , matrixx then repeated its non-binding proposal on the same terms as its may 29 , 2012 letter to prophase . matrixx repeated the identical non-binding proposal in a september 14 , 2012 letter . on october 9 , 2012 , we received a revised non-binding proposal , on essentially the same terms as matrixx 's earlier offer , except that in this latest proposal matrixx raised the proposed price by $ 0.20 per share . in response , we again sought advice from its independent financial advisors . at a meeting held on october 24 , 2012 , our board of directors unanimously voted to reject this latest matrixx proposal after careful consideration and consultation with its advisors . on february 5 , 2013 , matrixx informed us that it has withdrawn its unsolicited offer to acquire us . income taxes as of december 31 , 2012 , we have net operating loss carry-forwards of approximately $ 37.7 million for federal purposes that will expire beginning in fiscal 2020 through 2032. additionally , there are net operating loss carry-forwards of $ 21.4 million for state purposes that will expire beginning in fiscal 2018 through 2032. until sufficient taxable income to offset the temporary timing differences attributable to operations , the tax deductions attributable to option , warrant and stock activities are assured , a valuation allowance equaling the total deferred tax asset is being provided . as a consequence of the accumulated losses of the company , we believe that this allowance is required due to the uncertainty of realizing these tax benefits in the future . seasonality of the business our sales are derived principally from our otc cold remedy products . a significant portion of our business is highly seasonal , which causes major variations in operating results from quarter to quarter . the third and fourth quarters generally represent the largest sales volume for our otc cold remedy products with a corresponding increase in marketing and advertising expenditures designed to promote our products during the cold season ( defined below ) . in addition , our sales are influenced by and subject to fluctuations in the timing of purchase and the ultimate level of demand for our products which are a function of the timing , length and severity of each cold season . we track health and wellness trends and develop retail promotional strategies to align its production scheduling , inventory management and marketing programs to optimize consumer purchases . - 25 - story_separator_special_tag and or display programs as a consequence of , among other influences , ( a ) space availability , ( b ) allocation of more promotional space to the cold-eeze ® brand and ( c ) a general increase in off-shelf , price promotion opportunities scheduled for the 2011-2012 cold season . in addition , our net sales of our contract manufacturing operations increased $ 262,000 in fiscal 2011 to $ 856,000 as compared to $ 594,000 in fiscal 2010 due to fluctuations in contract manufacturing orders from non-related third party entities to produce lozenge-based products . industry data suggests that the highest incidence of upper respiratory disorders for the 2010-2011 cold season occurred late in the fourth quarter of fiscal 2010 and during the first quarter of fiscal 2011 , and such incidences were at significantly lower levels during the second , third and fourth quarters of fiscal 2011 when compared to fiscal 2010 and the 2009-2010 cold season . although the 2010-2009 cold season incidence of upper respiratory is below the prior cold season level , we have increased our net sales through , among other factors , increased investments in our sales , marketing , advertising , consumer communication and promotion of our flagship brand , cold-eeze ® . cost of sales increased $ 499,000 for fiscal 2011 to $ 6.2 million as compared to $ 5.7 million for fiscal 2010. the increase in cost of sales is principally due to ( i ) increased revenues from period to period , offset by ( ii ) an improvement in gross margin . we realized gross margins of 64.6 % for fiscal 2011 as compared to 60.9 % in fiscal 2010 , an improvement of 3.7 % . our improved gross margin reflects the net effect of ( i ) an increase in the absorption rate of fixed production overhead costs as a percentage of revenues as a consequence of increased shipments to retailers , offset by ( ii ) an increase in raw ingredient and packaging costs . story_separator_special_tag gross margins are principally influenced by fluctuations in quarter-to-quarter and year-to-year production volume , fixed production costs and related overhead absorption , raw ingredient costs , inventory mark to market write-downs , if any , and the timing of shipments to customers which are factors of the seasonality of our sales activities and products . sales and marketing expense for fiscal 2011 increased $ 2.3 million to $ 7.9 million as compared to $ 5.6 million for fiscal 2010. the increase in sales and marketing expense for fiscal 2011 as compared to fiscal 2010 was principally due to ( i ) an increase in personnel expense due principally to an increase in head count , ( ii ) an increase in sales commission as a consequence of an increase in sales and ( iii ) an increase in advertising expenditures as we expanded the scope and timing of our media and product promotion advertising campaigns with the cold season from period to period as we continue to make significant , strategic marketing investments in an effort to build and grow the sales of our otc cold remedy products . general and administrative ( “ g & a ” ) expenses decreased $ 1.0 million for fiscal 2011 to $ 5.0 million as compared to $ 6.0 million in fiscal 2010. the decrease in g & a expense for fiscal 2011 as compared to fiscal 2010 was primarily due a decrease in personnel expenses , professional fees and other general expenses . research and development costs for fiscal 2011 and 2010 were $ 1.1 million and $ 794,000 , respectively . the increase of $ 294,000 in research and development costs for fiscal 2011 as compared to fiscal 2010 was principally due to an increase in personnel expenses and an increase in the scope , timing and amount of research and development activity from period to period . in february 2011 , we introduced to the retail trade an offering of a new product , cold-eeze ® oral spray , an oral delivery application of our proprietary cold remedy formula of zinc gluconate . the cold-eeze ® oral spray cold remedy commenced production in june 2011 and began shipping to retailers in august 2011. additionally , we continue to engage in other research and development activities that we determine are appropriate and we may increase our research and development activities in future periods as a consequence of the joint venture . - 27 - interest and other income for fiscal 2011 was $ 28,000 as compared to $ 53,000 for fiscal 2010. the decrease of $ 25,000 for fiscal 2011 as compared to fiscal 2010 was principally the result of decreased bank balances and lower interest rates . as noted above , we have net operating loss carry-forwards for both federal and certain states . as a consequence of these loss carryforwards and our loss realized during fiscal 2011 , we did not incur income tax expense for fiscal 2011. for fiscal 2010 , we had a current tax benefit of $ 40,000 as a consequence of a carry back of an alternative minimum tax net operating loss to a prior period . as a consequence of the effects of the above , the net loss for fiscal 2011 , was $ 2.7 million , or ( $ 0.18 ) per share , as compared to a net loss of $ 3.5 million , or ( $ 0.25 ) per share , for fiscal 2010. liquidity and capital resources our aggregate cash and cash equivalents as of december 31 , 2012 were $ 572,000 as compared to $ 5.5 million at december 31 , 2011. our working capital was $ 5.8 million and $ 5.3 million as of december 31 , 2012 and december 31 , 2011 , respectively . changes in working capital for fiscal 2012 were principally due to the net effect of ( i ) cash used in operations of $ 5.7 million , inclusive of $ 2.1 million payment to the godfreys pursuant to the settlement agreement , and an increase for prepaid expenses ( principally advertising ) of $ 940,000 , ( ii ) capital expenditures of $ 310,000 offset by , ( iii ) net proceeds of $ 1.1 million derived from the sale of our common stock . on november 21 , 2012 , we entered into the equity line of credit agreement ( such arrangement , the “ equity line ” ) with dutchess whereby dutchess committed to purchase , subject to certain restrictions and conditions , up to 2,500,000 shares of our common stock , over a period of 36 months from the first trading day following the effectiveness of the registration statement registering the resale of shares purchased by dutchess pursuant to the equity line . on november 26 , 2012 , we filed a registration statement with securities and exchange commission ( “ sec ” ) to register for sale for up to 2,500,000 shares of our common stock and the registration statement was deemed effective by the sec on december 12 , 2012. we may draw on the facility from time to time , as and when we determine appropriate in accordance with the terms and conditions of the equity line . the maximum amount that we are entitled to put to dutchess in any one draw down notice is the greater of ( i ) 500 % of the average daily volume of our common stock traded on the nasdaq global market for the one ( 1 ) trading day prior to the date of delivery of the applicable draw down notice , multiplied by the closing price for such trading day , or ( ii ) $ 250,000. the purchase price under the equity line is set at ninety-five percent ( 95 % ) of the lowest daily volume weighted average price ( vwap ) of our common stock during the five ( 5 ) consecutive trading day period beginning on the date of delivery of the applicable draw down notice .
| we continue to compete for market share with new products entering the category and face retailer initiatives that attempt to reduce the number of products they carry on shelf within the cold and flu category . cost of sales increased $ 2.0 million for fiscal 2012 to $ 8.2 million as compared to $ 6.2 million for fiscal 2011. the increase in cost of sales is principally due to our increased sales from period to period . we realized gross margins of 63.6 % for fiscal 2012 , as compared to 64.6 % in fiscal 2011 , a decrease of 1.0 % . our gross margin reflects the net effect of ( i ) an increase in the absorption rate of fixed production overhead costs as a percentage of revenues as a consequence of increased shipments to retailers , offset by ( ii ) an increase in raw ingredient and packaging costs and ( iii ) an increase in retail merchandising and promotions . gross margins are principally influenced by fluctuations in quarter-to-quarter and year-to-year production volume , fixed production costs and related overhead absorption , raw ingredient costs , inventory mark to market write-downs , if any , and the timing of shipments to customers which are factors of the seasonality of our sales activities and products . sales and marketing expense for fiscal 2012 increased $ 1.0 million to $ 8.9 million as compared to $ 7.9 million for fiscal 2011. the increase in sales and marketing expense for fiscal 2012 as compared to fiscal 2011 was principally due to an increase in advertising expenditures as we expanded the scope and timing of our media and product promotion advertising campaigns from period to period as we continue to make significant , strategic marketing investments in an effort to build and grow the sales of our otc cold remedy products . general and administrative ( “ g & a ” ) expenses increased $ 1.1 million for fiscal 2012 to $ 6.1 million as compared to $ 5.0 million in fiscal 2011. the increase in g & a expense for fiscal 2012 as compared to fiscal 2011
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the latter bodes well for housing affordability and continued positive performance and investment in commercial real estate sectors . the u.s. economy enters 2015 on firmer ground than it was one year ago , but improvement in the housing sector and in real wage growth is required to move from slow , positive recovery to healthy and robust expansion . story_separator_special_tag the board of directors ' audit committee on a periodic basis , including the development , selection , implementation and disclosure of the critical accounting policies . the application of these policies has a significant impact on synovus ' consolidated financial statements . synovus ' financial results could differ significantly if different judgments or estimates are applied in the application of these policies . allowance for loan losses the allowance for loan losses is a significant accounting estimate that is determined through periodic and systematic detailed reviews of the company 's loan portfolio . these reviews are performed to assess the inherent risk for probable loss within the portfolio and to ensure consistency between fluctuations in the allowance and both credit events within the portfolio and prevailing credit trends . the economic and business climate in any given industry or market is difficult to gauge and can change rapidly , and the effects of those changes can vary by borrower . significant judgments and estimates are necessary in the determination of the allowance for loan losses . significant judgments include , among others , loan risk ratings and classifications , the determination and measurement of impaired loans , the timing of loan charge-offs , the probability of loan defaults , the net loss exposure in the event of loan defaults , qualitative loss factors , management 's plans , if any , for disposition of certain loans , as well as other qualitative considerations . in determining the allowance for loan losses , management makes numerous assumptions , estimates , and assessments , which are inherently subjective . the use of different estimates or assumptions could have a significant impact on the provision for loan losses , allowance for loan losses , non-performing loans , loan charge-offs , financial condition and results of operations . dual risk rating implementation synovus began implementation of a dual risk rating allowance for loan losses methodology ( drr methodology ) for certain components of its commercial and industrial loan portfolio during 2013. the drr methodology includes sixteen probabilities of default categories and nine categories for estimating losses given an event of default . the result is an expected loss rate established for each borrower . the drr methodology is generally considered in the banking industry to be a more refined estimate of the inherent risk of loss . the 2013 drr methodology implementation was applied to approximately $ 2.4 billion of the total commercial and industrial loan portfolio . implementation of the drr methodology resulted in a reduction to the provision for loan losses and the allowance for loan losses of approximately $ 2.5 million for 2013. during 2014 , the drr implementation was expanded to certain components of the investment properties commercial real estate portfolio totaling approximately $ 2.5 billion . this implementation resulted in an increase to the provision for loan losses and the allowance for loan losses of approximately $ 1.8 million for the year ended december 31 , 2014. at december 31 , 2014 , the drr methodology is utilized to calculate the allowance for loan losses for 36.8 % of the commercial loan portfolio and 26.7 % of the total loan portfolio . management currently expects to implement the drr methodology for additional components of the commercial loan portfolio over the next few years . the implementation is expected to be in multiple phases , with each component determined based primarily on loan type and size . the timing of future implementations will depend upon completion of applicable data analysis and model assessment . once full implementation is completed , management estimates that the drr methodology will be utilized to calculate the allowance for loan losses on commercial loans amounting to over 30 % of the total loan portfolio . deferred taxes and valuation allowance the assessment of tax assets and liabilities involves the use of estimates , assumptions , interpretations , and judgment concerning accounting guidance prescribed in asc 740 , income taxes , and federal and state tax codes . there can be no assurance that future events will not differ from management 's current assessment and thereby have a significant impact on the consolidated results of operations and reported earnings . a valuation allowance is required for deferred tax assets if , based on available evidence , it is more likely than not that all or some portion of the asset may not be realized due to the inability to generate sufficient taxable income in the period and or of the character necessary to utilize the benefit of the deferred tax asset . in making this assessment , all sources of taxable income available to realize the deferred tax asset are considered . management assesses the valuation allowance recorded against deferred tax assets at each reporting period . the determination of whether a valuation allowance for deferred tax assets is necessary is subject to considerable judgment and requires an evaluation of all positive and negative evidence , including the recent trend of quarterly earnings , to determine whether realization is more likely than not . 48 the valuation allowance could fluctuate in future periods based on the assessment of the positive and negative evidence . management 's conclusion at december 31 , 2014 , that it is more likely than not that the net deferred tax assets of $ 622.5 million will be realized is based primarily upon management 's estimate of future taxable income . management 's estimate of future taxable income is based on internal projections which consider historical performance , various internal estimates and assumptions , as well as certain external data , all of which management believes to be reasonable , although inherently subject to significant judgment . story_separator_special_tag if actual results differ significantly from the current estimates of future taxable income , the valuation allowance may need to be increased . such an increase to the deferred tax asset valuation allowance could have a material adverse effect on synovus ' consolidated financial condition or results of operations . other real estate other real estate consists of properties obtained through a foreclosure proceeding or through an in-substance foreclosure in satisfaction of loans . at foreclosure , ore is reported at the lower of cost or fair value less estimated selling costs , which establishes a new cost basis . subsequent to foreclosure , ore is evaluated quarterly and reported at fair value less estimated selling costs , not to exceed the new cost basis , determined by review of current appraisals , as well as the review of comparable sales and other estimates of fair value obtained principally from independent sources , changes in absorption rates or market conditions from the time of the latest appraisal received or previous re-evaluation performed , and anticipated sales values considering management 's plans for disposition , which could result in an adjustment to lower the fair value estimates indicated in the appraisals . significant judgment and complex estimates are required in estimating the fair value of ore. in response to market conditions and other economic factors , management may utilize liquidation sales as part of synovus ' distressed asset disposition strategy . as a result of the significant judgment required in estimating fair value and the variables involved in different methods of disposition , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the estimated fair value of ore. management reviews the fair value of ore each quarter and adjusts the values as appropriate . fair value measurements synovus reviews assets , liabilities and other financial instruments that are either required or elected to be carried , reported , or disclosed at fair value , and determines the valuation of these instruments in accordance with fasb asc topic 820 , fair value measurements , which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . synovus assesses the fair value measurements of each instrument on a periodic basis , but no less than quarterly . synovus determines the fair value of its financial instruments based on the fair value hierarchy established under asc 820 , which provides a three-level framework for determining the appropriate fair value for a particular asset or liability . fair value may be based on quoted market prices for identical assets or liabilities traded in active markets ( level 1 valuations ) . if market prices are not available , quoted prices for similar instruments in active markets , quoted prices in markets that are not active or model-based valuation techniques for which all significant assumptions are derived principally from or corroborated by observable market data are used ( level 2 valuations ) . where observable market data is not available , the valuation is generated using pricing models , discounted cash flow models and similar techniques , and may also include the use of market prices of financial instruments that are not directly comparable to the subject instrument . these methods of valuation may result in a significant portion of the fair value being derived from unobservable assumptions that reflect synovus ' own estimates for assumptions that market participants would use in pricing the financial instrument ( level 3 valuations ) . the fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities ( level 1 ) and the lowest priority to unobservable inputs ( level 3 ) . a financial instrument 's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the financial instrument 's fair value measurement in its entirety . synovus selects the most appropriate technique for determining the fair value of the asset or liability . the degree of management judgment involved in determining fair value is dependent upon the availability of quoted prices or observable market data . there is minimal subjectivity involved in measuring the fair value of financial instruments based on quoted market prices ; however , when quoted prices and observable market data are not available , synovus would use a valuation technique requiring more management judgment to estimate the appropriate fair value . fair value is measured either on a recurring basis , in which the fair value is the primary measure of accounting , or on a non-recurring basis , to measure items for potential impairment , or for disclosure purposes . assets , liabilities and other financial instruments classified as level 3 in the fair value hierarchy are generally less liquid and estimating their value requires inputs that are unobservable and require the application of significant judgment on behalf of management in order to determine the appropriate fair value of each of these instruments . as of december 31 , 2014 , synovus reported $ 29.0 million of assets ( or 0.1 % of total assets ) classified as level 3 , of which $ 27.4 million consisted of private equity investments . also , as of december 31 , 2014 , synovus reported $ 1.4 million of liabilities ( or 0.01 % of total liabilities ) classified as level 3 . 49 see `` part ii - item 8. financial statements and supplementary data - note 16 - fair value accounting '' of this report for further discussion of synovus ' use of the various fair value methodologies and the types of assets and liabilities in which fair value accounting is applied . discussion of financial condition and results of operations investment securities available for sale the investment securities portfolio consists principally of debt securities classified as available for sale .
| total credit costs ( consisting primarily of provision for loan losses and foreclosed real estate expense , net ) were $ 66.7 million in 2014 , a $ 51.3 million or 43.5 % decline from 2013. the npl ratio declined to 0.94 % at december 31 , 2014 from 2.08 % at december 31 , 2013. non-performing assets ended the year at $ 286.8 million , down $ 252.8 million or 46.8 % from december 31 , 2013. net charge-offs totaled $ 79.1 million , or 0.39 % of average loans , in 2014 down from $ 135.4 million or 0.69 % of average loans in 2013. total past due loans over 90 days remained low at 0.02 % at december 31 , 2014 , unchanged from december 31 , 2013. adjusted pre-tax , pre-credit costs income ( which excludes provision for loan losses , other credit costs , litigation settlement expenses , restructuring charges , and certain other items ) was $ 398.5 million in 2014 , up 2.1 % or $ 8.2 million from 2013. the increase in adjusted pre-tax , pre-credit costs income was driven by a $ 9.1 million or 1.1 % increase in net interest income resulting mainly from an increase in average loans of $ 886.0 million , and a $ 4.4 million or 1.7 % increase in adjusted non-interest income , partially offset by a $ 5.2 million or 0.8 % increase in adjusted non-interest expense . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations - non-gaap financial measures '' of this report for further information . the net interest margin declined two basis points to 3.38 % for the year ended december 31 , 2014 compared to the prior year . the yield on earning assets declined six basis points to 3.83 % and the effective cost of funds declined four basis points to 0.45 % for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. total loans ended the year at $ 21.10 billion , a $ 1.04 billion or 5.2 % increase from a year ago . the increase was driven by a $ 394.3 million , or 6.1 % , growth in cre loans , a $ 361.6 million , or 3.6 % , increase in c & i loans , and a $ 285.9 million , or 7.8 % , increase in retail loans . total deposits at december 31 , 2014 increased $ 654.9 million , or 3.1 % , from a year ago . core deposits excluding time deposits increased $ 436.8 million or 2.7 % from a year ago driven by an increase in non-interest bearing deposits . see `` part ii - item 7. management 's discussion and analysis of financial condition and results of operations
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selling , general and administrative expenses selling , general and administrative expenses decreased to approximately $ 6,067,000 for the year ended march 31 , 2013 compared to approximately $ 8,070,000 for the year ended march 31 , 2012 , mainly due a decrease in legal fees associated with legal cases involving excalibur and eft investment ltd. , a reduction of fees charged by a service provider in the united states and reduction of fees paid to consultants providing professional services , which were slightly offset by the increase in the cost of directors and officers liability insurance . legal fees decreased to $ 519,967 for the year ended march 31 , 2013 , compared to $ 1,714,395 for the year ended march 31 , 2012. the u.s. service provider decreased its fees to $ 482,465 for the year ended march 31 , 2013 , compared to $ 965,443 for the year ended march 31 , 2012. professional fees paid to consultants and auditors decreased to $ 909,999 for the year ended march 31 , 2013 , compared to $ 1,268,051 for the year ended march 31 , 2012. directors ' and officers ' liability insurance increased to $ 599,162 for the year ended march 31 , 2013 , compared to $ 268,329 for the year ended march 31 , 2012. impairment of transportation equipment the company recorded an approximately $ 5,478,000 impairment for transportation equipment for the year ended march 31 , 2013. no impairment of transportation equipment was recognized as of march 31 , 2012 as the net book value of the vessel did not exceed its market value . inventory obsolescence 14 inventory obsolescence increased to approximately $ 649,000 for the year ended march 31 , 2013 as compared to nil for the year ended march 31 , 2012 , mainly due to an increase in expired products . management also reviewed inventory levels in each country by comparing recent demand requirements and the corresponding shelf life of various products , and provided $ 445,000 for estimated obsolescence and recognized $ 190,000 of loss for products that exceeded their shelf life . the company has been selling some of its overstocked items and items nearing obsolescence at significantly reduced prices to a third party in an ongoing effort to maintain acceptable inventory levels . the company also believes that the new product programs recently launched will increase sales significantly in the coming months , which also will reduce current inventory levels further . marketing expenses no marketing expenses were incurred for the year ended march 31 , 2013 compared to approximately $ 224,000 for the year ended march 31 , 2012 due to the expiration of a consultancy agreement on december 31 , 2011. on january 1 , 2009 , eft international limited , a wholly-owned subsidiary of the company , entered into a contract with zr public relation consultant ltd. ( the “ consultant ” ) , which provides public relations consulting services in asia . in consideration of the services rendered by the consultant , eft international limited paid 5 % of total commission payout to all of the affiliates for each fiscal year during the contract period . royalty expenses - related party royalty expense decreased to $ 500,000 for the year ended march 31 , 2013 as compared to approximately $ 942,000 for the year ended march 31 , 2012 mainly due to a decrease in gross sales during the year . royalty payable to eft assets is equal to a percentage of the company 's gross sales based on certain threshold criteria . see note 8 to the consolidated financial statements in this annual report for further information . interest income interest income increased to approximately $ 606,000 for the year ended march 31 , 2013 as compared to approximately $ 569,000 for the year ended march 31 , 2012. interest income increased due to an increase of investments in corporate bonds as compared to last year . the increase in interest income was mainly due to the investment of funds received from the short-term loan recorded during the first quarter of the fiscal year . interest income from the investment of the funds from the short-term loan was approximately $ 188,000. gain on disposal of securities available for sale gain on disposal of securities available for sale increased to approximately $ 390,000 for the year ended march 31 , 2013 compared to $ 105,000 for the year ended march 31 , 2012 mainly due to gains associated with the liquidation of funds invested by the company originally obtained from a loan of approximately $ 7.9 million in may 2012 , in order to provide additional cash funds for payments related to the taiwan building . however , due to the suspension of payments by the company to meifu and transglobe , the $ 7.9 million proceeds of the loan were invested in corporate bonds in order to generate interest income to offset interest expense related to the loan . in addition , the company realized profits from the sale of certain securities held in the united states . impairment of prepayment on development in progress as required by u.s. gaap , the company performed an impairment analysis related to the prepayment on development in progress asset and recorded an impairment of approximately $ 11,227,000 related to this asset based on this analysis for the year ended march 31 , 2013. notwithstanding such impairment , the company has continued to vigorously pursue its claims for the full value of the prepayment on the development in progress asset . see note 9 to the consolidated financial statements in this annual report for further information . story_separator_special_tag foreign exchange loss foreign exchange loss decreased to approximately $ 44,000 for the year ended march 31 , 2013 as compared to approximately $ 312,000 for the year ended march 31 , 2012. foreign exchange loss decreased because of fluctuations in foreign exchange rates , with the ntd depreciating against the u.s. dollar for the company 's usd borrowings , which are anticipated to be settled in the foreseeable future . income tax currently , the company is under examination by the irs for its u.s. federal income tax returns for the years 2007 through 2010. it is anticipated that the irs will complete its examination by march 2014. as a result of preliminary findings from the irs audit , the company has recorded an additional income tax liability of $ 616,371 during the year . capital resources and liquidity the following table reflects the company 's sources/ ( uses ) of cash for the two years ended march 31 , 2013. replace_table_token_3_th the cash and cash equivalents and securities available for sale are the company 's primary sources of liquidity . the company believes its existing cash and cash equivalents will be sufficient to maintain its operations at the present level for at least twelve months . 15 operating activities : during the year ended march 31 , 2013 , net cash used in operating activities was $ 5,051,630. this was primarily due to a net loss of $ 22,519,529 adjusted by non-cash related expenses that included depreciation of $ 1,096,648 , provision of inventory obsolescence of $ 649,080 , recorded impairment losses of approximately $ 5,477,847 associated with the company 's investment in excalibur and $ 11,227,065 related to the prepayment on property development in progress , which were offset by gains realized from the sale of securities available for sale of $ 390,211 and increased in accounts payable of $ 1,391,990 mainly for the payments of royalty expenses for prior period from march 2011 to march 2012. during the year ended march 31 , 2012 , the company had net income of $ 2,037,167 , yet its operating activities used $ 8,643,627 in cash . the primary reason that the company 's operating activities used cash , despite having net income , was that during the year , it paid outstanding liabilities of $ 3,342,998 , which required the use of cash but were not expensed in the company 's statement of operations . during this period , the company also recorded approximately $ 7,891,281 of revenue which was previously recorded as unearned revenue , and thus the cash for these sales was received in prior periods . investing activities : net cash provided by investing activities for the year ended march 31 , 2013 was $ 2,042,663 , mainly due to proceeds from the sale of corporate bonds of $ 26,555,701 , which were partially offset by the purchase of $ 44,714 in property and equipment and the purchase of $ 24,468,324 of corporate bonds . in order to provide additional cash for payments related to the taiwan building , the company borrowed approximately $ 7.9 million from a third party in may 2012 , bearing an interest rate of 3 % per annum . as the payments that were due to meifu and transglobe were suspended by the company , the $ 7.9 million proceeds of the loan were invested in corporate bonds in order to generate interest income to offset interest expense related to the loan . during the three-months ended december 31 , 2012 , the respective corporate bonds were sold in order to repay the short-term loan . net cash used in investing activities for the year ended march 31 , 2012 was $ 14,033,542 , primarily attributable to the company 's investment in construction in progress of $ 20,779,249 , the purchase of $ 1,037,208 of available for sale securities and $ 252,245 of capital expenditures of property , plant and equipment , partially offset by proceeds from corporate bond sales of $ 8,035,160. financing activities : net cash provided by financing activities for the year ended march 31 , 2013 was $ 319,966 , primarily provided by a short-term loan for financing of the company 's current year directors and officers liability insurance policy . a short-term loan of $ 7,937,289 received from a third party during the period that was originally obtained to fund the progress payment for the investment property in taiwan has been repaid during the three-months ended december 31 , 2012. for more information , please see note 15 to the consolidated financial statements in this report . the company did not use or receive any cash from financing activities during the year ended march 31 , 2012. the company believes that its current available working capital will be sufficient to meet operational needs and capital expenditure needs over the next twelve months . the company 's future capital requirements will depend on many factors , including its organic sales growth rate and the timing and extent of its business expansion , including marketing , products and services introduction . balance sheet items material changes in the company 's balance sheet items between march 31 , 2013 and march 31 , 2012 are discussed below : cash and cash equivalents cash decreased to $ 1,732,270 for the year ended march 31 , 2013 compared to $ 4,346,517 for the year ended march 31 , 2012 due to the company using excess cash to invest in corporate bonds to generate more interest income during the year . securities available for sale securities available for sale decreased to $ 8,320,698 for the year ended march 31 , 2013 compared to $ 10,082,372 for the year ended march 31 , 2012 , as the company sold certain securities to fund operations . inventories inventory decreased to $ 2,029,017 for the year ended march 31 , 2013 compared to $ 3,348,416 for the year ended march 31 , 2012 because of lower than expected sales and provision of inventory obsolescence of $ 649,080 for overstocking items .
| a significant drop in sales orders from $ 11.1 million to $ 5.1 million caused commission expense to decrease to $ 2,445,100 for the year ended march 31 , 2013 from $ 5,367,608 for the year ended march 31 , 2012 as the company 's policy is to pay out commissions to affiliates upon receipt of sales orders even before revenue can be recognized . shipping charges shipping charges decreased to $ 449,000 for the year ended march 31 , 2013 from $ 1,817,000 for the year ended march 31 , 2012 mainly due to a $ 13.8 million reduction in gross sales . 13 access fees on april 1 , 2012 , the company assigned network access rights to ezgt limited ( ezgt ) and tobyto limited ( tobyto ) . these network access rights include the right to access eft 's affiliate database for those companies ' marketing campaigns and access to eft 's money system to facilitate those companies ' sales activities . tobyto compensates eft by paying access fees in an amount equal to 10 % of the enrollment fee of every affiliate who enters the respective programs . ezgt compensates eft by paying access fees in an amount equal to 10 % of the enrollment fee of every affiliate who enters the $ 300 and $ 3,000 travel programs . however , for affiliates who enter the $ 800 and $ 8,000 travel programs , ezgt will only pay access fees in the amount of $ 30 and $ 300 , respectively . cost of goods sold cost of goods sold decreased to $ 669,000 for the year ended march 31 , 2013 from $ 2,412,000 for the year ended march 31 , 2012 mainly due to a decrease in gross sales . cost of goods sold consists of merchandise purchased from vendors . gross sales of products declined from approximately $ 18,346,000 to $ 4,508,000 , or 75 % . however , cost of sales of products declined by only 70 % from approximately $ 2,132,000 to $ 637,000 , mainly due to the sale of $ 183,000 of promotional items that were sold at only a 10 % mark up . despite the items that were sold at discounted prices , cost of goods sold as a percentage of sales was 10 % , similar
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the following tables , which should be read in conjunction with our consolidated financial statements and notes included in this report , present our key operating data for the years ended december 31 , 2014 , 2015 , and 2016 : replace_table_token_6_th replace_table_token_7_th 27 replace_table_token_8_th _ ( 1 ) as noted above , includes our proportionate share of the gges sold as cng by our joint venture mcep , which were 0.0 million , 0.4 million and 0.5 million for the years ended december 31 , 2014 , 2015 and 2016 , respectively . ( 2 ) represents rng sold as non-vehicle fuel . rng sold as vehicle fuel is included in cng and lng . ( 3 ) represents gasoline gallon equivalents at stations where we provide both fuel and o & m services . ( 4 ) includes $ 28.4 million , $ 31.0 million and $ 26.6 million of revenue from vetc for the years ended december 31 , 2014 , 2015 and 2016 , respectively . recent developments rng production . in november 2016 , our subsidiary , clean energy renewables ( `` renewables '' ) entered into agreements to form joint ventures with aria energy operating llc ( “ aria ” ) , a developer of rng production facilities , to develop rng production facilities at a republic services landfill in oklahoma city , oklahoma and an advanced disposal landfill near atlanta , georgia . we refer to these joint ventures as the “ rng ventures. ” renewables and aria each have a 50 % ownership interest in the rng ventures and , subject to certain conditions , are each responsible for 50 % of the costs of developing the rng production facilities that are owned by the rng ventures . we also have the exclusive right to purchase 100 % of the rng that will be produced by these facilities for the vehicle fuels market . as of december 31 , 2016 , we have an investment balance of $ 0.8 million in the rng ventures . see note 8 to the consolidated financial statements included in this report for further information . on february 27 , 2017 , renewables entered into an asset purchase agreement ( the “ apa ” ) with bp products north america , inc. ( “ bp ” ) , pursuant to which renewables agreed to sell to bp certain assets relating to its rng production business , including our two existing rng production facilities and our interest in the rng ventures ( collectively , the “ rng assets ” ) , in exchange for $ 155.0 million in cash and the right to receive up to an additional $ 25.0 million in cash over a five-year period if certain performance criteria relating to the rng assets are met ( the “ asset sale ” ) . in addition , we will collect royalties on gas purchased from bp and sold as redeem at our stations . this royalty payment is in addition to any payment obligation of bp under the apa . subject to the satisfaction of customary closing conditions , including , among others , the receipt of required government and third-party consents and approvals , the asset sale is expected to close on or before march 31 , 2017. at the closing of the asset sale , bp will pay $ 30.0 million of the closing purchase price in cash and deliver to us a promissory note for $ 125.0 million to be paid on april 3 , 2017. following completion of the asset sale we will continue to obtain rng from third-party producers , including rng produced from the production facilities to be sold in the asset sale and sold to us by bp under a long-term supply contract , and resell such rng through our natural gas fueling infrastructure as redeem , our rng vehicle fuel . debt arrangements . on february 29 , 2016 , we entered into a loan and security agreement with , and issued a related promissory note to , plainscapital bank ( `` plains '' ) , pursuant to which plains agreed to lend us up to $ 50.0 million on a revolving basis for a term of one year ( the `` credit facility '' ) . simultaneously , we drew down $ 50.0 million under the credit facility , which we repaid in full on august 31 , 2016. on october 31 , 2016 , the credit facility 's maturity date was extended from february 28 , 2017 to september 30 , 2018. on december 22 , 2016 we drew down $ 23.5 million under the credit facility , which remained outstanding as of december 31 , 2016. on march 1 , 2016 and pursuant to the consent of the holders of our outstanding 7.5 % convertible promissory notes due in august 2016 ( the `` slg notes '' ) , we prepaid in cash an aggregate of $ 60.0 million in principal amount and $ 1.8 million in accrued and unpaid interest owed under the slg notes . additionally , on july 14 , 2016 , we entered into separate privately negotiated exchange agreements with each holder of an slg note to exchange the outstanding principal amount of each slg note , totaling $ 85.0 million for all slg notes , and all accrued and unpaid interest thereon , totaling $ 0.2 million for all slg notes , for an aggregate of 14,000,000 shares of our common stock and $ 38.2 million in cash . we recognized a loss of $ 0.9 million for the year ended december 31 , 2016 related to the settlement of the slg notes . the repurchased and exchanged slg notes have been surrendered and canceled in full and we have no further obligations under the slg notes . 28 in 2016 , our board of directors authorized and approved our purchase of our outstanding 5.25 % convertible senior notes due 2018 ( the `` 5.25 % notes '' ) in the open market , in accordance with the terms of the indenture governing the 5.25 % notes . story_separator_special_tag pursuant to this approval , in 2016 , we paid an aggregate of $ 84.3 million in cash to repurchase and retire $ 114.6 million in aggregate principal amount of 5.25 % notes , together with accrued and unpaid interest thereon . additionally , pursuant to a privately negotiated exchange agreement with certain holders of the 5.25 % notes , on may 4 , 2016 , we issued an aggregate of 6,265,829 shares of our common stock in exchange for an aggregate principal amount of $ 25 million of 5.25 % notes held by such holders , together with accrued and unpaid interest thereon . our repurchase and exchange of 5.25 % notes in 2016 resulted in a total gain of $ 35.2 million recorded during the period . all repurchased and exchanged 5.25 % notes have been surrendered to the trustee for such notes and canceled in full and we have no further obligations under such notes . in february 2017 , we purchased from one of our directors and significant stockholders , t. boone pickens , the 7.5 % convertible note due july 2018 having an outstanding principal amount of $ 25.0 million held by mr. pickens for a cash purchase price of $ 21.75 million . see note 10 to the consolidated financial statements included in this report for further information about our debt . atm program . on november 11 , 2015 , we entered into an equity distribution agreement with citigroup global markets inc. ( `` citigroup '' ) , as sales agent and or principal , to commence an `` at-the-market '' offering program ( the `` atm program '' ) . initially , we were permitted to issue and sell , from time to time , through or to citigroup , shares of our common stock having an aggregate offering price of up to $ 75.0 million in the atm program . on september 9 , 2016 , we entered into an amended and restated equity distribution agreement with citigroup for the primary purpose of increasing , from $ 75.0 million to $ 110.0 million , the aggregate offering price of shares of our common stock available for issuance and sale in the atm program . on december 21 , 2016 , we entered into a second amended and restated equity distribution agreement with citigroup for the primary purpose of increasing , from $ 110.0 million to $ 200.0 million , the aggregate offering price of shares of our common stock available for issuance and sale in the atm program . vetc expiration . on december 31 , 2016 , the vetc alternative fuels tax credit expired and ceased to be available , and it may not be available in any subsequent period . under vetc , we were eligible to receive credits of $ 0.50 per gasoline gallon equivalent of cng and $ 0.50 per liquid gallon of lng that we sold as a vehicle fuel through december 31 , 2015 , and $ 0.50 per gasoline gallon equivalent of cng and $ 0.50 per diesel gallon equivalent of lng that we sold as a vehicle fuel from january 1 , 2016 through december 31 , 2016. liquidity liquidity is the ability to meet present and future financial obligations through operating cash flows , the sale or maturity of investments or other assets or the acquisition of additional funds through capital management or capital-raising transactions . our liquidity is , and will continue to be , influenced by a variety of factors , including the level of our outstanding indebtedness and the principal and interest we are obligated to pay on our indebtedness , our capital expenditure requirements and any merger , divestiture or acquisition activity , as well as our ability to generate cash flows from our operations or from other sources . see `` -liquidity and capital resources '' below for additional information . debt level and debt compliance as of december 31 , 2016 , we had total indebtedness of $ 314.3 million in principal amount , of which approximately $ 6.1 million is expected to become due in 2017 . certain of the agreements governing our outstanding debt , which are discussed in note 10 to our consolidated financial statements included in this report , have certain non-financial covenants with which we must comply . as of december 31 , 2016 , we were in compliance with all of these covenants . business risks and uncertainties our business and prospects are exposed to numerous risks and uncertainties . for more information , see item 1a . risk factors in this report . key trends recent trends market for natural gas . cng and lng are generally less expensive than gasoline and diesel on an energy equivalent basis and , according to studies conducted by the california air resources board ( `` carb '' ) and argonne national laboratory , a research laboratory operated by the university of chicago for the u.s. department of energy , cleaner than gasoline and diesel fuel . according to the u.s. energy information administration , demand for natural gas fuels in the united states has increased in recent years and is expected to continue to increase . we believe the growth in demand in recent years is attributable primarily 29 to the higher prices of gasoline and diesel relative to cng and lng during much of this period , increasingly stringent environmental regulations affecting vehicle fleets and increased supply of natural gas . in the recent past , however , the prices of oil , gasoline , diesel and natural gas have been significantly lower and volatile , and these trends of lower prices and volatility may continue .
| the increase in our effective price charged was primarily due to increases of $ 18.7 million and $ 11.9 million in revenue from sales of rins and lcfs credits , respectively , which do not result in increased costs , partially offset by a decline in the effective price per gallon charged of approximately $ 0.08 per gallon caused primarily by lower retail prices driven by lower commodity costs . the effective price per gallon is defined as revenue generated from selling cng , lng , rng and any related rins and lcfs credits and providing o & m services to our vehicle fleet customers at stations that we do not own and for which we receive a per-gallon or fixed fee , all divided by the total gges delivered less gges delivered by non-consolidated entities , such as entities that are accounted for under the equity method . 35 station construction sales increased by $ 27.1 million between periods , principally from the sale of more full station projects than station upgrades in the 2016 period , as full station projects generally have substantially higher price points than station upgrades . these revenue increases were partially offset by a decrease in clean energy compression 's revenue of $ 27.2 million between periods due to lower compressor sales , which we believe is a result of a lower global demand for compressors . vetc revenue decreased by $ 4.4 million between periods , primarily due to the vetc credit being changed for 2016 to be based on the diesel gallon equivalent of lng sold rather than the liquid gallon of lng sold . see “ -overview-recent developments-vetc expiration ” above for additional information . cost of sales . cost of sales decreased by $ 2.9 million to $ 255.6 million for 2016 , from $ 258.5 million for 2015 . this decrease was primarily due to a $ 24.1 million decrease in compressor costs between periods , as a result of decreased compressor sales and a $ 3.5 million decrease in gas commodity costs between periods as a result of a decrease in natural gas prices ( discussed below ) . these decreases were partially offset by a $ 24.7 million increase in costs related to increased station construction sales between periods . our effective cost per gallon decreased
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